This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

A Chart You Should See: Fannie and Freddie

Stocks in this article: FNMA FMCC

NEW YORK (TheStreet) -- The saga of Fannie Mae (FNMA) and Freddie Mac (FMCC) is likely to go on for many years, but a good number of investors have already made killings on the government sponsored mortgage enterprises (GSEs).

Fannie Mae and Freddie Mac were taken under government conservatorship at the height of the U.S. housing market meltdown in September 2008. The GSEs common and preferred stocks remained publicly traded, but values plunged because dividends to non-government shareholders were suspended, and at that time, the outlook for the GSEs' long-term viability was grim.

The battle over Fannie and Freddie -- and the golden opportunity that was uncovered for institutional investors able to pony up significant cash and wait out a long battle, while assuming substantial risk -- was government's treatment of private investors. The GSEs were originally required to pay the U.S. Treasury 10% annual dividends on the government-held senior preferred shares, however, in August 2012, after the GSEs had returned to profitability and after they had stopped increasing their borrowings form the government, the bailout agreement was changed so that all GSE profits were paid to the government, in excess of minimal capital cushions.

There's no mechanism in place for Fannie or Freddie to repurchase any of the government-held preferred shares, and they can't rebuild capital anyway, because of the required dividend sweep.

Following their March dividend payments, Fannie and Freddie will have paid the government total dividends of $199 billion on government investments totaling $189.4 billion. Factoring in warrants that were handed to the government to acquire up to 79.9% of the GSEs common shares, Rafferty Capital Markets analyst Richard Bove on Tuesday estimated the government's return on its investment in Fannie and Freddie was $238 billion.

It's no wonder that so many investors holding common and/or junior preferred shares of Fannie and Freddie -- the most high-profile being Fairholme Funds, led by Bruce Berkowitz -- have sued the government demanding a seat at the table.

Please see Were Fannie, Freddie Negotiations Done in Good Faith?, for a full rundown of years of events leading to the current impasse over the GSEs.

In an interview with Dan Freed on Thursday, consumer advocate Ralph Nader - a GSE shareholder - discussed why he thought the Obama administration was likely to "just run out the clock to 2016," leaving the Fannie and Freddie battle unresolved, as the continued flow of dividends helped lower the federal budget deficit.

Other recent Fannie Mae and Freddie Mac coverage:

Fairholme Leans on Fannie and Freddie Directors

Fannie and Freddie Plaintiffs Eye FDIC Share Sales

Fannie Mae's common shares were up 0.9% in early trading Friday, to $5.50, while Freddie Mac's common shares were up 0.8% to $5.33.  Shares of Fannie have risen more than 18-fold over the past year, while Freddie's common shares have risen more than 16-fold.

This chart shows the remarkable run for the GSEs' common shares over the past year:

FNMA Chart data by YCharts

California Banks Are Sitting Pretty, Says KBW

A 'Compelling' Case for JPMorgan's Stock

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,356.87 +288.00 1.69%
S&P 500 2,012.89 +40.15 2.04%
NASDAQ 4,644.3120 +96.4780 2.12%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs