Famed “Big Short” investor Michael Burry revealed that he personally holds a significant stake in both Fannie Mae (FNMA) and Freddie Mac (FMCC), anticipating a notable upside from a potential relisting. Burry shared a detailed 6,000-word post on Substack outlining his rationale for holding these shares ahead of their initial public offerings (IPOs). Following his post, FNMA shares rose almost 2%, while FMCC shares jumped 2.4%.
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He emphasized that a relisting of these government-sponsored entities (GSEs) is “nearly upon us,” although certain political and regulatory hurdles remain. Burry also highlighted several steps the White House must take before bringing Fannie and Freddie back into the public market.
Burry Turns Bullish on Fannie and Freddie
Burry noted that he turned bullish on Fannie and Freddie after Donald Trump was elected as president last year, viewing the current government as more favorable to their relisting. He considered the political landscape and how the shares might be valued during and after a sale.
Burry also speculated that Berkshire Hathaway (BRK.A) (BRK.B) could become a major buyer in any IPO for these two U.S. housing finance giants. He noted that Fannie and Freddie remain crucial to the U.S. housing market, owning or backing about 62% of all U.S. mortgages and supporting roughly 70% of standard bank loans.
Burry pointed out that the IPO pricing will be a key factor in determining the companies’ intrinsic value and said he would reassess his views as pricing details become clearer. He estimates the IPO price could be about 1x to 1.25x the book value, with shares potentially trading at a similar multiple one to two years post-listing.
Requirements for a Successful IPO
For a successful public offering of FNMA and FMCC, Burry outlined these regulatory steps as necessary:
- Easing their capital requirements
- Converting a portion of preferred shares into common stock
- Reducing the government’s stake in the companies
Burry emphasized that reducing the government’s stake is the most critical step, and without it, the shares could be “worthless.” He concluded that both companies face a “final steep, windy, and rocky climb” ahead of the IPO.
Ownership Structure of Fannie and Freddie
The government, through the Treasury, owns warrants to buy nearly 80% of the common stock of Fannie and Freddie, along with about $190 billion in senior preferred shares. The Treasury Department also has the right to purchase up to 7.2 billion additional shares at a very low price.
Next in priority are junior preferred shares worth about $35 billion, held mostly by institutional investors such as Capital Group and John Paulson’s Paulson & Co.
At the lowest tier are common stockholders, with Pershing Square’s Bill Ackman the largest individual investor, holding roughly $2 billion combined in both companies. The outcomes for junior preferred and common shareholders will depend largely on any agreement reached with the government.
Should You Buy FNMA and FMCC Stocks?
Fannie and Freddie shares trade over the counter (OTC), a market known for significant price volatility, following their government conservatorship after the 2008 financial crisis. Together, they had approximately 1.8 billion common shares outstanding as of 2024.
Here’s how FNMA and FMCC stocks perform on the TipRanks Stock Comparison Tool:
