Trump’s Return Sparks Hope for Preferred Stockholders
As Donald Trump prepares to return to the White House, investors in preferred stocks issued by Fannie Mae and Freddie Mac are seeing a glimmer of hope. Shares of these long-dormant securities surged on Wednesday, driven by speculation that the housing finance agencies may finally be freed from their crisis-era conservatorship.
A Long-Awaited Reprieve
Preferred stockholders have been waiting for over a decade to receive payments, which were halted in 2008 when the US government took control of Fannie Mae and Freddie Mac to prevent a housing market collapse. The government’s bailout came with strict conditions, including the suspension of dividend payments to investors. Now, with Trump’s return, there is renewed optimism that these restrictions may be lifted.
A Windfall for Investors
A $6 billion perpetual issue by Freddie Mac, sold in 2007, jumped as much as 70% on Wednesday, its highest level in over three years. Fannie Mae’s $7 billion series, issued around the same time, soared almost 68% from its pre-election close. Other preferred stock series by both agencies also saw significant gains, ranging from 20% to 66%.
Restoring Private Sector Control
The possibility of releasing Fannie Mae and Freddie Mac from government conservatorship has been revived, according to Bloomberg Intelligence analyst Ben Elliott. While the process is expected to be lengthy, with a potential completion date of 2026-27, investors are hopeful that the agencies will be restored to private sector control, allowing them to resume dividend payments.
A Controversial History
The bailouts of Fannie Mae and Freddie Mac were among the most contentious events of the global financial crisis. The federal government’s takeover and subsequent bailout of the agencies, totaling around $187.5 billion, sparked widespread debate and criticism. Investors, including hedge funds with ties to Trump supporters, have long advocated for the agencies’ release from government ownership.
The Role of Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac play a critical role in the US housing market, buying home loans from lenders, wrapping them into securities, and guaranteeing repayment of principal and interest to investors. While they don’t make mortgages themselves, they underpin the bulk of the US housing market.
A Federal Jury Ruling
Last year, a federal jury awarded $612 million to Fannie Mae and Freddie Mac investors, ruling that the Federal Housing Finance Agency acted arbitrarily or unreasonably in collecting hundreds of billions of dollars in profits from the mortgage firms. This ruling has added fuel to the push for the agencies’ release from government control.
Moody’s Ratings
Moody’s Ratings has maintained its Ca rating on Fannie Mae’s junior preferreds, citing the lack of dividends and recovery rate expectations between 35% and 65%. Despite this, investors remain optimistic that the agencies’ fortunes may soon change.
Leave a Reply