Fannie Mae-No Politics (FNMA)

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Wall Street 10/14/2014 @ 1:53PMInvestors Return To Fannie Mae and Freddie Mac

When U.S. District Judge Royce Lamberth threw out lawsuits filed by funds managed by Richard Perry and Bruce Berkowitz that claimed the government acted illegally by getting Fannie Mae and Freddie Mac to pay the government nearly all of their profits, investors in Fannie Mae and Freddie Mac rushed for the exits.

Now, they’re back, at least in the common shares. Shares of Fannie Mae rose by 10.2% on Tuesday to $2.49. That means the stock, which plunged by about 40% after Judge Lamberth’s ruling, is now down by only about 7% from where it closed moments before the ruling was issued.

While the U.S. stock market suffered a broad sell-off in recent days, shares of Fannie Mae have increased by 48% in the last week. Shares of Freddie Mac increased by more than 11% on Tuesday and are now trading about 9% lower than where they closed prior to Judge Lamberth’s ruling. Shares of the mortgage giants trade on the Over The Counter Bulletin Board.

Interestingly, the Fannie Mae and Freddie Mac bounce back has not extended to some of the preferred shares of the government-sponsored enterprises. Shares of the popularly traded Fannie Mae Series S preferred shares inched up less than 1% on Tuesday and remain down by more than 50% since Judge Lamberth’s ruling.
English: The Colonial Revival headquarters of ...

English: The Colonial Revival headquarters of Fannie Mae, designed by architect Leon Chatelain, Jr. in 1956, located at 3900 Wisconsin Avenue, N.W., in the Cathedral Heights neighborhood of Washington, D.C. (Photo credit: Wikipedia)

Berkowtiz and Perry, whose funds are planning to appeal Judge Lamberth’s ruling, have bet more on the preferred shares of Fannie Mae and Freddie Mac, an investment that has often been viewed as less speculative than betting on the common shares. As a result, Berkowtiz’s Fairholme Fund has not recovered from the declined it suffered after Judge Lamberth’s ruling.

But hedge fund billionaire William Ackman’s Pershing Square hedge fund, which has placed a large bet on the common shares of Fannie Mae and Freddie Mac, is probably in a better position with its Fannie Mae and Freddie Mac investment. Ackman’s hedge fund is also suing the federal government over Fannie Mae and Freddie Mac, but in a different court than the lawsuits filed by Berkowitz and Perry that were dismissed. Ackman reportedly added to his position in Fannie and Freddie following the recent declines in the common shares.

The Obama Administration wants to wind down the mortgage giants that have been operating in conservatorship since receiving $188 billion from the Treasury Department amid the financial crisis. But Fannie and Freddie paid the bailout out money back and are now hugely profitable and the mortgage market still depends on them. Investors like Perry, Berkowitz and Ackman are trying to make a big score out of these securities through efforts in Washington and the courts.

http://www.forbes.com/sites/nathanvardi/2014/10/14/investors-return-to-fannie-mae-and-freddie-mac/