Fannie Mae Preferred Nears Key Deadline
Nov. 26, 2025 - Vlae Kershner
Summary
Fannie Mae junior preferred stocks FNMAS and FNMAT offer notable liquidity and appreciation potential amid speculation about a conservatorship release.
FNMAS can only be called once every five years, and the deadline for announcing it is December 1, 2025, providing the possibility of above-market dividends if payments resume.
FNMAT is fixed rate, while FNMAS is floating rate, but both would pay above-market rates.
FNMAH is a lower-coupon preferred with a higher possible gain but also could be a laggard depending on the terms of the release.
Shares of Fannie Mae (OTCQB:FNMA) gyrated last week, with leading investor Bill Ackman's presentation doing little to clear up what might happen with the planned public offering.
While we await the Trump administration's plan, let's take a look at the three most liquid of its 15 tradable series of junior preferred stock, on average trading more than 90,000 shares a day. They are:
Fannie Mae, 8.25% Non-Cumulative Preferred Stock, Series T (OTCQB:FNMAT).
Fannie Mae, 8.25% Fixed to Floating Rate Non-Cumulative Preferred Stock, Series S (OTCQB:FNMAS).
Fannie Mae, Variable Rate Non-Cumulative Preferred Stock, Series P (OTCQB:FNMAH).
While the Fannie preferreds tend to trade in tandem, there are important differences among them that could manifest themselves if the 17-year suspension of dividends is lifted.
The thesis behind the preferred trade is when the Trump administration fulfills its promise to release Fannie and Freddie Mac (OTCQB:FMCC) from conservatorship, the junior preferred issues will have their dividends restored, will be called, or converted to common stock at shareholder option. In any event, their prices should rise from the recent levels of 42-61% of face value. Unlike common shares, the preferreds are not subject to dilution.
Federal Housing Finance Agency Director Bill Pulte has suggested the public offering could be in late 2025 or the first two quarters of 2026.
I've covered the most likely scenarios already, so in this article, let's compare the three to see which might fare best:
Call Features
The first difference--and the one that is immediately salient--is that while FNMAT and FNMAH can be called at their face value of $25 at any time, FNMAS can only be called at the issuer's option on December 31, 2010 and each fifth anniversary thereafter, also at $25.
One of the fifth anniversary dates is December 31, 2025. The prospectus states:
"We will give notice of any such redemption...not less than 30 days before the redemption date."
That means that to call FNMAS, the company would have to give notice by December 1. With a week to go, this seems increasingly unlikely.
Fixed or Floating?
The second difference is that FNMAT's coupon is fixed at 8.25%, while the FNMAS float date has passed and FNMAH has always floated.
FNMAS would now pay "the greater of 7.75% or the 3-month LIBOR plus 4.23% per annum." LIBOR has since been replaced in contracts by 3-month Secured Overnight Finance Rate (SOFR) plus 0.2616%. Doing the math, the coupon would be 4.4916% plus SOFR, recently at 3.91%, or 8.66%. Note that the rate is not capped if SOFR rises, while the floor is set at 7.75%.
FNMAH pays "the greater of 4.50% or the sum of the 3-Month LIBOR plus 0.75%." Doing a similar calculation, the coupon would be SOFR+1.0116%, or 4.92%.
Both FNMAS and FNMAT are protected from a sharp decline in the SOFR rate, which is usually somewhere around the level of Fed funds, while FNMAH is less protected and could decline to a suboptimal 4.50%.
Because of that, FNMAH trades lower as a percentage of face value. The potential yields can be compared directly through the "dividend at price" feature of this Google spreadsheet. FNMAH is still considerably lower than the other two.
Comparison In Various Cases
For our analysis, let's assume the offering comes on June 30, 2026, and junior preferreds are either called or dividends reinstated as of that date. Let's also assume SOFR has declined 50 basis points, approximately in line with the St. Louis Fed's projection chart for federal funds. Finally, let's say the Fannie preferreds trade at a normalized yield of 5.75%, close to that of other large-cap financial preferreds like J.P. Morgan Chase Series DD (JPM.PR.D).
Here are four possibilities:
1) If high-rate callable preferreds are called:
FNMAH is not called since its floating rate would be less than 5.75% and likely would trade well under par. FNMAT is called immediately for a gain of 78% from the recent price. FNMAS cannot be called until the end of 2030 and will yield at least 7.75% at face for 18 quarters, a payout of at least $8.72. Since the FNMAT proceeds could not be reinvested in a similar security at that high a rate, FNMAS would likely show the highest dollar return.
2) If all callable preferreds are called:
This is great for FNMAH. Since it sells for a little more than half of face, it will nearly double. The other two the same as in the first example.
3) If all preferreds can be converted to the face value equivalent in common at shareholder's option:
This is also best for FNMAH, because there will be more bang for the buck as it trades at the lowest percentage of face value.
Projected returns with conversion of preferreds to common at face
Issue Recent price Return
FNMAT 14.05 78%
FNMAS 15.20 64%
FNMAH 12.83 95%
Source: Author's spreadsheet
4) If dividends are reinstated for all preferreds:
It's not clear whether FNMAS or FNMAT would pay more--that depends on SOFR--but they both would probably trade above $25 face value, with FNMAS higher since it has call protection. FNMAH, with a below-market coupon around 4.5%, would trade below $25.
Risk Factors
The primary risk factor for all Fannie Mae securities remains that the Trump administration is not able to complete the recapitalization, most likely for legal reasons.
A secondary risk for preferred holders is that they remain in limbo after the public offering, not paying dividends until an unspecified later date. Dividends would have to be restored before the company begins paying common dividends.
Conclusion
All three series of preferreds discussed are buyable, with potential gains of 60% or more. FNMAH has both the highest capital gain and the most risk of being a dud. FNMAS is the best choice for investors who want to receive high dividends over the next five years. FNMAT is a good all-around choice.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
This article was written by - Vlae Kershner
3K Followers
I am a 35-year stock market investor, MBA, and retired reporter and editor for the San Francisco Chronicle. My primary style is a mix of growth and income, with attention to special situations.
Analyst’s Disclosure:I/we have a beneficial long position in the shares of FNMA, FNMAS, FNMAT, FNMAH either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions.
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