If these averages hold up (under 90% payouts), Fannie Mae would be able to pay approximately $4.6 billion per quarter from here on out, and Freddie would be able to pay $3.1 billion. Based on the current level of outstanding bailout debt, this rate would zero out Fannie's liability in just five quarters, and Freddie's in 12 -- in either case, far faster than a reported 10-year timetable for full repayment set by the Obama administration. That's even if you count a hoped-for $50 billion profit, which would take another seven quarters of repayment between the two GSEs.
It should therefore come as no surprise that a number of major hedge funds are now taking up positions in Fannie and Freddie's shares and are lobbying hard for the government to spin off its stake, again making Fannie and Freddie the publicly traded companies they once were. Even erstwhile presidential campaigner (and GSE stockholder) Ralph Nader is up in arms at the government's apparent dalliance over returning a cash cow to private ownership. With at least one writer now claiming that the Federal Housing Finance Agency (the GSEs' conservator) has breached its fiduciary duty to shareholders, it seems likely that the Fannie and Freddie situation must be resolved far sooner than the government had hoped -- quite possibly in court, should Fannie and/or Freddie zero out their debts in the next two years or so.
Thanks to stricter lending requirements, higher fees, and a lack of real competition, Fannie and Freddie appear headed for record profitability, even when discounting the impact of tax charges. We're highly unlikely to see these two enterprises vanish from the American housing picture, considering that the vast majority of American mortgages now bear the Fannie or Freddie guarantee. If they do, there's a massive amount of assets (more than $5 trillion) to be wound down first and thus accrue to shareholders -- though preferred shareholders would get first crack-- another reason why institutional investors like the GSE story right now.
After an incredible rally, the remaining upside in Fannie and Freddie shares will depend largely on how effective large shareholders are in lobbying for the results they want. Fannie and Freddie didn't have the same strident voices in their favor as did the financial industry in 2008. Now they appear to. You might not like Wall Street, but do you really want to bet against it when it smells a good deal?
AI
