Fannie, Freddie investors buying ‘worthless’ stock, says former regulator

by Ryan Smith07 Apr 2014
The big investors who’ve been gobbling up shares of Fannie Mae and Freddie Mac are making “worthless” bets, according to the mortgage finance giants’ former regulator.

Several hedge funds have invested heavily in Fannie and Freddie in recent years. The companies, which teetered on the edge of collapse in the wake of the housing crisis, were bailed out by the government and have finally returned to profitability. Many investors hope to make a killing if the government ever sells the controlling stake in the companies it acquired when they went into conservatorship in 2008.

But James Lockhart, until 2009 the director of the Federal Housing Finance Agency, says that’s unlikely.

“It's a stretch,” Lockhart, now vice chairman at private equity firm WL Ross & Co., said in a Reuters interview. “The stock and the preferred (stock) is worthless, and should be worthless.”

Although Fannie and Freddie have now returned $202.9 billion – more than they took in the bailout – to the Treasury in dividend payments, they lost almost all their value following the financial meltdown. Lockhart told Reuters that the mortgage finance giants would not have survived the crash without the $187.5 billion cash infusion they received from the government.

And if plans in Congress to wind the companies down go forward, all the stock bought by hedge funds like Paulson & Co. and Perry Capital LLC would be worthless. Investors in those firms have filed suit against the government challenging bailout conditions that require Fannie and Freddie to send all their profits to the Treasury, Reuters reported.


  • by Stephen D | 4/7/2014 12:26:25 PM

    The shame is that AIG was allowed to escape the government's control after paying back what it borrowed. Fannie and Freddie pay back billions more than they were given and the government claims that it still isn't enough.

  • by 2Bsquare | 4/7/2014 1:24:54 PM

    F&F never filed for bankruptcy, so it could be argued they were illegally seized by the Feds, regardless of the good intentions.

    The question that needs to be asked and answered: The shorts were hitting F&F hard when they were trading in the mid 30's, so who had pockets that deep, and was there a concerted effort to drive F&F stock to 0?


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