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Fannie and Freddie Are Now Wildly Profitable…But That Still Might Not Save Them

  +Follow June 20, 2013 9:15AM
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Fannie MaeFannie Mae (FNMA) and Freddie Mac (FMHC) aren’t a money pit anymore. But that might not be able to save them from being dissolved. Thought two of the most infamous names associated with the housing crisis are beginning to see a profit – and might even be able to pay back the federal government – the possibility of them eventually returning to private status remains slight.

Yesterday the Federal Housing Finance Agency (FHFA) upgraded the two companies from having “critical concerns” to only having “significant concerns.” citing their 2012 profits of $17 billion and $11 billion, respectively. While a classification like “significant concerns” on such robust numbers might seem to be damning with faint praise, it’s a huge step for the two embattled housing companies. Still, the government is still more than a little wary of the prospects of their two exceptionally famous wards.

Senators  Mark Warner and Bob Corker are currently working on a bill that would put the companies into receivership, and put into place a new system in which private entities would purchase mortgages from lenders and issue them to investors as securities. If passed, Fannie and Freddie would be done with. And shareholders would get little to nothing.

The government certainly never expected Fannie and Freddie to rebound, and is still skeptical on their future. The 2008 bailout of the companies was itself only a preventative measure and not an investment strategy.  So now the question is, will Fannie and Freddie ever return to privatization and reward their investors? Or will the companies be unceremoniously shuttered?

Let’s look at the particulars of the stocks of both companies, and their future going forward.

Fannie Mae

Fannie had its best year ever in 2012, and the stock has been responding in kind. Falling to as low as 20 cents a share at one point last year, Fannie currently sits at $1.83 (following a dramatic spike to $5.44 last month after the first reports of record profitability.) Fannie has traded heavily, averaging 53.75 million shares in volume a day.

Freddie Mac

Freddie didn’t do quite as well as Fannie, but still posted monster profits. And the behavior of Freddie’s stock has closely mimicked Fannie: it currently sits at $1.70 a share. And Freddie likewise experienced a frenzied spike in May, raising to $5.00 a share in May before coming back to Earth. Trading has been more modest than with Fannie, though still heavy at 22.73 million shares a day.

The Future of Fannie and Freddie Stock

Stockholders in Fannie and/or Freddie want to see a return. In fact, a group of stockholders recently filed suit against the federal government, alleging that the takeover was illegal and that the government is unjustly seizing their property (the shares and theoir profits.) The fact that under the currently structured deal Fannie and Freddie are required to send all of their profits to the government, and not pass them onto investors, further rankles them.

The lawsuit brings up an interesting Constitutional dilemma. The government can’t seize private property without “just compensation.” But a government sponsored entity like Fannie might not qualify as private property, and thus the government won’t be beholden to shareholders at all. Though the case is sitll being considered, legal pundits expect the courts to rule as such.

All this uncertainty has led to behavior in the stocks that is erratic as the day is long. As mentioned above, a dramatic spike in May saw both stocks double in value before crashing back down. This volatility is one of the reasons the government is suspicious of ever letting Freddie and Fannie out of their conservatorship. The status of a government sponsored entity as a stock is difficult to truly value. And their position in a housing market that's far from recovered further colors the perception that neither company is truly stable.

The Problem of Perception

Another reason we might never see Fannie and Freddie privatized again – even if they pay back the bailout – is their ugly public perception. Besides AIG (AIG), Fannie and Freddie are the two names most associated with the housing crisis. And public perception still tends to lean towards the sentiment that these two companies cannot be trusted on the free market.

Considering the government owns 80 percent of Fannie and Freddie, investors put their money into these companies at their own peril. And the way the bailout was structured, common shareholders won’t see a penny before preferred shareholders are repaid. So even though on paper Fannie and Freddie are wildly popular, and upset investors want to see a return on their investments, the idea that Fannie and Freddie could ever return to what they once were is a farfetched one indeed.  

Results for fnma
WallStreet Pennies
19 Apr 14 00:57:40
Dollar$OnPennies: $FNMA Weekly http://t.co/7TKY1fTTzk
WallStreet Pennies
19 Apr 14 00:57:38
Dollar$OnPennies: $FNMA Daily http://t.co/yYqpsNZefx
Johana Kirke
18 Apr 14 23:28:07
RT @pennystockspy: ** $MONA over 100% Gains don't miss my nxt one ( Text SPY to 25827 ) $FNMA $FMCC $FBCD $SHMN $XTRM $NVLX $WPWR #stocks #…
PhilCheeze
18 Apr 14 21:15:57
Fannie Mae $FNMA | Stock Message Board - Investors Hangout http://t.co/WAtHuqtaT4
PhilCheeze
18 Apr 14 21:15:35
Fannie Mae $FNMA | Stock Message Board - Investors Hangout http://t.co/iP7IZtjavT
Chris Franklin
18 Apr 14 21:14:33
RT @JacobWolinsky: New: 4K word letter to Sen Johnson from Nader on $FNMA $FMCC http://t.co/fXimGstDQH
OTPicks.com
18 Apr 14 20:56:11
http://t.co/QzFp1WC0ss lookn4wins: $FNMA Candlesticks $FNMA Most recent stock cha: lookn4wins http://t.co/COkexvmXai http://t.co/QzFp1WC0ss
OTPicks.com
18 Apr 14 20:56:09
http://t.co/QkCFZ8q0T8 lookn4wins: $FNMA Candlesticks $FNMA Most recent stock cha: lookn4wins http://t.co/XGIDZal8sR http://t.co/QkCFZ8q0T8
O T P i c k s . com
18 Apr 14 20:56:06
http://t.co/awZxDQ0zpX lookn4wins: $FNMA Candlesticks $FNMA Most recent stock cha: lookn4wins http://t.co/2nCxidckkK http://t.co/awZxDQ0zpX
OTPicks.com
18 Apr 14 20:25:52
http://t.co/rruxxSh4Kk mike_usa: Have any one noticed $FNMA 52 week low: mike_usa http://t.co/GcNQjvzOln http://t.co/rruxxSh4Kk
Franklin Zhao, CFA
18 Apr 14 17:58:33
RT @demarEdward: Senate Staffers 'Do The Hustle' With Fannie And Freddie Shareholders $FMCC $ALLY $FNMA http://t.co/XWj6e6Je8U
Mani
18 Apr 14 16:42:56
RT @TheStreet: Blackstone $BX Discusses Fannie and Freddie Stake http://t.co/EDVQhlJ1RG $FNMA $FMCC
TheStreet
18 Apr 14 16:31:09
Blackstone $BX Discusses Fannie and Freddie Stake http://t.co/EDVQhlJ1RG $FNMA $FMCC
options
18 Apr 14 12:35:09
Memo to Treasury: Restore Fannie and Freddie Investments http://t.co/SX6fMX1ql5 $fnma $fmcc #fannie #freddie #politics #virginia
HUD NY/NJ
18 Apr 14 12:33:04
RT @valuewalk: Fannie Mae: “Johnson-Crapo Bill Chance Of The Decade” – HUD's Donovan http://t.co/UpEve1S9Cy $FNMA $FMCC
Mike M
18 Apr 14 11:09:23
RT @valuewalk: PIMCO Joins Chorus Against Fannie Mae, Freddie Mac Wind-Down Plan http://t.co/LSmCnodpLC $FNMA $FMCC $BAC
Eliane Biet
18 Apr 14 10:26:54
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
Occulus Prime
18 Apr 14 10:25:24
RT @stockstobuy: Penny Stocks to Watch - $AAMRQ $FNMA $GSAT $PTSC $TWTRQ $FMCC $WTER $SWVI $WWAG $LVGI $NTEG $TTNP $BZNE $TAGG - http://t.…
PrinCe Crazy
18 Apr 14 10:25:20
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
harinzon mendoza....
18 Apr 14 10:25:13
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
Giovis
18 Apr 14 10:25:00
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
Shahryar Ahmed
18 Apr 14 10:24:59
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
marcela prieto
18 Apr 14 10:24:49
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
eglismar
18 Apr 14 10:24:48
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
duarte
18 Apr 14 10:24:47
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
katty bello
18 Apr 14 10:24:46
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
eledimar schotborgh
18 Apr 14 10:24:36
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
Luiz Carlos Santos
18 Apr 14 10:24:25
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
Techie Tutorials1
18 Apr 14 10:24:22
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
Lorena Trejo
18 Apr 14 10:24:21
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
12r3F
18 Apr 14 10:24:19
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
gabriele azevedo
18 Apr 14 10:24:17
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
Helton B
18 Apr 14 10:24:10
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
LorennaKerenn
18 Apr 14 10:24:07
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
roxana diaz ramirez
18 Apr 14 10:24:06
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
EMILIA
18 Apr 14 10:24:05
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
ömer günhan
18 Apr 14 10:23:59
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
adriana
18 Apr 14 10:23:57
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
carlos valencia
18 Apr 14 10:23:56
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
KORY
18 Apr 14 10:23:56
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
Marcelo da Silva
18 Apr 14 10:23:55
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
Abraham Granados
18 Apr 14 10:23:55
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
veronica guerrero
18 Apr 14 10:23:55
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
Carlos Maldonado
18 Apr 14 10:23:55
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
emilio oropeza
18 Apr 14 10:23:55
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
Yendrinoemi
18 Apr 14 10:23:52
RT @LordWindsor: US Senate Draft s.1217 the word shareholder is not mentioned until page 229. http://t.co/pm26G8Irdp $FNMA
christian herzeca
18 Apr 14 09:51:34
RT @JacobWolinsky: @_InvestorsUnite see our interview with Tim Pagliara http://t.co/Y5HEnrNP7f $FNMA $FMCC
ValueWalk.com
18 Apr 14 09:40:41
Fannie Mae: “Johnson-Crapo Bill Chance Of The Decade” – HUD's Donovan http://t.co/UpEve1S9Cy $FNMA $FMCC
Jacob Wolinsky
18 Apr 14 09:30:31
@_InvestorsUnite see our interview with Tim Pagliara http://t.co/Y5HEnrNP7f $FNMA $FMCC
Stock Rocket
18 Apr 14 08:59:55
Join thousands of traders at #1 social trading site http://t.co/PeRPkYMi8s Related: $FTR $DRYS $PAL $NVAX $TC $RTK $REVO $NVLX $FNMA
				
				
  +Follow June 20, 2013 9:15AM
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