F2

Fannie Mae and Freddie Mac Retirees and Families

[F2 @F2Truth]

Director @pulte,

Thank you for your hard work on improving federal housing for Americans.

On behalf of many thousands of American families that are shareholders of Fannie Mae and Freddie Mac, we respectfully submit this letter. This letter, along with a request for a meeting in DC, has been submitted via email and regular mail.

In a recent interview, you said that you are willing to listen to anyone. As the majority owners of the outstanding common shares, hardworking Americans deserve a voice.

Thank you for your consideration.

- Family shareholders of Fannie Mae and Freddie Mac

$FNMA $FMCC

[Horseman Country @HorsemanCountry]

$FNMA $FMCC

@realDonaldTrump today on Air Force One when pressed on the Fannie Mae & Freddie Mac IPO:

"We’re thinking about an IPO for them…it's not a rush."

IMHO, if he wasn’t going to do it, I believe he would just say so.

There’s too much money to be made on all sides not to do it. But timing is everything.

GLTA

[Roger Stone @RogerJStoneJr]

President Trump praises Federal Housing Director Bill ⁦@Pulte and praises him for increasing the value of Fannie Mae and Freddy Mac to over $1 billion while hinting that he may take them public to benefit taxpayers

[F2 @F2Truth]

@RogerJStoneJr @pulte *Trillion

[Horseman Country @HorsemanCountry]

$FNMA $FMCC

Sonic Booooom!🔥🔥🔥

@realDonaldTrump TONIGHT applauding @pulte & his FHFA leadership while discussing the possibility of taking Fannie Mae & Freddie Mac public.

Sounds like the IPO is on the table...well down the road...locked, loaded, & ready to go!!!

[F2 @F2Truth]

@_makkiee In Aramaic (Jesus’ language), Easter is “Etha Rahbuh” which means “The Big Holiday” and Christmas is “Etha Zohrah” which means “The Small Holiday”. Early Christians designated the two holidays that clearly: big and small.

[Cassandra Unchained @michaeljburry]

Cannot emphasize enough how rare this is in this market.

[Bill Ackman @BillAckman]

And Fannie and Freddie are stupidly cheap. Asymmetry at its best. They could be a 10X and it could happen soon.

[Bill Ackman @BillAckman]

A number of press reports have characterized our and other shareholders’ efforts on behalf of Fannie and Freddie (F2) as seeking a ‘gift’ or ‘handout’ from the government. We, the shareholders of F2, seek no such thing.

Hundreds of financial institutions were bailed out during the GFC by the U.S. Treasury. Nearly all of the financial institution bailouts during the GFC involved an injection of capital in the form of senior preferred stock by Treasury at an interest rate of 5%, plus warrants to acquire common stock in an amount equal to 15% of the face amount of the preferred with an exercise price at the then-current stock price of the rescued institution.

For example, Treasury’s preferred stock investment in Goldman Sachs was in an amount of $10 billion and, in addition, Treasury received warrants on $1.5 billion of GS' common stock at its then market price.

The bailout terms for F2 were materially more burdensome and expensive, with a higher interest rate and substantially more warrant coverage, than that of every other financial institution (other than those of AIG whose terms were similar). Despite the F2 bailouts’ massively more burdensome terms, shareholders are not complaining about the original terms.

Treasury invested $193 billion in F2 in the form of senior preferred stock (SPS), including funding for $2 billion of commitment fees, with a 10% coupon (twice that of the banks). Treasury also received warrants on 79.9% of both companies’ outstanding shares.

Fannie and Freddie have since repaid Treasury $301 billion, which includes interest on the SPS at a blended rate of 11.6%, an interest rate which is 160 basis points more per annum, and have returned the entire $193 billion of outstanding principal, $25 billion in excess of what was contractually owed. In summary, the F2 SPS has been fully repaid according to its original contractual terms plus an extra $25 billion.

Despite the fact that the SPS has been more than repaid in full, Fannie and Freddie have not accounted for these payments on their respective balance sheets, and the $193 billion of SPS remains an outstanding liability as if no principal payments had ever been made.

How can it be, you might ask, if indeed F2 have repaid $301 billion to Treasury when only $276 billion was due could there be any remaining balance of the SPS on the F2 balance sheets?

The answer relates to something called the ‘Net Worth Sweep (NWS).’

During the second term of the Obama administration, on August 12, 2012, two quarters after F2 returned to profitability, Treasury announced that it was unilaterally amending the terms of the SPS stock to provide that Treasury would take 100% of the profits of F2 each quarter in lieu of the 10% annual dividend rate. This was not a negotiated resolution with F2. It was a unilateral amendment of the original terms of the SPS that was done in bad faith.

The supposed rationale for the amended terms of the SPS was akin to the IRS garnishing the wages of someone who will never be able to pay the taxes that they owe. That is, the Treasury said F2 will never be able to pay the 10% coupon, let alone the SPS’ $193 billion principal balance, so it decided instead to ‘settle’ for 100% of F2’s profits forever.

In discovery, shareholders learned that the stated justification for the amendment was false. In mid 2012, the Obama administration had come to learn that both companies would soon be reversing tens of billions of reserves on their balance sheets as housing values had increased and the reserves taken during the GFC had been excessive. The NWS was instituted by Obama to forestall F2 from forever being able to recapitalize and be released from conservatorship. The NWS was not a ‘settlement’ for a lesser amount of future payments. It was the outright theft of the forever profits of both companies.

Never before or since has the government ‘swept’ 100% of the profits of any company, let alone a financial institution in conservatorship, a form of government intervention where the goal is rehabilitation of the institution, and where the hierarchy of corporate claims has always been respected.

The accounting for the NWS payments while it was in effect (until Secretary Mnuchin terminated the NWS in Trump’s first term) was also unusual. The NWS was treated by F2 as a quarterly adjustment to the dividend rate on the SPS such that the dividend amount owed was made equal to the after-tax profits of F2 for that quarter with no limitation.

In other words, regardless of the amount of profit F2 generated for the quarter – whether or not it was in excess of the original 10% annual dividend – the dividend payable under the NWS was made equal to the quarterly profit. The absurd terms of the NWS sweep therefore made it impossible for any partial or full repayment of the SPS to take place as every dollar paid to the Treasury on the amended terms of the SPS was considered a dividend payment, even if the amount was massively in excess of the original contractual SPS terms.

The absurdity of the NWS was made clear just two quarters after the NWS went into effect. Fannie Mae generated a profit of $59 billion in the first quarter of 2013, and the SPS dividend rate for that quarter was set at $59 billion so the entire amount was swept to the government, more than 10 times the contractual dividend rate.

I had the opportunity to discuss F2 and the NWS with Warren Buffett about a decade ago and he said that he “couldn’t believe what the government had done.”

In short, the shareholders of F2 are simply asking the government to respect the original and highly burdensome terms of the SPS. There is no dispute that Treasury has received more than the original 10% coupon and full repayment of principal of the SPS, that is, an extra $25 billion.

We and the millions of other shareholders of F2 are simply asking the administration to honor the original SPS terms and properly account for the $301 billion of payments, thereby eliminating the SPS liability from both companies’ balance sheets.

Shareholders have not asked for the extra $25 billion to be returned to the two companies. Treasury can decide whether to keep those funds or return them to the companies.

Accounting for the repayment of the SPS has other important implications. Namely, it is critically important that conservatorships respect the rule of law, in particular, the contractual terms of corporate instruments and the hierarchy of claims. Otherwise, no financial institution that gets into trouble will be able to raise rescue capital in the private markets.

Notably, the treatment of F2 in conservatorship explains why Silicon Valley Bank and other recent large bank failures since the GFC were unable to raise private capital and avoid government intervention or a forced sale to J.P. Morgan. If the government with the stroke of a pen during conservatorship can at a whim wipe out common and preferred shareholders, no one is going to step in to try to save a financial institution that gets into trouble, and only the top few banks will be possible rescuers of big banks that fail.

Furthermore, because of F2’s history, their reputation in the capital markets has been greatly damaged. F2 raised $22 billion of preferred stock in the year or so prior to conservatorship as the government pressed both companies to raise capital. Institutions were willing to invest billions of dollars of capital into both institutions before they failed because, based on all precedent conservatorships, the contractual terms of all financial instruments and the hierarchy of claims had been preserved. Unfortunately, in light of the precedent of the net worth sweep, no investor can be confident that they won’t be wiped out in a future conservatorship so none has been willing to take the risk.

Some have proposed that Treasury simply convert the SPS into junior preferred and common stock and massively dilute shareholders. Putting aside the potential legal challenges to this approach, the result will be that Treasury will at best own something approaching 95% of both companies rather than 79.9%.

While the government’s percentage ownership stake would be larger in the SPS conversion approach, the value of the government’s larger stake would be considerably lower as the companies would become un-investable. Who would invest in F2 alongside the government when they just wiped out the previous owners?

In the SPS conversion scenario, the government’s stake, at best, if it could be sold, would trade at a massively discounted valuation, well below the value of the government's stake if Treasury retained only its contracted for 79.9% stake and respected the original terms of the SPS. In other words, a slightly smaller ownership stake of much more highly valued companies would equate to considerably more value for Treasury and taxpayers.

In a public letter to Rand Paul after his first term in November of 2021, President Trump recognized that the net worth sweep was theft from the shareholders of Fannie and Freddie. He wrote:

“Another Obama/Biden scam in legal trouble was when they allowed the Federal Housing Finance Agency (FHFA) to steal the retirement savings of hardworking Americans who had invested in Fannie Mae and Freddie Mac…The idea that the government can steal money from its citizens is socialism and is a travesty brought to you by the Obama/Biden administration. My Administration was denied the time it needed to fix this problem because of the unconstitutional restriction on firing Mel Watt. It has to come to an end and courts must protect our citizens.”

I couldn’t have said it better than President Trump.

Now that you have the time, Mr. President, let’s Stop the Steal!

[F2 @F2Truth]

USG = US Government

It is correct to say the US Treasury holds the senior preferred and ability to exercise warrants. That said, there has been discussion about transferring ownership to a sovereign wealth fund and/or into retirement accounts (SSA is a separate agency), so USG is a broader catch-all for such scenarios.

Sure, the Government can take near 100% ownership if it wants. But: they would miss out on uplist criteria for NYSE (requiring no more than 90% ownership by a single entity) and S&P 500 inclusion. So I don’t think the juice is worth the squeeze.

[F2 @F2Truth]

If you believe that F2 will ultimately be released from conservatorship, F2 has significant upside value. Even in a scenario where the USG owns 90-95% of the entities, the downside is limited if you assume the valuations proposed by the administration ($500 bn+).

For long-term holders, this is an interesting buying opportunity, even if release timing on F2 appears to be uncertain or at least delayed.

I am buying this drop and my first entry in several months.

Conduct your own research, this is not personalized investment advice.

$FNMA $FMCC

[F2 @F2Truth]

1/ 🧵Fannie Mae vs. Freddie Mac: Which GSE has more upside if released?

I built a detailed model analyzing 4 recap scenarios. Freddie $FMCC offers better downside protection AND more upside than Fannie $FNMA — here’s why. 👇

https://t.co/sK5907qmzo

[F2 @F2Truth]

Robinhood clears its own securities and does not clear OTC securities, unfortunately. That said, they recently announced tokenized securities and I believe $FNMA and $FMCC would be wonderful additions to that platform. I've emailed @vladtenev about it, but to no avail. @RobinhoodApp

[Pulte @pulte]

FDR created Fannie Mae in 1938 and President Trump may create this in 2025.

[F2 @F2Truth]

This is incorrect. Both are valuable and often cited. I chose dollar value to demonstrate what hedge funds would need to cover in actual dollars in the event of a squeeze, such as a major news item. Dollar value also reinforces that it is hedge funds that are short, not retail investors.

[Bloomberg @business]

Trump is asking bank executives for their pitches on monetizing mortgage giants Fannie Mae and Freddie Mac, including a major public offering of stock, sources say https://t.co/Wknkz2Dmlj

[F2 @F2Truth]

I am working on a presentation to release some time in August (after trade deals are mostly clear and Treasury can start to focus on F2).

I’ll be in New York at the end of the month meeting with investors, lawyers, and media on the topic.

Not much has changed in the last month. There has been some volatility and a drawdown in the common stock, although the preferreds have held up. That likely reflects some uncertainty on the outcome scenarios and the timing of a release.

I am watching for earnings and hopefully stress test results in the next few weeks. I do not expect a release plan until Treasury has done their deep dive, which may take a couple of months depending on Trump’s priorities.

[F2 @F2Truth]

Excellent and informative post by Tim Howard. We recently had dinner and have been discussing Fannie/Freddie reform. He’s been a wealth of knowledge.

I have been meeting with GSE and capital markets experts so that my presentation is well informed. Timeline is around mid-summer.

[Bill Ackman @BillAckman]

A superb and detailed post on Fannie and Freddie from the former Vice Chairman and CFO of Fannie Mae https://t.co/n5Wrq5AFUn

[F2 @F2Truth]

@usnavycmdr @pulte Will @GreenStreet_CRE take down its incorrect reporting?

[F2 @F2Truth]

@usnavycmdr @pulte This is incorrect. The FHFA, not Treasury, is conservator.

In addition to the White House quote in the article, Trump has been directly involved in these decisions and is rightfully pleased. Mortgage credit spreads have compressed to the lowest level in years.

[F2 @F2Truth]

@pulte Do not be intimidated by the big banks who would prefer to limit competitiveness from a public, thriving and innovative Fannie and Freddie.

[F2 @F2Truth]

@usnavycmdr @pulte https://t.co/9Z0OaOLT8I

[Roger Stone @RogerJStoneJr]

Laughable horseshit posted at the direction of the unfiled lobbyist now under federal investigation for trying to blackmail and threaten FHFA Director Bill Pulte

[F2 @F2Truth]

@usnavycmdr @pulte https://t.co/Awm2xVfBFM

[Lance Lambert @NewsLambert]

That's the lowest spread I've seen in a few years.