Michael Burry, the investor made famous by The Big Short, said on Tuesday that recent courtroom wins for Fannie Mae (FNMA.US) and Freddie Mac (FMCC.US) shareholders, together with US Treasury Secretary Scott Bessent's comments about eventually resolving the two companies' ownership structure, amount to good news for both firms.
Fannie Mae (FNMA.US) closed about 9% higher on Tuesday, while Freddie Mac (FMCC.US) gained 8%. Burry pointed to two developments he views as favorable for the government-sponsored enterprises (GSEs) that dominate the US mortgage market, driving the share prices higher.
Court upholds massive shareholder damages award
In July, the US Court of Appeals for the District of Columbia Circuit upheld a jury verdict in favor of Fannie Mae and Freddie Mac shareholders, affirming a judgment of roughly $812 million including interest against the Federal Housing Finance Agency (FHFA). Shareholders had argued that the 2012 "net worth sweep," which transferred the two companies' profits to the Treasury, violated their rights. The appeals court rejected the government's key arguments, preserving the trial-level victory. Earlier this month, the DC Circuit denied the FHFA's request for an en banc rehearing, allowing the July ruling to stand.
Bessent hints at ownership review
Burry also referenced Bessent's recent remarks. Speaking earlier Tuesday on the 2WAY media platform, Bessent said the government expects to address the ownership structure of Fannie Mae and Freddie Mac next year or the year after. He stressed that any move would be guided by one clear priority: preventing the spread between agency mortgage rates and Treasury yields from widening, which would raise borrowing costs for homebuyers. Since the 2008 financial crisis, Fannie Mae and Freddie Mac have remained under government conservatorship.
Burry's recent stock moves
Earlier in October, Burry said he had sold common shares of both Fannie Mae and Freddie Mac after the stocks gave back nearly all of their post-election gains and formed a large head-and-shoulders pattern. He argued the pattern pointed to "worthless stocks." At the same time, he bought multiple series of junior preferred shares in both companies, reasoning that preferred stock ranks higher in the capital structure; if the Treasury converts its roughly $388 billion senior preferred claim into common stock, preferred shares would outperform common shares — an outcome he said could dilute existing common shareholders by at least 90%. On Stocktwits, as of the time of writing, retail sentiment toward Freddie Mac and Fannie Mae sits in "extremely bullish" territory, with message volume rated "high." Fannie Mae has fallen 65% year to date, while Freddie Mac has dropped 67%.
Comments