Former FNMA/FMCC Equity Analyst/Trader on the sell side thru Aug 2025. Currently Managing DIrector of ReorgTrader LLC & Part Time Bagholder Exorcist
NYC
Joined September 2024
- Tweets2.2K
- Following19
- Followers214
- Likes366
$FNMA $FMCC
Pershing Square 3rd Quarter Investor Letter Critical Analysis
The Bull Case Has Officially Entered Its Red Scare Phase...
Reading his piece on FNMA reminds me of the pitch sheets I used to use when I was selling penny stocks before FINRA shut down the firm.
"what was supposed to be a temporary resting place until recapitalization – F2 have more than $200 billion of shareholder equity, more than 2.5% of the nearly $8 trillion of mortgage-backed securities they guarantee before considering F2’s additional claims paying resources from the $40 billion of annually recurring guarantee fees they receive."
Accounting net worth is not the same as qualifying regulatory capital or equity available to common shareholders after senior claims. Presenting these figures interchangeably overstates the protection available to common holders.
"F2 have had average annual credit losses of only 0.05% over the last decade, so their current levels of capital amount to approximately 50 times their average annual credit losses, a massive margin of safety even in a housing recession or depression. We estimate F2’s combined capital will grow to more than $375 billion over the next five years, more than 4% of the total mortgage-backed securities they guarantee."
Comparing today’s capital with average annual credit losses during a relatively benign decade is not a depression stress test. It ignores how sharply defaults, loss severity, provisions, and other risks could increase under stress. The arithmetic does not establish the claimed margin of safety.
"Despite their high-quality, low-risk business model which is best considered a royalty on first mortgages secured by the growing value of America’s housing stock, Fannie and Freddie currently trade at about 1.5 times earnings. Their current valuations are the lowest that we have ever seen for a high-quality, capital light business, as investors do not value the companies based upon their current earnings, but rather based upon a probabilistic assessment of their potential future political outcomes."
Sure—let’s pretend the senior preferred stock doesn’t exist and divide today’s common market capitalization by total corporate earnings. That eye-catching multiple ignores Treasury’s senior claim and potential dilution. Fannie’s filing states that no dividends are currently available to common or junior preferred shareholders; Treasury’s senior liquidation preference stood at $238 billion and continues to grow as earnings are retained.
“We can’t take the risk of the Communists taking control of Fannie and Freddie.”
Please make it stop. Could the attempt to turn a longstanding investment position into an urgent political cause be any more transparent?
"In our view, the President’s remaining term is more than sufficient to facilitate a relisting of F2 and their orderly exit from conservatorship in a manner that maintains and enhances mortgage affordability while maximizing the long-term value of American taxpayers’ 79.9% ownership of the two companies."
Treasury holds warrants to acquire 79.9% of each company’s common stock. Those warrants are not an already exercised common ownership stake, and the senior preferred represents a separate claim. Describing taxpayers’ interest simply as “79.9% ownership” obscures how heavily Treasury’s combined position dominates the capital structure. Effectively, the government currently owns close to 100% of the enterprise thru the SPS.
"Importantly, a relisting and release from conservatorship can be accomplished by the President using his executive authority without any involvement of Congress. If the polls and betting markets are correct and control of the House and/or Senate goes to the Democratic Party, the relisting and release of F2 will be one of the few major pieces of economic policy the President can still achieve after the midterms. We believe that there is no credible alternative to F2 exiting conservatorship and relisting on the NYSE as private-sector-owned operating companies. F2 provide a mission-critical service to the American public, have a safe and inherently low-risk core business, and have built up more than sufficient capital to withstand even the most draconian potential future credit losses. The only way to protect them from future political influence is to release them from conservatorship to facilitate long-term private sector, institutional and retail ownership."
Relisting changes the trading venue. Release changes the conservatorship relationship. The extent to which political control diminishes depends on Treasury’s ownership, voting rights, governance, remaining agreements, and FHFA’s regulatory authority. Fannie and Freddie’s housing mission, federal charters, and reliance on government support would continue to create channels for political influence after release. Private ownership alone cannot insulate them from Washington.
"Treasury Secretary Bessent has recently stated that the administration will focus on F2 and their future ownership in 2027 and 2028. For all of the above reasons, we believe it is only a matter of time before F2 exit conservatorship and are valued as traditional operating businesses, which should result in share prices that are many multiples of current levels. And yes, our 13-year holding period has been a long time to wait."
Discussing potential ownership changes in 2027–2028 is not a commitment to release the companies from conservatorship. Bessent’s reported remarks also questioned what benefit, if any, a change in ownership would deliver to homeowners. He said nothing about an inevitable exit. Ackman’s attempt to connect those remarks to share prices “many multiples higher” sounds an awful lot like a pitch to boost the value of his holdings—and the fees tied to them.
pershingsquareinc.com/wp-con…
These comments reflect my personal opinions and interpretation of public statements. Any discussion of motives is opinion, not an assertion of fact.
I currently hold short positions in FNMA / FMCKJ
This Is Not Investment Advice
$FNMA $FMCC
If you want to expose the weakness in your argument, quote Mark Calabria. In my view, he was a hack who presented disputed legal interpretations as mandates, uncertain risks as inevitable outcomes, and his preferred policies as requirements imposed by Congress.
Calabria made several statements about the GSEs that were misleading, overly categorical, or contested and I am sure I am missing a few but here are some of his noteable ones:
Inevitable failure: He predicted that Fannie and Freddie would fail in a significant housing downturn at their existing capital levels. Low capital justified concern, but failure would depend on the downturn’s severity, losses, and available support.
Following Congress’s agenda: Calabria claimed he set aside his personal preferences upon taking office. Critics argued that his bank-like capital requirements instead reflected longstanding policy views and insufficiently accounted for the GSEs’ business model and mortgage credit risk.
Credit risk transfers: Critics accused his FHFA’s CRT analysis of emphasizing costs and weaknesses while understating the benefits of transferring mortgage risk to private investors. They also argued that his capital framework unduly discouraged CRT use.
Affordable housing goals: Calabria’s emphasis on these goals as a cause of the 2008 crisis was contested by housing advocates and researchers, who pointed to private-label subprime lending and broader failures in underwriting, securitization, and oversight.
Ending the net worth sweep: He said the 2021 amendments effectively ended the sweep. They suspended cash dividends while the GSEs built capital, but retained earnings also increased Treasury’s senior preferred liquidation preference. The amendments therefore did not extinguish Treasury’s claim or permanently eliminate the dividend arrangement.
And finally the pieces de resistance:
Legally required release: He presented ending conservatorship as a statutory obligation. HERA, however, establishes neither a release deadline nor an automatic exit requirement; his position was a disputed legal interpretation.
If you want to win an argument, citing Calabria is hardly your strongest move.
$FNMA $FMCC @Tim_M_Hynes
Contrary to Ackman's manufactured crisis, the status quo may have just gotten a new lease on life.
Bill Ackman's argument—that Democratic gains in Congress create an urgent need for President Trump to release Fannie Mae and Freddie Mac from conservatorship—rests on a questionable premise: that political control of Congress materially changes the administration's ability or incentive to resolve the GSEs.
First, an administrative exit does not eliminate political influence. Fannie and Freddie would remain federally chartered, heavily regulated institutions whose business models depend on government support. Releasing them from conservatorship would not prevent future administrations from influencing mortgage policy through FHFA regulation, guarantee arrangements, or legislation.
Second, the administration continues to use the GSEs as policy tools. This is evident through Executive Order 14438, which leverages the Federal Housing Finance Agency (FHFA) to lower housing costs, alongside targeted regional mortgage investments. It stands to reason that Trump would want to preserve these mechanisms for his successor, whom he no doubt counts on being a Republican. Politicians do not preemptively eliminate highly effective policy tools just because a different party might eventually inherit them.
Third, the prospect of an explicit federal guarantee could strengthen the case for maintaining the status quo. The momentum in the market—especially from the Mortgage Bankers Association (MBA)—has long favored an explicit guarantee. However, abrupt administrative action would likely rule that out. If policymakers increasingly view a formal government guarantee as necessary to preserve mortgage-market stability, a hurried privatization becomes less compelling. Because an explicit guarantee would require congressional legislation, a divided government makes that path much harder to pass. The existing conservatorship, supported by Treasury's contractual commitments, offers a functional alternative that policymakers could easily preserve for years.
Fourth, the economic obstacles to a release remain unchanged regardless of election results. The enterprises still face substantial regulatory capital requirements, unresolved treatment of Treasury's senior preferred stock, and complex questions about how to structure ongoing government backing. None of these problems disappear simply because Democrats gain congressional seats.
The fundamental flaw in Ackman's narrative is treating an electoral development as though it magically resolves the deep financial and structural barriers to privatization. It does not. If anything, a divided government and a growing interest in an explicit federal guarantee provide a plausible basis for extending the existing arrangement rather than dismantling it.
$FNMA $FMCC
A Portfolio in Search of a National Emergency/Ackman’s Convenient Crisis
Firstly, if a partisan takeover of F2 were legally or logistically possible, it likely would have occurred at some point since LBJ privatized FNMA back in 1970. Contrary to what Ackman seems to be implying, Fannie Mae and Freddie Mac (F2) do not function as campaign slush funds.
The truly effective political tool lies in mortgage pricing and credit availability. An administration can expand benefits for eligible borrowers, promote those programs publicly, and claim electoral credit. The 2022 fee adjustments demonstrate that this policy channel is actively used. A realistic concern is housing policy being shaped for electoral advantage; however, implementing a popular housing program is not, by itself, unlawful election interference.
While legal restraints are meaningful, they leave the Federal Housing Finance Agency (FHFA) with considerable discretion. Under the Housing and Economic Recovery Act (HERA), the FHFA is required to preserve assets and ensure sound operations, but it is also permitted to act in its own or the enterprises’ best interests. In Collins v. Yellen, the Supreme Court interpreted these conservatorship powers broadly, ruling that the president can remove the FHFA director at will. Consequently, shareholders cannot assume that maximizing private returns dictates every agency decision.
This reality doesn't exactly jibe with Bill Ackman’s argument, as the current conservatorship already grants the government unusually direct control. A genuine exit from conservatorship would actually strip the FHFA of these expansive conservator powers, leaving only standard regulatory influence. Ultimately, whether a finalized exit creates new political opportunities depends heavily on the specific ownership structures, governance frameworks, and Treasury agreements left in place—not merely on whether the shares are publicly traded.
Characterizing these entities as a powerful housing-policy lever is defensible, but calling them an unrestricted partisan war chest substantially overstates executive authority.
"Nothing says ‘keep politics out of housing’ like pitching your stock position as essential to Republican electoral survival."
Ackman's bullshit may not seem transparent to you guys but it will hold no water with the Trump administration. Rightly or Wrongly it isn't counting on a Democrat winning the presidency in 2028 and surely isn't taking any preemptive steps at this point to neutralize the ability for any administration to essentially handout "goody bags" in the form of mortgages purchases..
$FNMA $FMCC
Ackman’s warnings about the dangers of not exiting conservatorship are not to be taken lightly. Can you imagine if Democrats successfully made housing more affordable? Next he’ll warn that the Russians could seize Fannie Mae.
A True American Patriot. Sounding the alarm for his country—and, purely coincidentally, his portfolio.
“Democracy dies in darkness, but it can be revived by cancelling the senior preferred.”
$FMCC $FMCC
Guys I want to pay tribute to Bill Ackman.. A TRUE AMERICAN HERO!!!
Bravely agreeing to put his portfolio between America and AOC!!!!!
What a complete crock of shit...You'd really think that the last line of defense against the Democrats is Bill Ackman’s cost basis...Under no circumstances can we let affordable housing fall into the hands of people who, well, campaign on affordable housing and instead we will remove politics from FNMA before the other guys get control! Really glad to hear that Bill Ackman is willing to accept enormous personal profits to prevent this national tragedy! This couldn't be more transparent...But apparently there's no shortage of those here who are taking it at face value!!
@Wize_Markets how do you foresee the "weaponization" going down???
$FNMA $FMCC
The Housing and Urban Development Act of 1968 was transparent and enacted through legislation. But that doesn’t erase a parallel with Enron’s strategy: moving obligations off the balance sheet and understating risk. The legal methods were very different, but removing Fannie Mae’s obligations from the federal budget was part of the rationale for its privatization.
What emerged was hardly an ordinary private company. Fannie Mae’s leadership included prominent political insiders (mostly democrats) who collected substantial private-sector compensation, while the company benefited from government privileges that weakened market discipline. Those privileges included access to a Treasury line of credit, exemptions from securities registration requirements, and diminished reporting requirements on internal operations that applied to ordinary public companies.
The arrangement was politically convenient: Fannie Mae could continue serving public-policy goals while its obligations remained outside the federal budget. Calling that a private-capital model glosses over how much the model depended on its government relationship.
Yes, the model is flawed, and it’s hard for me to imagine guardrails or reforms that would resolve its fundamental contradictions. If it depends on a sovereign backstop to function, calling it a private-capital model obscures how much of the risk ultimately rests with taxpayers. Private investors can supply capital, but that doesn’t make the government’s support disappear. In my view, it should be wholly government-owned.
We’ve discussed guarantee fees and mortgage rates before. A wholly government-owned entity could potentially charge lower guarantee fees because it wouldn’t need to deliver private shareholders’ required returns and could operate under a different capital framework. The underlying credit risk would still need to be covered, but eliminating the private profit requirement could reduce fees. How much of that reduction would reach borrowers through lower mortgage rates is a separate question.
If this ends up the path we go down, shareholders would ultimately get bought out (how coercive that process would be, remains to be seen)
How would you feel about fully nationalizing these and taking G fees down to break-even after 2.5% Scott?
They could put hard caps on MBS portfolio purchases so Presidents didn’t try to overheat housing by buying down rates, force a transparent accounting of any changes to subsidy and low income programs, and eliminate agency credit for any second homes or investment properties.
That solution is most consistent with everything I’ve seen you advocating for this last year.
If you don’t like this why? It retains sound credit and would likely have the most effect to stimulate primary homeownership.
@AveryGisme I can answer those questions, and you raise legitimate points. But I think the bigger question is how realistic an IPO or secondary offering remains after Bessent’s comments on Thursday effectively pushed the process onto the back burner:
-New investors would be asked to buy voting shares with little practical influence over the company for an indefinite period while the government retains control. I would expect that to warrant a potentially significant discount.
-If the guarantee remains implicit, investors would face uncertainty about its credibility as government ownership declines, particularly below 50%. Another uncertainty for investors being asked to commit fresh capital.
-If the guarantee becomes explicit, its pricing and conditions could create a substantially different—and potentially less profitable—business model. Yet another unknown investors would need to price.
-In my view, the SPS would need to be canceled or otherwise resolved on terms that leave a workable ownership structure. In hindsight, there is a case that the bailout should not have taken the form it did and that legacy securities were unfairly subordinated. That supports an argument for canceling at least some of the SPS. Yes, my views on that have evolved. What hasn’t changed is my belief that cancellation remains politically unlikely. Meanwhile, an outcome giving the government roughly 95% ownership would likely make divestiture extraordinarily difficult, if not impossible
-This process would take years. If, as Bessent suggested, it might not even begin until 2028, completion could easily fall to the next administration, introducing still more political and policy uncertainty.
That is why I see his comments as a potentially the coup de gras to the near-term privatization thesis. It’s difficult enough to attract new capital when investors understand the business model, ownership structure, and path forward. Here, they would be asked to price uncertainty in all three.
I really hesitate to put this out there since I think it is very unlikely but I noticed in this report from 2019 there was a suggestion of an SPS cancellation:
home.treasury.gov/system/fil…
@amuuhasuo Like what making it easier to get a mortgage? Give us an example of how F2 could be "weaponized" against the Republicans????
<blockquote class="twitter-tweet"><p lang="en" dir="ltr">Regarding hard caps, I think it’s nearly impossible to make Fannie and Freddie apolitical. Even before conservatorship, when they were privately owned by shareholders, their public mandate to expand U.S. homeownership subjected them to strong political pressure. At the same time, Fannie Mae wielded its own considerable political influence to resist tighter federal regulation. Hard caps might constrain specific activities, but they wouldn’t eliminate the political incentives embedded in the model.</p>— Scotty Doom...The Guy They All Blocked at $14 (@ScottCoverleyJr) <a href="nitter.gq/ScottCoverleyJr/status…">October 24, 2026</a></blockquote> <script async src="platform.x.com/widgets.js" charset="utf-8"></script>
Regarding hard caps, I think it’s nearly impossible to make Fannie and Freddie apolitical. Even before conservatorship, when they were privately owned by shareholders, their public mandate to expand U.S. homeownership subjected them to strong political pressure. At the same time, Fannie Mae wielded its own considerable political influence to resist tighter federal regulation. Hard caps might constrain specific activities, but they wouldn’t eliminate the political incentives embedded in the model.
$FNMA $FMCC
In these days of financial repression and what are still historically very low rates, its important to keep in mind what returns were over the period under discussion:
For those less familiar with the history of $FNMA and $FMCC in the interview when Bill says F2 has more than repaid their debt, he means this:
In 2008 the government put the companies into conservatorship and advanced them roughly $191–193 billion in senior preferred stock (the “bailout”). Under the original deal the companies owed a 10% dividend on that money.
They have since sent the Treasury about $301 billion in cash dividends and sweep payments. That’s the full principal back plus roughly $25 billion more than the original 10% contract required. It amounts to an ~11.6% IRR for taxpayers. In short, the cash that went out has come back with a large profit.
This morning I saw some great supporting data on this from @FreedomDayna, who laid out the numbers side by side with other major bailouts (GM, Chrysler, banks, etc.). F2 is one of the clear success stories where taxpayers got their money back and then some:
nitter.gq/FreedomDayna/status/21…
The companies are highly profitable today. The debate is no longer about whether the original bailout was repaid. The numbers show it was, and then some. It’s about how (and how quickly) to end the conservatorship. Emphasis on quickly before these companies become politically weaponized.
@CaliRefugee1 One last point: In hindsight, one can make a case that the “bailout” should never have occurred in the form it did and that legacy securities were unfairly subordinated. From that perspective, there is an argument for canceling at least some of the SPS.
I haven’t made that point before because I expected it to be conflated with my assessment of the likely outcome. What "should be done", "what can be done", and "what is likely to be done" are separate questions. In this situation, the answers are probably very different.
@CaliRefugee1 The government decision on litigating the NWS for years couldn't be a better example b/w what "should be done" and "what is likely to be done"