FNMA and FMCC preferreds. In search of the elusive 10 bagger.

[sleepydragon]

Can someone explain to me why it seems there’s a war on twitter space between the prefers holders vs commons?  A dollar more the commons get still means the same amount, no more or no less, for prefers owner. 

[TwoCitiesCapital]

1 hour ago, sleepydragon said:

Can someone explain to me why it seems there’s a war on twitter space between the prefers holders vs commons?  A dollar more the commons get still means the same amount, no more or no less, for prefers owner. 

 

This isn't how recapitalization/restructurings works. 

 

It's not necessarily zero sum, but what is good for preferred holders is generally bad for common as preferred is higher in the cap structure and commons only get what is left over after satisfying preferred obligations. 

 

Same goes for any preferred &to-common conversions - what advantages preferred disadvantages current common owners. 

[DRValue]

Is anyone else picking up that letting them go public 'without letting them go' or 'while staying in conservatorship' is just the consent decree?

[sleepydragon]

1 hour ago, DRValue said:

Is anyone else picking up that letting them go public 'without letting them go' or 'while staying in conservatorship' is just the consent decree?

From ChatGPT:

 

Great question.

### Could Fannie Mae's "go public but remain in conservatorship" scenario involve a **consent decree**?

#### **Yes — It Could Take the Form of a Consent Decree, But with Caveats.**

---

## What a Consent Decree Would Mean in This Context

A **consent decree** is a **court-approved settlement** between parties (often between a company and a regulator), where:

* The company agrees to specific terms without admitting wrongdoing.
* The terms are legally enforceable.
* It avoids prolonged litigation or legislation.

If Fannie Mae were to **go public under new terms, but stay under government oversight**, this transition could be **formalized through a consent decree or a similar binding agreement** among:

* **Fannie Mae’s board/executives**
* **FHFA (its conservator)**
* **U.S. Treasury**
* Possibly **the courts**

This decree would:

* **Set the terms** of recapitalization.
* **Define shareholder treatment** (including existing common and preferred).
* **Outline ongoing government oversight** even if stock is publicly offered.
* **Protect the government’s stake** (the Treasury owns warrants for 79.9% of Fannie common stock).

---

## Why a Consent Decree Might Be Used

A consent decree would:

* Provide a **legal framework** for complex and politically sensitive restructuring.
* **Avoid lengthy Congressional action**, which is gridlocked on GSE reform.
* Be enforceable, giving **market confidence** in the structure and limits.
* Help resolve **ongoing lawsuits** from shareholders by including settlement terms.

---

## Precedents & Legal Basis

* Past regulatory settlements involving Fannie (e.g., the 2006 OFHEO agreement) functioned similarly.
* A **modern consent decree** could:

  * Act as a hybrid between a **court order** and a **regulatory agreement**.
  * Be part of a **global settlement** with common and preferred shareholders.
  * Help resolve or preempt further litigation around the **“net worth sweep”**.

---

## Implications

If the "go public" process is governed by a consent decree:

* It **adds legal certainty** to recapitalization and oversight terms.
* May **protect certain shareholder rights**, especially preferreds.
* May **limit government exit timing**, giving investors a clearer roadmap.

---

## Summary

| Element             | Involvement in a Consent Decree Scenario                                       |
| ------------------- | ------------------------------------------------------------------------------ |
| **Fannie Mae**      | Could agree to recapitalization terms and public listing under consent decree. |
| **FHFA/Treasury**   | Would enforce oversight and conditions through decree.                         |
| **Shareholders**    | Could see partial restitution or structured equity treatment.                  |
| **Legal Framework** | Consent decree could replace or complement legislative GSE reform.             |

So yes—**a consent decree is a very plausible and potentially necessary legal tool** to formalize Fannie Mae’s public return while remaining under conservatorship.

Would you like a diagram or flowchart of how this could work across stakeholders (Fannie, FHFA, Treasury, investors)?
 

 

[sleepydragon]

1 hour ago, DRValue said:

Is anyone else picking up that letting them go public 'without letting them go' or 'while staying in conservatorship' is just the consent decree?

My uneducated guess is this seems very bullish since he also said F2 has enough capital, meaning no ipo, meaning they will preserve commons, which is even bullish for preferred. Going public without exiting will make the whole process happen faster without the obstructions/concerns raised by people from congress. Aftet going public without exiting, F2 can continue to retain earnings and after a few years fullingly exit.

 

 

 

[DRValue]

To my knowledge, no one of any political consequence has drawn attention to this:

 

 

 

So with Pulte doing so, I can't think of any justification other than to use it as justification for considering the SPSPA paid.

 

 

 

[jdw230]

On 7/3/2025 at 8:38 AM, DRValue said:

To my knowledge, no one of any political consequence has drawn attention to this:

 

 

 

So with Pulte doing so, I can't think of any justification other than to use it as justification for considering the SPSPA paid.

 

 

 

I agree with your conclusion, DRValue; also there has been a recent tweet from Ackman indicating the SPS could be amended to be deemed paid off. 

 

https://x.com/BillAckman/status/1940486053292658843

[This2ShallPass]

21 hours ago, jdw230 said:

I agree with your conclusion, DRValue; also there has been a recent tweet from Ackman indicating the SPS could be amended to be deemed paid off. 

 

https://x.com/BillAckman/status/1940486053292658843

This would be massive for the JPS and common. But wouldn't it attract a lot of attention in congress and the narrative that rich people are being unduly rewarded at the expense of American taxpayer. Not saying right or wrong, just thinking of possible backlash. Seems like a political hot potato that the administration would not want..

[sleepydragon]

45 minutes ago, This2ShallPass said:

This would be massive for the JPS and common. But wouldn't it attract a lot of attention in congress and the narrative that rich people are being unduly rewarded at the expense of American taxpayer. Not saying right or wrong, just thinking of possible backlash. Seems like a political hot potato that the administration would not want..

1. I feel preferred are mostly owned by hedge funds (like pentwater , would said they own 1.7b ), and commons are mostly retails . There’s a guy on twitter called F2 who’s doing some sort of champagne on behalf of retail investors 

2. this administration is not share of political hot potato at all. They thrive from them, imo..

 

 

[jdw230]

1 hour ago, This2ShallPass said:

This would be massive for the JPS and common. But wouldn't it attract a lot of attention in congress and the narrative that rich people are being unduly rewarded at the expense of American taxpayer. Not saying right or wrong, just thinking of possible backlash. Seems like a political hot potato that the administration would not want..

I think those are very fair arguments that we need to consider and evaluate as possible pushback. I've thought about those opposing views quite a bit and I keep going back to a few guiding principles in evaluation of those views. Note, some of these principles carry more weight than others and in no particular order:

• Trump isn't running for a 3rd term: 
  • While he wouldn't be up for a 3rd term, in my opinion, he seems like he's historically not afraid to take bold steps that would cause major political potatoes (e.g., tariffs, attacking Iran, Soleimani, etc.)
• Wide Range of Shareholders Across the Investor Base:
  • Govt holds warrants for 79.9% of both companies. Of the 20.1% not owned by them, an overwhelming majority of that stake is owned by retail (for both FnF) (source: https://www.investing.com/equities/fannie-mae-ownership / https://www.investing.com/equities/freddie-mac-ownership)
  • While yes, Institutional Investors would benefit, the majority of the investor base is Retail. I also firmly believe (as I think many do across the country), if you invest in something and you take on the risk of that investment, you have fairly earned any return that investment generates. 
• Employee Benefits:
  • Since conservatorship, employees haven't been able to hold stock in the companies - allowing employees to have a financial stake in the future of the companies can drive a competitive edge for recruiting and retention. 
• Health of the Housing Market & Supporting Public Policy:
  • Remaining in conservatorship does present a level of uncertainty for how the GSEs will be managed in the future, which could have a mortgage market impact.
  • Releasing them can allow them to function as healthier, more competitive institutions that would allow them to more effectively support their public mission.
  • Can support initiatives to reduce the cost of home ownership.
• Legally Required:
  • HERA written in 2008 which governs the conservatorship legally requires release as the conservatorship was designed to be temporary.
• Taxpayer can enormously benefit:
  • Nobody knows what the government will do to monetize their stake, but right now, taxpayers aren't collecting a dime for taxpayers (while yes, the LP continues to accrue, but remains unmonetized). 
  • Releasing the GSEs will monetize the assets for the taxpayer - Tim Howard (prior Fannie Mae CFO for approx. 15 years) has written substantially about this on his blog this year. Highly encourage anyone to check it out that has not read his most recent pieces. RuleofLawGuy also has a great Substack that has covered the merits of a 'Golden Share' concept (also used with Nippon Steel) that could apply here in neutralizing pushback.

Edited July 6, 2025 by jdw230

[TwoCitiesCapital]

18 hours ago, jdw230 said:

 

• Trump isn't running for a 3rd term: 
  • While he wouldn't be up for a 3rd term, in my opinion, he seems like he's historically not afraid to take bold steps that would cause major political potatoes (e.g., tariffs, attacking Iran, Soleimani, etc.)

 

It would certainly be a bold step for him to try for a 3rd time....and I'm not as certain as you that he won't try. 

 

 

18 hours ago, jdw230 said:

•  
  • Health of the Housing Market & Supporting Public Policy:
    • Remaining in conservatorship does present a level of uncertainty for how the GSEs will be managed in the future, which could have a mortgage market impact.
    • Releasing them can allow them to function as healthier, more competitive institutions that would allow them to more effectively support their public mission.
    • Can support initiatives to reduce the cost of home ownership.
  •  

 

 

Hasn't mattered for the last 15 years. I don't expect it'll matter much going forward. If anything, a change from the status quo is the risk. 

 

18 hours ago, jdw230 said:

•  
• Legally Required:
  • HERA written in 2008 which governs the conservatorship legally requires release as the conservatorship was designed to be temporary.

 

Nobody cares about this. Especially with no courts having the balls, (or now the power/resources) to really enforce the law. We've seen this even before Trump. It'll be worse after him. 

 

 

18 hours ago, jdw230 said:

• Taxpayer can enormously benefit:
  • Nobody knows what the government will do to monetize their stake, but right now, taxpayers aren't collecting a dime for taxpayers (while yes, the LP continues to accrue, but remains unmonetized). 
  • Releasing the GSEs will monetize the assets for the taxpayer - Tim Howard (prior Fannie Mae CFO for approx. 15 years) has written substantially about this on his blog this year. Highly encourage anyone to check it out that has not read his most recent pieces. RuleofLawGuy also has a great Substack that has covered the merits of a 'Golden Share' concept (also used with Nippon Steel) that could apply here in neutralizing pushback.

 

There is no scenario where owning 80% or the orgs is better than owning 100% of the profits and capital with none of the liabilities. Right now tax payers are sitting on ill gotten gains and it'll be tax payers that bear the cost of that rectification if it ever occurs. 

[This2ShallPass]

23 hours ago, jdw230 said:

I think those are very fair arguments that we need to consider and evaluate as possible pushback. I've thought about those opposing views quite a bit and I keep going back to a few guiding principles in evaluation of those views. Note, some of these principles carry more weight than others and in no particular order:

• Trump isn't running for a 3rd term: 
  • While he wouldn't be up for a 3rd term, in my opinion, he seems like he's historically not afraid to take bold steps that would cause major political potatoes (e.g., tariffs, attacking Iran, Soleimani, etc.)
• Wide Range of Shareholders Across the Investor Base:
  • Govt holds warrants for 79.9% of both companies. Of the 20.1% not owned by them, an overwhelming majority of that stake is owned by retail (for both FnF) (source: https://www.investing.com/equities/fannie-mae-ownership / https://www.investing.com/equities/freddie-mac-ownership)
  • While yes, Institutional Investors would benefit, the majority of the investor base is Retail. I also firmly believe (as I think many do across the country), if you invest in something and you take on the risk of that investment, you have fairly earned any return that investment generates. 
• Employee Benefits:
  • Since conservatorship, employees haven't been able to hold stock in the companies - allowing employees to have a financial stake in the future of the companies can drive a competitive edge for recruiting and retention. 
• Health of the Housing Market & Supporting Public Policy:
  • Remaining in conservatorship does present a level of uncertainty for how the GSEs will be managed in the future, which could have a mortgage market impact.
  • Releasing them can allow them to function as healthier, more competitive institutions that would allow them to more effectively support their public mission.
  • Can support initiatives to reduce the cost of home ownership.
• Legally Required:
  • HERA written in 2008 which governs the conservatorship legally requires release as the conservatorship was designed to be temporary.
• Taxpayer can enormously benefit:
  • Nobody knows what the government will do to monetize their stake, but right now, taxpayers aren't collecting a dime for taxpayers (while yes, the LP continues to accrue, but remains unmonetized). 
  • Releasing the GSEs will monetize the assets for the taxpayer - Tim Howard (prior Fannie Mae CFO for approx. 15 years) has written substantially about this on his blog this year. Highly encourage anyone to check it out that has not read his most recent pieces. RuleofLawGuy also has a great Substack that has covered the merits of a 'Golden Share' concept (also used with Nippon Steel) that could apply here in neutralizing pushback.

These are all valid and I agree with most of them. 

 

I'm only talking about retroactively saying SPS is paid. If we're being honest, no individual or company will retroactively and proactively agree to give up on a claim that they have today. You WILL have to go through the courts and so far that hasn't worked out.

 

You can still release from conservatorship, do the IPO etc. without that but JPS / common will receive far less. Trump also has never shown that he's willing to give something that's his or in his control for free to others..

 

[jdw230]

2 hours ago, This2ShallPass said:

These are all valid and I agree with most of them. 

 

I'm only talking about retroactively saying SPS is paid. If we're being honest, no individual or company will retroactively and proactively agree to give up on a claim that they have today. You WILL have to go through the courts and so far that hasn't worked out.

 

You can still release from conservatorship, do the IPO etc. without that but JPS / common will receive far less. Trump also has never shown that he's willing to give something that's his or in his control for free to others..

 

 

I agree with you - if you take a step back and look at the situation - why would anyone, any entity, any owner ever give up a claim they have today? The answer to me is simple - maximizing their own return. Here's how:

 

The government has 2 options:

 

1) Convert SPS to common (which means also converting the ever-growing LP), as well as exercising the warrants for 79.9% of the common

• Under this scenario, the government would end up owning 90%+ of both companies.
• After which, all common share holders (the overwhelming majority owned by the government) will be severely diluted.
• Treasury documents show that they show the value is overwhelmingly in the SPS: https://www.fiscal.treasury.gov/reports-statements/financial-report/balance-sheets.html (refer to note 7).
• I am not sure mechanically, how all of the governments ownership in this scenario ($300B+) could conceivably be sold off to any public investor in the future (note: FnF currently have a combined capital position of $160B).
• If the Trump Administration is serious about monetizing their stake to reap the benefits during his term, I'm not sure how it would be feasible if SPS is converted into common.

 

2) Consider the SPS paid (neutralizing the ever-growing LP) and fully exercise the warrants for 79.9% of the common

• There wouldn't be the overhang of converting SPS into common, government wouldn't dilute their own position in the process- results in more value for the government. 
• While yes, they would own less shares, the value of what they own would exceed that of scenario 1.
• The government could easily sell this stake off over time and collect dividends on their position until those shares are sold off.
• Tangentially related - I think a lot of what we've seen in the news has been to drive higher value within FnF - cutting waste, fighting fraud by engaging Palantir and announcements for monetizing the CSS. 

 

Also, @TwoCitiesCapital I hear you - we can't predict with certainty what Trump may, or may not, try to do regarding a 3rd term. That being said, what we can look to is the past. After Trump's first term, there were concerns raised that there wouldn't be a peaceful transition of power to the Biden administration. What did we end up observing? A peaceful transition of power. I know we may not agree and that's okay, but if this gets done at all, I'd assume the administration plans to address this during the current term. 

 

 

 

 

 

[TwoCitiesCapital]

6 minutes ago, jdw230 said:

 

Also, @TwoCitiesCapital I hear you - we can't predict with certainty what Trump may, or may not, try to do regarding a 3rd term. That being said, what we can look to is the past. After Trump's first term, there were concerns raised that there wouldn't be a peaceful transition of power to the Biden administration. What did we end up observing? A peaceful transition of power.  

 

That an interesting way to view inviting a mob to march on the capital and threatening the vice president's life...

 

 

[jdw230]

17 minutes ago, TwoCitiesCapital said:

 

That an interesting way to view inviting a mob to march on the capital and threatening the vice president's life...

 

 

Are you referring to Jan 6th? If so, that's not what I was referring to at all. Anyway, the point I was trying to make doesn't matter anymore - so let's leave it there, not trying to stir any political pot. Just trying to touch upon all components surrounding the GSEs (which I suppose by their very nature of being 'GSEs' can be tricky to do sometimes). 

[fakemoneyguy]

Afternoon gents, few q's from me:

 

1. Who is Jeff Wrase's daddy? 

specifically, who spent political capital to get Trump to appoint him to the NEC, who does Wrase owe, and how does that change odds/structuring of conservatorship exit 

 

2. How do you structure an exit without touching Congress? The '24 TCCA stream of $6.3bn is statutory (created via Congress) obligation right?

 

3. Trump wants this done because i) deregulation ii) one-time windfall to plug deficit hole iii) optics of being a great deal maker? Where does this issue sit in the (easily distracted) Trump Administration's priority waterfall?

 

4. If the political will exists from Trump, it is a priority and there is a group working on it, an exit path ringfenced within the Executive Branch (circumventing Congress) is practical/feasible, and equity capital continues to build at FNMA and FMCC...what breaks a long FNMA jr pfds trade?

[sholland]

https://www.bloomberg.com/news/articles/2025-07-31/trump-asks-bank-ceos-to-pitch-on-fannie-freddie-stock-offerings?taid=688bcfa0aafb050001831daa&utm_campaign=trueanthem&utm_content=business&utm_medium=social&utm_source=twitter&embedded-checkout=true

[DRValue]

With FNMA updating to a more traditional investor presentation and FMCC not, I see this aligning with a FNMA doing an offering before FMCC. Strikingly similar to the Ackman plan.

[DRValue]

Are there any examples of a 100% income sweep having taken place in the past? I don't think so... main reason I'm expecting seniors to be deemed repaid.

[DRValue]

House charts GSE rework for early 2026

Q1 '26

[Mephistopheles]

https://www.wsj.com/finance/regulation/trump-aiming-to-ipo-fannie-mae-and-freddie-mac-later-this-year-13b138cf?st=xuET2n&reflink=article_copyURL_share

[TwoCitiesCapital]

1 hour ago, Mephistopheles said:

https://www.wsj.com/finance/regulation/trump-aiming-to-ipo-fannie-mae-and-freddie-mac-later-this-year-13b138cf?st=xuET2n&reflink=article_copyURL_share

 

 

All announcements have been full of hype and unrealistic timelines and limited on details. 

 

Until there is a resolution of the net worth sweep, lawsuits, and existing common/preferred, why would anyone give these companies additional capital simply to watch it get swept to the government's side of the ledger. 

 

Before an IPO is possible, there needs to be resolution to the lawsuits/3rd and 4th amendments. Those details are the only thing important for current shareholders - everything else is hype and hearsay. 

[sleepydragon]

5 hours ago, TwoCitiesCapital said:

 

 

All announcements have been full of hype and unrealistic timelines and limited on details. 

 

Until there is a resolution of the net worth sweep, lawsuits, and existing common/preferred, why would anyone give these companies additional capital simply to watch it get swept to the government's side of the ledger. 

 

Before an IPO is possible, there needs to be resolution to the lawsuits/3rd and 4th amendments. Those details are the only thing important for current shareholders - everything else is hype and hearsay. 

I think it will happen. these banks spent time and resources to pitch their ideas. These cost money for the banks. Also, Pulte has been broadcasting how he has been improving the profitability of F2s weekly. The preferred has been steady going up at a constant rate the charts looks like a traditional merger arb trade.

[TwoCitiesCapital]

27 minutes ago, sleepydragon said:

I think it will happen. these banks spent time and resources to pitch their ideas. These cost money for the banks. Also, Pulte has been broadcasting how he has been improving the profitability of F2s weekly. The preferred has been steady going up at a constant rate the charts looks like a traditional merger arb trade.

 

How much money did hedge fund managers spend fighting court cases and wooing Trump during his first admin? 

 

Preferred also went up to ~$20ish (on $50 par) his first term before cratering  to $2-3 afterwards. 

Edited August 8, 2025 by TwoCitiesCapital

[Mephistopheles]

It’s gonna happen this time. Writing is on the wall