1 Stunning Number from the White House About Fannie Mae and Freddie Mac

The White House recently revealed what it anticipates Fannie Mae and Freddie Mac will deliver in profits over the next 10 years, and the number will stun you.

Mar 11, 2014 at 1:06PM

The latest budget from President Obama and the White House has 1,438 pages in the appendix alone, but there is one stunning number about Fannie Mae (NASDAQOTCBB:FNMA) and Freddie Mac (NASDAQOTCBB:FMCC) that will either devastate or delight investors.

Fnma By Future Atlas
Source: Flickr / Future Atlas. 

Staggering profitability
The White House projects Fannie Mae and Freddie Mac to make $179.2 billion through the end of the 2024 fiscal year. By the end of March this year, the two government sponsored entities will have already delivered $203 billion in dividends back to the Federal government, fully eclipsing the original $187.5 billion investment the U.S. Treasury made during the financial crisis. Many questioned the viability of Fannie and Freddie in the midst of the financial crisis, but the two have rebounded to remarkable profitability.  

Even more staggering than the total of profit is the jump of those projections over the last year alone. The budget proposed last year by the White House noted it only anticipated Fannie and Freddie delivering $51 billion back to the Treasury by 2023.


Source: Flickr / 401(K) 2013

Such increases in the projections clearly highlights the turnaround the two entities have had over the last year as a result of the improved housing market. It also provides evidence why there's been so much noise from billionaire investors Bruce Berkowitz and Bill Ackman -- who have disclosed positions in the companies.

It would be easy to think this a reason for investors to pour more money in the stocks, however the budget also came with a powerful reminder.

Sobering reality
The exact language the government uses notes:

The cumulative budgetary impact of the [senior preferred stock agreements (PSPA)] from the first PSPA purchase through [fiscal year] 2024 is estimated to be a net return to taxpayers of $179.2 billion.

Note the critical distinction surrounding the net return found in the guidance provided by the White House: "to taxpayers." It provides a stark reminder Fannie and Freddie have no commitments to their investors apart from the U.S. Treasury and taxpayers in the United States.


The mission of Fannie and Freddie is stated plainly as they aim to, "provide liquidity and stability to the secondary mortgage market and to promote affordable housing."  It's a reminder they are in no way intended to generate returns to shareholders in the current state.

The latest annual report from Fannie Mae notes it is "no longer managed with a strategy to maximize shareholder returns." It also notes "the conservatorship and investment by Treasury have had, and will continue to have, a material adverse effect on our common and preferred shareholders." 

Ultimately, the thought of nearly $180 billion in profit over the next ten years is eye-popping to investors. However, unless the government does a 180° and releases these companies back to private investors, the only way to see a dime of it would be through the benefit realized as taxpayers, not investors.

One stock worth buying this year
There's a huge difference between a good stock and a stock that can make you rich, and there is no denying Fannie and Freddie had incredible runs in 2013. But there is one company that could be poised for a similar run in 2014. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Patrick Morris has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information

Compare Brokers