Who's on the Side of Fannie and Freddie Shareholders?

An unlikely coalition has formed to protect GSE shareholders.

Apr 6, 2014 at 10:00AM

Source: Flickr / tuffehoffe.

Post-financial meltdown, there has been very little support for GSEs Fannie Mae (NASDAQOTCBB:FNMA) and Freddie Mac (NASDAQOTCBB:FMCC). While there is still considerable debate surrounding how much the GSEs are to blame for the crisis itself, friends of Fannie and Freddie are few and far between. But a motley group of individuals is forming to protect the GSEs and their shareholders for a wide assortment of reasons.

Hedge funds
Seeing potential for big gains, several large hedge funds have been acquiring shares of Fannie and Freddie. Among them are The Fairholme Fund managed by Bruce Berkowitz, Perry Capital managed by Richard Perry, and Pershing Square managed by Bill Ackman. The motivation to fight for Fannie and Freddie is clear here: All three hedge funds stand to benefit from gains in GSE preferred or common stock.

The hedge funds have done much of the heavy lifting so far. Both Fairholme and Perry Capital have filed lawsuits challenging the legality of the term change to the preferred stock purchase agreement. If successful in their lawsuits, the government would be unable to continue claiming all the profits of the GSEs and the ruling could clear the way for an eventual full reprivatization.

Consumer advocate
Fannie and Freddie have managed to bring together two unlikely parties: Big money hedge funds and consumer advocate Ralph Nader. Although Nader does own some GSE shares himself, the motivation for him primarily centers around the GSEs' ability to provide affordable housing. Besides being a consumer advocate, Nader is also an advocate for average investors and fights for their right to influence corporations whether they are being run by restrictive management or the U.S. government.

Nader has helped to put a more appealing face on the preservation of the GSEs by emphasizing their benefits for affordable housing instead of hedge fund profits. He has brought attention to the issue through newspaper op-eds and meetings with community housing groups.

Although neither party has adopted the survival of the GSEs as a party issue, Senator Pat Toomey (R-Pennsylvania) has taken a unique stance in supporting the shareholders of Fannie and Freddie. As the Johnson-Crapo proposal was making its rounds, Toomey submitted a series of written question to Treasury Secretary Jack Lew questioning the government's approach to the GSE bailout and the taking of all their profits.

With most Democrats and Republicans supporting a wind down of Fannie and Freddie, Toomey's position is a rare one. Toomey backed his position with an example of a pension fund that supposedly stood to lose value if the GSE shares were wiped out. Later it was revealed the Toomey was mistaken and the pension fund reference actually owned shares of a different GSE completely separate from Fannie and Freddie. Still, they are other pension funds and community banks that do own Fannie and Freddie shares and would lose if shares are wiped out.

Toomey's support has so far failed to shift the position of the Republican party but the fact that any politicians support Fannie and Freddie is a positive sign for the two GSEs.

Special interests
Until now, special interest groups have not made a major advertising push on the GSE issue but that is changing. A conservative seniors group called the 60 Plus Association is airing a $1.6 million ad campaign opposing legislation to wind down Fannie and Freddie. Presumably, the association's members stand to benefit as many retirees own Fannie and Freddie shares from before the collapse.

The ad campaign takes a clear political tone relating the housing reform legislation to Obamacare which the association claims in the ad has cancelled millions of Americans' health care. Other ads from the association target both Democrats and Republicans that have been particularly active in their efforts to wind down the GSEs. It's unclear what effect these ads will have on the public but they do help draw attention to the GSE issue and show retirees as the victims; a group more sympathetic than big hedge funds.

An unlikely coalition
The protection of the interests of Fannie and Freddie shareholders has brought together individuals that rarely collaborate on anything. Looking at actions so far, these groups do not appear to be forming a single effort but are instead taking four different approaches on the same issue.

Even with these groups still being in the public and political minority, this unlikely coalition is helping to push an issue otherwise missing out on public attention. Through their unique approaches, each group provides a unique way to push for the interest of GSE shareholders. As the lawsuits go to trial and legislation is debated in Congress, it will be important to see who else will join the side of Fannie and Freddie's non-government investors.

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Alexander MacLennan owns shares of Fannie Mae and Freddie Mac. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security.

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