Warren Buffett Is Ready to Replace Fannie Mae and Freddie Mac

Recent remarks reveal Warren Buffett has no interest in buying shares of Fannie Mae and Freddie Mac, but he may willing to put Berkshire Hathaway right in the middle of the housing market when the time comes.

Apr 28, 2014 at 9:49AM

Another major name  has weighed in on the future of Fannie Mae (NASDAQOTCBB:FNMA) and Freddie Mac (NASDAQOTCBB:FMCC) . And this billionaire's response may surprise you.

Images

Surprising remarks
Warren Buffett of Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) is one of the few in finance who grabs more headlines than Fannie and Freddie.

But fewer people remember Buffett once owned shares of Freddie Mac. At the end of 1999, Berkshire Hathaway had a position worth $2.8 billion, which netted a nearly 10-fold return its $300 million investment. Therefore, it's easy to think Buffett may one day be open to joining the other big names like Bill Ackman and buying a chunk of Fannie and Freddie shares.

But Buffett said plainly in a recent conversation with Bloomberg Television's Betty Liu [emphasis added]:

I don't see any role for Berkshire in Fannie or Freddie. There could be some in some housing arrangement that gets worked out in the future.

It's also very important remember he sold almost all of his position in 2000, Berkshire's ownership in Freddie fell from 8.6% to 0.3%,

Unlike Bill Ackman and Bruce Berkowitz, it's clear Warren Buffett has no interest investing in Fannie and Freddie.

But that doesn't mean Buffett has no interest in the future of housing finance.

The reality of reform
Here's what the Bloomberg report had to say:

Warren Buffett...said he's open to the possibility of his company eventually becoming more involved in housing finance once U.S. lawmakers resolve the future of Fannie Mae and Freddie Mac.

Much of the discussion surrounding Fannie and Freddie has focused on the eventual winding down of the two government sponsored entities. The oft cited Johnson-Crapo bill calls for the eventual replacement of Fannie and Freddie with a "Federal Mortgage Insurance Corporation," which would be a guarantor of a slice of the mortgages that private companies hold. 

How does this apply to Buffett and Berkshire Hathaway?

At it's core, Berkshire Hathaway is an insurer, and in the last year alone it had almost $8 billion in pre-tax income from its insurance operations. Also consider its Clayton Homes unit currently owns and services nearly 330,000 mortgages worth $13.6 billion.

If the Johnson-Crapo bill is passed and the FMIC is established, it calls for the first 10% of losses on mortgage backed securities to be covered by private capital. Berkshire Hathaway could easily establish itself as a key player in the private insurance of mortgages, as it has distinct expertise in both insurance and the mortgage market itself. 

By taking a small slice of each mortgage payment in exchange for insurance on the mortgage-backed securities which are issued, Berkshire could increase the capability and profitability of its insurance operations.

One has to wonder if Warren Buffet and Berkshire Hathaway already realize this and are hopeful Fannie and Freddie are indeed wound down, then they can step in and provide returns to shareholders instead of the government.

G

The greatest thing Warren Buffett ever said
Sure Buffett once owned Fannie and Freddie, but he knew when to sell it to make his billionss. But the thing is, he's happy to share his investing wisdom, and he in fact wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Patrick Morris owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers