1 Billionaire Weighs in Again on Fannie Mae and Freddie Mac

Warren Buffett, Berkshire Hathaway, Fannie Mae, and Freddie Mac all grab headlines, and it turns out all four have come together once again.

May 23, 2014 at 6:11AM


Warren Buffett at Berkshire Hathaway has once again provided a unique and critical insight into what he believes is best for government-sponsored mortgage enterprises Fannie Mae (NASDAQOTCBB:FNMA) and Freddie Mac (NASDAQOTCBB:FMCC)

At the latest Berkshire Hathaway annual meeting, Buffett and longtime business partner Charlie Munger continued their tradition of conducting a question and answer session lasting more than six hours. While the two weighed in on countless issues, one of the most fascinating (and longest) discussions resulted from this question:

Do you think we need housing reform? How do you think we should do it, and should Berkshire be involved?

Although Fannie and Freddie weren't going to show up among Berkshire's investments, this question came less than one month after many -- including myself -- speculated whether the holding company would seek to be involved in the mortgage insurance industry through its massive insurance arm.

Buffett took a fascinating stance on the subject, and began by noting:

I think the 30-year fixed-rate mortgage is a terrific boon for homeowners, but it's not a great instrument to own as an investor. It's done a lot for homeownership in the country. Let people get into homes earlier, kept costs down -- the government guarantee keeps the cost down.

As my Fool colleague David Hanson noted, Munger was even blunter, suggesting the Fannie and Freddie "experiment was a total failure."

Munger added:

When private industry was running it, they owned the whole field and you had the biggest bunch of thieves and idiots running things, so I'm not all that trusting of private industry in this field. At the moment, Fannie and Freddie are being pretty conservative, and they're making pretty much all the home loans. I think that's OK.

In all of this we can see one key takeaway in the stance of Buffett and Munger surrounding Fannie and Freddie.

Fnma By Future Atlas

Source: Flickr / Future Atlas.

The critical insight
Buffett and Munger noted that one reason Fannie and Freddie collapsed was the reality that they were private enterprises seeking to deliver profits, and as Buffett said, "to serve their masters and deliver double-digit earnings gains."

Buffett and Munger seemed to suggest that instead of serving shareholders by delivering returns, the two entities are best suited to ensure housing in the United States remains affordable to millions.

After all, Credit Sesame has pointed out how inexpensive housing in major U.S. cities was relative to other cities across the globe:

Source: Credit Sesame.

As Buffett suggested, part of the reason behind this is "the government guarantee keeps the cost down."

The broader question
Questions still remain about the future of Fannie and Freddie -- Buffett himself said "the question is how to keep the government in the picture without keeping politics in the picture" -- yet Buffett and Munger are apparently comfortable with the government controlling the mortgage industry through Fannie and Freddie.

They believe the benefits and returns the two entities provide shouldn't extend simply to thousands of shareholders, but instead to millions of Americans. Do you agree?

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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.

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.

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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.

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