Summary
- Fannie Mae and Freddie Mac are both expected to be recapitalized during the Trump administration.
- FMCC shows higher growth and potential gains, but faces larger capital requirements and IPO delays, posing higher risks.
- Preferred stock conversion to common shares is advantageous for FNMA due to its earlier timeline, though several FMCC preferreds are cheaper.
- Significant risks include capital ratio requirements, Treasury agreements, IPO market conditions, and potential legal challenges.
Since I started writing about the possible recapitalization of Fannie Mae and Freddy Mac last summer, I’ve been asked which is the better value between them.
It’s almost a coin flip–in all likelihood, either both investments will be highly profitable or both will bust–but they’re not exactly the same.
Here are some similarities and differences:
Congress authorized the Federal National Mortgage Association (Fannie Mae)(OTCQB:FNMA) 1938 to boost the Depression-scarred housing market, while Federal Home Loan Mortgage Corporation (Freddy Mac) (OTCQB:FMCC) came along in 1970 to make the secondary market for apartment loans more liquid.
