The Real Deal New York

Fannie and Freddie investors are now at the mercy of Congress

Draft bill could make -- or cost -- hedge funds billions
January 04, 2018 11:10AM

Bob Corker and Mark Warner

Hedge funds that own billions worth of preferred shares in Fannie Mae and Freddie Mac are keeping an anxious eye on Washington, D.C. as Congress works on a draft bill to determine the future of the two mortgage giants.

The draft Senate bill, authored by Bob Corker and Mark Warner, would put the two mortgage companies into receivership and force them to sell their assets. Two new companies would eventually take up their functions, but under different names.

Still an open question is how the firms’ shareholders would get compensated. If the government walks away from its $195.5 billion in senior preferred shares, other shareholders such as Paulson & Co., the Blackstone Group and Bill Ackman’s Pershing Square Capital Management could see big profits on their investments, Bloomberg reported.

Bloomberg reported that the senators are considering paying owners of preferred shares close to the full book value of their holdings, while owners of common shares would get far less.

Fannie and Freddie buy mortgages from lenders and stamp them with a de-facto repayment guarantee, giving them a key role in the U.S. housing market. [Bloomberg] Konrad Putzier