“Big Short” Bury: Court Decision and 2027-28 Ownership Review Are “Good News” for Fannie Mae and Freddie Mac

The Zhitong Finance App learned that “Big Short” investor Michael Berry said on Tuesday that the recent court victories of Fannie Mae and Freddie Mac shareholders, as well as US Treasury Secretary Scott Bessent's statement on the final settlement of the ownership structures of the two companies, are “good news” for these two companies. Fannie Mae (FNMA.US) closed up about 9% on Tuesday, while Freddie Mac (FMCC.US) rose 8%. Barry pointed out two developments he sees as favorable to these two government-backed companies (GSEs) that dominate the US mortgage market, driving stock prices higher.

Court upholds shareholders' huge compensation ruling

In July of this year, the U.S. District of Columbia Circuit Court of Appeals upheld a jury ruling in favor of Fannie Mae and Freddie Mac shareholders, confirming the Federal Housing Finance Administration (FHFA) ruling of approximately US$812 million (including interest). Shareholders previously claimed that the 2012 “net worth sweep” surrendered the profits of the two companies to the Ministry of Finance, infringing their rights. The appellate court rejected the Government's key arguments and preserved the first instance's successful outcome.

Earlier this month, the District of Columbia Circuit Court of Appeals denied the FHFA's request for a full retrial, and the July ruling was upheld.

Baycent hinted that an ownership review would be initiated

Burry also mentioned Bezent's recent remarks. In an interview with the 2WAY media platform earlier on Tuesday, Basent said that the government is expected to deal with the ownership structure issues of Fannie Mae and Freddie Mac next year or the year after. He stressed that any move would be guided by a clear priority: preventing the spread between institutional mortgage interest rates and treasury bond yields from widening, so as not to raise borrowing costs for homebuyers.

Since the 2008 financial crisis, Fannie Mae and Freddie Mac have been under government trusteeship.

Bury's recent stock operations

Earlier in October, Barry said he had sold common shares of the two companies after the shares of Fannie Mae and Freddie Mac gave up almost all of their post-election gains and formed a large-scale pattern of heads and shoulders. He believes this pattern points to “worthless stocks.” He bought several series of sub-preferred shares of the two companies at the same time, on the grounds that preferred shares are at a higher level in the capital structure; if the Ministry of Finance converts its claim rights for senior preferred shares of about $388 billion into common shares, preferred shares will perform better than common shares — he said this result could dilute existing common shareholders by at least 90%.

On Stocktwits, retail sentiments about Freddie and Fannie Mae were in an “extremely bullish” zone as of this writing, while the volume of news was “high.”

Fannie Mae has declined 65% during the year, and Freddie Mac has dropped 67%.