"Burry the Big Short": Court ruling and the 2027-28 ownership review are 'good news' for Fannie Mae and Freddie Mac

According to Jinse Finance APP, Michael Burry, the investor famous for "The Big Short," said on Tuesday that recent victories by Fannie Mae and Freddie Mac shareholders in court and statements by US Treasury Secretary Scott Besant on finally resolving the ownership structure of the two companies are "good news" for them. Fannie Mae (FNMA.US) closed up about 9% on Tuesday, and Freddie Mac (FMCC.US) rose 8%. Burry pointed out two developments he considers favorable for these government-supported enterprises (GSEs), which dominate the US mortgage market, pushing their share prices higher.

The Court Upholds Massive Compensation for Shareholders

In July, the US Court of Appeals for the District of Columbia Circuit upheld a jury verdict in favor of Fannie Mae and Freddie Mac shareholders, confirming a ruling against the Federal Housing Finance Agency (FHFA) of about $812 million (including interest). Shareholders previously asserted that the 2012 "net worth sweep," which transferred the profits of the two companies to the Treasury, infringed on their rights. The appeals court rejected the government's key argument, preserving the trial's favorable outcome for shareholders.

Earlier this month, the Court of Appeals for the District of Columbia Circuit denied FHFA’s request for a full en banc rehearing, allowing the July ruling to stand.

Besant Hints at Launching Ownership Review

Burry also mentioned Besant's recent remarks. Besant stated earlier on Tuesday in an interview with the 2WAY media platform that the government expects to address the ownership structure of Fannie Mae and Freddie Mac next year or the year after. He emphasized that any moves will be guided by a clear priority: preventing the spread between institutional mortgage rates and Treasury yields from widening too much, so that borrowing costs for homebuyers do not rise.

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

Burry’s Recent Stock Moves

Earlier in October, Burry said that after Fannie Mae and Freddie Mac stocks nearly gave up all post-election gains and formed a large head-and-shoulders top pattern, he sold common shares of both companies. He believes the pattern points to "worthless stocks." At the same time, he bought several series of the companies’ junior preferred shares, reasoning that preferred shares rank higher in the capital structure; if the Treasury converts its claim on about $388 billion of senior preferred shares into common stock, preferred shares would perform better than common stock—he said this outcome may dilute current common shareholders by at least 90%.

On Stocktwits, as of the time of writing, retail investor sentiment for Freddie Mac and Fannie Mae was in the "extremely bullish" region, with a "high" volume of messages.

Fannie Mae has dropped 65% so far this year, and Freddie Mac has fallen 67%.