Fannie Mae And Freddie Mac: Why I Own Preferred Shares And What's Changed In 2026

Summary

• The administration has taken concrete steps toward ending the conservatorships: two executive orders naming FHFA, pro-recap appointments at Treasury, and FHFA's own strategic plan now includes managing conservatorship exit.
• FHFA Director Bill Pulte has publicly stated an IPO is "more likely than not" and that they are "ready to go when and if the president decides."
• The litigation path for challenging the Net Worth Sweep is now effectively closed after courts have unanimously sided with the government on the narrow Collins v. Yellen remand. The path forward is administrative, not judicial.
• Junior preferred shares offer anti-dilution protection that common shares do not, making them a more defensible position if the government converts its senior preferred and exercises warrants at restructuring.
• I have previously covered Fannie Mae and Freddie Mac on Seeking Alpha (prior articles).

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Investment Thesis

Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) have been in conservatorship since September 2008. The first Trump administration stopped the Net Worth Sweep in 2019 and began allowing the companies to retain earnings. That retention has now been ongoing for approximately 2,348 days — over 6.4 years.

Every quarter, both companies report record net worths. As of year-end 2025, combined net worth exceeds $179 billion. They have returned approximately $301 billion to Treasury on a $191 billion draw during the crisis — a $110 billion profit for the government.

My thesis is that the current administration intends to recapitalize and release these companies from conservatorship, and that the restructuring mechanics favor junior preferred shares over common shares. I own junior preferred across 26 series in both companies, including FNMAS, FMCKJ, FMCCS, and FMCCJ, among others. I have held this position since 2014.

What Has Changed Since My Last Article

Several material developments have occurred that strengthen the case for near-term administrative action.

1. Trump's Executive Orders Directly Name FHFA

On March 13, 2026, President Trump signed two executive orders relevant to the GSEs:

"Promoting Access to Mortgage Credit" (full text via WhiteHouse.gov) directs federal agencies — including FHFA — to reduce regulatory and supervisory burdens that restrict mortgage lending. The areas targeted include capital and liquidity requirements — the exact levers that determine whether Fannie and Freddie can exit conservatorship.

"Removing Regulatory Barriers to Affordable Home Construction" (full text via WhiteHouse.gov) directs the FHFA Director, along with Commerce, HUD, and other agencies, to eliminate unduly burdensome rules constraining residential development.

In January 2026, Trump also directed Fannie and Freddie to purchase $200 billion in mortgage-backed securities to lower borrowing costs (White House).

These are not aspirational statements. They are formal presidential directives to the agency holding these companies in conservatorship.

2. Pro-Recap Appointments at Treasury

Luke Pettit was confirmed 69-30 as Assistant Secretary of the Treasury for Financial Institutions. Pettit spent over three years as Senior Policy Advisor to Senator Bill Hagerty on the Senate Banking, Housing, and Urban Affairs Committee. Hagerty personally introduced him at his confirmation hearing, calling him "indispensable" (Senate Banking Committee testimony, March 27, 2025). As Assistant Secretary for Financial Institutions, Pettit shapes policy around banks and government-sponsored enterprises.

Jonathan McKernan was confirmed as Under Secretary of Domestic Finance — the senior Treasury position overseeing the Preferred Stock Purchase Agreements with Fannie and Freddie.

Treasury Secretary Scott Bessent stated at a House Financial Services Committee hearing on the FSOC Annual Report on February 4, 2026, that the administration's goal includes "moving toward Fannie and Freddie eventually leaving conservatorship." The exchange was with Rep. Jim Himes (D-CT). Bessent also described keeping MBS spreads tight as the "North Star" in housing policy. (C-SPAN video of full hearing; National Mortgage News, Feb. 6, 2026)

3. FHFA Director Pulte's Public Statements

Bill Pulte has been the most vocal administration official on the IPO question:

• January 8, 2026: Pulte told CNBC that "I expect the president to make a decision in the next month or two" and that the FHFA had prepared approximately 20-30 options for the administration to consider. (CNBC full interview video; Reuters)

• February 3, 2026: Pulte told Fox Business (Mornings with Maria) that "We are ready to go when and if the president decides he wants to do that." When asked about the odds of an IPO in 2026, he said "I think they're very strong." He also noted: "We don't have to do that" — indicating the administration is keeping all options open. (Weekly Real Estate News; National Mortgage News, Feb. 4)

• February 6, 2026: Reporting confirmed that Pulte told Fox Business the GSEs could stage a secondary sale of a 2.5-5% equity stake as an initial step, noting it would technically not be an IPO since Fannie and Freddie shares already trade. (National Mortgage News; Fox Business video)

• February 25, 2026: Pulte stated on Fox Business (Mornings with Maria) that an IPO is "more likely than not" but that "everything is on the table." (Fox Business)

4. Commerce Secretary Lutnick's Statements

Howard Lutnick has been consistently vocal about the GSE opportunity:

• September 2025: Lutnick told CNBC this "could potentially be the largest IPO in history" and that "it could well be a this-year thing." (Benzinga, Sep. 2025; HousingWire)

• December 3, 2025: Lutnick told CNBC that "it is a sooner rather than later story" and that the administration is "well down the road" on securing a deal. When asked about Q1 2026: "I would like to see that." (Bloomberg Law; Investing.com)

5. FHFA's Own Strategic Plan Signals Preparation

FHFA's Agency Performance Plan for Fiscal Years 2026/27 (PDF on FHFA.gov) includes three notable strategic objectives:

• 1.2: "Ensure the Enterprises fulfill all legal and statutory responsibilities"
• 1.3: "Manage the conservatorships on behalf of the American people"
• 3.3: "Fulfill statutory reporting requirements"

This is significant because HERA (the Housing and Economic Recovery Act of 2008) imposes specific obligations on FHFA as conservator — including the obligation to "preserve and conserve" the assets and put the enterprises in a "sound and solvent condition." When the agency puts these obligations into a performance plan with measurable objectives, it is committing to a process with an end state.

The plan also includes Measure 1.1.3 — reviews of the Enterprises' capital framework (ERCF) — suggesting the capital requirements may be revisited under Pulte's leadership.

6. Senator Tim Scott's Comments — Context Matters

Senator Tim Scott stated that he did not believe the conservatorships would end before the midterms:

"The president said that he's going to take it out of conservatorship, put it back into the market; I assume that he meant after the midterms. Because frankly, it's nearly impossible for us to get there."

This was reported on approximately March 11, 2026. (Most likely source: CNBC Squawk Box, March 11, 2026; see also American Banker, March 13, 2026)

This generated market confusion, but context is important. Scott is speaking about the legislative path — what Congress can accomplish. The 2019 Treasury Housing Finance Reform Plan (Treasury.gov) was specifically designed so that the primary actions to end conservatorship would be administrative — executed by FHFA and Treasury — with Congress playing a supporting role in codifying reforms afterward.

Administrative action does not require congressional approval. The FHFA Director has the statutory authority under HERA to end the conservatorships, and Treasury can restructure the PSPAs without legislation. Scott's timeline applies to legislative reform, not to the administrative actions that Bessent, Lutnick, and Pulte are working on.

7. Trump's Own Words

On May 21, 2025, President Trump posted on Truth Social that he was "giving very serious consideration to bringing Fannie Mae and Freddie Mac public" and that he would speak with Bessent, Lutnick, and Pulte about the matter. He added: "Fannie Mae and Freddie Mac are doing very well, throwing off a lot of CASH, and the time would seem to be right. Stay tuned!" (Axios; CNN)

The Litigation Landscape

The judicial path for shareholders has narrowed significantly.

The Collins Remand Is Closed

The Supreme Court in Collins v. Yellen (2021) rejected broad statutory challenges to the Net Worth Sweep but left open a narrow hypothetical: if a President had tried to fire an FHFA Director and was blocked by the for-cause removal restriction, shareholders might have a claim.

Every circuit that has examined this question has sided with the government:

• Fifth Circuit: Dismissed (Collins v. Dept. of Treasury, 83 F.4th 970, 2023)
• Eighth Circuit: Dismissed (Bhatti, 97 F.4th 225, 2024)
• Federal Circuit: Dismissed (Fairholme Funds, 26 F.4th 1274, 2022)
• W.D. Michigan: Dismissed (Rop v. FHFA, No. 1:17-cv-497, March 11, 2026)

The Rop dismissal on March 11, 2026 effectively closed the last remaining Collins remand case. Judge Maloney found that no plaintiff had pled facts establishing that any President wanted to terminate a Director who enforced the Third Amendment but could not do so because of the removal restriction.

The Berkley Class Action — $850M+ and Growing

Separately, the Berkley class action has produced a result that favors shareholders. In August 2023, a federal jury found that FHFA "arbitrarily and unreasonably violated the contractual rights of private shareholders" and awarded $612.4 million in damages. Final judgment with prejudgment interest was entered at $812 million in March 2024. The court upheld the verdict in March 2025, ruling the jury had "ample evidence." With continuing accrued interest, the judgment now stands at approximately $850 million or more.

The case is now before the DC Circuit Court of Appeals (Case #25-5113). The Berkley Plaintiffs filed their reply brief on February 20, 2026, arguing for remand and assessment of reliance damages — a measure of recovery that could reach into the billions. Reliance damages measure what shareholders lost by relying on the contractual framework that FHFA then violated, as opposed to the narrower expectation damages the jury was able to calculate.

The established facts: a federal jury found a breach, a federal judge upheld it, and the government owes shareholders at least $850 million with the amount potentially growing on appeal. The remaining legal question is the proper measure of damages, not whether the breach occurred.

Kelly v. United States — Federal Circuit

Oral arguments in Kelly v. United States (Case No. 24-2042) were heard on March 5, 2026, before Judges Dyk, Reyna, and Taranto at the Federal Circuit. This case addresses whether the Net Worth Sweep constituted an unconstitutional taking under the Fifth Amendment. The oral argument recording is publicly available via the Federal Circuit's website.

What the Litigation Picture Means

The Collins remand path is closed. But the takings claims and breach of contract claims remain active, and the Berkley verdict establishes that FHFA violated shareholder rights as a matter of fact. Importantly, neither outcome — favorable or unfavorable — changes my core investment thesis for preferred shareholders. The thesis rests on administrative action, not litigation outcomes. The litigation is a potential bonus, not the foundation.

The Capital Framework Question

One development worth noting for investors evaluating the timeline: FHFA's Enterprise Regulatory Capital Framework (ERCF), finalized by former Director Calabria in 2020, sets minimum capital requirements at $312+ billion for the two companies combined. The companies currently have approximately $179 billion.

However, FHFA's own Dodd-Frank stress tests tell a different story. In the 2025 stress test, under severely adverse conditions including a 38% home price decline, both companies remained profitable — generating $8.5 billion in positive comprehensive income.

Donald Layton, former CEO of Freddie Mac, published an analysis through NYU's Furman Center in August 2022 estimating that the stress test results are consistent with a capital need of approximately $120-135 billion — roughly $185 billion less than what the ERCF demands. (Furman Center, August 2022)

This gap matters because Trump's March 13 executive order directs FHFA to ease capital requirements. If the ERCF is revised downward to align more closely with stress test results, the capital shortfall shrinks dramatically — and so does the timeline to exit. The FHFA's own 2026/27 performance plan includes a measure specifically for reviewing the ERCF.

Pro Forma Restructuring: Why Preferred Over Common

This is the core of my investment thesis and where I believe many investors in FNMA common are not fully accounting for dilution risk.

Treasury holds $341 billion in senior preferred stock (liquidation preference as of year-end 2024) and warrants for 79.9% of common shares in both companies. In any restructuring, Treasury's position must be addressed.

Scenario A: Government writes off the SPSPA

Bill Ackman has argued publicly that the SPSPA has been fully repaid with interest, plus a $25 billion overpayment. In his January 16, 2025 Pershing Square presentation (PDF; BusinessWire), Ackman laid out a three-step plan: declare the senior preferred as repaid, exercise the 79.9% warrants, and relist both companies on the NYSE. In March 2026, Ackman reportedly pitched this plan directly to Kevin Hassett, James Blair, Bill Pulte, and Jonathan McKernan. (Benzinga, March 22, 2026)

Under this scenario, common shareholders benefit significantly.

Scenario B: Government converts SPSPA to common and exercises warrants

I am less certain the government will simply write off a $341 billion liquidation preference. If Treasury converts its senior preferred stock to common at the current market price and exercises its warrants:

• $190 billion SPSPA / $6.75 per share = ~28 billion new shares
• Plus ~9 billion shares from warrant exercise
• Total: ~37 billion shares outstanding
• At 12x earnings on $30 billion annual earnings = $360 billion market cap
• Per share: ~$9.72

That is a decline from current trading levels for common shareholders.

Why I prefer the structural protection of preferred shares:

Junior preferred shares like FNMAS have a $25 par value and contractual dividend rights. In a restructuring:

• If the companies resume dividends, preferred shareholders receive their contractual dividend before common shareholders receive anything
• If preferred shares are converted to common as part of a deal, the conversion terms are negotiated based on par value — providing a floor
• Preferred shares have anti-dilution protection that common shares lack
• The government's equity conversion and warrant exercise dilute common shareholders but do not impair preferred shareholders' contractual claims

The lower the valuation at restructuring, the worse it gets for common. But preferred shareholders have a contractual claim that doesn't change with the stock price. Whether the outcome looks like Scenario A or Scenario B, preferred shareholders have security that common shareholders do not.

What I Own

I hold junior preferred shares across 26 series of Fannie Mae and Freddie Mac preferred stock, including FNMAS, FMCKJ, FMCCS, FMCCJ, and others. I have held this position since mid-2014. I do not hold common shares in either company.

Risks

• No guaranteed timeline. Administrative action could be delayed by political events, market conditions, or changes in administration priorities. I have been in this trade for nearly 12 years and have consistently overestimated timeline confidence.
• Restructuring terms are unknown. The government controls the terms of any deal. Preferred shareholders could receive less favorable conversion terms than expected.
• Litigation outcomes are uncertain. While the Berkley verdict is favorable, it is on appeal and could be modified or reversed.
• Capital requirements could remain elevated. If the ERCF is not revised, the path to adequate capitalization extends years further.
• Political risk. A change in FHFA leadership or administration priorities could stall or reverse progress.
• The $200 billion MBS purchase directive could complicate the IPO timeline, as analysts have noted. (Scotsman Guide)

Conclusion

The investment case for Fannie Mae and Freddie Mac junior preferred shares is stronger today than when I last wrote about it. The administration has moved from statements to actions — executive orders, strategic appointments, and regulatory planning that collectively point toward conservatorship exit.

The litigation path is closing, but the Berkley verdict has established as fact that the government breached shareholder rights. The administrative path is where the resolution will come from, and the people in the key seats — Pulte at FHFA, Bessent and Pettit at Treasury — have all signaled support for recapitalization.

I do not see comparable security in common shares due to dilution risk from the government's warrant and senior preferred position. Junior preferred shares offer structural protection through par value, contractual dividend rights, and anti-dilution provisions.

I have been in this trade since 2014. I have been surprised by the price declines this year, and I continue to believe I have underestimated volatility and overestimated timeline confidence throughout this investment. That said, the fundamental case — profitable companies, government overpaid, administration intent on release — has never been stronger.

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Disclosure: I am long FNMAS, FMCKJ, FMCCS, FMCCJ, and 22 additional series of Fannie Mae and Freddie Mac junior preferred stock. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.