This article was posted some time ago, and the numbers are from last quarter, but the truth always withstands the test of time.
Source: Small Cap Network
There are a number of articles being posted on Yahoo and Bloomberg and other sites concerning opinions on Freddie Mac and Fannie Mae that state these stocks are worthless. It should be stated that it is these opinions that are more worthless than three-dollar bills. Most of these analysts do not see the forest from the trees, so the following is offered to serious investors.
1. Both Freddie Mac and Fannie Mae are PUBLIC companies, the Federal government cannot close them without many investor lawsuits.
2. We still live in a democracy with a free trade system. The Federal government can not start taking over public companies. They do that in communist countries and dictatorships.
3. Both Freddie and Fannie are now earning significant sums of money, and technically the government has no right to continue taking the profits of these companies beyond the repayment of the money given to them plus interest.
4. The U.S. Federal government is treating the public companies of Freddie and Fannie different from other public companies like AIG, the auto companies, the banking industry, and brokerage firms which were lent significant sums of money by the government in the past. Taking Freddie and Fannie over or trying to liquidate them will not stand up in court against the public investors of Freddie Mac and Fannie Mae.
5. The Republicans want to liquidate Freddie and Fannie because they are sending significant monies to the Federal government thereby aiding the increase the size of government, which they are against. The Democrats want the government to keep all the money coming from these companies so as to help with the national debt and the sequester budget cuts. But when investors see massive monies being sucked out of these companies above what was given, they will be turning red, or should I say green, because investors lost lots of money due to their decline. Now they want to be restored.
6. Now if Freddie and Fannie were liquidated who do you think is going to be originating mortgage loans in the future since most U.S. residential mortgages are sold to them? Moreover, they return money to banks for further investment. If they are led to liquidity, the money for housing will dry up like water in a desert. It will sink the housing market and the economy when people can not find mortgages and builders can't find buyers. Boy, will that make lots of people happy. Furthermore, the banks, pension plans, and other financial institutions will not have their notes in which to invest their cash and that will make even more people unhappy.
7. Freddie Mac and Fannie Mae posted their second largest profits in their history last quarter. They were selling at $30, $50, and as much as $100 per share at one time and they were not earning such large profits as now. Really. So lets not forget money. These two companies have paid the Federal government about $132 BILLION over the past two years of the $188 billion that was given to them! That's a lot of greenbacks. Here we are talking BIG bucks.
8. The simple fix for Freddie and Fannie is to re-privatize them, and work out a simple repayment schedule like what was done for the other companies like AIG and GM and the banks. The government will be repaid quickly (by the end of this year or next).
9. Does anyone think big investors will take the government's continued dipping into the profits from these companies sitting down?? Doubt it. Double doubt it.
10. Freddie Mac and Fannie Mae were models for increasing home market sales and are still great models. They allow people to buy homes. We just need limit the amount of "variable" (sub-prime) mortgages they can buy from banks. There is no mechanism that can replace them unless you want the country to go belly-up.
11. Importantly, if Freddie Mac and Fannie Mae are senselessly liquidated it will be the Federal government that will take those "trillions" of dollars in mortgages onto our country's balance sheet. It will force the government permanently into the mortgage lending business. Nobody wants that. Besides, the risk of the national debt rising is considerable since more Federal spending would be required to shrink those huge mortgage portfolios.
12. To those in Congress, I suggest they stop talking about liquidating unless its their own seat in Congress they are thinking of giving up. Such stupidity will ensure they are NOT re-elected.
So in conclusion, do not believe these worthless opinions regarding these companies. People who go long term with them are going to earn lots of money several years down the line.