Federal Home Loan Mortgage Corporation operates in the secondary mortgage market in the United States. It operates through two segments, Single-Family and Multifamily. The Single-Family segment purchases, securitizes, and guarantees single-family loans; and manages single-family mortgage credit and market risk, as well as manages mortgage-related investments portfolio, single-family securitization activities, and treasury functions. This segment serves mortgage banking companies, commercial banks, regional banks, community banks, credit unions, housing finance agencies, savings institutions, and non-depository financial institutions. The Multifamily segment engages in the purchase, securitization, and guarantee of multifamily loans; issuance of multifamily K certificates; manages multifamily mortgage credit and market risk; and invests in multifamily loans and mortgage-related securities. It serves banks and other financial institutions, insurance companies, money managers, hedge funds, pension funds, state and local governments, and broker dealers. Federal Home Loan Mortgage Corporation incorporated in 1970 and is headquartered in McLean, Virginia.

FREDDIE MAC

Key Points
The FICO score inventor continues its war with the new administration's FHFA Director Bill Pulte.
Pulte said this week that Fannie Mae and Freddie Mac will allow lenders to use a FICO alternative in scoring customers for mortgages.
Fair Isaac has looked unbeatable in recent years, but it may be unable to raise prices as aggressively going forward.
Shares of Fair Isaac (NYSE: FICO) fell this week, down 13.4% as of 12:10 p.m. ET on Thursday, according to data from S&P Global Market Intelligence.
FICO has had somewhat of a monopoly on credit scoring, which has recently paved the way for large price increases, the most recent of which occurred in January. But this week, current Federal Housing Finance Agency (FHFA) Director Bill Pulte continued his mini-war against the company in the name of lowering costs for homeowners.
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Can VantageScore eat into FICO's market share?
This week, Pulte posted on X, formerly known as Twitter, that the current government-sponsored entities (GSEs) that buy mortgages, Fannie Mae (OTC: FNMA) and Freddie Mac (OTC: FMCC), will allow lenders to use something called VantageScore 4.0, a new potential FICO competitor, without having to build new infrastructure.
VantageScore is a new credit score developed by the three major credit bureaus in 2017. It incorporates alternative data and some less stringent traditional data requirements to better score people, say, in rural areas or with less credit history.
Fair Isaac stock fell hard in the wake of Pulte's tweets, as the two big GSEs guarantee about half of all mortgages in the United States. Therefore, if a significant portion of mortgages were now scored using an alternative, FICO could potentially lose market share relative to its current near-100% share.
But the threat may not be as dire as all that
Even after this week's decline, Fair Isaac still trades at a whopping 70 times earnings, which means investors aren't exactly expecting huge declines in market share or revenue. This may be for a couple of reasons.
First, VantageScore appears to be an option for a smaller subset of borrowers with limited credit history. It's also unclear how much lenders will want to use it, except in cases where the current FICO score excludes a borrower.
Second, the FHFA had already mandated Fannie Mae and Freddie Mac to use VantageScore back in late 2022, while giving the homebuying market a three-year grace period to implement it. So, this week's news isn't really new information, although Pulte appears to have sped up the acceptance process while also making VantageScore easier to use on existing technology.
Moreover, perhaps the allowance of VantageScore will hold off the threat of federal agencies turning to "bi-merge" scoring -- allowing mortgages to be scored by only two credit bureaus. Currently, the standard for GSEs is a "tri-merge" system for both FICO and VantageScore, which requires all three credit bureaus to run a score. There had been talk of allowing bi-merge to lower costs in recent years, which would also reduce the volume of FICO scores. So, perhaps this new competition will ward off that threat.
Still, it does appear that the large price hikes FICO has implemented over the past few years, and most recently in January, will cease for now. Even though FICO scores cost only $4.95 today, the new FHFA director has previously called FICO's price hikes and seems keen to show how the administration is lowering costs.
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Why Fair Isaac Corporation Fell This Week

AGNC Investment Corp. (NASDAQ: AGNC) appears to be an attractive investment option for those seeking a robust income stream, thanks to its impressive dividend yield of 15.6%. Its high yield stands out especially for investors seeking to generate passive income from their holdings.
In recent years, AGNC has faced challenges, primarily due to the rising interest rates. While the stock has underperformed, there is potential for recovery and improved performance as market conditions evolve. However, before you invest in AGNC for its high yield, consider these points first.
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How AGNC affords its high yield dividend
AGNC Investment is an attractive option for investors seeking exposure to the residential real estate market without directly purchasing properties. As a mortgage real estate investment trust (mREIT), AGNC focuses on purchasing mortgage-backed securities (MBS), which are bundles of home loans sold to investors.
AGNC takes a conservative approach by investing primarily in mortgages backed by government-sponsored enterprises, such as the Federal National Mortgage Association (commonly known as Fannie Mae) and the Federal Home Loan Mortgage Corporation (often referred to as Freddie Mac).
One of the most appealing features of AGNC is its ultra-high dividend yield. You may wonder how a company can offer such a high dividend when current mortgage rates are lower than this.
The answer lies in AGNC's use of leverage. AGNC utilizes instruments such as repurchase agreements and short-term debt to finance its investments in ABSs, which usually have longer maturities. These arrangements enable AGNC to borrow money at relatively low interest rates because they have a repayment timeline of one year or less.
Highlighting AGNC's interest rate risk
AGNC's use of leverage can indeed amplify profits, but it also exposes the company to risks, particularly fluctuations in interest rates. To visualize this, consider the yield curve, a graphic representation that shows the interest rates of bonds of similar quality across different time frames.
AGNC performs best when short-term interest rates are lower than the long-term rates it earns on its MBS investments. That's because it can borrow at lower interest rates on a short-term basis and invest those funds in higher-yielding MBS.
However, the economic landscape has undergone significant shifts in recent years. Short-term interest rates rose, while AGNC held on to longer-term MBS that were purchased years earlier during a period of lower rates. Consequently, this has created a challenging situation for AGNC because short-term borrowing costs increased much more than the returns on its existing MBS.
In 2022, AGNC earned $1.6 billion in interest income, while interest expense was $625 million. Last year, it earned $2.9 billion in interest income, but higher borrowing costs resulted in interest expense surging to $2.9 billion, leaving it with a net interest income of just $18 million.
While rising rates increased borrowing costs for AGNC, they also impact the value of its investment portfolio. That's because there is an inverse relationship in play here: When interest rates rise, the value of existing fixed-income holdings typically declines. Since the start of 2022, AGNC's tangible net book value per share has plummeted by 48% and now sits at $8.31.
This dynamic hurt AGNC's stock performance during the past few years. Since the start of 2022, AGNC's total return (which includes reinvested dividends) has been -0.4%. For comparison, the S&P 500 (SNPINDEX: ^GSPC) returned 31.9% over this period, while the Vanguard Real Estate Index Fund ETF returned -12.2%, illustrating how rising interest rates have weighed on the real estate sector as a whole.
The bull case for AGNC
There is a silver lining. AGNC has faced some market headwinds recently, but the worst could be behind it. The company has been investing in a wave of higher-yield mortgages, thereby boosting the yield on its MBS portfolio.
At the end of the first quarter, AGNC's average asset yield was 4.87%, up from 3.9% two years earlier. Not only that, but its net interest spread, or the difference between the yield earnings on its MBS minus its funding cost, increased from 1.91% at the end of Q4 to 2.12% at the end of Q1.
Short-term interest rates could decrease if the Federal Reserve continues to cut its benchmark interest rate, the federal funds rate. Last year, the Fed reduced this rate from an upper limit of 5.5% to 4.5%. Many expected further cuts, but uncertainty around tariffs and their potential impact on inflation has left the Fed on pause for now.
Is AGNC right for you?
If inflationary pressures don't reemerge, the Fed could continue to cut rates, which could help reduce short-term borrowing costs. With its MBS portfolio yield rising, this could be a favorable tailwind for AGNC, as it would boost its net interest spread and the book value of its portfolio. If you have a positive outlook on the prospect of declining interest rates and are seeking a high-yielding investment, AGNC could be for you.
However, I don't think AGNC is right for all investors. AGNC may expose investors to more interest rate risks than they would prefer, and its performance in recent years highlights this risk. Although it could do well if shorter-term interest rates fall, it remains vulnerable if inflationary pressures reemerge, which could lead to higher borrowing costs once again. Dividend investors seeking steady, reliable returns are better off looking elsewhere for yield.
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Is AGNC Investment Stock a Buy Now?

Nearly half of agency mortgage-backed securities (MBS) investors expect Fannie Mae (FNMA) and Freddie Mac (FMCC) to be privatized by 2028, according to a survey conducted by JPMorgan Chase & Co (JPM). The results provide insight into a community with a direct stake in the fate of the government-sponsored enterprises (GSEs), which have remained in conservatorship since their 2008 bailouts. Approximately 26% of respondents believe privatization will never occur, while another quarter anticipate it happening between 2029 and 2032.
President Donald Trump has long advocated for releasing Fannie and Freddie from government control, though the topic was notably absent from his 2024 campaign platform. The logistics of privatization remain complex, with potential outcomes hinging on factors such as capital requirements and whether privatization includes an explicit government guarantee. These scenarios significantly influence the risk premiums on MBS, which ultimately affect mortgage rates for U.S. homeowners.
Market Overview:
49% of investors expect Fannie Mae and Freddie Mac to be privatized by 2028.
Another 26% believe privatization will never occur.
Survey results indicate potential impacts on MBS risk premiums and mortgage rates.
Key Points:
Privatization with minimal capital levels could widen risk premiums by 45 basis points or more.
An explicit government guarantee in privatization scenarios could tighten risk premiums slightly.
Fannie Mae shares have surged since Trump’s election, despite remaining speculative.
Looking Ahead:
Privatization outcomes depend on future capital requirements and Treasury Department support.
IPO proposals for Fannie Mae by 2026 and Freddie Mac by 2027 add urgency to the debate.
Investors are closely watching the impact of potential policy changes on mortgage markets.
Bull Case:
Nearly half of MBS investors expecting Fannie Mae and Freddie Mac to be privatized by 2028 reflects growing confidence in the feasibility of transitioning the GSEs out of government control, potentially unlocking shareholder value.
Privatization could allow Fannie Mae and Freddie Mac to raise significant capital, enabling them to diversify their offerings beyond mortgages and compete more effectively with private financial institutions.
An IPO for Fannie Mae by 2026 and Freddie Mac by 2027 could generate substantial federal revenue while reducing taxpayer exposure to housing market risks.
Privatization with an explicit government guarantee could tighten MBS risk premiums, stabilizing mortgage rates and benefiting U.S. homeowners.
Trump’s administration has historically supported privatization initiatives, signaling potential policy momentum that could accelerate the process and attract investor interest.
Bear Case:
The complexity of privatizing Fannie Mae and Freddie Mac, including capital requirements and government guarantees, presents significant logistical and regulatory hurdles that could delay or derail the process.
Privatization without sufficient capital reserves could widen MBS risk premiums by up to 45 basis points, increasing mortgage costs for U.S. homeowners and dampening housing market activity.
Uncertainty surrounding the timeline for privatization creates volatility in GSE stock prices, making them speculative investments with high risks for shareholders.
Critics argue that privatization could reduce access to affordable mortgage loans for middle-income and underserved communities, undermining the GSEs’ public mission.
Broad investor skepticism about the feasibility of privatization, as evidenced by 26% of survey respondents believing it will never occur, highlights persistent doubts about political and economic challenges.
The survey, conducted from Jan. 16 to Jan. 23, included 126 respondents and highlighted differing views on how privatization might unfold. Scenarios such as privatization with current capital levels could significantly increase MBS risk premiums, while stronger capital requirements or government guarantees would mitigate those effects. Ultimately, these outcomes will shape mortgage costs for millions of Americans.
Notably, high-profile investors, including hedge fund chief Bill Ackman, have pushed for initial public offerings for Fannie Mae and Freddie Mac within the next four years. Shares of the GSEs have gained substantially since Trump’s election, though they remain speculative investments. Fannie Mae’s common shares were down over 15% on Friday, reflecting the volatile nature of this ongoing debate.
This article was originally published on Quiver News, read the full story.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Fannie Mae (FNMA) Shares Slide Amid Privatization Debate

President-elect Donald Trump has made many investors bullish on the market, which has been on an incredible two-year run. Many believe deregulation and corporate tax cuts could create powerful tailwinds, unlocking positive investor sentiment that could propel stocks higher.
Not surprisingly, billionaire investor Bill Ackman, a vocal Trump supporter, is all aboard this train. Ackman and his fund Pershing Square Holdings have delivered extraordinary gains over the last five years. Ackman now thinks two of Pershing's longtime holdings are set to run roughly 900% thanks to the incoming Trump administration. Let's take a look.
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Could a 17-year conservatorship be coming to an end?
In 2013, Ackman and Pershing acquired a roughly 10% stake in the common shares of the government-sponsored entities (GSEs) Federal National Mortgage Association (OTC: FNMA) and Federal Home Loan Mortgage (OTC: FMCC), known as Fannie Mae and Freddie Mac. Recently on X, Ackman laid out his thesis about how the two mortgage giants could exit government conservatorship and be recapitalized, leading to significant shareholder gains.
To provide some quick background, the U.S. Treasury Department took Fannie and Freddie into conservatorship in 2008 after the two agencies got caught holding too many subprime mortgage loans. Fannie and Freddie serve as a vital source of liquidity to the mortgage market, buying mortgage loans from financial institutions and lenders and packaging them into securities that are then sold to investors. Fannie packages mortgage loans from larger banks, while Freddie packages them from smaller banks.
While under conservatorship, Fannie and Freddie passed along all of their profits to the Treasury under what's known as the net sweep agreement. The Treasury also holds over $193 billion of senior preferred stock in Fannie and Freddie, as well as warrants that equal close to 80% of Fannie and Freddie's common stock and expire in September 2028. The Treasury injected $187 billion of capital into Fannie and Freddie when taking them under conservatorship and has since seen about $300 billion paid back from the net sweep agreement.
Shareholders, who got crushed after Fannie and Freddie were taken into conservatorship, have argued that it is time for the Treasury to release the two GSEs from conservatorship, while other hedge fund managers like Ackman have bet on this happening eventually. Things started to move in that direction under Trump's first administration. Treasury Secretary Steven Mnuchin ended the net sweep agreement and allowed Fannie and Freddie to retain profits to build capital. Meanwhile, the Federal Housing Finance Administration (FHFA) established new capital requirements that Fannie and Freddie must reach to exit conservatorship.
A major issue is how Fannie and Freddie can realistically raise tens of billions of capital when the Treasury holds hundreds of billions in senior preferred stock and cash warrants because there is likely to be significant dilution.
Ackman believes the second Trump administration is poised to finish the job. He envisions a path where the GSEs are credited for their previous distributions to the Treasury Department under the net sweep agreement, which would then retire the senior preferred stock. The GSE's total capital requirements would be set at 2.5% of outstanding mortgage guarantees, a level Ackman believes would create a fortress balance sheet that could have covered roughly seven times the losses Fannie and Freddie incurred during the Great Recession. The Treasury could then cash their warrants and sell down the common stock over five years, netting a profit of $300 billion.
How Ackman arrives at the upside
Ackman assumes Fannie and Freddie raise capital in the fourth quarter of 2026, giving them another two years to build capital. The GSEs have strong earnings power, so they can accumulate capital quickly. At that point, they would need another $30 billion to hit their 2.5% capital requirements.
Ackman estimates the value for both Fannie and Freddie to be around $34 per share. That's 888% upside for Fannie and 909% upside for Freddie from their current levels (as of Jan. 2).
While shares surged following Ackman's post, investors should understand the significant risk in this investment and the many variables at play. Ackman assumes the Treasury will credit past distributions toward the senior preferred stock and that the capital requirement will be at 2.5%. However, the Congressional Budget Office (CBO) ran some scenarios about the GSEs exiting conservatorship in 2020, and the lowest capital requirement used was 3%. It's also not clear the Treasury would apply old distributions to the senior preferred stock.
That said, if the administration truly wants to exit the GSEs from conservatorship, it will probably need to make concessions on the senior preferred stock or warrants, and it's definitely possible they use a lower 2.5% capital requirement.
I agree with Ackman that the probability of the GSEs exiting conservatorship has risen significantly. However, many unknown variables could arise, so investors should tread carefully.
Another idea is to buy the junior preferred shares, which still trade at a significant discount. There's less upside than the common shares, but the junior preferred shares have higher priority than the common shares in the capital stack. It depends on where you want to be on the risk spectrum. A smaller speculative position is probably best here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Billionaire Investor Bill Ackman Thinks 2 Stocks Could Soar Roughly 900% Under the Incoming Trump Administration

Many investors tried to position their portfolios based on which candidate they thought might win the U.S. presidential election. Billionaire investor Bill Ackman and his fund, Pershing Square Capital Management, held a large position in two stocks they predicted would win if former President Donald Trump triumphed.
Following Trump's victory, the entire market soared. Few, if any, stocks have performed better than these two, which trade on over-the-counter exchanges. Ackman has seemingly done it again and could be poised to cash in big on his election bet now that Trump has won. Let's take a look.
Jackpot for Fannie and Freddie
For the last 15 or so years, a small group of shareholders has bet on the Federal National Mortgage Association (OTC: FNMA), also known as Fannie Mae, and the Federal Home Loan Mortgage (OTC: FMCC), also known as Freddie Mac, one day exiting government conservatorship through a recapitalization. Fannie and Freddie both serve as a vital source of liquidity in the mortgage market, securitizing mortgages and selling them to investors. This allows banks and other lenders to get mortgages off of their balance sheets so they can meet demand.
The government took Fannie and Freddie into conservatorship during the Great Recession and injected about $190 billion into the two companies after they got caught up in the subprime mortgage crisis. Between 2012 and 2019, the two government-sponsored entities (GSEs) have passed along $292 billion in profits to the Treasury. The Treasury also holds roughly $200 billion of senior preferred stock in both agencies and warrants equal to 79.9% of total outstanding shares expiring in September 2028.
In 2019, the Treasury Department amended its agreement with Fannie and Freddie, allowing them to build capital. The Federal Housing Finance Agency (FHFA) also established regulatory capital requirements that the GSEs would need to reach to exit conservatorship. The moves marked a potential exit plan for Fannie and Freddie that could culminate in a massive capital raise.
Many of these events took place during Trump's first term, and Trump made it clear that he wanted to exit the GSEs from conservatorship. During the recent presidential campaign, investors assumed a Trump victory would resume these efforts.
Ackman, a vocal supporter of Trump, and Pershing have been believers for more than a decade that there is an "economic and political rationale" to independence for the GSEs, and in Pershing's 2023 annual report, they all but said the key lies in a Trump victory:
The U.S. Presidential election in November 2024 may present the opportunity for a change in the status quo. Both companies' stock price increases in 2023 and year to date reflect optimism around a potential reprivatization in the event former President Trump is reelected. The Trump administration had begun the process of releasing Fannie and Freddie from conservatorship, a process which would likely be completed in a future Trump administration.
The government would also likely profit handsomely from the GSEs exiting conservatorship, given they own so much senior preferred stock and warrants. They could put these potential profits toward housing initiatives.
Right after Trump won, here's what happened to the shares of Fannie Mae and Freddie Mac. The junior preferred shares have done even better, up nearly 88% since Trump won (before the market opened on Nov. 11).
FNMA data by YCharts
Ackman's position
In 2013, Pershing purchased a nearly 10% stake in both Fannie and Freddie. Based on trade data in the filings, Pershing and Ackman purchased more than 115 million shares of Fannie for an average price of $2.29. He also purchased about 63.5 million shares for an average cost of $2.14.
After 2014, Ackman and Pershing were able to stop filing their ownership stakes due to the belief that the common shares were not voting shares, so we don't know their exact positions since then. Fannie's and Freddie's 2024 annual reports show that Ackman and Pershing acquired additional economic exposure through notional shares and swap transactions, but I'm guessing this has to do more with derivatives to either hedge or add exposure, as opposed to actually owning shares.
If we assume Ackman and Pershing still own the same amount of common shares as they did in 2014, their investments would be in the red, even after this big run. Assuming the same cost per share, Ackman's Fannie Mae position is down about 5.7%, while Freddie Mac is down close to 11% (before the market opened on Nov. 11).
However, this still puts Ackman and Pershing in a great position to capitalize, especially if the Trump administration follows through on promises. Fannie and Freddie are quickly raising capital to hit their regulatory capital goals. A capital raise could accelerate this path, but this is where things get murky.
Remember, the Treasury still has roughly $190 billion of senior preferred stock and warrants. Those would likely have to be dealt with, not to mention claims from existing junior preferred and common shareholders. Potential investors would need to understand what kind of dilution could be in the cards from the potential redemption of the senior preferred stock or exercise of the warrants. Fannie and Freddie may not be able to raise enough capital, and all shareholders may not be made whole, so there is still a lot of risk involved.
That said, a successful recapitalization without wiping out the common shares, which is still far from a guarantee, would lead to Fannie and Freddie's stocks trading at many multiples of their current price.
Interested investors may also want to look at the junior preferred shares, which have priority over common shares in the capital stack. After an 88% run following Trump's win, the junior preferred shares still trade at less than half of their par (book) value. The trade remains risky, but Ackman stands to make a killing if things work out.
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Bram Berkowitz has positions in Federal National Mortgage Association. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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Billionaire Investor Bill Ackman's Election Bet Could Hit Big After Trump's Victory

Bill Ackman and his fund Pershing Square Capital Management have built quite a reputation in the past few decades. So much so that Ackman is now viewed as one of the greatest investors ever. Between 2003 and 2021, Ackman generated 17.1% annualized returns, easily beating the broader benchmark S&P 500.
These kinds of returns have led investors to follow Pershing's every move. Interestingly, Ackman's fund Pershing Square Holdings owns a 10% stake in two over-the-counter stocks. Although this move was made more than a decade ago, Pershing has maintained its position in these two stocks. Let's take a look.
The case for Fannie Mae and Freddie Mac
In November 2013, Securities and Exchange Commission filings show that Pershing Square purchased a nearly 10% stake in the Federal National Mortgage Association (OTC: FNMA), known as Fannie Mae, and the Federal Home Loan Mortgage Corporation (OTC: FMCC), known as Freddie Mac.
Both Fannie and Freddie buy mortgages from banks and then hold them on their respective balance sheets or package them into mortgage-backed securities, which they typically sell to investors. You'll see lots of banks buying mortgage-backed securities as an alternative to using cash to make loans. Fannie buys mortgages from larger banks and Freddie does the same for smaller banks. The two entities are a key part of the U.S. housing market because they allow banks to get mortgages off their balance sheets and therefore serve as a critical source of liquidity for lenders so they can make new loans.
Fannie and Freddie got into trouble during the Great Recession because they had been packaging too many subprime mortgages before the housing market collapse, which ultimately led to so much financial stress that the government had to bail out both companies and put them into conservatorship. The Treasury Department in 2008 injected $187 billion of taxpayer money into the two companies in return for senior preferred stock.
In the 16 years since this has happened, there has been tremendous controversy over the fact that the two government-sponsored entities (GSEs) remain in conservatorship. In 2012, certain changes were made to the agreement between the GSEs and the Treasury Department that effectively required all of their profits to go to the Treasury after reaching a certain equity value. That ultimately led Fannie and Freddie to pass along more than $300 billion in profits to the Treasury, as of the end of 2019.
Shareholders, who have seen Fannie and Freddie's stock prices plummet and not recover, are not happy. They would like the government to release the GSEs from conservatorship and recapitalize them. In 2019, under the Trump administration, the agreement between the GSEs and the Treasury Department was amended, and the two GSEs were allowed to retain profits instead of giving them to the Treasury. The purpose of the amendment was to allow the GSEs to build capital and eventually exit conservatorship. The Federal Finance Housing Agency, the GSE's regulator, eventually established capital requirements for the GSEs, which are somewhere between $250 billion and $300 billion combined.
The GSEs have started to build capital quickly because they are big companies that can collectively generate between $15 billion and $20 billion of annual earnings. Total shareholder equity at Fannie Mae has risen from roughly $6.2 billion at the end of 2018 to nearly $86.5 billion in the second quarter of 2024. Freddie Mac recently surpassed $53 billion.
The issue is that Fannie and Freddie are still saddled with senior preferred stock from the Treasury of more than $193 billion combined, as well as tens of billions of preferred stock and common stock. The Treasury Department also owns warrants that expire in 2028 and give the agency the right (but not the obligation) to buy 79.9% of the common stock outstanding in both GSEs. In a 2020 report from the Congressional Budget Office (CBO), the agency said that if Fannie and Freddie are to be capitalized, the two GSEs would likely need to redeem the senior preferred stock and address claims of existing shareholders.
A journey filled with variables
Fannie and Freddie had a combined $140 billion of equity at the end of the second quarter of 2024, meaning they are, in theory, halfway toward the capital required to exit conservatorship. However, they need to figure out what to do with the senior preferred stock, the Treasury's warrants, and potential claims held by other shareholders. A recapitalization feels like it would be pretty difficult if the GSEs redeem the senior preferred stock and the Treasury also cashes in its warrants, so something may need to change in these agreements if a recap is made a priority by the government. Either way, a recap would likely require an enormous initial public offering -- maybe the biggest one ever -- to get the GSEs out of conservatorship without waiting at least another decade or two.
This process is also highly political. Former President Donald Trump has been a big proponent of exiting the GSEs from conservatorship and began the process during his time in office, so if he wins the election his administration could speed up the process. But it's also quite possible that Kamala Harris' administration or another administration in the future won't prioritize exiting the GSEs from conservatorship, and the process is dragged out over many years.
Ackman hasn't sold his position in more than a decade. In Pershing Square Holdings' annual presentation in February, the company said it sees the reprivatization of the GSEs as an "eventuality" that could take some time. In a 2023 report, the company said it believes there is "political and economic rationale" for exiting the GSEs from conservatorship, and cited a Trump reelection as a potential catalyst.
Ultimately, the preferred and common shares will remain very risky, given the level of uncertainty and amount of capital needed. So if you are a risk-averse investor, I wouldn't bother with this investment. But if you are interested, I think the junior preferred shares could be worth a small investment for investors with time on their side. I own some of the preferred shares in my retirement portfolio, which are currently trading at just about 18% of par ($25). The common shares have the most upside, but their path is the most uncertain and therefore comes with the most risk.
Should you invest $1,000 in Federal National Mortgage Association right now?
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Billionaire Investor Bill Ackman Holds a 10% Stake in 2 Over-the-Counter Stocks

Income-minded investors won't find a much higher-paying option right now than AGNC Investment (NASDAQ: AGNC), with its dividend yield of almost 15%. That's a much higher yearly payout than the stock market's average annual gain.
However, stepping into this high-yielding stock simply because of its hefty dividend isn't necessarily the best move. There's more to the story. There's a lot more to the story, in fact.
But first things first.
What the heck is a mortgage REIT?
You're probably familiar with stocks of conventional companies. Owning a stake in Coca-Cola, for instance, means you share in the profits generated by the sales of some of the world's favorite beverages. A position in Apple reflects the revenue-bearing and profit-producing success of the iPhone and the company's other devices and services.
AGNC Investment isn't a conventional company, though. It's a real estate investment trust, or REIT. Most of these businersses are structured to hold rent-producing real estate like hotels, apartment complexes, or shopping malls. As long as 90% of a REIT's earnings are passed along to shareholders annually in the form of dividends, that income isn't first taxed at the corporate level (which would reduce its net bottom line).
Even by REIT standards, however, AGNC Investment is an unusual outfit. It doesn't own real estate. Rather, it owns bundles of mortgage loans made by government-run entities like Fannie Mae, Freddie Mac, and Ginnie Mae. These mortgages, of course, yield interest payments to their holders.
The twist? AGNC Investment uses borrowed money -- which also incurs interest expenses -- to purchase these bundles of mortgage loans.
That can be a bit of a head-scratcher. The REIT is paying interest to earn interest. The model usually works, however, because AGNC Investment borrows short-term funds at lower interest rates to finance purchases of longer-term mortgage loans that pay higher interest rates.
Except the model's been broken of late.
AGNC Investment on the defensive
Even if you only keep loose tabs on the market's condition, you've likely heard over the course of the past several months that the yield curve is inverted. That just means interest rates on short-term securities and bonds are higher than the interest rates on longer-term bonds and other debt -- a phenomenon sometimes seen when investors have doubts about the economy's near future, and anticipate stimulative rate cuts as a result. Such rate cuts tend to have a much greater impact on long-term bond prices, so investors gravitate toward relatively more stable short-term instruments during uncertain times.
And yes, such a shift can really mess things up for a mortgage REIT like AGNC Investment. In fact, it has messed things up for it. With its short-term borrowing costs creeping up while interest rates on its longer-term mortgage loan bundles are edging lower, AGNC Investment reported negative net interest income in each of its past four reported quarters. It's also now regularly reporting unrealized losses on the value of some of the mortgage-backed securities it's holding.
That hasn't prevented it from continuing to pay its dividend -- at least not yet. AGNC Investment has some cash and cash-like equivalents on its books, and it can sell securities as needed to come up with money to pay the dividend.
That's a less-than-ideal situation, though. No company wants to be forced to sell assets at terms other than of their choosing. (Price-wise, the REIT could be doing itself long-term harm by shedding securities that could be worth much more in the future.)
It's also a given that operating in the red is a problem even beyond the matter of supporting its dividend payments.
This is all why AGNC Investment has been such a disastrous performer since mid-2021, when economic cracks started to show and we first started seeing hints that the yield curve would eventually invert. The REIT's shares have lost roughly half their value over that timeframe.
There's the rub for would-be investors, of course. The dividend is still being paid, but AGNC's unrealized losses are significant. Any investor who likes the option of being able to liquidate a dividend-paying position with at least most of the initial position intact would struggle to stomach such a setback.
Then there's the other ugly reality: While the company is still paying its dividend, something has got to give sooner or later. If the yield curve remains inverted for a while, the maintaining the dividend may prove untenable.
Not the right dividend-paying stock for everyone
But maybe the global economy will experience a soft landing that un-inverts the yield curve. That would certainly work in the REIT's favor. And for the record, interest rates are moving in that direction after the fourth quarter's preliminary gross domestic product annual growth rate came in at 3.3%, which easily exceeded expectations of 2%. Never say never.
Still, this isn't palatable volatility for faint-of-heart income investors... even with the enormous dividend yield that has resulted from it. Mortgage REITs like AGNC Investment that rely heavily on borrowing leverage are highly sensitive to even the slightest degree of turbulence in interest rates and credit markets. Full-blown economic weakness can be near-catastrophic to them.
In other words, if safety is a concern, look elsewhere. You may not find another stock yielding as much as this one does. However, you can find above-average yields attached to stocks that are much less volatile and risky. Being able to sleep at night counts for something, too.
Should you invest $1,000 in AGNC Investment Corp. right now?
Before you buy stock in AGNC Investment Corp., consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and AGNC Investment Corp. wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Is AGNC Investment the Best Dividend Stock for You?

The S&P 500 officially hit a new all-time high last week, confirming a new bull market. Inflation continues to subside, and many expect interest rate cuts this year, which could fuel a further surge in stocks.
As a long-term investor, your focus should be on consistently putting your cash to work in quality companies with robust competitive advantages that are growing well. It's also important to diversify across industries to gain exposure to different aspects of the economy.
Two growth stocks in the financial sector that can make solid additions to your portfolio are Kinsale Capital (NYSE: KNSL) and Tradeweb Markets (NASDAQ: TW). Here's why.
1. Kinsale Capital
Companies and individuals are happy to pay for insurance to protect them from downside risks. Excess and surplus (E&S) insurance is one tool companies use to manage unique risks when regular insurance is insufficient.
Kinsale Capital specializes in this specialty insurance, writing policies that cover small business casualty, construction, professional liability, and aviation, to name a few. What makes Kinsale special is its ability to tap into its deep knowledge base to cover risks and generate stellar profits on the policies it underwrites.
Its management team has decades of experience in the industry, and its platform leverages its data and knowledge to analyze trends and price policies accordingly. This platform and data advantage give Kinsale a strong competitive moat that has generated excellent earnings and stock price appreciation.
You can evaluate Kinsale's underwriting ability through its combined ratio. When analyzing insurance companies, the combined ratio is a great way to see how good a company is at writing profitable insurance policies. This ratio divides the claims costs plus expenses by the premiums taken in. A ratio of 100 means a company's policies are breaking even, and the lower the ratio, the more profitable the policies are.
Over the past seven years, Kinsale's combined ratio has averaged 81%, crushing its competitors and driving its excellent stock performance. Its stellar underwriting is why the stock has smashed the market since its public debut in 2016, delivering investors a total return of 2,180%.
With risks relating to climate, cybersecurity, and evolving business models rising, E&S insurers could continue to see strong demand. According to Straits Research, the specialty insurance market could reach $179 billion by 2030, representing a 9.3% compound annual growth rate.
Considering Kinsale's track record of writing profitable policies and its ongoing growth in the specialty insurance market, this under-the-radar finance stock can make an excellent addition to your portfolio.
2. Tradeweb Markets
Tradeweb Markets provides Wall Street professionals, such as hedge funds, central banks, and market makers, with a trading platform to buy and sell various financial assets. Founded in 1996, Tradeweb brought U.S. Treasuries trading into the technological age.
What makes Tradeweb an intriguing investment is its growing market share, which it has achieved by providing its professional clients with the best trading experience possible. Over recent years, the company has made key acquisitions to build its already expansive platform, benefiting its clients through lower trading costs while delicately protecting their information so they don't get front-run on their orders.
The proof is in the pudding, which you can see from Tradeweb's growing market share. Since 2016, Tradeweb's average daily volume across all its available tradable assets has increased by 21% compounded annually. For comparison, the total daily volume across those markets grew at 11% annually -- showing Tradeweb's growth is nearly double that of the market it serves.
Its fastest-growing markets include interest rate products (think U.S. Treasuries or mortgage-backed securities) and credit products (high-yield bonds in the U.S. and Europe and municipal bonds). Another favorable tailwind for Tradeweb is partnerships with major financial companies, including BlackRock, Freddie Mac, Cboe Global Markets, and S&P Global.
Best of all, there's still room for further growth. Roughly 60% of U.S. Treasury trading is digitized, leaving about 40% of trades that still occur over the phone. Not only that, but the platform continues to grab an increasing share of U.S. investment-grade debt and is also making headway in the global exchange-traded fund (ETF) market.
Tradeweb has benefited from active markets over the past few years and should continue to enjoy tailwinds from increased trading activity. Analysts expect Tradeweb's solid growth to persist, with earnings per share growing 16% in 2024 and maintaining double-digit growth through 2027.
Tradeweb has done an excellent job providing a top-notch experience for clients, evidenced by its growing market share, making it another excellent financial stock to add to your diversified portfolio today.
Should you invest $1,000 in Kinsale Capital Group right now?
Before you buy stock in Kinsale Capital Group, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Kinsale Capital Group wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
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Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cboe Global Markets, Kinsale Capital Group, and S&P Global. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

2 Financial Stocks You Can Buy Right Now Before They Surge Even Higher

Shares of Federal National Mortgage Association (OTC: FNMA), also known as Fannie Mae, are up 11.6% this week as of Thursday's close, according to data provided by S&P Global Market Intelligence. Federal Home Loan Mortgage Corp (OTC: FMCC), also known as Freddie Mac, and online real estate platform Redfin (NASDAQ: RDFN) are also each up more than 9% this week as of this writing.
Their catalyst in common: Lower mortgage-interest rates are bolstering home affordability, mortgage activity, and new home listings.
Mortgage applications and new listings are surging
In a press release last week, Fannie Mae's Economic and Strategic Research (ESR) Group predicted a "mild economic downturn" in 2024, "including stretched consumer spending relative to personal incomes and the continued effects of restrictive monetary policy still working through the economy."
But the group also forecasts a return to growth in 2025. Thanks to a sharp decline in mortgage-interest rates in recent weeks, mortgage applications have already rebounded roughly 15% from their trough in November. Fannie Mae added that it expects this trend to continue if mortgage rates keep falling.
Indeed, according to data released earlier today by Freddie Mac, the average mortgage rate for a 30-year fixed-rate loan declined to 6.61% this week, marking its lowest level since May. This was also the ninth straight week of declines since mortgage-interest rates hit their highest level in 22 years in late October.
Meanwhile, according to Redfin last week, those interest-rate declines have already resulted in a double-digit percent increase in homeowners contacting real estate agents for help in selling their homes. Redfin added that new listings also promptly climbed 9% year over year, good for the highest annual bump since July 2021. And in a press release this morning, Redfin said that U.S. pending home sales have declined 4% year over year in the four weeks ending Dec. 24 -- the metric's smallest drop in nearly two years.
What's next for rates, home sales in 2024?
As Fannie Mae indicated, the encouraging real estate and mortgage-market trends can be traced back to recent actions by the U.S. Federal Reserve. The Fed previously implemented a historically fast pace of rate hikes between March 2022 and August 2023 with the aim of cooling economic growth and curbing high inflation. But as the ripple effects of the resulting slowdown have become more clear and inflation trends toward the Fed's target 2% level, last month Fed officials held the federal funds rate steady for the third straight month. More importantly, they also indicated that at least three rate reductions are on the way in 2024.
To be clear, the Fed doesn't directly set mortgage rates. But its monetary policy does influence mortgage lenders as they determine how much interest to charge on the loans they write.
In any case, the news represents a reprieve for fatigued home shoppers. Redfin also recently revealed that only 15.5% home listings in the U.S. were "affordable" last year as measured by home prices and average household incomes. That marked the metric's lowest share of affordable homes on record.
That's not to say the current headwinds holding back the housing and mortgage markets will abate entirely in the near future. To the contrary, Fannie Mae researchers suggest that a combination of affordability challenges, low inventories, and the "lock-in effect" of existing homeowners with low rates on their mortgages will more likely mean there will be a "meaningful but slow" recovery in home sales in the coming year.
But however slow that recovery ends up being, it'll still be great news not only for the average homebuyer but also for businesses that are perfectly positioned to benefit from the rebound in the housing market like Redfin, Fannie Mae, and Freddie Mac.
Should you invest $1,000 in Federal Home Loan Mortgage right now?
Before you buy stock in Federal Home Loan Mortgage, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Federal Home Loan Mortgage wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
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Steve Symington has positions in Redfin. The Motley Fool has positions in and recommends Redfin. The Motley Fool recommends the following options: short February 2024 $8 calls on Redfin. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Why Fannie Mae, Freddie Mac, and Redfin Soared This Week

Capital markets are the lifeblood of the financial system. They help facilitate raising capital, trading, and investing and ensure the smooth operation of equity and debt markets. Companies in this industry include investment banks and brokerage firms.
Tradeweb Markets (NASDAQ: TW) is one company in the industry worthy of consideration. The professional trading platform has grabbed market share en route to its stellar growth over recent years. If you're looking to invest in capital market stocks, Tradeweb is a top choice. Here's why.
Tradeweb's commitment to clients has it grabbing market share
Formed in 1996, Tradeweb Markets could be considered one of the earliest fintechs. At that time, the professional trading platform brought U.S. Treasuries trading into the technological age. It caters to Wall Street's largest participants, facilitating trading across various assets for hedge funds, central banks, market makers, and other institutions.
Tradeweb is an intriguing investment opportunity because it keeps gaining market share. For example, U.S. Treasuries are among the most popular assets on its trading platform. Since 2017, Tradeweb's market share (based on total volume) has grown from 9.4% to 18.8%. While it hasn't grown as quickly in this area in recent years, it continues to make gains in credit markets, including U.S. investment grade and U.S. high-yield debt, where its market share has tripled over the past five years.
Part of Tradeweb's success is listening closely to customers to provide them with the best experience possible. For example, a couple of years ago, it acquired Nasdaq's fixed-income trading platform, improving clients' access to Treasuries trading while reducing their trading costs. It also aims to protect clients' trade information, which prevents other market participants from front-running orders.
This commitment to clients is why Tradeweb's partners include BlackRock, Federal Home Loan Mortgage Corporation (Freddie Mac), Cboe, and S&P Global Market Intelligence. These partnerships are a crucial part of its reach and growing market share.
Its recent earnings show continuing growth
Tradeweb's recent third-quarter earnings showed the strength of its trading platform. In the quarter, the company's transaction fees of $263 million were up nearly 16% from last year. Its revenue growth outpaced expenses, and its net income surged 43% from a year earlier.
Tradeweb benefited from active markets around interest rate products and money markets as interest rates hit their highest levels in decades. Its average daily volume across assets was up nearly 30%.
A word on its valuation
Tradeweb trades at an expensive valuation, at more than 55 times earnings and 15 times sales. Its high price tag is due to the company's stellar growth. Analysts expect earnings per share to grow 51% this year, followed by 14% next year, and in the double-digit percentage range for the next several years.
A high price tag should be expected for a company growing as quickly as Tradeweb. As long as it continues its solid growth, investors shouldn't be overly concerned with its premium valuation. However, a slowdown in future growth expectations could send the stock price tumbling -- something investors should always keep in mind when investing in high-growth stocks.
Tradeweb should benefit from these tailwinds
Tradeweb is well positioned to benefit from expanding government and corporate debt. This is because more debt results in higher trading volume through its growing platform. Its efforts to digitize the trading process in markets is ongoing, and it continues to expand its capabilities into credit and equity markets. The company also sits on a solid foundation, with more than $1.5 billion in cash and cash equivalents.
Tradeweb has benefited from active markets during the past year and should continue to enjoy tailwinds from increased trading activity. It has done an excellent job of catering to customers and grabbing market share, making it a top capital markets stock for investors today.
10 stocks we like better than Tradeweb Markets
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

FREDDIE MAC

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