Let’s talk about Fannie Mae (FNMA).

I’ve owned the stock for a year and a half.

At one point I was up 150%.

Now I’m down 50%.

Tis investing…

But the stock has been in the news recently. And yesterday it got a 20% boost after positive comments from Treasury Secretary Scott Bessent.

Let’s start from the beginning.

Details of My Fannie Mae Trade – From the Beginning

Fannie Mae’s business is actually pretty straightforward.

It buys mortgages from banks, guarantees those loans, and helps keep money flowing through the housing market so Americans can get things like 30-year fixed-rate mortgages.

Fannie makes money by collecting fees on the mortgages it guarantees and earning interest on mortgages and mortgage-backed securities it owns.

Then 2008 happened.

The housing market collapsed, Fannie Mae and its sister company Freddie Mac suffered enormous losses, and the federal government stepped in to keep them alive.

Both companies were placed into something called conservatorship.

The Treasury eventually pumped $191.4 billion into them.

Fannie received $119.8 billion.

Freddie received $71.6 billion.

But that bailout came with a steep price.

Fannie and Freddie initially had to pay the Treasury a 10% annual dividend on the money they received.

The government also received warrants allowing it to purchase 79.9% of each company’s common stock for next to nothing.

For existing shareholders, it was devastating.

Their shares collapsed in value.

But they weren’t completely wiped out.

Private shareholders still owned their shares, which meant they retained a potential claim on whatever value might eventually remain.

At the time, that looked like a lottery ticket with terrible odds.

Then things got even worse.

Fannie and Freddie often didn’t earn enough to pay their bills.

They had to borrow more from the Treasury just to cover the 10% interest.

Each year the hole got deeper.

By 2012, the Treasury decided to change the rules.

Instead of the original 10% dividend, Fannie and Freddie were required to send all of their profits to the Treasury.

And the timing couldn’t have been worse for shareholders.

The housing market was beginning to recover. Fannie and Freddie were becoming profitable again.

Shareholders essentially argued:

Hold on… back in 2008, you didn’t wipe us out completely. You left us with 20%. We held onto that through the worst of it. Now, just as the business is finally recovering, you change the deal so our stake is worth nothing? That’s not fair!

That decision sparked years of lawsuits and controversy.

And then something remarkable happened.

Fannie and Freddie became enormously profitable.

Since the bailout, the two companies have sent the Treasury more than $300 billion in dividends – far more than the $191.4 billion they originally borrowed.

If the bailout worked like a normal loan, you could argue taxpayers have been paid back with billions to spare.

But it didn’t work like a normal loan.

Those payments were treated as dividends rather than repayments of the government’s bailout.

So technically, Fannie and Freddie still owe a few hundred billion dollars.

And then came another major change.

Beginning in 2019 and expanded again in 2021, Fannie and Freddie were allowed to retain their earnings instead of sending all their profits to the Treasury.

The idea was to rebuild their capital so they could eventually stand on their own again.

And that brings us to why I find Fannie Mae so interesting today.

The government no longer has an incentive to hold onto Fannie and Freddie because it’s not collecting profits every quarter.

But the Treasury does hold warrants allowing it to acquire 79.9% of Fannie’s common stock.

Those warrants could become extraordinarily valuable if Fannie is eventually released from conservatorship and recapitalized.

So the government has an enormous financial incentive to resolve the conservatorship and monetize its investment.

That could involve a massive capital raise and public stock offering.

And if Fannie finally returns to private ownership, the shares that survived the entire ordeal could suddenly become extremely valuable again.

Billionaire investor Bill Ackman has even put numbers to it.

He believes under a fair restructuring, the stock could be worth $34 per share.

His logic is simple.

The government already made back its money.

It’s not making any more after the 2021 deal.

What’s left should go to shareholders.

79.9% to the government.

20.1% to the public.

That’s why I own Fannie Mae.

It’s not a quick trade.

And it’s not without risk.

But it’s a bet that freeing Fannie and Freddie will be good for both sides – the government which can finally sell their stake for billions and the shareholders who’ve waited over a decade for a fair shake.

Here’s the Latest on Fannie Mae

Shares spiked 20% yesterday on comments from Treasury Secretary Scott Bessent.

"I would imagine that next year, [or] the year after, we will be tackling the ownership structure," Bessent said in an interview.

This is the first time we’ve heard a meaningful comment about Fannie and Freddie from a top government official in months.

There have just been bigger priorities competing for Washington’s attention:

• The war in Iran

• The war in Ukraine

• Interest rates rising

• AI ending humanity fears

Ending the conservatorship simply hasn’t been a priority.

That’s been frustrating as a shareholder. But Bessent’s comments are a reminder that the idea hasn’t disappeared.

More importantly, he gave us something we haven’t had in a while: a timeline.

Maybe it happens next year. Maybe it happens the year after.

I don’t know.

But my investment thesis hasn’t changed.

I bought Fannie because I believe the government will eventually end the conservatorship and return the company to private ownership.

Bessent’s comments are the first indication in months that Washington is starting to think about that process again.

I’m sticking with my shares as the details are hammered out.