People often ask why I own Fannie Mae (FNMA).

It’s not exactly the kind of “hot stock” that comes up at cocktail parties.

Fannie’s story is messy.

The politics are complicated.

Yet once you cut through the noise, the setup is fairly simple.

Today, I’m breaking down my Fannie Mae trade for all investor levels to understand.

Read on below to learn why FNMA is the only stock I currently own in my Million Mission portfolio.

Details of My FNMA Trade – From the Beginning

Fannie Mae’s business is actually pretty straightforward.

They buy mortgages from banks, guarantee those loans, and keep the capital flowing so Americans can access 30-year fixed-rate mortgages.

They make money by charging fees on the loans they guarantee and earning interest on the mortgage-backed securities they hold.

When Fannie (and its sister company Freddie) went down in 2008, the U.S. government stepped in.

Regulators put them into “conservatorship” and handed them a bailout big enough to keep the mortgage market alive.

But the bailout came at a steep price.

The Treasury pumped in billions.

In return, Fannie and Freddie owed a 10% dividend on that money every year.

Plus, the Treasury also claimed 79.9% ownership of the companies for free.

For shareholders, it was a crushing blow.

Their stock was nearly worthless.

But they weren’t completely wiped out.

They still owned 20.1% of the companies.

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

If Fannie and Freddie ever recovered it could someday be worth something again.

The next few years were ugly.

Fannie and Freddie often didn’t even 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 paying 10% interest, Fannie and Freddie would now just hand over 100% of their profits forever.

That’s when the real controversy began.

Because right when this new change took effect the housing market started to recover.

Shareholders 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!

And here’s the kicker.

Since the bailout, Fannie and Freddie have actually sent more money to the government than they ever borrowed.

Fannie drew $119.8 billion.

Freddie drew $71.6 billion.

Combined that’s $191.4 billion.

Yet to date they’ve already paid over $300 billion in dividends and profits.

If you treated that as debt repayment, the bailout would be paid back in full with billions extra for taxpayers.

Yet, because of the 2012 deal they still “owe” the government over $300 billion.

It’s a trap that keeps them stuck in conservatorship.

Now, there’s one more wrinkle in this story.

Since 2021, towards the end of President Trump’s first term, Fannie and Freddie actually haven’t paid any profits to the Treasury.

A new rule was passed allowing them to keep their profits in order to build up reserves.

This was in order to improve their financial position enough to eventually operate on their own.

[Those profits are still getting counted toward what Fannie and Freddie “owe” the government, however.]

But this is what makes Fannie Mae stock so interesting today.

Fannie (Freddie too) isn't actually paying profits to the government anymore so there’s no financial incentive for the government to keep the company in conservatorship.

The government does own nearly 80% of the stock, however, which eventually they’ll want to cash in on.

The easiest way to cash in will be through an IPO.

When that happens, the public shareholders who still own the other 20% (us) could see huge upside.

Billionaire investor Bill Ackman has even put numbers to it.

He believes under a fair restructuring, the stock could be worth $34 per share by 2026.

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.

The downside feels limited.

The upside could be massive.

The way I see it, the government already won.

Taxpayers got stability and billions in profit.

When Fannie and Freddie are finally freed, it will be the shareholders’ turn to win.