Fannie Mae (FNMA) and Freddie Mac (FMCC) Investors Elated By Trump Win: Here are 3 Reasons Why
(Editor’s note: Article cleaned up to clarify several issues)
Federal National Mortgage Assctn Fnni Me (OTCMKTS:FNMA) and Federal Home Loan Mortgage Corp (OTCMKTS:FMCC) are seeing renewed interest as investors and billionaire John Paulson expect a policy clean up for the mortgage sector from Trump.
Hedge fund billionaire Paulson is expecting humongous profits through Federal National Mortgage Assctn Fnni Me (OTCMKTS:FNMA) and Federal Home Loan Mortgage Corp (OTCMKTS:FMCC). Ever since the financial crisis, Investors have struggled to get a piece of the pie from both the companies as the government took nearly all their profits in an unprecedented action known as the Net Worth Sweep, which was enacted in 2012. The companies were originally bailed out by the government committing to provide $200 billion of support in the form of Senior Preferred in 2008. The government then changed the terms of the agreement to sweep all the companies profits and not pay down the original Senior Preferred. The action is being contested in several court cases.
Billionaire Paulson has a stake in both Fannie Mae and Freddie Mac. Shareholders continue to fight with the government through lawsuits without much success so far. But now the chances of bringing back a smile to the investors has increased. Shares of mortgage lenders have almost doubled ever since Trump won.
Here is why investors are cheering a Trump win.
Investors are expecting a radical policy cleanup which will help the housing and mortgage lobby finally get their due. After Fannie Mae and Freddie Mac were taken over by the government, investors have been looking for a respite. Though Trump has never formally acknowledged the housing-mortgage industry and it’s woes during his Presidential campaign.
End to litigation
Years of litigation with the government has rendered investors helpless as the Obama administration took control of both mortgage agencies and kept their profits in an unprecedented action. However, a new White House may mean an end to litigation. Investors are pinning hopes on a more Pro-business Trump in the White House. An economic adviser and donor to the Trump Campaign, John Paulson is expected to help ensure that the institutionalization of housing mortgage market does not get out of hand. Additionally the courts are expected to place more pressure on the situation as more documents are released giving more hope that litigation may end with investors getting their due.
Many feel a Trump administration will be far less willing to hide documents from an Obama administration as well.
The presence of Paulson
The move to sweep all profits “violated the rights of thousands of shareholders across America, “This action should be reversed, and we look forward to an outcome that restores the rights of shareholders in these companies.” According to Paulson & Co
Paulson’s association with the ‘Informal Coalition on Housing Finance Reform’ should not be ignored. As more hedge fund managers and housing advocates find their space in Washington DC, it is highly likely that a pro-investor policy could turn the tables for good.
Academicians and policy think tanks are backing Fannie Mae and Freddie Mac shareholders. A new White House brings a new ray of hope for investors.
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