TLDR
- Michael Burry owns large positions in Fannie Mae and Freddie Mac common stock
- He expects IPO prices between 1 to 1.25 times book value
- Shares could trade at 1.5 to 2 times book value within two years after listing
- Fannie and Freddie own or guarantee 62% of outstanding US mortgages
- Trump administration previously expected to launch IPOs later this year
Michael Burry, the investor known for predicting the 2008 housing crisis, revealed he holds large positions in both Fannie Mae and Freddie Mac common stock. He shared this information in a 6,000-word blog post on his Substack newsletter “Cassandra Unchained” on Monday.
Burry expects the government-sponsored enterprises to return to public markets soon. He wrote that a re-listing is “nearly upon us.” The investor laid out his views on the political and regulatory challenges facing the two companies.
Price Expectations for Fannie and Freddie IPOs
Burry predicts IPO prices will fall between 1 and 1.25 times book value. He believes shares could trade at 1.5 to 2 times book value within one to two years after listing.
The investor said he expects growth to accelerate once the companies are released from capital restraints. He wrote that the IPOs would allow for natural expansion. Burry also said he would not be surprised to see Berkshire Hathaway take a large position in any IPOs.
Berkshire Hathaway previously invested in mortgage-related companies. The company once held a stake in Fannie Mae before selling it.
Current Market Position
Fannie Mae and Freddie Mac own or guarantee roughly 62% of outstanding US mortgages. They support about 70% of conforming bank loans. The two companies buy mortgages from lenders and either hold them or bundle them into mortgage-backed securities for sale.
Congress created Fannie and Freddie to support the housing market by ensuring affordable mortgage financing. Both companies collapsed during the 2008 financial crisis. They have been under federal conservatorship since then.
Trump Administration Plans
Reuters reported in August that the Trump administration was expected to launch IPOs of the two companies later this year. Burry outlined the steps Washington must take before the companies can return to Wall Street. He described the regulatory hurdles that still need to be cleared.
The companies recycle proceeds from their mortgage operations to expand lending. This keeps mortgage credit flowing to homebuyers and multifamily property investors. Burry believes both companies remain critical to the US housing market.
The Trump administration was previously expected to move forward with the public offerings during this year. No official timeline has been announced for the potential IPOs.
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