Interest rates at 50-year lows are creating record demand for conventional mortgages insured by Fannie Mae (FNMA, Financial) and Freddie Mac (FMCC, Financial). Delinquencies are also rising with Covid-19, but remain manageable given conservative underwriting; pre-tax, pre-reserve earnings; and reinsurance. To assure safety and soundness, The Federal Housing Finance Agency (FHFA) is following Congress’ direction in the Housing and Economic Recovery Act to recapitalize and release Fannie and Freddie from conservatorships. Legal advisers and investment bankers are working toward their reprivatizations. Taxpayers have been paid in full and received 80% ownership in each company for Government loans. The “Net Worth Sweep” third amendment to the U.S. Treasury’s Preferred Stock Purchase Agreement should be terminated as quickly as it was executed with FHFA. If not, the U.S. Supreme Court will hear the matter in December or January.
From Bruce Berkowitz (Trades, Portfolio)'s Fairholme Fund (Trades, Portfolio) 2020 semiannual shareholder letter.
