Why Fannie Mae and Freddie Mac Still Matter, and Why Investors Are Watching Them Again

Most people never think about Fannie Mae and Freddie Mac until a financial crisis, a housing shock, or a famous investor brings them back into the conversation. That happened again when Michael Burry disclosed in December 2025 that he owned sizeable positions in both companies. But this is not really a simple stock-market story. It is a story about the plumbing of the American housing system, an unfinished rescue from 2008, and a strange financial structure that still shapes what ordinary shareholders might one day receive. (1)

To understand the story, we need to start with what these companies actually do. Fannie Mae and Freddie Mac do not usually lend money directly to homebuyers. Instead, banks and other lenders make home loans first. Then Fannie Mae and Freddie Mac buy many of those loans, bundle them together, and turn them into mortgage-backed securities, which are packages of mortgages sold to investors. They also guarantee the payments on those packages. In plain language, they help keep mortgage money flowing through the system, which makes it easier for lenders to keep making new home loans. The housing regulator says their job is to provide liquidity, stability, and affordability to the mortgage market. “Liquidity” simply means ready access to money when it is needed. (2)

These companies are not small. In 2025, Fannie Mae said it provided 409 billion dollars of support to the mortgage market and helped about 1.5 million households. Freddie Mac said it provided 465 billion dollars and helped more than 1.7 million families. If we combine those two figures, we get:

\[\$409 \text{ billion} + \$465 \text{ billion} = \$874 \text{ billion}\]

So together, they provided about 874 billion dollars of support to the housing market in just one year. That is why these companies matter far beyond their share prices. They are part of the basic machinery behind American home finance. (3, 6)

The next part of the story begins in 2008. During the housing crisis, both companies were badly damaged and were placed into conservatorship by the Federal Housing Finance Agency on September 6, 2008. “Conservatorship” is a legal form of control used to stabilise a troubled company. Think of it as emergency government supervision. At the same time, the United States Treasury agreed to support them financially. In exchange, Treasury received a special senior claim called senior preferred stock, plus warrants giving Treasury the right to buy common shares equal to 79.9 percent of each company on a fully diluted basis. A warrant is simply a contractual right to buy shares later under agreed terms. (4, 9)

Now here is the part that makes investors pay attention again. Although these companies are still under conservatorship, they are not broken businesses in the everyday sense. Fannie Mae reported 14.4 billion dollars of profit for 2025 and ended the year with 109.0 billion dollars of net worth. Freddie Mac reported 10.7 billion dollars of profit and ended the year with 70.4 billion dollars of net worth. “Net worth” means what is left after subtracting what a company owes from what it owns. If we combine their 2025 results, the arithmetic looks like this:

\[\$14.4 \text{ billion} + \$10.7 \text{ billion} = \$25.1 \text{ billion}\] \[\$109.0 \text{ billion} + \$70.4 \text{ billion} = \$179.4 \text{ billion}\]

So these are profitable, large, systemically important companies, not empty shells. (3, 6)

But profitability alone does not solve the shareholder question, because Treasury’s senior claim is still enormous. Fannie Mae disclosed that the liquidation preference of Treasury’s senior preferred stock was 227.0 billion dollars at December 31, 2025. Freddie Mac disclosed 140.2 billion dollars at the same date. “Liquidation preference” means the amount that gets paid first, ahead of common shareholders, if value is distributed. In simple language, it is the size of Treasury’s place at the front of the queue. If we combine the two figures, we get:

\[\$227.0 \text{ billion} + \$140.2 \text{ billion} = \$367.2 \text{ billion}\]

If we compare that combined senior claim with the companies’ combined year-end net worth, the gap is:

\[\$367.2 \text{ billion} - \$179.4 \text{ billion} = \$187.8 \text{ billion}\]

That number is not a normal loan bill due tomorrow morning. But it does show why common shareholders care so much about how Treasury’s senior claim is eventually treated. Treasury stands ahead of them. (5, 6)

This leads to the strangest part of the whole setup. In an ordinary business, if a company keeps profits, the business becomes stronger and the burden on shareholders usually becomes easier to handle. Here, the structure is much less straightforward. Fannie Mae disclosed that, through the capital reserve end date, the liquidation preference of Treasury’s senior preferred stock increases by the increase in Fannie Mae’s net worth from the prior quarter. Treasury’s 2025 Financial Report describes the same broad mechanism for the government-sponsored enterprises. That is why many investors describe this as a treadmill. The companies can get healthier, but the senior government claim can also grow at the same time. (5, 10)

Fannie Mae’s own disclosures show this clearly. It said the liquidation preference was 227.0 billion dollars at December 31, 2025 and would rise to 230.5 billion dollars at March 31, 2026 because net worth increased by 3.5 billion dollars in the fourth quarter of 2025. That is the structure in action. More retained profit did strengthen the company, but it also increased Treasury’s senior claim. This is why the investment case is not just “these companies make money.” The deeper question is what happens to the government’s senior position. (5)

There is another reason the story is not simple: both companies still need more capital before a clean exit from conservatorship would be easy. Freddie Mac’s chief financial officer said that at the end of 2025 the total capital required under its regulatory rule was 158 billion dollars, and its capital shortfall excluding buffers was 106 billion dollars. Fannie Mae disclosed that as of December 31, 2025 the amount needed to meet its capital requirements and buffers was 193 billion dollars, while its net worth was 109.0 billion dollars and it had an available capital deficit of 22 billion dollars. In plain language, both companies are much stronger than they were during the crisis, but neither has fully reached the regulatory finish line yet. (3, 6)

This is also why politics matters so much. A fast exit from conservatorship could affect mortgage costs for ordinary households. Pimco warned in 2025 that a rushed exit could raise mortgage rates and reduce housing affordability. That warning matters because mortgage rates are already high enough to hurt buyers. Freddie Mac’s weekly survey said the average 30-year fixed mortgage rate was 6.46 percent on April 2, 2026. When borrowing is already expensive, politicians and regulators have to think very carefully before changing the structure that supports the housing market. (7, 8)

So what exactly are investors watching now? They are watching for a future decision about Treasury’s senior preferred stock, Treasury’s warrants, and the path out of conservatorship. Treasury still holds warrants for 79.9 percent of the common stock on a fully diluted basis. The current warrant expiry date is September 7, 2028, but Treasury also said in January 2025 that it expects the parties could extend that date if necessary to avoid a disorderly or disruptive exit. That means 2028 matters, but it should not be treated like a simple countdown clock in a film. The policy choices can still change. (9)

The cleanest way to understand this whole situation is this: Fannie Mae and Freddie Mac are profitable engines inside the American housing system, but ordinary shareholders sit behind a very large senior government claim. That is why investors like Michael Burry are not just buying a housing recovery story. They are paying attention to a capital-structure story. In plain language, “capital structure” means the order in which different owners and claimholders get paid. Until that order is changed, clarified, or resolved, the value of the common shares will remain tied not only to profits, but also to law, regulation, and Treasury policy. (1, 9)

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