Freddie Mac (FMCC): The Twin Sister
1. Executive Summary
The thesis for Freddie Mac is identical to Fannie Mae (FNMA). They are effectively mirror images, operating as a government-sponsored duopoly. Any regulatory action taken on Fannie will almost certainly apply to Freddie.
Key Thesis Points
- Arbitrage: Occasionally, a spread opens up between FNMA and FMCC share prices. Some traders play this ratio, but fundamentally they are the same bet.
- Capital Structure: Like Fannie, Freddie has junior preferred shares (trading at ~5-10 cents on the dollar) which might offer higher leverage if a settlement occurs that pays out face value.
2. Recommendation
- Treat as an Option: This is not an investment; it is a long-dated call option on US Housing Finance Reform. Position size should be minimal (<1% of portfolio).
3. Risks
- Profit Sweep: The "Net Worth Sweep" (NWS) precedent means the government can technically take 100% of profits forever.