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GSEs: High-Return Investment in Fannie Mae & Freddie Mac
Opportunity for sophisticated investors to participate in the recapitalization and privatization of America's mortgage giants with potential 80% net returns over a 2-year hold period.
Exceptional Returns on Undervalued Assets
$7T
GSE Balance Sheet Assets
Fannie Mae and Freddie Mac control half of US mortgage debt, creating an unparalleled financial footprint.
$25-30B
Annual Profit
Consistent earnings power demonstrates the fundamental strength of these enterprises.
80%
Expected Net Return
Projected returns for investors over a 2-3 year hold period.
The Conservatorship Journey
1
2008: Financial Crisis
GSEs entered conservatorship after Treasury wrote down Deferred Tax Assets (DTAs) of $180B based on crisis-level real estate valuations, making them appear insolvent.
2
2012: Net Worth Sweep
Despite real estate recovery and impending DTA reversals, government instituted Net Worth Sweep, preventing bailout repayment and effectively nationalizing the enterprises.
3
2019: Policy Reversal
Treasury & FHFA stopped the sweep, allowing capital rebuilding with an eye toward eventual exit from conservatorship.
This conservatorship saga created the current investment opportunity in disenfranchised preferred shares poised for rehabilitation.
Systemically Important Financial Institutions
Market Dominance
GSEs control approximately 50% of all US mortgage debt, making them crucial to American homeownership and the broader economy.
Their consistent profitability—generating billions annually despite regulatory constraints—demonstrates the fundamental strength of their business model.
Combined earnings power of $25-30 billion annually provides substantial capital for recapitalization.
The GSE Business Model
Loan Acquisition
GSEs purchase mortgages from originators, providing market liquidity.
Guarantee Provision
They package loans into MBS with crucial credit default guarantees.
Fee Collection
GSEs earn ~50bps guarantee fee on $7T+ loan portfolio.
Profit Generation
Results in ~$25B annual net profit after expenses and taxes.
This business is impossible to replicate at scale due to size, geographic diversification, brand awareness, and implicit government support—creating a powerful economic moat.
Profitable Government Investment Ready for Privatization
$190B
Government Injection
Capital provided during 2008 financial crisis.
$300B+
Dividends Paid
Returns to Treasury, with $191B collected in just 6 quarters after the Net Worth Sweep.
The GSE bailout has become one of the most profitable government investments in history—exceeding returns from the Louisiana Purchase—signaling readiness for privatization after 15 years of conservatorship.
Recapitalization Progress
Capital Target
$249B (3% capital requirement)
Current Capital
$166B accumulated
Capital Gap
$83B remaining
Target Date
March 1, 2026
FHFA amended the Enterprise Regulatory Capital Framework in 2021, replacing the fixed 1.5% PLBA with a dynamic leverage buffer tied to the stability capital buffer.
Retained Earnings Path to Exit
Current Position
GSEs generate $25-30B in combined annual earnings, providing steady capital accumulation.
3-Year Projection
By 2027, GSEs will reach $220-240B in capital, accounting for 3-5% asset growth.
Exit Timeline
Under retained earnings scenario, conservatorship exit targeted for 2028.
Fannie Mae IPO Gap Scenario
Under this accelerated scenario, Fannie Mae could exit conservatorship with $114B capital on its books, but requires $124B to support a 20% dividend payout ratio.
An IPO would bridge this $10B gap, potentially accelerating the conservatorship exit timeline to 2025 versus 2028 under the retained earnings model.
Path to Privatization: 2025-2028
1
PHASE I: 2025
Finalize clear capital framework consistent with public utilities and 10-12% ROE targets.
2
PHASE II: 2025
Convert Treasury warrants into commons and deem Senior Preferred stock position repaid.
3
PHASE III: 2025-2026
Establish Consent Decree for conservatorship exit and potentially execute IPO to bridge capital gap.
4
PHASE IV: 2026-2028
GSEs function as utilities with appropriate shareholder dividends while government sells converted warrants for $200B+ profit.
Conservatorship exit timeline: 2025-2026 if IPO bridge utilized, or 2028 if relying solely on retained earnings approach.
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Last updated: August 11, 2025