Netflix and Tesla have nothing on Fannie and Freddie.
Sure, Netflix is up 386% and Tesla is up 635% over the past 14 months. But the Federal Home Loan Mortgage Association ("Freddie Mac") and the Federal National Mortgage Association ("Fannie Mae") make Netflix and Tesla look like laggards; Freddie Mac is up 1,626% since January 1, 2013 while Fannie Mae is up an astonishing 1,724%.
So, why isn't this a bigger deal? Well, because it's complicated.
Fannie Mae and Freddie Mac are "government-sponsored enterprises" (GSEs). They were created by the federal government to buy conforming mortgages from financial institutions, package those mortgages, and sell them to investors. That added money into the mortgage markets in a huge way; in the previous four years, for example, Fannie Mae provided $4.1 trillion in liquidity while Freddie Mac provided $2.1 trillion.
But, as everyone knows, the both were placed into a conservatorship by the Federal Housing Finance Agency (FHFA) after the financial crisis half a decade ago. The US taxpayer shelled out over $187 billion since September 2008 to keep Fannie Mae and Freddie Mac alive.
Since then, both have paid back in dividends more than they took from the US but they are not allowed to buy out the US government's stake. But, Bruce Berkowitz's Fairholme Funds is challenging that, saying it's an unconstitutional expropriation. He has been trying to buy out both companies for several months now. Meanwhile, the government is looking to wind down both of these companies by 2018.
So, is buying into these companies a good idea? CNBC contributor Gina Sanchez, founder of Chantico Global, says buying stock in these companies is the equivalent of buying a call option. Steve Cortes, founder of Veracruz TJM, says the technicals are showing the stocks are frothy.
Watch the video above to see Sanchez on the fundamentals and Cortes on the technicals discuss what's next for Fannie Mae and Freddie Mac.
- Budget, Tax & Economy
- Freddie Mac
- Fannie Mae