I don't get it... If fre & fnm have been bailed out by the gov't before , what makes investors think they won't bail them out again if need be? What is the risk? Is it possible they can still liquidate the stock? I am a shareholder of both as well as aig.
Its risky first off because the pps is below 10 bucks. Its risky because there buisness is to buy sell and hold debt in a highly leverged market trying to unwind. FNM/FRE is in c-ship giving the goverment a major component to control the overall financial industry. Its risky because of a possible r/s or delisting. Add on the fact that as of now the real estate market is pass the point of a normal buyers market and gone beyond. It became more reasonable to rent then to own and wasnt worth while underwater to pay your mortgage when you need food. Unemployment is at a record high which adds to the stress of people unable to pay there mortgage and foreclosures continue to put pressure on ARMs adding back to the start. Then you consider the book value of what they do own as performing compared to the ton of subs and alt-a they now also service and how much they are leveraged now. Institution is at 30% while S&p is sittin at like 70% institution owned and the company is down 98% w/ 15 billion in negative equity at a share price of almost -24.00pps. The census believes in general that the housing market will not recover for another 3 to even some say 7 years. I'm sure if I thought more about it I could think of even more reasons.