So the big question remains: Will Fannie and Freddie survive? Why not?
Day traders can obviously make a quick gain, or take a quick loss, on the shares. For investors who can go in for a period of years, the common shares could eventually provide very large returns, if the GSEs manage to survive. The preferred shares are also intriguing, for investors who can stay committed for many years, because if the dividends were ever resumed, the annual payout would come close to the current investment price, for an outrageously high yield.
In that event, the preferred prices would, of course, recover quite a bit, enabling a quick killing. It would be wonderful to face the quandary of taking a huge profit or sitting back and collecting a huge dividend yield, based on a paltry investment price for the preferred.
So the big question remains: Will Fannie and Freddie survive? Why not? They dominate the U.S. secondary mortgage market to a greater extent than ever. Both firms and the Federal Housing Finance Agency are likely to stick with much stricter underwriting, investment and risk management policies than they did during the real estate bubble.
Over four years after the bailout, never President Obama nor Congress has pushed hard for true GSE reform, and as House Financial Services Committee Chairman Jeb Hensarling (R., Texas) said at a hearing on Tuesday, reforming the mortgage finance system with a divided government will be "a heavy lift."