Activist Investor Takes Stakes in Fannie, Freddie
Activist investor Bill Ackman’s company has disclosed stakes in government-controlled mortgage giants Fannie Mae and Freddie Mac.
In regulatory filings on Friday, Pershing Square Capital Management LP said that it has a 9.98 percent stake in Fannie Mae and a 9.77 percent stake in Freddie Mac.
Ackman’s company invests in and bets against a wide range of businesses. In August, Ackman resigned from J.C. Penney Co.’s board and sold Pershing’s entire 18 percent stake in the department store operator as part of a deal to resolve a public dispute between himself and the Plano, Texas, company.
Last month Ackman reduced his short position against nutritional supplement maker Herbalife Ltd. Ackman had taken massive short positions on the company’s stock, meaning his fund would make money if the shares decline
Earlier this month Fannie Mae and Freddie Mac reported strong third-quarter earnings as the U.S. housing market continues to recover. The government rescued Fannie and Freddie at the height of the financial crisis in September 2008 when both veered toward collapse under the weight of losses on risky mortgages. Together the companies received taxpayer aid totaling $187 billion.
The gradual recovery of the housing market has made Fannie and Freddie profitable again. Their repayments of the government loans have helped make this year’s federal budget deficit the smallest in five years.
The two companies don’t directly make loans to borrowers. They buy mortgages from lenders, package them as bonds, guarantee them against default and sell them to investors. That helps make loans available.
Ackman’s disclosure came two days after another investment firm, Fairholme Capital Management, offered to buy Fannie and Freddie’s core businesses from the government in a $52 billion deal.
Miami-based Fairholme, led by Bruce Berkowitz, made the proposal to the Federal Housing Finance Agency, which oversees Fannie and Freddie.
Fairholme said it would lead a group of investors to buy the mortgage-bond guarantee businesses of the two companies. The firm said that would be sufficient to back about $1 trillion in new mortgages.
The Obama administration is seeking to wind down Fannie and Freddie.
The goal of the Obama plan is to replace Fannie and Freddie with a system that would put the private sector, not the government, primarily at risk for the loans. That would spread the risk over numerous companies. The government would still be involved, both in oversight and as a last-resort loan guarantor. The White House also wants a guarantee that private lenders will make sure homeowners have access to 30-year fixed mortgages.
It’s unclear whether the Fairholme proposal would fit with the administration’s plan. Government officials have said previously that a small group of investment firms taking on such a large risk of mortgage defaults would open the possibility of the government having to bail out the firms if they failed.