Who gets Fannie's and Freddie's profits?

The government-sponsored mortgage giants' shareholders want their money back

Fannie Mae
(Image credit: Mark Wilson/Getty Images)

Fannie Mae's and Freddie Mac's shareholders want their money back, said Gretchen Morgenson at The New York Times. Few investors would "buy stock in a company that barred you from sharing in its future earnings." After all, "participating in the upside is what stock ownership is all about." But shareholders in the two government-sponsored mortgage enterprises can't do so, thanks to a 2012 government restriction that bars investors from receiving Fannie's and Freddie's profits. Back then, stockholders "had little hope of making much money." But now Fannie and Freddie are booming, and instead of sharing the wealth, the government is "siphoning off the entities' profits." The hedge fund Perry Capital is leading investors in a federal lawsuit challenging the government's rule, claiming it amounts to a "backdoor nationalization of the companies" without providing any compensation for shareholders.

Fannie's and Freddie's stock prices rose by 950 percent last year, said Patrick Morris at The Motley Fool. Yet these companies "operate with a total disregard for common shareholders by returning all profits to the U.S. Treasury." And regardless of the court case, there's no reason to think that will change soon. Legislators on both sides of the aisle, along with President Obama and Freddie and Fannie officials, have made it clear that they're focused on benefiting taxpayers, not shareholders. Shareholders had better realize that for these housing giants, "the days of wild speculation and surging stock prices are over."

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE
https://cdn.mos.cms.futurecdn.net/flexiimages/jacafc5zvs1692883516.jpg

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up
To continue reading this article...
Continue reading this article and get limited website access each month.
Get unlimited website access, exclusive newsletters plus much more.
Cancel or pause at any time.
Already a subscriber to The Week?
Not sure which email you used for your subscription? Contact us

Sergio Hernandez is business editor of The Week's print edition. He has previously worked for The DailyProPublica, the Village Voice, and Gawker.