Fannie Mae and Freddie Mac: Back to black

Greg Ip

The Treasury squashes hopes that the agencies may ever be private again

Aug 25th 2012 | WASHINGTON, DC | from the print edition

[Greg Ip] SINCE 2008 Fannie Mae and Freddie Mac, America’s two housing-finance giants, have been on life support, spared from insolvency by an intravenous drip of taxpayer cash. Lately, however, the companies have shown signs of life: earlier this month both reported their biggest profits since being forced into “conservatorship” four years ago (see chart).

That has sent a frisson through investors clutching preferred shares issued back when the companies minted money by using their quasi-governmental status to borrow cheap and buy or guarantee most residential mortgages in America. Between March and early August, many of Fannie’s old preferred shares, which now trade over the counter, jumped from around $1.50 to more than $3 (still a fraction of their $25 par value).

Several factors explain the turn…

View original post 512 more words

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