The closest thing to a cash offer from the private sector to help reorganize housing finance in this country, a number of hedge funds have proposed converting their $34.6B of preferred stock of Fannie Mae (FNMA) and Freddie Mac (FMCC) and helping to underwrite a $17.3B rights issue.
"We plan to put up real money, this is not just a trade,” says one member of the group, which says the plan brings in private capital while leaving taxpayers with legacy mortgage guarantees from which they can profit as housing continues to recover.
It remains to be seen if politicians agree that a group of hedge funds taking over the GSEs meets their idea of private capital.
"This trade reminds me of the adage, buy them for a good time but not a long time,” says one skeptical hedge fund chief. "The guarantee business is a great business,” says one of the group. “You can’t get rid of Fannie and Freddie.”