GSE Reform: More Thoughts Based On Reader Comments

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About: Federal National Mortgage Association (FNMA), FNMAT
by: The Other Street
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The Other Street
Long/Short Equity, Special Situations, Value, Growth At Reasonable Price
Summary

On September 6, some inaccurate media reports knocked down the GSE's stocks. Since then, Fannie Mae common shares are up some 50%, and its T Preferred shares (FNMAT) are up 20%.

The trigger was an unexpected reversal of a District Court’s opinion by the 5th Circuit Court of Appeals, which declared FHFA unconstitutionally structured, by a vote of 12 to 4.

On September 19, FNMA was down 7% intraday, but recovered by the close. Preferred shares were flat. It was the same story: a misleading snippet from an otherwise good Bloomberg interview.

On September 13, I argued for an easy double (and then some, depending on the recapitalization terms) in both FNMA and FNMAT. I still do, with the common at $3.95 and preferred T at $13.

My recent article on Fannie drew many high-caliber comments. Based on these, here as some more thoughts to follow up.

Bear in mind that I am not attorney; this is a volatile, multi-event-driven story; and