Do Or Die Time For Freddie And Fannie Shareholders?

The government had asserted various privilege claims to keep confidential more than 11,000 FNMA (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) documents, arguing that the information in the emails, draft memos, and other documents would destabilize the economy. This secrecy was so unusual that the New York Times intervened with the Court of Federal Claims requesting documents’ release.

Judge Margaret M. Sweeney of the Court of Federal Claims privately reviewed the secret documents and ruled that the government was unjustified in withholding the vast majority, ordering that they be released.

Peter Chapman recently wrote, “The government wants 43 additional days to comply with Judge Sweeney’s instructions to turn documents improperly withheld over to Fairholme. The government says it’s reviewed nearly half of the documents in the past six weeks and will start releasing them to Fairholme on Apr. 14. Fairholme tells Judge Sweeney it doesn’t object to the 43-day extension, but would take a dim view of any delay beyond the end of May.”

What incriminating evidence will be found once the 11,000 documents have been turned over the counsel for Fairholme Funds? Will all the documents be released in chunks so to speak and will it be by late May as many expect? Have they begun to release the documents? FNMA shares have dropped from $4.39 on February 6, 2017 to a current price of $2.38 (a 48% decline) after the U.S. Court of Appeals for the District of Columbia Circuit ruled that Fannie and Freddie shareholders cannot pursue many of their claims related to the so-called “Third Amendment sweep.” They are currently trading at around the low for 2017. FNMAS preferred is showing some signs of life currently at $6.35, up from a low of $5.42 on April 7 but down significantly from its 52 week high of nearly $11.00 on cancellation of net worth sweep optimism just prior to the U.S. Court of Appeals decision in February 2017.

There is still a lot of hope among FNMA and FMCC investors that U.S. Treasury Secretary Mnuchin will address the FNMA and FMCC net worth sweep after tax reform is addressed. I am in that camp so to speak. Depending upon what evidence is found in the 11,000 documents, the net worth sweep could end sooner rather than later or never and FNMA and FMCC stock and their preferred issues could soar. If not enough evidence is found on the alleged dirty deeds of the U.S. Government in the net worth sweep, FNMA stock could take out its $1.57 52 week low and preferred issues such as FNMAS could drop towards the $3.00 low which was pre Mnuchin and Trump.

I own Fairholme Fund and indirectly own Fannie Mae and Freddie Mac preferred shares, which have a large position in Fairholme Fund.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.


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