Burry's Big Bet on Fannie and Freddie

Michael Burry, the investor renowned for predicting the 2008 housing market crash, is now making substantial bets on Fannie Mae and Freddie Mac. He anticipates a significant rise in their value if they go public again.

Burry's Predictions

In a recent post on his Substack newsletter, Burry shared his insights on the potential IPOs of Fannie and Freddie. He believes the IPO price could range between 1 and 1.25 times the book value of these companies. Post-IPO, he expects the shares to trade at 1.5 to 2 times the book value within one to two years.

Notable Interest

Burry is not alone in his interest. Berkshire Hathaway, led by Warren Buffett, has also invested in mortgage-related companies in the past. However, it's worth noting that Berkshire once held a stake in Fannie Mae but later sold it.

Role in the Housing Market

Fannie Mae and Freddie Mac play a crucial role in the U.S. housing market. They own or guarantee about 62% of outstanding U.S. mortgages and support around 70% of conforming bank loans. This makes them pivotal in home financing.

Historical Context

The Trump administration had previously considered launching IPOs for these companies, but this plan has not yet materialized. Fannie and Freddie were created by Congress to ensure affordable mortgage financing. However, they took a significant hit during the 2008 financial crisis and have been under federal conservatorship ever since.

Operational Overview

These companies operate by buying mortgages from lenders. They either keep these mortgages in their portfolios or bundle them into mortgage-backed securities for sale. This process helps maintain the flow of mortgage credit to homebuyers and investors in multifamily properties.