Bill Ackman’s hedge fund Pershing Square has taken a 9.77% stake in mortgage insurer Freddie Mac, and a
9.98% stake in Fannie Maeaccording to
This after yesterday Bruce Berkowitz of Fairholme Capital Management announced that he and other investors were willing to buy and recapitalize Freddie Mac and its sister company Fannie Mae.
“This proposal is about the future,” Berkowitz said in a CNBC interview yesterday, later adding, “We are apolitical, we will do it any way government wants.”
And what the government wants is to wind down Fannie Mae and Freddie Mac — they just may not want to do it with the help of activist money managers. This summer, Senators Bob Corker and (R-TN) and Mark Warner (D-VA) have introduced legislation to replace Fannie and Freddie with privately capitalised system that preserves market liquidity and protects taxpayers from future economic downturns.”
It’s called The Housing Finance Reform and Taxpayer Protection Act (S. 1217), and here’s what it does:
- Mandates 10 per cent capital, up front, for the system to protect taxpayers against future bailouts. Winds down Fannie Mae, Freddie Mac and the Federal Housing Finance Agency (FHFA) within five years of bill passage.
- Transfers appropriate utility duties and functions to the modernized, streamlined and accountable Federal Mortgage Insurance Corporation (FMIC), modelled in part after the FDIC.
- Replaces the failed “housing goals” of the past with a transparent and accountable market access fund that focuses on ensuring there is sufficient decent housing available. The fund is NOT paid for with tax dollars, but through a small FMIC user fee that only those who choose to use the system pay.
- Ensures institutions of all sizes have direct access to the secondary market so local banks and credit unions aren’t gobbled up by the mega banks when Fannie and Freddie are dissolved.