Fannie Mae ($FNMA) and Freddie Mac ($FMCC): Sleeping Giants with enormous potential returns

Two of the largest financial institutions in the world could soon return to public markets. A brief history of how they got into their current messy situation and why investors could profit

Fannie Mae and Freddie Mac are two of the largest financial institutions in the world. They underpin roughly 55% of all residential mortgages in the United States. Their Mortgage Backed Securities (MBS) liabilities would represent the 4th largest bond market in the world (if it was ranked in that way). Ranking the largest US companies by assets, Fannie Mae would be #1 and Freddie Mac #3.

Yet despite their staggering scale and influence, these publicly traded giants have languished in obscurity since the Great Financial Crisis in 2008. For over 15 years, they have been relegated to the “pink sheets”, trading over-the-counter (OTC) often for under $1/share. They still filed quarterly and annual reports with the SEC. But their earnings calls were almost perfunctory, often lasting roughly 20 minutes with no analyst participation allowed (no Q&A with the management team). For all but some avid investing nerds, these companies were forgotten – out of sight, out of mind.

The re-election of Don…