Michael Burry Predicts Strong Post-ipo Growth For Fannie And Freddie

Michael Burry, the investor best known for predicting the 2008 financial crisis, revealed on Monday that he holds a sizable position in what he labels the “Toxic Twins” — Fannie Mae and Freddie Mac  – common stock,  which he believes could deliver significant gains if the government moves forward with a potential initial public offering (IPO). 

“I personally own both Fannie Mae and Freddie Mac common stock in good size,” Burry wrote in his Substack newsletter, Cassandra Unchained. “I appreciate that both stocks trade in the pink sheets, unavailable to many institutional investors and, unlike all the big AI and tech names everyone loves, these are not over-owned.”

The two government-sponsored enterprises (GSEs) currently own 62% of all outstanding U.S. home mortgages and back roughly 70% of conforming loans.

The Trump  administration has reportedly been exploring a possible stock offering for the GSEs. Federal Housing Finance Agency (FHFA) Director Bill Pulte has floated selling 5% of the government’s position, while outside investors — including billionaire Pershing Square founder Bill Ackman — have pitched alternative approaches.

Burry argues that Trump’s control of the FHFA through the National Economic Council, led by loyalist Kevin Hassett (a leading candidate for the next Federal Reserve chair), could streamline approvals and housing policy in ways that were not possible during Trump’s first term.

GSEs valuation 

Burry said he expects an IPO valuation between 1.0x and 1.25x book value for each GSE, with the stocks trading at 1.5x to 2.0x book value in the year or two after the offering.

His estimates assume the FHFA lowers the capital reserve ratio for the enterprises from the current 4% to 2.5% — a framework also supported by Ackman and other analysts.

He also assumes that the senior preferred stock (SPS) held by the government is deemed “a zero to satisfy IPO investors’ needs.” If the SPS is not written down or eliminated, he argues, the common shares would be effectively worthless. Eliminating the SPS liquidation preference, he wrote, would maximize value for all common shareholders.

A key concern among investors is that the administration could unilaterally convert its senior preferred shares into common stock, significantly diluting existing holders. Deutsche Bank recently assigned a 20% probability to such an action.

“Once each company is released from capital restraint by their IPOs, I expect growth to accelerate naturally,” Burry said. 

With full recapitalization and an expanding capital surplus, he said, the companies could pursue share buybacks or dividends, enter new markets, adjust guarantee fees and grow their retained portfolios — which he notes have margins roughly four times higher than the guarantee business. According to Burry, earnings at each GSE could grow by 50% over the first several years if they are able to take a more aggressive stance on their retained portfolios.

“Many refer to these companies as utilities, but in such a case they will grow much faster than a typical utility,” he added.