Editor’s note: This is the latest edition in the “Company Notes Series”, where we periodically share our notes on companies we’ve studied in the recent past but currently have no vested interest in (we may invest in or sell shares in the companies mentioned at any time). The notes are raw and not updated, and the “as of” date for the data is given at the start of the notes. The previous edition in the series can be found here. If you have any thoughts on the series you would like to share, feel free to do so through the “Contact Us” page; we appreciate any feedback. Thanks in advance!
Start of notes for Federal National Mortgage Association (Fannie Mae)
Data as of 31 March 2026
- Fannie Mae has a long history of profitability since 2012, and the net profit has been quite consistent:
* Net profit is to company, and not to common shareholders, because under the current conservatorship, the net profit of Fannie Mae essentially accrues to the Senior Preferred Securities
** 2013’s net profit was unusually high because of a large US$45.41 billion benefit for federal income taxes, largely as a result of a one-time release of valuation allowance against deferred tax assets; for perspective, 2012 and 2014’s provision for federal income taxes were US$0 and US$6.941 billion, respectively
*** 2017’s net profit was unusually low because of a large US$15.984 billion provision for federal income taxes, largely as a result of a one-time tax charge of US$9.9 billion for federal income taxes; for perspective, 2016 and 2018’s provision for federal income taxes were US$6.02 billion and US$4.14 billion, respectively
- In September 2008, the US Treasury provided financial support to Fannie Mae by investing in the company’s senior preferred stock (SPS). The SPS also gave the Treasury warrants to purchase shares equal to 79.9% of Fannie Mae’s common stock, on a fully-diluted basis, for effectively nothing.
- Under the terms of the SPS, the US Treasury has committed US$233.7 billion in funding-support, and Fannie has drawn down US$119.8 billion as of 31 December 2025. Fannie last drew upon the funding support in early-2018, with the super-majority of the amounts being drawn-down in 2008-2011. Fannie has paid a total of US$181.4 billion in dividends to Treasury as of 31 December 2025, which is substantially higher than what Fannie has drawn upon; Fannie stopped paying the US Treasury a dividend in 2019 Q3 at the direction of the government. The SPS terms initially came with a dividend rate of 10% annually in cash, or 12% annually in payment-in-kind. Based on IRR (internal rate of return) calculations, the US Treasury has earned an annual return of 9.8%, which is just lower than the dividend-rate of the SPS.
- The SPS also comes with a liquidation preference. As of 31 March 2026, the liquidation preference for the SPS is US$230.5 billion. What Fannie’s common stock is worth will depend heavily on how Treasury sees the liquidation preference terms for the SPS. If Treasury decides to waive the liquidation preference and thus cancel the SPS, there can be significant value in Fannie’s common stock. If Treasury wants to pursue the liquidation preference, through, say, conversion of the SPS into common stock, then the value in Fannie’s common stock can be wiped out.
- As a sense check, Fannie’s total diluted outstanding common shares (this includes full conversion of all preferred stock, including the SPS-related warrants owned by Treasury) of 5.893 billion as of 31 December 2025. Net income in 2025 was US$14.364 billion. Diluted EPS in 2025 is thus US$2.45. At a P/E of 8, Fannie’s stock price would be nearly US$20. Fannie’s stock price as of 31 March 2026 is only US$7.35. A P/E of 8 is consistent with what Farmer Mac (Federal Agricultural Mortgage Corporation) carries at the moment. Farmer Mac is equivalent to Fannie Mae, but for loans made to farmers (Fannie Mae is for mortgage loans). Farmer Mac is much smaller than Fannie Mae, with annual net income in the US$150 million to US$200 million range. So Fannie might even deserve a premium; at a P/E of 12, Fannie’s stock price would be US$29.
- Just official confirmation from Treasury that it wants to cancel the SPS and waive the liquidation preference can significantly boost Fannie’s stock price, without anything else changing.
- One negative point worth noting is the enterprise regulatory capital framework (ERCF) that Fannie is under. The ERCF is imposed by the FHFA (Federal Housing Finance Agency) and requires Fannie to hold a certain amount of risk-weighted capital in-relation to the assets owned by the company. Right now, the ERCF applied to Fannie requires a CET1 (Common Equity Tier 1) ratio of 4.5%, which is really high and is similar to a US bank. Under the current ERCF, Fannie’s risk-based adjusted total capital has a shortfall of US$215 billion.
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