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Bloomberg's “Fannie, Freddie Preferreds Batter Sovereign, Midwest” takes a closer look at the impact of Fannie Mae (FNM) and Freddie Mac (FRE) preferred stock on regional banks. Banks had liked the GSE preferreds because they can count as regulatory capital and give the banks a tax break. Now the banks face large write downs or possibly total losses on the preferreds, and they might have to raise more capital as a result. Worst case scenario is some banks face such a capital shortfall they might be forced out of business.

Let’s look at the impact of nationalization with the current common eq

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Barron's is portraying a "curtain call" in store for shares of Fannie Mae (FNM) and Freddie Mac (FRE), which fell over 20% each Monday on concerns of insolvency.  Barron's suggested that the government would be likely to bail out the two government sponsored entities [GSEs], wiping out its equity holders, preferred, common and even subordinated debt holders.  Both of these stocks are near multi-decade lows and have dropped over 90% since 2007.

There is a concern over Fannie Mae's ability to withstand further losses in their sub-prime, Alt-A, and interest only loans.   

Government officials are likely seeking to avoid a full-fledged takeover of the companies, said Bert Ely, an Alexandria, Va.-based banking industry consultant and a longtime critic of Fannie and Freddie. More likely, he said are less-sweeping moves to calm rattled debt investors.

Those include having the Federal Reserve or Treasury Department lend to the companies. A government purchase of shares, he said, is "the step of last resort."

Brian Faith, a Fannie Mae spokesman, said in an e-mailed statement that the company "continues to exceed our regulatory capital requirements ...

We have been saying to steer clear of the Fannie/Freddie duo for quite some time now. It’s good to see that Barrons seconds our thoughts as they put out a pretty hard-hitting piece in their weekly issue over the weekend. A bounce in those stocks was inevitable, but it appears that it was short-lived and it’s finished.

This little blurb from Barrons says it all and underscores our bearish views on the companies:

The balance sheets of both companies have been destroyed. On a fair-value basis, in which the value of assets and liabilities is marked to immediate-liquidation value, Freddie would

"The almost inevitable government recapitalization of Fannie Mae and Freddie Mac will likely wipe out investors—and management," Barron's magazine says.

Assuming their assets were liquidated now, based on their fair-value reporting, Freddie Mac's (FRE) net worth would be -$5.6B, while Fannie Mae's (FNM) would fall to just $12.5B, from $36B at year-end.

A lesson I learned from the Bear Stearns (BSC) fallout was that if you get into a stock when it hits rock-bottom, your investment can only go up. While I was a little late with the Bear Stearns opportunity (when it briefly traded at $2 and change); I see a potential opportunity for me (and like minded investors) to make good on the now notorious: Freddie and Fannie.

Federal National Mortgage Association, a.k.a. Fannie Mae (FNM), and the Federal Home Mortgage Corporation a.k.a. Freddie Mac (FRE), have operated as a duopoly since 1968 as government sponsored enterprises [GSEs]. In common spea

After the stunning developments that occurred today I thought it would be a good idea to update my previous views on Fannie Mae (FNM) and Freddie Mac (FRE). I'm not going to get into any moral hazard discussions because A) I don't believe in judging others, and B) it is irrelevant to evaluating this investment. A few key points:

1) The businesses didn't change last week. The stock prices did which is irrelevant to the actual business fundamentals. These companies do have some embedded losses in their portfolios due to the housing slump, but I have no doubt that the actual losses will be subs