Michael Burry Says It’s “Good News” for Fannie and Freddie
Michael Burry dumped his Fannie and Freddie common shares before a court victory sent them surging, and his reason for switching to preferred stock reveals exactly why that bounce may flatter common holders more than it rewards them.
Fannie Mae (OTCMKTS:FNMA) closed at $3.73 on October 20, 2026, up 9.06%. Freddie Mac (OTCMKTS:FMCC) closed at $3.38, up 7.64%. Both moves came after Michael Burry called recent court and policy developments “good news.”
Burry no longer owns the stock that rallied. Earlier in October, he said he had sold his Fannie and Freddie common shares because a chart pattern pointed toward “worthless stock,” and he bought several series of junior preferred shares instead. Fannie common is still down about 65% this year and Freddie common about 67%, so the October 20 bounce left most of the damage in place.
What Burry and Bessent Actually Said
Burry’s only public wording on the move was those two words. He pointed to a court win for shareholders and to Treasury Secretary Scott Bessent’s comments on the companies’ ownership structure.
Bessent was answering a podcast caller on October 20. He said he expects that “the next year, the year after, we will be tackling the ownership structure.” He also said it was “unclear” how “a change in the arrangement of the shareholder structure” would help homeowners.
He gave no timetable for an IPO, a share sale or an exit from conservatorship. In June 2026, the president said the government was still considering selling its stakes. Taken together, this looks like a decision being put off while Washington keeps control.
Why the Court Win Skips Fannie Common Holders
On July 24, 2026, the D.C. Circuit upheld a $612.4 million jury verdict in Fairholme Funds v. FHFA. With interest, it is now an $812 million judgment. The jury found that the Federal Housing Finance Agency, which runs both companies as conservator, broke its duty of good faith when it adopted the 2012 net worth sweep, a rule that sent nearly all profits to Treasury.
On October 16, the court refused to rehear the case with all of its judges. FHFA now has 90 days to decide whether to ask the Supreme Court to take it. Shareholder lawyer Hamish Hume called the ruling “the appropriate and the right outcome.” He put the pending payout at roughly $1 billion and said Fannie Mae common shareholders are excluded. The ruling helps the political argument for freeing the companies, but the money goes to other holders.
Dilution Math Favors Burry’s Preferred
Burry puts Treasury’s senior preferred claim at roughly $388 billion. Senior preferred stock gets paid before every other class of shareholder.
He says that if Treasury turns that claim into common stock, existing holders could be diluted by at least 90%. Dilution means each existing share owns a much smaller piece of the company.
Junior preferred shares have a fixed face value. A recapitalization that pays out at that face value can make preferred holders whole even as a flood of new shares reduces the common holders’ stake.
Strong earnings leave the gap wide open. Fannie earned $3.98 billion in the second quarter of 2026, but it still has a $194 billion total capital shortfall against regulatory requirements.
Mortgage Rates Rank Ahead of Shareholders
Bessent called mortgage rates “our North Star.” He said any action would aim to make sure the mortgage spread, the gap between mortgage rates and Treasury yields, “does not increase.”
A release designed to maximize shareholder value would likely weaken the government backing that keeps that spread narrow. That puts the administration’s stated priority at odds with the common stock.
Common Stock Faces Steeper Odds Than the Preferred
The common stock looks like the weaker side of this story. For common holders to win, Treasury would have to write down or forgive its claim rather than convert it into shares, and nothing said on October 20 points that way.
Bulls can point to steady profits and a court record that keeps ruling against the sweep. The bear case is stronger. It rests on a Treasury Secretary who doubts that changing the shareholder structure helps homeowners, a court payout that leaves out Fannie common holders, and the best-known bull moving out of the common.
In a settlement, the junior preferred shares Burry bought have the cleaner claim, though sizing a position like this is its own discipline (we wrote a free guide on keeping speculative trades to a sliver of a portfolio with rules that stop one bad call from counting: here). Two things to check: FHFA’s Supreme Court decision, due within 90 days of October 16, and whether Treasury ever puts in writing how it would treat its senior preferred stake.
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Omor Ibne Ehsan is a writer at 24/7 Wall St. He is a self-taught investor with a focus on growth, cyclical, and dividend equities that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as penny stocks.
