Michael Burry Exits Fannie Mae and Freddie Mac Common Shares for Preferred Stock
Investor Michael Burry has sold his common equity positions in Federal National Mortgage Association (OTC:FNMA) and Freddie Mac (OTC:FMCC) to buy junior preferred shares instead. Burry exited the common shares to realize full tax losses after both stocks surrendered nearly all their gains following the U.S. presidential election, with shares down over 63% and 64% respectively in 2026.
The portfolio adjustment stems from concerns over equity dilution. A conversion of the U.S. Treasury's $388 billion senior preferred claim into common equity could dilute existing common shareholders by at least 90%. In contrast, junior preferred shares rank higher in the capital structure for dividends and liquidations. Burry highlighted that junior preferred shares trade at approximately one-fourth of par value, offering potential three to five times returns if dividends resume or if shares convert at par.
Going forward, market participants will watch whether worsening credit conditions or housing market weakness push the U.S. government to accelerate the companies' exit from conservatorship. Both mortgage agencies have operated under federal conservatorship since the 2008 financial crisis, with the timing of any government transition remaining subject to interest rates, fiscal pressures, and broader macroeconomic priorities.
Key points
- Michael Burry sold out of Fannie Mae and Freddie Mac common shares to harvest tax losses and shift into junior preferred stock.
- A potential conversion of $388 billion in Treasury senior preferred stock could dilute common equity by at least 90%.
- Junior preferred shares trade at about one-fourth of par value and rank above common stock in the capital structure.
- Shares of FNMA and FMCC have fallen more than 63% and 64% respectively in 2026.
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How we writeDisclaimerQuestions and answers
Why did Michael Burry sell Fannie Mae and Freddie Mac common stock?
Burry sold common stock to realize tax losses and protect against potential dilution of 90% or more if the Treasury converts senior preferred holdings into common shares.
Why are junior preferred shares considered safer than common stock in FNMA and FMCC?
Junior preferred shares sit higher in the capital structure than common stock, offering senior dividend claims and lower downside risk during recapitalization or conversion.