A Legendary Short Seller Bets on Fannie Mae’s Revival

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In a remarkable strategic pivot, Michael Burry—the hedge fund manager immortalized for his prescient bet against the U.S. housing market in 2008—has established a major long position in Fannie Mae. This move signals a radical departure from his historic stance and is a direct wager on the government-sponsored enterprise's imminent exit from federal conservatorship. The question for investors is whether the entity once deemed toxic has truly transformed.

Burry's high-profile confidence is not the only catalyst driving interest. Market sentiment has been further buoyed by reports that the Trump administration is formulating plans to potentially privatize the mortgage financiers by late 2025 or 2026. This political backing lends substantial credibility to the long-held advocacy of other investors, such as Bill Ackman, who has consistently pushed for Fannie Mae's return to the New York Stock Exchange.

The market's response has been swift and decisive. Over the past fortnight, Fannie Mae's share price has surged more than 24%, recently closing around $11.45 and testing a key resistance level at $11.58. The underlying business fundamentals provide a basis for this optimism: despite mortgage rates exceeding 6%, Fannie Mae's core guarantee business remains highly profitable.

Burry's Detailed Thesis and Valuation Forecast

The investor outlined his rationale in a detailed post on his blog, "Cassandra Unchained," confirming he has built significant holdings in Fannie Mae's common stock. He now refers to Fannie Mae and Freddie Mac as "Toxic Twins No More" and believes the timeline for their return to public markets is "almost here."

His investment scenario is precise. Burry forecasts that an initial public offering (IPO) could value the shares at 1 to 1.25 times their book value. Furthermore, he projects that within 12 to 24 months following the listing, the stock could potentially trade at 1.5 to 2 times book value. In a notable aside, he suggested that even an investment from Warren Buffett's Berkshire Hathaway during such a new issuance would not surprise him.

Navigating the Remaining Obstacles

Despite the growing enthusiasm, significant hurdles persist. Fannie Mae has remained under government control since the 2008 financial crisis. The most substantial uncertainty stems from the U.S. Treasury's warrants, which theoretically cover 79.9% of the common stock.

A successful public offering would also necessitate that Fannie Mae hold significantly more capital. How this recapitalization is structured will determine whether existing shareholders face dilution. The exact timetable remains dependent on complex negotiations between the Treasury Department and the Federal Housing Finance Agency (FHFA), the company's regulator.

Investment Outlook

Michael Burry's position offers a powerful vote of confidence for investors speculating on privatization. The crucial factor for the share price's trajectory will now be concrete steps from regulators in the coming months. Should the roadmap to reprivatization proceed as broadly outlined, the valuation gap highlighted by Burry points to considerable potential upside for equity holders.