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We recently did a story that began with this sentence:
"The housing market has recovered in many parts of the country, but the government still owns the mortgage giants Fannie Mae and Freddie Mac."
After the story aired, we got a bunch of messages from a listener, Andrew Tomlinson, demanding a correction. So we called him up.
Andrew argues that the government does not actually own Fannie Mae and Freddie Mac.
Here's the case he makes. Ever since the bailout, the government has had what's called a warrant to buy 80 percent of the common stock in Fannie and Freddie at any time. That means, whenever it feels like it, the government can take ownership of 80 percent (actually, 79.9 percent) of both companies. But the government has not actually acted on that warrant. So, Andrew argues, while the government has the right to own the bulk of Fannie and Freddie, it currently does not. Fannie and Freddie are owned, he says, by the people (like him) who currently hold the stock.
For most public companies, Andrew is correct, shareholders are the owners. But Fannie and Freddie are in an unusual situation. When the government bailed them out (in addition to getting those warrants), the Treasury Department placed Fannie and Freddie into conservatorship, which gave the government control over the companies. The government currently is taking all of the profits generated by Fannie and Freddie. For many observers the word "own" seems right. Many media organizations use the term "own." The Congressional Budget Office has said the government is the "effective owner" of Fannie and Freddie.
There are a lot of legal questions around the current state of affairs (and the terms used to describe it). One thing we can say without any hesitation or argument (we hope!) is that Fannie and Freddie are controlled by the government.
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