Burry Holds Fannie Mae and Freddie Mac Amid Housing Stress

Fannie Mae shares fell 9% on Tuesday, marking their steepest drop since June. Freddie Mac shares declined 8% in the same session, their worst performance since May. Michael Burry of Scion Asset Management is holding both positions. He stated that the charts for these mortgage giants look terrible. However, he believes a single government announcement could revalue the common shares.

The selloff followed a policy move by the Federal Housing Finance Agency. The regulator aligned Fannie Mae's private mortgage insurance rules with those of Freddie Mac. Director Bill Pulte framed this as a consumer-friendly fix. It allows servicers to proactively contact borrowers to drop insurance once equity builds. Burry interpreted the move as a signal that no major changes to the conservatorship are coming soon.

Mortgage Rates And Sales Data

The average 30-year fixed mortgage rate reached 7.22% on Tuesday. August existing-home sales fell 2% to a 14-month low. Median prices remained 1.6% higher than a year ago. New-home sales showed a different trend. The median price for new homes slipped 0.9% from the previous year. This level of $393,800 is the lowest since July 2021.

Burry notes that the housing market is starting to creak. He suggests housing prices may already be falling. He does not predict a repeat of the 2008 global financial crisis. He warns that further rate increases could disrupt the lock-in effect. This effect currently keeps many homeowners from listing their properties.

Insurance Costs And Equity Rules

The policy change affects approximately 800,000 borrowers who used private mortgage insurance last year. PMI is typically required for conventional loans with down payments below 20%. Freddie Mac estimates costs between $30 and $70 per month per $100,000 borrowed. A buyer with a 10% down payment on a $450,000 home pays about $263 monthly in insurance.

Homeowners can already request cancellation once equity reaches 20%. Lenders must terminate coverage at 22% equity. The new rule allows servicers to initiate this process. Burry sees this as a minor adjustment. He believes the Treasury Department's $350 billion senior preferred claim remains the primary barrier for common shareholders.

Investor Position And Market Outlook

Burry is not considering reducing his exposure to the two companies. He expects meaningful progress on the conservatorship issue to occur after the midterm elections. The source GN auto markets/housing: housing prices highlights the ongoing tension in the sector. Burry remains convinced that the current valuation does not reflect the potential upside. He views the recent policy announcement as a distraction from the core legal issues.