FEDERAL NATIONAL MORTGAGE ASSOCIATION FANNIE MAE (FNMA) stock intrinsic value fair value estimate & owner earnings analysis

Fannie Mae guarantees and securitizes residential mortgages. It buys conforming single-family and multifamily loans from lenders, packages them into mortgage-backed securities, and charges a guaranty fee for promising investors timely payment. Its guaranty book was about $4.14 trillion at June 30, 2026, and Freddie Mac is its only true peer. The franchise is a government-chartered duopoly, and it has earned money every year for more than a decade. The common shares, however, rank behind two very large claims held by the U.S. Treasury. That capital structure, not the mortgage business, decides what the common is worth. How we measured earnings. We start from operating cash flow and strip out the swings in trading securities, accrued interest and other balance-sheet items. Fannie Mae records its credit losses, and the upfront fees and loan discounts it collects, in investing cash flows rather than operating cash flows. We therefore keep the credit-loss provision, foreclosed-property gains and fee accretion inside earnings, because for a mortgage guarantor credit losses are the main cost of doing business. We remove mark-to-market valuation gains and losses and add back deferred taxes, which are non-cash. There is no stock compensation. On that basis, owner earnings ran from $8.5 billion in 2020 (the pandemic year) to $20.2 billion in 2021 (reserve release), and were $14.2 billion in 2025, or $2.41 per fully diluted share. The share count of 5.89 billion assumes Treasury exercises its warrant to buy 79.9% of the common for a nominal price, which is how Fannie Mae reports its own diluted earnings. We set the normal level at the 2019-2025 median of $2.41 per share ($14.2 billion). That window spans the 2020 credit scare, the 2021 reserve release and the 2022 rate shock. We leave out 2016-2018 because those years were lifted by releases of reserves on crisis-era loans and by the use of a large deferred tax asset, which included a one-time non-cash charge from the 2017 tax law. Owner earnings fell 16.6% in 2025, mainly because a $0.2 billion credit benefit in 2024 became a $1.6 billion provision. Our base case holds year one flat at $14.2 billion rather than assuming a rebound. First-half 2026 net income of $7.7 billion, against $7.0 billion a year earlier, shows that this level is being met. What ranks ahead of the common. Treasury's senior preferred stock carries a liquidation preference of $227.0 billion at December 31, 2025. Under the current agreement it rises dollar for dollar with every increase in Fannie Mae's net worth: to $230.5 billion at March 31, 2026, and to about $238 billion by September 30, 2026 after net worth grew $7.5 billion in the first half. That is far above Fannie Mae's total GAAP net worth of $116.5 billion. Roughly $19.1 billion of junior preferred stock also ranks ahead of the common. The agreement lets Fannie Mae keep its earnings only until it meets its regulatory capital requirement including buffers. That requirement was $193 billion at December 31, 2025, against available capital that was a $22 billion deficit. After that point Treasury is entitled to the lesser of the net worth increase or a 10% annual dividend on a preference that will by then be far larger. Under the contracts as written, every dollar the business earns accrues to Treasury, and the common receives no cash. No common dividend has been paid since 2008. The January 2025 amendment restored Treasury's consent right over any release from conservatorship but kept these capital and dividend terms. As of this analysis no signed plan has changed them. Because Fannie Mae is a financial business, its $4 trillion of mortgage-backed securities and corporate funding debt is treated as the raw material of the business, and we do not subtract it. Bear case: worth about -$12.90 per share. Earnings settle at $12.7 billion, the 2022 level. In years three and four a housing downturn of the depth FHFA's 2026 severely adverse stress test uses hits the book: home prices fall about 30%, the test projects $35.0 billion of credit-loss provisions and a $4.9 billion comprehensive loss over nine quarters, and the following year is only half-normal as losses run off. That costs about $38 billion of earnings against the bear's normal level and corresponds to the 2008-2011 housing collapse applied to today's much stronger book. Net worth stays positive in that test, so no Treasury draw is assumed. The business is worth about $181 billion and the claims ahead of the common are about $257 billion, so it owes about $76 billion more than it is worth. Base case: worth about -$3.47 per share. Earnings hold at $14.2 billion with no growth credited. The guaranty-fee stream on an existing book of mortgages is durable and the charter is permanent, so earnings continue beyond year ten. The business is worth about $237 billion against about $257 billion of senior claims, which leaves it roughly $20 billion short. Bull case: worth about $4.45 per share. Credit stays benign and earnings run at the 2024 level of $17.0 billion. The business is worth about $283 billion, about $26 billion more than the claims ahead of the common. Growth in the guaranty book is left out of every case because it depends on the mortgage market expanding. Guaranty-fee increases and any change to the Treasury contracts are also left out. These figures do not resolve to a positive value for the common in the base case. A positive outcome needs one specific event: Treasury agrees to cancel the senior preferred preference, or treats it as repaid, without taking more common than its existing warrant. Statements of intent by officials since 2025 about releasing the company or selling shares to the public have not produced a signed agreement. In January 2026 the company was instead directed to help buy up to $200 billion of mortgage-backed securities as a housing-policy tool. If that cancellation happened, the only claim ahead of the common would be the $19.1 billion junior preferred. The common would then be worth about $27.50 per diluted share in our bear case, $36.90 in the base and $44.80 in the bull, before any dilution from the large equity raise needed to meet the capital requirement. How we set the margin-of-safety price. We are fairly confident in the earnings level: more than ten years of profits between $8.5 billion and $20 billion, a duopoly charter, and a stress test showing the book survives a 30% home-price fall with only a small loss. The worst plausible outcomes are ones no case models, and they come from the controlling owner rather than the mortgage book: receivership, which the 2008 housing law allows; conversion of Treasury's preference into common on terms that leave existing holders a sliver; or the current terms simply continuing for decades while the company is used as a policy tool. The structure does not protect the common against any of these, because Treasury and FHFA control every decision. On today's terms no price qualifies as a margin-of-safety price, so the margin-of-safety price applies only if the cancellation described above happens in fact. In that event the things we are most likely to be wrong about are the size and price of the equity raise, how long the company must retain all earnings before paying dividends (roughly five to six years if it fills the capital gap from earnings alone), and whether policy directives such as fee cuts or the bond-buying mandate lower the earnings level. A price of $13 a share is about 5.4 times owner earnings of $2.41 per diluted share. Retained earnings would add about $2.40 a share to book value each year while no dividend is paid. That leaves enough room to absorb an equity raise at a discount and a housing downturn of the stress-test kind, with the base case still implying a return near 20% a year over an assumed four- to five-year holding period. Above that, a downturn or a dilutive raise would push the implied return below target. Our previous figures were prepared on a different basis and are not comparable. Since then the senior preferred preference has risen by about $11 billion as earnings were retained, net worth has reached $116.5 billion, and the company's terms with Treasury are unchanged.