Michael Burry said in a Substack post over the weekend that a potential conversion of the U.S. Treasury’s $388 billion senior preferred stock into common shares would dilute the shares.

  • He said he has purchased several series of preferred stock while selling mortgage companies' common stock. 
  • He noted that if the Treasury were to convert its preferred stock into common stock, the former would still offer a better risk-reward profile because they rank ahead of common stock for dividends and in the capital structure. 
  • Burry warned that worsening credit conditions and housing-market weakness could eventually pressure the Trump administration to accelerate Fannie Mae and Freddie Mac’s exit from conservatorship before Trump’s term ends. 

‘The Big Short’ investor Michael Burry is switching from common stock holdings of Fannie Mae (FNMA) and Freddie Mac (FMCC) to junior preferred shares amid dilution concerns. 

He noted that a potential conversion of the U.S. Treasury’s $388 billion senior preferred stock into common shares would dilute the shares. 

Burry said in a Substack post over the weekend that he has “purchased several series of preferred, and sold out” of Freddie and Fannie common stock positions to realize the full tax loss in the mortgage ‘Twins.’

Why Burry Likes FNMA, FMCC Preferred Stock

Burry said that in light of both stocks giving back nearly all their gains since U.S. President Donald Trump’s election and now showing a bearish technical chart pattern, combined with the risk of at least 90% dilution to common shareholders if the Treasury converts its $388 billion senior preferred stock claim into common shares, preferred shares “fare better than the common stock in the event of a conversion.”

The veteran investor pointed out that Freddie Mac and Fannie Mae have operated under U.S. government conservatorship since the 2008 financial crisis, when the Treasury provided billions in financial support in return for senior preferred shares with a liquidation preference, which he estimates is now at $388 billion. 

He pointed out that although Fannie Mae’s junior preferred stocks stand at $19 billion at par and just $6 billion at market value, they still outshine common stock because they are the “senior-most security.” 

He noted that if the Treasury was to convert its preferred stock into common stock, the former would still offer a better risk-reward profile because they rank ahead of common stock for dividends and in the capital structure. 

“Dividends are not cumulative, but the JPS likely trade to par or higher on reinstated dividends, or converted into stock at par. In aggregate, the JPS series trade at about 1/4 of par. Depending on the series, expected return would be very roughly 3x-5x,” he said. 

Government Priorities Have Shifted

Burry highlighted that the momentum for exit from conservatorship and cancellation of the senior preferred stock has been outranked by other macroeconomic factors such as the Iran war, higher interest rates, a weakening housing market, and a tight fiscal situation at the U.S. Treasury. The AI trade has also added to the narrative. 

Burry warned that worsening credit conditions and housing-market weakness could eventually pressure the Trump administration to accelerate Fannie Mae and Freddie Mac’s exit from conservatorship before Trump’s term ends. 

“Under any scenario involving affirmation of the liquidation preference, the junior preferred should lose, relative to the common, less value from here, or even gain in value,” he said. 

Retail Stance On FNMA, FMCC Stocks

On Stocktwits, retail sentiment around FNMA stock was ‘bearish’ at the time of writing amid ‘low’ message volumes. 

FMCC stock’s sentiment was ‘extremely bearish’ amid ‘low’ message volumes. 

FNMA stock is down more than 63% in 2026, while FMCC stock is down by over 64%. 

For updates and corrections, email newsroom[at]stocktwits[dot]com.<