The Treasury announced a plan to bring Fannie Mae and Freddie Mac under the Federal Housing Finance Agency.

With this agreement, Treasury receives senior preferred equity shares and warrants that protect taxpayers. Additionally, under the terms of the agreement, common and preferred shareholders bear losses ahead of the new government senior preferred shares.

These Preferred Stock Purchase Agreements were made necessary by the ambiguities in the GSE Congressional charters, which have been perceived to indicate government support for agency debt and guaranteed MBS. Our nation has tolerated these ambiguities for too long, and as a result GSE debt and MBS are held by central banks and investors throughout the United States and around the world who believe them to be virtually risk-free. Because the U.S. Government created these ambiguities, we have a responsibility to both avert and ultimately address the systemic risk now posed by the scale and breadth of the holdings of GSE debt and MBS.

Market discipline is best served when shareholders bear both the risk and the reward of their investment. While conservatorship does not eliminate the common stock, it does place common shareholders last in terms of claims on the assets of the enterprise.

Similarly, conservatorship does not eliminate the outstanding preferred stock, but does place preferred shareholders second, after the common shareholders, in absorbing losses.

The full affect of this on the markets will take weeks to months to bear out, but common shareholders are going to get the worst of it, followed by the owners of preferred shares.

Here is the Treasury’s statement on the action taken.

The agreement issues to the Treasury “…warrants representing an ownership stake of 79.9% in each GSE going forward.”

Here is the treasury’s fact sheet on the preferred stock issuance.

As of June 30, top holders are big guns:

http://finance.yahoo.com/q/mh?s=FRE

Legg Mason Value Trust is run by one of the most respected managers in the business, Bill Miller.

http://finance.yahoo.com/q/mh?s=FNM

Another highly regarded mutual fund house Dodge and Cox is up there with 5% of Fannie.

If they unloaded after 6/30, they took a huge loss, but not as big as if they’d held it.

D&C has already issued a statement, looks like their stock fund was 1% (about $500m) Fannie as of Friday:
https://www.dodgeandcox.com/pdf/FNMA_comment_20080907_final.pdf