Have you looked at the stocks of the Federal National Mortgage Association (FNMA), better known as Fannie Mae, and the Federal Home Loan Mortgage Corporation (FMCC), better known as Freddie Mac, recently?

They’re far from a pretty picture.

Yet for those who’ve followed Fannie and Freddie’s stories from the financial crisis to today, the common and preferred stocks of these firms may actually be a ”Buy.”

Here’s a quick refresher: Fannie Mae and Freddie Mac, while government-sponsored enterprises (GSEs), are still private companies. And as separate companies, they compete with one another.

They also have the same business model, wherein they buy mortgages on the secondary mortgage market, pool those loans, and then sell them to investors as mortgage-backed securities in the open market.

The main difference between Fannie and Freddie is that Fannie Mae mostly buys mortgage loans from commercial banks, while Freddie Mac mostly buys them from smaller banks, often called “thrifts.”

Here’s the issue, though: If interest rates are still very low (they started the year below 4%) and housing is thriving in many parts of the United States, why are the stocks of these enterprises so depressed?

The Artificial “Bailout”

The problem boils down to this: Fannie and Freddie were never really in trouble during and after the financial crisis.

Rather, they were seized by the government in order to provide a backdoor bailout to truly vulnerable large banks and simultaneously restore confidence to the traumatized financial markets.

The stocks of Fannie and Freddie declined rapidly in 2007-08 along with the rest of the panicked market. The government, nevertheless, allowed and actually encouraged their widespread naked short selling.

In doing so, the government provided additional ammunition for its argument that it was necessary for them to “rescue” Fannie and Freddie.