Bill Ackman has purchased massive stakes in both Freddie Mac (OTCBB:FMCC) and Fannie Mae (OTCBB:FNMA), two of the most notable banks of the bailout crisis. According to paperwork filed by Pershing Square, Ackman’s hedge fund, the stakes are equal to 9.77 percent of Freddie Mac and 9.98 percent of Fannie Mae.

Ackman’s Play To Capitalize

The purchases come after an announcement yesterday by Bruce Berkowitz of Fairholme Capital Management. Berkowitz said that he and a group of investors are interested in buying and recapitalizing the two mortgage lenders.

Berkowitz told CNBC that, “This proposal is about the future.” He indicated that Fairholme Capital is willing to cooperate with the federal government to make the deal happen. He said, “We are apolitical, we will do it any way the government wants.”

Fannie Mae & Freddie Mac – What’s Next For Them?

The government has plans to wind down the two mortgage lenders. However, those plans may not include utilizing activist money managers like Berkowitz. Senators Bob Corker (R-TN) and Mark Warner (D-VA) brought a piece of legislation to the table this summer that will effectively replace Fannie Mae and Freddie Mac with a “privately capitalized system that preserves market liquidity and protects taxpayers from future economic downturns.”

The name of the bill is The Housing Finance Reform and Taxpayer Protection Act. The breakdown of what it will do is as follows:
• Mandate 10 percent capital to be available up front to protect against future bailout situations. Wind down Fannie Mae and Freddie Mac and the FHFA within 5 years of being passed.
• Transfer duties to the more modernized and accountable Federal Mortgage Insurance Corporation (FMIC) which is to be similar to the FDIC.
• Replace “housing goals” that were constantly missed with a more transparent market access fund that is more accountable and not funded with tax dollars.
• Guarantees that banks and lending institutions of all sizes have access to the secondary credit market so that local banks and credit unions don’t become gobbled up when Fannie Mae and Freddie Mac are finally dissolved.

Ackman Set To Profit Or Lose Big

If the deal for Fairholme Capital to purchase Fannie Mae and Freddie Mac goes through, then Bill Ackman is set to bring in a hefty profit for Pershing Square. However, if the federal government opts to leave Fairholme and other activist suitors out in the cold, Ackman may find himself holding worthless scraps of paper.

Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.