Regular investors are rolling the dice on the common stock of Fannie Mae and Freddie Mac in a big way, making a risky bet that Congress and the Obama administration won't get their way in doing away with the government-controlled entities. A move that would leave the shares worthless.
The pair of mortgage finance companies, which now trade over the counter after their delisting from the NYSE, were among the most actively traded shares by the retail investor in June, according to TD Ameritrade's analysis of its 6 million funded accounts. They are right up there in popularity with the high-flying momentum stock Tesla.
This raises many questions. Does the retail investor know exactly what they are betting on? Do they know that these are not the preferred shares that pay a dividend and are owned by many hedge funds? Do they know that these shares are last in line in the capital structure and therefore last to get paid?
"I don't think the retail trader knows what they're doing," said Stephen Weiss of Short Hills Capital Partners. "They are looking to buy a lotto ticket and not realizing they could lose 100 percent of their capital in these things."
One of the rare bipartisan views shared by many lawmakers are that these enablers of the housing crisis five years ago should be totally nationalized. This is essentially what would happen under the bipartisan bill proposed by Sens. Bob Corker and Mark Warner that would wind down Fannie and Freddie, send most—if not all—their profits into U.S. coffers, and replace them with a government-run reinsurer.
(Read More: Hedge Funds vs. Treasury on Fannie Mae)