The Problem: Fannie guarantees mortgages and securitizations of mortgages, but mortgages are declining in value. That is stressing Fannie's debt obligations.
"There's very little cushion when you're leveraged 69 to 1," Ackman pointed out. "... Implicit guarantees don't work in the market that we're in now. What matters is capital. These institutions need to have a fortress balance sheet. Jamie Dimon talks about a fortress balance sheet; we need a Fannie and Freddie with a fortress balance sheet."
"I don't believe the housing market's going to stabilize where we are," said Ackman. "I think what we need is, in order to restore confidence in the financial system, you need the largest participant in the mortgage market to be extremely well capitalized, and they're far from extremely well capitalized. These two institutions were set up in a different era, and they need to be able to withstand the perfect storm. It is now the perfect storm."