Fact Check: Does mortgage industry bill cost 'average investors' retirement savings?

"First it was Obamacare," begins the female narrator for the 60 Plus Association's new ad. "Now, Kay Hagan is teaming up with Barack Obama to take over the mortgage industry."

"Millions of Americans invested their pension and retirement funds in mortgage companies Fannie Mae and Freddie Mac," the ad continues. "Under the plan supported by Hagan and Obama, ordinary investors – teachers, police officers, firefighters – could lose retirement savings. The federal government will seize all profits. Tell Hagan, don't bring Obamacare to the mortgage industry."

60 Plus is spending $1.5 million to air this and similar radio and television spots targeting seven senators, according to a spokesman for the group, who added that a "substantial portion" of that spending would be in North Carolina, where it will air in all major media markets. 

Hagan is not a co-sponsor of Johnson-Crapo, named for its sponsors, but has signed on to a similar bill. 

A spokesman for 60 Plus provided links to news stories cited by the ad and talked on background about the spot's thesis. However, before digging into the backup, it would be helpful to know that Fannie Mae and Freddie Mac do not make mortgage loans themselves. Rather, they buy mortgages issued by banks and bundle them into securities that are then sold to investors. In late 2007, when thousands of homeowners defaulted on their mortgages, both companies ran into huge financial losses, and the federal government spent $188 billion bailing out the two institutions. 

Both companies have since turned around and more than repaid what the government invested in the bailout. However, lawmakers on both sides of the aisle have been keen to revamp how the government is involved in the mortgage industry. At the same time, the government has continued to reap profits from the two companies rather than letting those funds pass on to shareholders. 

At issue is what would happen to investors in the two companies. To be clear, the ad does not address the mortgage-backed bonds issued by the two companies. That debt, which adds up to trillions of dollars, would be guaranteed by federal taxpayers under the legislation. Rather, the commercial is decrying the fate of those who are invested in common and preferred stock in the two companies. 

But do those investors represent "ordinary investors?" 

Anthony Sanders, a distinguished professor of real estate finance at George Mason University, said investors stand to lose under the wind-down bills. But it's important to know who those investors are. 

Shares in Fannie Mae and Freddie Mac lost much of their value in late 2007 and 2008, Sanders said. In September 2008, the pair were put into a conservatorship. Essentially, they are being run under the supervision of the Federal Housing Finance Agency. By that point, shareholders had already lost much of the value that ware invested in the two companies. 

"They bought the pain in the fourth quarter of 2007 along with the rest of us. That's when housing prices collapsed," he said.

Most pension funds, 401(k) plans and the like wrote off those losses in 2007 and 2008.

After 2008, hedge funds and other speculators came onto the scene, Sanders said. Those players have scooped up both common stock in the two companies as well as "junior preferred stock," essentially placing a bet that the companies would rebound under federal protection. 

"We don't have a lot of good information in terms of who holds the junior preferred stock," said Mark Calabria, director of financial regulation studies at the Libertarian Cato Institute.

Calabria is critical of the Senate bill because it puts taxpayers at risk, but he said it's a stretch to say that middle-income pensioners are placed at risk by the measure. While we can't say for sure who owns Fannie and Freddie stock, he said, the people who stand to lose the most are likely big investors who essentially bet that the foundering companies would recover with taxpayer assistance. 

Experts writing on the wind-down bill point out that the federal government has more than been repaid for its investment, and there is an argument to be made that it's unfair to stiff private shareholders if the two companies – which are still in federal conservatorship – are profitable once again. 

But this commercial doesn't raise the question of what's fair for big shareholders. It uses pictures of an elderly couple sitting at a table and blue-collar workers to raise the specter of retirement funds being raided and confiscated by the feds. The question is whether what happens to shareholders will materially impact the retirement account for "average investors."

The experts say that's not the case. 

"I see three different classes of investors' interest being conflated in the ad," said Roberto Quercia, director of the University of North Carolina Center for Community Capital.

Small, rank-and-file investors lost most of their value in the company during the housing market crash. The ad, he said, is conflating those pre-2008 shareholders and the holders of mortgage-backed debt with people who invested after 2008, speculating that the companies might be worth something again. 

It is possible that some pension funds and 401k plans have, in turn, make investments in hedge funds that bought Fannie and Freddie stock after 2008. 

"But we're talking about tens of billions of dollars worth of par value which has been lost and written off," Calabria said. "We have a multi-trillion-dollar pension system."

The impact of potential losses to individual small investors who are likely to see these commercials at home, he said, is small.

"There is certainly some fear-mongering" in the commercial, he said. 

Sanders agreed that average retirees who are invested in 401(k) plans and pensions have little to worry about from the Senate bill. Asked if saying "ordinary investors – teachers, police officers, firefighters – could lose retirement savings" was overstating the case, Sanders said, "absolutely."