Talk about coming full circle. Michael Burry, the investor who made a fortune shorting subprime mortgage securities before the 2008 housing meltdown, is now placing a huge bet on the very institutions that sat at ground zero of that disaster: Fannie Mae (FNMA) and Freddie Mac (FMCC).

The two mortgage giants, often dubbed the "Toxic Twins," have spent more than a decade in government conservatorship, with their profits flowing directly into the U.S. Treasury. Not exactly a setup that screams "great investment opportunity." But Burry thinks that's about to change in a big way.

Here's his thesis: Signs point to the government preparing to re-privatize these behemoths through what could be one of the largest IPOs in history. We're talking a potential combined valuation of $500 billion by 2026. The catalyst? Political pressure from the Trump administration to revitalize the housing market and "get Big Homebuilders going," as Burry puts it.

There's just one problem. Fannie and Freddie are currently capital-starved. They can't expand their loan books or take on the kind of risk the administration wants without raising serious cash. The most straightforward path forward is an IPO, and that's where things get interesting for current shareholders.

Right now, the Treasury holds a mountain of senior preferred stock with liquidation preference that essentially crushes the value of common shares. To make an IPO attractive to new investors, the government would likely need to negotiate down this debt burden. If that happens, the currently penny-stock-priced common shares could explode in value.

Burry isn't alone in this thinking. Billionaire investor Bill Ackman made a similar argument earlier this year about the potential for Fannie and Freddie IPOs. The logic is that political pressure to juice the economy will ultimately force the Treasury's hand.

It's undeniably a high-risk play that hinges on political maneuvering and regulatory decisions. But if there's anyone with a track record of seeing what others miss in the housing finance world, it's the guy who called the subprime crisis. Burry believes the writing is on the wall, and he's positioning himself accordingly.

The "Toxic Twins" may finally be ready for their second act. And Burry is betting big that their comeback story will be worth the wait.