The housing market is a total debacle right now. People with no-interest or ARM (adjustable rates) loans are falling by the wayside; foreclosures are at an all-time high; new housing starts are sinking, with many new construction projects being abandoned before finishing; houses (new or used) aren’t selling so hot; and market values are plummeting nationwide. Yet Fannie Mae, a government-sponsored enterprise, is suspiciously gaining ground. It’s stock price has consistently gone up throughout August, and in fact, the current price – at $52.76 – is 27% higher than its 52-week low. You do the math. How can that be? However, in spite of this significant rise, the analysts appear to be fairly quiet as regards recommendations. Perhaps there’s a “consumer confidence” measure going on here.
Source link: http://blog.mises.org/5557/fannie-mae-big-guv-up-to-no-good/
Fannie Mae: Big Guv Up to No Good?
Previous post: The Principle of Sound Money
Next post: Inside a Bolivian Jail
{ 2 comments }
FNM has a lot to gain from a faltering housing market due to the repricing of all these pay-option ARMS. The bread and butter for FNM and FRE are conforming fixed rate mortgages. With a flat yield curve, more people will refinance into 30-year mortgages from ARMS since 30-yr’s have a lower rate.
From a credit perspective, the average current loan to value for GSE’s business is 55%. It would take a really nasty hit to housing prices before they would feel the pain. Plus many of the higher LTV loans on their books are backed by credit enhancements, i.e. mortgage insurance etc.., such that the GSE’s are last in line to ante up for any losses.
Overall, the GSE’s will gain market share away from the Countrywide’s and WaMu’s going forward. Stock is pretty cheap!
The reason for these GSEs doing well is easy. They have ZERO risk. The government part of GSE takes the risk away from the entity and loads it on the tax payer. So all there is for owners is cash. The previous response correctly points out the worse the market gets the better it is for the GSE as its competitors refuse to take riskier loans because they must absorb at least some of the risk.
Comments on this entry are closed.