Market Overview

Fannie And Freddie Watch: The Latest News Out Of Washington

Share:
Fannie And Freddie Watch: The Latest News Out Of Washington
Related FNMA
Tariffs, Drug Prices, Legislative Gridlock: What Economists Are Watching Following The Midterm Election
Here's What's At Stake For Your Investments In The 2018 Midterms
Tracking Bill Ackman's Pershing Square Portfolio - Q3 2018 Update (Seeking Alpha)
Related FMCC
The Home Affordable Refinance Program Is Ending Again, For Real This Time
C-Suite Shakeups Could Change The Course Of Fannie And Freddie's Conservatorship
Tracking Bill Ackman's Pershing Square Portfolio - Q3 2018 Update (Seeking Alpha)

Federal National Mortgage Association (OTC: FNMA) and Federal Home Loan Mortgage Corp (OTC: FMCC) shares are jumping Thursday. Bloomberg reported the Treasury is discussing having Fannie Mae and Freddie Mac retain a portion of the fourth-quarter dividend payments in an effort to begin recapitalizing the government-sponsored enterprises.

One Wall Street expert said dividend retention would be good news for Fannie and Freddie and would give the GSEs more options as the administration works through housing finance reform.

The Analyst

Height Securities analyst Edwin Groshans.

The Thesis

Fannie and Freddie have about $7 billion in dividend payments due to the Treasury by the end of the year, but Bloomberg reported they may be allowed to retain $2 to $3 billion.

According to Groshans, Fannie and Freddie may soon need this capital if the Republicans can successfully lower the corporate tax rate to 20 percent. In that scenario, he says Fannie Mae would endure a $12 billion deferred tax asset write-down, while Freddie Mac would endure a $6 billion write-down.

“This means that both companies will have to draw on Treasury’s preferred capital line of credit to maintain their capital buffer. Capital draw should still maintain,” Groshans said.

But even in the event of a tax-related capital draw-down, the fact that Fannie and Freddie may be allowed to retain capital for the first time since the Treasury implemented the net-worth earnings sweep is a step in the right direction for Fannie and Freddie shareholders.

“Capital retention by the GSEs is the first step towards 1) ending the net worth sweep and 2) exploring alternatives that can result in the GSEs retaining sufficient capital to exit conservatorship,” Groshans said.

Price Action

Fannie Mae and Freddie Mac stocks were both trading higher by more than 3.2 percent Thursday morning.

Related Links:

Bill Ackman: Fannie, Freddie Have Increasing Odds Of A Positive Resolution

What The New GOP Tax Plan Could Mean For Fannie Mae, Freddie Mac

Posted-In: Edwin Groshans fannie mae freddie macAnalyst Color Politics Top Stories Analyst Ratings General Best of Benzinga

 

Related Articles (FMCC + FNMA)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
LXFTKeyBancDowngrades0.0
CPAImperial CapitalDowngrades68.0
PRMWImperial CapitalInitiates Coverage On18.0
TGTKeyBancInitiates Coverage On110.0
QCOMMorgan StanleyUpgrades0.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

5 Key Technical Levels To Watch Today

5 Biggest Price Target Changes For Thursday