Market Overview

Fannie, Freddie's Fate Could Rest On Potential Trump Nominee

Share:
Fannie, Freddie's Fate Could Rest On Potential Trump Nominee

Donald Trump's presidency hasn’t provided the beacon of hope Federal National Mortgage Association (OTC: FNMA) and Federal Home Loan Mortgage Corp (OTC: FMCC) investors had hoped it would. 

A major leadership transition in Washington could be imminent, and Height Capital Markets analyst Ed Groshans said this week that it could be a potential catalyst for Fannie Mae and Freddie Mac.

Fannie and Freddie stocks are now down 41.5 percent and 37.7 percent, respectively, in 2018 and have traded essentially flat since the 2016 election. But Federal Housing Finance Agency Director Mel Watt may soon be out the door following allegations of sexual harassment; Groshans said in a Wednesday note that Watt’s potential successor will play a role in the fate of Fannie and Freddie.

The Candidates

Treasury Secretary Steven Mnuchin has said housing finance reform will be a top priority for the administration in 2019. With Watt potentially out of the way, Groshans said Mnuchin could have a golden opportunity to pursue GSE reform sooner than expected.

Trump has several options for potential replacements for Watt, including Office of the Comptroller of the Currency Comptroller Joseph Otting; Counselor to the Treasury Secretary Craig Phillips; Mark Calabria, chief economist for Vice President Mike Pence; U.S. Rep. Jeb Hensarling (R-TX) and former FHFA Acting Director Edward DeMarco.

Major Implications

Groshans said the identity of Watt’s potential replacement will have major implications for Fannie and Freddie.

“In our view, Hensarling and Calabria could be more focused on reining in the GSEs' activities and market presence versus having the entities exit conservatorship,” the analyst said. 

DeMarco signed off on the net worth sweep, which drained Fannie and Freddie’s capital in the first place, Groshans said. 

“Therefore, it is hard to envision DeMarco being amenable to rebuilding the capital needed to have the GSEs exit conservatorship." 

Investors don’t seem to be particularly optimistic about a potential Watt replacement. The two stocks are both up less than 1 percent since the Watt investigation was announced July 27.

Related Links:

Height Capital Markets: Housing Finance Reform Plan Has 5% Chance Of Success

Analyst Now Sees Less Than 10% Chance Congress Tackles Fannie, Freddie Reform This Year

Latest Ratings for FNMA

DateFirmActionFromTo
Jul 2020WedbushInitiates Coverage OnUnderperform
Jul 2020B. Riley FBRUpgradesSellNeutral
Apr 2020B. Riley FBRDowngradesNeutralSell

View More Analyst Ratings for FNMA
View the Latest Analyst Ratings

 

Related Articles (FMCC + FNMA)

View Comments and Join the Discussion!

Posted-In: Ed Groshans fannie mae freddie mac Height Capital MarketsAnalyst Color Politics Analyst Ratings General Best of Benzinga

Latest Ratings

StockFirmActionPT
AAPDA DavidsonInitiates Coverage On154.0
PEGAJP MorganInitiates Coverage On128.0
MBIIAegis CapitalMaintains1.7
ACCDCredit SuisseMaintains40.0
TPRCredit SuisseMaintains17.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com