A Bullish Case For Fannie Mae Jul 11

New Post Public Reply Private Reply Replies (0) Message Board
MicroCapStocksRock Pharaoh #126

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in  FNMA.OB over the next 72 hours.  (More...)

It has been a rollercoaster ride for Fannie Mae's ( FNMA.OB ) common stock holders this year. FNMA, along with Freddie Mac ( FMCC.OB ), has registered record profits in recent quarters, thanks to the recovery in the housing market. This has enabled FNMA, as well as FMCC, to return a significant portion of the bailout money the mortgage giants received at the peak of the financial crisis.

Record  profits at FNMA also led to speculation that the mortgage giant will eventually exit government control. Not surprisingly, FNMA shares have seen a huge rally since the start of 2013. Year-to-date, the stock has gained more than 535%. However, the party was recently spoiled after a bipartisan group of senators presented a  plan that would eventually wind down FNMA and FMCC. The question FNMA investors are asking right now is whether the bill will go through or will the rising profit at FNMA and FMCC force government to let some value flow back to shareholders.

Fannie Mae and the improving housing market

Fannie Mae's record profit is being driven by the ongoing improvement in the housing market. Most recent  data from the housing market showed that sale of new U.S. single-family homes climbed to the highest level in almost five years. Meanwhile, housing starts have also been  rising at a steady pace.

The recovery in the housing market began early last year, and accelerated after the Federal Reserve announced a third  round of quantitative easing in September 2012.

Under the QE3 program, the Fed pledged to buy $40 billion a month in mortgage backed securities until there is a sustained recovery in the housing market. This immediately pushed mortgage rates to record low levels and aided the recovery in the housing market. Although mortgage rates have  risen sharply in recent weeks amid speculation over an early end to Fed's QE3 program, they are relatively  low . Therefore, the housing market recovery remains on track. In addition, low mortgage rates are just one of the factors that have aided the recovery. The housing market has also benefited from tight supply. With the housing market recovery expected to continue, Fannie Mae is expected to continue to post record profits.

Fannie Mae's record profit

Given the recovery in the housing market, it is not surprising that Fannie Mae has been posting record profits. FNMA, which along with FMCC was set up to buy mortgages from banks and package them into securities in order to boost mortgage lending activity, reported a record $58.7 billion in earnings in the quarter ended March 31, 2013. The company's earnings before taxes totaled $8.1 billion. This was the fifth straight  profitable quarter for the mortgage giant.

In addition, Fannie said that it will pay a  dividend of $59.4 billion to the U.S. Treasury. More importantly, the company said that it requested no additional aid from the government.

Fannie Mae, along with Freddie Mac, was bailed out by the U.S. Treasury with taxpayers' money after the two companies suffered significant losses on subprime mortgages. Both companies were on the verge of collapse when they were bailed out. FNMA received approximately $116 billion from the Treasury. However, with the latest dividend, the mortgage giant has already repaid $95 billion.

This has led to increasing speculation that Fannie Mae might eventually exit government control. If that happens, it could unlock enormous value for FNMA shareholders, given the ongoing recovery in the housing market.

(click to enlarge)

(click to enlarge)

The chart above shows how expectations of a government exit sparked a huge rally in FNMA this year, with the stock hit $5.44 in late May. However, the party for FNMA common stockholders ended after the introduction of a bipartisan bill that seeks to wind down FNMA and FMCC.

Winding down Fannie and Freddie

Fannie and Freddie were set up by the U.S. government to boost mortgage lending and home ownership. For years, the idea worked perfectly, with FNMA and FMCC providing liquidity and stability to the secondary mortgage market. However, the housing market collapse of 2008 highlighted some flaws in the system.

With FNMA and FMCC on the verge collapse, the government was forced to intervene and bailout the mortgage giants with taxpayers' money. Since bailing out the two companies, there has been growing debate in Washington on whether the government should play a role in the mortgage market. Many in Washington are in favor of winding down Fannie Mae and Freddie Mac in order to avert a situation like the one seen during the peak of the financial crisis.

A recent bill proposed by a bipartisan group of senators seeks to wind down Fannie Mae and Freddie Mac over the next five years, and introduce more private capital into the mortgage market. The introduction of the bill sparked a sell-off in Fannie Mae shares. In the last one month, the stock has fallen more than 18% as shareholders fear that they will be left with no value if the proposed bill is passed by the Congress. However, I think the sell-off may be an overreaction.

Bullish case for Fannie Mae

Lawmakers have been looking to overhaul the housing finance system ever since Fannie and Freddie were bailed out during the financial crisis. However, very little has actually been done. Initially, lawmakers feared that any plans to overhaul the system could have a negative impact on the housing market. However, with the housing market now showing signs of robust recovery, lawmakers feel this is the right time to implement reforms. But they may still back out.

While the housing market is recovering, we are still some way from a full recovery. In addition, the housing market is one of the strongest areas of an overall moderately improving economy. Lawmakers would certainly not want to derail the recovery at this stage by passing a bill that seeks to liquidate FNMA and FMCC.

Also, when Fannie Mae and Freddie Mac were bailed out, the government did not expect them to recover the way they have. In fact, the bailout agreement includes no provision for both companies to repay the taxpayers' money and become independent once again. However, the way Fannie Mae and Freddie Mac have bounced back, there is still significant value in both companies. Not surprisingly, several investors have urged lawmakers to keep Fannie and Freddie alive.

At the moment, under the terms of a revised agreement, Fannie Mae has been paying the Treasury all of its profits as dividends. This has made rebuilding capital impossible for the company. However, if the mortgage giant continues to post record profit, which I believe it will given the ongoing recovery in the housing market, then the government might have to think about giving up control and scrap any plans to wind down FNMA and FMCC. If that happens then FNMA shareholders stand to make substantial profit.

Freddie Mac (FMCC) Stock Research Links

FMCC Board Company Profile Buy Rating Time & Sales News Filings Financials
My Favorite plays are on the Nasdaq DIP and RIP Board http://investorshangout.com/NASDAQ-DIP-and-RIP-87909/
My Favorite Paid chat room with amazing chart setups is The Trading Stock Lounge http://www.thetradingstocklounge.com/

Scroll down for more posts ▼

Top 10 Most Recent News Articles

CData Software: A Challenger in Data Integration

Updated Category News Views 89

CData Software Earns Challenger Status Here we are, folks. CData Software just snagged the 'Challenger' title in the 2026 Gartner® Magic Quadrant™ for Data Integration Tools. For the uninitiated, that's a feather in the cap for these data wizards, proving they've got real skin in the game when it comes to connecting the data dots across enterprise landscapes. It’s...

Continue Reading
RSPO RT2026 Tackles Indonesian Fires and Export Shifts

Updated Category News Views 42

Indonesia's Burning Questions There's been a lot of smoke—literally and figuratively—hanging over the palm oil industry in Indonesia this year. At the RSPO's Annual Roundtable on Sustainable Palm Oil (RT2026), attendees didn't shy away from addressing the harsh realities. In a year marked by rampant fires, thanks to the blistering El Niño, the RSPO showcased data...

Continue Reading
ROMTech Enhances Recovery Tech with New Website

Updated Category News Views 96

ROMTech Aims High with Website Revamp ROM Technologies, Inc., the medtech trailblazer, is taking a bold step by launching a fresh, spiffy corporate website. This overhaul isn't just about fancy graphics or slick user interfaces—though those are here in droves. We're talking a genuine commitment here to enhancing post-discharge recovery through home-based tech solutions....

Continue Reading
American Prosperity Rises Despite Economic Concerns

Updated Category News Views 82

Reading Between the Lines of Prosperity You'd think the headlines scream gloom—job insecurity, a shaky economy, ridiculous basic cost hikes. Yet, against the odds like an underdog scrapping past the finish line, the Northwestern Mutual's Personal Prosperity Index crawled up to 71 out of 100, up by a humble three points since mid-year. Unlocking Prosperity in Chaotic...

Continue Reading
Securly Empowers Schools to Control AI in Searches

Updated Category News Views 29

Looks like the battle of wits between schools and AI is heating up. Securly, the big shot in K-12 digital safety, has tightened its grip by rolling out a new control lever for schools to wrangle AI-generated content. It's like tossing a net over Google's AI features—now school districts get to decide what their kids see. Securly Draws the Line on AI Content In a world...

Continue Reading
Adient Boosts Buyback, Shields Valuable Tax Assets

Updated Category News Views 47

Adient's Aggressive Buyback and Tax Strategy Well, it looks like Adient's not just sitting on its hands. They've not only opened up the cash taps with a $400 million increase in their share repurchase authorization but also shored up their defenses with a Tax Benefits Preservation Plan. You know, when a company dishes out that kind of cash, it tells you they see some...

Continue Reading
Pearson-Westermann Partnership Boosts English Skills in Germany

Updated Category News Views 107

Revolutionizing English Education in Germany Alright, folks, here's the scoop for all you with a toe in education and workforce development. Pearson and Westermann are shaking hands to tackle one of the biggest skills needed in Germany: English proficiency. This might sound like a dry move on the surface, but trust me, it's a game-changer for students and job seekers...

Continue Reading
UP Fintech Faces Major Class Action Amid Chinese Regulatory Hurdles

Updated Category News Views 133

Legal Battles Loom Over UP Fintech UP Fintech Holding Limited, trading under NASDAQ: TIGR, is knee-deep in legal mire, thanks to a hefty class action lawsuit. Levi & Korsinsky rings the legal bells for shareholders who grabbed TIGR securities from April 22, 2024, to June 2, 2026. The heat is on—a December 28, 2026 deadline for lead plaintiff spot beckons. Dust off those...

Continue Reading
Bluerock Fund Declares November Distribution With Strategic Growth

Updated Category News Views 57

Navigating Bluerock's Latest Moves Bluerock Private Real Estate Fund (BPRE) is up to something intriguing, dishing out a $0.1371 cash distribution per share for November 2026. If you're a shareholder of record by November 18, you're lined up for a payday on November 30. This decision reflects a solid 7.5% distribution rate on NAV, with an eye-popping annualized market...

Continue Reading
P.C. Richard & Son's Generations+: Loyalty Rewarded

Updated Category News Views 60

What's the Deal with Generations+ at P.C. Richard & Son? Felt like companies were giving away the farm just to keep customers hooked, and then I heard about P.C. Richard & Son's latest play. They've been around for a scorching 117 years, and now they're offering something they've never done before: a free membership program called Generations+ that tosses perks like candy...

Continue Reading

Top 5 Most Recently Viewed Articles

SpotOn's Strategies for Independent Restaurants Amid Economic Pressures

Updated Category News Views 141

SpotOn's Insights on Economic Challenges for Restaurants Independent restaurant operators are navigating a tumultuous landscape as economic pressures mount. According to recent insights, inflation and rising labor costs are significant concerns that these operators face daily. SpotOn is at the forefront, offering innovative strategies to help businesses thrive amidst...

Continue Reading
Evergreen Corporation Reaches New Heights, Faces Delisting Risk

Updated Category News Views 84

Evergreen Corporation's Stock Performance Evergreen Corporation (EVGR) has recently celebrated a remarkable achievement, as its shares soared to an all-time high of $11.69. This upswing in stock price reflects a wave of optimism among investors, driven by the company's promising growth trajectory. Notably, Evergreen's stock has seen a 6.38% increase over the last year, a...

Continue Reading
DocuSign's Recent Share Activity Sparks Investor Interest

Updated Category News Views 139

Recent Share Sales by DocuSign's Chief Legal Officer DocuSign, Inc. (NASDAQ: DOCU) has gained attention lately after its Chief Legal Officer, James P. Shaughnessy, sold a significant amount of his shares. These trades occurred over a span of two days, amounting to more than $200,000, and have drawn various reactions from investors and market experts. Transaction Details...

Continue Reading
LiberNovo Unveils the Omni: The Future of Ergonomic Chairs

Updated Category News Views 151

Introducing LiberNovo's Omni Chair for Dynamic Comfort LiberNovo has officially launched its flagship ergonomic chair, Omni, on a popular crowdfunding platform. The Omni chair is designed specifically for professionals who spend long hours sitting at their desks. Whether you're a designer, developer, remote worker, or gamer, the Omni chair promises to redefine how you...

Continue Reading
Seraphic Launches Unique Security for Electron Apps

Updated Category News Views 200

Seraphic's Innovative Browser Security In a significant advancement for enterprise security, Seraphic has emerged as a pioneer in safeguarding Electron-based applications. This innovative solution ensures that highly utilized programs like ChatGPT desktop, Microsoft Teams, and Slack can operate securely, shielding users from potential threats. With the increasing reliance...

Continue Reading