Fannie Mae (FNM)

Fannie Mae's stock price has fallen so dramatically in the last week because of a combination of factors -- shorting by Wall Street hedge funds, a general downturn in the mortgage market, some ill advised comments by a public official, and rampant rumor and speculation cultivated around the firm by the media.

Fannie Mae is adequately capitalized. Defaults comprise <1% of it's total book, even in the current market. It continues to have the backing of the government.

The stock is undervalued. Buy it now, hold, and in a year or two, you will have made an enormous return.

Government Sponsored Enterprise: Although there is no guarantee that the government will bail out Fannie in the event of default. Fannie's size and key role in the industry make any collapse costly for the economy as a whole. Moreover Democrat's traditional sympathy towards home-owners, and their support for Fannie improve the of a bail out. The possibility of bail-out represents a diminution of risk: Fannie may be a safer bet than many of its competitors.

China is watching the events closely because some 10 percent of China's gross domestic product is invested with the troubled mortgage giants. NPR's Adam Davidson talks with host Jacki Lyden about China's stake in the U.S. mortgage industry.Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe. The gov will not let this fail, and at the current price, you can't go wrong. This stock is highly undervalued.

http://www.npr.org/templates/story/story.php?storyId=94369826&ft=1&f=1001

Clear Skies Ahead: The collapse of the subprime market, along with rising interset rates, have cut into home sales, but because of its refusal to dip into variable rate mortgages, Fannie is well positioned to weather the storm and emerge strong.