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.
They are all invested in Fannie Mae. China bought in with 10% of its GDP. Warren Buffet thought it was a good deal at $1.00, and the US Government knows that the entire market would fall apart if Fannie Mae and Freddie Mac (As well as Ginnie and Sallie Mae) were no longer able to issue Government Securities.
FNMA recently announced a new issuance of MBSs for the first time since 2008. It continues to make progress on its bonds and its debt to shares.
CNBC and the other media won't cover it, but this company is solvent and will steadily reduce its debt and become re-privatized within 10 years, easily.
Do some research folks! Some folks made MILLIONS betting against the housing market. However, in true American fashion, the housing market is on the upswing. Gov't is proposing to combine Fannie and Freddie with new management. That's good news on two accounts. 1. They will be around the pay back their government borrowed debt. 2. They will remain government backed entities until then. My expectation is that this stock will soar. At its height, FNMA was trading at $89 a share. Yes, it went down to $ 0.29 cents a share. (That's when I picked up 20,000 shares). I've already made $15,800. Now there were losses today since it dropped to $ 0.80 cents, but I intend to keep buying. In fact, I have already pulled out $4,000 cold hard case and transferred that to my bank account. I have a well-diversified portfolio, but FNMA is certainly a bedrock. The key is to not get nervous as the market fluctuates. For the benefit of the discussion, I am posting the below article that appears on Motly Fool. JLE
A series of recent developments are making housing giants Fannie Mae and Freddie Mac good long term investments.
First, the Federal Housing Finance Agency (FHFA) recently announced that it intends to consolidate the operations of Fannie Mae (NASDAQOTCBB: FNMA.OB) and Freddie Mac (NASDAQOTBB: FMCC.OB).
FHFA is the federal regulator tasked with overseeing Fannie and Freddie. The Agency said it intends to form a new corporation that would consolidate certain operations of the two housing finance giants that each currently performs separately. This is said to be the first step to develop a new securitization platform. Further a new infrastructure could be the cornerstone of a new company being contemplated to eventually replace Fannie Mae and Freddie Mac.
In a related development, combined sources have reported that a bi-partisan coalition of Senate lawmakers recently introduced legislation designed to prevent lawmakers on Capitol Hill from using fees charged by Fannie and Freddie as a slush fund to cover the costs of spending increases and tax cuts. In a maneuver that was overlooked by the media in 2011, lawmakers raided the mortgage firms’ coffers to fund the payroll tax cut. Further, if approved the Senate bill would also stop the Obama Administration from selling off preferred shares in these agencies without prior Congressional approval.
The mortgage companies were placed in a Treasury Department run conservatorship in August2008 shortly before the economy collapsed. This maneuver essentially nationalized the housing market. Some savvy investors sold off their stake in Fannie and Freddie shortly before this giant step was taken. Since then other investors followed en masse and this shriveled each companies market capitalization. Now, the shares of the housing giants are traded as penny stockover the counter.
In sum, these developments could be signposts on the road to the federal governments’ eventual unwinding of Fannie and Freddie. Meanwhile the government takeover has already cost taxpayers upwards of $130 billion. And there will most likely be a turf battle by lawmakers in this game before the companies are unwound and possibly split apart into some new private entity. But with so much cash at their fingertips, Democrats and Republicans are going to turn this affair into a long goodbye.
So, what does this mean for investors? Good question.
Last year was a profitable year for Fannie and Freddie for the first time in about 7 years. But they still owe the feds about $180 billion. At the same time each has revenues of about $100 billion. Some analysts have said that paying bank the government bailout debt will take about five years.
In the meantime, the housing giants have been refinancing this debt by selling bonds at lower interest rates in order to repurchase their higher interest rate offerings. And these refinancings have not gone unnoticed by the market.
In fact, the price per share of each has jumped by more than 50 cents on significantly higher volume this week and soared past the $1.00 at the end of trading on March 20th, closing at $1.08.
This price rise comes on the heels of the recently announced settlement between Fannie and Freddie with Bank of America (NYSE: BAC). The deal calls for the big bank to buy back bad mortgage paper sold to FNMA and FMCC between January 2001 and December 2008. And there are similar settlements in the works as agreements are being hammered out with Wells Fargo (NYSE: WFC) and Citigroup (NYSE: C). So the housing giants are purging their books of poorly performing mortgage loans.
Finally, Freddie Mac reported an $11 billion profit in its 2012 annual report. Meanwhile, Fannie Mae announced it was delaying filing its Annual 10-K because the outfit needs additional time to analyze whether it could recapture a $64 billion valuation allowance for deferred tax assets as of December 31, 2012. This would allow the outfit to drastically lower its dividend expenses.
The bottom line: all of these recent developments are good signs for long term investors of common stock of Fannie and Freddie. It is unclear what the valuation of these outfits will be in the long run. But the fact that they remain in a government conservatorship means they continue to be backed by the federal government.
And until they are eventually replaced by a surviving entity, they are needed to keep the mortgage securitization market afloat. Attention shoppers: FNMA and FMCC are now available in the bargain bin.
fannie and freddi own the biggest portion of houses in usa, they got those houses because their owners no more can pay the monthly due,the banks took no resposibility, and transferred the burden to fnma and fmcc whom own those houses with very low cost,when the main indicators of the usa go up,then the share of fannie and freddi will go up more than AIG and citi bank had did, these two super giant companies are represented the major bottom line stabilty for the USA economy
If FNMA was going down, it would be gone by now and a new way of backing mortgages would be in place. It's 5, count them, 5 years since the 2008 banking crisis and FNMA is still here.
Obama has done little to change or improve the economy. His actions with TARP were simply to continue with Bush's administrations' plans. Doesn't his inability to lead the government to anything but a short term (3 to 6 month) budget show that?
Why would anyone listen to his ideas with FNMA and the economy. Buy it, I did and will buy more. FNMA is showing signs of life.
Simple solution will solve: Merge and sell fannie and freddie to a private company (that can be a group of banks working together with a gov't run insurance fund) that can guarantee and make huge profits for all parties. Of course, before that the gov't has to convince people and institutions to pour huge amount of investment money into FNMA and FMCC before it privatize them.
Quote from the news source, "Last month, the Obama administration
released a white paper outlining its plans for the U.S. mortgage
market. All three options published in that paper envision a scaled-
back role for the government and eliminating Fannie and Freddie."
Eliminating Fannie and Freddie: Are they going to be gone for good? NO
chance of coming back?
Regaurdless of the good or bad news you hear its sooo cheap you cant not buy it. Your % of possible gain is too much for me to pass it up. Its worth lossing 500 to possibly turn it into 5000. Its a once in a lifetime opportunity so dont pass it up.
FNM is not going anywhere. It is such a HUGE piece of the U.S. economy, and all of us investors (3000 shares for me at 1.08)will, eventually, be rewarded for putting money behind our words. Of course it may take 18 mos. to realize some significant returns, but it will happen. Its the nature of the market. Stocks go up and down. They look terrible at their lowest (when they're really not), and they look awesome at their highest (when they're overvalued).
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.
I Had A Dream Fannie Mae will soar. Its a Good Karma stock. When you buy stock in Coca Cola or McDonalds or Walmart you are purchasing a share of America's destruction. Fannie Mae Loses money when people get foreclosed on. Fannie Mae makes money when people dont and when folks are able to pay their mortgage, therefore Fannie Maes success is tied to something good rather than something evil. I know this isnt Wall Street talk but its a a good point i think.
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.
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.
With US Government backing on this mortgage gaint, it worst time had been passed away. By measurement from its historical performance, it's just remained 3% (US$1.92 to exceeding US$70 per share) when compared to its highest market value. A high percentage of increased will be seen in the following months once economic recovery has been proven.
The Treasury Department announced on December 24, 2009 that it was uncapping the credit lines for both Fannie Mae and Freddie Mac for the next three years. This announcement ensures that the U.S. Government will back both mortgage giants for three years, regardless of the size of their losses. In other words, the government has essentially guaranteed the survival of both Fannie Mae and Freddie Mac for the next three years.
At the same time, the top U.S. housing regulator approved executive compensation packages for both the CEO's of Freddie Mac and Fannie Mae. Both CEO's have total compensation packages of up to $6 million, helping both mortgage agencies attract and retain top talent.