The U.S. stock market is off to a hot start to 2018, but Federal National Mortgage Association (OTC: FNMA) and Federal Home Loan Mortgage Corp (OTC: FMCC) are headed in the other direction, each down roughly 20 percent on the month.
For better or for worse, Fannie Mae and Freddie Mac should get a major update from Congress on housing finance reform as soon as this week, but Height Securities analyst Ed Groshans said Monday investors should keep their expectations in check.
Groshans said Fannie and Freddie investors will likely be disappointed by the housing finance reform bill outline, which he expects will place Fannie and Freddie into receivership.
“All indications are that the outline will not provide a path that will monetize GSE shareholders,” Groshans wrote. “A bill that places the GSEs into receivership is unlikely to provide a mechanism to repay GSE preferred and common shareholders in part or in full.”
Regardless of the provisions included in the bill, Groshans said it appears unlikely to get the support it needs to pass at this time. Groshans said President Trump doesn’t appear to support the legislation and neither do Democrats, making it unlikely that the bill will even make it to the floor of the Senate for a vote.
In addition, Groshans says if the housing finance bill is not passed by Feb. 16, it will likely fall far down the priority list in Washington given pressing issues such as an infrastructure bill, the debt ceiling, and a bank deregulation bill.
Groshans put the odds that a housing finance bill will pass at less than 35 percent and said Fannie and Freddie investors should expect that percentage to drop further each day a bill isn't passed.
Fannie And Freddie Face An Uncertain Future
Fannie And Freddie Preferred Shareholders Could See Huge Upside From Conversion Process
Image Credit: Carol M. Highsmith [Public domain], via Wikimedia Commons
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