Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) stock are today’s biggest gainers as more details emerge from the Treasury’s reform package.
As we reported last week, FNMA and FMCC stock sunk around 8% following the initial release of the Trump Administration’s plans to reform the two mortgage giants, mostly due to a lack of detail contained in the plans, which failed to excite investors. However, further clarity has been offered by the Treasury Department over the weekend, which has sent both stocks soaring over 40% on Monday.
The biggest issue for investors in FNMA and FMCC stock was the net-worth sweep implemented by the Obama Administration, which meant both institutions had to return all profits to the government. Despite being bailed out for a combined total $109.7 billion USD at the beginning of the 2008 Global Financial Crisis, both banks paid back an additional $181.4 billion USD on top of the initial bailout in the years since.
Investors were provided with the one detail everyone was waiting for—an end to the net-profit sweep—which fuelled today’s huge gains for FMCC and FNMA stock. This has investors buzzing as it will allow both mortgage lenders to retain earnings and engage in substantial recapitalization. Treasury Secretary Steven Mnuchin said that today’s update is “a step in the right direction to us ultimately raising third-party capital.” FMCC stock is currently worth $3.67 while FNMA is at $3.87.
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The repeal of the net-worth sweep came after judges at the United States courts of appeal overturned the ruling, which backed the government’s rights to take all of Freddie and Fannie’s profits, citing structure of the Federal Housing Finance Agency, or FHFA, which regulates the two mortgage giants, as unconstitutional. The banks can expect to begin retaining some earnings as early as this month, and even further details of the housing finance reform plans should emerge from a September 10 Banking Committee hearing.
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