Fannie MaeFNM

Morningstar Rating

Stock Research and Analysis

by Matthew Warren

Fannie Mae sits at the intersection of extreme financial leverage and the troubled U.S. housing market. With mounting losses chewing through its slim capital base, this mortgage giant was placed in conservatorship and is now controlled by its newly Read more

Bulls Say

Fannie Mae and Freddie Mac are once again nearly the only game in town, with the Federal Housing Administration and portfolio lenders that avoided the worst of the credit crunch as the only competition.

Mortgage spreads have widened, and underwriting standards have tightened. As new business replaces old, incremental profits and returns on capital could improve, all else equal. Read more

Bears Say

The velocity of housing turnover and refinancing could continue to decline for some time, leaving troubled loans on the book and reducing opportunities to increase the guarantee fee stream.

As proved over and over throughout recorded history, its is nearly impossible to prevent a bubble from bursting and overcorrecting. It seems likely that home prices must become cheap--rather than merely affordable--for excess inventory to clear the market.

As hard as it is to imagine now, when home prices resume a more normal path, banks and investment banks will once again try to muscle in on the GSEs' turf.

Fannie and Freddie face a Catch-22. If they pull back on risk to preserve capital, home prices could decline even faster.

Fannie Mae's fate is now controlled by politicians and regulators rather than profit seeking managers. Read more

Strategy

Previous management appeared to be seeking as much new--and highly profitable--business as possible as they tried to outearn mounting losses. They were also aggressive in attempts to reduce and delay Read more

Management

Daniel Mudd, who was sacked in conjunction with Fannie Mae being placed in conservatorship, had been president and CEO of Fannie Mae since June 2005 and served on the board of directors since 2000. The Federal Housing Finance Board (FHFB, Fannie's new Read more

Profile

Fannie Mae's two main businesses are buying mortgage and mortgage securities for its own portfolio and guaranteeing payment of securities backed by conforming mortgage loans. Read more

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