Fannie and Freddie fall
Mondays tend to have slightly negative returns, but yesterday was extremely damaging to shares of the nation’s largest mortgage buyers: Fannie Mae and Freddie Mac.
Yesterday’s freefall was sparked by a Lehman Brothers analyst whose report claimed that both companies may need billions of dollars in new capital to comply with changes to accounting rules.
The same report also said that both companies would likely be exempt from the changes. However, Fannie Mae shares fell over 16 percent and Freddie Mac shares closed down almost 18 percent.
Other analysts have since emerged claiming that companies would not be impacted by the new rules but neither stock has managed to reverse yesterday’s losses.
Freddie Mac is up just over 1 percent and Fannie may is down less than 1 percent heading into the mid-day.
The reluctance of investors to reverse yesterday’s sharp losses is a sign that capital concerns surrounding Freddie and Fannie are real- even if the concerns in the report are not.
Tags: capital, fannie mae, freddie mac, lehman brothers
5 opinions for Fannie and Freddie fall
Dan Waters
Jul 9, 2008 at 1:09 pm
Being that these two stocks qualify as too big to fail and are tied to our govt. they may become nice value plays. although dangerous when the mortgage markets finally become more transparent and turn around. Then again some thought Bear was too big to fail
Steve Farrington
Jul 9, 2008 at 1:37 pm
These guys are getting taken to the woodshed again today…. I have to agree with Dan on this one- they should become nice value plays at some point…. I don’t have the guts to go long anytime soon, but it’d be really tempting if they go to single-digits…psychological levels for short covering? Real large short interest on FRE (77 million of the float and 7 days to cover), so looks the squeeze isn’t happening yet.
Robert Bassett
Jul 9, 2008 at 3:11 pm
The government right now is more concerned with keeping Fannie and Freddie healthy so they can handle thier obligations ($5.2trillion in home loans)and stabilize the volatile housing market.
Talk on the street is that both companies will need to raise new common equity equal to that of their existing value. It may look like a good value play to buy, but if the government has to step in and bail them out, the shares could be worth next to nothing.
Levi McDonough
Jul 9, 2008 at 8:15 pm
With this stock price rising from $18 to $33 and then back down to $23 with news of an aquisition, is definately a prime example of how markets typically overreact and then correct themselves.
Levi McDonough
Jul 9, 2008 at 8:18 pm
My above comment is for APP Pharmaceuticals, I accidently posted it in the wrong comment area.
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