Fannie Mae & Freddie Mac Stocks Drop on Exit Delay Fears

Analyst Downgrade Hits Mortgage Giants

Shares of Fannie Mae and Freddie Mac declined after Wedbush analyst Henry Coffey reduced price targets for both government-sponsored enterprises. The downgrade reflects expectations that their release from government control will be delayed until after the November midterm elections.

Market Reaction and Analyst Outlook

Following the report, Fannie Mae's stock dropped by as much as 3.2%, while Freddie Mac's fell by 2.6%. Coffey lowered his price target for Fannie Mae to $8 from $13 and for Freddie Mac to $12 from $13.35. The analyst noted that the administration appears focused on other issues, reducing the likelihood of a near-term initial public offering for the mortgage-finance companies.

Future Scenarios and Projections

The revised targets are based on three potential scenarios. These include taking no action, which Coffey suggests would value the shares at $0.00, or a long-term plan to build capital over the next seven to ten years before paying dividends. Since peaking on September 11 amid optimism for an IPO, both companies have seen their share prices decline by more than 60%.

Summary

Investor sentiment has shifted as the path for Fannie Mae and Freddie Mac to exit government conservatorship remains uncertain. The market is now pricing in significant delays, with any potential resolution likely postponed until after the midterm elections, pending further administrative action on housing affordability.

FAQ

Q: Why did Fannie Mae and Freddie Mac stock prices fall?
A: Their stock prices fell after a Wedbush analyst lowered price targets, citing expectations that their release from government control will be delayed.

Q: What are the new price targets from Wedbush?
A: The new price target for Fannie Mae is $8.00, and the new target for Freddie Mac is $12.00.

Source: Investing.com