Fannie, Freddie fall amid new Sell ratings, administration’s possible inaction

Shares of Fannie Mae (FNMA) and Freddie Mac (FMCC) are falling after Height Capital Markets analyst Ed Groshans initiated coverage of both stocks this morning with Sell ratings. The Treasury Department will release its plan for housing reform and the Federal Housing Finance Agency will issue its final capital rule over the next six months, Groshans told investors in a research note. The analyst forecasts the end of the “net worth sweep” that sends profits from the companies to the Treasury, and he expects the FHFA will end conservatorship of both. He also believes the Treasury Department will regard the companies’ senior preferred shares as repaid, and that Fannie will raise $87B of new common equity while Freddie raises $52B. Separately, Bloomberg reported earlier today that the Trump administration is growing wary of taking bold steps toward freeing Fannie and Freddie from federal control before the 2020 election, according to people familiar with the matter. The administration sees political risk of potentially upending the U.S. mortgage market ahead of the election, Bloomberg said. In early trading, shares of Fannie Mae are down 8% to $2.60 and Freddie Mac is down 7% to $2.51.