The stock market did not end on a particularly happy note last Friday. Both the S&P500 and Dow Jones declined as many stocks ended the week the same way. However, the situation was completely different for mortgage companies Fannie Mae (OTC:FNMA) and Freddie Mac (OTC:FMCC). Fannie May rallied by as much as 17%, while Freddie Mac recorded gains of 23%. It could be worthwhile for investors to take a closer look at these companies.
Return to Shareholders?
The financial crisis in 2008 saw the two mortgage companies burned badly and both had to be bailed out by the Federal government. For the last 12 years both Fannie May and Freddie Mac have been under government control as a result.
However, in this regard, it needs to be stated that Donald Trump’s administration has been trying to give back control to the shareholders. Last Friday, in a report from the Wall Street Journal, it was revealed that the head of the Federal Housing Finance Agency (FHFA) is looking to complete that process.
The report revealed that the head of the FHFA, which is ultimately in charge of Fannie May and Freddie Mac, is trying to return the mortgage companies to the shareholders.
More importantly, he is intent on pushing the whole thing through before the Joe Biden administration takes charge. This revelation was possibly the main reason behind the strong rally in both the stocks.
Is it Possible?
While the possibility of the return of the company to its shareholders may have resulted in a strong rally in both these stocks, investors need to consider whether the transfer can be pulled off in two months or not.
At this point, the possibility remains unlikely considering the different hurdles that will need to be handled. At first, the FHFA will need to reach an understanding with Steve Mnuchin, the Treasury Secretary, and only then the whole thing can move forward.
Although it is true that Mnuchin has been supportive of the plan to return control of Fannie May and Freddie Mac to shareholders, there is no indication that he is going to give the nod anytime soon.
Moreover, it is a restructuring of gargantuan magnitude since the two companies make up as much as 57% of the mortgage industry in the United States at this point. That being said, if the whole thing can be pushed through then it could lead to a massive boost to the two stocks.
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