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Monday, April 19, 2021
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Freddie and Fannie Spike on Good News From Treasury

$FMCC, $FMNA

Fannie Mae and Freddie Mac spiked on good news for investors.

US Treasury Secretary Steven Mnuchin said he will soon reach a deal to allow the 2 mortgage giants to retain earnings and a legal victory that gave shareholders renewed hope of getting their hands on some of the companies billions of dollars in profits.

Monday, Secretary Mnuchin, said Treasury is “in the process of negotiating with” the Federal Finance Housing Agency, Fannie and Freddie’s regulator.

“We expect a near-term agreement to retain their earnings,” he said. The step, which will allow Fannie and Freddie to build up their capital buffers, is considered essential to the companies eventually being released from federal control.

For Fannie and Freddie to hold on to their earnings, Treasury and FHFA would have to halt or revamp a controversial policy implemented during The Hussein Obama Administration that requires the companies to send virtually all their profits to the Treasury.

Hedge funds and other investors that own Fannie and Freddie shares have long fought to end the sweep through litigation. Secretary Mnuchin’s remarks, combined with an important legal victory last week, gave shareholders renewed hope of making a windfall.

Fannie (FNMA) jumped 23% to $3.32 early in New York trading, the biggest 1-day gainer since 18 January  Freddie (FMCC) rose 21% to $3.12, finishing at 3.87 and 3.665 a share respectively

In the interview, Secretary Mnuchin said his goal is for Fannie and Freddie to start retaining profits as soon as this month.

Mnuchin said Monday that while he hopes to work with Congress to implement changes to Fannie and Freddie over the next three to six months, he is “perfectly comfortable” making administrative fixes if necessary. Only Congress can create competitors to Fannie and Freddie, a key goal of the Treasury report. But there is much The Trump Administration can do on its own with FHFA, including ending the profit sweep.

Fannie Mae and Freddie Mac investors won a big victory in their long battle to reap benefits from their stakes in the mortgage giants with a court ruling letting them pursue claims that the US sweep of the companies’ earnings is illegal.

A panel of federal appeals court judges in New Orleans overturned a ruling that backed the government’s right to take all of the mortgage giants’ profits. The judges also concluded that the structure of Fannie and Freddie’s regulator, the FHFA, is unconstitutional because of job protections for the agency’s director.

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