Homebuilder ETFs And Another Bailout For Fannie Mae

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Fannie Mae, the giant government-controlled mortgage backer, has asked for another bailout in the form of a $7.8 billion from the U.S. Treasury. The news is a reminder of the fragile state of the housing and mortgage markets, but homebuilder ETFs have shaken off the concerns to trade higher.

Yet builder ETFs have been top performers over the past monthiShares Dow Jones U.S. Home Construction (NYSEARCA:ITB) has bounced over 10%.

SPDR S&P Homebuilders (NYSEARCA:XHB) is another ETF that invests in the residential construction sector.

Fannie Mae has asked the government for a $7.8 billion in aid that will help the nation’s largest source for U.S. home loans to stay afloat. The company suffered big losses in the third quarter. Furthermore, cash was drained from derivatives that were used to hedge the firm’s exposure to interest rate swings and losses taken from the 2008 credit crisis.

“Fannie Mae is working to reduce losses on our legacy book and limit taxpayer exposure,”Susan McFarland, the company’s executive vice president and chief financial officer, said.

Fannie Mae’s revenue stream continues to grow as pre-2009 loans are getting worked off the books, reports Lorraine Woellert for Bloomberg.

The company’s total draw is at a total of $112.6 billion, with $17.2 million in dividends that has been returned to the government. Alongside Fannie comes Freddie Mac, a rival government-based lender. The Virginia-based lender is asking the U.S. Treasury for $6 billion to help stay afloat.

According to Fannie Mae, borrowers that were 90 days underwater for their mortgage payment have decreased since 2010, and account for only about 4% of their current books. About 50% of the mortgage guarantees that are on the current books are post 2009, and they carry larger fees and have much stronger borrowing profiles.

iShares Dow Jones U.S. Home Construction ETF

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Tisha Guerrero contributed to this article.

Disclosure: None