Freddie Mac Faces Loan Portfolio Cap

Includes: FMCC, FNMA
by: David Jackson

Excerpt from our One Page Annotated Wall Street Journal Summary (which you can get emailed to you every morning by signing up here):

Regulator Signals Compromise Over Role of Fannie, Freddie

  • Summary: The director of the Office of Federal Housing Enterprise Oversight [Ofheo], responsible for overseeing Fannie Mae and Freddie Mac, said in an interview that the excessive size of their mortgate portfolios creates risk of serious damage to financial markets if they fail to manage their interest rate risks, but that the two companies should be allowed to continue to hold significant mortgage portfolios. He recently ordered Fannie Mae not to increase the size of its mortgage portfolio without permission from Ofheo as it should be focusing on resolving problems with its accounting and risk controls, and appears likely to impose a similar restraint on Freddie Mac.
  • Comment on related stocks/ETFs: Most of this is priced-in to Fannie Mae's stock (FNM), but the comment that Freddie Mac's portfolio may be capped is incrementally negative for its stock (FRE).