Fannie Mae, Freddie Mac stock soars after FHFA raises mortgage limits

The concept of increasing the cost of housing or house sales . High demand for real estate. The growth of rent and mortgage rates.

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  • Fannie Mae (OTCQB:FNMA) stock surged 26% and Freddie Mac (OTCQB:FMCC) jumped 25% after the Federal Housing Finance Agency, which oversees both government-sponsored enterprises, increases conforming loan limits in the U.S.'s highest cost areas to almost $1M.
  • Fannie (OTCQB:FNMA) and Freddie (OTCQB:FMCC) will be able to back loans of of $970,800 in expensive areas such as New York, San Francisco, Washington, DC, and Los Angeles.
  • For other parts of the country, the GSEs will be able to acquire mortgages of $647,200 for single-family residences, up from $548,250 in 2021.
  • Freddie (OTCQB:FMCC) and Fannie (OTCQB:FNMA) don't originate loans, but acquire them, repackage them into securities, then guarantee payment of principal and interest to investors.
  • The increase "essentially matches the average nationwide home price appreciation (HPA) experienced over the last year of 18.5%," BTIG analyst Eric Hagen. He points out that a few mortgage originators/services, including PennyMac Mortgage (NYSE:PMT) and United Wholesale Mortgage (NYSE:UWMC), in a pre-emptive move, raised loan limits in early October.
  • "We continue to see the most effective way to pick up the theme of more HPA growth next year is to be long Redwood Trust (NYSE:RWT)," Hagen said.
  • In Tuesday's trading, PennyMac Mortgage (PMT) dropped 4.5%, UWMC (UWMC) slipped 0.2%, and Redwood Trust (RWT) fell 4.5%.
  • Home price appreciation slowed slightly more than expected in September, according to the S&P Corelogic Case-Shiller HPI.

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