Fannie (FNMA), Freddie (FMCC) Higher on Raised Ackman Stake, Fading GSE Reform Momentum

March 31, 2014 3:48 PM EDT
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The common stock of both Fannie Mae (OTC: FNMA) and Freddie Mac (OTC: FMCC) are both solidly higher Monday (+8.1% and +7.3%, respectively), following a disclosure earlier that hedge fund titan Bill Ackman of Pershing Square Capital has increased his stakes in the always controversial GSEs. In addition to the vote of confidence from Mr. Ackman, shares could also be benefiting from commentary that the momentum is fading for GSE reform. The same reform that specifically sought to abolish the GSEs.

Barclays Housing analyst Stephen Kim commented: "Following the release of the Johnson-Crapo GSE reform legislation (S.1217) earlier this month, several key industry stakeholders have voiced opposition to the bill. We first drew attention to GSE reform last month, noting that strong Democratic support was critical for a GSE reform bill (Johnson-Crapo) to pass a Senate vote in 2014 (GSE Reform: Never Say Never, 2/21/14). We now believe momentum is fading for GSE reform in the near term." He cited:

  • Several influential civil rights groups cited Johnson-Crapo's lack of provisions to ensure the housing finance system is non-discriminatory.
  • The Obama administration has not yet spent significant political capital in support of the Johnson-Crapo bill despite issuing supportive commentary.
  • While key groups on the left remain engaged, the opposition is likely strong enough to deter progressives from pushing to get the bill to the Senate floor in 2014.
  • As another headwind, the Senate Banking Committee mark-up has been set for April 29, after Easter recess, leaving a smaller window for full Senate consideration.
  • Accordingly, we now doubt this issue will pose a headwind to the housing stocks this year
  • Longer term, however, we believe the framework has been largely set for GSE reform in 2015:
  • The similarities between Corker-Warner, Johnson-Crapo, and the newly announced House Waters bill suggest that a general consensus for GSE reform exists.

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