Fannie Mae Exposed

Brian Hicks

Updated May 28, 2013

Fannie Mae (FNMA) hasn’t exactly held the best name recently, with investors and shareholders taking the brunt of the company’s moves. Recent data has shown that Fannie Mae has been taking more profits from lenders, lengthening its streak and causing more and more people to get up in arms about where things may be heading in the near future.

Within the past few weeks and months, Fannie Mae has significantly increased its purchases of home loans from lenders, paying in cash. Meanwhile, those considered to be “originators” have been all but cut-out, succumbing to Fannie Mae in an ever-changing market of selling bonds that are backed by a growing amount of debt. The “cash window purchases” that have become Fannie Mae’s claim to fame recently total 31% of the company’s $305 billion in new guaranteed securities in the first quarter of 2013, according to Bloomberg.

As it would seem at face value, Fannie Mae is taking what many are calling a “middleman” approach at this point, getting right in-between homeowners and the entire market of buying and selling bonds. The position is one that not everyone is happy about, and has created a great deal of controversy in recent weeks and months. It puts the company against other large players like Wells Fargo (WFC) and JPMorgan, escalating tension that could only come out of a contentious relationship such as this.

A Company in Jeopardy

It might seem as if Fannie Mae is in good standing given the company’s recent track record for growth, but the truth brings to mind a great deal of other factors that aren’t exactly popping up in press releases. Fannie Mae be seeing growth, but the government aims to shut it down in due time, along with similar industry player Freddie Mac. The growth seen recently may seem as if it will bode well for the company, but the truth of the matter is that Fannie Mae and Freddie Mac are due to implode in the future as far as many analysts are concerned, if not within the next few years.

Nevertheless, Fannie Mae continues to fatten its pockets by taking profits from lenders, a scenario in which many people don’t quite know where to turn. Lenders are taking enormous risks, and yet Fannie Mae isn’t exactly sharing in the profits that it is taking in. The bigger concern, however, comes over whether or not Fannie Mae is trying to take prominence over their major competitor Freddie mac, which could serve to further upset the applecart for investors and shareholders.

For Fannie Mae CEO Timothy J. Mayopoulos, the goal of the company has nothing to do with expansion whatsoever; if anything, plans are to reduce growth and help to invite private companies to enter into the market. This is not to say that investors and analysts are exactly on-board with such statements, however, as some simply don’t know whether to believe Fannie Mae or not.

The Future for Fannie Mae

In paying close attention to what has been going on with Fannie Mae lately, it’s not necessarily easy to determine the future. According to Mayopoulos, the next few years are looking to bode quite well for the company, and it’s not easy to argue this. Mayopoulos is extremely positive for the short-to-mid-term of Fannie Mae, and is not likely to bow down anytime soon when it comes to talking about the end result of the company.

All this being said, Mayopoulos knows that the U.S. government is looking to shrink the influence of Fannie Mae and Freddie Mac over the housing market in the coming years, and seems quite accepting of this scenario. Whether or not this becomes a reality is difficult to tell at this point, but it appears quite clear that Fannie Mae’s reign over the housing market is one that will last for at least the short-term.

The competition with Freddie Mac is only likely to heat up, and private companies will continue to try to make their mark as well. If anything, the housing market will be quite interesting to watch in the coming months and years, especially if the influence of Fannie Mae and Freddie Mac continue to be as prevalent as they have been recently.

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