Analyst Now Sees Less Than 10% Chance Congress Tackles Fannie, Freddie Reform This Year

In the weeks following President Trump’s election in 2016, Federal National Mortgage Association FNMA and Federal Home Loan Mortgage Corp FMCC stocks skyrocketed on the hopes that a long-awaited resolution to the government-sponsored enterprises’ situation might finally be just around the corner. More than a year and a half later, a resolution is still nowhere in sight.

Looking Like A 2019 Problem

Height Capital Markets analyst Ed Groshans on Monday said investors shouldn’t expect that resolution by the end of 2018. Senate Banking Committee chair Mike Crapo has insisted housing finance reform is a high priority, but Crapo also recently conceded there's simply not enough time remaining to tackle the issue in the current session of Congress.

“We project a less than 10% chance that Congress can pass housing finance reform legislation this year because no bill has been introduced in the Senate and it is now May, there is no companion bill in the House of Representatives, and it is an election year making it difficult to get consensus on housing reform,” Groshans wrote in a note.

Back in January, Groshans had set the odds of housing finance reform at 35 percent.

What's The Hold Up?

Groshans said the most important issue that needs to be resolved is Fannie Mae and Freddie Mac’s lack of capital, but he said the status quo for Fannie and Freddie will likely not change until Federal Housing Finance Agency director Mel Watts is replaced in 2019.

“Crapo (R-ID) may want to pass legislation in the current session of Congress, but at present no bill exists, and it is our understanding that the differences between Senator Bob Corker (R-TN) and Mark Warner (D-VA) have widened, which has derailed the legislative process for all intents and purposes,” Groshans wrote.

Shares of Fannie and Freddie are both down more than 51 percent in the past year to below $1.50 each.

Height forecasts $2.4 billion in core net income and $894 million in provision expense for Fannie Mae and $2.4 billion in earnings and $935 million in provision expense for Freddie in the first quarter of 2018.

Related Links:

Fannie Mae And Freddie Mac Q4 Earnings Recap

Bill Ackman Defends Another Down Year For Pershing Square