Height Capital Markets: Housing Finance Reform Plan Has 5% Chance Of Success

The White House has introduced a housing finance reform plan, but the market isn’t too optimistic about a positive outcome for Federal Home Loan Mortgage Corp FMCC and Federal National Mortgage Association FNMA. Both stocks are still trading below $1.60, and Height Capital Markets analyst Ed Groshans said the White House proposal is a likely dead end.

The Details

The proposal includes ending Fannie Mae and Freddie Mac’s conservatorship, scaling back their presence in the housing market, providing explicit — but limited — federal guarantees on their mortgage-backed securities and moving affordable housing programs to the Department of Housing and Urban Development. The plan would fully privatize Fannie and Freddie, theoretically allowing more market participants to enter the picture. Unfortunately, Groshans said the plan does not have bipartisan support.

“We project that the White House housing finance reform plan has less than a 5-percent chance of becoming law,” Groshans said in a Friday note. 

From Bad To Worse

The outlook for housing finance reform will only be bleaker following the midterm elections in November, Groshans said. 

Moderate Senators Bob Corker and Mark Warner have worked for years on a bipartisan bill and have not made much progress, he said. In the next Congress, the analyst is expecting Republican Sen. Pat Toomey to be the Senate Banking Committee chair and Democratic Rep. Maxine Waters to head the House Financial Services Committee.

“We are hard-pressed to find a modicum of common ground that Toomey and Waters would be able to work with to craft bipartisan housing finance legislation that can pass the House and Senate,” Groshans said.

After a huge surge of optimism following President Donald Trump’s election in 2016, market sentiment is once again at a low point for Fannie and Freddie. Fannie and Freddie shares are down 45.7 percent and 36.5 percent year-to-date, respectively. 

Related Links:

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