Fannie Mae And Freddie Mac Q4 Earnings Recap

For the first time since 2012, Federal National Mortgage Association FNMA and Federal Home Loan Mortgage Corp FMCC needed taxpayer bailout funds to cover quarterly losses. Fannie Mae and Freddie Mac each reported large fourth-quarter losses after absorbing a one-time drop in the value of assets the two entities use to offset their taxes.

Fannie Mae reported a $6.5 billion loss, and will require a $3.7 billion bailout. Freddie Mac reported a $3.3 billion loss and will require a $300 million bailout.

What Does It Mean?

Height Securities analyst Edwin Groshans said Thursday the fourth-quarter losses don’t reflect any changes in the fundamentals of Fannie and Freddie. Instead, the bailouts could only potentially create headline risk for the stocks and fodder for those calling for housing finance reform.

“However, the calls will ring hollow as Senator Bob Corker's (RTN) bill is far from complete, will not receive a vote in the Senate even if it passes out of committee, is losing Democratic support, is not a top agenda issue for House Republican leaders, and lacks some other legislative vehicle in process to reform the housing finance system,” Groshans wrote.

“It is our view that the small window to pass housing finance reform legislation in the Senate is already shut.”

More Waiting Ahead

Without a Senate bill, Groshans said reform isn't in the hands of the Treasury. Treasury Secretary Steven Mnuchin has said reforming Fannie and Freddie will be a priority in 2018, but Groshans said Mnuchin wil likely have to wait until the end of Federal Housing Finance Agency director Mel Watt’s term in 2019. Watt recently said it's Congress' responsibility to address housing finance reform.

Although taxpayers automatically cringe at the word “bailout,” taxpayers have now made an $84 billion profit off of the initial bailouts of Fannie and Freddie.

Fannie and Freddie shares are down more than 58 percent each in the past year.

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