Freddie Mac's (OTCQB: FMCC) and Fannie Mae's (OTCQB: FNMA) share values are getting a boost over speculation that Mel Watt, the regulatory chief that oversees quasi-public mortgage-finance giants, will soon make it easier for consumers to get a loan to buy a house.
Earlier this year, Watt called for the loosing of credit restrictions on mortgages, but industry experts now say he is ready to clarify those modifications and have them implemented.
One thing is certain: fiscally conservative members of Congress will be against such polices, which they blame for the meltdown of the mortgage market and near collapse of many major U.S. banks in 2008.
Nonetheless, the mere possibility that lending restrictions could be significantly loosened helped FMCC's share value Oct. 17 close at $2.09, up 14 cents, or 7.25% from its closing price of $1.95 the previous day, on volume of 12.6 million shares. This is double its 30-day average volume of 6.3 million shares.
Meanwhile, FNMA's stock value closed at $2.16, up 12 cents, or 5.88%, from its close of $2.04 the previous day, with 11.8 million shares slightly less than its 30-day average volume of 13.5 million.
Lawsuits Thrown Out
Before this sudden uptick, the latest downward trend of the two quasi-public agencies was triggered by a federal judge throwing out two Fannie Mae/Freddie Mac lawsuits that alleged the government transferred nearly all the profits generated by mortgage finance companies to the U.S. Treasury.
Houses Divided
The Obama Administration has been pushing for reform that would once again make it easier for consumers to purchase a home with low down payments and limited credit history, while conservative forces both public and private are trying hard to dismantle both agencies and make them strictly private entities -- driven solely by market forces.
To make matters worse, both agencies still face countless lawsuits and a slumping housing market that appears to be nixing the chances of any meaningful economic recovery.
Outcome of Senate Elections Will Affect Both Agencies
Some political observers say if the Republicans should gain the Senate in the upcoming elections, giving them control of Houses, Freddie Mac and Fannie Mae's future could become stabilized.
That's because, they argue, such a consolidation of power would give the Republicans the necessary votes to once and for all reform both agencies.
In addition, they say, it would give them the potential negotiation gravitas to persuade President Obama to sign a compromise bill that they could push through both Houses.
If this does come to fruition, some experts believe it will stabilize and possibly initiate a long term turnaround for both agencies. However, they contend that if the Democrats continue to hold on to the Senate, Freddie Mac and Fannie Mae will continue to be in limbo, thus diminishing their changes of a speedy recovery.
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