Fannie Mae (FNM) & Freddie Mac (FRM)


I wrote this quick thesis a little while back but found the spread at the end of the post interesting enough to post:

· Recent accounting scandals have been resolved which had kept a lid on the stock prices.

· Adjustable Rate Mortgages, popular in recent years for speculation, will begin to reset in 2006 and 2007 from as low as 2% to 7% for potential increase in earnings.

· November elections highly favor a democratic congress, which should be favorable for mortgage availability. Current administration would like to limit the amount and types of loans FNM/FRE can make.

· UBS recently predicted an interest rate cute in March ’07. Historic analysis on these stocks showed a run-up in price in anticipation of a Fed rate cute and a sell-off upon the news.

· Technical reading of stock charts and volume shows the stock is currently under accumulation. Also recent stock action has shown bullish characteristics.

· As the largest mortgage dealer in the US, FNM should have the expertise to be well positioned for the obvious and much anticipated housing ‘crash’, therefore any positive scenario would be twice as beneficial.