Midday Commentary: Fannie, Freddie preferreds improve; market retreats after two-day gain

By Stephanie N. Rotondo

Phoenix, Jan. 8 - Fannie Mae and Freddie Mac preferreds were "ripping" in early Wednesday trading, a trader said.

The preferreds were rising on the back of news that the new head of the Federal Housing Finance Agency, Mel Watt, said late Tuesday that the mortgage giants should delay an increase in government-backed loan fees.

Watt wants to look into the fee increase, he said, specifically the "implications for mortgage credit availability." Fees associated with these loans often get kicked down to borrowers, resulting in higher mortgage rates.

Additionally, the trader said he had heard that both agencies were asking a federal court to determine that a change in the bailout contract with the government led to the contract being breached. The change in question is a rule that requires Freddie and Fannie to turn over any profits over a certain amount to the government.

"About every one [of the preferreds] is up about 50 cents," the trader noted.

Freddie's 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were up 35 cents as of mid-morning at $9.40. Fannie's 8.25% series S fixed-to-floating rate noncumulative preferred stock (OTCBB: FNMAS) was up 21 cents at $8.93.

Overall, the preferred space was seeing a bit of a pullback after two straight days of gains.

The Wells Fargo Hybrid and Preferred Securities index was down 4 basis points at mid-morning.

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