Fannie, Freddie preferreds rally; market retreats early, recovers as Fed minutes released

By Stephanie N. Rotondo

Phoenix, Jan. 8 - Fannie Mae and Freddie Mac's 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 early in the day.

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.

By the end of business, the Freddie issue had jumped up $1.13, or 12.49%, to $10.18, while the Fannie preferreds rose $1.28, or 14.68%, to $10.00.

Overall, the preferred space was seeing a bit of an early pullback after two straight days of gains. The dip came ahead of the release of minutes from the most recent Federal Reserve meeting.

The Wells Fargo Hybrid and Preferred Securities index was down 4 basis points at mid-morning. However, once the minutes came out - indicating that most members were looking for a "measured" approach to taper the stimulus program - the market began to inch back up, eventually closing 14 bps higher than the day before.

"Volume was better than yesterday," a market source noted, though he pointed out that a lot of the day's activity was centered on Fannie and Freddie.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.