Magazine article American Banker

Fannie, Freddie Downgraded as Forces Fight Their Growth

Magazine article American Banker

Fannie, Freddie Downgraded as Forces Fight Their Growth

Article excerpt

The stocks of Fannie Mae and Freddie Mac were downgraded Tuesday by Steven Eisman, a CIBC Oppenheimer analyst, in response to formation of an industry coalition that seeks to limit the two companies' expansion into new business lines.

He gave both companies "hold" ratings, down from "strong buy."

"For the first time in many years," he said in a report, "political issues will dominate these stocks" and "could plague the stock prices of both companies for all of 1999." Activities that "carry the agencies beyond a pure secondary market role" include Freddie's experiments in the home equity market and Fannie's expansion into the manufactured housing market, he added.

The two companies "now touch on too many industries for those industries to just stand still like potted plants," he said. "These industries are almost certainly going to fight, and that movement is only in its early stages."

A spokesman for Fannie Mae said the company does not discuss "individual analysts' assessments of Fannie Mae." Freddie Mac did not immediately return a call seeking comment.

Mr. Eisman said his main concerns do not stem from the risk-based capital guidelines proposed by the Office of Federal Housing Enterprise Oversight-Fannie's and Freddie's financial regulator-but from the emerging "rein-in-the-agencies movement" trying to guard against any expansion of the GSEs' business areas.

The movement by lenders and others, in response to what they view as "charter creep" by Fannie and Freddie, is "new and gaining strength," Mr. …

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