Mortgage firm Freddie Mac headquarters is pictured in McLean, Virginia July 13, 2008.
(REUTERS/Larry Downing)
Fannie, Freddie shares jump; financial stocks rally
Mortgage firm Freddie Mac headquarters is pictured in McLean, Virginia July 13, 2008.
(REUTERS/Larry Downing)
NEW YORK (Reuters) -Investors bought back into shares of mortgage finance companies Fannie Mae <FNM.N> and Freddie Mac <FRE.N> on Wednesday, after reassuring results from big mortgage lender Wells Fargo lt;WFC.N helped ease concerns about the impact of the credit crisis on the U.S. economy. Fannie Mae and Freddie Mac also benefited from a White House statement that Congress should be able to approve legislation aimed at providing back up funding for the two pillars of the U.S. housing market by next week. The White House statement came even as lawmakers questioned the scale of the rescue plan and its burden on taxpayers. The U.S. Treasury and Federal Reserve outlined a plan on Sunday to support the two government-sponsored enterprises which included a pledge to extend more credit or buy equity stakes in Fannie Mae and Freddie Mac if needed. Fannie Mae's and Freddie Mac's shares fell 45 percent and 46 percent respectively last week on fears the two companies might be insolvent as a slumping U.S. housing market caused defaults on mortgages to rise and the value of mortgage bonds to fall. Tom Sowanick, chief investment officer at Clearbrook Financial LLC in Princeton, New Jersey, said investors were also comforted by Fannie Mae FNM.N chief executive Daniel Mudd, when he said late on Tuesday that the company will not need to take advantage of the government and central bank's lifeline. Fannie Mae's shares were up about 15 percent and Freddie Mac's up about 16 percent by midday on Wednesday. The Financial Select Sector SPDR fund XLF, which tracks the performance of large capitalization financial stocks, was up 5.9 percent. Wells Fargo helped set the positive tone for financial stocks when the fifth-largest U.S. bank reported better-than-expected quarterly earnings on Wednesday and raised its dividend. OVERSEAS FALLOUT? Concerns about the international breadth of the fallout from Fannie and Freddie's problems also eased. South Korea's central bank denied a media report that it had unrealized losses of more than $7 billion in investments in U.S. agency debt including bonds issued by Fannie Mae and Freddie Mac. Bank of China 3988.HK 601988.SS, meanwhile, may hold roughly $20 billion worth of bonds issued by Fannie and Freddie, according to a research note by analysts at CLSA. A Bank of China spokesman could not immediately be reached for comment. Because the U.S. government has taken steps to support Fannie and Freddie, CLSA said in its note that it regards the credit risk for the two as near to that of a sovereign credit rating for the government itself. Despite some of the positive news, Fannie on Wednesday sold $3 billion in short-term debt at rates higher than last week, suggesting weaker demand. The deal followed a similar sale from Freddie Mac earlier in the week that garnered strong demand. The U.S. Securities and Exchange Commission's emergency rule to limit certain types of short selling in major financial firms, including Fannie and Freddie, helped lift a major negative drag on the shares, traders said. "The SEC emergency ruling on limiting certain types of shorting is also helping Fannie and Freddie shares, for sure," said Clearbrook Financial's Sowanick. (additional reporting by Jennifer Ablan; Editing by Theodore d'Afflisio) 
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