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Will Fannie-Freddie's Policy Change Impact Housing Sector?

The Federal Housing Finance Agency (:FHFA), regulator of Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FMCC), gave the green signal to both the housing mortgage giants to offer the homeowners of foreclosed properties an opportunity to purchase their homes back at lower prices.

Previous Policy

Under the FHFA’s prior guidelines, Fannie Mae and Freddie Mac could sell the foreclosed properties back to the homeowners at the outstanding mortgage amount. There was no respite for the borrowers earlier. Only new buyers could purchase the properties at market prices.

Revised Policy

Under the new policy, the opportunity to repurchase home at the current market price has been extended to the former homeowners as well. However, this modification is applicable only on the 121,000 single-family homes owned by Fannie Mae and Freddie Mac as of Nov 25, 2014. Moreover, certain properties may be prohibited from being included under the revised policy.

Purpose behind the Change

The FHFA has been working actively to encourage more lending as well as accelerate the housing market recovery. Last week, it revised rules to bring more clarity in the process of buying back loans sold to these two federal mortgage finance agencies. This is expected to transform lenders’ perception of risks involved in repurchasing loans.

The latest move will help in stabilizing property value as well as decrease the number of vacant properties with rising number of prospective home buyers, lured by the lower price incentive.

Our Take

The FHFA’s policy shift will be appreciated by the homeowners as well as democratic lawmakers, who stress on the need to liberalize the FHFA policies in favor of troubled homeowners. On the flip side, some people may take undue advantage of these relaxed policies through surplus borrowing, which will likely strain the financials of the mortgage agencies.

Both Fannie Mae and Freddie Mac currently carry a Zacks Rank #3 (Hold). Some better-ranked stocks in the mortgage investment industry include Essent Group Ltd. (ESNT) and Walker & Dunlop, Inc. (WD). Both these stocks sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on FMCC
Read the Full Research Report on FNMA
Read the Full Research Report on WD
Read the Full Research Report on ESNT


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