Weekly Real Estate News
Summary
Mizuho downgraded Fannie Mae and Freddie Mac to Neutral and cut both price targets, citing diminished prospects for a fast conservatorship exit by 2028.
Mizuho downgraded Fannie Mae and Freddie Mac on Monday, cutting its price targets roughly in half as the investment bank lowered its expectations that the two mortgage-finance companies will emerge from federal conservatorship by 2028.
Analyst Dan Dolev and colleagues moved both companies from Outperform to Neutral. Mizuho reduced its target for Fannie Mae shares to $5 from $10 and for Freddie Mac to $4 from $9, according to The Fly’s report on Fannie Mae and its corresponding Freddie Mac report.
The change concerns the timetable and potential value of a release from government control, rather than an announced change in either company’s mortgage-purchase operations. Fannie Mae and Freddie Mac have remained under Federal Housing Finance Agency conservatorship since September 2008. Their common shares trade over the counter, and the Treasury’s senior preferred stock position remains a central issue for investors evaluating any exit.
Mizuho now assigns an 18% probability to a fast exit by 2028 for Fannie Mae, down from 30%, and a 9% probability for Freddie Mac, down from 20%, according to a Barron’s account of the research note. The analysts cited higher mortgage rates, possible increases in the companies’ mortgage holdings and changes in credit-score policy as factors that could complicate the accumulation of capital needed for an exit.
Those concerns matter beyond shareholders. Fannie Mae and Freddie Mac purchase mortgages from lenders and support the market for mortgage-backed securities. Their guarantee fees, capital requirements and underwriting standards influence the cost and availability of home loans. Mizuho argues that raising guarantee fees to accelerate capital building could be politically difficult when borrowing costs are already elevated. That is an analyst’s forecast, not an FHFA decision to change fees.
Mortgage rates provide immediate context for the downgrade. Freddie Mac reported that the average 30-year fixed mortgage rate reached 7.40% for the week ending October 8. Higher financing costs have sharpened attention on affordability and any policy that could add to borrowers’ costs.
Credit scoring is another source of uncertainty. The FHFA has been advancing the use of VantageScore alongside FICO in the agency mortgage market. WRE previously reported on the questions lenders face over bi-merge credit reporting. Mizuho’s concern is that operational and capital consequences of these changes could extend the timeline for an eventual conservatorship exit.
There has been no announcement Monday that the government has abandoned a release plan, and the downgrade does not alter the companies’ regulatory status. The central unresolved question is whether federal officials can devise an exit structure that satisfies capital and taxpayer-protection objectives without increasing costs for mortgage borrowers.
