A Little Fannie Is Better Than Nothing (FNMA)

For the second day in a row, shares of the Federal National Mortgage Association (OTC: FNMA), better known as Fannie Mae, stayed firm on higher-than-average volume. On Monday, Bloomberg Business News released a story concerning the creation of contingency plans to take Fannie Mae, Freddie Mac and the Federal Home Loan Bank into receivership. The contingency plans do not necessarily indicate plans for selling off assets. Denise Dunckel, a spokesperson for the US Regulator overseeing the mortgage giants, said, “The planning activity is routine and does not indicate any conditions of the current status of the regulated entities.”

Recovering from a down day on Tuesday, shares of Fannie Mae closed today up 6% at $0.255. Since Tuesday afternoon, the stock has climbed more than three cents. Over 3.3 million shares traded in the session compared to an average daily trading volume of 1.2 million. Buyers appeared cautious in the morning hours as the stock weakened toward the low of the day. Lunchtime brought a basket of buyers as the stock traded above $0.25, and the number of shares traded during the hour equaled about a third of the total volume for the day. The stock ended the day just a fraction below the high for the day.

At the beginning of the New Year, prices for Fannie Mae stock saw quite a bit of volatility. Shares in late December traded at an annual low of $0.19. By mid-February, prices jumped 18 cents in a two-week period to kiss a 52-week high of $0.40 on volume exceeding 20 million shares. The last few months have seen the stock drifting lower.

In related news, on July 16, 2012, the Commerce Department reported the number of permits to build single-family houses reached their highest point since 2010. The report also noted that new home sales were 15% higher in June than a year ago during the same time period.

A check of Stockreads.com and Stockpromoters.com show no recent newsletter or promotional activity. On Twitter, however, there have been several comments made concerning Fannie Mae during the last several days. Yesterday, Seeking Alpha wondered if the drop in new home sales prices meant it was a good time to buy real estate. It is an excellent question, but the question for traders is what it would mean for Fannie Mae’s financial condition.

Fannie Mae is a government-sponsored enterprise chartered by Congress to provide liquidity and stability in the secondary mortgage market. The collapse of the mortgage giant was one of the big stories during the financial crisis that began five years ago. In 2007, shares of Fannie Mae traded for $70. Fannie Mae and Freddie Mac presently guarantee around 90% of the mortgages in the United States. Since the collapse of the housing market, the two government-sponsored enterprises have required an estimated $190 billion in taxpayer-funded support.

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Published by Alan Masterson

Alan has over 25 years of trading experience in the U.S. equity markets. He began his career in finance working on a program trading desk specializing in over-the-counter stocks. His career progressed from that point to his current position as senior trader on an institutional trading desk. In the evenings, Alan teaches economics at a local community college. He has contributed articles to various publications over the last six years, including feature articles for an economics magazine and various financial blogs. You may contact Alan via his email (alanmasterson@wallstreetpr.com) or his Google+ page (https://plus.google.com/103338576216002376250).