Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) has been trading in a broad trading range of $2.20 to $2.70. The dismal performance of the mortgage company on the chart is largely attributed to no changes made in bailout terms. Seven years after the financial crash, the fundamental issues with the system, particularly the roles of Federal National and Freddie remain unreformed. If current presidential candidates intend to start a policy debate that have an influence on the nation’s residents, this is it.
Federal National and Freddie Mac purchase mortgages and then bundle them into different pools so as to release mortgage-supported securities to investors. The securitization enables investors to offer capital for families to purchase homes, and those families’ monthly finance payments reimburse investors. In case a borrower defaults, the two mortgage companies assure investors settlement of their principal amount.
Before the financial crisis, Federal National and Freddie Mac shareholders supported that guarantee. However, as the financial crisis loomed, these government-backed firms were placed into conservatorships and U.S. taxpayers have since paid $188 billion into the two firms to backstop their guarantees. Now, after seven years, the conservatorships still remain and the two mortgage firms’ guarantees surpass the threshold when the Federal conservatorships started.
Several legislative proposals to replace Freddie and Federal National and redesign housing plan have been established with no substantial results achieved. So, U.S. taxpayers still assure repayment to investors on almost three out of four new mortgages in present time. The promising news is that a large consensus is recorded on two main changes. Taxpayers should not be the ones to bear mortgage defaults, and therefore private funds should be brought back into the system.
Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) may have lost 3.07% in the last trading session but more importantly, it registered the day low at $2.15, very close to the major support area around $2.00-$2.10. The volume of the day at 4.3 million against the daily average of 2.9 million indicated the presence of some heavy sellers but the bears can’t be content yet. The price action at the current levels may decide the major trend in the coming days. The bulls must manage fresh buyers immediately or the bears may push the price below $2.00 levels to trigger a major selloff.