Why Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) Can Take A Financial Hit?

It has been nearly seven years since the U.S. government supported mortgage firm Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) was put into conservatorship along with its peer Freddie Mac. Despite the passing of seven years, the U.S. legislators have yet to pass a program that replaces the firms and rebuilds the nation’s housing-market infrastructure.

As expected, being a huge, complex responsibility, no elected representative agrees to be the one to experiment with the existing reform and gets it foot wrong. Isaac Boltansky of Compass Point Research and Trading mentioned that the legislators are concerned of the unexpected results. None of them wants their name to be linked to a bill that resulted in a disappointment in the mortgage markets.

The stakes

The stakes involved in making any changes in the prevailing reforms are high. Together Freddie and Federal National back over half of new mortgages. In 2Q2015 the mortgage firms backed a total of over $230 billion in new mortgages. Any new regulation that winds down these two mortgage companies and reestablishes the mortgage industry will strike close to center family finances in the U.S.

Federal National and Freddie Mac’s role is crucial, allowing borrowers to avail mortgages by offering financial liquidity. These two firms don’t make loans but they assure that investors will get expected payments.

The obstacles

The fear of going wrong and disturbing the mortgage market is not the only barrier to reform. Some U.S. policymakers may be loath to overhaul existing system that assisted the U.S. Fed to reduce its deficit. The terms of bailout deal forces Freddie and Fannie to send their profits to the Treasury each quarter. Last week, Federal National posted $4.6 billion as 2Q profit, and Federal Home reported $4.2 billion in 2Q2015 profit. This bailout deal may prompt the firms to take a financial hit in the near future.

FNMA

Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) has been trading in narrow intraday ranges for the last few sessions and yesterday’s almost flat closing with a minor loss of 0.65% has turned out to be the just the last display of that kind price action. The entire range was limited to $2.28-$2.32 for the day and the volume reached 1.4 million only, less than half the daily average of 3.6 million. The downtrend is firmly established and well contained in a long term channel, as seen on the chart attached and hence even these narrow range days can’t be taken as a sign of slowing momentum.

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