Fannie Mae shares zoom higher as caps lifted Company allowed to buy more mortgages as it posts fourth-quarter loss By Robert Schroeder, MarketWatch Last update: 1:40 p.m. EST Feb. 27, 2008 WASHINGTON (MarketWatch) -- Shares of Fannie Mae and Freddie Mac shot higher early Wednesday afternoon after the companies' regulator said it would allow the two government-sponsored mortgage-finance giants to buy more mortgages as of March 1. Fannie's shares gained 3% in recent action, to $27.80. Earlier Wednesday they jumped as much as 15%. Shares of Freddie Mac were up 2.4% to $25.81. They were also up as high as 15% after the regulator's announcement. The decision by the Office of Federal Housing Enterprise Oversight came the same day Fannie Mae reported a $3.6 billion loss for the fourth quarter and a $2.05 billion loss for 2007, citing the continuing drag in the housing and mortgage markets and disruptions in the credit markets. But with both companies now current in their financial reporting, the regulator made the decision to allow them to expand their purchases of mortgages. "In recognition of the progress being made by both companies, as indicated by the timely release of their 2007 audited financial statements, and consistent with the terms of the relevant agreements, Ofheo will remove the portfolio growth caps for both companies on March 1, 2008," the regulator said in a statement. Bob Walters, chief economist of Quicken Loans, said the move may help lenders' ability to make more loans to borrowers. Fannie Mae and its sister institution, Freddie Mac, buy mortgages and repackage them as securities, thus freeing up liquidity in the housing market. "Anything that enhances their ability to provide the market with liquidity is a good thing," Walters said in an interview. "This essentially has opened up their playgrounds." Loss worse than expected For the quarter, Fannie swung to a loss of $3.80 a share from profit of 49 cents in the year-earlier period. The loss was worse than expected: Analysts surveyed by FactSet Research were expecting Fannie Mae (FNMFannie Mae FNM) to report a loss of $1.21 a share. For the year, the company swung to a loss of $2.63 a share from profit of $3.65 a share a year earlier. Looking ahead, Fannie Mae sees home prices falling 5% to 7% across the country this year. As a result, the company is expecting its single-family delinquency rate to rise in 2008. Chief Executive Daniel Mudd said the company is pleased that demand for its mortgage guaranty business has surged in response to the market's need for liquidity. But he said that "this positive trend has been far outweighed by the negative financial impacts of rising mortgage defaults, falling home prices and extraordinary disruptions in the credit markets." Freddie is scheduled to report its results on Thursday morning. Analysts expect Freddie Mac (FREFreddie Mac FRE) to report a fourth-quarter loss of $3.07 a share. Shares of Fannie and Freddie have reeled as the U.S. housing market has sunk and credit worries have spread throughout the financial system. Robert Schroeder is a reporter for MarketWatch in Washington
But would it help offset some of the lower loans that might default? Not sure. I am cynical of this, but I see good and bad.