Shares of the nation's two government-backed mortgage
organizations have been on quite a rollercoaster ride the last
Fannie Mae (
) and Freddie Mac (
both mere penny stocks traded on over-the-counter exchanges, more
than tripled Monday through Wednesday of this week. On Thursday,
however, they declined 26% and 28%, respectively.
So what happened?
It's not entirely clear, but it appears that the driving force
behind the stocks' big rally was a tax break Fannie Mae - a.k.a.
Federal National Mortgage Association
- may be taking advantage of.
The organization may elect to recognize a more than $60
billion Deferred Tax Asset when it reports its fourth-quarter
earnings. The organization said it expects to report "significant
net income" thanks to the deferred tax asset, according to its
SEC filing. Earnings were scheduled for Monday, but have been
delayed to an unspecified date.
Sixty billion is a lot of tax-break money. But was it really
enough for the stock more than triple? Apparently investors
shared my skepticism.
After rising from 40 cents a share entering the week to as
high as $1.45 early yesterday, Fannie Mae shares plummeted
yesterday, falling back down to 78 cents. Freddie Mac (Federal
Home Loan Mortgage Corporation) shares followed suit, rising from
41 cents entering the week to $1.42 early yesterday to 77 by
Part of the pullback was likely just a natural correction. A
drop in the 30-year mortgage rate likely played a role as well.
The rate dipped from 3.63% a week ago to 3.54% currently. The
15-year fixed rate also dropped, from 2.72% to 2.79%.
The sudden volatility in Fannie Mae and Freddie Mac is quite
baffling - not to mention a bit fishy - considering the two
stocks had been in the 20-cent to 30-cent range for an entire
year. Neither stock had risen above a dollar since May 2010.
Perhaps something else is at play. For now, though, it appears
that Wall Street was temporarily intoxicated by the possible
deferred tax break propping up fourth-quarter earnings.
We'll know more when the company finally reports those