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Fannie and Freddie Continue Rocket Ride: Financial Winners

Stocks in this article: FNMA FMCC

Updated from 2:21 p.m. ET with closing prices and bank stock action.

NEW YORK ( TheStreet) -- Fannie Mae (FNMA) and Freddie Mac (FMCC) continued their amazing winning streak as investors returned on Tuesday, following the long Memorial Day weekend.

Shares of Fannie Mae rose 37% to close at $4.08, while Freddie Mac was up 33% to close at $3.75.

The two mortgage giants together are known as the government-sponsored enterprises, or GSEs, and were taken under government conservatorship in September 2008.

GSE shares were strong all last week, but they soared on Friday after Ralph Nader in an op-ed piece in the Wall Street Journal said the two companies' common shareholders should fight against the federal government's "great Fannie and Freddie rip-off."

The shares got a very strong push on Tuesday, after the S&P/Case-Shiller 20-city home price index showed a month-over-month increase of 1.4%, while increasing 10.9% from a year earlier. The national 20-city and 10-city indices all saw their largest year-over-year gains since 2006, according to S&P Dow Jones Indices. Economists polled by Thomson Reuters on average had expected the 20-city index to show a year-over-year increase of 10.2%.

"Phoenix again had the largest annual increase at 22.5% followed by San Francisco with 22.2% and Las Vegas with 20.6%. Miami and Tampa, the eastern end of the Sunbelt, were softer with annual gains of 10.7% and 11.8%," according to David Blitzer, chairman of the index committee at S&P Dow Jones Indices. "The weakest annual price gains were seen in New York (+2.6%), Cleveland (+4.8%) and Boston (+6.7%); even these numbers are quite substantial."

Blitzer also said in his firm's press release that "other housing market data reported in recent weeks confirm these strong trends: housing starts and permits, sales of new home and existing homes continue to trend higher. At the same time, the larger than usual share of multi-family housing, a large number of homes still in some stage of foreclosure and buying-to-rent by investors suggest that the housing recovery is not complete."

The strong housing data sent the broad indexes all up nearly 1%, led by big banks. The KBW Bank Index (I:BKX) was up 1.3% to close at 61.68, with all but two of the 24 index components showing gains for the session. State Street led the way among the large banks, with shares rising over 4% to close at $67.15. Next was JPMorgan Chase, with shares up 2.5% to close at $54.60.


The continued flow of data supporting the strong and continuing housing recovery can only be good news for the GSEs and for the U.S. government.

As part of its bailout agreements with Fannie and Freddie, the GSEs granted the government warrants to purchase just under 80% of the common shares of the two GSEs at a strike price of $0.00001 per share.

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