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Fannie (FNMA) and Freddie (FMCC) Tip Into the Red

NEW YORK (TheStreet) -- Fannie Mae (FNMA) and Freddie Mac (FMCC) were in the red on Monday, seeing losses of 2.2% and 2.4%, respectively.

Earlier in the day, Freddie Mac sold $2.25 billion of reference bills. These included $250 million of one-month bills, due Jan. 6, $1 billion of three-month bills, due March 10, and $1 billion of six-month bills, due June 9. While demand for the one-month bills was unchanged, Freddie reported demand for three-month bills was stronger and demand for six-month bills was weaker than a week earlier.

Separately, last week, the Federal Housing Finance Agency (FHHA) announced it had finalized a major overhaul of mortgage insurance policy requirements, the first in several years. Combined, the housing financers Freddie and Fannie provide more than $5.5 trillion in funding for U.S. mortgage markets and institutions.

The policy changes relate to loss mitigation, processing of claims, assurance of coverage and enhanced communication between mortgage insurers, servicers and Fannie and Freddie.

"Updating the mortgage insurance master policy requirements is a significant accomplishment for Fannie Mae and Freddie Mac," said FHFA Acting Director Ed DeMarco in a statement. "The new standards update and clarify the responsibilities of insurers, originators and servicers and they enhance the insurance protection provided to Fannie Mae and Freddie Mac, which ultimately benefits taxpayers."

TheStreet Ratings team rates Fannie Mae as a Sell with a ratings score of D+. The team has this to say about their recommendation:

"We rate Fannie Mae (FNMA) a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. Among the areas we feel are negative, one of the most important has been weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Net operating cash flow has decreased to $6,716 million or 17.53% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Thrifts & Mortgage Finance industry and the overall market, Fannie Mae's return on equity significantly trails that of both the industry average and the S&P 500.
  • The revenue fell significantly faster than the industry average of 100.3%. Since the same quarter one year prior, revenues slightly dropped by 5.3%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • The gross profit margin for Fannie Mae is currently very high, coming in at 108.97%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of 28.71% trails the industry average.
  • This stock has increased by 922.08% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the future course of this stock, we feel that the risks involved in investing in FNMA do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.

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