Fannie and Freddie to Shrink No More: FHFA's Watt

Fannie and Freddie story updated from 11:49 a.m. with share price and comments from Jefferies analyst Furtado.

NEW YORK (TheStreet) --Fannie Mae  (FNMA) and Freddie Mac  (FMCC) common and preferred shares were higher Tuesday following a speech by their chief regulator, Federal Housing Finance Authority Director Mel Watt.

Fannie Mae common shares were up 9.91% to $4.66 Tuesday afternoon and Freddie Mac common shares were up 8.57% to $4.56. Fanie Mae "S" series preferred shares were up 4.98% to $10.97.

Michael Kao, head of hedge fund Akanthos Capital and a longtime investor in Fannie and Freddie explained the action in the shares by pointing to comments by Watt that he no doesn't believe it is his job to shrink the market shares of the government sponsored mortgage giants.

In an email exchange with TheStreet, Kao described Watt's comments as a "stark about face to the [Obama Administration's] previous show of support to Johnson Crapo."

Johnson Crapo is legislation aimed at winding down Fannie and Freddie. Watt said Tuesday he wouldn't comment on the bill, which is expected to pass the Senate Banking Committee in a vote set for Thursday but is widely viewed as lacking support to become law.

"If this bill stalls, as is currently expected, it is difficult for us to see how the status-quo of GSE dominance is reduced over the intermediate term," wrote Jefferies analyst Daniel Furtado in a follow-up report to Watt's remarks Tuesday.

Ahead of Watt's remarks, the FHFA announced it would make it easier for banks and other mortgage originators to avoid legal claims from Fannie and Freddie.

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