Fannie Mae’s 2Q earnings project that falling home prices will move the heretofore breakeven 2004 book into the red. All hopes continue to be pinned on Fannie’s expanding book of new business, which could return it to what passes for profitability under conservatorship. Importantly, Fannie is set on survival – the tone of the release and related comments tells us that at least this GSE wants to be a going concern going forward, not wound down as the conservatorship drags on. We see the company’s projections of a rocky road ahead as opening the door wider for a new rental option by the Administration, although we note below our view that recovery will be better served by renting houses backing delinquent mortgages, not foreclosed ones. However, Fannie is essentially already in the rent-to-own business; stunningly, 27% of its new mortgage acquisitions so far this year are in the Refi Plus program (where initial LTVs can hit 125%).
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