While it is early on in the economic downturn and many unknowns remain, Fannie Mae (FNMA) and Freddie Mac (FMCC) are well positioned for a recessionary environment and can emerge stronger on the other side, Nomura Instinet analyst Matthew Howlett tells investors in a research note. The COVID-19 crisis puts a greater urgency on policy makers to raise private capital, and Republicans and Democrats are more united on the future role of the government sponsored entities given the disruption in the mortgage market, contends the analyst. He believes this was evident by yesterday’s announcement regarding servicing advance obligations. The crisis is also likely to unite the various parties involved toward a settlement, “sooner rather than later, as a sense of urgency has likely increased on both sides,” says Howlett. The analyst believes Fannie and Freddie are ready for a recession and reiterates Buy ratings on both stocks with price targets of $5 and $4.50, respectively.
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