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Chaos Lifts Mortgage Giants

Election turmoil boosts shares of Freddie Mac and Fannie Mae as tighter regulation is in doubt.

November 10, 2000|From Bloomberg News

Vice President Al Gore's potential legal challenge to the presidential vote in Florida rattled the stock market overall on Thursday, but investors picked at least two winners out of the election mess: mortgage finance giants Fannie Mae and Freddie Mac.

Fannie Mae (ticker symbol: FNM) jumped $3.50 to $76.75 and Freddie Mac (FRE) rose $2.13 to $58.38 after analysts said the election results probably reduce the likelihood that Republicans will succeed in winning tighter regulation of the companies.

Republicans probably will control the U.S. House of Representatives by a 221-212 advantage, a smaller margin than the 222-209 edge they currently enjoy, which includes two vacancies and two independents.

Narrower Republican control makes it less likely legislation aimed at the mortgage giants, sponsored by Rep. Richard H. Baker (R-La.), will pass, analysts said.

"The market is starting to realize the political concerns are lower than what they had thought they would be," said Thomas O'Donnell, analyst at Salomon Smith Barney.

Baker's bill would more tightly regulate Fannie Mae and Freddie Mac by creating a single, more powerful regulator.

Currently, the Department of Housing and Urban Development and the Office of Federal Housing Enterprise Oversight both regulate the companies, which were chartered decades ago by Congress to buy mortgages from lenders and thus replenish funds available for new loans.

Though they are shareholder-owned, the companies are quasi-governmental because they were created by Congress, and enjoy special borrowing privileges with the U.S. Treasury--though those privileges aren't used.

Baker, concerned the companies might not be able to weather a severe financial reversal without using taxpayers' money, is proposing repeal of their $2.25-billion line of credit with the Treasury and other benefits they enjoy.

Both companies last month reached a partial truce with Baker by voluntarily agreeing to build reserves that would guard against sudden losses.

Baker applauded the measures yet said he still wanted legislation to tighten regulation of the companies.

One side effect of the election will be new leadership on the House Banking Committee because of six-year term limits on committee chairmen in the House. Republican Rep. Marge Roukema of New Jersey, a moderate and strong defender of Fannie Mae and Freddie Mac, is poised to become the next House Banking Committee chairwoman.

David Graifman, analyst with Keefe Bruyette & Woods Inc. in New York, attributed some of Thursday's stock rise to expectations that Roukema will assume the chair.

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