Seeing Nothin' But Fannie

Amid a continued housing boom, Fannie Mae (NYSE: FNM  ) reported that its net profit for the fourth quarter more than doubled year over year. For the quarter, the company turned in earnings of more than $2.12 billion, $2.21 per share, against $0.91 in 2002. The company also warned that it saw slowing growth in 2004 and that its earnings growth would return to more normal levels.

This shouldn't shock anyone. First, we are in the midst of a credit-fueled housing boom, spurred on by the second year of rock-bottom rates. That the largest credit provider would generate spectacular returns in such an environment should be expected. Second, after the Freddie Mac (NYSE: FRE  ) scandal -- the company was reserving some of its earnings in a cookie jar to pull out for later smoothing -- it's likely that increased scrutiny "encouraged" Fannie Mae to favor accounting purity over appearances.

On Monday, Fannie Mae's CEO Franklin Raines testified before Congress, warning that a move to require advance government approval for mortgage finance products would crimp Fannie's and Freddie's ability to adjust their products to home buyers' needs. "If we cripple our ability to innovate, then your customers are going to pay," said Raines. "It's all going to come out in higher prices, and higher prices, as you know, means less demand."

Apparently Raines either missed or ignored the December report (pdf file) from the Federal Reserve that showed that the two government-sponsored entities do not appreciably lower costs to homeowners in aggregate, thus making his "less demand" argument essentially bogus. The report states that much of the benefit of an implied federal governments guarantee of Fannie's and Freddie's credits accrue not to homeowners, but to shareholders of the two companies. We don't really blame Raines for talking up his own book, but it's not like the Fed has a big Fannie Mae axe to grind in this case.

So whether one should look at the fourth-quarter earnings as being harbingers of bigger, better returns, we wouldn't bet the farm on it.

Have your own view of Fannie's bottom line? Share it on theFannie Maediscussion board.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 505113, ~/Articles/ArticleHandler.aspx, 10/23/2016 10:32:04 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 3:59 PM
FMCC $1.66 Down +0.00 +0.00%
Freddie Mac CAPS Rating: ***
FNMA $1.74 Down +0.00 +0.00%
Fannie Mae CAPS Rating: ***