Why Federal National Mortgage Association (FNMA) Is Back In The Spotlight

Why Fannie Mae Stock Is Back in the Spotlight

The Federal Housing Finance Agency has rolled out a new policy that lets more eligible Fannie Mae (FNMA) borrowers cancel mortgage insurance sooner, potentially cutting monthly housing costs and sharpening investor focus on the stock’s role in mortgage finance.

Fannie Mae’s share price has come under pressure despite that policy shift, with the stock down 17.65% on a 30 day share price return basis and 52.91% year to date. At the same time, the three year total shareholder return sits around 7x and the five year total shareholder return is also very large. This suggests that recent momentum has faded and investors are reassessing both upside potential and policy risk around Federal National Mortgage Association.

Scan 33 high quality undervalued stocks that, like Federal National Mortgage Association, sit at the center of key policy shifts yet trade as if the story has stalled.

Bulls point to Fannie Mae’s long run total returns and policy tailwind, while bears highlight the sharp recent slide and earnings pressure. Which case actually lines up with the current valuation numbers?

Most Popular Narrative: 51% Undervalued

Federal National Mortgage Association’s most followed valuation storyline pins fair value at $10.50 per share, roughly double the last close of $5.18. This places significant emphasis on how its large guaranty book and capital build develop under conservatorship.

Continued build in net worth to $112.7b, progress toward capital requirements and use of credit risk transfer and risk sharing in multifamily position the company to support credit availability and potentially stabilize earnings through different credit cycles.

See why 4 investors see Federal National Mortgage Association as 51% undervalued.

Result: Fair Value of $10.50 (UNDERVALUED)

Still, the bullish story around Fannie Mae can quickly fray if housing activity stays weak and multifamily credit losses or interest rate risk on the retained portfolio deepen.

Find out about the key risks to this Federal National Mortgage Association narrative.

Another View On Fannie Mae’s Valuation

The story looks very different once you step away from fair value targets and focus on simple earnings multiples. Federal National Mortgage Association trades on a P/E of 131x, while the US Diversified Financial industry sits around 17.2x and peers average 25.3x. The fair ratio estimate is just 1.1x, which highlights a significant valuation gap that could either compress or remain wide depending on how the conservatorship saga and profit outlook evolve. Which side of that spread do you think the market closes first?

See what the numbers say about this price in our valuation breakdown, then test your own view against the See what the numbers say about this price — find out in our valuation breakdown..

Next Steps

Mixed signals on Federal National Mortgage Association can leave you undecided. Consider moving quickly, reviewing the data yourself, and weighing both the upside and the downside in the 2 key rewards and 2 important warning signs.

Looking For More Ideas Beyond Fannie Mae?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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