Speculation Drives Fannie Mae Shares Amid Regulatory Shifts and Portfolio Growth

Fannie Mae US3135861090

The shares of mortgage finance giant Fannie Mae continue to be a focal point for market speculation. This follows a period of extreme volatility and massive gains, with investors weighing the company's expanding portfolio, potential exit from government control, and mixed fundamental signals.

Recent data reveals a significant buildup in mortgage-backed securities (MBS) holdings by Fannie Mae and its sibling entity, Freddie Mac. From May, their combined portfolio of mortgages and MBS swelled by over $55 billion. The aggregate position climbed from $178.5 billion to $233.6 billion, marking an expansion of approximately 31% in just five months.

According to reports, these government-sponsored enterprises are purchasing mortgages and MBS at a rate of roughly $13 billion per month through the second half of 2025. Analysts at Citigroup suggest the portfolios could grow by an additional $100 billion in the coming year.

Market observers attribute this aggressive accumulation to two primary objectives:

• Interest Rate Support: By increasing demand for MBS, the strategy aims to provide underlying support for these securities, which can help alleviate upward pressure on mortgage rates. The gap, or spread, between 30-year mortgage rates and the yield on the 10-year U.S. Treasury note stood at 2.05 percentage points as of December 12. This is near the historical average, following a period in 2022 and 2023 when it occasionally exceeded three percentage points.
• Enhancing the IPO Narrative: A larger, more profitable MBS portfolio can improve the company's earnings profile. This strengthens its financial story in anticipation of a potential return to public markets.

The Regulatory Overhang and Financial Standing

Fannie Mae has operated under federal conservatorship since September 2008, a result of massive losses incurred during the subprime mortgage crisis. The Federal Housing Finance Agency (FHFA) acts as its trustee, and the U.S. government retains an approximate 80% ownership stake.

The current administration under President Trump has signaled a preference to monetize this stake rather than pursue a full privatization of Fannie Mae and Freddie Mac. President Trump has also suggested maintaining an "implicit guarantee" of their obligations—a move that could stabilize mortgage rates but continues to imply potential risks for taxpayers.

FHFA Director William Pulte stated in October that the Trump Administration is reviewing an initial public offering (IPO) on an "opportunistic" basis, with a potential timeline as early as late 2025 or the second quarter of 2026.

Third Quarter 2025 Financial Snapshot

The company's latest reported figures for Q3 2025 show:

• Net Income: $3.9 billion, a 16% increase from the second quarter.
• Guarantee Book: $4.1 trillion, providing a stable stream of guarantee fees.
• Net Worth: $105.5 billion.

Despite this growth in equity, a capital deficit of $25.4 billion persists under the existing regulatory framework.

Volatile Trading and Valuation Disparities

Fannie Mae's stock performance has been nothing short of dramatic. Shareholders have seen a total return exceeding 300% over a twelve-month period. The 52-week trading range, from $2.24 to $15.99, underscores the stock's high sensitivity to political and regulatory developments.

Recent trading sessions have shown continued volatility:
* The share price closed at $10.74 on December 15.
* It traded around $10.85 on December 16.
* During morning trading on December 17, shares moved between approximately $10.98 and $11.00.

On a 30-day basis, the equity is up about 18.8%, yet it remains roughly 22.8% below its recent peaks when viewed over 90 days.

Valuation metrics present a conflicting picture. With a price-to-sales ratio near 2.2, Fannie Mae trades below the average of approximately 2.5 for the U.S. "Diversified Financials" sector, suggesting a relatively moderate valuation among peers. However, some discounted cash flow models calculate a fair value close to $2 per share—significantly below current levels. This stark discrepancy highlights the speculative nature of the investment, where sentiment can shift rapidly on regulatory news.

Catalysts on the Horizon

Several key events and themes are poised to influence the stock in the coming months:

• Potential IPO Timeline: Market conditions and political will could trigger a public offering by late 2025 or Q2 2026.
• Q4 2025 Earnings: Scheduled for release in late January 2026, these results will provide updated metrics on profitability and capital strength.
• Regulatory Decisions: Any rulings on the terms for exiting conservatorship and liquidating the government's stake could fundamentally alter the investment thesis.

Further momentum may come from potential easing of rules governing the repurchase of their own MBS. Industry groups, including the Community Home Lenders of America and the Independent Community Bankers of America, advocate for granting Fannie Mae and Freddie Mac greater flexibility for such purchases—a move that could impact both mortgage rates and profitability.

The disclosure of positions in Fannie Mae and Freddie Mac by prominent investors like Michael Burry (of "The Big Short" fame) in early December has further intensified scrutiny on the companies' next steps regarding MBS strategy, capital building, and their potential market return.