Federal National Mortgage Assctn Fnni Me (OTCMKTS:FNMA)

Federal National Mortgage Assctn Fnni Me (OTCMKTS:FNMA)

The Federal National Mortgage Assctn Fnni Me (OTCMKTS:FNMA) is popularly known by the term “Fannie Mae”. Fannie Mae was born out of FDR’s New Deal as a response to the devastation brought upon the housing market by the Great Depression which resulted in one in four mortgages in default. Addressing the mortgage defaults not only provided aid to banks and Savings & Loan institutions, it also helped alleviate unemployment as 25% of the nation’s unemployed were in the building sector.

In 1968 steps were taken to privatize the Federal National Mortgage Assctn Fnni Me (OTCMKTS:FNMA) even though it remained a quasi-government agency. This had the effect of removing its assets and liabilities from the federal budget. In 2004, FNMA shares were trading at their recent highs and, due to a massive accounting scandal and the 2008 mortgage market meltdown, shares are down over 96% from those levels.

Federal National Mortgage Assctn Fnni Me (OTCMKTS:FNMA) shares are currently trading around $2.45 and are highly liquid – their 30-day average daily volume tops 3 million shares. However shares are down over 44% from their February high of $4.50 owing to an adverse court decision that mandated Federal National Mortgage Assctn Fnni Me (OTCMKTS:FNMA) make public thousands of documents that, supposedly, would provide the public with greater transparency on their operations.

For FY2013, Federal National Mortgage Assctn Fnni Me (OTCMKTS:FNMA) Operating Income was $38.5 billion and that figure narrowed to $18.3 billion for FY2016. Total Revenues in FY2013 were $39.4 billion and just $24.6 billion for FY 2016. Net Income saw a massive drop ($83.9) billion for FY2013 and in 2016 that figure was just $12.3 billion. However Net Income Applicable to Shareholders in FY2013 was a loss of ($1.44) billion which turned into a $77 million profit in FY2016 indicating that Federal National Mortgage Assctn Fnni Me (OTCMKTS:FNMA) was/is addressing the financial tsunami that threatened its existence during, and after, the 2008 economic meltdown of which it played a role.

Given the nature of its operations, it is unsurprising to see it list assets and liabilities in the neighborhood of $3.2 Trillion. Stockholder equity represents a tiny fraction of that. In FY2013 shareholder equity was $9.5 billion and that shrunk by over a third for FY216 to $6.1 billion. Federal National Mortgage Assctn Fnni Me (OTCMKTS:FNMA) makes money by borrowing at rates lower than most institutions are able, buying mortgages, then financing them with their lower cost of borrowing. Accordingly, FNMA’s FY2016 Total Cash Flow from Investing Activities was $225 billion and their Total Cash Flow from Financing Activities was $213.7 billion which left $10.5 billion in cash.

Federal National Mortgage Assctn Fnni Me (OTCMKTS:FNMA) is a quasi-government agency that Congress has shown itself to support so many believe that it belongs to the “too big to fail” club. However just how profitable it will become for its shareholders is still a question in the minds of many.

I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 96 hours. All information, or data, is provided with no guarantees of accuracy.

About the author: James Marion is a University of Houston student studying Business with a concentration in Finance

Author: James Marion

James Marion is a University of Houston student studying Business with a concentration in Finance. James has interned with several investment professionals and hopes to pursue a career as a professional stock analyst after graduation.

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