Zacks Analyst Interview Highlights: Freddie Mac, Fannie Mae and Sallie Mae

Business Wire, May 20, 2008

CHICAGO -- Zacks.com releases the latest Analyst Interview. Today's interview is with senior analyst Neena Mishra, who discusses Freddie Mac (NYSE: FRE), Fannie Mae (NYSE: FNM) and Sallie Mae (NYSE: SLM).

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One of the companies you cover is Freddie Mac. Where do you think this company is, currently, in this mortgage-lending downcycle?

Freddie Mac's (NYSE: FRE) first quarter results were better than expected, mainly aided by the accounting changes. The company also announced a capital raise of $5.5 billion and we suspect that they will need to raise more capital in the coming quarters. Moody's recently downgraded FRE's financial strength rating and placed them on a negative outlook. Falling housing prices and rising delinquencies are expected to keep the credit related expenses high in the near-to-medium term.

Though recent regulatory moves raising the limits on the conforming loans and lowering the capital requirements are expected to be somewhat positive for the earnings, they will greatly increase the risk for the company. However, we anticipate that the regulators will continue to support both Fannie Mae (NYSE: FNM) and Freddie in their role as the providers of liquidity in the housing markets. Though we are very much concerned about the increasing risk profile of this company, we anticipate that the implicit Government backing will continue to support the share price.

Do you see the new federal student loan market stabilization plan helping companies like Sallie Mae (NYSE: SLM) in the near term?

Yes, we think that the plan should benefit the student lenders. In the recent past, the student lenders suffered as the provisions in the College Cost Reduction Act and Higher Education Access Act reduced the subsidy, increased origination fees and reduced government guarantee for these companies. At the same time, liquidity issues in the markets increased the cost of funding substantially. The new legislation would allow the Education Department to buy federally guaranteed student loans that the lenders are unable to sell as a securitized debt. This would ease the problems for these companies in the near term.

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