There are strong indications which suggest that things are not going to change for Federal Home Loan Mortgage Corp (OTCBB:FMCC) and Fannie anytime soon. The two mortgage companies continue to stay both wards of the central and state to the mortgage industry. While almost everyone admits to find this substandard, the position is bound by a complex system that is not going to loosen anytime soon.
The stance
Considering the matter from political perspective, all past measures to approve important reforms have been delayed. And now with the U.S. presidential election season approaching near, the progress on matter is unlikely. Senator Bob Corker, R-Tenn, clarified the matter when he was questioned about how long the conservatorships of Federal Home and Fannie Mae might last.
He said that Congress wouldn’t consider housing- finance reform or any other matter that demands “tough decision-making” or “intellectual heft” for at least next sixteen months. A bill Mr. Corker presented with Senator Mark Warner, D-Va, asked for the wind-down of Federal Home and Fannie Mae. He reiterated the same thing on Tuesday and said that what he cannot fathom is the U.S. going back to having two gigantic firms.
The future ahead
Both Federal Home and Fannie still needs the support of the government to sustain the confidence of bond markets. The attempt to shun the conservator ship and stop Treasury support when needed would risk prompting worldwide capital markets into problems and collapsing the housing industry. Also, in case of quick recap, there would be need of a direct capital injection, which again is possible only after the new Congressional spending authorization.
At the same time, a slow recap, funded by permitting Federal Home and Fannie Mae to retain their profits instead to sending to the Treasury, would prove an extremely long slog. This suggests that the conservatorship of two mortgage companies is not going away anytime soon.
Federal Home Loan Mortgage Corp (OTCBB:FMCC) broke out from the short term congestion zone in a very sharp manner to end the last trading session with a resounding gain of 9.22%. The volume of the day surged to 6.5 million, more than 3 times higher than the daily average of 1.96 million, emphasizing the intensity of the bullish sentiment during the session. The breakout looks very promising but before one can be totally confident about the future prospect in the intermediate time frame, it must handle the supply pressure from the resistance confluence zone around $2.40-$2.45 successfully.
