According to MarketWatch, this morning Fannie Mae (FNM) and Freddie Mac (FRE) have been downgraded from ‘neutral’ to ‘sell’ by Merrill Lynch. Apparently they are pretty bearish on the GSE’s. Fannie and Freddie are supposed to be reporting numbers next week.
Here are a couple brief quotes from the Merrill Lynch report:
“Weakening macro-economic, financial market and credit trends continue to point to more financial stress than we think the market is discounting..”
“..we do not think the stocks fully reflect the severity or duration of the financial headwinds facing the companies.”
I’m not extremely surprised of the downgrade, especially considering the spike in defaults and late payments. One thing continues to be sure (in my opinion), things will get worse before they get better. It’s been my re-occurring theme and I’m not sure when I’ll really switch sides of the fence (I really don’t think it will be soon). For now, continue to be prepared for constant re-assessment of risk and guideline changes. If I were you, I’d be prepared (whatever that means) for rough news next week when Fannie and Freddie release their data.
Too much focus has been placed on ‘alt-a’ and ‘subprime’ loans. Prime saw a lot of loosening in their credit guidelines for a pretty large window of time as well. I think we’ve just seen the tip of the iceberg. Strap in, this could get messy.
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