Noted bank analyst Dick Bove of Rafferty Capital Markets thinks Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) can rise to $18 per share.
Speaking on Fox Business with Charlie Gasparino, Bove’s logic is that the company is currently earning $1.60 per share. With a ten to twelve times earnings multiple applied to the stock, Bove thinks it could easily trade near $18 per share with one major caveat: The US Government needs to return the stock back to shareholders.
US government put Fannie Mae stock into conservatorship
In 2008 the government, under the auspices of the Housing Recovery Act, put Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) into a conservatorship operated by the government. Bove notes that at the time the government had promised to return the company to shareholders when it was profitable. In 2012 the company turned profitable, yet Bove says the government “reneged on its deal.”
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Bove claims the US taxpayer stands to benefit to the tune of $75 billion in additional revenue but turning the company back to shareholders. The US taxpayer would own 4 billion shares of stock if that were the case.
Elimination of 20 or 30 year mortgage
Bove further claims that if the government continues with plans to close down Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) by 2017, that would effectively end the long dated mortgage product. “I have spoken to at least a dozen of largest banks and not one of them will issue 20 or 30 year mortgages if they can’t sell it to Fannie Mae or Freddie,” Bove said.
If it goes through the courts to resolve the issue, it could take three to five years, according to Bove. But he sees potential director fraud as one of the issues that could motivate the government to act sooner.