WALL STREET – Common stockholders continued to get battered by the plunge in Fannie Mae and Freddie Mac share prices, but the crisis is posing opportunities for credit unions and other institutional investors who have been feasting off the higher yields on Fannie and Freddie debt.
The prices on Fannie and Freddie debt, popular with credit unions, has fallen over the last few months, widening the spread with Treasuries over market fears of a failure of one of the two secondary mortgage market giants. That means holders of Fannie and Freddie bonds will suffer short-term losses, but it also poses new buying opportunities for the agencies’ callable bonds, bullets and step-up securities.
“Credit unions are buying and holding (agency securities),” said Ray Amereno, managing director for credit union bond house First Empire Securities. “Overall, the credit union industry realized that the government was going to step in.”
Fannie and Freddie securities still are offering attractive yields, said Amereno. He cited the 15-year pass thrus (5.05%), the 3-to-4 year average life sequential collateral mortgage obligations (4.75%) and callable agencies (4%).
“The reality of it is the safety of the principle is not in doubt,” he told The Credit Union Journal. “It’s a buying opportunity because it’s coming back.”
“In my opinion,” said Richard Wright, chief financial officer for Desert Schools FCU, which holds $300 million of agency securities, “it’s still a wait and see situation.”
“As a holder of their mortgage backed securities and other agency securities, we’re not concerned at all about Fannie Mae and Freddie Mac being able to stand behind their debt,” Wright said.
