The persistent political problems of Fannie Mae and Freddie Mac have made one Wall Street analyst less bullish on the companies.
In a report released Friday, Thomas ODonnell, an equity analyst at Salomon Smith Barney, lowered his 12-month target prices on Fannie and Freddie, citing political risk.
However, he left buy ratings on their shares unchanged.
A recent proposal to split Freddie Mac into two companies only one of them chartered as a government-sponsored enterprise certainly did not help the two mortgage giants, Mr. ODonnell said.
That ludicrous idea, Mr. ODonnell said, was only the latest in a long line of negative proposals.
Many of these proposals can be found in HR 3703, a GSE-reform bill sponsored by Richard Baker, R.-La., that is being discussed in hearings on Capitol Hill. The most notable component of the bill is a proposal to remove Fannie and Freddies $2.25 billion lines of credit with the Treasury. Investors see these credit lines as evidence of an implicit government guarantee to bail out Fannie and Freddie should they have large-scale losses, and worry that removing the guarantee would damage Fannie and Freddies share prices.
Other proposals include creating a single regulator instead of one apiece for Fannie, Freddie, and the Federal Home Loan Banks and establishing stricter controls on any new products Fannie and Freddie develop.
Most analysts say the bill has no chance of passing. But Mr. ODonnell said that the possibility of its passage, however slim, probably will nag at investors enough to keep prices for Fannie and Freddie in check until the heightened and exaggerated political concerns recede.
Mr. ODonnells new target for Fannie shares is $73, down from $80. For Freddie, the new 12-month target is $65, down from $68. If Fannie shares meet his revised price, they would still post a 30% gain. For Freddie, his target price represents a 45% gain.