Mizuho downgrades Fannie Mae and Freddie Mac to Neutral, halves price targets as privatization hopes fade
What happened
Mizuho analysts Dan Dolev, Eyal Ben-Eliyahu, and Alexander Jenkins downgraded Fannie Mae (FNMA) and Freddie Mac (FMCC) from Buy to Neutral on Monday, October 12, cutting Fannie Mae's price target to $5 from $10 and Freddie Mac's to $4 from $9 — reductions of at least half. The team cited three headwinds: higher mortgage rates (around 7.5%), which make privatization 'more complicated politically'; FHFA Director Bill Pulte's position that the GSEs should buy more mortgages to hold on their balance sheets, slowing the capital accumulation needed for release from conservatorship; and recent changes to the mortgage credit-scoring system (VantageScore and the 'bi-merge' reintroduction). Both stocks sank about 12-13% on Monday, with Fannie Mae on pace for its lowest close since early January 2025 and Freddie Mac for its lowest since late December 2024.
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Who’s affected
- Fannie Mae (FNMA) — direct target of downgrade and halved price target
- Freddie Mac (FMCC) — direct target of downgrade and more-than-halved price target
- Housing-finance and mortgage sector — privatization-delay read-through; mortgage REITs, insurers and banks with housing exposure indirectly exposed
- Homebuilders and rate-sensitive housing plays — higher-for-longer mortgage rates are one of the downgrade drivers