Investors Are Counting on a Big Rally in Fannie Mae Stock. Why This Analyst Warns One May Not Be Coming.
September 26, 2025 | by ltcinsuranceshopper
Fannie Mae (FNMA) has been grabbing a lot of attention on Wall Street as optimism rises over reports that President Donald Trump’s administration is considering releasing both Fannie Mae and Freddie Mac (FMCC) from federal conservatorship and possibly taking them public through an IPO (current shares are traded over-the-counter). Fannie Mae, which bundles and guarantees mortgages, has stayed under government control for nearly two decades, relying on its government-backed guarantees to shield investors from potential losses.
Investors have long debated the fate of these government-sponsored enterprises (GSEs), which have remained in federal conservatorship since the 2008 financial crisis. In fact, ever since that economic downturn, some investors have wagered that policymakers would eventually privatize Fannie Mae and Freddie Mac, driving the value of their shares significantly higher. However, while the prospect of privatization has sparked enthusiasm, not all analysts are on board.
With Keefe, Bruyette & Woods (KBW) recently maintaining its “Underperform” rating on Fannie Mae, citing caution for common shareholders, here’s a closer look at FNMA.
Fannie Mae, formally known as the Federal National Mortgage Association, is the heart of America’s housing market, helping millions of families turn the dream of homeownership into reality for almost 90 years. Fannie Mae purchases mortgages from lenders and bundles them into mortgage-backed securities, keeping credit flowing and making homes more accessible, as well as making refinancing easier for homeowners.
With $178 billion in liquidity injected into the housing market, helping over 668,000 households in the first half of 2025 alone, and $4.3 trillion in assets, Fannie Mae stands at the backbone of the U.S. housing finance system, delivering homes, security, and opportunity. Its sibling, Freddie Mac, complements this mission, supporting both home loans and rental housing to keep the U.S. housing market strong and resilient.
Fannie Mae, however, is the larger of the two, with a market capitalization of approximately $15.1 billion. Investor excitement has surged as discussions about its potential privatization heat up, sending shares on a remarkable run. Over the past year, FNMA has delivered a staggering 953% return, and this year alone, the stock has climbed another 298%, reflecting Wall Street’s growing optimism and the high stakes surrounding its future.
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On July 30, Fannie Mae dropped its fiscal 2025 second-quarter earnings report, showcasing stability amid market fluctuations. The company reported net revenue of $7.2 billion, remaining nearly flat year-over-year (YoY), supported by steady guaranty fee income from its vast $4.1 trillion guaranty book of business.
On the bottom line, net income reached $3.3 billion, marking the company’s 30th consecutive quarter of positive earnings, though down 26% from the year-ago quarter and 9% sequentially. The decline was primarily driven by higher provisions for credit losses, with the company recording $946 million in the quarter, reflecting lower-than-expected home price growth projections.
Management highlighted a key milestone as Fannie Mae’s net worth reached approximately $101.6 billion in the second quarter, underscoring the company’s financial strength. The company also emphasized the impact of operational efficiency initiatives, which helped cut its administrative expenses by 15% since Q1, generating $256 million in non-interest cost savings.
Fannie Mae also continued to bolster the housing market, providing $102 billion in liquidity to support approximately 381,000 home purchases, refinancings, and rental units. These efforts ensure lenders have the capital needed to keep the mortgage market active and accessible, sustaining stability across the U.S. housing ecosystem.
Importantly, the company remains committed to first-time homebuyers, with 52% of home purchase mortgages acquired going to new buyers. This focus underscores Fannie Mae’s mission to expand access to homeownership while reinforcing its role as a cornerstone of the U.S. housing finance system.
KBW has recently reaffirmed its “Underperform” rating on Fannie Mae and also Freddie Mac, citing potential dilution risks for common shareholders if privatization moves forward. The firm expects Government-Sponsored Enterprise (GSE) privatization to begin in early 2026, with the chances of success having “increased meaningfully over the past six months.”
Analyst Sanjay Sakhrani highlighted that President Trump has publicly voiced his goal of taking the companies public, supported by other administration officials. While the privatization process is likely to proceed through administrative channels rather than Congress, congressional hearings could still occur once it is underway.
KBW also noted that preferred shareholders are in a stronger position, as their shares aren’t directly exposed to dilution risk. In fact, preferred shareholders can potentially hold up the process if they aren’t offered agreeable terms, giving them more control over how privatization unfolds compared to common shareholders.
Overall, Wall Street has largely taken a cautious, wait-and-see approach to Fannie Mae, reflected in its consensus “Hold” rating. Among the five analysts covering FNMA, opinions are clearly divided. Only one analyst sees it as a “Strong Buy,” two recommend a “Hold,” one leans toward a “Moderate Sell,” and another has issued a “Strong Sell.”
As of the time of writing, FNMA stock trades at a premium to its average analyst price target of $8.75. However, the Street-high target of $20 suggests that it can still climb as much as 53.9% from the current market price.
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On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
