Markets favor BofA, Fannie and Freddie in light of refinancing speculation

January 06, 2012 12:45PM

From left: BofA CEO Brian Moynihan and the Fannie Mae building

Bank of America and Freddie Mac and Fannie Mae mortgage bonds were the big winners from a Federal Reserve housing study that circulated through Congress this week, Bloomberg News reported, while mortgage bonds backed by high-cost debt lost in a massive market-shakeup.

The Fed’s study concluded that an economic recovery was dependent on a stronger housing market, and urged Congress to support cutting mortgage obligations for U.S. homeowners, it was reported yesterday. Adding fuel to that fire, a policy analyst theorized that President Obama would install a new housing advocate for the Federal Housing Finance Agency.

Speculation that these events would compel the government to introduce a new mortgage refinancing program spurred a 50-cent, or 8.6 percent, gain in shares of Bank of America, marking the bank’s best day in more than two months. BofA has been pummeled by bad mortgages in recent months, and a new program could help the bank move past those issues.

Meanwhile, yields declined 4 basis points on Freddie Mac and Fannie Mae loans, thanks to refinancing speculation, and increased on high-cost debt obligations. Home refinancing hurt holders of mortgage bonds, as less debt is collected, but the smaller yields of the notes typically indicate a stronger faith in their value. [Bloomberg] and [Bloomberg]