Last week, the Office of Federal Housing Enterprise Oversight announced that Fannie Mae has met its Sept. 30 deadline to reach the required 30% capital surplus target. Now the next question becomes: What will Fannie Mae do next?
David Montano, head of mortgage research at JPMorgan Securities, noted that Fannie Mae merely exceeded its capital surplus target by $752 million, suggesting a "very low probability" of portfolio growth in the near term. Montano is expecting another $15 billion portfolio decline in October to increase the GSE's capital cushion to "a more comfortable level." Additionally, Fannie Mae and Freddie Mac portfolio sizes are converging, which could have important implications for PC Gold and FNMA swaps, Montano said.