Why Fannie Mae and Freddie Mac Stock Jumped 11% Today

Shares of Fannie Mae (NASDAQOTH: FNMA) and Freddie Mac (NASDAQOTH: FMCC) are up by more than 11% as of 3:10 p.m. EDT, after six Democratic senators wrote a letter to Treasury Secretary Steven Mnuchin and Federal Housing Finance Agency Director Mel Watt, asking them to address Fannie and Freddie's low levels of capital. The senators wrote to ask that the officials consider allowing Fannie Mae and Freddie Mac to retain some of their earnings as a buffer against future losses, while leaving the door open for allowing the government-sponsored enterprises (GSEs) to exit conservatorship.

The letter addresses the Preferred Stock Purchase Agreements between Fannie Mae, Freddie Mac, and the Treasury Department. Specifically, the letter details the senators' shared concern that Fannie Mae and Freddie Mac, which insure trillions of dollars of residential mortgages, will soon operate without any cushion against losses due to these agreements.

Under the agreements, Fannie Mae and Freddie Mac send all of their income to the Treasury Department, ultimately "leaving two entities that back more than $5 trillion in mortgage debt with zero retained capital reserves beginning on January 1, 2018," according to the letter.

Source: Fool.com