Mizuho's Coverage Initiation#

Mizuho has officially started its coverage of Freddie Mac, a key player in the U.S. housing finance market, with an 'Outperform' rating. The firm has set a price target of $9.00 for the stock, which is currently trading at $7.78. This suggests a potential upside of about 14%. Notably, Freddie Mac's stock has seen a significant increase of nearly 15% over the past week.

Importance of Freddie Mac and Fannie Mae#

Freddie Mac, along with Fannie Mae, plays a crucial role in the U.S. secondary residential mortgage market, which is valued at approximately $14.3 trillion. These government-sponsored enterprises guarantee around $7.7 trillion in residential mortgages and reported a combined net income of about $25 billion in fiscal year 2025. Mizuho describes their core business as a fee-based and asset-light operation, supported by the U.S. government.

Future Scenarios for Conservatorships#

Mizuho outlined two potential scenarios regarding the future of Freddie Mac and Fannie Mae's conservatorships, which were established after the financial crisis. The first scenario, termed a "fast exit," would involve a 2.5% capital requirement and repayment of the government’s senior preferred shares. The second, a "slow exit," would have a 4.5% capital requirement with those shares still outstanding. Mizuho estimates a 30% chance for Fannie Mae and a 20% chance for Freddie Mac to achieve a fast exit by 2028.

Recent Developments in Mortgage Rates#

In related news, Freddie Mac has reported slight fluctuations in mortgage rates. The average rate for a 30-year fixed mortgage is now 6.37%, down from 6.46% the previous week. The 15-year fixed mortgage rate has also decreased slightly to 5.74%. Additionally, Freddie Mac and Fannie Mae will begin accepting mortgage loans evaluated using VantageScore 4.0, moving away from traditional FICO scoring models. This change has affected major credit rating companies, resulting in declines in their stock prices. Investors should keep an eye on these developments as they may influence the housing and finance sectors.