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Analyst Sees Little Risk for Fannie Mae

A.G. Edwards & Sons analyst Matthew Park said his company is maintaining its buy rating, despite recent controversies and uncertainty, because Fannie Mae is expected to continue playing a value-added role in the large and politically sensitive residential mortgage market. In a report, he also said that at current prices, the stock offers "an attractive risk-reward tradeoff."

"We believe that Fannie Mae will emerge from its current accounting controversy as a better-capitalized company that can deliver attractive returns on shareholders' equity, most likely at the expense of a reduced growth rate of its assets," the report said.

As far as regulatory reform for the government-sponsored enterprises is concerned, A.G. Edwards believes that drastic changes are unlikely because they could result in "destabilization of the commercial and mortgage banking industries."

The analyst predicts that regulatory reform likely to be implemented next year will largely reflect what the Bush administration called for this year.

Slowing down the growth of portfolio assets at the GSEs may have a "near-term negative impact on earnings" but is unlikely to dampen long-term growth prospects significantly, Mr. Park said.

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