Fannie, Freddie get first bull on Wall Street in Deutsche Bank

Federal National Mortgage Association and Federal Home Loan Mortgage Corp. received their first buy recommendation from Wall Street on Thursday, as Deutsche Bank said the stocks' dizzying rally can go further on expectations the mortgage giants will possibly be released from government control in the near future.

Fannie Mae shares have jumped more than 320% year-to-date and Freddie Mac shares have surged 288% for the same period. While both were delisted from the New York Stock Exchange in 2010, their shares are bought and sold over the counter, where trading is often volatile.

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We "see attractive upside for both stocks as the companies near a likely recap and release," Deutsche Bank analyst Mark DeVries wrote in a note. The bank gave the stocks buy ratings, the first ones among analysts tracked by Bloomberg. It set a price target of $20 for Fannie Mae and $25 for Freddie Mac.

Fannie Mae shares rose as much as 3.7% on Thursday in New York, and Freddie Mac jumped 5.5%.

President Donald Trump's administration is considering selling shares of both companies in an offering that could start as early as this year. Federal Housing Finance Agency Director Bill Pulte said earlier this month that Trump administration is looking at offering about 5% of each entity.

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However, key Senate Democrats are pressing the administration to hold off on these plans in order to study how the move would impact mortgage rates. Congressional efforts to free Fannie Mae and Freddie Mac have repeatedly failed on these concerns and on the companies' commitment to affordable housing. The federal government had bailed out the companies in September 2008 to prevent steep losses during the financial crisis. 

Despite his optimism, Deutsche Bank's DeVries cautioned of a "meaningful downside if the recapitalization process brings greater-than expected-dilution," adding that "buying the outstanding common shares is not for the risk-averse."

Fannie Mae and Freddie Mac's OTC stocks are quoted on the OTCQB Venture Market, which has relatively minimal requirements compared to major exchanges.