Late Wednesday, Fannie Mae (FNM) confessed that delinquencies on loans in its single-family guarantee business increased to 5.38% in December, marking a steep increase from 2.42% in December 2008. The multifamily delinquency rate arrived at 0.63% for the final month of 2009, compared to 0.30% in December 2008.
Additionally, Fannie Mae reported that its mortgage investment portfolio contracted by 44.8% to $735.2 billion in January
This news follows on the heels of a $16.3-billion fourth-quarter loss for Fannie Mae, which is seeking an additional $15.3 billion in aid from the U.S. Treasury to stay solvent. The mortgage lender, along with sibling company Freddie Mac (FRE), was taken over by the U.S. government at the peak of the financial crisis in September 2008.
Shares of Fannie Mae edged into positive territory Thursday, but the stock continues to be stifled by key technical resistance near the $1 area. This region is home to the equity's 10-week and 20-week moving averages -- a trendline duo that hasn't been bested on a weekly closing basis since early October 2009.
Judging by the stock's open interest configuration, traders have very low expectations for the bailed-out mortgage titan. Puts outnumber calls by a margin of 1.81 to one among options slated to expire within three months, and the most heavily populated strike in the March series is FNM's at-the-money March 1 put. This strike carries hefty open interest of 123,661 contracts, suggesting that many traders expect the shares to backpedal during the coming weeks.
Short sellers are also bearishly aligned, as shorted shares account for no less than 11% of the equity's float. At FNM's average daily trading volume, this translates to more than nine days' worth of pent-up buying pressure.
Elizabeth Harrow is a senior equities analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.