Traditionally speaking, penny stocks are risky stocks to buy. Their low price, low liquidity, and potential for scams is no secret to even novice investors. But in this regard, there is something to be said about a sound list of penny stocks. Let’s face it, who can ignore the potential to invest a small sum of money with the possibility of generating handsome returns.
Just this year alone we saw several stocks that now trade at $6 or more start out below $3 a share. Based on the definition of penny stocks, this level fit the bill to a “T.” For the most part, penny stocks are small start-up companies. But in the stock market today, you can’t ignore long-standing firms that simply just trade at lower prices.
Penny Stocks & Mortgage Giants
Just look as far as the mortgage industry. Back during the financial crisis Fannie Mae (FNMA) and Freddie Mac (FMCC) were at the heart of one of the worst breakdowns in history. They both are also publicly traded. Currently, shares of these two are considered penny stocks. But they’ve both had considerable moves this year.
If you look in the news from the stock market today, you’ll see a few headlines that could contribute to the momentum. A Trump administration housing-finance roadmap was released last week. The premise is to allow the government-controlled companies to remain at the center of the American home-ownership system. Washington reluctantly recognized the difficulty of replacing institutions that could do the same things as Fannie and Freddie.
The report clears a path that would give the firms back to private ownership and out of government control. However, privatizing Fannie and Freddie could prove to be complicated because of their perceived government guarantee. The argument is that privatization could lead us back to the root of what caused the first financial crisis. With the companies facing pressure from shareholders or the government to take on too many risks.
Stock Market Today: FHFA Steps In
The FHFA (Federal Housing Finance Agency) will push up the caps on the number of multifamily loans Fannie Mae and Freddie Mac can buy in 2020. They’ll also close some of the loopholes that have persisted over the last decade or so
The Federal Housing Finance Agency will limit Fannie and Freddie to buying $100 billion in multifamily-housing residential loans. This will be between the last quarter of the year and 2020. This could be seen as a big win for the two. Previous to this, the caps sat at $35 billion a piece. These caps were put in place originally in hopes to support liquidity in the multifamily market. They also served as a backstop against private capital being pushed aside.
The FHFA also revised a few things. Mainly, the revisions focused on how the firms do business for multifamily loan deals. There will now be requirements to have more than 35% of multifamily business directed toward affordable living deals.
When we ask the question, “Are penny stocks worth the risk?” it all depends on which penny stocks you have on your watch list. In this case, FNMA and FMCC, though penny stocks, have far more going on for (and against) them than your typical microcap. Due to the latest news, they could also be some of the top penny stocks to watch this and next quarter.