Fannie and Freddie's Stuyvesant Town Holdings: Not in Taxpayers' Interest

Stuyvesant Town in NYC looks like a default about to happen. This was a $5.4 billion mega RE deal from November of 2006. There is a $3 billion 1st mortgage. I think that Fannie (FNM) and Freddie (FRE) own close to half of that.

The following is from a 2007 Wachovia prospectus. This shows that of the $3b mortgage $1.5 bil was taken down by ‘Watchoveryou” (AKA Wells Fargo (WFC)) and later put into this $7 billion CDO (garbage). The balance was structured as a bond that ranked pari-passu with this mortgage. Those bonds made it to the government mortgage agencies.



Bloomberg quoted a Freddie Mac spokesperson as saying, “Freddie Mac doesn’t expect to lose money on the bonds backed by the property.” Let’s hope so, but the following doesn’t make me feel good that a $3b mortgage is money good: Link


Two questions come to mind. The first is, “How is it that the GSE’s bought this paper in the first place? The second, more important issue, “How much more of this kind of stuff do they have?”

Stuyvestant Town does provide rent controlled housing, but the 2006 transaction had nothing to do with achieving the Country’s housing objectives. The business plan from the new owners (Speyer/Blackrock) was to get the old rent controlled tenants out as fast as possible and then raise the rents and condo-ize units to pay down the loans. There is no justification for Fannie and Freddie to have financed that process. The motive was to leverage up their balance sheets and generate fee-based revenue. There was never sufficient income to service the mortgage debt. A $400 mm reserve was set up to cover the shortfall. That account is now empty. This was a bad loan from the get-go.

On the issue of how much else is there? We don’t know. The following from F/F just raise questions.




The Administration will address the GSE’s in the coming months. The path for the mortgage agencies and the government’s future role in the mortgage market is up for discussion. Possibly the process should start with a list of what the GSE’s did that was not in the interest’s of the taxpayers.

Comments

[Socialism c...:]

There should not BE any GSEs!!! This big government and socialist interference in housing (and other sectors) has GOT to end!!! Bankers are being blamed, when in fact it was big government and socialism that brought down housing...and thus banks:

online.wsj.com/article...

Nov 11 01:17 PM

[djackson:]

Stuy Town/Cooper Village is chump change for these guys. Earlier this week via Bberg I came across the fact that Fannie filed a claim of $15.8B against the estate of Lehman. Match that up with the fact that their only writeoff on Lehman was $880M in Q3 '08 and one can forecast something approaching another $15B hit coming their way. Who cares about a measly one or two billion here and there when you play in the Fan/Fred sandbox with Timmy and Barney making sure nobody kicks sand in your face?

Nov 11 03:31 PM