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David Sims
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David Sims is a full-time independent analyst and contributor on popular investment sites such as Seeking Alpha. David covers distressed equities and activist investing campaigns most recently. In the past, covered topics included covered call trading and the housing market. David is Certified... More
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  • Who Is The Coalition For Mortgage Security?

    Just as Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) shareholders begin their decent into Washington D.C. to support the Investors Unite coalition, a new coalition calling themselves the Coalition for Mortgage Security (CMS) has announced their presence.

    When asked a few questions about the organization, a spokesperson gave the following general remarks:

    CMS is advocating for the government to reverse course and abide by the original terms and choices that it originally made: that private capital was not going to be wiped out in Fannie or Freddie, just as it wasn't wiped out in AIG or the banks that took TARP. We are advocating that the government makes sure that taxpayers are paid back, in full, with interest. Keep the 80 percent rate of ownership that the government took as the price of intervention. And honor the rules of law, fairness, and common sense that underpin our economy - that with risk comes reward."

    The coalition launched today, but CMS has spent months building the coalition and preparing for our launch. As the discussion around the Crapo-Johnson legislation heats up, there will be a robust debate about the best way to reform our housing finance system. We believe CMS will help shape the debate in a bipartisan, constructive manner and that our principles offer a blueprint for reform."

    Ken Blackwell, a former undersecretary at the Department of Housing and Urban Development, former Ohio State Treasurer and former mayor of Cincinnati, serves as a Director of CMS and we will be adding and announcing more Directors and advisers as the coalition continues to make its voice heard on this critical issue."

    For those that are interested, Ken Blackwell is a Republican.

    What does this mean for Fannie and Freddie shareholders?

    Having Republicans and Democrats fighting for shareholders means that they have a chance for survival. It also means that this political debate will be extended and new meaningful changes will be made to the legislation in Congress.

    From the CMS website, the organization appears to be advocating the Sallie Mae (SLM) style of wind-down, where the organizations are made private and their charters would be removed. History shows that shareholders in the Sallie Mae transformation faired very well and survived all of the changes to the structure.

    The Sallie Mae Privatization Act of 1996 started the long process of removing Sallie Mae's charter. Shareholders were given the option of converting their shares to an entirely new private company, or a complete liquidation. Shareholders chose to continue existing as a private entity.

    During the next five years, during the transition phase, the new private entity's earnings grew three-fold and stockholders were rewarded for taking part in the plan.

    Disclosure: I am long FNMA, FMCC.

    Tags: FNMA, FMCC, SLM
    Apr 07 3:25 PM | Link | Comment!
  • Shareholder Interviews From March 2014

    This is going to be a new project. Shareholders seeking a voice through the web are going to be interviewing and responding to questions on Conservatorship and events after September 2008.

    Interview with Frank M. Fosco, Jr., March 28, 2014

    Listen to this video here.

    Interview with Anonymous Shareholder, March 31, 2014

    Listen to this video here.

    More interviews are coming.

    Disclosure: I am long FNMA, FMCC.

    Tags: FNMA, FMCC, Economy
    Apr 04 12:56 PM | Link | Comment!
  • The Shockingly Idiotic Johnson Crapo Bill

    As you might have seen, the latest Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) Reform bill caused quite a stir over the past couple of days. Shares of the two mortgage giants peaked at around $6.35 per share on March 11th, prior to the release of a mortgage industry reform bill by Senators Johnson and Crapo. After the release of the bill, shares dove to $3.14 per share.

    Barry Ritholtz, chairman and CIO of Ritholtz Wealth, called the Johnson Crapo Bill an "idiotic proposal" and criticized the politicians for "beating the same dead idiological horse." Industry experts were shocked by the proposal and completely caught off guard.

    Matt Levine brings up an interesting point brought by the new bill.

    "The other question is where you raise the $450 billion of new capital for private mortgage insurers. Now it happens that a lot of people are in fact clamoring to provide new capital to private mortgage insurers. Unfortunately, those people are doing their clamoring in the form of owning Fannie and Freddie stock, and whining/suing/lobbying to try to get paid for that stock. Those people are considerably more likely to be interested in capitalizing the new system if they can, in effect, "credit bid" their existing preferred stock at some value other than zero. And it will be considerably harder to get private capital in the new system if there's a recent precedent of let us just say arbitrarily zeroing the last guys who provided private capital to the system."

    Within 24 hours of the crash, Ralph Nader went on CNBC to advocate for shareholders and suggest the public utility model. He also said that unless the powerful lobbyist groups support the bill, it is "dead in the water." Interestingly enough, Senator Mark Warner also went on CNBC and was heard saying that he believed the shareholder's claims against the government for the Net Worth Sweep had merit!

    The famed Bill Maloni weighed-in by saying "nothing revealed with the Johnson-Crapo announcement, no set of principles, no draft bill, can change what the courts will need to decide in the multiple and massive cases against two Treasury Departments and the Federal Housing Finance Agency over the original [Fannie Mae and Freddie Mac] Conservatorship and the subsequent major alteration in how [Fannie and Freddie] return money to the U.S. Treasury."

    All the action has inspired shareholders to create yet another petition on Ralph Nader's recent petition got more than 1,000 signatures. It should be interesting to see how many this latest petition brings.

    The key takeaway here is that fundamental reasons for holding the stock have not changed. Discovery in the Fairholme Funds vs The United States case begins March 20, 2014.

    Disclosure: I am long FNMA, FMCC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Mar 13 7:31 AM | Link | 1 Comment
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