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Christopher DeMaria
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Christopher G. DeMaria is a member of the Global Community. Having lived abroad for more than 18 years, he studied in South America, Europe, Southeast Asia and the United States. Chris is an Investment Advisor Representative with Kovack Investment Advisors, Inc., with nearly 16 years of... More
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DeMaria Financial Services
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Investing Examiner
  • Fannie Mae, Should It Go Away? 2 comments
    May 27, 2014 1:02 PM | about stocks: FNMA, FMCC

    Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) have returned to the headlines over recent weeks as the debate over their futures have picked up some momentum. Some suggest that these entities were responsible for the housing market crash and consequently should be abolished. Others suggest that these government sponsored entities play a key part in housing market liquidity and that we need them to maintain stability in the markets. Whether you're a consumer, bank, mortgage broker or an investor, you probably played a part in the entire housing boom and bust.

    The federal government is partially responsible for easing lending standards, pushing adjustable rate mortgages, and consequently inflating the housing market in an effort to increase home ownership in America. Increasing home ownership sounds like a good thing but, in the end the costs were devastating to our economy. Fannie and Freddie are/were essentially victims of moral suasion and ultimately, were left holding the bag. This was a perfect example of "good intentions gone wrong" and to some degree, the cycle is starting over again with the government pushing HARP/HAMP programs. Although, these programs are designed to reduce requirements to help people save their home rather than speculate on a home they may not be able to afford.

    The consumer was/is partially responsible for overextending their financial resources with an infinite number of individual goals and needs for borrowing. During the boom there was an abundance of cash available from home equity for paying bills, purchasing vehicles, or even investment properties. Once the tides turned, access to money dried up almost overnight and the many consumers started to run into financial trouble.

    The banks and mortgage brokers were partially responsible for pushing products (like ARM's) that many people didn't thoroughly understand the risks of. Some of the mortgage brokers didn't even understand the actual risks at the time but, did they do anything wrong per se? In most cases, they were doing their job and helping people with their housing finance needs. Could they have done a better job? Maybe.

    Fannie and Freddie were doing what they were supposed to be doing by purchasing portfolio's of loans from banks, securitizing the portfolios and selling them as mortgage backed securities to investors. Fannie and Freddie were essentially doing what they were supposed to do as well.

    In the end, we should ask ourselves who was guilty of the collapse?:

    1) the consumer, wanting to borrow large amounts
    2) the mortgage broker, wanting to sell loans
    3) the bank, wanting to sell loans
    4) Fannie/Freddie, wanting to repackage and securitize your loans
    5) the federal government, wanting to increase home ownership in America by easing standards

    The answer is all of the above. All of us are guilty but you know how we love to find a scapegoat or a "witch trial" to pass on blame in our great nation. In the end, this is about people needing to take more personal responsibility for their own actions, whether at home, work, or in public. The lack of responsibility occurred at all levels and the problem wasn't a greedy bank or government sponsored agency, it was all of us.

    With all the new banking regulations in place, I am of the opinion that the government has done enough in the interim to reverse and potentially prevent another housing bubble and subsequent collapse. It is more difficult to purchase a home now than prior to the market collapse and the current lending standards are probably where they should have been 10-15 years ago. If Fannie and Freddie are removed from the housing market equation, our nations credit markets would face substantial liquidity strains and we would risk stalling the housing recovery.

    So the answer to the question "should Fannie Mae go away?" is a resounding No Way!

    The information contained in this report or information provided does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation of an offer to buy or sell any security referred herein. Past performance may not be indicative of future result. No buy or sell orders may be given using the email, please call the above number to contact your Advisor. Christopher DeMaria is registered with and securities offered through Kovack Securities, Inc. Member FINRA/SIPC. 6451 N. Federal Highway, Ste 1201, Fort Lauderdale, FL 33308 (954) 782-4771. Investment Advisory services are offered through Kovack Advisors, Inc. DeMaria Financial Services is not affiliated with Kovack Securities, Inc. or Kovack Advisors, Inc

    Disclosure: I am long FNMA.

    Stocks: FNMA, FMCC
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  • Investor RockieK
    , contributor
    Comments (928) | Send Message
    Bravo Zulu Mr. DeMaria. Excellent comments.


    Now if we could just get them re-listed.
    27 May 2014, 01:11 PM Reply Like
  • Christopher DeMaria
    , contributor
    Comments (68) | Send Message
    Author’s reply » Thanks to other sources such as financial news, GSE corporate SEC filings, , , and my own investigation into the matter. There are far to many variables at play to include in one article including:


    1) Status on the 2 court cases (Fairholme and Perry)


    2) DTA assets, "putbacks", versus actual earnings from operations (which are positive)


    3) Detailed explanation of how government and banking policies translated into lower restrictions on lending standards in an attempt to increase home ownership in America. How those poilicies lead to the financial crisis, and how the reverse has been occurring since the crisis (in a bad way for a housing market recovery).


    4) Lessons to be learned and why the politically driven decisions cannot be allowed to be repeated if and when the GSE's are released or even if they're not released. In my opinion, there is a greater likeliness of these mistakes to be repeated if these entities are completely controlled by government rather than having the implied backing of the government as publicly traded companies.


    5) Actions by the conservatorship and some of our political leaders that appear to be repeating some of the mistakes of the past.


    6) Even though the payments/earnings sweeps are/were considered a dividend, the GSE's have fully repaid the Federal government and then some (In my opinion taxpayers will never see a penny of it despite certain government officials saying it's the taxpayers money).


    7) The GSE cases have more to due with our freedom and liberties as a nation. This is not just about shareholders and potentially making profits. A failure to release these entities would suggest that we are moving towards a point where the people are no longer holding their government accountable for its actions. A great quote from Jeff Atwater, Florida's Chief Financial Officer, comes to mind:


    "Our Constitution, and the subsequent Bill of Rights, enshrines the specific liberties that Americans recognize as coming from our creator. It also defines a clear system of limits and accountability for government. But somewhere along the way, the roles of accountability are being reversed.


    The absolute truth that a free people must hold their government accountable is being rejected by some and replaced by a failed idea that citizens ultimately answer to government."


    I am hoping to publish another article addressing the above listed issues and I do believe that the banks, and our politicians do inherently have a much greater level of responsibility in this matter than the individual, the mortgage broker, etc. Furthermore, some of our politicians appear to attempting to wrongfully place blame on the GSE's rather than on their own failed policies.


    The issue of responsibility has become a cultural problem and I often lament, how can good, moral, and responsible leaders rise out of a culture that doesn't value such things. So yes, even though the government and banking institutions were in a position of greater inherent responsibility, they were brought up in a culture that is losing its sense of personal accountability and responsibility. This is a bottom up problem and it we need to address it by looking at our own actions and families and how we interact with others. Those of us who who want to keep our freedom have a great responsibility to do good and if we can't, we just might deserve a government that tells us what to do.


    In conclusion, we are all to blame but, we cannot allow our leaders to pass blame on the GSE's for their policy-making failures. This is more than just a shareholder case. This is about our liberty, freedom, and our need to take responsibility before we lose that right.
    9 Jul 2014, 09:11 PM Reply Like
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