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Stock of GSEs is a zero says Lockhart

  • "It's a stretch," says former FHFA chief James Lockhart of those investors who have bought up the stock of Fannie Mae (FNMA) and Freddie Mac (FMCC) hoping to profit should government lift its thumb off the companies. "The (common) stock and the preferred is worthless and should be worthless."
  • Lockhart is now vice chairman at WL Ross & Co, where they know a thing or two about distressed securities.
Comments (31)
  • dgfurr
    , contributor
    Comments (64) | Send Message
     
    There is a reason he is the former regulator, Demarco was smarter. This is the guy that will say anything to justify his part of the theft of the GSE's by the Bush Administration. They were not then and are not now worthless. He should be prosecuted as an accessory to mega fraud and grand theft. The GSE's were victims of bank fraud and have now recovered some of those funds. The government is now paid back and he works for an industry that would love to see them killed. Good luck with that. Even if they can wind them down, their actions constituted theft and we should be compensated for that. He should just go away and paint pictures. Maybe he is an artist too. HA
    4 Apr, 09:43 AM Reply Like
  • abovegod
    , contributor
    Comments (37) | Send Message
     
    Why is the government selling shares in Fannie & Freddie if the stock is "worthless"? Wouldn't that be fraud?
    4 Apr, 09:50 AM Reply Like
  • DarylS
    , contributor
    Comment (1) | Send Message
     
    It would be interesting to see what Mr Lockharts stake is. Can you say MANIPULATION???
    4 Apr, 09:58 AM Reply Like
  • Profitcripper
    , contributor
    Comments (47) | Send Message
     
    They should been delisted since 2012 but they continue to steal taxpayers money for a hefty payday as usual. Now you know why some people don't pay taxes. WHAT A GRAND THEFT OF MASS PROPORTION right from under our noses and didn't have the heart to warn us.. I smell a MADOFF SAGA in the making.
    4 Apr, 10:05 AM Reply Like
  • elmotrip52
    , contributor
    Comments (5) | Send Message
     
    WL Ross certainly knows about the U.S. Bankruptcy Code; however, their is no mention of Conservatorship or Receivership in the Code. The GSE's are not in bankruptcy. This is ultimately about Constitutional Law and why Perry Capital hired Teddy Olsen, a constitutional law expert, rather than a bankruptcy attorney to present its case.
    4 Apr, 10:07 AM Reply Like
  • daro
    , contributor
    Comments (1537) | Send Message
     
    That is correct. the government took over these companies and never bothered to buy out or enact a buyout to get the stock of the company. now that the companies are making money, they have to 1) terminate their conservatorship and 2) if they want to terminate the entities, they need to pay for the stock.
    4 Apr, 01:38 PM Reply Like
  • trooper273
    , contributor
    Comments (2) | Send Message
     
    I guess I am a little slow on the uptake. The gses have paid all the the monies that were used to bring them back on line they are now turning a large profit. To me they have fulfilled there end of the bargain. The government in turn has decided to keep this pearl and stiff the share holders. I would like to hear what Lockhart has to say as far as specifics, not just global statements about "worthless stocks" Bill H.
    4 Apr, 10:07 AM Reply Like
  • divStrong
    , contributor
    Comments (152) | Send Message
     
    Mr Lockhart's opinion is worthless.

     

    The cognitive dissonance of these ex-administration officials is astounding. It was under his watch as chairman of the FHFA oversight board that these institutions were molested and driven to conservator-ship, and now he has the gall to call them worthless?

     

    Even scarier is the idea that a private equity firm would actually hire such an epic failure which reeks of a quid-pro-quo...
    4 Apr, 10:11 AM Reply Like
  • cocomojo
    , contributor
    Comments (2) | Send Message
     
    This whole deal stinks of nationalization of private property. When the bailout funds have been paid back with the 10% interest included in the original loan agreement the government should step aside. Looks like they have found a cash cow that they either want to keep on milking or slaughter and eat themselves.
    4 Apr, 10:14 AM Reply Like
  • divStrong
    , contributor
    Comments (152) | Send Message
     
    Here's some history for those unfamiliar:

     

    'Lockhart also oversaw a troubling period at Fannie Mae and Freddie Mac as they marched into riskier lines of business, including subprime loans and other risky mortgages, that turned out to be their undoing. Even in the months before the companies were seized, he suggested that they were in sound financial shape. "We could have done more in retrospect, but we didn't have the powers until we got the legislation," he said.'

     

    http://wapo.st/1dXY0m1
    4 Apr, 10:17 AM Reply Like
  • philipmax
    , contributor
    Comments (251) | Send Message
     
    Agreed! Lockhart is lucky he is not under indictment for malfeasance and robbery of public funds. What was his salary when head of FHFA? Where was he? Why did he wait five years to warn the public? And as you point out, he was the lead cheer leader to mislead thi country in this predicament.
    4 Apr, 10:39 AM Reply Like
  • Iansboat
    , contributor
    Comments (2) | Send Message
     
    Its seems as though the big reason of the stock turnaround is investors, be it the government or public. Second, those stocks are being traded with the government retaining its share and those profits,rather than privatizing. The car companies have yet to pay off their bailout, but there is no talk of dissolving those. Another big reason of the turnaround is the lack of government involvement and new regulators that have sought repayment for bad loans and instituted new guidelines for making loans. This was to stem the government, which under Clinton/Bush required Frannie to provide loans to people who really couldn't afford them (The idea that everyone should own a home regardless). If it makes any sense to start a new governmental financial agency, I'd like to know what that is.

     

    Finally, a publicly traded stock it must be listed, allowing positive gains and can't be restricted from profits. I think the SEC would have a hard time with comments made by Lockhart.
    4 Apr, 10:18 AM Reply Like
  • Daveintexas
    , contributor
    Comments (5) | Send Message
     
    How do these people (Lockhart) ever get a job in any position of power?
    4 Apr, 10:18 AM Reply Like
  • Jonathan Bluhm
    , contributor
    Comments (395) | Send Message
     
    Look people, as angry as this makes you - he's 100% right on this quote. FNMA and FMCC are as worthless as the paper your brokerage statement is printed on. Don't get me wrong, what the government is doing by holding shareholders hostage is ridiculous and will obviously be fought in court, but this stock is a pipe dream and the small chance that the shares are deemed worth something - the preferreds first, let alone the commons - is years down the line and lawsuit after lawsuit after congressional hearing after congressional hearing away. If you bought under $0.30 and made a killing, great for you. Sell, and enjoy your lotto winner. But if you are like the majority of holders of the common stock who bought the hype at these levels (or higher), do yourself a favor and find somewhere better to put your money. The unfortunate thing is that in this stock the risks of it all going to ZERO are very real, and outweigh the potential rewards by a lot.
    4 Apr, 11:17 AM Reply Like
  • divStrong
    , contributor
    Comments (152) | Send Message
     
    $5T in mortgage assets and $200B+ in dividends is a pipe dream? If so, pass it over here...
    4 Apr, 11:41 AM Reply Like
  • Jonathan Bluhm
    , contributor
    Comments (395) | Send Message
     
    The fact that they are under conservatorship by the government makes it a pipe dream. It's not coming back as the Fannie Mae and Freddie Mac we used to know - it's coming back as something new and different, at which time all shareholders will be out of luck. I hate to bust your bubble but read the FNMA or FMCC prospectus - in large type it specifically states the securities are not guaranteed by the government. That means you'll all be left out to dry when the govt auctions the $5 Trillion in mortgage assets off to the highest bidders, either by breaking them up into smaller asset classes or whatever. It's going to happen. If you need proof, just google the IndyMac story. Shareholders got zilch in the end. Zip. Zero. Same ole song and dance here, my friends. But good luck to you!
    4 Apr, 11:53 AM Reply Like
  • divStrong
    , contributor
    Comments (152) | Send Message
     
    Would encourage you to take a look at the terms of conservator-ship per Treasury's own specification @ http://1.usa.gov/1q73kpe

     

    Q. What is conservatorship?

     

    A. A conservatorship is the legal process in which a person or entity is appointed to establish control and oversight of a Company to put it in a sound and solvent condition.

     

    From there I would encourage you to review the fifth amendment @ http://bit.ly/1q73mND

     

    "... nor shall private property be taken for public use, without just compensation."

     

    Lastly, I would encourage you to review court cases defining the eminent domain clause of the fifth amendment which has been well established over the years @ http://bit.ly/1q73kFE

     

    As much as we all like to rag on the state of our democracy, it is still a nation of laws and the sweep amendment is without question unlawful. The likelihood of the courts gutting the precedent set by eminent domain followed by Congress effectively 'winding down' these complex institutions is the real pipe dream, and fortunately common shareholders have both the law and the fat cats on their side.
    4 Apr, 12:00 PM Reply Like
  • divStrong
    , contributor
    Comments (152) | Send Message
     
    You seem to be getting your terms mixed up as I am familiar with the IndyMac story, and that company was placed into receivership, which is a much different animal @ http://1.usa.gov/ZrxSSi
    4 Apr, 12:16 PM Reply Like
  • Jonathan Bluhm
    , contributor
    Comments (395) | Send Message
     
    I understand the difference between receivership and conservatorship. The FDIC was still the "conservator" for IndyMac, despite it being rebranded into another "private" bank. It happened much quicker in that case, but who is to say that the US Government (FHFA) won't decide to rebrand Fannie and Freddie and do the exact same thing? I think they will, and also think they will get away with it. In either case - conservatorship or receivership, the order of precedence is still the same. In accordance with Federal law, allowed claims will be paid, after administrative expenses, in the following order of priority:
    -Depositors
    -General Unsecured Creditors
    -Subordinated Debt
    -Stockholders

     

    See who is at the bottom there? Bottom line - an investment in either or these stocks is a gamble that each investor must weigh seriously, and follow closely. The risk is a much larger one than I am willing to take. The last case to be heard will be the common shareholders who rushed in and bought this year when speculation started driving these shares high. If longs think they have a case, which they obviously do looking at how many have been buying into the stocks this past year, then why were the shares riding along at pennies for so long? FNMA and FMCC have been making money this whole time, so what changed? Nothing, just hype. It seems nowadays that if you bet on government doing the right thing, you are going to lose. That's the political environment we live in now. I see no "hope" for that to "change." ;)
    4 Apr, 01:38 PM Reply Like
  • Jonathan Bluhm
    , contributor
    Comments (395) | Send Message
     
    Don't get me wrong, I've made a lot of money trading these two stocks, but owning them long term, that's not for me. This stock can still make a lot of people money by playing the weekly buy-ups and sell-offs, but the big picture is that I don't think there is a pot of gold waiting at the end of this rainbow, it won't be the storybook ending so many people are expecting.
    4 Apr, 01:39 PM Reply Like
  • divStrong
    , contributor
    Comments (152) | Send Message
     
    " ...but who is to say that the US Government (FHFA) won't decide to rebrand Fannie and Freddie and do the exact same thing?"

     

    The federal circuit courts, and ultimately the Supreme Court if Treasury presses the issue.

     

    In the event that FNMA/FMCC are wound down & re-branded - which would seem to indicate we both agree that some form of GSE housing lender must exist to keep 30 year mortgages available - shareholders still need to be compensated 'fair value' for the assumption of their property.

     

    The strike price on the warrants of $0.00001/share is completely arbitrary, and does not represent fair value. Any judge with a basic calculator can get to $8+/share based on today's SE, and if they rightfully calculate the $200B+ in dividends currently being swept in the FNMA/FMCC valuation, common holders are looking at $17-20/share minimum as fair value.

     

    Here again you claim to understand the difference between conservator-ship & receivership but then cite the order of payouts in a bankruptcy/liquidation event where a company is insolvent.

     

    FNMA/FMCC are fully solvent at this point and until the lawsuits are settled Congress lacks the authority - and in my opinion - the competence to liquidate and create an essentially identical entity to replace them.

     

    The latter outcome would be an enormous waste of resources and while I have little faith in 'hope' & 'change' as well, do believe common sense, constitutional law, and the accounts of some serious financial/political players will prevail.
    4 Apr, 02:26 PM Reply Like
  • pauljon4
    , contributor
    Comments (4) | Send Message
     
    bravo, excellently stated. beautifully simplistic.
    5 Apr, 03:46 AM Reply Like
  • s404n1tn0cc
    , contributor
    Comments (84) | Send Message
     
    Who's the reporter.
    Sounds to me that SA is bashing FNMA & FMCC. Is someone paying you guys to bash. Lockhart out of touch. Fair value for Commons is around 16.00 plus plus depending on the liquidation value. I think someone on this site posted the ratios.
    News flash...FANNIE and Freddy have been paid in full. The courts will decide if there has been any transgressions.
    Both are in Conservatorship and not receivership FANNIE AND FREDDIE WILL BE RELEASED >>HAHA
    See here.

     

    http://bit.ly/OBOV6A

     

    As quoted

     

    “The FHFA, as Conservator, may take all actions necessary and appropriate to (1) put the Company in a sound and solvent condition and (2) carry on the Company’s business and preserve and conserve the assets and property of the Company.”

     

    ALL IN OR NOTHING.

     

    CAUTION: DON'T TAKE MY POSITIONS AS ADVICE. I LIKE RISK. IT CAN BE YOUR BEST FRIEND. THE PROBLEM MAY LAY WHEN YOU CAN NO LONGER GAGE YOUR BEST FRIEND. AND ABANDON YOU. Do your own DD- Due Diligence.
    4 Apr, 11:40 AM Reply Like
  • trooper273
    , contributor
    Comments (2) | Send Message
     
    I wish I could tell you about all the letters after my name, unfortunately there are none. My broker tells me I am in the top 7% of the country as far as financial worth. I'm sure he is right if I sold everything and lived in a pup tent by a stream! I learned a long time ago never to discuss money with people who have wealth, that applies in any area where people have expertise beyond my own. I try to take the cotton out of my ears and put it in my mouth. The comment I made about Lochhart's statement was that it was a global statement that had no substance. I remain teachable I just wanted to know the specifics of his comments, when I see Pershing buying more and the price of the stock going up. His (Lockhart) credentials of being the head of the FHFA does not impress me. I'm sure this is not the type of profile you are looking for, however as the famous philosopher Popeye once said "I yam what I Yam" I am a 71 year old retired (the service industry) middle to corporate director, I proudly served my country as a paratrooper in the 60's when it wasn't fashionable I am a disabled veteran involved in charity work for the veterans and the homeless. Thanks Bill Harrigan
    4 Apr, 11:47 AM Reply Like
  • larryxo
    , contributor
    Comments (3) | Send Message
     
    So he's the former FHFA chief on duty when they got in trouble, and he was a participant in the government's thus far successful effort to divert the revenue stream away from the stockholders and into the treasury. He may "know a thing or two" but it would be nice if SA maintained a consistent policy of disclosure and transparency so that subscribers could also "know a thing or two" about why this statement surfaces at this time.
    4 Apr, 12:44 PM Reply Like
  • EdgeWaterNJ-101
    , contributor
    Comment (1) | Send Message
     
    If this was such a ZERO investment, why did William Ackman get in the stock? He is one of the best hedge fund managers out there. And, he went to Harvard!!
    4 Apr, 03:23 PM Reply Like
  • speakyatruth
    , contributor
    Comments (17) | Send Message
     
    It's infuriating that all these naysayers see Fannie and Freddie stock rallying (thanks in part to speculators) and the companies paying off the bailout money they got, yet they keep trying to talk Fannie and Freddie down. The question remains: if these naysayers are all so smart, why didn't the federal government wipe these companies out back in 2008? Now they've fiddled around and gotten themselves into a helluva jam.

     

    I made a killing flipping FNMA last year, and now I'm settling in to let the courts work it out over the next few years. With the courts' help, I'll make another killing on this in the long run. If they wipe me out, I'm only out peanuts, compared to what I've already taken off the table.

     

    Bring it on...
    GLTA
    4 Apr, 04:50 PM Reply Like
  • Patent News
    , contributor
    Comments (1321) | Send Message
     
    Another possible huge loss for Ackman, just like Herbalife, wrong direction wrong direction stop the titanic!!!
    4 Apr, 06:58 PM Reply Like
  • pauljon4
    , contributor
    Comments (4) | Send Message
     
    This is the guy who was the root cause of fannie mae and freddie mac being placed into conservatorship while ignoring all the toxic mortgages being force fed to them by these imbecile government clowns to protect their big banking buddies. Disgusting.
    5 Apr, 10:19 AM Reply Like
  • HooL
    , contributor
    Comments (9) | Send Message
     
    Just find someone's article. Good new for regular shareholder
    "Judge Sweeney today accepted as proposed Fairholmes discovery schedule vs Treasury/FHFA re Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) .

     

    Discovery shall commence on Monday, April 7, 2014, and shall be completed by Thursday, July 31, 2014.
    The gov’t had sought to both delay discovery and severely limit its scope, both arguments were rejected by the Judge.."
    6 Apr, 06:28 AM Reply Like
  • Thudpilot
    , contributor
    Comments (4) | Send Message
     
    One has to wonder why James Lockhart - who is currently employed by WL Ross - failed to mention the statements he made regarding the value of Fannie and Freddie shares when he announced the conservatorship back in 2008. Then he said:

     

    From Sept 7th 2008:
    Seventh, in order to conserve over $2 billion in capital every year, the common stock and preferred stock dividends will be eliminated, BUT THE COMMON AND ALL PREFERRED STOCKS WILL CONTINUE TO REMAIN OUTSTANDING. Subordinated debt interest and principal payments will continue to be made.

     

    In Lockhart’s fact sheet from 2008 regarding the common stock he said:
    Q: What happens to the Company’s stock during the conservatorship?
    A: During the conservatorship, the Company’s stock will continue to trade. However, by statute, the powers of the stockholders are suspended until the conservatorship is terminated. STOCKHOLDERS WILL CONTINUE TO RETAIN ALL RIGHTS IN THE STOCK'S FINANCIAL WORTH; AS SUCH WORTH IS DETERMINED BY THE MARKET!

     

    On Sept 25th before Congress he said:
    I also recognize that many employees at each company have been working extremely hard through years of remediation and through the past year of market volatility. Employees have lost personal savings as a result of the plummet in their company’s stock price and they have been working, and continue to work, long hours in the face of uncertainty. To them, I say thank you and pledge that, as conservator, WE SHARE THE COMMON GOAL OF STABLIZING YOUR COMPANY WHILE ENSURING IT CONTINUES TO SERVE ITS PUBLIC PURPOSE OF PROVIDING STABILITY, LIQUIDITY, AND AFFORABILITY TO THE MORTGAGE MARKET.

     

    Investigators should start reviewing Lockhart's previous comments immediately. With discovery proceeding in Fairholme’s lawsuit vs the Treasury and the FHFA his recent contradictory statements should get him exposed and/or deposed under oath.
    7 Apr, 03:03 PM Reply Like
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