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Fannie Mae And Freddie Mac: The Bill Ackman Perspective And Huge Return Potential
- What to do with Fannie Mae and Freddie Mac is an extremely polarizing and stratified topic in Washington.
- Pershing Square's Bill Ackman has concluded, with extensive research to support it, that a private entity isn't viable without a significant increase in cost to insure MBS.
- Even with the dilutive effect of exercising warrants, the Government stands to rake in approximately $600 billion on $190 billion invested. Estimated fair market value of $23-$47 a share.
- Lawsuits are progressing through the courts. Positive strides for the investors, but far from winning their freedom from the government.
- $5.4 billion in dividends from the Second Quarter, 2014 will be paid to the U.S. Treasury.
- Expect increased regulations on GSEs and all financial companies.
- Betting on Fannie and Freddie remain a high risk/high reward investment.
Fannie Mae & Freddie Mac: A Risk Worth Taking
- Fannie Mae and Freddie Mac seem much more likely to remain operational, as governmental regulators have indicated that they have no superior alternative.
- The Fannie Mae and Freddie Mac investor lawsuit against the Treasury Department is already strong, and seems even more promising as it attracts national attention and rallies prominent lawyers, activists.
- Our self-learning algorithm has a strong bullish signal for Fannie Mae and Freddie Mac in the 3-month and 1-year time horizons.
- Their diminishing risk and huge potential make Fannie Mae and Freddie Mac attractive investments.
- The Third Amendment Net Worth Sweep is illegal.
- Fannie Mae and Freddie Mac have paid back more than they borrowed.
- The largest investor in Fannie Mae and Freddie Mac is the American taxpayer.
- The largest beneficiary of Fannie Mae and Freddie Mac is the American taxpayer.
- Fannie Mae and Freddie Mac saved America during the crisis and are the best solution going forward.
Solutions For Fannie And Freddie's Future, But Profits Still Go To The Government
- No timeline for a resolution will continue to push all profits to federal government.
- Congress halts efforts on bills for mid-term elections.
- 20 lawsuits continue with no end in sight.
- Investor hopes spur the buying and selling.
- Fannie Mae reported $5.3 billion in income yet pays Treasury $5.7 billion in dividends.
- Freddie Mac reported $4.0 billion in income yet pays Treasury $4.5 billion in dividends.
- Both stocks have traded above $1.00 per share for over a year and should re-list.
- The Federal Housing Finance Authority is failing in their fiduciary responsibility to shareholders if they don not permit re-listing.
- Retail investors need institutional support to free the GSEs from Treasury's vampire-like gripe and allow them to recapitalize and rebuild shareholder value.
Senate Staffers 'Do The Hustle' With Fannie And Freddie Shareholders
- Shareholders met with Senate Banking Committee Staffers.
- Staffers point to the shareholder lawsuits for hope.
- Reid lukewarm on GSE Reform this year.
Fannie And Freddie Investors Unite In Washington DC
- Shareholders came to DC to represent themselves.
- Government has overreached their constitutional power.
- Regulators have breached their fiduciary duties to shareholders.
Government Profits From Continued Control Of Fannie And Freddie
- Cash payments exceed cash borrowings by many billions of dollars.
- FHFA has the power to stop payment of dividends.
- Ralph Nader and Koch Brothers have something in common.
The Good, The Bad, And The Ugly Of Mortgage Reform
- Johnson-Crapo Bill is a de facto Nationalization.
- Maxine Waters Bill funds Special Interests.
- Shareholders Want Their Property Returned.
Shareholders Of Government-Sponsored Enterprises Get Maxine Waters's Respect
- GSE Shareholders Getting Some Respect.
- New Bill Raises New Questions.
- The Common Stock may be Worth Something.
- Fannie and Freddie common stock could be worth $30 to $45 per share.
- The government's warrants could be worth more than the original bailout.
- Many people believe the government will lose their legal battle.
Fri, Aug. 29, 2:01 AM
- Bank of America (NYSE:BAC) has asked Judge Jed Rakoff to dismiss the jury verdict which found its Countrywide unit guilty of past mortgage fraud that resulted in a $1.3B penalty.
- Known as the "hustle" case, the lawsuit accuses BofA of selling toxic mortgages to Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC), although the bank argues that the evidence at the trial does not support the claims.
- The motion comes just one week after BofA agreed to a record $16.7B settlement with the U.S. government to settle charges over its role in mortgages leading up to the financial crisis.
Wed, Aug. 27, 10:27 AM| 10 Comments
Mon, Aug. 18, 1:23 PM
- Assume, says John Carney, Bill Ackman and other investment managers win their legal battle against the government over Fannie Mae (OTCQB:FNMA -1%) and Freddie Mac (OTCQB:FMCC -0.8%). At that point, we go back to the bailout agreements under which both would still be obligated to pay a 10% dividend. Also, both would need to pay a commitment fee of, say, one-half to one percent, an amount they would struggle to be able to afford.
- The result is the two would have an even tougher time building a capital buffer, meaning a time frame of years before their earnings power could accrue to holders of either the preferred or common stock.
- Previously: Carney: Fannie and Freddie investors should surrender
Fri, Aug. 15, 3:58 AM
- Bill Ackman's Pershing Square has sued the U.S. government, claiming that its stripping of Fannie Mae's (OTCQB:FNMA) and Freddie Mac's (OTCQB:FMCC) profit illegally short changes investors in the mortgage companies' common stock.
- Hedge funds have previously sued the government over the two, although most of those lawsuits focused on the companies' preferred stock.
- Pershing is accusing the government's "brazen" practice since 2012 of funneling virtually all profit from Fannie and Freddie to the U.S. Treasury Department.
- Previously: Ackman reportedly leading another suit over GSEs
Thu, Aug. 14, 3:50 PM
- The GSEs have their tails in the air on a report shareholders - led by Bill Ackman's Pershing Square - plan tomorrow to file the latest in a string of lawsuits against the government for requisitioning the profits of the two, reports The Street's Dan Freed.
- Pershing Square is by far the largest non-government owner of common stock of Fannie Mae (OTCQB:FNMA +3.8%) and Freddie Mac (OTCQB:FMCC +4.5%), and numerous individual investors will join the suit. Another large holder - Bruce Berkowitz's Fairholme Capital - has much of its stake tied up in the preferred shares of the companies.
Mon, Aug. 11, 3:37 PM
- Private investors argue the government's share of Fannie Mae (OTCQB:FNMA -1.2%) and Freddie Mac (OTCQB:FMCC -1.2%) profits should be limited to the 10% dividend on its preferred stake in the GSEs. The difference between this amount and the so-called sweep amounted to tens of billions last year - hence the attention and the suits, writes John Carney.
- With tax benefits and legal settlements winding down, Frannie reported far smaller profits in Q2, making the difference between the sweep and the 10% dividend negligible. In the case of Freddie, in fact, it could be argued the sweep is less than what it would have paid on the 10% dividend plus some sort of commitment fee on its credit line.
- The difference is wider at Fannie Mae, but "sweep or no sweep, there is close to nothing left over for investors in either Fannie or Freddie," says Carney.
Thu, Aug. 7, 9:30 AM
- Q1 net income of $1.4B vs. $4B in Q1. Comprehensive income of $1.9B vs. $4.5B. Dividend obligation to Treasury will be $1.9B, bringing total cash dividends paid to $88.2B.
- As noted in the past, the recent level of earnings is not sustainable over the long term, says Freddie Mac (OTCQB:FMCC).
- Full report
Thu, Aug. 7, 8:28 AM
Sun, Aug. 3, 11:06 AM
- Freddie Mac (OTCQB:FMCC) has sold $659M of soured mortgages in its first offering of such debt. Twenty-two potential buyers participated in the auction, which was directed by affiliates of Bank of America.
- It didn’t disclose the price, and won’t be naming the buyer, according to spokesman Tom Fitzgerald.
- Monthly disclosures show that the company held $169.1B of loans as of this past June 30.
Fri, Jul. 11, 7:15 AM
- A check of the mortgage insurers the morning after the FHFA released the proposed Private Mortgage Insurer Eligibility Requirements (PMIERs) finds Radian (RDN) lower by 2.8%, MGIC (MTG) by 2.6%, and no action in Genworth (GNW), Essent Group (ESNT), and NMI Holdings (NMIH). The revised PMIERs would require higher capital standards on the mortgage insurers Fannie Mae (FNMA) and Freddie Mac (FMCC) do business with.
- The new rules are open for comment until September 8, and Radian expects to give the FHFA an earful, including noting the new capital requirements "are more onerous than the company's historical default experience suggests would be needed to withstand a severe stress event." The proposed PMIERs, says Radian, are also not consistent with the FHFA's goal of expanding access to mortgage credit by boosting the role of private capital in the mortgage market.
- Radian also notes it is likely to be January 2017 before compliance with any new rules would be required.
Tue, Jul. 1, 10:39 AM
- Noting some nonbank servicers use short-term funding to buy MSRs which may only pay off after a lot of long-term work the Office of Inspector General says the practice can jeopardize not just the companies' operations, but also Fannie Mae (FNMA) and Freddie Mac (FMCC) which guarantee the loans.
- The report notes nonbank servicers held 17% of he MSR market at the end of 2013, up from 9% a year earlier, and the boosted share is testing their ability to handle the loans. No particular servicer is named in the report, but those in the industry include Ocwen (OCN -1.9%), Nationstar (NSM -2.6%), Walter Investment (WAC -0.8%), New Residential (NRZ +0.3%), Home Loan Serviing (HLSS +0.9%), and PennyMac Financial Services (PFSI +0.5%).
- The report cites one example in which the GSEs found a servicer didn't have sufficient infrastructure to manage its MSRs and also breached minimum capital requirements.
- NY's Ben Lawsky, of course, has put the kibbosh on transfers of servicing rights from the banks to the nonbank players until his concerns over servicing practices are satisfied.
Fri, Jun. 20, 2:00 AM
- Royal Bank of Scotland (RBS) will pay $99.5M to settle a lawsuit which accused the bank of selling sour mortgages to Freddie Mac (FMCC). The case is one of two lawsuits filed by the Federal Housing Finance Agency against RBS.
- This also marks the 15th mortgage security settlement since 2011 won by the FHFA, on behalf of Fannie Mae (FNMA) and Freddie Mac.
Fri, Jun. 13, 3:55 PM
- “Even if truly rehabilitating the GSEs were possible, recapitalizing them adequately would take at least twenty years,” says Mary Miller, Treasury's undersecretary for domestic finance. “During these 20 years, the taxpayer would remain at risk of having to bailout the GSEs during another downturn."
- Calling the current system - where the majority of housing credit is backstopped by taxpayers - "unacceptable" and "an unsound business model," Miller reiterates the administration's position that Fannie (FNMA -1.4%) and Freddie (FMCC -1.9%) be wound down. "Only legislation can protect taxpayers by responsibly winding down the GSEs and replacing them with a system where a government guarantee is transparent and explicitly priced.”
Thu, Jun. 5, 4:36 PM
- The FHFA is requesting mortgage industry comment on whether Fannie Mae (FNMA) and Freddie Mac (FMCC) should raise "guarantee" fees charged to lenders. These fees are typically passed along to borrowers, but the FHFA could look to offset that by making credit more readily available to lesser qualified borrowers as well as subsidizing the cost of the fee in other ways.
- The FHFA policy on fees - that they would gradually rise throughout 2014 - changed abruptly as Ed DeMarco was replaced at the top with Mel Watt earlier this year.
Tue, Jun. 3, 1:54 AM
- Massachusetts has sued Fannie Mae (FNMA) and Freddie Mac (FMCC), saying they violate state law by blocking foreclosure buyback programs.
- Buyback programs allow a non-profit organization to purchase a foreclosed home and then resell it back to the original owner at a more reasonable price.
- Massachusetts passed a law in 2012 prohibiting creditors from blocking such programs, although Fannie Mae and Freddie Mac have failed to comply.
Tue, May. 20, 11:01 AM
- Perhaps sensitive over the press bruising he's taken for being the puppetmaster behind government investigations of Herbalife, maybe look for Bill Ackman to try and stay out of the spotlight on Fannie Mae (FNMA +2.1%) and Freddie Mac (FMCC +2.1%), writes Dan Freed.
- Ignoring for the moment Ackman's 110-page slide presentation on the GSEs at Ira Sohn two weeks ago, a source close to the hedge funder says don't expect a big public campaign a la Herbalife or Allergan. While Bruce Berkowitz has publicly offered his policy assistance over Frannie to the government and Blackstone has done so privately, Ackman's camp believes D.C. has little interest in the advice of hedge funds in this instance.
- For anyone who heard at least snippets of Ackman at Ira Sohn, we'll file this story under "believe it when we see it."
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