- President Obama has changed his message on GSE Reform.
- Fannie and Freddie Have Paid Back Taxpayers.
- The Net Benefit of Fannie and Freddie is Positive for Taxpayers.
- Clifford Rossi has proposed a genius capitalization transaction that hasn't been publicly considered.
- The sale of preferred stock, to avoid a fifth amendment takings, would flow through to Fannie and Freddie to fully recapitalize them.
- At 5%, the businesses make over $3 per share for common shareholders, and at 15x the businesses are worth $46 right now.
- Ackman just won a legal battle since the judge ruled against the government, which argued the case had been consolidated with those involuntarily dismissed.
Why A Fannie And Freddie Wind Down Could Benefit Shareholders
- Wind down could mean growth of the business.
- Wind down could mean ending the conservatorship.
- Taxpayers have been repaid.
- U.S. District Court decision was only an action toward resolution in 2014.
- FHFA directed F&F to begin refunding the National Affordable Housing Trust Fund.
- 2015 will see Republicans control both Houses, but still differ with the Administration.
- Recommendation: Put your money to work in the market now.
- RBS settlement of $7.7 billion could add to GSE profits.
- Fannie and Freddie will jump-start lending to marginal home buyers.
- News Stories reporting that Fannie and Freddie have created profits for taxpayers.
Fannie And Freddie: Current Plans Could Affect Iowa Pensions
- IPERS holds $1 billion in GSE Mortgage Securities.
- Some GSE reform plans would "bifurcate" the securities market.
- Treasury and FHFA actions call their motives into question.
- Documents produced in discovery by the Defendant are now being used by the Plaintiff against the defendant. This suggests that discovery is unearthing valuable documents for the Plaintiff.
- If 100% of the profits of Fannie and Freddie continue go to the US Treasury in perpetuity, bankruptcies and receiverships can be less lucrative for creditors than conservatorships.
- Although the Iowa case isn't looking good and Judge Royce Lamberth set a precedent, the end-game and over half of my portfolio is to be long Fannie and Freddie.
- The government's proposed defense is more logical and understandable than the Plaintiff and this perpetuates an untenable situation, namely conservatorship.
Fannie And Freddie: Everyone Says Read The Statute
- Judge Pratt asks whether he should just "Read the Statute."
- The Plaintiffs say this is music to their ears.
- Former HERA technical advisor says statute is not being followed.
Director Watt Begins To Exercise His Administrative Authority
- Director Watt exercised his power under HERA.
- Increased spending and looser mortgage standards require capital.
- Expect FHFA to announce an end to the Net Worth Sweep.
Fannie And Freddie Shareholders Follow Director Watt To Miami
- FHFA came to Miami to promote HARP.
- Investors in Fannie and Freddie also came to Miami.
- Significant value can be gained by releasing the GSEs from conservatorship.
- The government is following the rule of law if you look at things this way. By 2017, a takings will occur if things do not change.
- The third amendment net worth sweep ensures that the government is paid back principle plus interest the fastest.
- The sweep is still an agreement to change the terms of a loan, not a new security. The original loan payback ceiling of principle plus interest still exists.
- Things will change or there will be a fourth amendment. The way things are going, a fourth amendment will come and the Enterprises will rebuild private capital starting in 2017.
Fannie And Freddie: Director Watt Should Exercise His Executive Powers
- Director Watt can use his executive powers to end the Net Worth Sweep.
- Director Watt does not report to the U.S. Treasury.
- Ending the Net Worth Sweep will eventually end the conservatorship.
Fannie Mae: Let's Not End The Conservatorship Just Yet
- With the pending change in Congressional leadership, some politicians and pundits have begun a push to end FHFA’s conservatorship of Fannie.
- Returning Fannie to the shareholders by ending the conservatorship has a strong intuitive appeal.
- Ending the conservatorship without first resolving the value destroying elements of the Restated PSPA, will only help the Government by delaying resolution of the shareholder suits.
Fannie And Freddie: FHFA Action Could Permanently Strengthen The Housing Market
- FHFA action is a win-win for taxpayers, homeowners, and shareholders.
- Analysts target $18 to $50 for post-conservatorship share values.
- Treasury could receive a windfall from recapitalized GSEs.
- Since the Lamberth dismissal, the short interest in Fannie Mae and Freddie Mac has been skyrocketing.
- Investors short stock when they have strong conviction that the stock is overvalued and will fall.
- Combined the short interest is now over $140M, up from $40M a month before, increasing by roughly $100M.
Fannie And Freddie: Financial Disclosures Needed On Guarantee Fee Assets
- The total value of guarantee fee assets should be hedged.
- The total value of guarantee fee exposure should be disclosed.
- Mortgage servicing rights (MSRs) are comparable to guarantee fees.
- MSRs are carried at fair value under GAAP.
- Bob Corker would rather be run over by a train than speak with shareholders.
Fannie Mae: The Rafter/Pershing Square Voluntary Dismissal Has No Bearing On The Perry Capital Appeal
- On October 31, 2014, the Rafter, Rattien and Pershing Square plaintiffs voluntarily dismissed litigation against the government regarding Fannie Mae.
- The Rafter litigation had two counts: A takings claim and a derivative shareholder claim.
- Neither claim has any bearing on the Perry Capital Appeal.
Fannie Mae: A Primer To Senior Preferred Shares And Warrants
- The Fannie Mae conservatorship, and Treasury’s Senior Preferred Shares and Warrant, are governed by seven documents.
- These documents are a credit to the legal scriveners’ art, making the moderately complex obscure to the lay reader.
- This article will translate from the legalese the provisions that holders of Fannie stock will want to know.
Dec. 17, 2014, 11:30 AM
Dec. 10, 2014, 3:15 PM
- “The only way to responsibly end the conservatorship is through legislation,” said Treasury's Michael Stegman recently, dashing hopes the President might do for Fannie Mae (OTCQB:FNMA -2.2%) and Freddie Mac (OTCQB:FMCC -2.1%) what he recently did for immigration (i.e. end a legislative stalemate by making an executive order).
- These weren't off-the-cuff remarks, notes John Carney, but a prepared speech published on the Treasury website.
- Still, says Carney, bulls on the GSEs continue to pine for a "quick fix" to end the conservatorships and maybe give some real value to their common stock. "Simple or not, it isn't a play the Obama administration is set to call."
Dec. 8, 2014, 12:53 PM
- “There is a group of millennials that are waiting out there to jump into the market that do have the ability to repay,” say FHFA officials on a call announcing official approval of 97% LTV mortgages.
- Fannie Mae (OTCQB:FNMA -2%), which has more experience with the program, is already accepting applications, but Freddie Mac (OTCQB:FMCC -2.1%) - newer to the product - is waiting until late March for full implementation.
- Homebuilder ETFs: XHB, ITB
Nov. 29, 2014, 8:00 AM
- New guidelines - set to take full effect on December 1 - are the result of an agreement reached last month between banks and the GSEs meant to clarify exactly when lenders could be called to task for mortgages sold to Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) which ultimately default. Since the financial crisis, Fannie and Freddie have forced banks to repurchase billions of dollars worth of mortgages, leaving them naturally gun-shy about making new loans to all but the most pristine of credits.
- “It’s providing greater certainty for all the parties so that you can lend more confidently and make the whole judgment process much easier and more clear cut,” says Mike Heid, president of Wells Fargo (NYSE:WFC) Home Mortgage. Along with SunTrust (NYSE:STI), Wells says borrowers should begin to see initial changes - such as faster processing times, reduced credit score requirements, and greater leeway to those whose credit history suffered due to one-time events - in a few weeks.
- "We will be able to be looser and open up the net wider," says Mason-McDuffie Mortgage CEO Bill Godfrey, now expecting to make loans down to a 620 credit score from 660 previously.
- Not everyone agrees: “Unless we are convinced that the rules are going to be permanent and there is not going to be a look back or a reach back in future times…we are simply going to stay on the sidelines," U.S. Bancorp (NYSE:USB) boss Richard Davis has said, and Bank of America (NYSE:BAC) CEO Brian Moynihan made similar comments at a recent conference.
Nov. 21, 2014, 2:12 AM
- Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) have revised their representation and warranty framework in response to lender concerns about the risk on buying back loans sold to the two agencies.
- Fannie says it can now only seek a mortgage repurchase if it determines the failure to comply would undermine its rights on the loan, result in a liability for the company or if the lender violated a consumer protection law or regulation. Freddie has made similar changes.
Nov. 19, 2014, 11:50 AM
- "Everyone agrees that conservatorship cannot continue forever," says Senator Tim Johnson in prepared remarks for a Senate Banking Committee hearing on the GSEs. "If Congress cannot agree on a smooth, more certain path forward, I urge you, (FHFA) Director Watt, to engage the Treasury Department in talks to end the conservatorship.”
- Watt: "Conservatorship cannot, should not be a permanent state."
- Fannie Mae (OTCQB:FNMA +10.6%), Freddie Mac (OTCQB:FMCC +9%)
Nov. 14, 2014, 12:37 PM
- Fairlight Capital disagrees with a number of John Carney's assumptions - the sum of which led to essentially a zero valuation for the common stock of Fannie Mae (OTCQB:FNMA). Applying what it believes to be a conservative earnings growth rate and a 0% commitment fee on the senior preferred stock, Fairlight sees a current value of $2.81 per share.
- More importantly, says Fairlight, Carney assumes a 5% regulatory capital level. Carney makes the mistake of comparing that to other financial institutions, says Fairlight, forgetting Fannie would be an insurer, not a bank - a 2.5% capital level should be adequate.
- Assuming that and also assuming the government would allow the redemption or refinancing of the senior preferred stock leads to a valuation of $7.11 per share, even under very conservative earnings growth rates, concludes Fairlight.
- Previously: Carney at it again on Fannie Mae
Nov. 10, 2014, 8:18 AM
- All this talk of the legal tussle between investors and the government over the profit sweep is obscuring the basic math on Fannie Mae (OTCQB:FNMA), writes John Carney. Extrapolating the last couple of quarters of income would bring annual operating earnings to about $14.8B, says Carney. With the government essentially owning about 80% of Fannie common (through warrants), this leaves private shareholders with a roughly 20% stake.
- What would the stock be worth were the courts to rule the sweep illegal? At that point, says Carney, the original bailout terms would be restored, requiring Fannie to pay a 10% dividend on the government's $117B preferred stake plus a commitment fee on its undrawn backstop - in all, $12.6B per year.
- If Fannie generates $2.2B per year in excess of that, and even assuming an increase in earnings each year, it would take decades to pay back the government and build capital to necessary levels. Only at that time would common shareholders see any value flowing to them, and discounting back produces a stock valuation of about $877M, or $175M to private investors given the government's 80% stake - roughly $0.15 per share. And don't forget the $35B face value in junior preferred also sitting ahead of common shareholders. It leaves the common with a fundamental value of about zero.
- Shares -1.75% premarket
Nov. 6, 2014, 8:26 AM| 12 Comments
Nov. 6, 2014, 8:03 AM
Oct. 21, 2014, 4:46 AM
- The nation’s chief housing regulator, Mel Watt, announced a new program Monday which will allow more home-buyers to get loans at lower rates and with much smaller down payments.
- The program will also attempt to reassure banks that have had to pay tens of billions of dollars to settle legal cases arising from the housing boom and bust and buy back bad loans sold to Fannie (OTCQB:FNMA) and Freddie (OTCQB:FMCC).
- "We know this issue has contributed to lenders’ imposing credit overlays that drive up the cost of lending,” announced Watt.
Oct. 17, 2014, 12:20 PM
- One of the key issues serving as a road block to mortgage lending is banker fear over having any loans put back to them by the GSEs at any time - even years down the road - for any number of reasons.
- This concern was voiced most pointedly in the late summer by Wells Fargo (WFC +1.2%) CEO John Stumpf in the kind of call-out of regulators you don't often hear from corporate leaders.
- The WSJ is now reporting that Fannie (OTCQB:FNMA +5.9%), Freddie (OTCQB:FMCC +7.3%), their regulators, and banks are near a deal in which the lenders could feel protected enough to begin granting mortgages to those without perfect credit and employment histories.
- ETFs: XLF, FAS, FAZ, UYG, VFH, IYF, SEF, IYG, FXO, FNCL, FINU, RWW, RYF, FINZ
Oct. 13, 2014, 8:58 AM
- "The cash that we've raised we intend to use for a new commitment," says Bill Ackman tells Bloomberg following the European IPO of Pershing Square Holdings. "We have a new investment we're going to announce probably in the next 45-60 days."
- "We bought a lot more Fannie (OTCQB:FNMA) and Freddie (OTCQB:FMCC) stock in the week or so since the adverse court decision ... I think we increased our position by about 20%." Ackman finds it interesting Judge Lamberth weighed in on the taking plan even though it's out of his court's jurisdiction.
- "I think a new board will likely be installed at that date," says Ackman of Allergan (NYSE:AGN) and the December 18 shareholder meeting. He thinks it highly remote that he won't be able to vote his 9.7% stake in the company.
Oct. 10, 2014, 8:21 AM
- "Fairholme believes strongly that the Net Worth Sweep imposed four years after the financial crisis was not authorized by the Housing and Economic Recovery Act of 2008 and must be unwound," says the fund company, announcing the filing of an appeal of Judge Royce Lamberth's dismissal of lawsuits against the government over the GSEs.
- "Fairholme also believes strongly that the FHFA has contractual and fiduciary duties to the preferred shareholders of Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC), and that these duties can and will be enforced."
- Press release
- Previously: Ackman adds to Fannie/Freddie bets
Oct. 10, 2014, 8:04 AM
- Bill Ackman has added to his 10% stake in Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) since the stocks got clobbered by a federal court ruling last week.
- The stocks have trimmed losses after dropping almost 50% when Judge Royce Lamberth threw out lawsuits by Fairholme Capital and Perry Capital, who claimed Washington improperly seized their property by changing the terms of its agreement with them.
Oct. 3, 2014, 1:09 PM
- "The district court's decision overlooks important points of law and improperly resolved key questions of fact based on the government's cherry-picked record," says Perry Capital attorney Ted Olson. "The merits of this case deserve to be heard in court."
- Previously: Carney: Don't buy the dip in Frannie
- Fannie Mae (OTCQB:FNMA +20.2%), Freddie Mac (OTCQB:FMCC +20.3%)
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