Wed, Mar. 25, 3:58 PM
- Treasury's investment in the mortgage giants is entitled to a "substantial risk premium," argues a new paper from the New York Fed, thus justifying payments well in excess of the nominal bailout amount.
- Fannie Mae received $116.1B and has repaid $134.5B; Freddie received $71.3B and has repaid $91B, reports John Carney.
- What's more, the government backstop has lowered funding costs for Fannie (OTCQB:FNMA -1.6%) and Freddie (OTCQB:FMCC -1%), thus boosting profits for the two. The government has also never forced payment of the commitment fee the GSEs promised to pay in exchange for Treasury's commitment to continue providing emergency funding.
- Instead of being returned to control of shareholders, the two should be wound down, concludes the paper, which calls the failure to do so a "colossal missed opportunity to put U.S. residential mortgage finance on a more stable long-term footing."
Wed, Mar. 18, 2:14 AM
- Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) could require more bailouts from U.S. taxpayers due to rising risks from shrinking reserves, said the FHFA's Inspector General in a report today.
- The firms could chalk up losses on their derivatives portfolios again, similar to those they reported in the fourth quarter, increasing "the likelihood of additional Treasury investment," the report continued.
- The possibility of another taxpayer draw raises pressure on Congress to overhaul housing finance laws, although new legislation is not expected anytime soon.
Thu, Mar. 5, 2:29 PM
- "Let me remind you, both recapitalization of (OTCQB:FNMA and OTCQB:FMCC) and draws against the existing Treasury backstop due to potential future losses would come at taxpayers’ expense,” says Michael Stegman, Treasurys counselor to the secretary for housing finance policy, speaking at a Goldman Sachs housing-finance conference.
- He notes both have significant remaining credit to draw on should capital run low.
- In the absence of any housing finance reform from Congress, Stegman suggests he would like to see the two GSE wind down their mortgage portfolios at a faster pace than is currently happening. He also likes recent efforts to offload some of their credit risk to the private sector, and would like to see more of such deals.
Fri, Feb. 20, 8:16 AM
- Q4 net income of $1.3B vs. $3.9B in Q3. Full-year net income of $14.2B vs. $84B in 2013. Last year's income included a $45.4B tax benefit.
- Fannie (OTCQB:FNMA) expects to pay Treasury $1.9B in dividends this quarter, bringing the total paid to $136.4B vs. draws of $116.1B.
- "Fannie Mae expects to remain profitable on an annual basis for the foreseeable future; however, the company expects its earnings in future years will be substantially lower than its earnings for 2014, due primarily to the company’s expectation of substantially lower income from resolution agreements, continued declines in net interest income from its retained mortgage portfolio assets, and lower credit related income."
- Previously: Fannie Mae reports Q4 results (Feb. 20)
- Full report
Fri, Feb. 20, 7:56 AM
Tue, Feb. 17, 10:15 AM
- A weekend piece in the NYT brings to light the extraordinary secrecy claims the government is making to prevent it from having to produce documents concerning the decision to expropriate all profits of Fannie Mae (OTCQB:FNMA +12%) and Freddie Mac (OTCQB:FMCC +13.6%) in late-summer 2012.
- At issue is exactly what the Obama administration - in the midst of an election battle and eyeing surprise profits at the GSEs - had in mind when it altered the bailout agreement and ordered the sweep.
- More fuel: Hank Greenberg's suit against the government over the AIG could be tilting in his favor. The "Greenberg Trade," says Charlie Gasparino, is a favorite of money managers betting that if Greenberg wins, it bodes well for those fighting the government over Frannie.
- The two stocks are higher by more than 30% over the past couple of sessions.
Mon, Feb. 2, 8:18 AM
- Bruce Berkowitz's Fairholme Fund (MUTF:FAIRX) pickup about 3.1M common shares of Freddie Mac (OTCQB:FMCC) and 1.8M shares of Fannie Mae (OTCQB:FNMA) between Aug. 31 and Nov. 30 last year, according to the Fairholme annual report. As the stock prices of the two fell sharply, the fund's weighting in their common stock remained at 1.1% (the fund maintains a larger preferred stake in the two).
- "Timing is proving our thesis true," says Berkowitz.
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
FNMA vs. ETF Alternatives
Fannie Mae is a government-sponsored enterprise that was chartered by Congress in 1938 to support liquidity, stability and affordability in the secondary mortgage market, where existing mortgage-related assets are purchased and sold.
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