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
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
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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