The 'Entire Fairness' Solution To Fannie Mae Shareholder Rights
The Case For Fannie Mae: Unpacking The Motions For Summary Judgment
- Numerous plaintiffs have filed suits challenging the lawfulness of the Sweep Amendment which requires Fannie Mae to quarterly transfer its net worth to the US Treasury.
- This article is a summary of the primary legal arguments from both sides in the motions to dismiss and motions for summary judgment in cases filed by Perry Capital and Fairholme.
- After reviewing 556 pages of complaint and briefs, the plaintiffs have the stronger arguments and should win the motions.
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 Q2 Earnings Down, But Credit Quality Up
Blackstone Plan Proves Value Was Taken By Treasury
- Treasury received Blackstone's recapitalization plan.
- Recap plan proves that the equity shares had some value.
- The 3rd Amendment of the PSPA was designed to destroy value.
- Mario Ugoletti's sworn testimony is contradictory to this document.
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.
- Proposed insurer rules by the FHFA help to ensure that the government will not need to bail out the mortgage giant.
- The confirmation of Julian Castro as HUD Director has depressed the shares lately, but efforts to reform the GSEs do not have the political backing to do much harm.
- Reaffirm my previous price target of $14 per share on higher G-Fees and a recovering housing market.
Fannie Mae Has Adequate Capital To Be Released From Conservatorship
- Evidence seems to suggest that the GSEs can exit Conservatorship as-is.
- Existing legislation provides capital requirements.
- Fannie Mae may have enough capital for release from government control.
- Fannie and Freddie are the best solution for low-cost American home ownership.
- Nobody will question the legitimacy of the warrants until the third amendment is reversed.
Carl Icahn Joins The Fannie Mae Common Stock Gang, Should You?
- Carl Icahn is the newest investor in Fannie Mae and Freddie Mae and joins investors such as Bruce Berkowitz and Bill Ackman.
- The common stock becomes increasingly popular with high-profile investors.
- Fannie Mae's stock price has shown great resilience after extreme levels of volatility in March.
Fannie Mae: Icahn And Ackman Actually Agree On Something
- Shares could be worth $14 each on current fee structure.
- Potential for higher fees mean value could be as high as $23 to $47 per share.
- Short-term catalysts including an end to the Net Worth Sweep or re-listing could boost shares.
- 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.
- Fannie Mae remains a speculative equity investment with a massively tilted risk/reward ratio.
- The Johnson-Crapo draft bill is only in the early stages and the legislative process is already crumbling.
- Dissent among Senate committee members makes success of the reform bill unlikely.
- Winding down Fannie Mae and Freddie Mac does not make economic sense.
Fannie Mae Reports $5.3 Billion Profit In 1st Quarter Of 2014
- Total Comprehensive Income of $5.7 Billion for the 1st Quarter.
- Diluted Pro Forma EPS of $0.93.
- Bill Ackman values these shares up to $47.
- In an absolute worst case scenario Fannie and Freddie need $190 billion.
- Treasury has swept more than $200 billion for deficit reduction.
- Fannie and Freddie employees cannot participate in reform.
Thu, May. 15, 12:20 PM
- The Senate Banking Committee today passed a bill to wind down Fannie Mae (FNMA -2.8%) and Freddie Mac (FMCC -3%), but the vote, 13-9 in favor, looks too narrow to force the full Senate to vote on the legislation. The bill's authors say they'll try and add support in coming weeks, but the chances of something winding up on the President's desk this year look slim.
- Previously: U-turn on GSE mortgage policy
Wed, May. 14, 6:24 AM
- Obtaining a mortgage may be about to get a lot easier as FHFA chief Mel Watt - in his first public speech since taking over as regulator of Fannie Mae (FNMA) and Freddie Mac (FMCC) in January - says the mortgage giants should focus on making credit more readily available to homeowners.
- The call is a U-turn from the policy of previous FHFA boss Ed DeMarco. "I don't think it's FHFA's role to contract the footprint of Fannie and Freddie," says Watt, adding that winding down the companies without proof private investors are willing to fill the gap "would be irresponsible."
Thu, May. 8, 7:59 AM
Thu, May. 8, 7:41 AM
- Fannie Mae (FNMA) Q1 net income of $5.3B vs. $5.7B in Q4, and includes $4.1B in revenue from legal settlements.
- Expected $5.7B dividend payment to Treasury will bring total to $126.8B vs. $116.1B in draws.
- "Fannie Mae expects to remain profitable for the foreseeable future," but annual net income going forward should be "substantially lower" than 2013.
- Press release
Tue, May. 6, 12:01 PM
- Now making the rounds is Bill Ackman's 111-page slide presentation laying out the bull case on Fannie Mae (FNMA +2.9%) and Freddie Mac (FMCC -0.7%)
- Yesterday: Ackman pitches Fannie and Freddie at Ira Sohn
- Ackman notes much of the GSEs losses during the financial crisis - which pushed their capital levels far below minimum requirements and precipitated the bailout - were due to credit provisions. What actually happened, though, were losses of "just" $102B, or $142B less than the cumulative provisions taken from 2007-2011.
- Further, much of those losses were the result of an ill-fated move to guarantee Alt-A and subprime loans. Losses from just the core portfolio of prime mortgages would have been only barely enough to push the GSEs below their minimum capital levels.
Mon, May. 5, 3:47 PM
- Finally addressing Congressional plans to wind Fannie (FNMA +2.8%) and Freddie (FMCC +1.8%) down, Ackman isn't buying it. A private-label replacement would need to raise $500B to capitalize itself, he says - not likely given the government's "stealing" of the GSEs dividends. "We don't think there's an investor in the world of any consequence that will invest in a new version of Fannie and Freddie."
- Previously: Ackman pitches Fannie and Freddie at Ira Sohn
Mon, May. 5, 3:35 PM
- One of the hot hands in the hedge fund world at the moment, Bill Ackman reiterates his bull case on the GSEs. Owning Fannie Mae (FNMA -1.8%) and Freddie Mac (FMCC -1.8%), he says, is like owning a royalty on the housing market.
- Ackman first disclosed stakes in the common stock of both last November and boosted those bets with a derivative play earlier this year.
- Earlier Sohn conference coverage
- Live blog
Wed, Apr. 30, 11:09 AM
- Under the FHFA's baseline scenario, neither Fannie Mae (FNMA -1.3%) nor Freddie Mac (FMCC -1.8%) would require addition draws from the Treasury through 2015, but under the "severely adverse" scenario applied to the banks by the Fed in its stress tests, incremental draws of between $84.4B and $190B would be necessary.
- The severely adverse scenario includes a 25% decline in home prices over about a two-year period, a 20-90% decline in non-agency MBS prices, and the instantaneous default of the largest derivative counterparty.
- Under the worst FHFA scenario, home prices would decline 2% over nine quarters.
Tue, Apr. 29, 5:09 AM
- The Senate Banking Committee is due to meet today to discuss replacing Fannie Mae (FNMA) and Freddie Mac (FMCC) with an agency that will offer a government mortgage guarantee but only after private interests have absorbed big losses.
- However, the agency would still preserve the 30-year fixed rate loans that are at the center of the mortgage system.
- The 22-member panel is expected to approve the proposals, although supporters want at least 16 votes so they can pressure for a ballot on the Senate floor.
Mon, Apr. 28, 8:09 AM
- As soon as tomorrow, the Senate Banking Committee will decide if GSE reform legislation - which would wind down Fannie Mae (FNMA) and Freddie Mac (FMCC) over five years - will move forward or not. At the moment, committee leaders are involved in busy horse-trading to win over a few of the half-dozen Democrats on the panel who haven't yet come out in support.
- An impasse means the status quo - in which the two companies operate under federal control with no resolution on the status of privately-owned stakes - could continue for years.
- At the moment, a majority looks to be in place to move the bill out of committee, but Majority Leader Reid is expected to allow a floor vote only if more Democrats come on board. “Senate leadership appears far from enthused by the prospects of a floor vote on the measure,” says Compass Point's Isaac Boltanksy. “Reforming the mortgage market just doesn’t fit into the pre-election priorities of either party.”
Fri, Apr. 25, 4:43 AM
- The amount that lenders originated in mortgage loans plunged 58% on year Q1 to a 14-year low of $235B, almost entirely due to drop in refinancing. The figures are from industry newsletter Inside Mortgage Finance.
- Loans for acquisitions were flat on year and lower than in Q4.
- The trend is the latest indication that increasing interest rates are hampering the housing recovery. The average 30-year fixed-rate mortgage was 4.5% last week, up from 3.6% in May last year, when rates spiked after the Fed indicated it would scale back its QE program.
- Tickers: DHI, PHM, RYL, MHO, NVR, LEN, SPF, MDC, HOV, TOL ORI, NLY, AGNC, MTGE, ARR, TWO, IVR, CMO, MFA, WMC, FMCC, FNMA, RDN, NMIH, ESNT, GNW
- ETFs/ETNs: ITB, XHB, MORT, MORL, REM, MORT, MORT
Thu, Apr. 24, 8:17 AM
- "Any time a large financial institution starts promising regular earnings increases, you're going to have trouble," Warren Buffett famously said in 2010, explaining why he dumped stakes in Freddie Mac (FMCC) and Fannie Mae (FNMA) many years before the housing bust.
- As for whether Berkshire Hathaway (BRK.A, BRK.B) has any interest in the GSEs at this point, the answer is "no," says Buffett in a Bloomberg interview. Buffett does though, see a role for government in housing finance. "The 30-year fixed-rate mortgage is very good for the American public and I think that you will need government participation in some way to bring the costs down.”
Tue, Apr. 22, 12:19 PM
- The markup session for the housing-finance reform bill - which has the support of the bipartisan leadership of the Senate Banking Committee - is set for April 29, leaving only about one month for Congress to vote before election season begins. Height Analytics' Edwin Groshans thinks there's less a less-than 5% chance of passage this year.
- By scheduling such a late markup session, lawmakers hoped to have time to raise support for the complex bill which would include the contentious wind-downs of FNMA and FMCC. There is, of course, a wide chasm between the Senate and more conservative House views, but there's also Fannie and Freddie shareholders looking to be heard.
Fri, Apr. 4, 9:17 AM
- "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.
Mon, Mar. 31, 11:06 AM
- Pershing Square actually hasn't boosted its near-10% stakes in Fannie Mae (FNMA +4.5%) and Freddie Mac (FMCC +3.1%). Instead it's entered swap agreements in each, bringing its "total economic exposure" to 11.31% of Fannie and 11.08% in Freddie. Pershing gets paid as the stock rises (or dividends are made), and the counterparty gets paid as the stock falls.
- SEC Forms 13D for Fannie, for Freddie
Mon, Mar. 31, 10:26 AM
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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