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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.
- Civil rights groups ask FHFA to preserve Fannie and Freddie.
- The American Dream of Homeownership must be preserved for the middle class and minorities.
- Fannie and Freddie must be allowed to rebuild capital.
Fannie Mae: John Carney's Massachusetts Decision Supports The Shareholders
- John Carney has written in Investor Hub that the legal tide has shifted against Fannie shareholders with a new decision on October 21, 2014, dismissing litigation against FHFA under HERA.
- Reading the case, however, leads to the opposite conclusion.
- The new case is consistent with the precedent which will required that Judge Lamberth be reversed on appeal.
The Reason Fannie And Freddie Shares Are Rising Today
- Common Shares of Fannie and Freddie Rise After News of the Common Securitization Platform.
- Looser Lending Standards Announced by the Regulator Mean that Private Capital Needs to be Raised.
- FHFA has a Responsibility to Ensure Safety and Soundness of the System.
Fannie Mae: An Analysis Of The Cases And Statutes That Require Judge Lamberth To Be Reversed On Appeal
- On Sept. 30, 2014, Judge Lamberth dismissed the claims against Fannie Mae before him ruling that the Court didn’t have jurisdiction under HERA §4617(f) to hear the claims.
- This article reviews the statutes together with the facts and holdings of the cases Judge Lamberth cites.
- The cases Judge Lamberth cites require he be reversed on appeal.
Ackman Bets On $100+ For Fannie And Freddie - New All-Time Highs
- If Fannie Mae and Freddie Mac were not bailed out, their book value starts at $31/share.
- Treasury takeover forced Fannie and Freddie to pay interest on accounting losses that Treasury triggered that were not necessary as evidenced by reversals.
- Federal regulators directed Fannie Mae and Freddie Mac to start purchasing $40 billion a month of underperforming mortgage bonds to bail out America.
- Ackman says that he expects the share value to be $23-$47, but opportunity cost with preferreds and risk profile demonstrate otherwise.
- Losses were overstated, due to Treasury involvement.
- Equity book value would be about $31 per share, without the bailout.
- Treasury knows that the evidence is damaging to the financial markets.
- Judge Sweeney agrees that discovery documents could damage the financial system.
Fannie And Freddie: Elegant Solutions After Imprudent Actions
- Everything should be made as simple as possible, but not simpler.
- Bailout terms for banks amounted to free money.
- Victims of poor lending standards paid the most.
- Many things that seemed prudent at the time turned out to be imprudent.
- Paulson rejected a substantial offer from Chinese investors.
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."
Fri, May. 16, 3:55 PM
- “I don’t lay awake at night worrying about what’s fair to the shareholders,” says FHFA boss Mel Watt in an interview to be aired on Sunday. "There would be no Fannie (FNMA -1.8%) or Freddie (FMCC -1.2%) but for the taxpayers."
- Watt also notes the he had no role in altering the bailout agreements to allow for the continuous taking of all GSEs profits by Treasury. “I don’t know whether I would have thought differently had I been there, but I don’t have that luxury ... It’s an arrangement that I’m comfortable operating under.”
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.”
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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