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.
Sun, Mar. 23, 3:04 AM
- Credit Suisse (CS) has agreed to pay $885M is a deal with the Federal Housing Finance Agency to settle allegations that the Swiss bank misled Fannie Mae (FNMA) and Freddie (FMCC) about the quality of mortgage loans that the company sold them from 2005-2007. Fannie will receive $234M and Freddie $651M.
- As is often the way in these matters, Credit Suisse didn't admit to liability or wrongdoing.
- Following the deal, Credit Suisse is taking a charge of 275M Swiss francs ($312M) on its earnings and now says it made a Q4 net loss of 8M francs after initially reporting a 267M franc profit.
Fri, Mar. 21, 3:00 PM
- The move comes following Fitch earlier today returning the outlook on the U.S. government's AAA rating to stable from negative. "The housing GSEs are among the most active issuers in the capital markets, benefiting from meaningful financial support from the U.S. government."
- Both Fannie Mae (FNMA) and Freddie Mac (FMCC +0.8%) are now AAA with stable outlook.
Tue, Mar. 18, 1:13 PM
- Fannie Mae (FNMA -15.7%) and Freddie Mac (FMCC -15.5%) get just a little sell-side love, with KBW's Bose George boosting his price targets on both to $2 from $0, though he keeps an Underperform rating on the duo.
- The PT change "incorporate(s) the possibility of a combination of a legal victory for shareholders combined with a lack of action on both the regulatory and legislative fronts that hurts the value of the GSEs," says George, who may be the only sell-sider still covering the GSEs after they were put into conservatorship in 2008.
Thu, Mar. 13, 11:20 AM
- “It’s hard to find any reasonable outcome that’s really terrible for the preferreds, given what I perceive to be the value of the business that’s already there," says portfolio manager Jeffrey Lewis, an owner of the shares. Investors in the common stock, however, are making a bet Fannie Mae (FNMA +12.4%) and Freddie Mac (FMCC +13.4%) will be allowed to become dominating private companies again and keep their profits.
- It's up to the courts to decide how investors will be treated, says Sen. Mike Crapo, who co-wrote the bill to wind the GSEs down. "We are not necessarily going to dictate the outcome."
- As for whether a bill actually becomes law anytime soon, former Senate banking panel aide Mark Calabria gives it maybe a 10% chance of getting to the president's desk this year. The dim prospects look to be giving a boost to the common shares today.
Wed, Mar. 12, 11:09 AM
- Fannie Mae (FNMA -11.7%) and Freddie Mac (FMCC -12.1%) are lower again in volatile action one day after a the release of a Senate proposal to wind the two down. Both stocks earlier took out the panicky lows made yesterday, but have bounced since.
- SA contributor Achilles Research reminds yesterday's news was completely expected and provided zero new information. The bill is the prototypical DOA legislation, especially with upcoming elections.
- The selloff, says Achilles, is a classic market panic in a couple of highly speculative and overextended names. Congress will do what it likes, but the fate of shareholders will ultimately be decided in the courts.
Tue, Mar. 11, 3:52 PM
- "While I strongly support GSE reform that protects taxpayers, such efforts should also be mindful of investors," says Senator Pat Toomey, sticking up for preferred and common stockholders of Fannie Mae (FNMA -30.6%) and Freddie Mac (FMCC -27.5%) in wake of a proposed bill to wind down the GSEs.
- "Taxpayers should be fully compensated, but once they are, investors ... should not be denied their fair share of any remaining value."
- "The government¹s actions with respect to the GSEs' profits raise serious concerns, including whether these actions lawfully respect the rights and interests of all Americans."
- Previous: Fannie and Freddie plunge on wind-down proposal.
Tue, Mar. 11, 3:06 PM
- In one of the great delayed reactions of recent times, Fannie Mae (FNMA -39%) and Freddie Mac (FMCC -36.4%) plunge in wake of the proposed bipartisan Senate bill calling for their wind-down. Like Wile E. Coyote after running off the edge of a cliff, the stocks hung around in positive territory for a couple of hours after the news hit ... then they looked down.
- The Fannie "S" series preferred is off 9.9%, Freddie's is down 18.5%.
Tue, Mar. 11, 12:57 PM
- Buying low and selling high in the GSEs continues unabated as a long-awaited bipartisan Senate bill is introduced to continue government backing of mortgages, but wind down Fannie Mae (FNMA +4.5%) and Freddie Mac (FMCC +4.7%).
- The White House: “We support this effort and believe it is a workable bipartisan approach to complete the biggest remaining piece of post-recession financial reform.”
- A bill in the more conservative House would more or less cut the government out of housing finance. With elections months away, the chance of any sort of reform becoming law this year are probably slim.
Mon, Mar. 10, 12:45 PM
- "Total nonsense," says Bruce Berkowitz of Treasury's claim that 2012's altering of the Fannie (FNMA +4.1%) and Freddie (FMCC +3.3%) bailout - in which regular dividends were scrapped in favor of the "profit sweep" - was necessary because at the time it was worried the two couldn't earn enough to make the payments (a forecast the improving housing market has made wrong).
- Berkowitz's reading of the original bailout says the GSEs could have issued more stock to Treasury in lieu of cash, and he's' scratching his head as to how both the government and the GSEs failed to know this. Conspiracy? “I prefer the simpler reason that no one bothered to read the agreement.”
- Another reason is government lawyers' reading of the documents differs with Berkowitz. Ultimately, a judge will probably decide.
- Separately, how going long Fannie and Freddie became the latest version of The Greatest Trade Ever.
Tue, Mar. 4, 12:15 PM
- "I am confident that the Board is doing its job," says Fannie Mae (FNMA +3.3%) Chairman Phillip Laskawy, responding to Bruce Berkowitz's letter from yesterday demanding the GSEs begin retaining earnings to rebuild capital, and stop borrowing to pay voluntary dividends to Treasury.
- "FHFA has retained certain authorities for its exclusive determination and control, as provided by federal statute, including all decisions relating to the declaration and payment of dividends to the United States Treasury. Our Board and management will continue to perform their duties, as provided by federal statute and delegated by FHFA, diligently and to the best of their abilities," continues Laskawy in a long version of saying Fannie will continue to take orders from the government (Freddie Mac (FMCC +1.6%) too, no doubt).
- Press release
Mon, Mar. 3, 8:35 AM
- "The conservatorship of Fannie Mae (FNMA) and Freddie Mac (FMCC) - now in its sixth year - is perpetuating the pre-crisis regulatory and management shortcomings of the companies,” says Bruce Berkowitz in letters sent to the companies' boards. Berkowitz requests both companies conserve assets, retain earnings to build capital, and stop borrowing for the purpose of paying dividends to Treasury.
- He also wants the boards to begin holding annual shareholder meetings and to relist the stocks on the NYSE to ensure more orderly and transparent trading.
- FNMA -6.3% premarket
Wed, Feb. 26, 2:49 PM
- It doesn't take much to get these names moving, and Fannie Mae (FNMA +10.1%) and Freddie Mac (FMCC +10.3%) rocket higher, with Dick Bove appearing on Fox Business saying both are $18 stocks appearing to be today's catalyst.
- Bove has been bullish on the companies for awhile, but the $18 price target is a new item.
- Last week: Fannie reports big profit; Treasury paid back and more
Fri, Feb. 21, 8:42 AM
- Q4 net income of $6.5B brings full year net income to $84B, aided by the release of the valuation allowance on the DTAs.
- "While Fannie Mae (FNMA) expects to be profitable for the foreseeable future, the company does not expect to repeat its 2013 financial results, as those results were positively affected by the release of the company’s valuation allowance against its deferred tax assets, a significant increase in home prices during the year, and the large number of resolutions the company reached relating to representation and warranty matters and servicing matters."
- The company will pay Treasury $7.2B in dividends in March, bringing the total to $121.1B vs. draws of $116.1B.
- Full report
Fri, Feb. 21, 8:31 AM
Sun, Jan. 26, 1:51 AM
- The Department of Justice and the Commodity Futures Trading Commission have investigated Bank of America (BAC) for possible improper trading by carrying out futures trades for its own purposes before executing large orders for clients.
- The probes were disclosed in June, but have only just been reported. They appear to shed light on an FBI bulletin in which the agency said it suspects traders at two unnamed banks of conspiring to manipulate rates on major orders from Fannie Mae (FNMA) and Freddie Mac (FMCC), and of front running the government-sponsored enterprises (GSEs) in the markets for interest-rate swaps.
Thu, Jan. 16, 3:32 AM
- The number of foreclosure filings dropped to the lowest level since 2007 last year, declining 26% to 1.36M properties, RealtyTrac says. The figure is less than half of the peak of 2.9M properties in 2010.
- States with the highest foreclosure rates in 2013 were Florida, Nevada, Illinois, Maryland and Ohio.
- The number of foreclosure processes started plunged 33% to 747,728, the lowest since RealtyTrac began tracking the data in 2006. Bank repossessions plummeted 31% to 462,970 properties, the least since 2007. (PR)
- Relevant tickers: PHM, MHO, TOL, KBH, RYL, HOV, SPF, FNMA, FMCC
- ETFs: ITB, XHB, MBB, MBG, VMBS, CMBS, COBO
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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