Aug. 27, 2014, 10:27 AM| 10 Comments
Aug. 18, 2014, 1:23 PM
- Assume, says John Carney, Bill Ackman and other investment managers win their legal battle against the government over Fannie Mae (OTCQB:FNMA -1%) and Freddie Mac (OTCQB:FMCC -0.8%). At that point, we go back to the bailout agreements under which both would still be obligated to pay a 10% dividend. Also, both would need to pay a commitment fee of, say, one-half to one percent, an amount they would struggle to be able to afford.
- The result is the two would have an even tougher time building a capital buffer, meaning a time frame of years before their earnings power could accrue to holders of either the preferred or common stock.
- Previously: Carney: Fannie and Freddie investors should surrender
Aug. 15, 2014, 3:58 AM
- Bill Ackman's Pershing Square has sued the U.S. government, claiming that its stripping of Fannie Mae's (OTCQB:FNMA) and Freddie Mac's (OTCQB:FMCC) profit illegally short changes investors in the mortgage companies' common stock.
- Hedge funds have previously sued the government over the two, although most of those lawsuits focused on the companies' preferred stock.
- Pershing is accusing the government's "brazen" practice since 2012 of funneling virtually all profit from Fannie and Freddie to the U.S. Treasury Department.
- Previously: Ackman reportedly leading another suit over GSEs
Aug. 14, 2014, 3:50 PM
- The GSEs have their tails in the air on a report shareholders - led by Bill Ackman's Pershing Square - plan tomorrow to file the latest in a string of lawsuits against the government for requisitioning the profits of the two, reports The Street's Dan Freed.
- Pershing Square is by far the largest non-government owner of common stock of Fannie Mae (OTCQB:FNMA +3.8%) and Freddie Mac (OTCQB:FMCC +4.5%), and numerous individual investors will join the suit. Another large holder - Bruce Berkowitz's Fairholme Capital - has much of its stake tied up in the preferred shares of the companies.
Aug. 11, 2014, 3:37 PM
- Private investors argue the government's share of Fannie Mae (OTCQB:FNMA -1.2%) and Freddie Mac (OTCQB:FMCC -1.2%) profits should be limited to the 10% dividend on its preferred stake in the GSEs. The difference between this amount and the so-called sweep amounted to tens of billions last year - hence the attention and the suits, writes John Carney.
- With tax benefits and legal settlements winding down, Frannie reported far smaller profits in Q2, making the difference between the sweep and the 10% dividend negligible. In the case of Freddie, in fact, it could be argued the sweep is less than what it would have paid on the 10% dividend plus some sort of commitment fee on its credit line.
- The difference is wider at Fannie Mae, but "sweep or no sweep, there is close to nothing left over for investors in either Fannie or Freddie," says Carney.
Jul. 11, 2014, 7:15 AM
- A check of the mortgage insurers the morning after the FHFA released the proposed Private Mortgage Insurer Eligibility Requirements (PMIERs) finds Radian (RDN) lower by 2.8%, MGIC (MTG) by 2.6%, and no action in Genworth (GNW), Essent Group (ESNT), and NMI Holdings (NMIH). The revised PMIERs would require higher capital standards on the mortgage insurers Fannie Mae (FNMA) and Freddie Mac (FMCC) do business with.
- The new rules are open for comment until September 8, and Radian expects to give the FHFA an earful, including noting the new capital requirements "are more onerous than the company's historical default experience suggests would be needed to withstand a severe stress event." The proposed PMIERs, says Radian, are also not consistent with the FHFA's goal of expanding access to mortgage credit by boosting the role of private capital in the mortgage market.
- Radian also notes it is likely to be January 2017 before compliance with any new rules would be required.
Jul. 1, 2014, 10:39 AM
- Noting some nonbank servicers use short-term funding to buy MSRs which may only pay off after a lot of long-term work the Office of Inspector General says the practice can jeopardize not just the companies' operations, but also Fannie Mae (FNMA) and Freddie Mac (FMCC) which guarantee the loans.
- The report notes nonbank servicers held 17% of he MSR market at the end of 2013, up from 9% a year earlier, and the boosted share is testing their ability to handle the loans. No particular servicer is named in the report, but those in the industry include Ocwen (OCN -1.9%), Nationstar (NSM -2.6%), Walter Investment (WAC -0.8%), New Residential (NRZ +0.3%), Home Loan Serviing (HLSS +0.9%), and PennyMac Financial Services (PFSI +0.5%).
- The report cites one example in which the GSEs found a servicer didn't have sufficient infrastructure to manage its MSRs and also breached minimum capital requirements.
- NY's Ben Lawsky, of course, has put the kibbosh on transfers of servicing rights from the banks to the nonbank players until his concerns over servicing practices are satisfied.
Jun. 20, 2014, 2:00 AM
- Royal Bank of Scotland (RBS) will pay $99.5M to settle a lawsuit which accused the bank of selling sour mortgages to Freddie Mac (FMCC). The case is one of two lawsuits filed by the Federal Housing Finance Agency against RBS.
- This also marks the 15th mortgage security settlement since 2011 won by the FHFA, on behalf of Fannie Mae (FNMA) and Freddie Mac.
Jun. 13, 2014, 3:55 PM
- “Even if truly rehabilitating the GSEs were possible, recapitalizing them adequately would take at least twenty years,” says Mary Miller, Treasury's undersecretary for domestic finance. “During these 20 years, the taxpayer would remain at risk of having to bailout the GSEs during another downturn."
- Calling the current system - where the majority of housing credit is backstopped by taxpayers - "unacceptable" and "an unsound business model," Miller reiterates the administration's position that Fannie (FNMA -1.4%) and Freddie (FMCC -1.9%) be wound down. "Only legislation can protect taxpayers by responsibly winding down the GSEs and replacing them with a system where a government guarantee is transparent and explicitly priced.”
Jun. 9, 2014, 12:58 PM
- Those who say it is a good time to sell a house increased to 43%, a new all-time high, says Fannie Mae (FNMA -0.4%) in its May National Housing Survey. Those who say it's a good time to buy dipped a bit to 68%.
- "Consumers’ lukewarm income expectations and reticence about the economy seem to be holding back housing demand," says Fannie chief economist Doug Duncan. "This year’s spring and summer home buying season has gotten off to a slow start, even as mortgage rates have trended lower over the past two months ... The rebound in home sales will likely be too modest to pull sales for all of 2014 ahead of last year."
- Speaking to Duncan's remarks: Those who say their household income is significantly higher than a year ago fell four points to 21%.
- Homebuilder ETFs: XHB, ITB, PKB
Jun. 5, 2014, 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.
Jun. 3, 2014, 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.
May. 20, 2014, 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."
May. 16, 2014, 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.”
May. 15, 2014, 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
May. 14, 2014, 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."
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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