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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.
Fannie Mae: Perry Capital's Path To The Appellate Court And Reversal
- On September 30, 2014, claims against Fannie Mae before Judge Lamberth were dismissed.
- One of the plaintiffs, Perry Capital, LLC, appealed two days later.
- This article is a primer on the federal appellate standard of review and why Judge Lamberth’s ruling will be reversed and remanded.
- Both GSEs are back to being profitable, and are still providing the backbone of the U.S. mortgages market with their 30-year mortgage.
- But shareholders cannot see even a penny from the profits, as the U.S. government enacted a controversial Sweep Amendment that striped both organizations of their profits.
- This action spurred a huge backlash and major investors are now suing the FHFA and the Treasury. If they succeed, both Fannie and Freddie could unlock huge profits.
- Non-cash DTA impairment increased SPSPA costs by $74.5 billion.
- Non-cash excess loan loss reserves possibly increased SPSPA costs by $41 billion, or more.
- $26 billion in actual cash interest was charged on these phantom losses.
- Cash flows from the net worth sweep tell a compelling story.
Wed, Nov. 19, 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%)
Fri, Oct. 3, 1:09 PM
- "The district court's decision overlooks important points of law and improperly resolved key questions of fact based on the government's cherry-picked record," says Perry Capital attorney Ted Olson. "The merits of this case deserve to be heard in court."
- Previously: Carney: Don't buy the dip in Frannie
- Fannie Mae (OTCQB:FNMA +20.2%), Freddie Mac (OTCQB:FMCC +20.3%)
Thu, Oct. 2, 9:59 AM
- The 52-page ruling from U.S. District Judge Royce Lamberth "meticulously demolishes" every argument made by investors claiming Treasury and the FHFA acted illegally when altering Fannie Mae's (OTCQB:FNMA -10%) and Freddie Mac's (OTCQB:FMCC -7.3%) bailout agreement in 2012.
- The new agreement, says Lamberth, is clearly within the bounds of authority Congress granted in 2008 when passing a law overhauling oversight of the GSEs.
- Yes, Lamberth's ruling doesn't directly affect the dozens of other pending lawsuits, but now plaintiff's attorneys will have to start out explaining how Lamberth got things wrong.
- Previously: Fannie and Freddie plunge after investor lawsuit dismissed
Wed, Oct. 1, 9:46 AM| 15 Comments
Wed, Aug. 27, 10:27 AM| 10 Comments
Thu, Aug. 14, 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.
Fri, Jul. 11, 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.
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.
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
Nov. 20, 2013, 3:53 PM
- "I want to make clear our administration believes the risks are simply too great, that this would re-create the problems of the past," says the president's chief economic adviser Gene Sperling of any recapitalization plan for Fannie Mae (FNMA +7.5%) and Freddie Mac (FMCC +6.4%).
- Speaking at an industry conference in D.C., Sperling says the administration is interested in rebuilding a stronger mortgage market not dominated by two mammoth institutions, and Frannie - even if restructured - would retain a large advantage over newer entrants.
- Needless to say, Sperling's remarks come in wake of Bruce Berkowitz's buyout and recap proposal for the GSEs from last week.
Nov. 15, 2013, 3:28 PM
- Bruce Berkowitz's presentation of his plan to purchase and recapitalize the mortgage insurance business of Fannie Mae (FNMA +10.5%) and Freddie Mac (FMCC +8.6%) cleverly leads off with quotes from politicians - including the president and FHFA chief Ed DeMarco - calling for private capital to play a larger role in the mortgage market.
- Presentation slides here.
- Bloomberg's Matt Levine's review here.
- His plan actually makes pretty good sense, but with one catch: The conversion of preferred stock for equity in a new, debt-free company with $52B in assets represents somewhere in the area of a $20B-$30B windfall for those owning the preferred.
- The plan also talks about bringing competition to the business even as it creates a new cheaply-capitalized company $52B in size. Far smaller competitors can hardly hope to match.
- Earlier: Ackman joins the fray
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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