radiumsoup

In your opinion what is the best Fannie preferred at the present time?

TIA

TakeCare
David

nvesting
Sell Fannie and Freddie Common, Buy the Preferred (Update 3)
By Philip van Doorn03/21/13 - 04:41 PM EDT
Stock quotes in this article: FNMA, FMCC, BAC

inShare
Comment3
Updated from 3:14 p.m. ET with market close information.

More on FNMA
Wild Stock Action Continues for Fannie PreferredBond Funds That Should Lead the PackFannie and Freddie Common Shares Sink: Financial Losers
NEW YORK (TheStreet) -- It's been quite a ride for common shares of Fannie Mae (FNMA) and Freddie Mac (FMCC) over the past two days.

But the preferred shares are the better deal.



Fannie Mae's common shares were down 28% to close at 78 cents, after rising 80% over the previous two days. Freddie Mac's common shares also sank 28% to close at 78 cents, following a gain of 71% over the previous two trading sessions.

Meanwhile, the action in Fannie Mae's preferred shares intensified. Fannie's preferred series E (FNMFM) shares were up 60% to close at $11.20, after rising as high as $17 late Thursday morning. The preferred Series E shares had risen 34% on Tuesday. The Fannie Mae preferred series E shares have a coupon of 5.10% and a par value of $50.00.

Freddie Mac's preferred series Z (FMCKJ) shares, with a coupon of 5.375% and a par value of $25, pulled back 1% to close at $3.16, after rising 6% on Tuesday.

Both mortgage giants were taken under government conservatorship by the Federal Housing Finance Agency in September 2008. At that point, common and preferred shares of Fannie Mae and Freddie Mac were pretty much given up for dead, with little prospect the companies would resume operating as private companies and very little prospect for the payment of dividends on existing preferred stock.

The fun began early Tuesday when the Wall Street Journal brought attention to Fannie Mae's plan to delay filing its annual 10-K report to the Securities and Exchange Commission. Fannie said it would need extra time to analyze whether or not it could recapture some of its $61.5 billion valuation allowance for deferred tax assets (DTA), as of Sept. 30.

That's a very big deal, because the money could go quite a long way in helping the company redeem $116.1 billion in preferred stock held by the U.S. Treasury, for bailout assistance since September 2008.

Freddie Mac was able to file its 10-K on time, saying that the company's DTA valuation allowance was $31.7 billion as of Dec. 31. The government holds $72.2 billion in Freddie Mac preferred shares.

The common shares of both companies have soared on the obvious hopeful prospect that since both are now profitable and both may get a "head start" on repaying the government if the DTA are recaptured, the shares will have real value.

Daytraders have obviously been looking to make quick killings on the common shares. For the preferred shares, the story is very interesting, because the future of the GSEs hasn't yet been determined. Fannie and Freddie together back roughly 90% of newly originated mortgage loans in the U.S. Please see TheStreet's previous coverage of Fannie Mae and Freddie Mac for detailed discussions on what Congress and President Obama may have in store for the future of the GSEs.

Fannie and Freddie are still with us for a very obvious reason. The credit crisis was no time for a radical redesign of the mortgage finance structure in the U.S. The economic recovery following the crisis has been slow and fragile and the federal government still isn't keen to reinvent the wheel when so much is at stake.

Depending on what Congress and the president ultimately agree on as a way forward for Freddie and Fannie, if the GSEs fully repay the government and go on operating, there is hope for eventual payment of dividends on preferred shares not held by the government. Please see Dan Freed's article on TheStreet for a discussion on legal aspects supporting some private investors' decisions to continue holding Fannie and Freddie preferred stock.

Going back to our preferred stock examples, it's obvious that new investors can make quick gains if the shares go up, but what about the income? If the dividend were resumed on Fannie Mae's preferred series E shares, investors would receive annual income of $2.55 a share. That would be a pretty fat yield 36.48% for investors who went in Wednesday at $6.99 a share.

If Freddie Mac was able to resume the dividend on its preferred series Z shares, the annual income would be $1.34 a share. That would make for a lovely yield of 41.99%, for investors who purchased the shares at the closing price of $3.20 on Wednesday.

One professional investor says the preferred shares are a much better play for investors than the common shares. For starters, preferred shareholders are always ahead of common shareholders if the companies are ultimately wound down. And with Fannie and Freddie set to book huge profits as housing prices continue to recover and with credit recoveries similar to Fannie's huge settlement with Bank of America (BAC) in January, the GSEs may be in solid shape far sooner than anyone expected when they were bailed out.

GSE Preferred Over Common, by the Numbers

The numbers make the case for the preferred shares being worth much more than the common shares.

The face value of Fannie Mae's junior preferred shares -- that is, shares not held by the U.S. Treasury -- is $19 billion. That's just 0.6% of Fannie's total assets. The market value of Fannie's junior preferred shares was roughly $1.9 billion at Wednesday's market close. The market value of Fannie's common shares -- including warrants held by the government -- was $6.2 billion.
http://www.thestreet.com/story/11876299/1/sell-fannie-and-freddie-common-buy-the-preferred.html?cm_ven_int=morefrombox

Financial Winners & Losers
Fannie and Freddie Common Shares Sink: Financial Losers
By Philip van Doorn03/21/13 - 04:41 PM EDT
Stock quotes in this article: FNMA, FMCC, I:BKX

inShare
Comment2
NEW YORK (TheStreet) -- Common shares of Fannie Mae (FNMA) and Freddie Mac (FMCC) on Wednesday were the big financial losers among major U.S. financial stocks.

More from Philip van Doorn
Wild Stock Action Continues for Fannie PreferredSell Fannie and Freddie Common, Buy the Preferred (Update 3)Fannie and Freddie Keep Soaring: Financial WinnersFannie and Freddie Stocks Are Still Hot (Update 4)
Fannie Mae's common shares were down 28% to close at 78 cents, after rising 80% over the previous two days. Freddie Mac's common shares also sank 28% to close at 78 cents, following a gain of 71% over the previous two trading sessions.

Investors seem to buy the notion that Fannie Mae's preferred shares are a better deal than the common, as the company figures out whether it will be able to recapture a major portion of its $61.5 billion valuation allowance for deferred tax assets (DTA). That would go quite a long way toward redeeming $116.1 billion in preferred shares held by the U.S. Treasury for bailout assistance to the company.



For example, Fannie's preferred series E (FNMFM) shares were up 60% to close at $11.20, after rising as high as $17 late Thursday morning. The preferred Series E shares had risen 34% on Tuesday. The Fannie Mae preferred series E shares have a coupon of 5.10% and a par value of $50.00.

Freddie Mac's preferred series Z (FMCKJ) shares, with a coupon of 5.375% and a par value of $25, actually pulled back 1% to close at $3.16, after rising 6% on Tuesday.

Both Fannie and Freddie were taken under government conservatorship by the Federal Housing Finance Agency in September 2008. The shares of both companies have been extremely volatile since Wall Street Journal called attention to a filing last Thursday, when the Fannie said it would delay filing its annual 10-K report to the Securities and Exchange Commission, specially to consider the DTA issue.

Please see TheStreet's extensive coverage of Fannie and Freddie for more about why the preferred shares are better play for investors than the common shares by the numbers, and for various legal reasons.

Some investors have been comparing the conservatorship and government bailout of Fannie Mae and Freddie Mac to the successful bailout of American International Group (AIG), which turned out to be quite profitable for the U.S. Treasury and for taxpayers. TheStreet's Dan Freed on Thursday discussed why Fannie and Freddie differ from AIG.

Financial Services
Wild Stock Action Continues for Fannie Preferred
By Philip van Doorn03/22/13 - 11:32 AM EDT
Stock quotes in this article: FNMA, FMCC

inShare
Comment0
NEW YORK (TheStreet) -- The intense ride continued for Fannie Mae (FNMA) continued on Friday morning.

More from Philip van Doorn
Sell Fannie and Freddie Common, Buy the Preferred (Update 3)Fannie and Freddie Common Shares Sink: Financial LosersFannie and Freddie Keep Soaring: Financial Winners
Fannie Mae's common shares were up 4% in late morning trading to 81 cents, while common shares of its sister company Freddie Mac (FMCC) were up over 2% to 80 cents.

Fannie's common shares on Thursday sank 28%, following a gain of 80% over the previous two trading sessions. Freddie's common shares on Thursday dropped 28% on Thursday, after seeing a gain of 71% over the previous two days.



The action in Fannie Mae's preferred shares remains very strong. For example, Fannie's preferred series E (FNMFM) shares, with a coupon of 5.10% and a par value of $50, rose were up 18% late Friday morning to $13.20, after a gain of 115% over the previous two trading sessions.

The trading interest in Freddie Mac's preferred shares has been more subdued, but in the same upward direction. For example, Freddie's preferred series Z (FMCKJ) shares, with a coupon of 5.375% and a par value of $25, were up 2% to $3.23 late Friday morning, after a gain of 5% over the previous two days. Through Thursday's close at $3.20, the Freddie Mac preferred series Z shares were up 52% from a month earlier.

Both mortgage giants were taken under government conservatorship by the Federal Housing Finance Agency (FHFA) in September 2008. At that point, common and preferred shares of Fannie Mae and Freddie Mac were considered worthless by most investors, who saw a very low probability for the government sponsored enterprises (GSEs) to resume operating as private companies, and very little prospect for the payment of dividends on existing preferred stock.

This week's ride for the shares began on Tuesday, when The Wall Street Journal brought attention to a March 14 filing, when Fannie Mae said it would delay filing its annual 10-K report to the Securities and Exchange Commission. Fannie said it would need extra time to analyze whether or not it could recapture some of its $61.5 billion valuation allowance for deferred tax assets (DTA), as of Sept. 30.

The recapture of Fannie's DTA would provide a major boost to the company's effort to redeem $116.1 billion in preferred stock held by the U.S. Treasury, for bailout assistance since September 2008.

Financial Winners & Losers
Fannie, Freddie: Winners on Bailout Payback Hopes
By Philip van Doorn03/19/13 - 04:49 PM EDT
Stock quotes in this article: FNMA, FMCC, MS, I:BKX


It isn't clear whether any sophisticated investors see potential value in Fannie or Freddie common stock. Fannie and Freddie preferred shares have drawn interest from some hedge funds, however. Probably the best-known investor to have acknowledged buying Fannie or Freddie preferred shares since the GSEs were put into conservatorship in 2008 is Kyle Bass of Hayman Capital. Bass told TheStreet in an email exchange in August that he had given up on the investment when he concluded that both Republicans and Democrats "wanted them dead."

More from Philip van Doorn
Wild Stock Action Continues for Fannie PreferredSell Fannie and Freddie Common, Buy the Preferred (Update 3)Fannie and Freddie Common Shares Sink: Financial LosersFannie and Freddie Keep Soaring: Financial WinnersFannie and Freddie Stocks Are Still Hot (Update 4)Regulators Lump JPMorgan With Crisis-Era Banks (Update 1)
In a follow-up email exchange on Tuesday, Bass wrote, "we have no position. Period. I won't comment on anything else."

Another investor, Michael Kao of Akanthos Capital Management, continues to believe the preferred shares are a good investment. Kao has consistently argued for more than two years that the preferred shares have value. Over that time the Freddie Mac preferred series Z shares, one of the most actively traded issues, have gone up and down -- from below $1 to more than $3, back below $1 and now back to over $3.

Investments in Fannie and Freddie are, of course, highly speculative, because neither President Obama nor Congress has arrived at a way forward for the U.S. mortgage finance market, which continues to be dominated by the two firms.

House Financial Services Committee Chairman Jeb Hensarling (R., Texas) on Tuesday said in a statement before FHFA Chairman Edward DeMarco was due to testify in front of the committee that "I am determined that this hearing will be the last time that Director DeMarco, or if you believe press reports, his successor, will testify before this Committee before we finally and belatedly markup true GSE reform legislation." The GSE, or government-sponsored enterprises, include Fannie and Freddie, as well as smaller agencies, such as Ginnie Mae.

In his prepared testimony, DeMarco said "few of us could have imagined in 2008 that we would be approaching the fifth anniversary of placing Fannie Mae and Freddie Mac in conservatorships and have made little meaningful progress to bring these government conservatorships to an end."

According to DeMarco, the conservatorship was meant to provide a "time out," in order for "Congress and the Administration could figure out how best to address future reforms to the housing finance system."

More discussion on the FNMAS Board for pfd holders of both fannie and freddie
GLTA

http://investorshub.advfn.com/Fannie-Mae-Preferred-S-FNMAS-20248/

Still the best return for Freddie prefs in the event of a dividend restart based on current interest rates, and it ain't too shabby in the event of a redemption:

At 1.05, with a $3.21 yearly dividend that's a 306% YEARLY return. It's also a 4,762% return (that's 47.6x, or a "46-bagger" for you particular with your parlance) in the event of a redemption at $50 face value. Only FMCCN, FMCCL, and FMCCI do slightly better (up to 5,500%) at redemption at today's prices, but they mostly have no dividend to speak of.

This is currently the best prospect among the Freddie Preferreds for dividend returns based on share prices today.

Pays $3.21 per year in dividends (when dividends are declared, that is... it's been a while since they've been paid) and "face" or redemption value is $50 per share, meaning that when Freddie decides it's done paying dividends and instead wants to cash out shareholders, it must pay $50 per share to do so.

ROI analysis at the main Freddie board

Link to prospectus:

http://www.freddiemac.com/investors/pdffiles/0706cir.pdf