Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Why Is Reuters Calling Fannie Mae ‘Government Owned’?
by Guest PostOctober 29, 2014, 11:17 am
Reuters Supports the Disenfranchisement of Fannie Mae and Freddie Mac Shareholders by Glen Bradford
Summary
Reuters published an article on Monday October 20, 2014 that spoke to the new guidelines coming from the FHFA regarding lower down payments as low as 3 percent for home mortgages, boosting access to credit. Within the article, Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) are referred to as “two taxpayer-owned firms.” This is wrong. Fannie Mae and Freddie Mac are not owned by taxpayers. Below, I will demonstrate why this is the case. Further, the reason behind writing this article is about the defamation and libel that is published by Reuters in this particular case against me and fellow common shareholders.
Fannie Mae and Freddie Mac are not taxpayer-owned
On October 27, 2014, I received confirmation from Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) Investor Relations.
“On September 7, 2008, Freddie Mac, through FHFA, in its capacity as Conservator, and treasury entered into the Purchase Agreement. Please see “Treasury Agreements” section of our 2013 10-K (pg 25-27) for more detailed information.”
When reading the 10-K, the following can be concluded:
Treasury owns Senior Preferred and warrants to purchase common.
Treasury does not own common.
Common shareholders own the firms.
Because treasury does not own common, Freddie Mac is not tax-payer owned.
Further, the same logic can be applied in the case of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA). Further, both are in conservatorship, not receivership.
It gets better
Here are four emails that I received from the lead writer for the article:
Email 1:
October 21, 2014 9:08AM
In a manner of speaking not literally / was alluding to their ongoing status regarding Conservatorship, that’s all
Sent from my iPhone
Email 2:
October 21, 2014 1:16PM
I don’t need any lessons on Conservatorship thank you
Was a matter of wording, you need to take it in that light.
Sent from my iPhone
Email 3:
October 21, 2014 2:20PM
Glen,
I looked over the draft I sent in yesterday and I didn’t make any mention of GSE ownership.
Could you kindly cut and paste the passage and I’ll look it over?
Could be local NY edit after I sent it to the desk.
Much appreciated.
Al
Email 4:
October 21, 2014 3:56PM
I’ve gotta confess – I didn’t write that / you’ll need to check with [NAME REDACTED] for that segment, I believe that’s his handiwork.
Sent from my iPhone
Finally, the last email that I received from Reuters’ Brian Moss on the matter:
October 24, 2014 10:46AM
Your emails to [NAME REDACTED], [NAME REDACTED] and other Reuters staff were forwarded to me, with the Michigan appeals court ruling attached. We appreciate your concerns regarding our description of Fannie and Freddie in “U.S. regulator targeting lower down payments on mortgages.”
We have considered your objections but we do not agree that the article needs to be corrected. Our story stands.
Thank you for contacting us.
My view and summary
It would seem that [NAME REDACTED] did not write that the two firms are tax-payer owned and this part was perhaps later added by [NAME REDACTED], who has not responded to any of my inquiries. It appears that no one personally want to take credit for writing it. Further, no one wants to take responsibility to fixing the article. Apparently, my notes to them have been considered to be objections. Misunderstandings like this are pretty common, but rarely do I see such purposeful ignorance in regards to accepting edits and changes where they have asserted things that are factually untrue and amount to differences in the hundreds of billions of dollars impacting private shareholders especially mutual fund investors, aka probably you.
The article by Reuters is wrong, in my opinion. The article appears to be incorrect, for which no one wants to take responsibility. I am sorry that it has to be this way. I have put Reuters on notice
http://www.valuewalk.com/2014/10/fannie-mae-reuters-story/
Alan Greenspan: Gold Standard Not Possible In Welfare State
by Axel MerkOctober 29, 2014, 10:36 am
Alan Greenspan: Price of Gold Will Rise by Axel Merk, Merk Investments
Any doubts about why I own gold as an investment were dispelled last Saturday when I met the maestro himself: former Fed Chair Alan Greenspan. It’s not because Greenspan said he thinks the price of gold will rise – I don’t need his investment advice; it’s that he shed light on how the Fed works in ways no other former Fed Chair has ever dared to articulate. All investors should pay attention to this. Let me explain.
The setting: Greenspan participated on a panel at the New Orleans Investment Conference last Saturday. Below I provide a couple of his quotes and expand on what are the potential implications for investors.
Greenspan: “The Gold standard is not possible in a welfare state”
The U.S. provides more welfare benefits nowadays than a decade ago, or back when a gold standard was in place. Greenspan did not explicitly say that the U.S. is a welfare state. However, it’s my interpretation that the sort of government he described was building up liabilities – “entitlements” – that can be very expensive. Similar challenges can arise when a lot of money is spent on other programs, such as military expenditures.
It boils down to the problem that a government in debt has an incentive to debase the value of its debt through currency devaluation or otherwise.
As such, it should not be shocking to learn that a gold standard is not compatible with such a world. But during the course of Greenspan’s comments, it became obvious that there was a much more profound implication.
Who finances social programs?
Marc Faber, who was also on the panel, expressed his view, and displeasure, that the Fed has been financing social programs. The comment earned Faber applause from the audience, but Greenspan shrugged off the criticism, saying: “you have it backwards.”
Greenspan argued that it’s the fiscal side that’s to blame. The Fed merely reacts. Doubling down on the notion, when asked how a 25-fold increase in the Consumer Price Index or a 60-fold increase in the price of gold since the inception of the Fed can be considered a success, he said the Fed does what Congress requires of it. He lamented that Fed policies are dictated by culture rather than economics.
So doesn’t this jeopardize the Fed’s independence? Independence of a central bank is important, for example, so that there isn’t reckless financing of government deficits.
Greenspan: “I never said the central bank is independent!”
I could not believe my ears. I have had off the record conversations with Fed officials that have made me realize that they don’t touch upon certain subjects in public debate – not because they are wrong – but because they would push the debate in a direction that would make it more difficult to conduct future policy. But I have never, ever, heard a Fed Chair be so blunt.
The maestro says the Fed merely does what it is mandated to do, merely playing along. If something doesn’t go right, it’s not the Fed’s fault. That credit bubble? Well, that was due to Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) (the government sponsored entities) disobeying some basic principles, not the Fed.
And what about QE? He made the following comments on the subject:
Greenspan: “The Fed’s balance sheet is a pile of tinder, but it hasn’t been lit … inflation will eventually have to rise.”
But fear not because he assured us:
Greenspan: “They (FOMC members) are very smart”
Trouble is, if no one has noticed, central bankers are always the smart ones. But being smart has not stopped them from making bad decisions in the past. Central bankers in the Weimar Republic were the smartest of their time. The Reichsbank members thought printing money to finance a war was ‘exogenous’ to the economy and wouldn’t be inflationary. Luckily we have learned from our mistakes and are so much smarter these days. Except, of course, as Greenspan points out it’s the politics that ultimately dictate what’s going to happen, not the intelligence of central bankers. And even if some concede central bankers may have above average IQs, not everyone is quite so sanguine about politicians.
Now if they are so smart, the following question were warranted and asked:
Q: Why do central banks (still) own gold?
Greenspan: “This is a fascinating question.”
He did not answer the question, but he did point out: “Gold has always been accepted without reference to any other guarantee.”
While Greenspan did not want to comment on current policy, he was willing to give a forecast on the price of gold, at least in a Greenspanesque way.
Greenspan: Price of Gold will rise
Q: “Where will the price of gold be in 5 years?”
Greenspan: “Higher.”
Q: “How much?”
Greenspan: “Measurably.”
When Greenspan was done talking, I gasped for air. I’ve talked to many current and former policy makers. But at best they say monetary policy is more difficult to conduct when fiscal policy is not prudent. It appears Greenspan has resigned himself to the fact that it was his role to facilitate government policies.
The reason this is most relevant is because many politicians think there’s unlimited money to spend. And, of course, if the Fed’s printing press is at the disposal of politicians, the temptation to use it is great. Not only is there the temptation, some politicians truly believe the Fed could and should help out any time. As Greenspan now acknowledges, these politicians have a point.
While we have argued for many years that there might not be such a thing anymore as a safe asset and investors may want to take a diversified approach to something as mundane as cash, Greenspan’s talk adds urgency to this message. The dollar has lost over 95% of its purchasing power in the first 100 years of the Fed’s existence.
US Dollar Gold
We now have a “box of tinder” and an admission that the Fed is merely there to enable the government. We are not trying to scare anyone, but summarize what we heard. My own takeaway from Greenspan’s talk was that anyone who isn’t paranoid isn’t paying attention. Did I mention he said the promises made by the government cannot be kept? Mathematically, he said, it’s impossible.
As part of the panel discussion, the topic of Switzerland’s vote to force its central bank to hold 20% of its reserves in gold came up. We will have an in-depth discussion of this vote in an upcoming Merk Insight (to ensure you don’t miss it, register to receive our free newsletters). Marc Faber spoke from my heart when he argued that the only credible gold standard is one that an individual puts in place for oneself; one should never trust a government to adhere to a gold standard. On that note, please register for our upcoming Webinar on November 20, 2014, where we will discuss how investors can build their personal gold standard.
For more of Greenspan’s comments, please review my tweets at twitter.com/AxelMerk (please follow me to instant analysis of events affecting the dollar, gold and currencies).
Axel Merk
http://www.valuewalk.com/2014/10/alan-greenspan-gold-standard/
Oh....just stop it. You should be reyprimanded.
I just hope history repeats and we are $60.00 or more by the time history repeats itself and the super bubble bursts.
The new mortgage rules: Fueling bubbles
By The Tribune-Review
Tuesday, Oct. 28, 2014, 9:00 p.m.
Updated 29 minutes ago
New federal mortgage regulations don't require significant down payments. And that's only inviting a repeat of the 2008 financial crisis.
The new rules come at the behest of “housing advocacy groups, mortgage bankers and even some bond investors” who want to keep housing credit flowing, reports The New York Times. Regulators, apparently fearing loss-leery banks wouldn't lend under a new rule requiring they retain 5 percent of mortgages they sell, included exemptions that allow no-down-payment loans conveniently labeled as low-risk.
Government-backed Fannie Mae and Freddie Mac guarantee about half of mortgages and typically require about 20 percent down. But many other mortgages will be more likely to default under these new rules. And when they do, there will be “much bigger losses with zero percent down than 20 percent down,” warns Sheila C. Bair, former FDIC chairwoman.
Minimizing losses once defaults occur is an important rationale for requiring down payments. But the fundamental reason is that down payments help minimize default risk upfront. And they're evidence that borrowers have the financial wherewithal and, equally important, the discipline to make mortgage payments on time and in full.
Like looser auto-loan requirements lately, the new rules foolishly prize mortgages' availability over their quality. Which will fuel another housing bubble. Which makes another financial crisis more, not less, likely.
http://triblive.com/mobile/7041416-96/rules-mortgage-mortgages
I would. I would sit back and wait just like I am doing now except get paid to do it. Wait for FHFA to pull me out of moth balls and let me earn my pay. After I resigned I would write my book titled "A fly on the wall saw it all".
And then you would no longer be on the board of directors. FHFA/Treasury would see to it.
If the bidding war scenario were to be real, the two gses would have to be released first. Is that correct? Or does the reference that you used earlier only apply to initial uplisting and not a relisting or reuplisting whatever it would be called? Or since the FHFA controls FnF does FHFA now make the decision to uplist without a shareholder vote? Not meaning to you on the spot. These are questions that I am just now starting to consider and I have not tried to find the answers yet. It seems like it could be complicated.
Fitch to Rate J.P. Morgan Madison Avenue Securities Trust Series 2014-1October 28, 2014
NEW YORK — Fitch Ratings expects to assign the following ratings and Rating Outlooks to JPMorgan Chase Bank's inaugural risk transfer transaction J.P. Morgan Madison Avenue Securities Trust Series 2014-1:
- $19,782,000 class M-1 notes 'BBB-sf'; Outlook Stable.
The $942,146,006 class A-H reference tranche, $27,201,659 class M-2 and $989,129,665 notional amount class X-IO certificates will not be rated by Fitch.
The 'BBB-sf' rating on the class M-1 notes reflects the 2.75% subordination provided by the class M-2 certificates. J.P. Morgan Madison Avenue Securities Trust Series 2014-1 is JPMorgan Chase Bank N.A.'s (JPMCB) inaugural risk transfer transaction, which is similar to Fannie Mae's Connecticut Avenue Securities (CAS) program where the objective is for private investors to share credit risk with Fannie Mae.
The transaction will be issued by J.P. Morgan Madison Avenue Securities Trust Series 2014-1 and will simulate the behavior of a $989 million pool of JPMCB originated mortgage loans. There are several key differences between this transaction and CAS, most notably the issuance of the bonds from a special purpose trust whose security interest consists of the cash collateral account (CCA), an interest account, a retained interest-only (IO) strip and a reserve account, all which will be used to pay principal and interest on the notes.
The issuer will acquire the mortgage loans from JPMCB and simultaneously sell the mortgage loans to Fannie Mae to be held in a newly issued Fannie Mae Guaranteed MBS. The issuer will retain an IO strip of 26.88 basis points (bps) off the mortgage pool (retained IO strip) and will issue the class M-1 notes, class M-2 certificates, (together the class M securities) and class X-IO certificates. Payments to the class M-2 certificates and X-IO certificates are subordinated to the class M-1 notes.
Proceeds from the sale of the class M notes will be deposited in the CCA. Payments to the M-1 notes will be paid from amounts on deposit in the CCA, interest account, and reserve account. Amounts received from the retained IO strip will be deposited in the interest account to pay interest to the class M securities.
Payments will be made to Fannie Mae from the CCA with respect to mortgage loans that become 180 days or more delinquent or as to which certain other recourse events occur. The issuer will make payments to Fannie Mae for recourse events, based on the loan balance at the time multiplied by the fixed loss severity (LS). The total recourse obligation to Fannie Mae payable by the issuer will initially equal 4.75% of the mortgage pool balance.
The notes and certificates will be subject to the performance of the mortgage loans originated by JPMCB and sold to Fannie Mae and, as such, are intended to simulate the repayment behavior and credit risk of PL U.S. RMBS bonds.
The M-1 notes will be issued as LIBOR-based floaters, subject to an available funds cap, and will carry a 10-year legal final maturity.
KEY RATING DRIVERS
High-Quality Mortgage Pool: The collateral pool consists of prime-quality, 30-year, fully amortizing and fully documented fixed-rate mortgages (FRMs) to borrowers with strong credit profiles and low leverage. The pool is also geographically diverse.
Above-Average Agency Originator: Based on its review of JPMCB's origination platform for agency loans, Fitch believes that JPMCB has strong processes and procedures in place and views its ability to originate high-quality agency loans as above average. Fitch also reviewed JPMCB's loan-level quality control (QC) processes for agency loans and found them to be robust.
Loans Subject to Fannie Mae's QC: The mortgage pool consists of loans delivered to Fannie Mae in exchange for a guaranteed MBS, which will be retained by JPMCB. As a result, the loans will be subject to Fannie Mae's loan QC review process. JPMCB is obligated to repurchase mortgage loans for which a deficiency is identified by Fannie Mae or deemed ineligible based on Fannie Mae's selling guide or other agreements. Fitch rates JPMCB 'A+'/'F1', Stable Outlook, which as the party making the reps with respect to the mortgage loans, is supportive of the rating of class M-1 notes.
Limited Counterparty Exposure: Principal will be paid to the M-1 notes from amounts on deposit in the CCA, which will be established by the issuer, J.P. Morgan Madison Avenue Securities Trust, Series 2014-1 (JPMMA 2014-1). The initial balance of the CCA will equal the initial unpaid principal balance (UPB) of class M-1 notes and M-2 certificates (together, the class M securities) and will be invested in eligible investments. The CCA will be pledged to secure recourse payments to Fannie Mae up to a recourse obligation of 4.75% of the initial mortgage pool balance. Funds will be available to pay principal payments on the class M securities sequentially, to the extent available after recourse event payments are made to Fannie Mae.
Limited Risk Retention: Unlike the CAS transactions where Fannie Mae retains the first loss class and a vertical slice of the class M securities, Fannie Mae will only be absorbing losses once the 4.75% protection provided by the class M securities is depleted. While Fitch views more positively those transactions that more closely align the interests of the subordinated noteholders with those of the senior holders, there is little incremental risk, if any, with this transaction as Fitch expects Fannie Mae to maintain and enforce its policies non-discriminately across all of its approved seller/servicers.
Available Funds Cap Structure: Interest due to class M-1 notes will be capped at amounts on deposit in the interest account, which will consist of amounts received from the retained IO strip equal to 26.88 bps of the mortgage pool balance, investment earnings on the CCA and amounts on deposit in the reserve fund. The available funds cap reduces the risk of a rating downgrade on the M-1 notes in the unlikely event that funds on deposit in the interest account and retained IO strip are less than 1-month LIBOR plus M-1's margin of 2.25%. Fitch's cash flow analysis, together with the application of its 'BBB'- interest rates stress scenario, suggests that amounts received on the retained IO strip will be sufficient to pay 1-month LIBOR+2.25% to the class M-1 notes through maturity.
Due Diligence Scope Limited: Due diligence was conducted on 765 loans, or 20% of the mortgage pool, which is consistent with Fitch's criteria. All the loans were reviewed for credit, property valuation and compliance by a third-party diligence provider. However, the scope of the compliance review was limited to compliance with laws relating to assignee liability and those that limit points and fees and, therefore, was not consistent with Fitch criteria. However, Fitch conducted a review of JPMCB's compliance QC review process and found it to be thorough and comprehensive, which should reduce the risk of recourse events arising from material compliance violations.
Market Value Decline Sensitivity: Fitch considered further market value decline (MVD) sensitivities, in addition to those generated by its sustainable home price (SHP) model. These scenarios align Fitch's 'Asf' sustainable MVD (sMVD) assumptions with peak-to-trough MVDs experienced during the housing crisis through 2009. The sensitivity analysis, which was factored into Fitch's loss expectations, lowered Fitch's base case sMVD to 13% from 15%.
Fixed Loss Severity: The transaction benefits from a fixed loss severity (LS) schedule tied to cumulative recourse events. If actual loan LS is above the set schedule, Fannie Mae absorbs the higher losses. Fitch views the fixed LS positively, as it reduces the uncertainty that may arise due to future changes in Fannie Mae's loss mitigation or loan modification policies. The fixed severity also offers investors greater protection against natural disaster events where properties are severely damaged, as well as in cases of limited or no recourse to insurance.
Advantageous Payment Priority: The payment priority of M-1 notes will result in a shorter life and more stable credit enhancement (CE) than for mezzanine classes in private-label (PL) RMBS, providing a relative credit advantage. Unlike PL mezzanine RMBS, which often do not receive a full pro-rata share of the pool's unscheduled principal payment until year 10, the M-1 notes can receive a full pro-rata share of unscheduled principal immediately, as long as a minimum CE level is maintained. Additionally, unlike PL mezzanine classes, which lose subordination over time due to scheduled principal payments to more junior classes, the M-2 class will not receive any scheduled or unscheduled allocations until the M-1 classes are paid in full.
10-Year Maturity: M-1 notes benefit from a 10-year legal final maturity. As a result, any collateral losses on the mortgage pool that occur beyond year 10 are borne by Fannie Mae and do not affect the transaction. Fitch accounted for the 10-year maturity in its default analysis and applied a 10% reduction to its lifetime default expectations.
Special Hazard Leakage: Fitch believes the structure is vulnerable to special hazard risk, as there is no consideration for payment disruptions related to natural disaster events in the recourse-event definition. As such, credit protection in the transaction may be eroded by natural disasters that may cause extended delinquencies (which may, in part, be allowed by disaster relief programs) but of which borrowers ultimately cure. Fitch considered this risk in its analysis, conducted sensitivity analysis and found, based on prior observed performance in post-natural disaster events (including Hurricane Katrina and the Northridge Earthquake), that the risk exposure is relatively low.
RATING SENSITIVITIES
Fitch's analysis incorporates a sensitivity analysis to demonstrate how the ratings would react to steeper MVDs than assumed at the state or MSA level. The implied rating sensitivities are only an indication of some of the potential outcomes and do not consider other risk factors that the transaction may become exposed to or be considered in the surveillance of the transaction. Two sets of sensitivity analyses were conducted at the state and national level to assess the effect of higher MVDs for the subject pool.
The defined stress sensitivity analysis demonstrates how the ratings would react to steeper MVDs at the national level. The analysis assumes MVDs of 10%, 20% and 30%, in addition to the model-projected 13% for the rated class M-1 notes, respectively. The analysis indicates that there is some potential rating migration with higher MVDs, compared with the model projection.
Fitch also conducted defined rating sensitivities which determine the stresses to MVDs that would reduce a rating by one full category, to non-investment grade, and to 'CCCsf'. For example, an additional MVD stress of 9% would potentially reduce the 'BBB-sf' rated class down one rating category.
Key Rating Drivers and Rating Sensitivities are further detailed in Fitch's accompanying presale report, available at 'www.fitchratings.com' or by clicking on the above link.
http://www.heraldonline.com/2014/10/28/6467392_fitch-to-rate-jp-morgan-madison.html?sp=/100/773/385/&rh=1
Yes it is frustrating bit at the same time news like this helps me hold. It reinforces my resolve.
Freddie Mac’s Portfolio Grows in September Author: Tory Barringer in Daily Dose, Headlines, News, Secondary Market October 28, 2014 0
Share on facebook Share on twitter Share on google_plusone_share Share on linkedin More Sharing Services0
FreddieFreddie Mac's mortgage portfolio grew in September, marking the second month of positive growth in the year's first nine months.
According to the company's volume summary, Freddie Mac's total portfolio grew last month at an annualized rate of 2.2 percent, bringing the year-to-date average growth rate to -1.1 percent.
The only other time the portfolio came up positive this year was in July, when it expanded at a rate of just 0.1 percent.
As of September 30, the portfolio's ending balance was just less than $1.9 trillion.
The growth accompanied a slight decline in purchases and issuances to $29.7 billion throughout the month. That was offset by drops in both sales and liquidations, resulting in a $3.5 billion increase overall.
Freddie Mac reported its single-family refinance loan purchase and guarantee volume was $12.0 billion in September, representing 45 percent of total single-family mortgage portfolio purchases and issuances. Relief refinances made up approximately 16 percent of that volume based on unpaid principal balance (UPB).
On the multifamily side, new business activity came to $2.8 billion, adding up to $14.1 billion year-to-date through September. The total reflects the UPB of Freddie Mac's multifamily new loan purchases, issuances of other guarantee commitments, and issuances of other structured securities during the month.
As business picked up, delinquency improved. Freddie Mac's single-family seriously delinquent rate ticked down for another month to 1.96 percent in September, the company reported. The multifamily delinquency rate dropped to 0.03 percent, its second lowest level this year.
Freddie Mac reported completing 4,782 loan modifications in September. For the year's first nine months, total loan modifications came to 52,138.
http://themreport.com/news/secondary-market/10-28-2014/freddie-macs-portfolio-grows-september
Fannie Mae issued $9.1B in multifamily MBS in 3Q14
Total volume nearly doubles 2Q14 issuance
Trey Garrison
October 28, 2014 4:14PM
Fannie Mae issued about $9.1 billion of multifamily MBS in the third quarter backed by new multifamily loans delivered by its lenders.
This was nearly double the volume issued in the second quarter of 2014.
“We are extremely pleased to report approximately $9.1 billion in Fannie Mae multifamily MBS for the third quarter,” said Hilary Provinse, Senior Vice President for Multifamily Customer Engagement, Fannie Mae. “With the continued solid performance of our multifamily MBS and steady multifamily fundamentals, the third quarter presented a great opportunity for Fannie Mae to provide increased liquidity to the market.”
The company’s DUS MBS securities provide market participants with highly predictable cash flows and call protection in defined maturities of five, seven and ten years.
Fannie Mae’s GeMS program consists of structured multifamily securities created from collateral specifically selected by Fannie Mae Capital Markets. Features of Fannie Mae GeMS have included block size transactions, collateral diversity and pricing close to par through Fannie Mae’s multifamily REMICs and multifamily Mega securities.
Highlights of Fannie Mae’s multifamily activity in the third quarter of 2014 include the following:
New multifamily MBS business volumes in the third quarter of 2014 totaled approximately $9.1 billion.
Issuance of Fannie Mae’s structured multifamily securities created from collateral selected by Fannie Mae Capital Markets totaled $3.1 billion in the third quarter of 2014. This issuance volume was generated from three Fannie Mae GeMS REMIC transactions. Through the third quarter of 2014, we have issued approximately $9.5 billion in GeMS REMICs. In addition, Fannie Mae issued one multifamily REMIC backed by $622.2 million of dealer-contributed DUS MBS in the third quarter of 2014, adding to the liquidity of Fannie Mae DUS MBS.
Fannie Mae Capital Markets sold $3.3 billion of Fannie Mae multifamily mortgage securities from its portfolio in the third quarter of 2014.
http://www.housingwire.com/articles/31871-fannie-mae-issued-91b-in-multifamily-mbs-in-3q14
Fmcc and fnma closer to parity.
Investors Unite Launches Fannie Mae, Freddie Mac Shareholder Discussion Board
NASHVILLE, Tenn., Oct. 28, 2014 /PRNewswire/ -- Today, Investors Unite announced the launch of the Investors Unite Discussion Board to engage Fannie Mae and Freddie Mac investors and offer a hub with the latest information and analysis of legislative actions and other items that affect shareholders. The platform will also be a great resource for users to interface directly with each other.
"The Investors Unite community is very active and we are pleased to be able to offer this new feature as a way to continue engaging with them," said IU Executive Director Timothy J. Pagliara. "For too long now, these investors have been fighting an uphill battle against their own government, which has thus far refused to correct course. The Investors Unite community has actively engaged during member update calls, press conferences and other events we have offered to our members. We expect that the Investors Unite Discussion Board will generate thoughtful and insightful commentary on the news of the day."
The IU Discussion Board will feature topics such as developments in Congress, at FHFA and in the courts, as well as breaking news. Users will have the ability to directly comment on forum discussions as well as post their own topics for input from other users. To join the conversation click "Interact with Investors Now" button on the Investors Unite homepage or visit the discussion board directly at investorsunite.org/discussion/.
About Investors Unite: Formed by Tennessee investor and CapWealth Advisors Chairman and CEO, Tim Pagliara, Investors Unite is a coalition of over 1,100 private investors from all walks of life, committed to the preservation of shareholder rights for all invested in Fannie Mae and Freddie Mac. The coalition works to educate shareholders and lawmakers on the importance of adopting GSE reform that fully respects the legal rights of Fannie Mae and Freddie Mac shareholders and offers full restitution on investments.
http://www.prnewswire.com/news-releases/investors-unite-launches-fannie-mae-freddie-mac-shareholder-discussion-board-280674412.html
Bove Sees Hope In Last Week’s Fannie Mae Settlement
by Michael IdeOctober 28, 2014, 10:40 am
While the settlement was with pre-conservatorship shareholders, Bove argues that it is good news for current shareholders as well
Shares of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) had a small rally Monday morning following Friday’s surprise settlement with pre-2008 shareholders who had accused the agency of fraud for misrepresenting its finances. Even though this settlement explicitly relates to pre-conservatorship shareholders, Rafferty Capital Markets VP of equity research Richard Bove sees a connection with other cases winding their way through the courts.
“Fannie Mae’s conservator is implicitly arguing in a number of other lawsuits that the government took over a bankrupt company in 2008 and, therefore, would have no obligation to make payments to any groups of plaintiffs,” Bove writes. “If the company was not bankrupt and it was slated for a return to publically held status; then the company would have an obligation to pay the claimants in other lawsuits.”
Fannie Mae, Freddie Mac – The settlement’s implications for other lawsuits
Bove is addressing one of the core differences between how the US government (FHFA and Treasury in particular) and current Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) shareholders view the conservatorship. Shareholders have argued that Fannie Mae’s supposed insolvency was an accounting choice that assumed a worst case scenario that never came to fruition and that regardless the agencies have returned more to Treasury than they took out. The government’s position seems to be that since the GSEs would have gone under without the bailout, it is entitled to all of their future profits, even though it hasn’t held banks, the auto industry, or AIG to the same standard.
According to Bove, this settlement opens the door to another settlement with Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) shareholders and the FHFA on the grounds that the government may be ready to admit that the GSEs weren’t really destined for bankruptcy after all.
Fannie Mae, Freddie Mac – A sign of litigation fatigue?
The problem with this view is that the settlement is with shareholders between 2006 – 2008, so the misrepresentations that Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) is admitting to aren’t that it was insolvent right at the end, but claims that it was healthy in the run-up to the financial crisis. This settlement actually fits the government’s overall narrative, even if Bove and other shareholder activists continue to reject it.
But there is still some upside to the settlement. Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) had a similar lawsuit dismissed last year, and if Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) had stuck to its guns there’s a good chance that it would have won the suit. If we’re starting to see litigation fatigue there could be more settlement offers in the future as the FHFA tries to move on with its current plans for the GSEs.
http://www.valuewalk.com/2014/10/bove-sees-hope-last-weeks-fannie-mae-settlement/
Oct. 28 (Bloomberg) -- Daniel Posner, chief investment officer at Golub Capital, and Columbia University’s Fabio Savoldelli discuss how hedge funds were impacted by volatility and the recent market selloff and where Gloub Capital is finding value. They speak on “Market Makers
Video link below
Volatility Exposes Hedge Funds in Market Selloff: Posner
Bloomberg-25 minutes ago
How much do we all convince ourselves fannie mae will not be a part of the government? That takes effort. If enough people do it, it goes up 100% plus.
http://www.bloomberg.com/video/hedge-funds-volatility-exposes-trades-in-market-selloff-JiSLD~gzR06Abb6a76gJ1g.html
OLD INFO> BUT STILL RELEVANT AND IMPORTANT
http://www.ritholtz.com/blog/2011/11/examining-the-big-lie-how-the-facts-of-the-economic-crisis-stack-up/
Summary of the Truth (Edit 10/28/14 )Another Tim Howard post
This page was created following our post on October 18th entitled: “Keys to Victory: Simplify and Focus”. http://timhoward717.com/2014/10/18/keys-to-victory-simplify-and-focus/ and the comments accompanying it.
Essentially we decided that it was critical to provide an honest summary concerning Fannie Mae and Freddie mac. For the most part, the conversation involving Fannie and Freddie has been dominated by lies and misconceptions. Unfortunately, many of our elected leaders and once respected media outfits for a variety of motives have chosen to grossly distort the facts. Their reasons are simple; their ideological hatred towards Fannie and Freddie trumps the truth, to them the ends justify the means. This page will be ever evolving. We will begin by providing a short summary. This will be followed by a much more detailed accounting and a timeline feature. We have assembled an amazing team to assist us in this process to ensure that our summary is accurate. It is critical that America know the truth about what has transpired regarding these two great American Institutions.
Edit 10/28/14
We have been working on the initial short summary but decided tonight that it will be best to start with one item at a time. Rather than try and tackle numerous key points this will enable us to focus on each one exclusively to get plenty of relevant data assembled to support it. We are going to start with “Fannie and Freddie did not cause the housing crisis.” I offer this article by Barry Ritholtz to kick this off. He offers a nice simple explanation backed up with some very informative charts. Over the next few days I hope to turn this into our first key point in the “Summary of Truth”
http://www.ritholtz.com/blog/2011/11/examining-the-big-lie-how-the-facts-of-the-economic-crisis-stack-up/
http://timhoward717.com/summary-of-the-truth/
TIM HOWARD LATEST POST
Narrow path in virtual minefield: Follow it.
28TuesdayOct 2014
I want to clarify a few things here. Our goal is to save Fannie and Freddie by sharing the truth about them and exposing the many lies our opposition has told. This simple concept has worked extraordinarily well this far. We have reached a point where a narrow path has opened in a virtual mine field. We must follow it. Anyone who chooses to cling blindly to their ideological beliefs at the expense of our goal risks jeopardizing our escape. Forget everything I said about the coup for now. We will only discuss it when a key event occurs and even then we should keep it toned down. We now face a situation where lazy journalists who up until now have been more than happy parroting the governments lies will be quick to rush in on the new “scoop”. They risk imperiling our victory before it barely gets off the ground. We also face the threat of our opposition using our vital information in an attempt to flank us before we achieve victory
I want to thank Rocco for once again keying right in on the truth in a comment earlier “The most valuable asset of the GSE reclaiming their place in the economy, is not the shareholder, but the affiliated markets that rely on the ability of the middle class getting a mortgage. From home builders to furniture, landscapers, independent contractors Lowes- home depot to Dunkin donuts; we are all intertwined. None would exist in a rental society… ” Home run Rocco congrats.
We need to set our egos aside and face reality. The reality right now is that The “investors” have been so demonized by the media and many of our opponents it will not help if it is made to appear that reform/release is being directed by the “investors”. It could actually complicate what is already in the works. The most valuable thing we can all do right now is help change the false narrative. I know there are several readers who have been following closely and have volunteered to help in any way they can. I am humbled by this outpouring of support. Tonight I posted the first key point in the “Summary of Truth ” link that we will elaborate on further over the next few days. I encourage and welcome all of you to contribute to this vital endeavor. It is critical that we provide our allies simple and concise data that can be used to further our freedom.
I want to ensure everyone that just because I propose that we support our political allies I will continue to shine the light of truth on those that oppose us both legally and politically. I actually have posts ready to go aimed at Senator Crapo, Ed Demarco and convicted felon Mike Milken. Don’t think for a minute that we will let up till Fannie and Freddie are given a fair trial.I also have a post that will be directed at the media and addresses the fact that rather been being the guardians of freedom they are now one of the biggest threats our democracy faces.
In closing, I just want to reiterate that those that thought Fannie and Freddie were soon to be carved up will soon realize “elections have consequences”. Keep the Faith!
http://timhoward717.com/
Is Financial Fraud Too Complex to Prosecute?
The Department of Justice is using an illegitimate excuse to explain why has not prosecuted any senior bankers responsible for fraud on Wall Street, says Bill Black, former bank regulator and current Associate Professor of Economics and Law at the University of Missouri-Kansas City
William K. Black, author of The Best Way to Rob a Bank is to Own One, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.
Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.
Black developed the concept of "control fraud" frauds in which the CEO or head of state uses the entity as a "weapon." Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae's former senior management.
Transcript
Is Financial Fraud Too Complex to Prosecute?SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to The Real News Network. I'm Sharmini Peries, coming to you from Baltimore.
Our regular guest on The Real News Network on finance and banking, Bill Black, titled his blog this week "How the Rocket Scientists Aided the Senior Fraudulent Bank Officers", so much so that our banking regulators at the Department of Justice deemed it too difficult to prosecute the bankers for the 2008 financial crisis.
Here to discuss the rocket scientists, who are they, and how the did they aid the bankers is Bill Black himself.
Joining us from Kansas City, Missouri, Bill is an associate professor of economics and law at the University of Missouri-Kansas City. He's a white-collar criminologist and former financial regulator and the author of The Best Way to Rob a Bank Is to Own One.
Thank you so much for joining us, Bill.
BILL BLACK, ASSOC. PROF. ECONOMICS AND LAW, UMKC: Thank you.
PERIES: Bill, how are these rocket--well, first I should say, who are these rocket scientists?
BLACK: Well, the rocket scientists are mostly mythical, but this is the latest excuse out of that great excuse factory which is the Department of Justice for why they have failed to prosecute a single senior banker who actually led any of the frauds that caused the financial crisis.
The context was the traditional exit interview of a senior Washington official, in this case Deputy Attorney General James Cole, with Bloomberg. And the idea of this kind of interview is you get to tout your accomplishments and you don't get asked very tough questions. But Cole did get asked by Bloomberg, so how come you didn't convict anyone? And Cole's answer was that it was impossible to get convictions, because the bankers who led the frauds that caused the financial crisis were, and I quote, "rocket science", unquote. So, apparently everybody in banking who's at all senior is a rocket scientist.
Now, this is crazy on multiple dimensions. So I actually wrote three columns, one on each dimension of craziness.
The first one is, of course, well, let's just assume that Cole's speaking the truth, that the bankers are so smart, so much smarter than the lawyers at the Department of Justice, that there is no way to convict them of even blatant crimes that cause a financial crisis, where we lose $21 trillion in GDP, 10 million American jobs. Right? You might think, if you were a senior Justice Department official, your job would be to warn about that and to say, we must change things so that we can make sure that people can't become wealthy by committing these kinds of devastating felonies with impunity. But no. Cole gave no such suggestion, no indication that he thought it was a problem at all that the people could get off with complete impunity. And, of course, the Bloomberg reporter never bothered to ask a question like that. So that's the first dimension [crosstalk]
PERIES: Bill, is part of the reason that the DOJ isn't able to do these kinds of prosecutions they don't have enough resources and support to mount a case against the banks?
BLACK: Well, part of the reason they can't succeed brilliantly is certainly that. But that doesn't explain why they don't bring 50 or 100 of these prosecutions. They don't have the resources to bring thousands of major prosecutions, but they certainly do have the resources to bring some, several hundreds of them. So, no, it's a matter of will and it's a matter of ideology. They really, really don't want to prosecute these folks. And that's the second dimension of craziness, right?
So what are the three big fraud schemes? One is that the lenders extort the appraisers to inflate the appraisal. Well, I can explain that to regular jurors in about 15 seconds, and they all realize, wait a minute, no honest banker would ever do that, because the true market value of the home is your great protection for the bank against loss. So that's an easy fraud scheme to explain. And we know that that fraud scheme is pervasive and all the investigations and all the empirical evidence demonstrates that. So that's certainly not even remotely rocket science.
The second big fraud scam was liar's loans. And again we have really good numbers on that and we know that no honest lender would make liar's loans. And we can explain that to a jury within ten or 15 minutes.
PERIES: And what are liar's loans?
BLACK: Liar's loans are when you don't verify, typically, the borrower's income. Sometimes you don't also verify the job as well, or even their assets in those circumstances. And the industry's own studies say that this is an open invitation to fraud, say that the incidence of fraud in such loans is 90 percent. And investigations show that it's overwhelmingly lenders and their agents who put the lies and liar's loans. So, again, not only is that not rocket science. I mean, it kind of lacks subtlety to call your loans liar's loans, you know, as a lender. This one isn't clever in the least bit.
Because there's no fraud exorcist, once the loans start out fraudulent, they have to stay fraudulent, and you can't sell a loan in the secondary market by making a representation in a warranty to the buyer that says, hi, I'm selling you fraudulent loans. So that means if you're going to sell to the secondary market--and roughly 95 percent of these fraudulent loans were sold to the secondary market--then the only way you can do that is through a fraudulent representation and warranty. And we have particularly good data from Clayton on the frequency, and it's roughly half [snip] all the loans being sold were sold through fraudulent representations and warranties.
Now, you are taught in America how to do a percentage, typically in fifth grade. So that's about the math level you need as a prosecutor.
PERIES: And in addition to that, Bill, they have access to experts like you who could be brought in to explain these and use you in terms of the trials themselves.
BLACK: Indeed they do. And, in fact, the rocket scientists would actually be useful witnesses for the prosecution, because in most cases their warnings were deliberately ignored, and they were excluded from the key meetings, and they were even fired when they did the right thing, by the senior officers that were leading the frauds. So instead of being a big scary thing, the rocket scientists would actually be part of a successful prosecution case. And that's the third dimension of crazy.
So it turns out rocket scientists--but what that means, really, is people with really, really strong mathematics skills. So we're talking about people with PhDs in mathematics or in physics, because physics has such heavy math skills these days. Those folks were never the CEOs of the big banks, and they were almost never the CFOs, the chief financial officers of the big banks. A typical highest position they would get to is the chief risk officer. So, first rocket scientists were not running these places. And the key isn't to prosecute these math whizzes. It's to prosecute the CEOs, the chief financial officers, and the people in the boards of directors, and the chief lending officers, folks like that. That's who we want prosecutions of.
And as I've said, in many cases, as I've explained, the quants, the quantitatively skilled people, which is a tiny segment of bankers, would actually be star witnesses for the prosecution, saying, yes, I warned the CEO that this could have disastrous consequences. And what happened then? Well, then I was fired. You know? It would be a really good case for the prosecution. And that happened to several cases. In other cases they were simply ignored or shoved to the side and kept out of the loop on important decisions. In all of those cases, they would be useful witnesses. So, again, this is a complete fiction created about these so-called math whizzes. And why anyone would be intimidated by the math whizzes [snip] after all, they get the total crisis completely wrong.
PERIES: Bill, normally in a democratic society one of the pillars that would hold the DOJ accountable is the media here. And you mentioned that Bloomberg did ask one tough question. But have they played their role in terms of the prosecutions that need to come about?
BLACK: Yeah, I wouldn't exactly call it a tough question. But there was no follow-up, of course, to an insane answer. But that's--you know, at least they left it as just an obvious clunker and didn't try to give them an excuse for correcting such a silly excuse.
PERIES: So if the media is not playing its role, normally in these kinds of situations, for example, in the environmental sector, when the EPA isn't doing their job, a whole mass of community organizations and environmental organizations would rise up and have protests and so on. But this isn't the case when it comes to the DOJ or these kinds of prosecutions. You know, we had Occupy for a moment, we had Occupy for a moment, but that has disappeared. Is there any organizations that are playing a watchdog role?
BLACK: There are organizations like Better Markets that are certainly supportive of it, but no, there is no significant entity that has made this their issue. Nor [is] any member of Congress currently making this their issue. So we continue to hope that Senator Elizabeth Warren will make this one of her major issues.
PERIES: Alright. Thank you so much for joining us, Bill.
BLACK: Thank you.
PERIES: And thank you for joining us on The Real News Network.
http://therealnews.com/t2/index.php?option=com_content&task=view&id=767&Itemid=74&jumival=12559
Fannie Mae Expects Private-Sector Growth Amid “Choppy” Housing Recovery
Published: October 27, 2014 at 1:53 pm EST
Mortgage finance giant, Fannie Mae (FNMA), said on Thursday it expects real economic growth in the country for the last two quarters of the year to surpass 3%. However, it maintained that a similar outlook for housing recovery in the country could not be justified.
The Economic and Housing Outlook for October that Fannie Mae released reports that moderation in monetary intervention by the US government and certainty as to fiscal policies has led to growth in the private sector.
Moreover, it highlighted that housing – which experienced significant improvement in the second quarter this year – also contributed to private sector growth.
Fannie Mae’s Economic and Strategic Research Team highlighted global factors that pose risks to, and hinder the growth of, the country’s economy. The Federal Reserve has maintained the current interest rate and no change is expected until next year.
According to the outlook, housing activity for the first quarter of this year was sluggish. But the second quarter was relatively stronger, as housing starts in July were the highest in six years, before dropping again to their lowest levels in a year in August.
For single-family and multi-family starts, growth from January to August was 3.1% and 20.7%, respectively, higher than last year’s figures in the same period. But growth for single-family permits in August trailed 2013’s comparable figures.
Existing home sales experienced a slowdown in August (5.6% growth), after recording gains over the four preceding months. Pending home sales for August also fell, which reflects lackluster mortgage applications and limited near-term gains.
On the contrary, new-home sales for August had shown considerable improvement, surging 20% and restoring consumer confidence in the market. The August National Housing Survey revealed that 68% of the respondents said that now is a good time to purchase a house, up 4 basis points from the last survey.
The increase in home prices has been moderate this year compared to the last. But the upsurge has prevailed because of reduced supply due to lack of construction activity. Homeowners have benefited in terms of strong equity position as a result of the increase in the value of their houses.
Fannie Mae expects that mortgage rates on the 30-year fixed mortgage will slightly rise to 4.7% by the end of next year from the current level of 4.12%. Moreover, it expects overall home sales this year to go down 3% compared to 2013.
However, Fannie Mae maintains that new-home sales are likely to grow 5% in 2015, owing to improving labor market conditions and low rates. It added that the number of housing starts in 2015 will go up to 1.17 million, compared to 1 million projected for this year.
http://www.bidnessetc.com/28065-fannie-mae-expects-privatesector-growth-amid-choppy-housing-recovery/2/
FHFA Proposals to Have Muted Impact on Mortgage Industry
Fitch Ratings-New York-27 October 2014: The Federal Housing Finance Agency's (FHFA) announcement last Monday that it plans to further refine representation & warranty requirements and allow Fannie Mae and Freddie Mac to purchase mortgages with slightly higher loan-to-values (LTV) signal a continued shift in direction. Fitch believes the proposed changes tend to help the GSEs maintain their dominant position, potentially leaving less room for private capital in the mortgage market.
Fitch sees the changes proposed by FHFA as incrementally helpful to residential real estate market activity only if banks become more willing to ease lending standards. While the initial market reaction to the proposed changes has been positive, it is not clear if banks will loosen their credit overlays on agency loans and increase lending volume. Currently, the GSEs' credit standards remain lower than those of originators, despite the revised rep & warranty framework put in place in early 2013. Banks have been much more cautious about underwriting because of the scale of loan putbacks imposed by the GSEs post-crisis.
We believe the proposed increase in LTV levels to 97% from 95% may result in some benefit to the active private mortgage insurers (MIs), which provide coverage on most GSE loans with LTVs above 80%.
The decline in downpayment requirement could increase the number of loans eligible for private mortgage insurance coverage and would extend the average length of policies' coverage. The benefit to the MIs, however, also depends on banks' willingness to lend at higher LTVs. It may also increase the riskiness of their insured books with more high-LTV loans. The Private Mortgage Insurance Eligibility Requirements, a new set of capital rules set to be finalized by the end of 2014, remain an uncertainty for the industry and potentially another long-term challenge for MIs.
https://www.fitchratings.com/gws/en/fitchwire/fitchwirearticle/FHFA-Proposals-to?pr_id=907994
Email Print
Recs
0
Is This Move By Fannie Mae and Freddie Mac a Mistake?
By Amanda Alix | More Articles | Save For Later
October 27, 2014 | Comments (0)
Housing is struggling, and mortgages are increasingly out of reach for many homebuyers. The possible connection between these two conditions has not gone unnoticed by the Federal Housing Finance Agency, regulator of mortgage heavies Fannie Mae (NASDAQOTCBB: FNMA ) and Freddie Mac (NASDAQOTCBB: FMCC ) , and changes are on tap to alleviate the problem – by making mortgages more available to those with dodgy credit.
Mortgage buybacks have made banks skittish
At the heart of the problem is the understandable reluctance of lending banks to revisit the era of mortgage buybacks. In the years following the subprime mortgage meltdown, banks like Bank of America were required to repurchase great swaths of these shoddy loans from Fannie and Freddie, finally paying out billions in settlements to each entity in order to put the whole issue to bed permanently.
Since then, mortgage rules have tightened considerably. Now, Fannie and Freddie will only buy mortgages that fit the new "qualified mortgage" standards, which lean heavily toward making certain that borrowers can truly repay the loan. Lenders, still jittery from the subprime crisis, have layered extra requirements for borrowers on top of qualified mortgage criteria – causing mortgage-making to slow to a crawl.
Are the new rules too lenient?
In an effort to loosen things up in the mortgage market, the FHFA, Fannie, Freddie, and mortgage lenders have negotiated a new set of less-onerous rules for lenders. Some of the changes announced by FHFA chief Mel Watt at a recent meeting of the Mortgage Bankers Association include dropping from 5% to 3% the required down payment on some loans destined for sale to Fannie or Freddie. To allay lenders' fears regarding buybacks, specific criteria has been established to identify fraud in mortgage loans, including issues like data errors, misrepresentations, and title issues. A resolution process for disputes between the housing agencies and lenders regarding buybacks is also in the works.
The hope is that banks and other mortgage lenders will extend credit to a wider population of borrowers, some of whom may have less-than-stellar credit. Currently, most loans purchased by Fannie and Freddie have borrower credit scores around 742 – though both agencies accept scores as low as 620, the limit below which a borrower is considered subprime.
Is the mortgage industry inching toward a return to risky lending practices? Perhaps not. There seems to be quite a lot of wiggle room in the above credit scores for banks to expand the definition of a "safe" borrower. Even loans with scores below 660 are performing better these days, with mortgages written since 2012 showing fewer delinquencies than earlier loans, according to a recent report from Black Knight.
In addition, instituting the 3% down payment rule would bring Fannie and Freddie in-line with the Federal Housing Administration's own 3% down payment criteria. Just like other borrowers who put down less than 20%, these buyers would be required to purchase private mortgage insurance, as well.
Ultimately, the housing recovery may depend more upon the movement of interest rates than any other variable.
http://www.fool.com/investing/general/2014/10/27/is-this-move-by-fannie-mae-and-freddie-mac-a-mista.aspx
Housing affordability is at a very low point, according to analysts at Bank of America Merrill Lynch, and changing these rules probably won't increase mortgage business for lenders above 4% next year. The factor that would have the most positive effect on housing would be a drop in interest rates to around 3%.
But, low rates won't be around forever, and that may be what regulators and lenders are concerned about: how to spur more mortgage-lending once rates begin to rise in earnest. Pushing the concept of home ownership can be a slippery slope, however, as the housing crisis clearly showed. As regulators and lenders begin to peel away the restrictions on mortgage lending, the memories of the recent past will, hopefully, keep them from going too far, too fast.
Maloni blog 10/27/2014
Watt’s Speech, Cooper Brief, and More
There were two major developments this past week, weighty with meaning and worth reviewing, plus some related events.
First up is Mel Watt reviving 3% down payments.
FHFA Director Mel Watt announced his not well kept secret to allow (perhaps mandate is a better word, since neither can refuse) Fannie and Freddie to begin—again--securitizing 3% down mortgages, a previous practice that had been junked for safety and soundness reasons. (Link to Watt’s remarks.)
http://www.fhfa.gov/Media/PublicAffairs/Pages/Prepared-Remarks-of-Melvin-L-Watt,-Director,-Federal-Housing-Finance-Agency-at-the-MBA-Annual-Convention.aspx
While there were several welcoming comments for Watt’s action, it was far from universal. Some commentators expressed concerns about inviting back “subprime.” (See W Post editorial link below.)
http://www.washingtonpost.com/opinions/a-step-backward-for-the-housing-industry/2014/10/24/c4430ec8-5b80-11e4-8264-deed989ae9a2_story.html?hpid=z6
I disagree with those critics and don’t think these limited steps usher a new subprime era. Lenders, investors, and the government all are smarter and have better control over that unlikely development.
Where I agree with the Post editorial is that the federal financial regulators are making a mistake scaling back and lowering their Private Label Securities (PLS or non-F&F) “required skin in the game” rules, since that’s where the red ink hemorrhage and major problems originated before the 2008 real estate meltdown. (Yes, over $2 Trillion in faulty PLS mortgage bond creation, not by F&F but the big banks and investment banks.)
This latest regulatory caviling shows what happens when lenders whine, drag their feet, making borrowers suffer, and federal overseers quickly fold their cards and rush to accommodate the banks and mortgage companies.
Meanwhile at FHFA, Watt creatively is trying to use his regulatory authority to stimulate what lenders should be doing on their own, lending to lower income families, which—if they truly did—would be a man bites dog story.
Some reactions to Watt’s speech
Major lenders still expressed “buy back” worries (see link to John Carney’s WSJ article covering that), saying they might not do the new 3% down mortgages.
http://m.wsj.com/articles/dont-bank-on-easier-mortgage-credit-heard-on-the-street-1413836831?mobile=y
Guy Cecala’s Inside Mortgage Finance carried this from the MBA meeting, last week, on how some banks might react.
“The mortgage credit box contracted quickly as the housing market slid toward disaster in 2007, but it’s proving to be much more difficult to stretch it back to what used to be considered normal.”
“The subtitle to this week’s annual convention of the Mortgage Bankers Association could well have been access to credit, an idea that clearly dominated the conversation in Las Vegas. Despite the recent unexpected drop in mortgage interest rates, most observers believe originations in 2015 will track closely to this year’s sluggish level. Part of the problem is relatively weak home-purchase lending.”
“And don’t expect any of the megabanks to move quickly to loosen their underwriting standards to attract new customers. During one of the sessions at the convention, David Steckel of Bank of America said his institution has focused on capturing more of the customers who fit into the company’s credit box rather than making that box bigger.”
“About half of BofA’s mortgage originations in the first half of 2014 went to current bank customers, said Steckel. Still, the new lender-friendly representation and warranty framework unveiled this week by the Federal Housing Finance Agency may make the bank a little more interested in considering expanding its credit box than it was six months ago, Steckel said.”
The (stuffy) Economist weighs in on Watt’s call for lower down payment F&F lending. (Brits should be among the last people lecturing the US.)
http://www.economist.com/node/21627699/print
Ditto, the NYT.
http://dealbook.nytimes.com/2014/10/22/u-s-loosens-reins-but-mortgage-lenders-want-more-slack/
Vox criticizes new policies.
http://www.vox.com/2014/10/21/7027949/mel-watt-subprime-mortgage-fannie-mae-freddie-mac
What Maloni Thinks….
Most banks and mortgage banks will reveal themselves and frustrate Watt’s move, slow walking any new lending, citing the "possibility" of buyback requests—until Watt gives them something concrete so they don’t have to “worry” as much!
If lenders followed the F&F automated underwriting rules--and didn't try screwing mortgagors or investors manipulating the underwriting criteria--they would have very few buyback requests. They get into trouble when they cut corners, hoping that nobody will catch them.
Go forward Mel with your not so new changes, but watch the lenders closely—maybe increase the GSE post purchase review procedures—noting carefully the loan quality lenders ship to F&F.
More Action on Third Amendment Cases
There are several “third amendment takings” law suits, working through three separate courts.
I discussed Lamberth’s and Sweeney’s initial (and questionable) decisions last week.
Judge Royce Lamberth ruled to dismiss an Administrative Procedures Act (APA) claim against the government that will be appealed. Judge Margaret Sweeney’s opinion only rejected Fairholme Capital’s hiring Tim Howard to view certain information under the document “discovery’” she granted Fairholme lawyers earlier this year.
In an earlier Iowa federal court action, Judge Ross Walters heard a third case--brought by plaintiffs Continental Western Insurance Company---and like the Lamberth opinion, dealt with the Administrative Procedures Act (APA) as well as the Housing and Economic Recovery Act (HERA).
As predicted, the government circulated Lamberth’s ruling, urging other courts (Iowa and presumably Sweeney) to embrace that finding.
Fairholme’s law firm, Cooper and Kirk—a party to the Perry suit on which Lamberth ruled--filed a brief with Judge Walters last week in Iowa, in response to the government’s courts’ call to “follow Lamberth.” It contains many items—see below--likely to be in Cooper’s non-lead plaintiff’s appeal of Lamberth’s original decision, supporting the US government.
I. The Perry Court’s Boundless Interpretation of Section 4617(f) Is Wrong. ........................4
A. The Net Worth Sweep Exceeds FHFA’s Powers and Functions as
Conservator. .............................................................................................................4
1. As conservator, FHFA has no power to take the Companies’
profits for itself or to give them to its sister federal agency. .......................5
2. As conservator, FHFA must work to preserve and conserve the
Companies’ assets and to place the Companies in a sound and
solvent condition. .......................................................................................10
3. As conservator, FHFA must exercise its independent judgment and
cannot make decisions at Treasury’s direction. .........................................11
4. As conservator, FHFA may not take steps to wind down the
Companies..................................................................................................12
5. As conservator, FHFA may not make arbitrary and capricious
decisions.....................................................................................................14
B. HERA’s Jurisdictional Bar Does Not Shield Treasury’s Unlawful
Conduct. .................................................................................................................15
Here is a Value Walk article on this matter, plus a link to the entire Cooper filing.
http://www.valuewalk.com/2014/10/fannie-mae-continental-western-points-lambreth-ignored-supreme-court-precedent/
Also another document link without commentary.
http://online.wsj.com/public/resources/documents/fannie1021.pdf
I am a bit shocked these two judicial decisions seem so far off the mark of statutory and legal reality.
Certainly, Lamberth’s which is far more significant than Sweeney’s, makes even veteran lawyers wonder what the Judge was thinking in ignoring various court precedents and finding “arbitrary and capricious” protection for Treasury which doesn’t exist in law.
The Lamberth ruling will be appealed and much of what Copper and Kirk will say then is reflected in the report (above) sent to Iowa Judge Ross Walters.
Part of me still is pissed/outraged at how many people—including jurists who should know better—seem inclined to believe the worst concerning Fannie and Freddie, and that no mistreatment or abuse of them, their officials or shareholders is beyond the pale.
All of which supports David Fiderer’s belief that the “F&F Big Lie” (evil and responsible for the 2008 financial meltdown) is so ingrained it may never get washed out of our national consciousness.
Yet a national mortgage market, without Fannie and Freddie and the affordable fixed rate financing they insure, would be an ugly consumer-unfriendly system. GSE critics never seem to make that critical connection.
When the Administration, in the form of Mel Watt, goes to Las Vegas to tell the Mortgage Banker’s that help is on the way, what principals did they employ to stimulate conventional mortgage finance—Fannie and Freddie? And he didn’t even offer an Obama, “Thank you very much and excuse me for dumping all over you.”
http://malonigse.blogspot.com/
Fannie Mae: Sen. Mark Warner: Bureaucrats over Shareholders
by Guest PostOctober 26, 2014, 11:12 pm
Fannie Mae: Sen. Mark Warner: Bureaucrats over Shareholders by Investors Unite
Sen. Mark Warner: Bureaucrats over Shareholders
Virginia Senator Mark Warner has been crisscrossing the state campaigning hard for re-election. He talks about all the good things he’s done for Virginia – the federal dollars he’s brought back to the state, his support for programs and policies that he says will make Virginians lives better, as well as the direction he wants the state to head in the future.
In other words, typical campaign rhetoric when someone doesn’t want to talk about what they’ve really done. And what has Sen. Warner done?
Residential ObamaCare.
From a Weekly Standard piece:
“It’s hard to understand why legislators think that government can restructure this one-sixth of the economy any better than they are restructuring the one-sixth represented by health care.”
Sen. Warner is, of course, one of the main proponents of the Corker-Warner housing reform bill that does not uphold the rights of shareholders in its attempt to restructure Fannie Mae and Freddie Mac. Instead of returning Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) to full profitability with better safeguards, Corker-Warner effectively tosses the baby out with the bathwater. More from The Weekly Standard:
“In going through contortions to reinvent the housing finance system, the senators have avoided the obvious solution: keep the basic platform that has generally served American homeowners well but reform it to reduce risks. Instead, Johnson and the others have come up with a contraption that resembles the Affordable Care Act in its convolutions and its potential for unintended consequences.”
We’re not so sure about the “unintended consequences” part. The ink was barely dry on the papers forming the conservatorship before Treasury bureaucrats started twisting it to their own designs. And elected officials like Mark Warner, when they saw they would have to choose a side, chose to stand with the bureaucrats instead of their constituents. We don’t know how many Fannie Mae and Freddie Mac investors live in Virginia but it’s inevitable, given the overall numbers of investors, of which there are thousands.
So it raises the question: how many of those investors aren’t aware of the full extent of Sen. Warner’s betrayal of them and are considering voting for him? Warner-Corker as the predecessor to Johnson-Crapo is losing steam, but make no mistake, neither of those bills protects shareholders; in fact, both eliminate shareholder rights and will continue to hold Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) captive by bureaucrats.
Look at it this way, Virginia voters: every vote cast for Mark Warner is a vote against the rule of law and against the possibility of preserving and restoring shareholder rights.
http://www.valuewalk.com/2014/10/fannie-mae-sen-mark-warner-bureaucrats-shareholders/
Oh so do I...so do I.
Yes I have a question. Where can I buy a crystal ball like yours that will tell me what trial verdicts will be? Another question, does the same crystal ball tell you that all forthcoming news is negative or did you purchase a second crystal ball for news? TIA LOLZ.
Raking In On Rents: The Housing Crisis Begins Anew
Devon Douglas-Bowers | Sunday, October 26, 2014, 22:19 Beijing
Wall Street wrecked the economy in 2007 due to dealing in shady mortgage securities that were given dubious triple-A ratings and put the entire global economy on the brink. Do you think those big banksters learned their lesson and decided not to dabble in overly complex financial instruments and to stop deceiving people? The answer is of course, a resounding no. Not only have the bankers not received virtually any punishments for nearly destroying the economy, they are now involving themselves in the rental arena and may create another financial crisis in the process.
The situation began when the Federal Housing Finance Agency Real-Estate Owned (REO) initiative program launched in late February 2012. The purpose of the program was to allow “qualified investors to purchase pools of foreclosed properties with the requirement to rent the purchased properties for a specified number of years.”
The thinking behind the program was that it “could provide relief for local housing markets that continue to be depressed by the volume of foreclosed properties, and provide additional rental options to certain markets.” The initial phase involved allowing companies to purchase large amounts of foreclosed properties from Fannie Mae and Freddie Mac, given that in a couple of years the properties would be converted into rental housing.
It must be noted, however, that in a August 10, 2011 information request regarding the then-upcoming REO Program, it was stated that a specific goal was to “solicit ideas from market participants that would maximize the economic value that may arise from pooling the single-family REO properties in specified geographic areas.”
Now, this makes sense in that you need information from corporations who can deal in the REO business on a large scale, but it also allows for these very same corporations to have influence in what occurs and to potentially steer the program in a direction that would be to their benefit.
Once this program was open, companies began snapping up properties quickly and then securitizing them, called REO-to-rental securitization. The first company to do this was Blackstone which “[packaged] rental income from single-family homes it owns into a pass-through security, similar to a mortgaged-backed security.”
While some economists argued that this could aid the hardest hit areas of the housing crash, others worried that “these new investors could face big challenges managing large portfolios of dispersed rental houses.”
Investor companies such as Blackstone wanted to get into this new business as it had the potential to net returns that were much higher than either investing in Treasury securities or stock dividends. For example, “While a 10-year Treasury note yields little more than 2%, economists at Goldman Sachs calculate that rental property investments yield more than 6% on average, nationwide.”
From the very beginning of this new venture, there were already alarms raised about the situation. While Moody’s was allegedly giving such securitizations a triple-A rating, Fitch Ratings saw a major problem with this, namely that there was “limited performance data for the sector and individual property management firms.”
This meant that people didn’t really know what they were getting themselves into as this was new market and thus the situation was quite risky. Earlier this year, Standard & Poor’s warned that rental security bonds didn’t deserve triple-A status due to their “operational infancy,” disagreeing with other rating agencies such as Moody’s, Krolls, and Morningstar.
Rent securitization has the potential to have some serious effects. Daniel Indiviglio, a columnist at Reuters, argued that the lack of data on securitization presents a number of challenges. The securities “may require an entirely new infrastructure for appraising how rentable a home is and at what price.
And the faults that the crisis exposed in securitization reinforce how crucial a good crop of historical information is on rental trends.” Without having any long-term historical data, investors and rating agencies will be forced “to make assumptions on new stats like vacancy rates, tenant turnover costs and property management fees.”
Another factor is that potential bond purchasers will want to demand serious compensation for ponying up the money to buy these vacant houses as one cannot assume that the property is stable unless tenants have lived there for quite some time or signed a medium or long-term lease, which is quite rare for renters who are just moving in. “And with foreclosures focused in a few key regions and resulting rentals appealing to specific segments of the population, concentration risk is likely to be magnified.” This all raises the possibility that rental securitization may cost more than it is actually worth.
In addition to the actual financial risk for investors, there is also the possibility that rental bonds could possibly be increasing rents. In January 2014 it was reported that Congressional Representative Mark Takano (D-Calif.) “sent a letter to House Financial Services Committee Chairman Jeb Hensarling and Rep. Maxine Waters, D-Calif., asking for an investigation into rental-backed securities deals” as he was saw that rental prices were increasing and that “a surplus of investors in rentals — along with new rental-backed securities deals — could have the effect of artificially raising rental prices, making housing even more costly in parts of California.”
To back up his case, Takano cited a 2013 Federal Reserve report which stated, with regards to companies buying up houses and renting them out, that without proper oversight “investor activity may pose risks to local housing markets if investors have difficulties managing such large stocks of rental properties or fail to adequately maintain their homes” and that “Such behavior could lower the quality of the neighborhoods in which investors own rental properties.”
But, we can safely assume that Congress already has laws to oversee rent securitization…right? It isn’t as if they would just go and let a situation similar to what just occurred go without being properly regulated….right? Well, it seems that there is no legislation overseeing rent securitization whatsoever. Representative Takano for Congressional hearings in January 2014 to look into the issue and so far it seems that nothing has happened.
While the situation is bad in Congress, it is even worse for people who live in houses that are owned by these corporations. Mindy Culpepper lived on the outskirts of Atlanta in a home which was consistently inundated with the stench of raw sewage and while she and her husband paid $1,225 a month to live in the three-bedroom house, her landlord in the form of Colony American Homes completely ignored her complaints. This isn’t a recent problem either; the Culpeppers have had to live with that stench from the first day they moved in.
Speaking of Atlanta, on April 15, 2014 the organization Occupy Our Homes Atlanta released a report entitled Blackstone: Atlanta’s Newest Landlord in which it was found that: (1) Tenants wishing to stay in their homes can face automatic rent increases as much as 20% annually. (2) Survey participants living in Invitation Homes pay nearly $300 more in rent than the Metro Atlanta median. (3) 45% of survey participants pay more than 30% of their income on rent, by definition making the rent unaffordable. (4) Tenants face high fees, including a $200 late fee for rental payments. (5) 78% of the surveyed tenants do not have consistent or reliable access to the landlord or property manager.
Furthermore, it was reported in July 2014 that while the company Invitation Homes “claims to have spent $25,000 per home to bring them up to standards, 46 percent of respondents reported plumbing problems, 39 percent found roaches or other insects, and around one in five had issues with air conditioning or mold or leaky roofs.” Thus, we can see that these corporations only care about making money rather than taking care of tenants.
All of this has a major impact on the working-class as they already spend more than half of their income on rent but with rent securitization, the economic problems begin even before people have entered the door. The organization Homes For All, released a report focusing on the Los Angeles rent securitization scene and found that “A major barrier to rental accessibility, especially for low-income renters, is the required deposit amount.
In Los Angeles, the average deposit amount equated to 157 percent of respondents’ monthly rent amount. The highest deposit required as a percentage of monthly rent was 281 percent, and the lowest was 53 percent.” With regards to amount spent on rent, the report found that “67 percent of [the] respondents had unaffordable housing, and 47 percent were severely cost-burdened.”
There are other problems as well. In New York City, where private equity firms are buying up apartment buildings which are rent-controlled, companies are pushing long-term residents out of their apartments in order to redo the dwellings and sell them at market prices. These firms are often engaging in illegal tactics such as “mailing fake eviction notices, cutting off the heat or water, and allowing vermin infestations to take hold.”
Serious money is on the table for these companies. For example, in 2005, Rockpoint Group “bought a complex of apartment buildings in Harlem known as the Riverton Houses. To justify the whopping $225 million mortgage, the company projected that it would be able to more than triple the rental income from $5.2 million to $23.6 million by forcing out half of the rent-regulated tenants within five years.”
Rent securitization is a major problem, not only because it mirrors the mortgage crisis that just occurred, but also because of the human impact it has. People who are already in difficult conditions, living in rent-controlled apartments are being forced out and those who are purchasing these corporate-owned apartments are living in wretched conditions and rarely to get any service whatsoever. We need to say no to this new scheme because if not, it may allow for the mortgage crisis to become a rent crisis.
Mr. Devon Douglas-Bowers who is one of the frequent contributors for The 4th Media is a 22 year old independent writer and researcher. He has a BA in Political Science and is the Politics/Government Department Chair at the Hampton Institute. He can be contacted at devondb[at]mail[dot]com.
http://www.4thmedia.org/2014/10/raking-in-on-rents-the-housing-crisis-begins-anew/
Bill Ackman and His Hedge Fund, Betting Big
By ALEXANDRA STEVENSON and JULIE CRESWELLOCT. 25, 2014
William A. Ackman in his office overlooking Central Park. The hedge fund has had strong returns in a year when many others are just breaking even, but its concentrated bets on a small number of companies give some critics pause. Credit Misha friedman for The New York Times
William A. Ackman, the silver-haired, silver-tongued hedge fund mogul, gestured out the window of a 42nd-floor conference room at Pershing Square Capital Management in Midtown Manhattan. The view was spectacular, but Mr. Ackman’s arm extended not downward, toward the vibrant fall foliage of Central Park, but skyward toward the top of a glittering glass building just around the corner on 57th Street.
He was pointing toward One57, a new 90-story, lavish hotel and condominium building described by one critic as “a luxury object for people who see the city as their private snow globe.” Specifically, Mr. Ackman was referring to the penthouse apartment. Named the Winter Garden, for a curved glass atrium that opens to the sky, it is a 13,500-square-foot duplex with an eagle’s-eye view of the park.
And it will belong to Mr. Ackman. When the sale closes, the reported $90 million price would be the highest ever paid for a Manhattan apartment. It is, he explained, “the Mona Lisa of apartments.” Never will there be another like it.
But Mr. Ackman, 48, doesn’t intend to live there. He lives at the Beresford, off Central Park, with his wife and daughters. The Winter Garden is just another investment opportunity for him and a few others. “I thought it would be fun,” he said, “so myself and a couple of very good friends bought into this idea that someday, someone will really want it and they’ll let me know.” Maybe he will hold some parties there in the meantime.
Whether it’s a top-of-the-world apartment, an attack on a company or even his annual vacations with friends (the next trip is Navy SEAL training), Bill Ackman does everything big.
And this may be his biggest year yet. Overseeing more than $17 billion, his hedge fund is up 32 percent in a year when many other hedge funds are just breaking even. He recently completed a public offering of stock in Europe of part of Pershing Square, and while the shares are trading below the offering price, he still raised $2.7 billion that he can use to make more big bets. He’s also a driving force behind one of the biggest — and certainly the most controversial — potential mergers of the year: Valeant’s $53 billion hostile takeover bid for Allergan, the maker of Botox.
Photo
The 90-story Manhattan tower One57, where Mr. Ackman is buying the penthouse apartment for a reported price of $90 million. He calls the penthouse “the Mona Lisa of apartments.” Credit Elizabeth D. Herman for The New York Times
His critics agree that he’s big. They say he stands out for his big mouth and oversize ego, an accomplishment in the hedge fund world. (Even back in high school, his tennis teammates presented him with a T-shirt that read: “A closed mouth gathers no foot.”) Others warn that his fund has a risk of blowing up. His portfolio is made up of bets on less than a dozen companies. (The Allergan stake alone made up 37 percent of his fund earlier this fall, according to filings.) That means when things go bad, they can go really bad. That’s what happened when his $2 billion bet on Target through a separate fund lost 90 percent of its value at one point.
He has wagered $1 billion that Herbalife, the nutritional supplement company, will fail. So far, that bet hasn’t panned out, and even one of his closest advisers has called his theatrics on the subject — including a teary, three-hour rant this summer in front of nearly 500 people — a mistake.
Continue reading the main story
But on that crisp fall morning at Pershing Square, Mr. Ackman was uncharacteristically taciturn. Reserved, even. Or maybe he was just a bit annoyed.
When asked if he has had to make bigger, riskier bets as his fund has grown, he answered, a bit petulantly: “We certainly have to make bigger investments, that’s definitely true. But not riskier investments.” Asked about failures, like the Target bet, he sighed deeply. “Target was a bad investment,” he said, “but out of 30 investments, I don’t know of another investor with as high a batting average.”
He certainly has an enviable long-term record: His funds, excluding the Target and four other separate funds, have returned 21 percent net of fees over 10 years, annualized. He has achieved it by going on the offensive. Mr. Ackman’s role as an activist hedge fund investor is to persuade other shareholders that he knows how to run companies better than current management does. This involves research, argument and, perhaps most important, a sensitivity to how every pronouncement and gesture will be perceived.
“I was angry at Carl Icahn for many years, as you know,” Mr. Ackman said of the longtime activist investor, when asked if he holds grudges. He swiped at his eye and added, lest the movement be misinterpreted: “My eye is tearing. It’s not emotion. I have a clogged tear duct.”
His attention to detail and persuasive powers will be especially important come December, when Allergan shareholders hold a special meeting. Mr. Ackman will urge them to replace a majority of the company’s board and to pave the way for approving the takeover by Valeant.
It’s a high-stakes move. And Mr. Ackman is all in for a big win. He is intensely competitive about everything, from memorizing two-letter words for Scrabble games to, as it turns out, owning apartments.
“It’s one of a kind,” he said of his trophy penthouse. “By the way,” he added, nodding down the street where other luxury towers are expected to be built, “these other buildings are not going to be as good.”
Commanding the Room
All successful people have stories to tell about what allowed them to achieve fabulousness. There is usually a moral. In the story that Mr. Ackman likes to tell, the moral is this: Never doubt Bill Ackman.
During his freshman year at Harvard, Mr. Ackman happened to read the application essay of the guy in the room next door. It was about why he hated Smurfs. Mr. Ackman thought it was really good, and an idea formed. He would write a book on how to write a college essay, drawing on examples and interviews with Ivy League admissions officers. On the advice of a family friend, he broadened his book to include information on college admissions and sent it off to publishers. The rejection letters piled up. He dropped the idea.
Later, two guys from Yale wrote a similar book called “Essays That Worked,” which would be featured in a New York Times article.
“I suffered extreme psychological torture,” Mr. Ackman recalled. The advice that the family friend gave, he added, had been bad. “I said, the next time I have a really good idea, I’m not going to listen just because someone is older than me.” Mr. Ackman continued, “It’s not going to stop me from going forward.”
Continue reading the main story
Fresh out of Harvard Business School in 1992, Mr. Ackman went to work for his father, Lawrence Ackman, at his commercial real estate brokerage firm, Ackman-Ziff. But the young man was impatient. After just one week, and shrugging off advice that he first work for a veteran hedge fund manager, Mr. Ackman convinced his Harvard buddy David P. Berkowitz to start a hedge fund.
Cobbling together $3 million, the two started Gotham Partners. In a tiny office, they pored over corporate filings, hunting for undervalued companies. In 1998, Gotham started a hostile proxy fight against a small Ohio real estate holding company, First Union Real Estate Equity and Mortgage Investments. It took months of tussling before Gotham prevailed.
At Gotham, Mr. Ackman developed the methods he would use again and again. He went after big targets and took his battles into the public arena. Those techniques proved especially useful when he had sold short a company’s stock, betting on a collapse on the stock price.
His first foray into activist short-selling was in the spring of 2002, when he released a 48-page, scrupulously researched paper criticizing the management and reserve levels of the Federal Agricultural Mortgage Corporation. By that fall, Farmer Mac’s stock had tumbled, producing a quick win for Gotham, which had sold the agency’s stock short.
Mr. Ackman’s next short target, in late 2002, was the bond insurer MBIA, which he argued had backed billions of dollars of risky financing. It was a bet that would take years, hours of presentations to credit agencies and regulators, and a Wall Street financial crisis in 2007 before eventually paying off when MBIA’s stock started to collapse. Mr. Ackman’s bet was a huge success, netting just over $1 billion. But Gotham’s days were numbered.
Over the course of several years, Mr. Ackman struggled to right the troubled First Union, including an attempt to merge it with a failing golf operator that Gotham also owned. Investors started to voice concern. When a judge’s decision about the merger in late 2002 went against Gotham, the partners decided to wind down. The once highflying fund was done.
More than a decade later, Mr. Ackman accepts partial responsibility for Gotham’s demise. The problem, he said, was not its investments, which he argues ultimately paid off, but rather the strategy of investing in real estate, which was hard to sell quickly when investors wanted their money back. “I made a couple of strategic mistakes that, had I had more perspective, I wouldn’t have made,” he said.
About a year after Gotham closed, Mr. Ackman reappeared with a new fund, Pershing Square, and a $50 million seed investment from the Leucadia National Corporation. There would be a new focus: activist investing.
At Gotham, he learned that he needed research and a story. At Pershing, he perfected the skill of telling that story to an audience of shareholders, corporate directors and the news media.
“He’s trying to create a theatrical setting where it’s not about the words, it’s about the dynamic, the action,” said J. Tomilson Hill, chief executive of Blackstone Alternative Asset Management, an investor in Pershing Square.
Continue reading the main story
He charged quickly out of the gate, persuading Wendy’s to divest itself of the Canadian chain Tim Hortons. Then he got McDonald’s to sell some of its restaurants and buy back shares. It became clear that when Pershing Square announced a stake in a company, something big was going to happen, and the stock moved.
“Bill commands a room. He’s a tall guy, a good-looking guy. He draws all eyes to him when he speaks,” said Damien Park, the founder of Hedge Fund Solutions, which consults on activist campaigns but has not worked with Mr. Ackman. “Also, his ideas aren’t usually incremental in nature — asking a company to distribute cash or clean up a balance sheet. They’re usually quantum changes in a company.”
That was true of his 2007 mark on Target. In just two weeks, he raised $2 billion for a special fund to invest in just one stock. He wanted Target to sell its credit card business and restructure its real estate holdings. Target sold off part of its credit card business, but management disagreed with his real estate plan. Over the course of two years, Mr. Ackman waged a $10 million campaign to replace board members with himself and four others.
When shareholders voted against him in the spring of 2009, the defeat stung more than his reputation. By then, losses amounted to as much as 90 percent, and many investors in the special Pershing Square fund, including the fellow activist investor Daniel S. Loeb through his Third Point hedge fund, had asked for their money back.
Mr. Ackman suffered another black eye a few years later with J. C. Penney. He won a seat on its board in 2011 and handpicked Ron Johnson, the head of Apple’s retail stores, to turn around the troubled retailer. But the efforts were botched; the company went from being profitable to losing $1.4 billion in 2013. Mr. Ackman resigned from the board in the summer of 2013, selling his stake at an estimated loss of $473 million.
“Every time I see him,” said Mr. Hill at Blackstone, “I say: ‘Bill, do me a favor. Stay away from retail.’ ”
Still, Mr. Ackman notched two of his biggest hits — General Growth Properties and Canadian Pacific — over the same period, helping to offset the reputational and financial losses from Target and J. C. Penney. Pershing estimates that Mr. Ackman’s original $65 million investment in General Growth, which operated commercial properties and has been restructured into three businesses, is now worth $3.3 billion. In Canadian Pacific, Mr. Ackman has so far tripled the value of his original investment after replacing the board and forcing through a turnaround.
His defenders argue that anyone with a fund as large as Pershing is going to have the occasional blunder. “In this business, if you don’t make mistakes, you’re either a liar or you don’t take many swings at the ball,” said Leon Cooperman, the founder of the hedge fund Omega Advisors.
Always a Competition
Photo
Mr. Ackman took part in a tennis tournament in August. Credit Owen Hoffmann/patrickmcmullan.Com
Last year, Mr. Ackman and some friends took a scuba-diving trip off the coast of Myanmar. The sun was warm, the ocean calm, but even in this idyllic setting, Mr. Ackman felt compelled to devise a competition he could win. After surfacing from each dive, he checked his air gauge against everyone else’s, to see who had used the least amount of oxygen while diving. Using less oxygen suggested less stress, thus proving who was least rattled under water. Mr. Ackman really, really likes to win.
Continue reading the main story
“When we lost at tennis, always, on some fundamental level, he regarded it as an aberration,” recalled Michael Grossman, his tennis partner in high school.
Mr. Ackman had an upper-middle-class upbringing in the New York suburbs, and he recalls plenty of rough-and-tumble arguments at home with his parents and sister. “Let me win?” Mr. Ackman recalled. “That doesn’t exist in my house. No one lets anyone win. Fight to the death.”
And if, at times, that means putting his fund and reputation at risk, so be it.
“I think he is just prepared to live with the scrutiny and the calumny heaped upon his head,” said William A. Sahlman, one of his professors at Harvard Business School.
This year, Mr. Ackman made a rare move. It began with a meeting in early February between him and J. Michael Pearson, the chief executive of Valeant. Five days later, Mr. Pearson expressed his interest in buying Allergan, the maker of Botox, and sought Mr. Ackman’s help, according to Valeant’s regulatory filings. Mr. Ackman agreed and began buying shares in Allergan through a unique partnership with Valeant later that month, eventually building a $4 billion stake in the company. By April, Mr. Ackman and Valeant had gone public with a bid for the company worth $47 billion. It went hostile.
“A hedge fund getting together with another company to buy out a competitor?” said Alan Palmiter, a business law professor at the Wake Forest University School of Law. “That’s definitely unusual. I can’t recall ever seeing a hedge fund being part of an industry takeover.”
Allergan had stronger words for Valeant and Mr. Ackman. It rejected the deal and warned shareholders that Valeant would squeeze the company for profit and skimp on research. In a federal lawsuit, Allergan contended that the Valeant-Ackman partnership was an “improper and illicit insider-trading scheme hatched in secret by a billionaire hedge fund investor.” The S.E.C. is now investigating. Pershing Square denies the accusations.
The short-seller James S. Chanos, who predicted the fall of Enron, has called Valeant’s accounting aggressive and joined the fight — against Mr. Ackman.
While Mr. Ackman drew support from big Allergan shareholders — including T. Rowe Price and Pentwater Capital Management, and proxy advisers like Glass Lewis — for a special shareholder meeting in December to vote on a new board, the clash has intensified. In early October, Mr. Ackman provided a sometimes testy deposition for the Allergan lawsuit. (After confirming that he had given depositions “a number” of times before, Mr. Ackman added, “I love depositions.”)
Neither side shows signs of backing down ahead of the shareholder vote. In court filings, Valeant and Pershing have accused Allergan of providing false information about Valeant to shareholders. Allergan said last week that it saw no evidence to support those claims. Valeant and Pershing, meanwhile, have raised their offer twice and have signaled they might raise it again in the next few weeks, to $60 billion.
Continue reading the main story
‘A Sad Performance’
For three hours on a sunny day this past July, Bill Ackman ranted. He raved. He brought up comparisons to Enron. To the Mafia. To the Nazis. He cried.
He did this in front of an audience of nearly 500 people in a Midtown Manhattan auditorium. He had billed this as the “most important” presentation of his career, promising that it would be the “death blow” against Herbalife, the nutritional supplement club that he has bet against.
It seemed to have the opposite effect. Throughout the jaw-dropping exhibition, Herbalife’s stock rose higher, ultimately closing the day up 25 percent.
The presentation was so over the top that other hedge fund investors, friends and even members of Pershing Square’s own advisory board quickly labeled it a mistake. “It was one of the few times that I felt sorry for Ackman, a guy who makes more in a day than I make in a year,” said Erik M. Gordon, a professor at the Ross School of Business at the University of Michigan. “It was a sad performance, and it was, minute by minute, calling into question his judgment and credibility.” Mr. Ackman’s theatrical sense had gone wrong; later, he told Bloomberg News that the presentation “was a P.R. failure.”
Others feared the bet itself, which at one point totaled 10 percent of Pershing’s assets. At least one investor had already redeemed his money.
“I’m sure we had some redemptions from people who were nervous about Herbalife,” Mr. Ackman said in the Pershing conference room.
The head of a firm that invests in hedge funds, speaking on condition of anonymity because he might someday invest with Mr. Ackman, said: “There are two schools of thought on Herbalife. Bill thinks this is an outright fraud that will be convicted. To take that big a bet for your fund and your investors, I think it’s foolish.”
Even before the “death blow” presentation, Mr. Ackman had restructured his bet against Herbalife. After discussions with investors and his advisory board, he reduced Pershing’s exposure by 60 percent. But he has spent $50 million just on research and legal fees for his campaign against the company.
“Some of us might be surprised by how much he ventured — how much he got into it — but I don’t think there is anybody on the board who thinks that this is now a mistake,” said Martin Peretz, one of Mr. Ackman’s professors at Harvard, who was an early investor in Gotham and serves on Pershing’s advisory board. (Members of the advisory board each received 1 percent of the firm.) That Herbalife’s share price has fallen 34 percent this year helps, he added. Still, Mr. Ackman’s position will start making money only if Herbalife stock falls roughly another 9 percent.
The Federal Trade Commission and the S.E.C. have opened inquiries into Herbalife and its practices — in no small part because Mr. Ackman lobbied regulators and lawmakers to encourage investigations. The S.E.C. is also looking at Pershing Square and some of the investors who took the other side of the bet.
Continue reading the main story Continue reading the main story
Continue reading the main story
Some hedge fund executives wonder whether Mr. Ackman has lost his perspective on Herbalife, allowing it to become a personal vendetta.
“I think Bill has gotten very angry about what Herbalife is doing, and the presentation made it very clear that it’s personal to him,” said Whitney Tilson, a hedge fund manager and a longtime friend of Mr. Ackman. “He wants to be vindicated for his personal reputation as well.”
Mr. Ackman argues that he maintains plenty of rational distance. When asked if he could absorb any new information that might change his thesis against Herbalife, he first nodded curtly. Certainly, yes.
But, unable to stop himself, he fell into a familiar refrain. “There’s nothing actually that could prove that Herbalife is not a pyramid scheme,” he said. “There’s nothing.”
Maybe Mr. Ackman is capable of changing his mind. Or maybe not. As for Herbalife, he finished heatedly, “That’s a bad example.”
A version of this article appears in print on October 26, 2014, on page BU1 of the New York edition with the headline: Over the Top. Order Reprints|Today's Paper|Subscribe
http://www.nytimes.com/2014/10/26/business/bill-ackman-and-his-hedge-fund-betting-big.html
13 European Banks Fall Short in E.C.B. Stress Test
By Jack Ewing
October 26, 2014 7:00 amOctober 26, 2014 7:00 am
FRANKFURT — Banks in Europe are 25 billion euros, or about $31.7 billion, short of the money they would need to survive a financial or economic crisis, the European Central Bank said on Sunday. That conclusion was a result of a yearlong audit of eurozone lenders that is potentially a turning point for the region’s battered economy.
The E.C.B. said that 25 banks in the eurozone — including nine in Italy and three in Greece — showed shortfalls in their own money, or capital, after a review devised to uncover hidden problems and to test their ability to withstand a sharp recession or other crisis. No major European banks failed the central bank’s test.
Of the 25 banks, 13 have still not raised enough capital to make up the shortfall, the central bank said. The review looked at banks’ books through the end of 2013, although many of them have already raised capital or made other moves to bolster themselves.
The highly anticipated assessment of European banks was intended to remove a cloud of mistrust that has impeded lending in countries like Italy and Greece and left the eurozone struggling to avoid lapsing back into recession. By exposing a relatively small number of sick banks — of the 130 under review — the central bank aims to make it easier for the healthier ones to raise money that they can lend to customers.
Photo
Headquarters of Monte dei Paschi in Siena, Italy. The bank must raise €2.1 billion, the European Central Bank said, the largest of any individual bank covered by the review.
Headquarters of Monte dei Paschi in Siena, Italy. The bank must raise €2.1 billion, the European Central Bank said, the largest of any individual bank covered by the review.Credit Stefano Rellandini/Reuters
Italy had by far the largest number of banks that failed the review, with nine, of which four must raise more capital. Monte dei Paschi di Siena, whose troubles were well known, must raise €2.1 billion, the central bank said, the largest of any individual bank covered by the review.
Greece’s banking system was also hit hard, with three banks found short of capital. One, Piraeus Bank, has since raised enough capital to satisfy regulators. The other two are Eurobank, which must raise €1.76 billion, and National Bank of Greece, which must raise €930 million.
But the Greek central bank said on Sunday that because the European Central Bank review did not take into account various restructuring plans the banks have made since the end of 2013, Eurobank and National Bank of Greece are in better shape than those numbers would indicate.
Estimates of what the capital shortfall would be had varied widely, from tens of billions of euros to hundreds of billions. Many banks had already begun protectively shoring up their capital. Banks in the eurozone had increased their capital by about €200 billion since the summer of 2013, according to E.C.B. estimates. ?
Alice Ross · @aliceemross
PwC: "We are still far from a solution to the banking crisis. The CA was only a one-off test of solvency, not of ongoing viability"
The banks with insufficient capital have two weeks to present a plan to the central bank to make up the shortage and nine months to top up their reserves. Capital is the money banks use to do business that is not borrowed and therefore available to absorb losses. If the banks are unable to find enough fresh capital, they could be forced to shut down.
In addition, even banks that will not be required by the E.C.B. to raise capital may find themselves under market pressure to do so, especially those that the central bank found had been overly optimistic about the values of their holdings.
The fact that 25 banks failed had been known since Friday, after a draft of the central bank’s report began circulating. But the size of the shortfall and the scope of overvalued assets was not disclosed until Sunday.
Results of a parallel review by a second regulator, the European Banking Authority, which included banks in Britain, Sweden and other European Union countries outside the 18-member euro currency bloc, were also announced on Sunday.
The findings were largely in line with the European Central Bank’s review. None of the banks that the authority’s stress tests found at risk were outside the eurozone. In Britain, the major banks all passed the stress test comfortably.
The European Banking Authority, in its analysis, examined each bank’s Tier 1 capital, a measure of its ability to absorb losses, under a variety of situations. For the threshold under a so-called adverse scenario — essentially a future financial crisis — banks had to meet a minimum capital ratio of 5.5 percent by 2016, a level that a majority of larger banks in Europe met easily.
Under a non-adverse situation, what the banking authority described as a baseline number, each bank had to maintain an 8 percent capital ratio through 2016.
Piers Haben, the banking authority’s director of oversight, said the review should give investors greater confidence in the European banking system.
“What it does is shine a light” on potential capital issues, Mr. Haben said, “in the E.U. banking system, bank by bank, so that investors can make up their own mind and market discipline can play its part.”
For the most part, German banks fared well in both reviews, which is crucial because of the outsize role the German economy plays in the eurozone.
Deutsche Bank, the country’s largest, said that the review by the European Central Bank had not led to any significant revaluation of its holdings.
Münchener Hypothekenbank was the only German bank that failed to meet the capital requirements as initially measured by both tests. But the bank has since raised capital and no longer faces a shortfall, according to the European Banking Authority.
French lenders, whose balance sheets account for about 30 percent of eurozone banking assets — second only to Germany’s — had an “excellent” showing, Christian Noyer, the governor of France’s central bank, said at a news conference Sunday in Paris.
The European Central Bank audit, conducted by 6,000 civil servants and outside consultants, was also a test for the central bank and its ability to handle its new function as supreme bank supervisor for the eurozone. Previous stress tests by different regulators, which examined fewer banks and relied heavily on information from the banks’ national supervisors, were unconvincing because banks that had passed later ran into serious problems.
Still, if investors and analysts decide that this new test was still too easy for banks to pass, it would be a setback for both the European Central Bank and the eurozone economy.
Harald A. Benink, a professor of banking and finance at Tilburg University in the Netherlands, said that if the exam was seen as insufficiently rigorous, the eurozone could suffer the same stagnation as Japan, whose government has been faulted for not forcing banks to confront their problems.
“We may be heading in the same direction in Japan in not cleaning up the banks,” said Professor Benink, who spoke before the release of the results on Sunday. “It will impede the ability of banks to finance the economy in the future.”
If investors and analysts deem the review a success, however, it could be a watershed moment in the eurozone crisis. The audit was a prelude to the creation of a banking union overseen by the European Central Bank, a move that supersedes the Balkanized financial system that has prevailed since the euro currency went into use in 1999.
The central bank will formally become the eurozone’s so-called single supervisor on Nov. 4.
Danièle Nouy, who will head the central bank’s new regulatory arm, said in a statement that the findings of the review would “enable us to draw insights and conclusions for supervision going forward.”
The central bank disclosed the results on a Sunday so that markets would have a chance to digest the data before reopening on Monday. But given the recent volatility in the financial markets, the timing of the disclosure is still not ideal. Turmoil in stock markets could make it more difficult for banks to issue new shares as a way to raise capital.
Still, some pickup in bank lending after the tests is almost inevitable. Bank executives complained that the burden of complying with European Central Bank demands during the review had drained resources and impeded their ability to make loans. Now that the exam is over, they should be able to get back to business.
The eurozone consists of 18 of the European Union’s 28 member countries. After Lithuania joins in January, there will be 19 countries that use the currency and whose banks will be subject to the central bank’s oversight.
http://dealbook.nytimes.com/2014/10/26/ecb-stress-test-finds-13-banks-fall-short/?_php=true&_type=blogs&_r=0
Bankers buried in lawsuits say new mortgage rules fall short
By Alexis Leondis, Kathleen M. Howley and Jody Shenn
Bloomberg News
WASHINGTON -- Bankers who gathered in Las Vegas to hear Melvin Watt reveal mortgage rule changes said they won't do enough to expand credit to many Americans shut out of housing. Lenders demand relief from government lawsuits too.
"The future of housing in America is on the line," Bill Cosgrove, chief executive officer of Strongsville, Ohio-based Union Home Mortgage, told thousands of attendees of the Mortgage Bankers Association annual conference on Monday. "It's consumers that ultimately pay the price" of the legal action.
Watt, 69, the director of the Federal Housing Finance Agency, outlined the flaws that will require lenders to repurchase bad loans from Fannie Mae and Freddie Mac. Lenders big and small have imposed credit standards above those required by the two government-controlled companies to reduce buybacks. Bankers at the conference said government lawsuits over loans with errors, which have cost lenders tens of billions of dollars, remain the biggest obstacle to expanding credit.
"I think it's great news from Fannie and Freddie but there's still work to do," Tom Wind, executive vice president of home lending at Jacksonville, Florida-based Everbank Financial, said in an interview in Las Vegas. "It's getting into the whole new regulatory framework and the big penalties being handed out. You have this heavy penalty environment and you want people to lend more: Those are two conflicting things."
Watt, a former Democratic congressman who oversees Fannie Mae and Freddie Mac, outlined the types of offenses, including misrepresentations and data inaccuracies, that will require banks to buy back defaulted loans over their lifespan. The mortgage finance companies have forced banks to repurchase defaulted home loans with a balance of $81.2 billion from 2011 to 2013 alone.
The FHFA plans to exempt lenders in some case who make one- time errors from buying back mortgages. Watt said lenders who show a pattern of abuse and make a set number of loans that violate the terms will be on the hook for repurchases.
The regulator is also creating a significance test to review loans with misrepresentations or inaccurate information. Only if the mortgages would have been ineligible for purchase with the accurate information would the lender be responsible for repurchasing them.
To broaden lending, Watt added, Fannie Mae and Freddie Mac may start to buy mortgages with down payments as low as 3 percent. The two companies currently require a 5 percent down payment on most loans. Federal Housing Administration loans, given to borrowers with weaker credit scores and generally requiring down payments of 3.5 percent, have been plummeting as higher mortgage insurance premiums make the loans more expensive.
Lenders such as Wells Fargo & Co. and JPMorgan Chase & Co. use "overlays" -- restrictions tougher than those required by Fannie Mae and Freddie Mac -- to reduce their buyback risk. Lenders agree when they sell the loans to repurchase them if they don't meet the standards they guaranteed.
"We know that access to credit remains tight for many borrowers," Watt said at the Mandalay Bay Hotel & Casino on the Las Vegas strip. "I hope our actions provide sufficient certainty to enable your companies to reassess existing credit overlays and more aggressively make responsible loans available to creditworthy borrowers."
Watt said details on the changes would be announced by Fannie Mae and Freddie Mac "in the coming weeks." Freddie Mac CEO Don Layton said in a speech that the organization is hashing out the "refinements" with a group of lenders coordinated by the Mortgage Bankers Association.
Fannie Mae announced Monday a new appraisal tool to give lenders more confidence that their loans will meet its standards. The application will be available to lenders in early 2015 and will allow them to compare their appraisals against Fannie Mae's data base.
The company began collecting electronic data on appraisals in 2012 to use with the software, which provides a risk score and highlights parts of the appraisal that might require further examination. Lenders using the tool can address issues prior to closing the loan and delivering it to Fannie Mae. The company said the application will expand access to mortgages by providing lenders with more certainty that they won't have to repurchase loans due to appraisal errors.
Mortgage lending is set to tumble more than 40 percent this year from 2013 because of a plunge in refinancing after interest rates stopped falling, according to Fannie Mae. The mortgage retreat would exceed the collapse of the market during the financial crisis in 2008.
Applicants approved for mortgages to purchase homes had an average FICO credit score of 755 in August, according to Ellie Mae, a company that makes software used to process mortgage applications. In contrast, Fannie Mae and Freddie Mac guidelines allow for credit scores as low as 620 for fixed-rate mortgages in some cases.
Home sales are set to drop 3 percent this year after posting gains of more than 9 percent in both 2012 and 2013, according to the National Association of Realtors. The ranks of first-time buyers are at an all-time low. In the last 20 years, they have accounted for 41 percent of purchases, according to data from NAR. This year, their share is averaging 28 percent.
In May, Watt had provided some initial clarification on buybacks, saying lenders wouldn't be held accountable even if loans had as many as two late payments in the first three years.
That change had no visible impact on mortgage originations, Jim Vogel, head of interest-rate strategy at Memphis-based FTN, said in a research note Monday. He said macroeconomic issues like an economic recovery in Europe and actions by the Federal Reserve are more likely to have an impact on lending than FHFA rule tweaks.
"It is a mistake to look for any major impact from tinkering with rules at the margin," Vogel wrote before Watt's speech. "Although mortgage bankers may sign on to the changes, that won't indicate a new level of trust in a relationship that has shifted consistently against them for 7 years."
The best thing FHFA could do to help calm banks' concerns about buybacks is establishing a set period, such as 24 months, of on-time payments that would free them of all responsibility for the life of the loan without exceptions, Jaret Seiberg, an analyst at Guggenheim Securities, said in a research note on Oct. 17.
Seiberg said in an interview that legal penalties from errors are an even bigger risk than buybacks.
During the last two years of the housing boom, bankers packaged more than $1.2 trillion of subprime mortgages into bonds. While many of the loans were made with scant documentation to people with impaired credit, rating agencies such as Moody's Investors Services bestowed the bonds with AAA designations that meant they were as safe as U.S. Treasuries.
After the collapse of the mortgage market that began in 2007, the investors who bought the bonds and the Department of Justice began suing the banks for securities fraud. In November, JPMorgan agreed to a $13 billion mortgage settlement to resolve probes by the Department of Justice. In August, Bank of America Corp. said it would pay $16.7 billion to end federal and state probes into mortgage bond sales.
The probes of lenders haven't ended. SunTrust Banks Inc. said in an August securities filing that it has been cooperating with a Justice Department investigation into its sale of loans to Fannie Mae and Freddie Mac.
"Concrete putback relief could be very helpful in opening the credit spigot, but at the end of the day, the most important change would be a rethinking of the nonstop government litigation against mortgage originators," Seiberg said. "The potential costs of a loan that goes bad are so great that you really have to minimize the amount of risk you're taking. That cuts deserving people off from the ability to own a home."
Regulatory and enforcement agencies are scrutinizing both origination and servicing practices in "truly unprecedented ways," Fannie Mae CEO Timothy Mayopoulos said in a speech. His own company is seeking to do its best to reduce stress on the lenders and "make it easier for you to do business with us," he told the crowd.
The government is "very focused" on lenders' concerns over enforcement, Biniam Gebre, a Department of Housing and Urban Development official who is set to take over as acting director of the FHA, said during a panel discussion later.
"Some of you are really good at what you do, and some of you suck," he said. "The challenge for us is how do we discriminate appropriately. We do want to make sure those who do a good job don't get punished inappropriately."
http://www.dailyherald.com/article/20141026/business/141029320/
Tim Howard latest. Fannie Mae Shareholder Settlement.
SaturdayOct 2014Posted by timhoward717 in Fannie Mae Freddie Mac
The news reported by Reuters concerning Fannie Maes settlement with past shareholders has little to no bearing on our current post conservatorship lawsuits. This was brought by past shareholders of Fannie Mae who felt Fannie “defrauded shareholders and inflated its stock by issuing false and misleading statements about its internal controls, capitalization, accounting, and exposure to subprime and low-documentation “Alt-A” mortgages”. As far as the merits of this case I would need to study the filings to make an intelligent analysis.I think it was a good strategic decision to get this behind us now rather than have this news break when the inevitable battle erupts concerning Fannie and Freddies release. That would have given our opposition ammunition to support their outrageous Fannie, and Freddie destroyed the world claims. Essentially the way things stand right now 170 million that would have gone to the treasury in a sweep will go to past shareholders to settle this claim
This settlement provides us with an opportunity to share a very important point. I would caution that we are careful not to follow our oppositions lead. Just because they have tried to drown us in a river of lies we should hold fast to the truth. To try and claim Fannie and Freddie made no mistakes leading into the crisis is no different than them claiming they were the roots of all evil. The truth has been one of the most powerful tools in this battle. This is the reason so many people have grown to rely on us, including some very influential people in DC.We need to continue to present the truth regardless of how it reflects on our position.
In other news, I want to point out an article by Dan Freed at the Street. He has obviously keyed in on our discussions of the coup. Note the conversation he had with Corinne Russell. I am going to taper my analysis of this a bit again. The last thing we want to do is blow this by revealing too much too fast. I also want to thank everyone for refraining from publicly debating the complicated nature of the warrants. This really is unproductive at this point.There is a time and place for everything and I trust that our readers still can read between the lines as well. Keep the Faith!
http://www.thestreet.com/story/12925391/2/fannie-freddie-bulls-finding-new-reasons-to-get-behind-the-stock.html
http://www.reuters.com/article/2014/10/24/us-fanniemae-settlement-idUSKCN0ID2EQ20141024
http://timhoward717.com/
I think first there will be news for a plan to recapitalize and and uplist and release before any of it actually happens. A leak of news of a plan for any of these events will be why the stock moves big time. We will here about why pps went up after it does move up.
Investors Unite hosts conference on Fannie, Freddie path out of conservatorship
White paper outlines different path for GSEs
Trey Garrison
October 24, 2014 12:13PM
0 Comments
Fannie Mae
Investors Unite Executive Director Tim Pagliara will host a teleconference on Oct. 29 at 3 pm EDT to discuss a provocative new white-paper analysis on the future of Freddie Mac and Fannie Mae.
The paper is authored by senior risk-management expert and University of Maryland business professor, Clifford Rossi.
Titled “Forging a Path Out of Conservatorship for Fannie Mae and Freddie Mac,” the paper demonstrates how the Federal Housing Finance Agency has the statutory authority to end the conservatorship — despite the fact that after six years, and $218 billion in realized profits offsetting the government's 2008 cash infusion, it has refused to do so.
Pagliara, Rossi and restructuring expert Matt Seu will discuss how FHFA can release Fannie and Freddie from the conservatorship and begin the process of re-capping and reforming them.
Panelists will respond to Rossi's proposals and address key challenges and solutions to ending the conservatorship.
Pagliara is Executive Director of Investors Unite, a Fannie Mae and Freddie Mac shareholder, and Chairman and CEO of CapWealth Advisors.
Rossi is founder and principal at Chesapeake Risk Advisors and Executive-in-Residence & Professor of the Practice at the Robert Smith School of Business, University of Maryland. Prior to entering academia, Rossi had nearly 25 years' experience in banking and government as a senior risk management expert for the largest financial services companies and for Fannie Mae and Freddie Mac.
Seu serves as Principal with Actualize Consulting, focusing on mortgage and fixed income practice areas and managing the firm's accounts on the GSEs.
http://www.housingwire.com/articles/31834-investors-unite-hosts-conference-on-fannie-freddie-path-out-of-conservatorship
Why the Fed Will Launch Another Round of QE
by Richard Duncan. Posted Oct 24, 2014.
In November 2002, Fed Governor Ben Bernanke introduced the concept of Quantitative Easing to the world. In a speech entitled “Deflation: Making Sure It Doesn’t Happen Here”, he explained that the Fed could prevent deflation from taking hold in the United States by creating money and using it to acquire government and agency (i.e. Fannie Mae and Freddie Mac) bonds. He proclaimed that this “unorthodox monetary policy” would be particularly efficacious if carried out in combination with an expansionary fiscal policy.
With this speech, Bernanke reassured the banking industry and the rest of the speculating community of the Fed’s omnipotence. In doing so, he encouraged even more aggressive credit creation and risk-taking. As a result, the credit bubble, which had already grown quite large, became very much larger. When it imploded six years later, Fed Chairman Bernanke, in cooperation with Treasury Secretaries Paulson and Geithner, responded to the crisis using the exact policies Bernanke had described in 2002.
The Fed began printing very large amounts of money and using it to buy very large amounts of government and agency debt. The Treasury began borrowing and spending trillions of dollars, which it was able to finance at very low interest rates thanks to the Fed’s purchases of government debt. This combination of very aggressive fiscal and monetary stimulus prevented a new great depression and the horrific collapse in prices that would have accompanied it.
Therefore, while it should not be forgotten that Bernanke bears much blame for allowing this crisis to occur, it must also be acknowledged that he was correct when he declared the Fed would be able to prevent deflation through the aggressive use of unorthodox monetary policy.
QE allowed the government…to finance its deficit spending at very low interest rates.
Many financial commentators have noticed that bank reserves held at the Fed have increased by $2.9 trillion since early 2009. As this is equivalent to 83% of the amount of money the Fed has created during that period, they have concluded that almost all of the money created through QE has been stuck in the banks and therefore has had no impact on the economy whatsoever. This interpretation is incorrect, however.
Between 2009 and 2013, the government borrowed approximately $5.8 trillion to finance its budget deficits. During that time, the Fed acquired $1.9 trillion worth of government bonds. If the Fed had not bought those bonds, either the government would have had to spend $1.9 trillion less, which would have removed $1.9 trillion of aggregate demand from the economy, or else the government would have had to borrow the $1.9 trillion from the financial markets.
That would have drained liquidity from the system and pushed up interest rates (resulting in old fashioned Crowding Out). Higher interest rates would have pushed the collapsing property market down even further and damaged the economy in countless other ways. QE allowed the government to boost aggregate demand through deficit spending and to finance its deficit spending at very low interest rates.
The Fed also bought $1.7 trillion worth of agency debt or, in other words, the mortgage-related debt issued and guaranteed by Fannie and Freddie. That pushed up the price of those bonds and drove down their yields. By acquiring that debt at a much higher price than would have otherwise prevailed, the Fed helped restore the solvency of the crippled financial industry, which was then teetering on the edge of the abyss.
By pushing down the yield on mortgage-related debt, the Fed stopped the collapse in property prices and later, under QE 3, brought about their rebound. Higher property prices helped reflate the economy by pushing up household sector net worth. If the Fed had not bought $1.7 trillion worth of mortgage-related debt, the yield on that debt would have remained high (or moved higher), the owners of that debt would have been stuck with impaired assets and the property market would have weakened further instead of rebounding.
http://dailyreckoning.com/why-the-federal-reserve-will-launch-another-round-of-qe/
UPDATE 2-Fannie Mae settles shareholder lawsuit for $170 million Fri Oct 24 2014 By Jonathan Stempel
NEW YORK, Oct 24 (Reuters) - Fannie Mae has reached a $170 million settlement of a lawsuit accusing it of misleading shareholders about its finances, risk management and mortgage exposure before it was seized by the U.S. government during the 2008 financial crisis.
The settlement, which requires court approval, was disclosed in a Friday filing with the U.S. District Court in Manhattan.
It resolves shareholder allegations that Fannie Mae defrauded shareholders and inflated its stock by issuing false and misleading statements about its internal controls, capitalization, accounting, and exposure to subprime and low-documentation "Alt-A" mortgages.
The settlement allocates $123.8 million to common stockholders and $46.2 million to preferred stockholders between Nov. 8, 2006 and Sept. 5, 2008.
Fannie Mae's market value peaked during that period at more than $60 billion. It is now $2.71 billion.
"We are pleased to put this matter behind us," Joseph Grassi, Fannie Mae's interim general counsel, said in a statement. "This is another sign of progress as Fannie Mae continues our focus on serving the market and helping lenders make mortgage credit available to qualified borrowers."
The government seized Fannie Mae and the smaller Freddie Mac on Sept. 7, 2008, and put them into a conservatorship under the Federal Housing Finance Agency, where they remain.
Fannie Mae and Freddie Mac together drew about $187.5 billion of bailout funds, but have returned roughly $218.7 billion to taxpayers in the form of dividends.
The lead plaintiffs suing Fannie Mae are the Massachusetts Pension Reserves Investment Management Board, the State-Boston Retirement Board and the Tennessee Consolidated Retirement System, and are seeking class-action status.
They said the settlement averts potential "numerous and substantial risks" of continuing the lawsuit after similar litigation against Freddie Mac was dismissed last year.
"We're extremely pleased with the results, particularly in light of the dismissal of a similar lawsuit against Fannie Mae's sibling company, Freddie Mac," Daniel Greene, the chairman of State-Boston, said in a statement.
The law firms Labaton Sucharow and Berman DeValerio, which represent common stockholders, and Kaplan Fox & Kilsheimer, which represents preferred stockholders, plan to seek fees of as much as 20 percent of the settlement fund, court papers show.
A separate lawsuit over Fannie Mae's disclosures was brought in 2011 by the U.S. Securities and Exchange Commission against former Chief Executive Officer Daniel Mudd and former Chief Risk Officer Enrico Dallavecchia, and remains pending.
The SEC filed a similar lawsuit against former Freddie Mac officials, including onetime Chief Executive Officer Richard Syron.
The case is In re: Fannie Mae 2008 Securities Litigation, U.S. District Court, Southern District of New York, No. 08-07831. (Reporting by Jonathan Stempel in New York; Editing by Chris Reese and Alan Crosby)
http://mobile.reuters.com/article/idUSL2N0SJ2T020141024?irpc=932
Obit would be a good person for an opinion on the broader effects on fnf that may result from this law suit.
Coup in full swing: Opposition growing increasingly desperate.
24 Friday Oct 2014
Posted by timhoward717 in Fannie Mae Freddie Mac
˜ 27 Comments
I want to apologize for what could be construed as my seeming absence from our cause lately. Rest assured that though I may not be overly present here I am always working to achieve our goal.I have been under increasing pressure to essentially end the blog and let the events play out as they may. To those I say I am sympathetic to your concerns but I must remind you of my commitment to share the truth. I believe the truth can be shared in a responsible way as not to be unproductive. Though I may not agree with the exact strategy, I am willing to do my part to help us all achieve our goals. Generally at any given time there are no less than three posts I am contemplating putting up. I must decide what is most productive for our cause at the present moment. Tonight I did not have that problem; tonight’s post is a critical update. The last few days we witnessed a dramatic shift in our situation, another turning point if you will.
The events of the last week again confirm a notable shift in both Mel Watts and the administrations view of the GSEs.I first want to share a paragraph from a strategy paper I distributed on my Oct. 1st trip to DC :
“The elimination of Fannie Mae and Freddie Mac will have disastrous consequences for the U.S. economy, and will wipe out decades of progress that has been made to ensure that the dream of home ownership is accessible to all Americans. The taxpayers rescued the banks and insurance companies, and they recovered and now are enjoying great prosperity. Millions of Americans have benefited greatly by the governments initiatives to keep interest rates low. One group has been left on the curb. In a cruel twist, this very same group that bore the brunt of the predatory practices that lead to the financial crisis have been effectively shut out of the housing market.”
The steps Mel Watt introduced this week to ease some of the extreme measures that were put in place in the years following the crisis were a big step in righting this wrong. These measures though designed to provide added safety to the mortgage markets actually unfairly shut out millions of Americans from the dream of home ownership. For decades leading up to the boom/bust Fannie and Freddie, were able to loan to these folks. The default rate among this group in those years was no worse than the broader mortgage population. We not only saw Mel act this week, but we also saw the joint release by numerous federal agencies concerning risk retention issues. Again they simply restored these to reflect where they stood in the decades leading up to the crisis. Just as we expected these changes brought an immediate chorus of disapproval from our opponents. They claim that the administration and Mel Watt are setting the stage for a new bubble /bust scenario. They couldn’t be anymore wrong.The changes announced this week should not be confused with the predatory high-risk mortgages and practices that private capital unleashed on our country and created the housing crisis and near economic collapse of our nation. What they did than bears no resemblance to what the administration and Mel Watt are doing now.
We need to examine these recent events in a broader context. Mel Watts first moves were to crush everything that Demarco had put in place to shrink and eventually eliminate Fannie and Freddie. We have also witnessed a series of reforms that make Fannie and Freddie far more secure than they ever were before, setting the stage for a responsible release. This week steps clearly show that both Mel Watt and the administration have heard our pleas and will not abandon their true beliefs. They have come to understand the real causes of the housing crisis.They have assured us that they realize the critical role that Fannie and Freddie have played for decades in ensuring that all qualified Americans have equal access to our mortgage market.Right under everyone’s nose they are saving Fannie and Freddie and improving the lives of millions of Americans for generations to come. Keep the Faith
http://timhoward717.com/
Thanks