Short Takes: Johnson-Crapo Measure Dead, Dead, Dead!

IMFnews....Thursday 6/12/14

By Paul Muolo
pmuolo@imfpubs.com

In case it hasn?t sunk in yet, Rep. Eric Cantor?s GOP primary loss Tuesday night means the chances of GSE legislation passing this year is pretty much dead. Finito. Housing policy wonks are putting on their thinking caps to see what the outlook for GSE reform might be in say, 2016 when the GOP ? in theory ? could control the House, Senate and the White House. Of course, political fortunes can change on a dime. For now, Fannie Mae and Freddie Mac are ?safe,? whatever that means these days?.

Here is a white paper that explains FHFA's line of thinking with regard to HERA. This may add some clarity as to where the defendants are coming from in their court motions and the uniqueness of the conservatorship. I don't agree with the defendants, just trying to offer some documented insight.

FHFA-OIG’s 2012 Assessment of FHFA’s Conservatorships of Fannie Mae and Freddie Mac

Pages 17-19 may be helpful....as well as others.

I hope it's somewhat helpful.

I believe Jon Prior could be referencing this bill....

H. R. 4745

I haven't had time to study it yet, but I believe the GSEs are only referenced on pages 117 & 118 of the bill.

I don't have the time now, will look at it later.

The big difference is they sold off a large portion of their businesses to do so. They didn't do it through being a sound and profitable company (like FnF have been over the last 2 years), IIRC.

IMFnews...Tuesday, Jun 10, 2014

Short Takes: Is FHFA Punting on a CEO for the Common Securitization Platform? /

We're hearing unconfirmed reports that the Federal Housing Finance Agency may not hire a chief executive and chairman for the common securitization platform project after all.


MORE...

More Calls to Preserve Fannie and Freddie Instead of Killing Them

By Charles Wisniowski
cwisniowski@imfpubs.com

Meaningful housing finance reform that would include fixing Fannie Mae and Freddie Mac, rather than euthanizing them outright is still possible in 2014 and doesn't require Congressional action, according to an expert panel speaking on the topic Tuesday morning on Capitol Hill.

Speaking at a GSE forum sponsored by Investors Unite, Joshua Rosner, managing director at Graham Fisher & Co., said that GSE reform should consist of repurposing rather than eliminating Fannie and Freddie.

"We shouldn't reinvent a wheel that has driven the secondary market successfully for generations," he said. "We should repair it well, just as we recognized the need to do so after the S&L crisis." (Ironically, Rosner was a longtime critic of Fannie and Freddie before their collapse.)

The FHFA already possesses Congressional authority under the Housing and Economic Recovery Act of 2008 to implement a number of existing better options than what has been proposed under the Johnson-Crapo legislation, panelists argued. Among Rosner's GSE fixes: suspend the third amendment to the preferred stock purchase agreement and allow the GSEs to build capital; define repayment of the government's investment; and implement strict capital standards while eliminating GSE portfolios except for liquidity purposes.

Rosner also wants to see the use of stringent methods to price guarantees separate from the GSEs. For further analysis, see the upcoming edition of Inside The GSEs, available online Friday.

Glad to, I'm just trying to do my part.

You're welcome. Josh is a well respected voice on our side.

I believe Corker prefers to use the term Congressional "Midget"!

Josh Rosner's 9 slide presentation from this morning. For anyone who is interested.

Rethinking U.S. Housing & Mortgage Finance Policy

It's possible I guess, but if you do the simple math I feel my statement is pretty close to accurate.

$67 million portfolio and Tawil stated FnF common shares equal 6% of their portfolio. $67M X .06 = $4.02M. They stated they took a position in early April and the average price was about $4 a share during the first 10 days of April.

Based on the statements Tawil has made this tells me my estimates are pretty close.

edit...sorry, I just realized you may have meant that several people on this board claim to have more than 1 million shares.

That too is possible.

It appears Maglan Capital has about 1 million common shares of FnF that it purchased for around $4 a share. Maglan Capital has about $67 million in assets under management. It's current FnF long position represents 6% of it's portfolio and is maxed out with no additional purchases planned, per co-funder David Tawil. In a bullish scenario, during the short to mid-term (12-24 months) it see's, at least, a couple 100% upside during this period, meaning a $12+ per share price over the next 12-24 months(from April 2014). While not a large player, all players count and will certainly start to add up over time.

Above is what I was able to piece together with the info we have at hand. This is of course, all IMHO.


Recent David Tawil interview

Maglan Capital bought FnF in early April

Thanks, can anyone confirm this?

IMFnews...Friday, Jun 6, 2014

What We're Hearing: Can Mel Watt Save the Mortgage Industry? / Finally, We Have G-Fee Parity! / Millennials Won?t Give Up Those Cell Phones to Save for a Mortgage ...

By Paul Muolo
pmuolo@imfpubs.com

After gorging on refis the last three years, the mortgage industry now faces a dilemma: can purchase-money lending increase enough to make up for rapidly declining refis? The short answer is no. So, what can be done to save mortgage bankers from what might turn out to be a 40 percent plunge in lending this year? Looser credit standards would help ? that and a big assist from those darn Millennials who aren?t buying homes like they should be. (More on the Millennial generation in a second.) But wait. Can the Federal Housing Finance Agency save the day by ushering in looser credit standards via Fannie Mae and Freddie Mac and by not toying with guaranty fees? We shall see. Late Thursday, the FHFA ? after weeks of rumors ? finally published a ?request for input,? seeking the industry?s views on what to do about both guaranty fees and those pesky loan level price adjustments. Reading the 9-page comment notice, it?s clear that the ?new? FHFA under Mel Watt is definitely a kinder and gentler regulator. It appears that Watt is looking to open up the ?credit box,? at least a little bit. But even if Fannie and Freddie eliminate many LLPAs, will it spur first-time home buyers into the market? We?ll find out, in time?

Contained in the FHFA comment document is a declaration that the mortgage industry has finally reached a state of g-fee ?parity.? In other words, no matter a lender?s size or capital position, Fannie and Freddie are now charging the same g-fee for all lenders. Wells Fargo ? the nation?s largest ? pays the same as Acme Mortgage. (Doesn?t anyone see an analogy here between g-fee parity and LLPAs?). The effort to create parity was launched in 2012 by then Acting Director Edward DeMarco. Today, g-fees average 55 basis points compared to 22 back in 2009. During the mortgage boom last decade, Fannie?s biggest customer, Countrywide Financial, had a reported g-fee of 12 basis points?

As for the Millennials and their ability to amass a mortgage downpayment, Trulia found 10 items that these youngsters would never give up to save for a home. The top five: car, smartphone, cable, Netflix subscription, vacations?

One last thought on Watt, FHFA and expanding the credit box: Members of the GOP who were big boosters of the recently departed DeMarco will probably read the g-fee comment notice and have a fit?.

more...

It?s Official: FHFA Wants G-Fee Comments From Lenders by August 4
By Paul Muolo
pmuolo@imfpubs.com

The Federal Housing Finance Agency late Thursday sent out official notice to the public ? in particular, the mortgage industry ? asking for their input on how the regulator/conservator should calculate both guaranty fees and loan level price adjustments.

Among the 12 questions that the FHFA asks the public to consider is this: ?If the enterprises [Fannie Mae and Freddie Mac] continue to raise g-fees, will overall loan originations decrease??

In general, mortgage bankers are against any hikes in g-fees, even small ones, because ultimately the cost will be passed on to the consumer, and could dampen originations. The concern is heightened this year because of what?s turning out to be one of the weakest production years since early last decade.

In its public notice on the comment period, the regulator asks, ?At what g-fee level would private label securities investors find it profitable to enter the market or would depository institutions be willing to use their own balance sheets to hold loans??

The FHFA is asking for comments to be sent in ?no later? than August 4.

When current agency Director Mel Watt took office in January he suspended a planned 10 basis point hike in g-fees that also included the elimination of the 25 basis point ?adverse market charge? for all but four states. Those changes were implemented by his predecessor Edward DeMarco. Today, the average g-fee is 55 bps.

Anyone think IMF reads this board? I do...and here's several reasons why.

1. IMFnews today...

Experts Battle Over Administrative vs. Legislative Fixes to Bring Fannie, Freddie Out of Conservatorship

Congressional legislative action – something likely out of reach for at least the next two years – is either a part of the problem or the only solution to unraveling the final fate of Fannie Mae and Freddie Mac, according to two distinctly different schools of thought being argued this week. The rhetorical boxing match pitted Urban Institute Fellow Jim Parrott’s thesis that only a legislative fix by Congress can free the two government-sponsored enterprises from the status quo against Jim Millstein, CEO of Millstein & Co., who contends that the GSEs should emerge recapitalized from conservatorship forthwith, a feat that can and should be executed via “administrative reform.” Parrott fired...

Just a few days ago Obit and I were describing this battle between the Jim's and I referred to it as a "boxing match" and Obit followed with more boxing anologies!

2. Then there's this from today's IMFnews.....

CORRECTION: In an early edition of IMFnews Thursday we incorrectly suggested that Fannie Mae executive Joseph Grassi had recently bought 7,849 shares of Fannie stock. A GSE spokesman pointed out that Grassi already owned the shares, but had to file notice with the SEC because he was promoted to interim general counsel.

Ripcord01 and I (later, Obit, MB and others chimed in) were discussing this very topic when I stated it was probably due to Grassi's recent promotion as an officer.

I'm not saying IMF could not have gotten the Grassi info from other sources, but the "boxing match" comment is very suspicious imo.

OK, who here is the real IMF insider? Show yourself! hahaha

No worries Ripcord01...no offense taken. I was just posting the daily IMF news I as I usually do. While not 100%, they are usually very reliable and accurate. They're one of the few sources I trust to not spin info to much. Probably won't, but it'll be interesting to see if anything comes of this filing.

Thanks for your DD efforts to the board. Get some rest!

Ripcord01, while I appreciate your DD efforts and I'm not saying you're wrong, but you may want to read this...

Initial statement of beneficial ownership of securities - SEC Form 3

...it was filed by Joseph J. Grassi III on 5/23/2014.

Now, Mr. Grassi could be filing this report for several reason. The most obvious one could be his recent promotion.

Info on SEC Form 3...

Forms 3, 4, 5

Corporate insiders – meaning a company's officers and directors, and any beneficial owners of more than ten percent of a class of the company's equity securities registered under Section 12 of the Securities Exchange Act of 1934 – must file with the SEC a statement of ownership regarding those securities. On August 27, 2002, the SEC adopted rules and amendments to Section 16 of the Exchange Act, implementing the provisions of the Sarbanes-Oxley Act of 2002 that accelerated the deadline for filing most insider ownership reports.
The initial filing is on Form 3. An insider of an issuer that is registering equity securities for the first time under Section 12 of the Exchange Act must file this Form no later than the effective date of the registration statement. If the issuer is already registered under Section 12, the insider must file a Form 3 within ten days of becoming an officer, director, or beneficial owner.

Maybe Obit would care to expound upon?

TIA

Hedge Funds Aren't the Only Ones Buying Fannie Mae Stock
MORE IMFnews...Thursday, Jun 5, 2014

By Paul Muolo
pmuolo@imfpubs.com

Is Fannie Mae's stock a screaming buy as Pershing Square hedge fund chief Bill Ackman recently suggested? We'll know for sure in a few years, but according to a new filing with the Securities and Exchange Commission, GSE insiders are starting to nibble in the stock. Fannie Senior Vice President and Interim General Counsel Joseph Grassi recently filed notice that he owns 7,849 shares of Fannie common. Unfortunately, the filing doesn't say how he obtained the stock or how much he paid.

IMFnews...Thursday, Jun 5, 2014

FHFA May Unveil Comment Period for G-Fees and LLPAs Thursday

By Paul Muolo
pmuolo@imfpubs.com

The Federal Housing Finance Agency is expected to officially begin a public comment period on loan level price adjustments and guaranty fees as early as Thursday afternoon, industry officials close to the matter told IMFnews.

At press time the FHFA had no comment on the matter.

LLPAs are those annoying charges that result in extra fees being heaped on borrowers because they have FICO scores or downpayments that don?t fall into the category of being ?pristine.?

Industry observers believe that FHFA Director Mel Watt ? who has been on the job since early January ? wants to open up the ?credit box? for low- and moderate-income borrowers, especially minorities, who are having a hard time qualifying for a loan that is ultimately bought by Fannie Mae or Freddie Mac.

David Stevens, president of the Mortgage Bankers Association, told IMFnews that he expects something out of the agency very soon. ?Given this new transparent process at FHFA, asking for feedback combined with the impact of any prospective fee increase given other market softness, it will be extremely important for all stakeholders to weigh in,? he said.

Progressive Groups Push to Have GSEs Finance the National Housing Trust Fund

By Charles Wisniowski
cwisniowski@imfpubs.com

Progressive policy groups and low-income housing advocates are ramping up their calls for Fannie Mae and Freddie Mac to honor their legislatively mandated affordable housing commitment to finance the National Housing Trust Fund. And industry observers speculate that the GSEs? regulator is inclined to reverse course ? but only when the timing is right.

Recently, a letter spearheaded by the Center for American Progress with a dozen co-signers renewed their call to Federal Housing Finance Agency Director Mel Watt to lift the GSE funding moratorium and begin channeling money to the National Housing Trust Fund and the Capital Magnet Fund.

Notably absent from Watt?s first major policy speech as FHFA director last month was any mention of the housing trust funds. With the agency about to begin the rulemaking process to set GSE affordable housing goals for 2015, the trust fund advocates are turning up the pressure.

An advocacy group official told Inside Mortgage Finance that Watt is ?examining the request closely? and will make a determination based on his analysis of what the Housing and Economic Recovery Act requires. For more on the story, see the new edition of Inside Mortgage Finance, available online Thursday afternoon.

Here you go.

Perry Capital LLC Civil Action No. 1:13-cv-1025

No worries, hope all goes well today. Thanks again for your previous efforts!

MB, are you planning on attending today's Status Conference, as you have previously?

Status Conference 6/4/14 11am

If so, thanks in advance for any reports that may follow.

TII

David Abrams, of Abrams Capital Management LP is the very large Hedge-Fund manager no one's heard of. He is the latest whale to join the FnF bet based on this WSJ article. Don't underestimate this news!

Hedge-Fund World's One-Man Wealth Machine
David Abrams Built His Fortune Effectively Going It Alone

By Rob Copeland
June 2, 2014 6:30 p.m. ET

David Abrams of Abrams Capital Abrams Capital

In the Back Bay neighborhood of Boston, one man is building a moneymaking machine that rivals some of the hedge-fund industry's biggest names.

Calls to his office go unreturned even from those eager to fork over eight-figure sums, potential investors say. One industry veteran referred to him as "a unicorn," as few people have ever seen him.

The hedge-fund manager, David Abrams, has personally become a billionaire, and earned billions more for his wealthy investors, over the past five years running what is effectively a one-man shop, according to company and investor documents reviewed by The Wall Street Journal and people who have worked with him. His firm, Abrams Capital Management LP, manages nearly $8 billion across three funds and is discussing raising money for a fourth fund that could help push its assets past $10 billion.

In an era of star investors who appear regularly on television and talk up their ideas at hyped confabs, Mr. Abrams, 53 years old, has never spoken at an event open to the public.

"He probably would have preferred you not find him," said Roger Brown, president of Berklee College of Music, where Mr. Abrams is a trustee.

Abrams Capital's main funds have posted an average annualized return of about 15% since its founding in 1999, documents show, nearly double the average for hedge funds tracked by HFR Inc. and triple the S&P 500 index, including dividends.

The firm invests in a relatively small number of beaten-down companies at a time, mostly through stocks at present, though it has also dipped into some of the more-talked-about fixed-income deals of recent years, including the unwinding of bankrupt Enron Corp. Among its recent stockholdings have been bookseller Barnes & Noble Inc., BKS -0.88% retailer J.C. Penney Co. JCP 0.00% and money-transfer firm Western Union Co. WU -0.50% , securities filings and investor documents show.

Mr. Abrams also is among the small group of investors that has taken a big bet on government-controlled mortgage companies Fannie Mae FNMA +0.23% and Freddie Mac, FMCC 0.00% wagering that the Obama administration's plan to wind down and replace the entities will fail, according to investor documents.
______________________________________________________________

The Boston Billionaire:
David Abrams has earned billions for his wealthy investors.
Graduated from University of Pennsylvania as history major
Protégé of hedge-fund manager Seth Klarman
Started Abrams Capital Management in 1999 after leaving Klarman's firm
Returns from main fund have tripled returns of S&P 500 in 15 years
Jazz fan
Part owner of the National Football League's Oakland Raiders
_______________________________________________________________

The firm employs three analysts and a small back-office staff, but Mr. Abrams approves all trades personally, according to people that have worked with him. Other firms of comparable assets can have hundreds of employees.

He also built his fortune with the equivalent of one hand tied behind his back: His firm uses no leverage, or borrowed money, and often sits on billions in cash. It currently holds about 40% of its $8 billion under management in cash, investor updates show.

Mr. Abrams got his start in 1988 at Baupost Group LLC, also based in Boston. Run by Seth Klarman, Baupost is one of the world's largest hedge-fund firms, with $27 billion under management.

The two remain friends, and Mr. Klarman's personal foundation has put money into Abrams Capital's funds. Mr. Klarman described his protégé as "smart as a whip."

"He loves a good puzzle and a good treasure hunt," Mr. Klarman said.

People who have worked with him said the University of Pennsylvania graduate who majored in history is introverted and cerebral. The son of a stockbroker and psychotherapist and a father of two, he is an avid follower of jazz music and fan of the band Earth, Wind and Fire.

Like Mr. Klarman, Mr. Abrams is known to be patient to the extreme. He will sit on a static portfolio for months without making a move.

Investors in the firm, including institutions like Brandeis University, with an endowment of about $700 million, sometimes get scant information. Mr. Abrams's most recent quarterly letter consists of just six paragraphs, one of which is a single sentence.

"He's not going to waste a nanosecond to impress you, or convince you, or argue with you," said Mr. Brown of Berklee. "He knows what he thinks and if you ask him, he'll tell you. If you don't, he might just sit there in silence."

Mr. Abrams likely collected more than $400 million last year on the back of a 23% return for one of his main funds, according to Journal calculations based on his fees, performance and his personal investment in the firm. He doesn't appear on lists of top-paid hedge-fund managers because his performance figures are so closely guarded, but his estimated compensation last year would have put him ahead of David Einhorn, Daniel Och and even Mr. Klarman, according to industry publication Institutional Investor's Alpha.

A portion of his earnings came from a private-equity-style vehicle, which doesn't pay out gains until it is unwound, and a handful of firm executives may have shared a small slice of his payday. The hedge funds were up an additional 2% in the first quarter, investor documents show.

As a side gig, in 2007 Mr. Abrams was part of a group that bought a 20% stake in the National Football League's Oakland Raiders. Forbes estimates the team's worth at $825 million, the NFL's least valuable team. Before the purchase, he wasn't a big football fan but views the team as a distressed investment, a person close to him said. The person said Mr. Abrams prefers to play squash at the University Club of Boston.

Write to Rob Copeland at rob.copeland@wsj.com

Thanks for your insight. I like your line in the sand and wind in the sails analogies. I liken it to a boxing match. I believe Millstein won the first 3 rounds and has Parrott somewhat on the ropes. It will be interesting to see if Parrott comes out swinging or if he says "no mas", but tries to declare the bout a drawl whilst holding an ice pack to his eye.

Obit, speaking of Maloni's blog, have you had the chance to follow the back and forth (that he mentions) between the two Jims, Millstein and Parrott?

There is a great "conversation" gong on between the two in the comment section here... Rock'Em Sock'Em Jim-Bots.

While I feel Millstein is correct in his assertions, I would very much like to hear your educated take on their point-counterpoint comments regarding whether congressional action would really be required to exit conservatorship within the context of their argument, of course.

I also agree Bill Maloni (also IMFnews) is a good, reliable source of GSE info. On the other hand, the TH717 blogger concerns me a bit. He (she) seems to do nothing but regurgitate stated facts in a way that tries to make it appear it's his inside info all while teasing the reader with promised details later and then not delivering. Although, I did appreciate him having a PACER account and posting the latest legal docs.

As always, any insight you care to share is greatly appreciated.

Still no filing as of right now. Maybe they have until midnight, not sure. Various new filings are still coming in even after 5pm. I guess a check at midnight or shortly there after will tell us for sure if there was a motion for protective order filed, on time at least.

No new filings regarding the motion for protective order as of a few minutes ago. Guess it's not happening.

United States Court of Federal Claims - Recent Entries

Nice navycmdr. Beat me to it by 30 seconds.

IMFnews....Thursday, May 29, 2014

Momentum Builds for Fannie Mae and Freddie Mac to be Preserved

By Brandon Ivey
bivey@imfpubs.com

A lack of overwhelming support in the Senate for legislation to reform the government-sponsored enterprises has shifted the housing finance policy debate from reform to preservation. If Congress fails to act, the Federal Housing Finance Agency is set to drive mortgage policy for years to come.

Sens. Tim Johnson, D-SD, and Mike Crapo, R-ID, delayed the Senate Banking Committee?s recent markup of S. 1217, the Housing Finance Reform and Taxpayer Protection Act, in an effort to increase support for the GSE reform bill. But they failed to gain favor with a number of liberal members of the committee, and the bill ultimately passed on a 13-9 vote seen as dooming prospects for comprehensive action on GSE reform in Congress.

Sens. Chuck Schumer, D-NY, and Elizabeth Warren, D-MA, were among the six Democrats who voted against S. 1217. Some of the Democrats are now considering preserving Fannie Mae and Freddie Mac, with support from the Center for American Progress, a liberal think tank, and the National Community Reinvestment Coalition, a consumer advocate, among other groups.

?Now that the Johnson-Crapo housing finance reform bill appears to have stalled in the Senate, responsibility rests squarely on FHFA to foster a healthier mortgage market,? analysts at the CAP wrote in a recent commentary. ?The FHFA?s recent announcements were a good start, but the agency has much work ahead to ensure that all qualified buyers in all parts of the country have a shot at sustainable homeownership.? For further analysis, see the new edition of Inside Mortgage Finance, available online Thursday afternoon.

Jim Millstein is one of the good guys! This is the best article I've read in a while about what the govt should do to fix FnF. Jim was the main architect of AIGs reform/recovery. Hopefully the administration starts to listen to him!

It's time for Administrative reform to end the GSE conservatorships

Author: Jim Millstein
| Posted: May 29th, 2014

Midwest Economy

This is a guest post in response to a recent Urban Institute paper on reforming the Government Sponsored Enterprises.

In a recent Urban Institute paper, Jim Parrott explains “Why Long-Term GSE Reform Requires Congress” and asserts that administrative reform of Fannie and Freddie is not economically viable. The firms are critically undercapitalized, allegedly unable to operate without their government backstop, the fair price of which their normalized earnings couldn’t bear. Mr. Parrott asserts that Fannie and Freddie therefore are doomed to remain wards of the conservatorship, the exits closed, until Congress decides to act. The “difficult math of GSE reform” makes it impossible and those of us advocating otherwise are fooling ourselves.

Parrot’s is a compelling case for Congressional action, but his premise is wrong: reform is not about the math; it’s about political will.

Yes, the companies today are undercapitalized. But the problem isn’t that they haven’t earned enough to rebuild their capital and restore public confidence in their creditworthiness. It’s that the current terms of the Federal bailout prevent it.

Why an Act of Congress Is Unnecessary

The 2008 statute governing the conservatorships, the Housing and Economic Recovery Act (HERA) didn’t mandate any of those terms. Two administrations’ decisions over the past six years did. Ending the conservatorships won’t require an act of Congress—HERA already provides a path to its end. It does however require the Administration to revisit and revise the bailout terms so as to facilitate reform.

In 2009, the Government faced a similar situation with AIG (holding a preferred stock with a fixed dividend that stood in the way of AIG’s recapitalization). It did what bank and insurance regulators generally prescribe to preserve capital: it stopped taking dividends when earnings couldn’t fund them. But with Fannie and Freddie, the government made a different choice.

The Bush Administration—not HERA—dictated that Treasury impose a 10 percent cumulative dividend on the senior preferred stock it purchased in the two companies; that the 10 percent dividend be paid in cash, even when earnings were insufficient to fund the dividend payment. The Obama Administration continued that decision.

That policy choice forced the companies to “borrow” additional taxpayer money to pay the fixed dividend on the money already “borrowed.” It is hard to know quite what compelled policymakers to force Fannie and Freddie to rob Uncle Sam to pay Uncle Sam, but it certainly wasn’t mandated by HERA.

It gets worse. The Obama Administration—not HERA—decided to impose a dividend equal to 100 percent of the companies’ earnings and profits in any quarter to replace the fixed 10 percent dividend once the housing market recovered (as it did) and the companies’ earnings rebounded (as they have). That policy choice has made it impossible for the companies to rebuild their capital. Had the 10 percent dividend been kept in place and the 100 percent profit sweep not implemented, Fannie and Freddie could have retained nearly $130 billion in earnings over the past two years (while still paying Treasury almost $40 billion in cash dividends), putting them well on the way to supporting their outstanding guaranty liabilities without a Federal backstop.

Finally, the Obama Administration—not HERA—dictated that Fannie and Freddie operate with a mere $5 billion of combined capital to support in excess of $5 trillion in debt and guaranty liabilities. It wasn’t HERA that limited each company’s capital to a fraction of a fraction of what state insurance regulators would require a private insurance company to maintain. It was the Obama Administration.

Cashing the Check

Mr. Parrott would protest, however, that these Federal dividend and capital policies were required to ensure taxpayers’ fair compensation for the enormous amount that the government committed to the two companies in 2008. So, let’s review the bidding:

Taxpayers have received $213 billion in dividends on their $187 billion investment in Fannie and Freddie’s Senior Preferred Stock. And the future is equally bright according to the Office of Management and Budget: it projects that, over the next ten years, the Treasury Department will receive an incremental $154 billion in dividends from the two companies.

But in order to cash those checks, Fannie and Freddie, the two largest participants in the mortgage funding markets, must continue to remain undercapitalized, subject to continuing Government control and support for the next ten years.

As Mr. Parrott’s paper suggests, the fact that the companies are and must remain “undercapitalized” to produce these taxpayer returns severely limits the Administration’s options for “administrative reform.” But if the Administration were to reverse or modify these dividend and capital policies, a range of administrative reform options would emerge. These options would allow the FHFA to end the conservatorships, reform the business model elements that got the GSEs into trouble, and accelerate the day when private capital once again plays a significant role in mortgage credit formation without sacrificing taxpayer returns.

The Simple Math of GSE Reform

The “difficult math of GSE reform” is not a function of some iron economic law of taxpayer compensation as Mr. Parrott suggests. With $213 billion of profit already in its pocket, the Treasury still owns substantially all of the equity capital in two businesses that, properly capitalized, would have substantial value in the public equity markets. The taxpayers therefore stand to make an enormous profit on the Treasury’s investments if the Administration were prepared to recapitalize, reorganize and sell Fannie and Freddie’s mortgage guaranty businesses back to private investors. All it takes is the political will to do so.

The responsible path forward is not to continue to wait for new direction from a divided Congress but rather to lay the groundwork for “administrative reform” by reversing the administrative policies that have kept the companies from rebuilding their capital. Permitting the two companies to recapitalize would create a capital cushion in front of the Treasury’s existing backstop, relieving taxpayers from having to cover potential future losses, giving the FHFA the option to sell the mortgage guaranty businesses once properly capitalized, increasing taxpayer profits from the monetization of Treasury’s investments and reducing the government’s now dominant position in the mortgage market.

It’s not about the math. It’s about political will.

Photo: A sidewalk gets shaped in front of new construction in Omaha, Neb. (AP Photo/Nati Harnik)

Obit, thanks for the data.


also....

Refinances Trending Downward

News Release

Refinances Trending Downward

Efforts to Reach HARP-Eligible Borrowers Continue

FOR IMMEDIATE RELEASE

5/28/2014

Washington, DC – The total volume of mortgage refinances continued to decline through the first three months of 2014, according to the Federal Housing Finance Agency's First Quarter 2014 Refinance Report. Total refinance volume for the first quarter topped 370,000 while refinances through the Home Affordable Refinance Program (HARP) stood at just under 77,000. This marks the fourth straight quarter in which total refinances and HARP refinances have declined. The report notes that refinance volume was down in March as mortgage interest rates rose.

Over the last five years, more than 19 million refinances have been completed, including 3.1 million through HARP. As announced recently by FHFA Director Mel Watt, efforts are underway to retarget HARP outreach to reach approximately 750,000 remaining eligible borrowers who could still benefit from the program.

Also in the first quarter 2014 report:

•HARP volume represented roughly 21 percent of total refinance volume in the first quarter of 2014.


•Through the first quarter, 23 percent of HARP refinances for underwater borrowers (those with a loan-to-value ratio greater than 105 percent) were for 15- and 20-year mortgages, which build equity faster than traditional 30-year mortgages.


•HARP continued to account for a substantial portion of refinance volume in certain states. Through the first quarter, HARP refinances represented 41 percent of total refinances in Georgia and 38 percent of total refinances in Florida, nearly double the 21 percent of total refinances nationwide over the same period.


?The Federal Housing Finance Agency regulates Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks. These government-sponsored enterprises provide more than $5.6 trillion in funding for the U.S. mortgage markets and financial institutions.

Contacts:
?Corinne Russell 202-649-3032/ Stefanie Johnson 202-649-3030

FHFA House Price Index Rises for Eleventh Consecutive Quarter

News Release

FHFA House Price Index Rises for Eleventh Consecutive Quarter

U.S. House Prices Up 1.3 Percent

FOR IMMEDIATE RELEASE

5/27/2014

?Washington, DC – U.S. house prices rose 1.3 percent in the first quarter of 2014 according to the Federal Housing Finance Agency (FHFA) House Price Index (HPI). This is the eleventh consecutive quarterly price increase in the purchase-only, seasonally adjusted index.

"Although the first quarter saw relatively weak real estate transaction activity—in part due to seasonal factors—home prices continued to push higher in the first quarter," said FHFA Principal Economist Andrew Leventis. "Modest inventories of homes available for sale likely played a significant role in driving the price increase, which was similar to appreciation in the preceding quarter."

The HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac. Compared with last year, house prices rose 6.6 percent from the first quarter of 2013 to the first quarter of 2014. FHFA's seasonally adjusted monthly index for March was up 0.7 percent from February.

FHFA's expanded-data house price index, a metric that adds transaction information from county recorder offices and the Federal Housing Administration to the HPI data sample, rose 1.4 percent over the prior quarter. Over the last year, that index is up 7.0 percent. For individual states, price changes reflected in the expanded-data measure and the traditional purchase-only HPI are compared on pages 17-19 of this report.

The seasonally adjusted, purchase-only HPI rose 6.6 percent from the first quarter of 2013 to the first quarter of 2014 while prices of other goods and services rose only 0.8 percent. The inflation-adjusted price of homes rose approximately 5.7 percent over the latest year.

Significant Findings:

•The seasonally adjusted, purchase-only HPI rose in 42 states and the District of Columbia during the first quarter of 2014 (up from 38 states during the fourth quarter of 2013). The top annual appreciation was in: 1) Nevada, 2) District of Columbia, 3) California, 4) Arizona, and 5) Florida.


•Of the nine census divisions, the Pacific division experienced the strongest increase in the first quarter, posting a 2.1 percent increase and a 13.2 percent increase since last year. House prices were weakest in the Middle Atlantic division, where prices increased 0.1 percent from the prior quarter.


•As measured with purchase-only indexes for the 100 most populated metropolitan areas in the U.S., first quarter price increases were greatest in the Charleston-North Charleston, SC Metropolitan Statistical Area (MSA) where prices increased by 10.7 percent. Prices were weakest in the New Orleans-Metairie, LA MSA, where they fell 2.6 percent. Positive appreciation was recorded in 71 of the 100 MSAs.


•The monthly seasonally adjusted purchase-only index for the U.S. has increased for 23 of the last 24 months (November 2013 showed a decrease).


•The Pacific and Mountain census divisions—the two divisions that saw the greatest price increases between March 2012 and March 2013—saw substantive decelerations over the latest 12 months. Price appreciation was 12.4 percent between March 2013 and March 2014 in the Pacific Division, more than three percentage points below the rate for the preceding 12 months. At 9.8 percent, the last 12-month appreciation in the Mountain division was more than four percentage points below the rate in the preceding 12 months.


FHFA's "distress-free" house price indexes, which are published for 12 large metropolitan areas on page 32, have recently reported lower quarterly appreciation than FHFA's traditional purchase-only indexes. In nine of the areas covered, the new series—which removes short sales and sales of bank-owned properties—shows lower appreciation over the last quarter than the purchase-only series. During the last year, the share of Fannie Mae and Freddie Mac mortgages financing distressed sales has fallen by at least 10 percentage points in more than half of the areas covered by the FHFA indexes.

The complete list of state appreciation rates is on pages 14-15. The list of metropolitan area appreciation rates computed in a purchase-only series is on pages 29-31. Appreciation rates for the all-transactions metropolitan area indexes are on pages 35-48.

Background

FHFA's purchase-only and all-transactions HPI track average house price changes in either repeat sales or refinancings on the same single-family properties. The purchase-only index is based on more than 7 million repeat sales transactions, while the all-transactions index includes more than 50 million repeat transactions. Both indexes are based on data obtained from Fannie Mae and Freddie Mac for mortgages originated over the past 39 years.

FHFA has upgraded its website and is now on Twitter. Follow @FHFA for more information on the FHFA House Price Index.

Note

•The next monthly HPI (including data through April 2014) will be released June 24, 2014.


•The next quarterly HPI report, which will include data for the second quarter of 2014, will be released Aug. 26, 2014.


•Future HPI release dates for 2014 are available on the HPI page.


•Link to report

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The Federal Housing Finance Agency regulates Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks. These government-sponsored enterprises provide more than $5.6 trillion in funding for the U.S. mortgage markets and financial institutions.?

Contacts:

Stefanie Johnson 202-649-3030/ Corinne Russell 202-649-3032

Could someone post this full story....TIA

I believe you must have a subscription to Politico Pro.

Liberals consider how to keep Fannie and Freddie around

Liberals consider how to keep Fannie and Freddie around

(It's slide 9 in the carousel, the last one.)

OH, FANNIE, FREDDIE, WON’T YOU STAY? Here’s Jon Prior [http://politico.pro/1jzc7Pc] — “Democratic senators who recently opposed a bipartisan housing finance bill have begun mulling how to devise a plan that would let Fannie Mae and Freddie Mac stick around. Such an approach, while so far only under preliminary discussions, would vary significantly from a plan authored by Senate Banking Committee Chairman Tim Johnson (D-S.D.) and ranking member Mike Crapo (R-Idaho) that would abolish Fannie and Freddie and create a new mortgage finance system. The panel approved the bill by a 13-9 vote on May 15 but it is unlikely to receive a floor vote this year.”

Obit, thanks you very much for this info.

Thanks andydub. That's what I thought at first, then I had read an explanation on the Google board stating it the way I just describe it, so I thought maybe they were right and I was wrong.

Sorry to hear they don't have the $28.8 billion in reserves, would be a nice buffer moving forward.

Nice 500K share buy @ $4.40 at 10:35:44

Obit, I have a question regarding the GSEs retained capital reserves...

Joshua Rosner coming up on Bloomberg Radio right now. Should be a lot of good info on FnF and Geithner's recent book release.
Bloomberg Radio Link

IMFnews....Wednesday, May 14, 2014

Short Takes: Watt Admits FHFA Can End the Conservatorships / GSE Stock Strategy: Buy Low, Sell High.... / FHFA Unveils Foreclosure Prevention Pilot in Motown

By Paul Muolo, Brandon Ivey, Charles Wisniowski
pmuolo@imfpubs.com, bivey@imfpubs.com, cwisniowski@imfpubs.com

During the Q&A session at the Brookings Institution on Tuesday, Federal Housing Finance Agency Director Mel Watt confirmed that the agency has the power to end the conservatorships of Fannie Mae and Freddie Mac. But he noted that he has not contemplated what an end to the conservatorships might look like. It?s safe to say that all those hedge funds that have been speculating in GSE shares ? both common and preferred ? were listening closely to Watt?s every word...

And in case you didn?t notice, the price of Fannie and Freddie common rose about 5 percent Tuesday, after Watt spoke. In trading Wednesday, they were up again, Fannie by another 5 percent, Freddie by 6 percent. One might expect that Pershing Square chief Bill Ackman is a happy man these days. Late last year Pershing bought into the stocks on the cheap. The investment fund owns 9.98 percent of Fannie and 9.77 percent of Freddie. As the saying goes, buy low, sell high?....

The FHFA will launch a pilot program in Detroit designed to improve servicing standards and foreclosure prevention options in neighborhoods hardest hit by the foreclosure crisis as part of a broader policy course under new management. FHFA Director Watt, in his Brookings speech, unveiled the agency?s new Neighborhood Stabilization Initiative as part of the agency?s more muscular conservatorship strategic goal to maintain Fannie and Freddie. For more details, see the Friday edition of Inside The GSEs.

Has Watt been on CNBC yet? If so, what did he say?

TIA

US Treasury accused over Fannie Mae and Freddie Mac

US Treasury accused over Fannie Mae and Freddie Mac

By Gina Chon in Washington

The US government is being accused of refusing to hand over documents and emails relating to mortgage finance companies Fannie Mae and Freddie Mac in a hedge fund lawsuit over their profits, despite a judge’s order that it do so.

The lawsuit led by Bruce Berkowitz’s Fairholme Funds challenges a 2012 government move that requires Fannie and Freddie to send all their profits to the US Treasury, which plaintiffs say is illegal and hurts shareholders like Fairholme Funds.

The high stakes court case becomes even more important for shareholders like Fairholme, Bill Ackman’s Pershing Square and Perry Capital as possibly the only way to share in Fannie and Freddie’s profitability because legislative efforts to wind down the companies will probably fail this year.

The mortgage finance companies needed a $188bn rescue during the 2008 financial crisis but have turned round in recent years. They have paid dividends to the government that exceed their bailout amount. Fannie and Freddie have been overseen by the US government since 2008.

In February, US Court of Federal Claims Judge Margaret Sweeney allowed Fairholme to seek evidence to support its claims that the Treasury Department, through the Federal Housing Finance Agency, acted illegally in taking all of the profits of Fannie and Freddie.

But since then, Fairholme has not received the documents it has requested and accused the government of blanket refusal to provide any relevant information, according to people familiar with Fairholme’s thinking.

The Justice Department, which is defending the US government, has declined to hand over documents belonging to Fannie and Freddie, information related to the government’s assessment of their future profitability or documents concerning its decision to ensure that private shareholders will not have access to Fannie and Freddie’s profits, these people say.

DoJ has argued that Ms Sweeney allowed Fairholme to seek only a limited amount of evidence, instead of a range of topics that the agency deems as inappropriate and irrelevant to the case.

Ms Sweeney has not ruled on the dispute but she recently indicated that she may side with Fairholme, saying she probably has a broader view of her order than DoJ, according to court proceedings.

Fairholme will also seek to depose former Treasury Secretary Tim Geithner and former FHFA director James Lockhart, and also wants to see emails and other documents from the officials as part of the lawsuit, according to people familiar with Fairholme’s thinking.

DoJ, the Treasury Department and FHFA either declined to comment or did not return requests for comment. The case has already produced documents that show the Treasury had discussed as early as December 2010 the issue of revising bailout terms to ensure that shareholders would not have access to Fannie and Freddie’s future earnings.

Despite the early legal success of Fairholme, research firm Cornerstone Macro said it doubts shareholders will “ever receive anything of value”, partly because of the weak legal arguments in the lawsuit.

Worries about the future of Fannie and Freddie have increased with the recent dip in the housing market. On Tuesday, Mel Watt, the director of FHFA, Fannie and Freddie’s regulator, outlined a strategic plan that clarifies lending rules, which should help expand credit access for mortgages.

Fannie and Freddie will relax payment history requirements for mortgage lenders by allowing two delinquent payments in the first 36 months of an acquisition, which should reduce the amount of bad mortgages banks have been forced to repurchase from Fannie and Freddie.

That could help lenders relax credit standards, which could improve access to mortgages. The confusion around the so-called put backs had caused banks to be more stringent in their lending criteria.