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Top Hedge Fund Bets On Fannie Mae Preferred Stock Making Dough
? Michelle Jones
February 12, 2019 9:24 pm originally in value walk premium
Fannie Mae and Freddie Mac have been under U.S. government control for more than a decade now, but it’s finally sounding like that could end. One hedge fund which focuses on the financial services industry has been betting on a positive end to Fannie’s position as a government-sponsored enterprise (GSE), and the fund updated its thesis for Fannie Mae preferred stock in its fourth-quarter letter to investors.
A tough fourth quarter
The fourth quarter was difficult for almost all hedge funds, but it was particularly tough for Gator Capital Management. The fund declined 20.57% in Q4, underperforming the S&P 500 Total Return Index, which declined 13.52%, and the S&P 1500 Financials Index, which fell 13.36%. The financials sector in general was down 11% for the quarter, while regional banks declined 16% and insurance stocks declined 8%
Q4 hedge fund letters, conference, scoops etc
The Gator team explained that they had expected December to be a strong month because many of their stocks were down from their highs in September or flat for the year. They had expected investors to buy financials stocks in expectation of a strong 2019. However, none of these expectations played out because the markets reacted poorly to the Fed's commentary after it raised the Fed Funds rate.
Fannie Mae preferred stock is "too cheap to sell"
At that point, the Gator team felt many of the stocks the fund owned were "too cheap to sell," so they held onto them so they wouldn't miss any potential rally. January did bring a strong rebound, and they said that as of Jan. 24, they had more than made back what was lost in December. They estimated that the fund was up 17% for 2019 through Jan. 24.
Gator's best-performing positions in Q4 were its Fannie Mae preferred stock, Syncora, Federated Investors and OFG Bancorp, while its biggest detractors were Zions Bancorp stock and warrants, SunTrust, KKR and Credit Suisse. As of the end of December, Gator's largest long positions were Syncora, Zions Bancorporation stock and warrants, Ambac Financial Group, SunTrust Bank and KKR. The fund's biggest short positions were Northwest Bancshares, Community Bank System, Hamilton Lane, CVB Financial and First Republic Bank.
Updated thesis for Fannie Mae preferred stock
The Gator team also discussed at length their long position in Fannie Mae preferred stock. They last wrote in depth about it approximately four years ago, so much has happened on the GSE front since then. They believe the GSE story has finally reached an inflection point, and they now expect the Federal Housing Finance Agency to move Fannie and Freddie out of conservatorship this year. If or when that happens, Gator expects their preferred shares to either be converted to common shares or be refinanced. The firm went on to explain why think this will be the year Fannie and Freddie finally exit conservatorship.
The Gator team noted that the Trump administration has appointed Mark Calabria to be the next FHFA director, and Calabria wrote a paper a few years ago about how the agency was ignoring precedent in the two GSEs' conservatorships. Although it could take as long as six months for him to be confirmed as the new director, Gator management expects that once he's in the post, he will start pressing for Fannie and Freddie to exit conservatorship. Additionally, they noted that acting FHFA Director Joseph Otting has also spoken positively about ending the conservatorships. Treasury Secretary Steven Mnuchin has also long been in favor of Fannie and Freddie leaving conservatorship.
Gator management also noted that the GSEs' former "political foes" in Congress have now retired. Rep. Jeb Hensarling and Sen. Bob Corker were both opponents of the GSEs for a long time, so Gator expects their replacements to bring "fresh perspectives on housing policy."
The fund's management also feels that most of the problems which had been identified over the last 10 years have now been dealt with. As a result, they don't believe legislation is required to reform Fannie and Freddie. They also feel the "narrative" behind putting Fannie and Freddie into conservatorship has now been "debunked." They believe the move was only the first of "several policy errors" which essentially "made it appear as though the GSEs were in a much weaker financial position than they were."
Finally, Gator feels removing Fannie and Freddie from conservatorship would be good for the housing market because the two companies will likely "make reasonable changes at the edges of their credit policy to help improve access to mortgage credit."
The fund's management expects the next step to be a plan for them to exit conservatorship, which they look for in the first quarter. They think the next step will be another amendment to the Treasury agreement to allow the GSEs to retain capital. Other steps they expect include a preferred-for-equity trade and an initial public offering.
Republicans outline plan for GSEs
There is a new development on the Fannie and Freddie front today, which may be the beginning of the first step outlined by Gator management. Senate Banking Committee Chairman Mike Crapo released a plan to remove Fannie and Freddie from conservatorship. Both GSEs would become private mortgage guarantors, but according to Bloomberg, Crapo's plan was light on details for some of the most crucial parts of the plan—including a plan for shareholders of the two GSEs.
Common shares of Fannie and Freddie soared last week after it was widely reported that Otting had said the Trump administrationmight release both GSEs without any legislation. However, the White House said earlier this week that it planned to work on the problem with Congress, suggesting legislation may be required after all.
Under Crapo's plan, guarantors would insure mortgages backed by Ginnie Mae, but with a limit on share of the market any one guarantor would be allowed to have. The plan also dumps Fannie's and Freddie's goals for affordable housing and replace with what he calls a "market access fund" which would be funded through mortgage fees. However, the plan said nothing about what would happen to Fannie Mae preferred stock shareholders.
$165.00 is my guess because that is Patswill's guess. We are all guessing and Pat guesses big!
Go FnF!
Ackman’s Pershing Square Returns 25% in Strong Start to the Year
By
Scott Deveau
February 13, 2019, 8:11 AM EST
?
Bill Ackman Photographer: Chris Ratcliffe/Bloomberg
Bill Ackman’s Pershing Square Capital Managementis off to its strongest start to a year on record, reporting a roughly 25 percent return on its investments so far in 2019.
That represents a turnaround for Ackman’s activist fund in the early part of the year, after a 10.8 percent loss on its investments in December and a 0.7 percent decline for all of 2018. Pershing Squarereturned 24.7 percent on its investments this year through Feb. 12, according to a statementWednesday. Last year, its annual returns were down 9.4 percent through Feb. 13.
?
Bill Ackman
Photographer: Chris Ratcliffe/Bloomberg
Ackman’s publicly traded Pershing Square Holdings Ltd., which will hold an investor day in London on Wednesday, announced it was implementing a quarterly dividend of 10 cents a share. The payout, which currently represents a 2.5 percent yield, is intended to expand the company’s investor base by attracting dividend-seeking shareholders, the company said.
Pershing Square has positions in United Technologies Corp., Starbucks Corp. and Chipotle Mexican Grill Inc., among other investments.
https://www.bloomberg.com/amp/news/articles/2019-02-13/ackman-s-pershing-square-returns-25-in-strong-start-to-the-year
Soooo.... 2:30 U.K. time? Minus 5 hours for eastern time, minus 6 hours central and 8 hours western pac time?
Go FnF!
I will take an $840 share price!
Go FnF!
Perfect day or perfect storm. Strap in. Put on your Mae West!
Go FnF!
And if the words net worth sweep is illegal what will happen? About the same chance of being uttered as receivership!
Go FnF!
Already baked in.
Go FnF!
So the rockets launch in tandem
Go FnF!
Realtors® Release New Vision for Fannie Mae, Freddie Mac Reform
NEWS PROVIDED BY
National Association of Realtors
Feb 07, 2019, 14:12 ET
WASHINGTON, Feb. 7, 2019 /PRNewswire/ -- With over 400 people on hand for the National Association of Realtors®' Housing Finance Reform Policy Forum, NAR today unveiled a new vision for reforming the GSEs. As featured speakers for the panel titled "NAR's vision: A plan for secondary finance shaped in the aftermath of adversity for longevity," co-authors Dr. Susan Wachter, Professor of Real Estate and Finance at the University of Pennsylvania, and Dr. Richard Cooperstein, head of Risk Management at Andrew Davison and Company, presented NAR's comprehensive GSE proposal to the public for the first time at the Grand Hyatt in Washington.
National Association of Realtors logo (PRNewsFoto/National Association of Realtors)
NAR's research is intended to provide a pragmatic solution to the challenges facing the housing finance system by prioritizing and protecting a liquid mortgage market for Middle America and underserved borrowers alike. Unlike a recapitalization and release plan, NAR's vision offers policymakers a responsible framework that protects taxpayers, minimizes costs to consumers and promotes housing accessibility and affordability.
"This vision is the result of years of research and collaboration between NAR, our members, our friends in the industry and countless policymakers who have been influential in this arena," said NAR President John Smaby. "Our hope is that this research will help provide Congressional leaders and administration officials with a credible, deliberate framework as they work to secure reforms that will benefit taxpayers, consumers and the American economy. Ultimately, ensuring the GSEs continue providing liquidity and stability in the mortgage market remains NAR's priority during these discussions."
The GSEs of 2019 are not the GSEs of 2005. Today, Fannie Mae and Freddie Mac have a stronger regulator in the FHFA and are subject to additional Congressional oversight. They are restricted in the products they can purchase, the size of their retained portfolios and their ability to lobby. In addition, they increased and will continue to expand the volume of mortgage credit risk shared with the private sector. These changes have begun to decrease risks tied to the GSEs, injecting private capital and market disciplines to guarantee pricing and mortgage rates for consumers.
Identifying where competition works and where it does not, the research builds on a structure designed to maximize private investment. "This vision of a reformed secondary market for housing finance first recognizes the need for the GSEs to carry out a public mission, the same need that led to their initial creation," the paper reads. "Second, this proposal builds upon the transformed enterprises under conservatorship, bringing in appropriate levels of private capital and a strong regulator to protect taxpayers. Third, this proposal codifies a structure that is effective, resilient and fair, balancing the tension of private operating companies with the public mission."
During the panel discussion, co-author Richard Cooperstein noted, "By addressing the imperfections in the market for housing finance, we can increase competition of private capital to invest in mortgages, keep markets more stable in times of stress and stay mission-focused."
An executive summary and full copy of NAR's vision on housing finance reform can be found here.
Co-author Susan Wachter added, "GSE reform is the critical, unfinished business of the Great Recession; we believe the shareholder-owned, regulated utility we propose will protect taxpayers and ensure the fulfillment of the mission to serve the nation for the future."
The National Association of Realtors® is America's largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.
SOURCE National Association of Realtors
https://www.prnewswire.com/news-releases/realtors-release-new-vision-for-fannie-mae-freddie-mac-reform-300791945.html
NAR hosts GSE reform event
Industry News Monday, February 11, 2019
The National Association of Realtors (NAR) unveiled a new vision for reforming the government-sponsored enterprises (GSEs) at its Housing Finance Policy Forum.
NAR President John Smaby said ensuring that GSEs continue providing liquidity and stability in the mortgage market remains NAR’s top priority.
Read on for more from the forum, which detailed research showing that stronger regulations of Fannie Mae and Freddie Mac have decreased risks tied to GSEs.
Pay site
http://www.respanews.com/RN/ArticlesRN/NAR-hosts-GSE-reform-event-75375.aspx
Some GSE pluses this past week
Welcome Back Dick Bove...
with his strong GSE stock review
Richard X. “Dick” Bove has been a successful Wall Street financial services analyst for multiple decades and he’s recently gone to work for the Street’s Odeon Capital. Dick is a renowned big bank expert, but has covered the GSEs before and now has authored a new Odeon investment piece on Fannie and Freddie.
Bove and I discussed his work, shortly after it was published and I promised to feature it in my next blog.
Readers can see his positive advice, linked below, but I ask you to focus more on the logic behind his investment logic, with which I agree (but which doesn’t mean others “inside the Beltway” feel the same, although they should).
https://bit.ly/2DjNs0e
Here’s my synopsis of Dick’s GSE longer positive guidance, adding a Maloni major political belief at the end of Bove's excellent economic, financial, and demographic perspective.
Bove posits the following:
----- Near term the U.S. is facing an economic slowdown;
-------Homeownership demands are rising among a growing and important demographic US residents aged 25-40;
----- Housing/homeownership is a critical segment of the economy and, historically, has helped boost GNP when facilitated;
-----The GSEs have been critical to the latter factor and are necessary to make that happen going forward;
-----Executive or regulatory action to loosen the GSE shackles is likely the most efficient way to make this happen;
---And I add this to Bove’s thinking: Whoever can take credit for rejuvenating Fannie and Freddie should earn major political kudos going into the 2020 presidential and congressional races, garnering major support from low, moderate, and middle-income families who would benefit the most from greater access to GSE mortgage credit.
(I hope to add a brief “Bove one-pager” for those who want to share his newest work with colleagues, Members of Congress, policymakers, media, and others.)
Other Fannie-Freddie items worth noting:
Tim Howard’s latest blog is a three year, retrospective, a look at everything Tim's written, broken down by subject and is an excellent substantive primer for all seeking to understand—in detail—the many bizarre, audacious, and harmful machinations GSE opponents and their business, congressional, and Admin allies waged against Fannie Mae, Freddie Mac and their shareholders. (Check out the personal huzzahs from Tim’s regular readers.)
https://howardonmortgagefinance.com/
GE, subprime chickens coming home to roost in a corporate carcass?
When the long knives came out for the GSEs more than 10 years ago, General Electric subsidiaries, especially GEMICOtheir mortgage insurance unit, was in the forefront financing and pushing the “FM Watch” group to attack and debase all things GSE.
That cabal and its principals—which still operates under user-friendly names—couldn’t hurl enough diatribes and innuendo at the GSEs.
But what goes up can also…….!
GE, the longtime gigantic financial/manufacturing conglomerate,has fallen on very hard financial times; sold off a lot of its corporate pieces; seen its stock fall precipitously; and this past week made public that it expects to pay a$1.5 Billion fine to the Justice Department for subprime lending conducted in 2005-2007 by its now-closed WMC lending subsidiary.
That dozen years ago is just about when GE was leading/financing the GSE lynch mob through FM Watch, with the help of some big banks and others.
Now, in 2019, the GSEs likely will earn near $20 Billion or more; still are breathing, experiencing stocks price increases, producing coast to coast mortgage financing through their secondary mortgage market operations; and government policymakers are making positive sounds about Fannie’s and Freddie’s future operations (without any need for a "bright line!").
This gloat is directed at the old "still workin' it" FM Watch alums..."How about them apples?" (With all due respect to Matt Damon, Robin Williams, Ben Affleck, and Minnie Driver.)
Good Governance folks want to know,
who's lobbying their Senators and MoCs?
Is Parrott legit or acting on the sly and for who/what?
Fair question put to me by a friend: "Why is fellow-traveler, anti-GSE Jim Parrott on the Hill lobbying Senators and Members for the old "Jumpstart bill" to help the big banks in a last-ditch effort to grab the US secondary market, when he is not registered to lobby?"
Shouldn't responsible Hill offices and staffers ask Parrott--before engaging with him and risking personal trouble or media grief for their boss--if he, legally, is authorized to lobby and signed up with the Senate Secretary and the House Clerk?
Shouldn't those same conscientious Hill offices also demand Parrott tell them who he represents?
And if not, why not?
Just asking folks, Jim? Wells Fargo's a big bank, right?
Last item. Get ready to unload on me, but…..
I know it’s been some long lean years for most non-hedge fund investors—and ”no,” I’m not sitting on a ton of F&F stock hoping my reverse JuJu will make me rich-- but everyone wants to jump on the latest news (and gaffes) coming from the Hill, Mnuchin, Otting, others and get giddy or angry.
But those—who seem to care more about financial returns than the national value of returning the GSEs to operating an efficient, fair, honest, and diverse secondary mortgage market, where all participants, lenders Realtor, builders, and can succeed and generate income—please hold off your crazy predictions about when this ephemeral gold mine will hit.
I sense you all are agonizing over these peaks and valleys as the stocks rise and fall with each GSE belch.
Nobody knows, given court schedules, Administration and congressional political priorities, delays, judicial vacations, and competing cases, when something good or bad will occur, despite all of the rampant and largely uninformed speculation.
My advice is to save yourself some high blood pressure and gray hair.
Also, at the end of the day, it might not be a gold mine at all, just another five or ten years of slogging through Conservatorship.
Speculate all you want, but there is not a soul who knows, exactly, when or what any final GSE chapter looks like or when/if that curtain will go up—and that includes this Administration.
Stay well, healthy, and happy!!!
Maloni, 2-10-2019
http://malonigse.blogspot.com/2019/02/some-gse-pluses-this-past-week.html?m=1
Sometimes the leaked info/rumors are preceded by big buys. Let's hide and watch!
Go FnF!
Does the earnings release usually include an indication/statement revealing intent to send profits to treasury?
Thanks, I can't remember and I am lazy.
Go FnF!
NAR's Proposal to Restructure Fannie/Freddie By: Jann Swanson • 13 Min, 16 Secs ago
?
The second proposal for reform of the housing finance system in a week was just introduced by the National Association of Realtors® (NAR). Their "vision" for reform is centered on Fannie Mae and Freddie Mac (the GSEs). The future of the two companies, in federal conservatorship since 2008, barely got a mention in the outline for reform legislation released a few days ago by Mike Crapo (R-ID), chair of the Senate Bankin Committee.
NAR unveiled its proposal, developed in collaboration with Susan Wachter, the Albert Sussman Professor of Real Estate and Professor of Finance at The Wharton School of the University of Pennsylvania, and Richard Cooperstein, head of Risk Management at Andrew Davidson and Company, Inc., before a sold-out forum audience of 400 on Thursday.
The proposal says the GSEs do much more than buy mortgages, package them into securities, and sell them to investors with a guarantee. They also set, monitor, and enforce standards for mortgage origination, credit, servicing, and prepayment in the $5 trillion conventional mortgage market. They provide the infrastructure and scale required in the investment markets for interest rate and credit risk and facilitate more competition than would exist without them.
NAR's take on why the GSEs foundered was insufficient capital, guarantee fees that were too low, inadequate regulatory oversight, and ruinous competition from unregulated providers (subprime lenders.) The GSE could chase the market becausetheir returns and mission were not regulated. "They could not capture the benefits of setting good credit standards."
The nation needs a liquid mortgage market that is efficient and stress resilient to meet the home financing needs of middle America and provide access for underserved communities. Today the taxpayer is exposed to loses because of the lack of private capital, but the need for continuing federal support is also apparent.
NAR proposes the GSEs be structured again as government-chartered utilities, but this time with improved accountability and regulatory oversight. This structure would strengthen adherence to mission and regulates returns to leverage the discipline of private capital while limiting the profit motive.
Today's GSEs have a stronger regulator in the Federal Housing Finance Agency (FHFA) and public oversight from Congress. They are restricted in the products they can buy, the size of the portfolio, and their ability to lobby. They also transfer most of the interest rate and credit risk on the mortgages they guarantee to the private sector. In essence, "the GSEs' operations are reformed, but their ownership structure and oversight remain to be determined."
NAR suggests re-chartering the GSEs as Systemically Important Mortgage Market Utilities (SIMMUs), similar to the Systemically Important Financial Market Utilities (SIFMUs) established under Dodd-Frank. Like the SIFMUs, failure of an unregulated GSE could create or increase the risk of significant liquidity or credit problems spreading among financial institutions or markets and threatening the stability of the U.S. financial system. SIFMUs are overseen by the Financial Stability Oversight Council (FSOC), an enhanced FHFA would oversee the SIMMUs.
This structure would support the public missions of liquidity and broad access through its board and its enhanced oversight while shareholder equity provides discipline. The public mission of the SIMMU should supersede competitive motivations and benefits of shareholders in a manner consistent with the legal construct of a Beneficial Corporation. The entities would report to Congress on the strength of the business and performance against their public mission on a regular basis, but they would not be able to lobby and would fund their operations outside the government appropriations process through fees as the GSEs. Their returns would be regulated.
The utilities would continue to set standards for residential mortgages and to transfer most of their risks to private capital markets; interest and prepayment risk through the To-Be-Announced (TBA) market and credit risk through existing credit risk transfer (CRT) and related credit risk programs. MBS would carry an explicit, paid-for, catastrophic guarantee provided by the U.S. government to enhance liquidity and support the TBA and CRT markets and long-term financing in turn.
The entities would retain enough risk to align incentives and enough capital to protect taxpayers from losses in all but the most extreme circumstances. This capital requirement reflects their role as insurance utilities and includes product, counter-party, and balance sheet risks, along with their countercyclical obligations.
NAR suggests a 5 percent claims-paying ability, from guarantee fees, capital, and risk transfer, would be enough to survive a 2007 type crisis. Under extreme stress, the U.S. Treasury backstop would provide additional liquidity.
The entities would only guarantee mortgages that comply with the Qualified Mortgage standard of the Ability-to-Repay Rule (ATR). They would require 20 percent borrower equity or credit enhancement from private insurance. The entities would continue to enforce capital and operational standards for servicers and credit counterparties that protect taxpayers while achieving the public mission. They would also provide and maintain the infrastructure for securitization and credit risk sharing with private markets.
Additionally, the proposal says there must be access for small lenders, clear and fair pricing and support for 30-year fixed-rate mortgages. The entities must make significant investments in data and research and programs to expand access to mortgages including first-time homebuyers and targeted populations. The Duty to Serve mandates, and contributions to the Capital Magnet Fund and Housing Trust Funds would continue.
Government programs may support a similar mission, but without reliance on private capital. Proposals that would eliminate or shrink the GSEs would reduce liquidity in the market and cause government programs to expand, increasing risk to tax payers. Both efficiency and equity goals are accomplished through the SIMMUs-financial market utilities that receive regulated returns and execute the government's mission for housing finance.
Transition to any type of important financial market must not cause disruption. Mortgage markets are currently functioning smoothly so the final model and the transition process must be telegraphed to the markets. The advantage of their proposal NAR says, is that it builds on two existing entities and their infrastructure, retaining many of the reforms already made. Congressional action would be needed to re-charter the GSEs into SIMMUs.
The SIMMUs would continue to maintain and develop the infrastructure of the conventional mortgage market, and the regulator would oversee the issuance of required stock analogous to an Initial Public Offering. It is estimated that $100-$200 billion (2 to 3 percent) of equity capital would be needed to back the SIMMUs, supplementing the existing guarantee fees and risk sharing structures for a 4 to 5 percent claims paying ability. Experts say this could be achieved through two or three offerings so the new SIMMUs could be up and running within two years, well-capitalized, with a stronger regulator and clearer public mission.
Pricing of the guarantee fee is critical to accomplish the mission and to attract private investors but raises a number of important questions. What is the right guarantee fee that fairly prices risk and protects taxpayers? How much should the utilities charge to raise and maintain equity and sell risk into the market? Will the market be disrupted in achieving a market rate?
For an extended period before the financial crisis, the GSEs had 0.45 percent statutory capital for credit risk and 2.50 percent for portfolio assets, charged about 20 basis points (bps) guarantee fees, and generated high returns on their highly-levered balance sheet. During the crisis the GSEs cost the taxpayers nearly $200 billion, or about 4 percent of $5 trillion notional balance mortgages, a loss nearly ten times their required capital. Since then, about $2.5 trillion of notional balance CRT has been issued, transferring risk and providing extensive discovery on the price of risk and implied capital required for GSE credit risk. From 2011 to 2014, guarantee fees were raised in a series of steps to roughly 55 bps.
NAR says its proposal uses conservative estimates and comes to about the same fee level. Part of that fee would be used to purchase risk-based catastrophic protection similar to deposit insurance from the U.S. Treasury.
http://amp.mortgagenewsdaily.com/article/899129
Privatize Freddie Mac and Fannie Mae
by Seth H. Giertz
| February 08, 2019 11:12 AM
Mark Calabria, currently Vice President Mike Pence’s chief economist, is President Trump’s nominee to lead the Federal Housing Finance Agency. The FHFA is the chief regulator of mortgage giants Fannie Mae and Freddie Mac, the government-sponsored enterprises.
Calabria is a longtime advocate for ending government ownership of the GSEs. He further supports reforms that would greatly diminish the two firms’ dominance in the mortgage market. Such reforms are long overdue and would be a welcome sign for the stability of U.S. financial markets.
The GSEs played an important role in fomenting the financial crisis. The mortgage market is not now characterized by the reckless underwriting practices that were dominant in the years leading up to the crisis. However, the GSEs are still severely undercapitalized and continue to play an outsized role in the mortgage market. The risk posed to taxpayers, and to economic stability, remain.
Proposals to remove the GSEs from the government’s balance sheet have enjoyed support from both parties. Yet, no action has been taken. One reason may be that the GSEs have been quite profitable in recent years. The terms of the conservatorship stipulate that profits are turned over to the Treasury. Thus far, the Treasury has reaped $286 billion in profits from the GSEs.
Politicians may also resist reform because the GSEs have served as vehicles for pushing policy objectives, while obscuring the costs to taxpayers. For example, the government pushed policies, such as affordable housing goals and the Community Reinvestment Act, which mandated that the GSEs expand high-risk borrowing.
In September of 2008, the FHFA, then only in its first few days of operation, placed the GSEs into conservatorship. This was seen as an emergency measure to prevent the housing market from going into a tailspin. It was meant to be a temporary measure, but to this day the U.S. Treasury has maintained a 79.9 percent ownership stake in the two corporations.
Fannie and Freddie’s largest source of revenue are from guarantee fees that it charges mortgage issuers. In exchange for the fees, the GSEs agree to pay the principal and interest on loans in the event that borrowers default. In normal times, the model works well. Guarantee fees are more than enough to cover the small percentage of borrower defaults.
However, a sharp drop in house prices could result in widespread default. Prior to the crisis, regulators required the GSEs to hold economic capital, that is, liquid low-risk investments, to protect against large-scale default. Alas, the required levels were far too low. Under government conservatorship, the GSEs are only permitted to hold nominal capital reserves.
If the GSEs are too lax in the standards for loans that they back, instability cascades through the market. As the early 2000s demonstrated, mortgage originators often have little concern for borrower risk, provided the GSEs, or other backers, are willing to guarantee their loans.
The GSEs need to hold adequate capital was attenuated because of their implicit backing from the federal government. The strength of their government charter was reinforced by the reported $200 million spent on lobbying and campaign contributions over the decade preceding their collapse.
Because of their government backing, and the competitive advantage it afforded, they were able to grow far larger than otherwise. At the time of the crisis, they owned or guaranteed more than $5 trillion in mortgage debt, making them critical to the functioning of mortgage finance, or “Too Big to Fail.”
To reduce the risk to financial market and taxpayers alike, the government should allow the GSEs to recapitalize and then remove them from the government’s books. Fannie and Freddie’s government charters should be revoked. Both should be spun off into much smaller entities that do not pose systemic risk to the economy.
https://www.washingtonexaminer.com/opinion/op-eds/privatize-freddie-mac-and-fannie-mae?_amp=true
Fannie-Freddie Watchdog Gets More Cautious on Firms' Release
Elizabeth Dexheimer
BloombergFebruary 7, 2019, 4:44 PM CST
Fannie-Freddie Watchdog Gets More Cautious on Firms' Release
More
(Bloomberg) -- Fannie Mae and Freddie Mac’s regulator appears to have learned that it’s best to be careful when making comments about freeing the mortgage giants from federal control.
Joseph Otting, the acting director of the Federal Housing Finance Agency, made clear Thursday that it’s the Trump administration’s preference to work with Congress, after he faced a backlash last month for privately hinting the FHFA and Treasury Department might circumvent lawmakers.
Otting’s January comments that caused a stir, made in a meeting with FHFA staff, were secretly recorded and leaked to the media. The remarks triggered a surge in Fannie and Freddie’s share prices, scrutiny from congressional Democrats and a pledge from the White House that it would work with lawmakers on any plan to end the decade-long conservatorships of the companies.
“Every time I see someone recording me I get a little nervous these days,” Otting joked Thursday at a housing conference in Washington.
He also took a much more measured tone in discussing the Trump administration’s plans for Fannie and Freddie.
“We are spending an enormous amount of time thinking through the options," Otting said, reiterating that housing-finance policy remains a priority for Treasury Secretary Steven Mnuchin. “Our preference would always be a legislative fix."
He declined to comment on any specifics other than to say that ensuring the mortgage giants have enough capital and liquidity to operate in a safe and sound manner is "the most important thing."
In response to questions from reporters, Otting said it’s “out of my control” as to when the White House releases its plan for reforming housing. He added that it would be "slightly ahead of the curve" for him to comment on any specific administrative actions FHFA or Treasury is currently considering.
"You need to be slightly patient," Otting said.
Otting also leads the Office of the Comptroller of the Currency, which is one of the nation’s top bank regulators. He will step down from the FHFA once the Senate confirms a permanent replacement.
President Donald Trump has picked libertarian economist Mark Calabria, who now works for Vice President Mike Pence, to lead the housing regulator. The Senate Banking Committee has scheduled a nomination hearing for Calabria on Feb. 14.
I bought marvel comics under $3.00 I sold at $6.50. Seemed prudent at the time. The next time I checked the s/p 0f marvel it was$24. I made a good trade but I could have made A LOT more. Live and LEARN.
GO fnF!
Post is not about the other stocks. Just a lesson.
She is fickle and unstable, like my ex!
Go FnF!
(A source close to the administration)
Or I like this one lately
(Sources that know how the administration thinks)
It seems desperate.
Go FnF!
Crapo rolled the dice. Munchkin said "thanks for playing. Come back again!"
Go FnF!
It seems that the market did wise up. There is no knee jerk reaction to Crappy's go nowhere proposal/outline.
Go FnF!
I am telling you it is open and cell phone time!
Go FnF!
That is why I said Crapo's crap outline will make administrative action more pallatable.
Well I didn't say it like that.
I can hear Trump now. "I am cutting through this congressional gridlock. I have a pen and a cell phone".
He should send Crapo's outline just to mess with her
Is it possible that Trump needs something circulating currently? It will just be argued and argued and bolster administrative action.
Go FnF!
That seems like it may be a good post but I really can't tell.
It seems that one version or another b.s. plan is always sitting on somebody's desk just waiting for the twins share price to recover. When they were out of plans Corky was paid to make a public suggestion to short FnF. The big banks are shorting the shit out of the twins using the same tactics over and over.
Yea, it has made me sick several times!
Go FnF!
I think that until this is dissected the market will pay attention and react to the twins being private in the proposal.
Go FnF!
Isn't the securitization platform owned by FnF?
Didn't our profit pay for it's development?
Housing reform outline by Crapo
Guarantors
a. Guarantors will be private companies.
b. The primary business of guarantors will be to guarantee the timely repayment of
principal and interest to investors of eligible mortgages that are securitized
through a securitization platform operated by Ginnie Mae.
i. Guarantors will be permitted to (i) provide guarantees on eligible
mortgages that are securitized by primary market participants or issuers;
and (ii) buy eligible mortgages from the primary market through a cash
window and guarantee and securitize them through a securitization
platform operated by Ginnie Mae.
ii. Guarantors will be able to hold mortgages in portfolio only to the extent
that such portfolio holdings are incidental to the business of securitizing
and guaranteeing mortgage backed securities.
c. No guarantor will be able to guarantee more than [XX] percent of all outstanding
guaranteed eligible mortgages.
d. Fannie Mae and Freddie Mac will be private guarantors.
i. The multifamily businesses of Fannie Mae and Freddie Mac will be sold
and operated as independent guarantors.
e. Insured depository institutions will not be permitted to be guarantors.
f. Guarantors will not be permitted to offer volume-based discounts on the
guarantee fee or other terms.
g. Guarantors will be required to maintain (i) a minimum statutorily required capital
ratio of [XX] percent to total assets (including asset equivalents of any off-
balance sheet exposures); and (ii) additional capital requirements established by
the Federal Housing Finance Agency (FHFA).
i. In addition, FHFA will be permitted to require guarantors to engage in
approved credit risk transfers (CRT). FHFA may take the quantity and
quality of CRT into account when setting capital requirements for a
guarantor, but every guarantor will be required to remain above the
statutory minimum leverage ratio.
h. Credit box: In order to qualify as an “eligible mortgage” (i.e., a mortgage that a
guarantor can buy, securitize, and/or guarantee) (i) the borrower must provide a
down payment of at least [XX] percent; (ii) the outstanding principal balance will
not be able to exceed 80 percent of the value of the property unless the borrower
has private mortgage insurance as currently required by GSEs; (iii) the loan will
be required to meet requirements that are substantially similar (as determined by
FHFA by regulation) to the Qualified Mortgage requirements; and (iv) the value
of the mortgage will not be permitted to exceed loan limits set by FHFA.
Regulation of Guarantors
a. FHFA’s structure will be changed so that it is run by a bi-partisan board of
directors instead of a single Director.
b. FHFA will charter, regulate, and supervise guarantors.
c. FHFA will be required to establish prudential standards that include (i) leverage
requirements in addition to statutorily required leverage requirements; (ii) risk-
based capital requirements (if appropriate); (iii) liquidity requirements; (iv)
overall risk management requirements; (v) resolution plan requirements; (vi)
concentration limits; and (vii) stress tests.
d. FHFA will be permitted to establish standards of approval for CRT structures.
Guarantors may only use CRT structures approved by FHFA.
e. FHFA will maintain existing resolution authorities to resolve an insolvent
guarantor. Guarantors will be allowed to fail.
f. FHFA will have authority to require a guarantor to divest certain assets or
operations if (i) FHFA determines that a guarantor guarantees more than [XX]
percent of all outstanding guaranteed mortgages; or (ii) the guarantor constitutes a
grave threat to the financial safety, soundness, or stability of the U.S. financial
system.
g. FHFA will be required to approve guarantors’ pricing.
Ginnie Mae
a. Ginnie Mae will guarantee timely repayment of principal and interest on
securities that receive credit enhancement from guarantors that are approved and
regulated by FHFA.
b. Ginnie Mae will operate a securitization platform.
c. Ginnie Mae will provide a catastrophic government guarantee at the security-level
to cover tail-end risk, backed by the full-faith and credit of the United States.
d. Ginnie Mae will operate a mortgage insurance fund (MIF) with a reserve ratio of
[XX] percent of total amount of outstanding securities guaranteed by Ginnie Mae.
The MIF will be funded through insurance premiums paid by guarantors.
e. If the MIF is depleted and draws on Treasury, guarantors would be charged higher
insurance premiums to pay back taxpayers and rebuild the MIF reserves to the
required reserve ratio.
Transition
a. No guarantor will be permitted to have more than [XX] percent of all outstanding
guaranteed eligible mortgages within [XX] years after enactment of the
legislation.
b. All guarantors will be required to be fully capitalized within [XX] years after
enactment of the legislation.
c. Technology and infrastructure being developed as part of the Common
Securitization Platform may be sold or transferred to Ginnie Mae.
d. FHFA, with the consent of Treasury, will have the authority to postpone deadlines
if FHFA submits a report to Congress, and the Chair of FHFA and the Secretary
of Treasury both agree and testify before Congress as to why a delay is necessary.
Affordable Housing
a. Current affordable housing goals and duty-to-serve requirements will be replaced
with a new Market Access Fund, which will provide grants, loans, and credit
enhancement to address the homeownership and rental housing needs in
underserved and low-income communities.
b. The Housing Trust Fund, Capital Magnet Fund, and Market Access Fund will
collectively be funded through an annual assessment of 10.0 basis points of the
total annual loan volume guaranteed by each guarantor.
First you say that you didn't read it and then you continue on with several opinions about it.
You should find more time.
Go FnF!
Investors Unite and the legal teams from all of law suits could benefit from reading this full post. It could lead to more exposure of corruption and possibly more law suits or criminal charges. (That criminal charges part is a pipe dream)
Go FnF!
Anybody with questions about how we got here should include reading this full post while doing their DD. This is a small excerpt.
The right for the FHFA Director to do all these things was established by HERA, and that right was only assigned to the Director with the distinction that these activities would be independent of the supervision of any other governmental agency, and they could not be tasked to any other member of the Oversight Board, and here, the Treasury demands that the Director transfer those controls to the Treasury Sec. before funding is allowed to take place. This breaches HERA’s statutes by allowing the Treasury to establish supervision of FHFA when FHFA was to not be subject to supervision by any other governmental agency and by requiring that Treasury be given ultimate control when duties of the Director cannot be transferred to any other member of the Oversight Board of which the Treasury Sec. is one. These controls ultimately led the Treasury and HUD to authoring the white paper “REFORMING AMERICA’S HOUSING FINANCE MARKET - A REPORT TO CONGRESS in February of 2011” where Treasury states: The Administration will work with FHFA to develop a plan to responsibly reduce the role of the Fannie Mae and Freddie Mac in the mortgage market and, ultimately, wind down both institutions. Notice that it IS NOT FHFA making this announcement, Treasury has taken control.
As you read this keep in mind the government didn't have to take over FnF, they could have hired them to perform the purchases and loan modifications needed to prevent collapse of the TBTF banks. Instead, the Government spent considerable time and resources to defraud shareholders of the value of their investments. This didn't happen in a vacuum, many agencies and people were involved in this effort, when all they had to do was buyout the shareholders at fair market value.
https://groups.google.com/forum/m/#!topic/fannie-and-freddie-preferreds/5sOfLJpEo5s
Thanks for your input. You and ZRIDE must do a lot of brainstorming together. I am now selling everything. Years of patiently waiting for the final outcome have been wasted. I see that now. I think I will buy some nice safe pot stocks!
Go FnF!
Mike Crapo's 2019 Welcome Letter
Dear Fellow Idahoan,
In the November 2016 election, voters sent a clear message to Congress by electing
candidates that would create an opportunity society for Americans. This vision built
on conservative principles of a limited government, reined in irresponsible federal
spending, a strong national defense and a free market emphasis.
During the 115th Congress, the Senate, House of Representatives and President
Donald Trump have implemented conservative policies that will enable all
Americans to build and achieve their American dream, while strengthening our
economy and allowing businesses to grow and thrive.
Senate Republicans have made positive headway on our promises to the American
people to get Washington functioning again. In 2017 alone, the President signed
70 pieces of legislation passed by Congress aimed specifically at overturning costly
rules and regulations from the previous Administration. Further, the Senate enacted
meaningful tax reform, made it easier for small banks to provide services to working
families, repealed the individual health care mandate, gave terminally ill patients
the “right to try” experimental medications, addressed the opioid crisis, supported
our troops and veterans, and passed many other bipartisan pieces of legislation to
advance the American economy.
In two years, the Senate confirmed a record number of judges, including two U.S.
Supreme Court Justices. The Senate made significant progress in advancing a court
system that preserves our constitutional rights and provides fair justice by confirming
judges who will enforce the law as it is written, not make policy from the bench.
I am grateful for the support and friendship you have extended to me, and I look
forward to continuing my work with Idahoans, President Trump and my colleagues
in Congress to make further advancements for the American people.
Joseph Otting Appoints New Chief of Staff
By Donna Joseph on Jan 31, 2019
?The Federal Housing Finance Agency (FHFA) has appointed John Roscoe, a special assistant to President Donald Trump and former Trump campaign official, as its new Chief of Staff. Roscoe will take on the new role on February 4 and report directly to Acting Director Joseph Otting.
Roscoe currently serves as Special Assistant to the President in the White House Office of Presidential Personnel. The FHFA statement noted that his work has helped shape the economic, trade, and regulatory arm of the Trump Administration. Prior to joining the White House, Roscoe served in senior roles in the private sector and state government, including at the Ohio Treasurer’s office.
“I am honored by this appointment and look forward to working with Acting Director Otting and the highly respected FHFA team,” Roscoe said.
Commenting on the appointment, Otting said that Roscoe brings to the position “solid judgment that comes from working at a very high level across all ?branches of government.”
“John is a dynamic and collaborative leader with a track record of success. I look forward to working with John to carry out the mission of the FHFA,” Otting said.
The latest appointment comes at a time when the FHFA has been in the news because of Otting’s remarks on ending the conservatorships of Fannie Mae and Freddie Mac. As reported in DS News earlier, according to a recording of his remarks obtained by Politico, Otting told FHFA employees that they would be seeing communication from the White House and the Treasury over the next two to four weeks that "really sets a direction for what the future of housing will be in the U.S. and what the FHFA's part will be."
The remarks set the share prices of both the government-sponsored enterprises (GSEs) soaring as investors became more hopeful that Fannie and Freddie could soon be out of government conservatorship.
Housing Finance Reforms are also on top of the Senate Banking Committee’s agenda. The Committee will assess these and other proposals to determine how we can fix the flawed system, establish appropriate levels of taxpayer protection, preserve the 30-year fixed-rate mortgage, increase competition among mortgage guarantors and promote access to affordable housing," said Sen. Mike Crapo, Chairman of the Senate Banking Committee.
https://themreport.com/amp/daily-dose/01-31-2019/joseph-otting-appoints-new-chief-of-staff
Fannie Mae VP: Lenders Need More Inventory!
By: Jann Swanson • 44 Min, 26 Secs ago
?
The chant throughout 2018 from housing industry sources was inventory, inventory, inventory - or lack of same. It was blamed first for rising home prices and then for the slow growth in home sales. Fannie Mae's fourth quarter Mortgage Lender Sentiment Survey found that most lenders agree that this was the case.
Mark Palim, Fannie Mae's Vice President and Deputy Chief Economist, writes in the company's Perspectives blog that nearly half of lenders responding to the survey named an insufficient supply of homes available for sale as the top reason behind the slow growth in sales last year. Twice as many cited inventory as mentioned the next most popular reason, rising interest rates. The third factor frequently mentioned was high home prices. Only small numbers of lenders attributed the weak sales in 2018 to tight credit and underwriting standards or to a lack of mortgage products tailored to first-time or low- and moderate-income homebuyers.
Lenders told Fannie Mae that they believe there are steps that could improve affordability for first time homebuyers and those with low and moderate incomes and 45 percent said growing the housing stock would be the most helpful. A much smaller number said offering consumer subsidies such as the first-time homebuyer tax credit that was available in 2008, assistance with closing costs, or a wider array of loan products would help ease the shortage of affordable housing. Other suggestions included improving consumer readiness through education or job training.
When asked to evaluate the helpfulness of various loan programs to enhance housing affordability for low- and moderate-income homebuyers, lenders gave high ratings to low down payment mortgages (44%). Mortgage loans covering renovation costs (18%), loans for condominiums (17%), and loans for manufactured homes (17%) were also considered helpful by lenders. In contrast, loans for home construction (11%) and loans including energy-efficiency installation costs (5%) are seen as less helpful.
Palim said that other organizations such as the National Association of Homebuilders (NAHB) have echoed the survey findings, suggesting that the inadequate supply of new homes is largely unrelated to primary or secondary mortgage market factors. Strategies of growing the housing stock include easing zoning and density regulations, modernizing building codes, and renovating existing housing.
Fannie Mae's own research indicates that an inadequate level of new housing construction relative to the pace of job growth and underlying demand has contributed to strong home price appreciation and ongoing affordability challenges for first-time and move-up homebuyers. Single-family (one-to-four units in the structure) housing starts remain well below levels typically seen during expansions and, by Fannie Mae's estimate, the annual pace should be about 200,000 units higher.
In the face of the perceived impacts of non-mortgage supply constraints, Palim says it appears that further easing of consumer credit standards would be more likely to contribute to stronger home price appreciation than it would to expanding sustainable homeownership.
http://amp.mortgagenewsdaily.com/article/897582