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News: Fannie and Freddie Forecast Another Strong Year for Multifamily
However, Moderation in Rent Growth Starting To Set In and a Handful of Markets May Be Past Their Peak
By Mark Heschmeyer | March 5, 2014
http://www.costar.com/News/Article/Fannie-and-Freddie-Forecast-Another-Strong-Year-for-Multifamily/158041
The multifamily sector looks to continue to remain quite healthy in 2014 based on analysis of current data from Freddie Mac and Fannie Mae. But the pair of big GSEs expect multifamily growth to moderate beyond this year as conditions return to long-run historical levels.
The Freddie Mac Multifamily Investment Index shows that multifamily should remain an attractive investment for the next few years. The Index, which measures the relative attractiveness of investing in multifamily properties over time, was at 146.3 for the third quarter of 2013, well above the historical average of 124.6.
"As the broader economy continues to grow, we expect the overall multifamily sector to remain strong in 2014. Revenue growth in the industry will continue to perform near or above historical averages, but at lower rates than the previous two years,” said David Brickman, executive vice president of Freddie Mac Multifamily. “The growth in some markets, however, has already slowed down and vacancy rates in a select few are inching up.”
Vacancy rates in many major markets are below historical norm rates, lessening concerns about overbuilding in these markets. However, current vacancy rates in Washington, DC, and Norfolk, VA., are higher than historical averages, which puts these markets at a higher risk of a market slowdown with further increases in supply, Brickman said.
Fannie Mae expects continued demand for multifamily housing in 2014 - from both tenants and property owners - based on a number of key factors: improving job growth, an increasing number of renter household formations, new apartment supply, and rising for-sale home prices, according to Kim Betancourt, director of economics, multifamily economics and market research at Fannie Mae.
The ongoing demand for multifamily housing also was evident during the last quarter of 2013, which normally slows down due to cyclical seasonality. Instead, rent growth appears to have been positive, with vacancy levels remaining steady, despite new additions to existing supply coming online late in the year, Betancourt noted.
Fannie Mae’s Economic & Strategic Research Group is forecasting nonfarm payroll growth to increase by 1.9 percent in 2014 and again by 2.0 percent in 2015. These positive job trends should help boost household formations, which in turn also should increase demand for rental units.
Not all metros are expected experience the same level of employment growth, Betancourt said. Some are not expected to come close the national level. Although all of the nation’s major metros are expected to see positive job growth this year, metro areas such as Cleveland, St. Louis, Detroit, Philadelphia, and even Boston and Washington, DC, will likely fall below the national average.
While this should not be a significant problem for the multifamily sector in some of these metros, others, such as Boston and especially Washington, DC, have quite a bit of new supply expected to come online this year. That is expected to dampen rent growth in certain submarkets in these metros over the next 12 to 24 months, she said.
Fannie Mae expects other metros to fare better. The major Texas metros of Austin, Houston and Dallas should continue to be the jobs juggernauts they’ve been over the past few years. However, other less-likely metros, such as Orlando, Louisville, Palm Beach, and Portland, should all enjoy above-average job growth this year, helping to keep rent growth and vacancy levels healthy.
Interesting. On one hand in County of Erie vs. FHFA challenging the legality of property transfer tax , in defense the government argues that:
"Having suffered great losses in the wake of the 2008 financial crisis, Frannie and Freddie were placed into FHFA's conservatorship. The Conservator has the statutory power to "operate" the two enterprises and "to conduct all [of their] business," with the statutory mission of, among other things, "preserv[ing] and conserv[ing] the[ir] assets and property." Id. § 4617(b)(2)(B)."
http://www.newyorklawjournal.com/all-decisions/id=1202645338214/County%20of%20Erie%20v%20Federal%20Housing%20Finance%20Agency%2013CV284S?mcode=1202614938272&curindex=0
However, on the other hand, in Fairholme vs. USA, the government seems to dismiss this key fact. The government cannot pick and choose as a matter of convenience when to abide by HERA 2008. In my opinion, this is further evidence for blatant disregard of the law by FHFA.
Yes Obit. There is clearly a conflict between the law as outlined by HERA 2008 and the current governance policies for FnF enacted by Treasury and FHFA and reiterated by Congress and the Administration.
If such statements about recapitalizing the housing trust funds were made to simply appease democrats, did they not consider the ramifications of these statements as they relate to FnF oversight? Surely so, in light of pending litigation?
I think it was Epstein who mentioned that Fairholme et al would be wise to hire somebody to simply track every statement made by government appointed and elected officials to demonstrate these unlawful contradictions. It seems as though many anti-FnF advocates are in rhetorical quicksand...the more they open their mouth, the deeper the pit becomes.
Let us remember comments from the board are directed from Laskway. He is being replaced at the end of the month by Perry. Will his focus on shareholders be different? One can hope...
If the conditions in 2008 that prevented capitalization of the housing trust funds no longer exist, then is it not implied that the same change in conditions should no longer shackle Fannie and Freddie to the confines of conservatorship?
Sure thing! Thanks to you (and many others) for your insightful comments and analysis!
News: Berkowitz urges Fannie and Freddie board of directors to push for privatization and NYSE uplisting.
WSJ by Nick Timaroas
http://m.us.wsj.com/articles/SB10001424052702304585004579415490523879118?mg=reno64-wsj
Sorry, can't paste the full article on my mobile device.
I'll be looking forward to the FHFA's release of the conservatorship scorecard for 2014.
The past 2 years it was released on 3/9 and 3/4, so I would assume 2014s release is soon. It may be our first glimpse of Watt's future direction of the GSEs.
News: Now Uncle Sam Is Ripping Off Fannie and Freddie
Next month the companies finish paying back the bailout money—but the feds want all shareholder profits, forever.
By DAVID SKEEL | Feb. 27, 2014
Nice article from UP law professor explaining the current scenario
http://online.wsj.com/news/articles/SB10001424052702304610404579404811651661726
Next month Fannie Mae FNMA +4.47% and Freddie Mac, FMCC +6.96% the giant enterprises that own or guarantee roughly half of all new mortgages, will hand over $7.2 billion to the U.S. Treasury, paying back more than the entire amount of their bailout. The achievement, which once seemed unimaginable, should be good news for the companies' many private shareholders. It isn't. Thanks to astonishingly duplicitous behavior by the federal government, they may never get another dime from their investment.
The story begins in July 2008, when Congress passed the Housing and Economic Recovery Act ( HERA ), authorizing a new regulator, the Federal Housing Finance Agency, to take over Fannie and Freddie if necessary. The agency did so on Sept. 6, days before the collapse of Lehman Brothers.
At the time, Fannie and Freddie were desperately insolvent due to the bursting of the real-estate bubble—which sent plummeting the value of the large number of risky mortgages they had bought or guaranteed. If an ordinary corporation were in this condition, it would be sold or shut down, and any money recovered would go solely to its creditors.
HERA was intended to make this outcome possible. Previously, regulators had the power to "conserve" the mortgage giants, but not to put them into a receivership, which is used to liquidate troubled financial institutions. The new law added the receivership option, at a time when frustration was high with Fannie's and Freddie's abuses of the widespread (and correct) perception that the government would backstop all of their obligations. Not only could the Federal Housing Finance Agency put Fannie and Freddie into receivership; if the regulator determined that the mortgage giants were insolvent—rather than just troubled—HERA required the agency to do so.
And yet, while Fannie and Freddie's financial condition seemed hopeless, the agency instead put the two enterprises into a conservatorship. The decision was in some respects defensible. The government wanted to honor the millions of guarantees Fannie and Freddie had made to homeowners, and it was worried about winding down the giant companies too quickly. Still, the new law required that companies put into conservatorship be "put in a sound and solvent condition."
To keep Fannie and Freddie afloat, Treasury injected $85 billion in return for preferred stock with seniority over the existing preferred and common stock, as well as warrants to acquire just shy of 80% of the common (voting) stock. The bailout required Fannie and Freddie to pay a 10% dividend to the government every year. When Fannie and Freddie couldn't make the initial payments, they sold more preferred stock to Treasury, increasing the government's investment and the size of the 10% obligation. The government's stake eventually climbed to roughly $187.5 billion.
By early 2012, Fannie and Freddie started to make money. Lots of it. Thanks to a recovering real-estate market and the absence of any real competitors, their profits would eventually be big enough to pay the 10% dividend to the government and still have profits left over.
In August 2012, Treasury did something truly outrageous: It restructured the deal to make sure that Fannie and Freddie's other shareholders could never get a penny of these profits. Under the new arrangement known as the Third Amendment, any profits are subject to a "net worth sweep." In short, the 10% dividend due the U.S. Treasury was changed to 100%—forever.
We now know—thanks to a Dec. 20, 2010, memo from Jeffrey A. Goldstein, then undersecretary for domestic finance to then-Treasury Secretary Timothy Geithner that has just been uncovered in shareholder litigation against the government—that the U.S. Treasury considered cutting off shareholders long before 2012.
Why would Fannie and Freddie agree to the Third Amendment? Answer: The Federal Housing Finance Agency, which had taken the two companies over, agreed on their behalf. The regulator sat on one side of the bargaining table and Treasury on the other—one arm of the government negotiating with another. Treasury insists it was looking after taxpayers' interests. But it hasn't explained why it cut private shareholders off when it began to look like they too might benefit.
The net worth sweep was arbitrary—in essence an act of expropriation. Worse, the new arrangement gives the government a strong incentive to maintain Fannie and Freddie's privileged and dominant position in the mortgage market rather than reforming mortgage finance.
Ideally, the government would undo the 2012 sweep, and perhaps revert to the original 2008 arrangement, as part of a decision about the future of Fannie and Freddie. More likely, the issue will be decided in the courts. A number of Fannie and Freddie shareholders are challenging the sweep as, among other things, an unconstitutional taking of their property.
If they win, as they probably will, Fannie's and Freddie's shareholders will fare better than other investors (such as Chrysler's senior lenders) who have been blindsided by the government's growing penchant for picking winners and losers, regardless of the law. The courts may thus partially repair the rule of law. A far better approach would be for the government to honor it in the first place.
Mr. Skeel teaches bankruptcy law at the University of Pennsylvania Law School.
Is Cramer subtly pumping now too?
http://muckrack.com/jimcramer/statuses/439140852905291777
Gap filled from earlier today?
News: Fannie Mae Saga Has All The Elements Of A Financial Cover-Up: Pagliara
by Michael Ide | February 27, 2014, 2:03 pm
http://www.valuewalk.com/2014/02/fannie-mae-freddie-mac-have-all-the-elements-of-a-financial-cover-up-pagliara/
One of the nation’s top financial advisors explains why he invested in Fannie Mae and Freddie Mac in 2008, and what he expects to happen next
It’s 2008 and a financial crisis is unfolding, Bear Stearns has already gone under, Lehman Brothers Holdings Inc Plan Trust (OTCMKTS:LEHMQ) isn’t far behind, and Federal Housing Finance Agency James Lockhart announces that Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) are being put into conservatorship so that Treasury can backstop the two government-sponsored enterprises (GSE) as part of broader efforts to stem disaster.
At the time, many people expected the conservatorship to be a slow-roll bankruptcy proceeding, but CapWealth Advisors LLC CEO Timothy Pagliara, the top-ranked financial advisor in Tennessee, saw an opportunity to buy in to great companies at bargain bin prices.
“I believed the conservatorship, not receivership, was an overreaction to the panic environment that existed at that time. I also knew that the entities were extremely profitable but thinly capitalized,” Pagliara says in a recent interview with ValueWalk. “I also knew that a lot of toxic assets would have to be flushed through the system. Banks couldn’t handle it. My gut told me that one of the reasons for the conservatorship was to press the two entities into service to help with the financial crisis.
“The demographics were there, everything was in place. Less than 5% of Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)’s loans were Nonperforming or in the problem category. That means 95% of them were working. The only concerns I had was that during that period it appeared as if the conservator had a lot of pressure on him to have the glass half-empty. They were writing down assets that they didn’t need to write down, they were aggressively taking positions that they didn’t have to do. They just didn’t have to make it that bad.”
After the conservatorship was announced, Pagliara started buying different series of preferred shares for his clients (including my alma mater) for about 80 cents per share, ultimately buying nearly 8 million shares in Fannie Mae and Freddie Mac. Fast-forward to 2012, and the stocks started gaining value as it became clear that Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) would not only survive, but would pay back the taxpayer bailout and return to profitability sooner than almost anyone had predicted.
Treasury changes the terms of the deal
By normal standards, his position was about to pay off. Fannie Mae and Freddie Mac had rounded the corner and, it was assumed, would soon start paying dividends again; instead on August 17, 2012 Treasury announced unilateral changes to its Preferred Stock Purchase Agreements (PSPA) that “will help expedite the wind down of Fannie Mae and Freddie Mac, make sure that every dollar of earnings each firm generates is used to benefit taxpayers.”
“The agreements will replace the 10 percent dividend payments made to Treasury on its preferred stock investments in Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) with a quarterly sweep of every dollar of profit that each firm earns going forward,” says the announcement, often referred to as the 3rd amendment.
“I was absolutely blind-sided, as were the markets,” says Pagliara.
Suddenly, what had been government conservatorship started to look like a soft nationalization of Fannie Mae and Freddie Mac. Investors knew they were taking a risk that the GSEs might not recover, but if they had imagined there was a chance the government would simply not pay dividends that preferred shares were entitled to, they would have stayed away.
“There was no talk about the 3rd amendment in September of 2008. The stock and preferred continued to trade. They continued to report regularly to the SEC like any other publicly traded company,” says Pagliara. “Those [government] debentures have terms and conditions like any debenture. They get a 10% payment, it’s cumulative, it’s on the amount advanced, and then they have conversion rights. Everything else has been made up. That’s what this third amendment is about, they didn’t like the terms.”
Since the income sweeps began, Pagliara has been actively campaigning against them, attending events like Nader’s Shareholder Respect roundtable earlier this month. Ultimately, he believes that the Federal government will be forced to pay the dividends that it owes, even though it looks like the courts will be required to force Treasury to turn the money over.
“These institutions are flush with cash, so why aren’t they paying their obligated dividends per share? These aren’t common, when the dividends are subject to the discretion of the board of directors. These are financial obligations of these entities subject to the availability of funds and cash flow,” says Pagliara.
“I’ve talked to Ted Olson and I’ve talked to lawyers at David Boies’ firm that have cases pending, and they are supremely confident that they are going to win. When you’ve got the two leading constitutional scholars in the United States saying that the government is wrong and they’re investing their time and capital in these cases then you’ve got to take notice of that. These are not ambulance chasing guys that advertise on the back of a phonebook.”
Treasury wanted to extinguish Fannie Mae, Freddie Mac: Pagliara
As the cases proceed to discovery, Pagliara expects to see more evidence that people within Treasury were aware that there was a ‘problem,’ that Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) weren’t winding down as planned, but were in fact about to come roaring back, which ran counter to the political goal of getting out of the secondary mortgage market.
“All these people that trashed these entities are shocked that they’ve been as profitable as they have, because if you track Corker’s comments three years ago he said ‘the taxpayers are never gonna get a dime.’ But they’ve been paid back plus ten percent interest and then some, so he’s been wrong. All of the assumptions they’ve made have been wrong,” says Pagliara. “They knew that this was a problem in 2010, that’s why they had that memo. In any other company that’s fraud. They filed false statements with the Securities and Exchange Commission under Sarbanes–Oxley and every other requirement.”
The memo that Pagliara references, dated December 20, 2010, is a note from Under Secretary Jeffrey Goldstein to then Treasury Secretary Timothy Geithner discussing the option of using full income sweeps in order to “make clear the administration’s commitment to ensure existing common equity holders will not have access to any positive earnings from Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)’s in the future.” Although no action was taken then, Pagliara argues that the memo shows that the Federal government had no intentions to ever pay dividends, even though public filings never mentioned that fact.
“They were trying to accomplish an objective to extinguish these entities. This has got the elements of a big financial cover-up,” he says.
Shuttering the GSEs would be a tragic mistake: Pagliara
Even beyond his and his clients’ financial interests, Pagliara thinks it would be a mistake to get rid of Fannie Mae and Freddie Mac. Even worse, he says that the issue is off most people’s radar and that the average homebuyer doesn’t realize how losing the GSEs will affect them. He predicts interest rates on a home mortgage will go up 1.5% all things being equal, and the probable end of the 30 year mortgage if Fannie Mae and Freddie Mac are eliminated, and a lot of waste if they are replaced with something new.
“It’s a tragic mistake to wind them down and shut them down because it will lead to much higher interest rates, it’s going to lead to the unavailability of long term financing. It’s just naïve. It’s political brinksmanship in Washington and they don’t need to politicize this,” says Pagliara. “Why destroy the intellectual capital and the institutional capital of two great entities just to turn around and start over with a whole new federal agency?”
Good luck to the $5 break ya'll. I unfortunately have a meeting to attend and will likely miss it. For those planning to flip/trade, watch Freddie's touch of $5. That's when both Fannie and Freddie dumped last May. I'll be holding my shares tight either way...too much upside to this thing.
My legalese is probably not accurate, but the overall point is, I think. Somebody (obit?) correct me if I'm indeed wrong.
No. Discovery was granted today.
I think there was some confusion on postings the other day. Somebody had posted a link to a PDF but it was dated 2/12/2014 and I believe it was the Govs motion to dismiss Plaintiffs motion to discovery. So, it was old information reported as new on ihub.
Today's news was the denial of the Govs request to dismiss discovery.
Perhaps. But I would not expect this to drag on in the courts. As far as I understand, the court cases challenge prior actions and thus the government cannot escape accountability. Unless however, a consolidated agreement was made between all of the pending litigants to drop their respective cases in favor of compensation/return to shareholder control. That would only likely cause more suits to spring up. There doesn't seem to be a lot of upside here for the Gov/Treasury/FHFA. But then again...who knows!?
News: Federal judge sides with Fannie, Freddie shareholders
America's argument rejected
By Jacob Gaffney | February 26, 2014 6:00PM
http://www.housingwire.com/articles/29125-federal-judge-sides-with-fannie-freddie-shareholders
Court of Federal Claims Judge Sweeney granted the Fairholme Funds motion for discovery against America.
In December the Defendant, listed as THE UNITED STATES in court documents, filed a motion to dismiss the lawsuit brought by investors in Fannie Mae and Freddie Mac.
"Plaintiffs argue that defendant’s dismissal motion challenges many of the allegations of their complaint and, in light of this, they are entitled to discovery," the documents say.
That discovery is now granted.
At one point during the lawsuit, Fairholme offered to buy parts of Fannie and Freddie.
The United States argued that the plaintiffs claims were not valid based on the future profitability of Fannie and Freddie being unknown. The conservatorship status was also argued as a reason to not consider the lawsuit.
"Defendant contends that plaintiffs concede that Fannie and Freddie were insolvent; therefore the companies had no reasonable expectation of future profitability — a fact that plaintiffs deny and that plaintiffs argue can and will be proven with discovery," the ruling states.
In summary, the Federal government argued that investors in Fannie and Freddie thought the GSEs would become insolvent. The investors say they expected a path to profitability. Those investors now have a chance to prove it.
I like Berkowitz's statement:
“Today’s decision by Judge Sweeney is a positive development for taxpayers, homeowners, and investors. We hope this accelerates exploration of a consensual solution,” said Mr. Berkowitz."
I interpret this as , 'dear government, work with us to fix the problem preemptively before it gets a whole lot worse for you'.
http://blogs.wsj.com/moneybeat/2014/02/26/court-grants-fairholmes-discovery-motion-in-fannie-freddie-suit/
Wow. Nearly 20M volume in 30 mins.
Agreed. The government in general doesn't have many enthusiasts these days. You would think that announcing taxpayers have been made whole due to government involvement in FnF would be something to celebrate and restore a shred of public confidence in the system. Nope, instead we wait to hear the next person scream to shut the GSEs down.
FHFA Appoints New Chairman of Fannie Mae Board of Directors
http://www.fhfa.gov/webfiles/26103/FannieMaeBoardChairman022514.pdf
Washington, D.C. – The Federal Housing Finance Agency (FHFA) today announced that in
light of the fact that Philip A. Laskawy will have reached the company’s mandatory retirement
age, in accordance with FHFA’s corporate governance regulation and Fannie Mae’s corporate
governance guidelines, he will step down from the board effective March 31, 2014. FHFA also
announced that Laskawy will be succeeded by current Fannie Mae board member Egbert L. J.
Perry.
In making these two announcements, FHFA Director Melvin L. Watt said, “Phil Laskawy, the
former chairman and chief executive officer of Ernst & Young, has provided dedicated
leadership during an extraordinarily challenging period for both the country and the company.
Under his leadership since 2008, Fannie Mae has helped millions of American families
refinance their mortgages, buy new homes, rent affordable housing and avoid foreclosure. In
his time as chairman, the company returned to profitability and achieved record financial
results. I have complete confidence that Egbert Perry will continue to provide the same
qualities of thoughtful and responsible leadership that Phil has provided.”
“Phil answered without hesitation or reservation a call to duty in 2008 to serve as chairman of
Fannie Mae in order to help preserve the stability and liquidity of the nation’s housing finance
system. We have deeply valued his leadership, passion, and integrity during the economic
crisis and turnaround of our company,” said Timothy J. Mayopoulos, president and chief
executive officer, Fannie Mae. "We look forward to continuing our progress with Egbert in his
new role. Egbert’s combination of community development and commercial experience is
exceptionally valuable. We appreciate his commitment to improving the company, ensuring
that families have access to affordable mortgage credit, and creating a sustainable housing
finance system for the future.”
Perry, a seasoned real estate and investment management professional, has served as a Fannie
Mae director since December 2008. He is chairman and chief executive officer of The Integral
Group LLC, which he founded in 1993 to provide real estate development, advisory and
investment management services across major U.S. urban markets. Perry brings extensive
experience in innovative urban development and revitalization projects and has played an
important role in many public-private partnerships that have transformed communities across
the nation. Perry has approximately 35 years of experience as a real estate professional,
including work in urban development; developing and investing in mixed-income, mixed-use communities; affordable and work force housing; and commercial real estate projects in
markets across the country. Perry previously served a seven-year term as a director of the
Federal Reserve Bank of Atlanta and serves as a long-time trustee of the University of
Pennsylvania.
“It is an honor to lead the board's governance of Fannie Mae and I look forward to continuing
to work with my fellow board members, our management team, Director Watt and his team at
FHFA to deliver on the company's essential role in the housing market,” said Perry.
Tomorrow will be interesting. The next resistance level is at 4.09, so expect it to hit its head at that level. It's either going to drop significantly to reset the RSI or it's going to take off like a rocket and head toward that RSI of 90+ that we saw back in May. IMO.
News: FHFA Appoints Egbert L. J. Perry as Fannie Mae (FNMA) Chairman
http://www.streetinsider.com/Management+Changes/FHFA+Appoints+Egbert+L.+J.+Perry+as+Fannie+Mae+(FNMA)+Chairman/9213159.html
The Federal Housing Finance Agency (FHFA) announced that in light of the fact that Philip A. Laskawy will have reached the company’s mandatory retirement age, in accordance with FHFA’s corporate governance regulation and Fannie Mae’s (OTCBB: FNMA) corporate governance guidelines, he will step down from the board effective March 31, 2014. FHFA also announced that Laskawy will be succeeded by current Fannie Mae board member Egbert L. J. Perry.
In making these two announcements, FHFA Director Melvin L. Watt said, “Phil Laskawy, the former chairman and chief executive officer of Ernst & Young, has provided dedicated leadership during an extraordinarily challenging period for both the country and the company. Under his leadership since 2008, Fannie Mae has helped millions of American families refinance their mortgages, buy new homes, rent affordable housing and avoid foreclosure. In his time as chairman, the company returned to profitability and achieved record financial results. I have complete confidence that Egbert Perry will continue to provide the same qualities of thoughtful and responsible leadership that Phil has provided.”
“Phil answered without hesitation or reservation a call to duty in 2008 to serve as chairman of Fannie Mae in order to help preserve the stability and liquidity of the nation’s housing finance system. We have deeply valued his leadership, passion, and integrity during the economic crisis and turnaround of our company,” said Timothy J. Mayopoulos, president and chief executive officer, Fannie Mae. "We look forward to continuing our progress with Egbert in his new role. Egbert’s combination of community development and commercial experience is exceptionally valuable. We appreciate his commitment to improving the company, ensuring that families have access to affordable mortgage credit, and creating a sustainable housing finance system for the future.”
Perry, a seasoned real estate and investment management professional, has served as a Fannie Mae director since December 2008. He is chairman and chief executive officer of The Integral Group LLC, which he founded in 1993 to provide real estate development, advisory and investment management services across major U.S. urban markets. Perry brings extensive experience in innovative urban development and revitalization projects and has played an important role in many public-private partnerships that have transformed communities across the nation. Perry has approximately 35 years of experience as a real estate professional, including work in urban development; developing and investing in mixed-income, mixed-use communities; affordable and work force housing; and commercial real estate projects in markets across the country. Perry previously served a seven-year term as a director of the Federal Reserve Bank of Atlanta and serves as a long-time trustee of the University of Pennsylvania.
“It is an honor to lead the board's governance of Fannie Mae and I look forward to continuing to work with my fellow board members, our management team, Director Watt and his team at FHFA to deliver on the company's essential role in the housing market,” said Perry.
What is the reasoning behind this? Genuinely interested...thanks!
PQH today?
News: Fannie Mae, Freddie Mac Treasury Response: An In-Depth Look
by VW Staff, via Richard Bove | February 24, 2014
http://www.valuewalk.com/2014/02/fannie-mae-freddie-mac-treasury/
Richard Bove: "It must be understood that if nothing changes this stock will be worthless in 3 years."
Rafferty Capital Markets analyst Richard X. Bove again comments on the ongoing Fannie Mae saga, arguing that if the government gets its way, Fannie Mae’s stock will plummet to zero.
Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) reported a fourth quarter loss of $0.13 per share to common shareholders. Income before payments on the Senior Preferred issue was $1.12 per share. If one assumes that there was a 10% dividend payment on the senior preferred; a normal dividend on the junior preferreds; no recovery on the foreclosed properties; and a 30% tax rate; Fannie Mae earned $0.31 per diluted share.
Fannie Mae earnings forecasts
The earnings forecasts for Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) are basically set at $0.01 per share per quarter under its current arrangement with the United States Treasury.
However, if it is assumed that the current arrangement will be set aside and Fannie Mae is viewed as a going concern the earnings forecasts for the company are as follows: a) the 2014 estimate would be $1.53 per share; b) the 2015 estimate would be $1.42 per share; and c) the 2016 estimate would be $1.64 per share.
The first assumption in the going concern forecast is the potential growth in earning assets. Under the current arrangement the owned loan portfolio is expected to decline to $250 billion by yearend 2017. The going concern assumption is that earning assets grow by 8% annually. This is consistent with pre 2007 history.
Under the current status it is assumed that the net interest margin will decline for two reasons. The owned portfolio contracts while the guaranteed portfolio rises. The yield on the guaranteed portfolio is lower than that on the loan portfolio. The going concern assumption is that the firm grows its loan portfolio and slows the growth of its guaranteed portfolio.
Under current rules, banks are being incented to drop their holdings of Fannie Mae debt and shift to Ginnie Mae’s and Treasuries. Under the going concern approach the yield on the Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) debt would be high enough to cover the higher capital requirements for holding these securities.
The next set of numbers is assumed to be the same under both scenarios. The recoveries on rep and warranty suits will decline relatively rapidly. The yield on foreclosures will decline as the inventory of bad loans declines.
On the expense side, it is assumed that operating costs will be unusually low relative to revenue since very few people are needed to run a company of this size.
It is assumed in the going concern model that Fannie Mae would pay a tax rate of 30%. It would pay dividends on all junior preferreds and the rate on the senior preferred would be 10%, not 100% of earnings.
These assumptions and the enclosed model are purely hypothetical because the firm is headed for extinction unless the courts or Congress save it. The reason for going through the exercise is because I believe the company is too vital to the economy to be eliminated.
It must be understood that if nothing changes this stock will be worthless in 3 years.
I spent some time this weekend reading the government’s request to dismiss the Fairholme case against the Treasury. A very rough outline of the government’s points are provided in the outline on the next page under the heading Introduction.
It is followed by a second section that raises some broad issues with the government’s logic. I have not attempted to answer any of the government’s legal arguments. I am sure that Fairholme can make its legal responses available to those who seek them.
My questions and thoughts focus basically on one issue. I do not see the necessity for the Third Amendment. The Treasury argues that it was necessary to assure the world that Fannie Mae would remain solvent. However, in August 2012 when the Third Amendment was put in place Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) had already returned to profitability and it was very clear that not only would it be solvent but that it was about to generate large profits.
Therefore, in my simple mind, the Treasury and the Federal Housing Finance Agency acted for one reasons alone. That reason was to prevent shareholders from sharing in the profits that these entities knew were coming.
If they get away with this ploy Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA)’s stock will plummet to zero. If they do not, the stock has a very bright future.
Introduction
A. Rescue of the GSEs
1. Congress authorized the FHFA to place the companies into conservatorship
2. “The Department of the Treasury (Treasury) committed to restore the safety and soundness of the Enterprises through agreements to make hundreds of billions of dollars available.”
3. Plaintiffs acknowledge that the capital infusions were necessary.
B. Plaintiffs actions
1. Purchased preferred stock
a) With full knowledge of the Treasury’s actions, and
b) Continue to purchase the stock.
2. Did not challenge rescue effort.
3. Only after five years when the entities turning around did Plaintiffs challenge the Third Amendment.
C. Plaintiffs claim that the Third Amendment removes
1. Their right to receive dividends on junior preferred stock.
2. Their rights to liquidation surplus.
D. Treasury’s response
1. Initial response.
a) Plaintiffs never had the right to dividends.
b) There is no liquidation surplus because the Government Sponsored Enterprises have not been liquidated.
c) The Government has not taken something that never existed.
2. Second response
a) The preferreds were not taken
(1) They still exist
(2) They still trade
b) The Courts have consistently argued that there is no taking when the Government acts as conservator.
3. Third response
a) The Treasury and the GSEs entered into contracts
b) Contracts are not the basis of takings
c) Without these contracts the GSEs would have failed
(1) The contracts were necessary to benefit GSEs.
(2) The contracts saved the companies and were not the result of takings just the opposite
4. Fourth response
a) Shareholders had no basis on which to expect a dividend
b) There is no unconditional right to a dividend by law or contact.
c) Dividends are discretionary
d) This is particularly true when the conservatorships mandate is to dispose of GSE
(1) Profits and
(2) Other assets
e) The GSEs advised their shareholders that there was no likelihood of dividends
5. Fifth response
a) Plaintiffs do not contend that the GSEs must declare a dividend when they are under a conservatorship
b) The GSEs expressly stated that they would not pay a dividend.
c) Under the Housing and Economic Recovery Act (HERA) the decision not to pay a dividend is not challengeable.
6. Sixth response
a) The corporations are not in liquidation.
b) Even if they were there is no right to share in the liquidation surplus.
E. Dismiss the case
1. There have been no takings therefore there is no case.
2. The Treasury cannot be sued in this instance because
a) The Federal Housing Finance Agency (FHFA) is the conservator not the Treasury
b) The FHFA acting as a conservator is not the United States government (Tucker Act)
c) The FHFA not the Treasury entered into the funding agreements with the GSEs.
3. The plaintiffs have no standing to sue
a) HERA gave the FHFA all rights to decision making at the GSEs.
b) The plaintiffs cannot contest the actions of the FHFA.
4. Cannot sue if there is no basis for claiming loss
a) Decline in the value of the stock not a basis
b) Loss of dividends not a basis
5. Plaintiffs have not brought any claims on behalf of the GSEs
II. Some questions related to the Treasury’s response
A. Federal Housing Enterprises Safety and Soundness Act (1992)
1. Creates Office of Federal Housing Enterprise Oversight (OFHEO) conservatorship over GSEs
a) Monitor GSE compliance with capital standards
b) Set goals for mortgage purchases
2. The OFHEO failed in its duties and bankrupted the GSEs
B. In 2008 the conservatorship was transitioned to FHFA
1. Did FHFA pick up OFHEO’s obligations and therefore its responsibility for the GSE failures?
2. Is FHFA both the source of the GSE failures as well as its supposed savior?
3. HERA did not put the GSEs into receivership even if FHFA has the right to do so.
C. Third Amendment
1. Issued
a) Gives Treasury all GSE profits forever
b) Mandates dissolution of GSE capital or in essence dissolution of GSEs by 2018
c) Forces sale of the bulk of GSE owned portfolios
2. Reason for issuance
a) GSEs supposedly did not have the money to pay a dividend on its Senior Preferred Stock series 2008-2 which was wholly owned by the Treasury (Treasury preferred)
b) Failure to pay the dividend would have
(1) Shaken confidence in the ability of the GSEs to meet their other obligations
(2) Caused a run on GSE debt
(3) Forced the Treasury to put more hundreds of billions into the GSEs
c) By eliminating the requirement for a fixed 10% dividend
(1) An arrearage situation would not develop
(2) Dividends would only be paid if they were earned
(3) This would strengthen the GSEs by
(a) Lowering their funding costs
(b) Avoid Treasury draws
(c) Maintaining their solvency
(d) Avoid the statutory trigger for receivership
3. Some of my thoughts
a) First thought
(1) If the dividend had not been paid it would have forced issuance of more Treasury preferred stock
(2) The Treasury preferred stock could have been issued for an unlimited period
(3) There would have been no market disruption
b) Second thought
(1) The FHFA on a de facto basis ended the conservatorship without any approvals
(a) From Congress, or
(b) The Courts
(2) Was this legal or did it void HERA without Congressional approval to do so?
c) Third thought
(1) Is the Treasury forcing the GSEs into insolvency
(a) Eliminating their ability to grow profit by forcing the shrinkage of their
balance sheets
(b) Taking 100% of their increased capital
(c) Demanding that their capital return to zero
(2) Market Reaction
(a) There was none when the GSEs were mandated to eliminate their capital
(b) Why would there have been one if the GSEs had been forced to raise the size of their capital by adding arrearages to the Treasury preferred?
d) Main counter argument
(1) At the time the Third Amendment was enacted in August 2012
(a) It was evident that the GSEs had returned to profitability
(b) There was no fear that they would not be able to pay the 10% dividend on the
Treasury’s preferred
(2) There was no economic reason for the Third Amendment
(3) The Third Amendment appears to have been created specifically to stop junior preferred and common stock holders from receiving dividends.
News: Fannie Mae Keeps Shoveling Cash to the Government
BY Philip van Doorn| 02/24/14
http://www.thestreet.com/story/12441770/1/fannie-mae-keeps-shoveling-cash-to-the-government.html
NEW YORK (TheStreet) -- Fannie Mae (FNMA_) on Monday pointed to a pretty stark reality for the government-sponsored mortgage giant's private shareholders.
Fannie announced fourth-quarter earnings of $6.5 billion and said it would pay dividends totaling $7.2 billion to the government in March.
Fannie Mae and its sister company Freddie Mac (FMCC_) -- together known as the government sponsored enterprises, or GSEs -- were taken under government conservatorship at the height of the U.S. real estate crisis in September 2008. The government -- that is, the taxpayers -- took huge senior preferred stakes in the GSEs, with Fannie and Freddie initially required to pay annual dividends of 10% on the governments preferred shares.
The U.S. Treasury holds $117.1 billion senior preferred Fannie Mae shares and $72.3 billion in senior preferred Freddie Mac shares, with both GSEs having stopped taking draws from the Treasury during the second quarter of 2012. Under their modified bailout agreements, the GSEs must pay all earnings to the government in excess of minimal capital cushions. Meanwhile, all dividends for junior preferred shareholders have been suspended since September 2008.
Fannie on Monday said that once the March dividend payment is made, it will have paid the government total dividends of $117.2 billion, exceeding the size of the Federal Government's preferred stake. That's a return of over 100%, for an investment of less than five and a half years, but there's still no mechanism in place for either GSE to begin repurchasing government-held preferred shares.
Freddie Mac is also expected to report total dividends exceeding the government's preferred investment, once it reports its fourth-quarter results.
There have been several lawsuits by investors holding common or junior preferred shares of the GSEs, with high-profile investors including Bruce Berkowitz of Fairholme Funds, as well as consumer advocate Ralph Nader, who are advocating for the survival of Fannie and Freddie.
While the fashion in Washington for quite some time has been to "kill-off Fannie and Freddie," the government hasn't taken action yet, for fear of jeopardizing the U.S. housing recovery, since the GSEs purchase nearly all newly originated mortgage loans. Members of Congress and the Obama administration are also reluctant to see the dividend gravy train come to a halt.
But there is hope for patient private GSE investors, as indicated by comments from Senators Bob Corker (R., Tenn.) and Mark Warner (D., Va.), during a Financial Services Roundtable meeting in January.
Investors cheered Fannie's announcement, sending the firm's common shares up over 9% in afternoon trading to $3.58, while Freddie's common shares were up over 6% to $3.44. GSEs' common shares rose more than 11-fold during 2013.
The GSEs' junior preferred shares didn't fare so well, with Fannie Mae's preferred Series F shares (FNMAS) pulling back 0.6% to $10.34, while Freddie's preferred Series Z (FMCKJ) shares were flat at $10.60. Both preferred issues have par values of $25.00.
The bank settlements are only one variable to consider in estimating forward-looking PPS. We must also be cognizant of the large, one-time DTA ($46B?) that was factored into earnings this year. That said, I can't see why $20-30B in yearly profits can't be realistically assumed.
If anybody is actually considering what expediter13 is saying, I ask you to click on his/her name, cumulative post number, and look at the post history. Almost every single comment, independent of company, is entirely negative. The last time s/he posted about Fannie several months ago, it was to bash.
Please move along and do not feed the troll...
Approx 18.5M volume in 1 hour...
News: More Crystal Ball Gazing On Mortgage “Reform”
By Joseph "Woody" A. Woodruff | February 13, 2014
Posted in Loan Servicing, Regulatory
It's an opinion piece from a law firm blog, but still has a nice concluding remark.
http://www.bankinglawconnection.com/2014/02/13/more-crystal-ball-gazing-on-mortgage-reform/?utm_source=Mondaq&utm_medium=syndication&utm_campaign=inter-article-link
Lots of people are looking into lots of crystal balls trying to figure out what will become of Fannie Mae and Freddie Mac.
HUD Secretary Ray Donovan on February 12, told Politico’s Morning Money Breakfast Briefing that he was “optimistic” about what he described as “strong bipartisan effort on the Hill” to craft legislation in the Senate Banking Committee to overhaul mortgage lending. He predicted that a bill would emerge from the Banking Committee that would propose replacing GSEs Fannie Mae and Freddie Mac with a new agency giving the federal government a larger role in the mortgage finance market than contemplated in legislation the House Financial Services Committee approved in 2013.
The GSEs have returned to profitability, are on the cusp of fully repaying the treasury all of the $185 billion injected into them following the 2008 financial crisis, and are being used by the federal government as a source of revenue. Skeptics therefore are predicting that no mortgage overhaul legislation passes this year.
Private investors holding preferred shares of Fannie and Freddie still have much work to do if they are going to avoid government confiscation of their property amid federalization of the home mortgage market. But these investors are not giving up. In addition to public advocacy, more than 20 lawsuits have been filed by private stakeholders in the GSEs challenging the legality of the government’s unilateral action changing the terms of the bailout. They are growing incrementally more confident of victory.
You might think that investors-most of whom are individuals, retirement plans and community banks-fighting to protect their property from confiscation, uphold the rule of law and preserve the viability of a recovering housing market, would be favorably viewed as a group of Davids doing battle with the federal Goliath. But you would be mistaken to think so. Instead, these investors are being called “speculators” and “hedge funds” and accused by such luminaries as former Treasury Secretary Henry Paulson as being against progress.
Will the Obama Administration, with the willing assistance of Congressional Republicans who ought to know better, succeed in turning the mortgage industry into yet another sector of the economy that has been fundamentally transformed? Will abused investors win a victory in court that requires the federal government to disgorge more than a hundred billion dollars in wrongfully confiscated property? When I look into my crystal ball I cannot tell which side wins in the end. I am not willing to venture a guess on the outcome of legislation or litigation.
But I will predict one thing: unless the contending sides come to a compromise whereby the GSEs are recapitalized, released from conservatorship and restored to private control under regulatory oversight, it will end badly for everybody.
And there she goes!
The 3.51 test will be interesting...I expect some resistance around here. I hope I'm wrong!
News: Berkowitz Bets $1.3B On Fannie Mae and Freddie Mac
by Saul Griffith | February 24, 2014
http://www.valuewalk.com/2014/02/berkowitz-bets-1-3b-on-fannie-mae-and-freddie-mac/
A recent 13F filing by Bruce Berkowitz’s Fairholme Capital Management LLC shows he has a stake worth $1.3B in Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA), the two housing GSEs.
His holdings are valued at $134.45M for the common and $1.17B for the preferred stock of the companies, according to the filing.
Taxpayers to be repaid in full by Fannie Mae and Freddie Mac
The favorable turn in the housing market has enabled Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) to make solid profits in recent years – profits that were paid over to the U.S. Treasury as dividends. Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)’s dividend payments to government have already surpassed the investment made by taxpayers to bail out the GSE after it was brought to its knees by the housing debacle in 2008.
Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) reported last week that it had made $84B in profits during the year 2013, and that it plans to pay the Treasury a dividend amounting $7.2B next month. That means Fannie too would be making taxpayers whole in respect of the bailout investment it received.
Unfortunately, that does not translate into freedom from government control, because as yet there is no means whereby investors can recoup their investment.
Berkowitz’ views
Berkowitz previously made successful bets on companies that were bailed out by the government following the housing crisis. His investments in American International Group Inc (NYSE:AIG) and Bank of America Corp (NYSE:BAC) proved highly successful.
His investments in Fannie and Freddie are motivated by the following comment he made in the January letter to shareholders: “Both are absolutely essential for uniquely-American, affordable mortgages. If you disagree, try getting a 30-year, sub-5% mortgage outside of the United States. In 2008, both companies agreed to U.S. conservatorship and extraordinarily harsh terms and conditions during a time of global crisis. The plan worked. Fannie and Freddie saved the day, repaid nearly every penny of cash received from the U.S. Treasury, and can look forward to resuming a prosperous future based just on the aging of assets held. However, many believe Fannie and Freddie will be victims of a government-sponsored expropriation that brings our country closer to a future conceived by George Orwell in his novel, 1984. We disagree.”
Proposal for purchase of insurance businesses from Fannie Mae and Freddie Mac
In November 2013, Fairholme proposed to the government for the purchase by private investors of the mortgage-backed securities insurance businesses of the two housing GSEs.
The proposal sought to address the government’s apprehensions regarding another crisis because of the dominant role the companies played in the overall housing mortgage insurance market.
It also sought to continue to offer Americans the long-term and fixed rate mortgages that are so valued as a part of the country’s housing infrastructure.
“We know that many people in and outside of government are working on the redesign of the mortgage market, and trying hard to get it right for America,” said Berkowitz. “This proposal answers the broad bipartisan call for private capital in a way that can advance reform from concept to a viable, sustainable solution. Fannie and Freddie’s business model was not consistent with insurance industry best practices. However, in this country we fix valuable businesses by restructuring; we do not simply throw them away. Fairholme is prepared to do its part to help effectuate this restructuring and to be long-term owners of the insurance businesses, without the need for any Federal assistance or special Federal status.”
The proposal was rejected.
Fair play
Fairholme has also launched litigation against the government objecting to a 2012 amendment to the original terms of the 2008 bailout of the two GSEs that made it compulsory for them to hand over all their profits to the Treasury. The original agreement called for the GSEs to only pay dividends applicable to the government’s holding of preferred stock.
“Fannie Mae and Freddie Mac are rapidly repaying the Government,” says Berkowitz. “Their success should surprise no one given the value of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC). Once the Government has recouped its investment, The Fairholme Fund … is owed a contractually specified, non-cumulative dividend for its investment in these companies. As solvent, highly profitable companies, Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) should honor all outstanding obligations to their investors.”
Hedge fund Perry Capital has similarly sued the government over Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA).
Ackman in the fray too
Prominent activist investor Bill Ackman is also an investor in the two housing mortgage companies. A Wall Street Journal report says Ackman predicted at a recent investor meeting (closed to the press) that the Supreme Court would side with the plaintiffs if the pending litigation reached the court – if that happens, common shares of Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) could then reach a value of 10 to 15 times their current value.
He expressed a view that the two companies would escape liquidation in any legislative actions in the future, and would be revamped with higher capital levels and other safeguards.
Right on rey. Buying pressure is strong!
3.46 and 3.51 are next on the list...after that, blue sky until 4.09!
Just a reminder...news from Waters and Johnson/Crapo expected in the coming weeks(s) may temper enthusiasm. Although there will be much discussion on these reform efforts, there is little chance any bill will make it to Obama's desk anytime soon. Hold tight onto your shares and enjoy the ride!
Let me preface this bit of DD by stating that at this time, we are unsure of Maxine Waters' latest intent in introducing a GSE reform bill. As noted in prior statements, she has proposed a cooperative model which would replace Fannie/Freddie with a newly created entity designed to securitize mortgages with explicit government backing. The latest reported news (housingwire article) seems to suggest a similar model but perhaps keeping Fannie/Freddie viable....we will not know the details until later this week at the earliest.
http://democrats.financialservices.house.gov/press/PRArticle.aspx?NewsID=1652
That being said (and realizing that the following information may or may not be applicable to the current situation) I found this information provided by the Government Accountability Office (GOA) in 2010. It outlines potential options for GSE reform, including a cooperative model:
http://www.gao.gov/assets/100/97175.pdf
Below are some interesting tidbits:
-Generally, Congress and the administration are considering various reform
options for the enterprises, including the three options that GAO discussed in its
September 2009 report: creating a new government corporation or agency,
reestablishing for-profit enterprises with government sponsorship but with
additional restrictions on their activities, or privatizing or terminating them (see
slide 19).
-As indicated in our report, the cooperative model is generally viewed as a
component of these larger options rather than an option by itself.
-While the cooperative model could conceivably fall under any of the three overall
options, it is generally seen as most closely associated with the option of
reconstituting the GSEs.
-Reestablish for-profit enterprises with government sponsorship.
-The potential ownership structures for these private entities could be
shareholder-owned (similar to the enterprises’ current structure),
cooperatives, or perhaps nonprofit.
-It has also been proposed that the enterprises be subject to public utility
regulation. That is, a regulatory agency could issue regulations governing
their activities and rate of return (profitability). Likewise, the ownership of
such entities could also be the cooperative model or shareholder owned.
It has also been proposed that the enterprises be subject to public utility
regulation. That is, a regulatory agency could issue regulations governing
their activities and rate of return (profitability). Likewise, the ownership of
such entities could also be the cooperative model or shareholder owned.
Also, notice Maxine Waters' numerous quotes about preventing the "perverse incentives" that were the "root cause of the housing crisis".
Is she simply referring to the shareholder style model of the current system, or is she speaking more specifically about excessive executive compensation? We will soon find out...
Similar language can be found here:
http://books.google.com/books?id=iD8-bWporl8C&pg=PA56&lpg=PA56&dq=fannie+freddie+perverse+incentives&source=bl&ots=tbPuEC1ZMb&sig=C-_9-xnWRPm6GzlZ6iLmkUV6Cgs&hl=en&sa=X&ei=uzgKU_niFafXyAHn5ICgCw&ved=0CCYQ6AEwAA#v=onepage&q=fannie%20freddie%20perverse%20incentives&f=false
Thanks, as always, obit.
I have personally felt that some sort of fee or tax could be added to all newly securitized mortgages that would be deposited into a protective government-backed emergency fund. Even at a nominal percent, quick math would suggest that it may take a long while to adequately capitalize such a fund (assuming 5% of 5T is determined sufficient). I guess it then becomes an issue of fund reserves vs. predicted housing downturn, which should be many years from the current one. In any case, as you eloquently state, there's no reason that FnF can't participate as both insurer and securitizer--assuming they ever get to recapitalize their companies.
I appreciate the response. Cheers.