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Interesting thoughts. I have taken the view,however, that Lynch ,in replacing Holder, is a good thing for F&F , would seemingly support Mel Watts and the Hud director ...and likely adds to the D-Day preparation with Holder's misdeeds (slap on the wrist) to the banks being buried.
Great!! Everyone worked at all about Carny ,should read your link. Truly calls his delusions out. Thank you for taking the time.
lol....nobody subscribes to see this Carney crap. It is free at google news. Just log in. Actually ,I think it is good to post it as it gives us a chance to understand his underlying motives.And to prepare a better virtual attack against what he is saying swell as the opposition to the F&F release and more specifically the shareholders/investors. People,like Carney, who have access to media exposure do this for a reason/motive to try and sway the reader in a direction.It makes sense to dissect it and to try and understand why (his motive) he is writing such a random ,out of the blue article, making no sense. What was his purpose? Is he short? Is he trying to manipulate the price down or keep it from going up?Is he trying to get people ("lemmings") to sell their shares? Who has put him up to this and why? As they say, "give your friends close and your enemies closer".As people/investors/traders who not only believe that there is a strong social and economical merit in F&F reform and release we need to constantly understand what the other side is doing and why! My humble thoughts for the day.
if your smart you will need to make some assumptions along with the facts.
Perhaps there is another take on this. The release of the GSE's will be a decision politically derived and lawsuit and politically driven. It is about saving face, win-win, being re-elected; it is about "protecting the taxpayer" and the ability to win votes based on a platform that the GSE's are good for the economy , for the people ...for income inequality. It is NOT about investors making money. This article , as unusual and far fetched as it sounds , may have as its intent ,to keep the price down in preparation for for the next step.....just connect the dots......
why randomly print this article to begin with? Why now? What is the purpose?
Fannie Mae’s Profit Trap Comes Into View
Mortgage-Finance Company’s Shares Appear to Be Overvalued
By JOHN CARNEY
Nov. 9, 2014 4:41 p.m. ET
2 COMMENTS
The fog of the financial crisis is lifting from Fannie Mae . But holders of its shares may not like what they see.
Fannie’s quarterly results last week were mostly free from the huge nonrecurring tax and legal items that have obscured its earnings power in earlier periods. So, it is now possible to better assess the value of its shares.
The results showed Fannie earned net income of $3.9 billion in the third quarter, up from $3.7 billion in the prior one. Extrapolating from those quarters, annual earnings from operations likely would run about $14.8 billion.
But investors can’t just think in terms of Fannie’s profits, given its need to pay dividends to the Treasury Department, its ward-of-the-state status and its depleted balance sheet. As well, since the government has warrants for 79.9% of Fannie’s common stock, private shareholders at most are entitled to 20.1% of Fannie’s profits.
ENLARGE
Currently, the government sweeps away all of Fannie’s profits. Given that, the common shares are essentially worthless. Some investors are fighting this in court and Fannie’s shares have risen on hopes the sweep will be struck down.
The question: What would the shares be worth if the sweep were set aside?
In that case, it is likely original bailout terms would be restored. These required Fannie to pay a 10% dividend on the government’s $117 billion preferred stake and a commitment fee on its undrawn backstop.
Going forward, Fannie would have to pay the Treasury an annual dividend of roughly $11.7 billion. The commitment fee was never set. Assume a 0.75-percentage-point fee, and Fannie would have to pay about $900 million a year.
That brings Fannie’s annual Treasury obligation to $12.6 billion. Assuming $14.8 billion in earnings, Fannie would generate $2.2 billion in excess of those payments. Further assume those earnings increase at a 2% rate for the next five years, lifting unencumbered profit to about $3.7 billion.
In all likelihood, the government would have to return to the company about $79 billion in payments received in excess of that due had Fannie only been paying the 10% dividend. That money could help start to rebuild Fannie’s capital base.
At that level, it would take Fannie nearly 11 years until it had generated total excess earnings that, combined with the returned $79 billion and current $2.4 billion capital reserve, would equal the money the government had given it.
Not that it could simply use that to buy back the government’s preferred stock. Instead, Fannie would need to keep building its capital base.
Next, make the generous assumption that Fannie would be required to have 5% capital in a stressed scenario; some would argue for much higher levels. If so, the company would need a further $143 billion on top of what already would have been generated and the government’s preferred stockholding. That would take another 39 years of earnings at the above rate.
So common stockholders couldn’t really expect to have any value flow to them for about 50 years. Discounting those future available earnings by Charles Schwab’s expected long-term annual return for midcap stocks of 8.2% produces a present value for the stock of about $877 million.
In light of the government’s warrants, about $175 million would be applicable to private common stockholders. That translates into a value of about 15 cents per diluted share.
Because the common shares sit behind junior preferred with a face value of about $35 billion, though, it is safe to say the common stock has a fundamental value closer to zero.
This means the significance of the net-worth sweep has been overestimated. Even setting it aside, the shares appear to have little to no value.
The thick mists of legal controversy may conceal this for a while. If and when they lift, those still holding the common stock could see their hopes of windfall wealth dashed.
Write to John Carney at john.carney@wsj.com
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OldestReader RecommendedJOHN CARNEYJOHN CARNEY STAFF13 minutes ago
Xavier,
I'm sorry we didn't have room to include this. I'll provide it now.
Under the original terms of the bailout, Fannie owed a dividend roughly equal to 10% of its draws on the government backstop. This resulted in Fannie needing to draw down on the backstop because it's profits were insufficient to cover the dividend.
In 2012, Fannie and the government amended the deal to eliminate the fixed dividend. In exchange for giving up the 10%, the government got the right to sweep all of tge profits.
XAVIER L SIMONXAVIER L SIMON 1 hour ago
It would have been nice if this article had contained at least one short paragraph explaining under what authority or in exchange for what the government gets to sweep away all of Fannie's profits.
I find that this Journal has been getting increasingly careless about making its articles fully self contained and understandable. Where are the editors?
could you post this one more time , i am not sure i have it yet.
German market:
7:50 AM EST @ $2.10
Very hard to say, but certainly not the "transparency" that the Obama election platform promised to the public!It does sounds strange and begs the question of "what is it that is so concerning to cause a major shift in the finnacial markets?"
Exactly!
german Market 6 AM (EST)
FNM @$2.20 over 4% up
Judge Sweeny also wrote:
"It bears noting that plaintiffs are not foreclosed from utilizing Mr. Howard’s services as a nontestifying expert. Moreover, despite plaintiffs’ argument that Mr. Howard’s prior employment with Fannie Mae makes him “uniquely positioned” to assist with “interpreting the complex and often arcane financial information” that may be found in the documents produced during discovery, they provide no reason why other financial experts would not be able to fulfill the same task, particularly since Mr. Howard’s employment with Fannie Mae was terminated in 2004, four years prior to the 2008 economic collapse that gave way to its placement in conservatorship.
Defendant has clearly defined a serious injury that could occur if protected information is disclosed—not merely to one discrete business, which would, in itself, justify denial of the motion, but rather, to United States financial markets.
Overall, the “goals of full disclosure of relevant information and reasonable protection against economic injury ‘are in tension and each must be fairly balanced against the other.’”
Judge Sweeney wrote:
'In sum, the court finds that defendant has presented sufficient evidence to support its claim that dire harm would flow from the disclosure of the sensitive material that is the subject of the protective order. Defendant has also demonstrated that Mr. Howard is not a dispassionate, independent expert, but rather, a stockholder and former Fannie Mae executive with a personal motivation to resuscitate his career and be vindicated about his leadership of Fannie Mae. For these reasons, the court will not grant him access to the privileged material. In reaching its conclusion, the court examined the facts supplied by defendant, including Mr. Howard’s public statements concerning his desire for vindication, and evaluated them in light of the grave harm to the nation’s economy that would result from the disclosure of information subject to the protective order, inadvertent or otherwise. However, the court wishes to stress that this ruling should not be misconstrued as an adverse ruling concerning Mr. Howard’s character. The court has not concluded that Mr. Howard is untrustworthy, but has rather determined that the need to protect United States financial markets from the consequences that would flow from the deliberate or inadvertent disclosure of sensitive material trumps Mr. Howard’s request for access. Accordingly, because disclosure of the protected information could place this nation’s financial markets in jeopardy, a risk that the court is not willing to take, especially in light of the fact that Mr. Howard is not the sole expert available to assist plaintiffs, Mr. Howard is DENIED entry to the protective order in this case.
IT IS SO ORDERED.]"
wkipedia:
" Kleptocracy, alternatively cleptocracy or kleptarchy, (from Greek: ???pt?? - kleptes, "thief"[1] and ???t?? - kratos, "power, rule",[2] hence "rule by thieves") is a form of political and government corruption where the government exists to increase the personal wealth and political power of its officials and the ruling class at the expense of the wider population, often with pretense of honest service.
This type of government is generally considered corrupt, and the mechanism of action is often embezzlement of state funds.
As an abstract concept, distinct in usage as such (e.g. as a deprecation), and generic sense, it is simply, rule by thieves, theft as the basis of a society."
positive or negative for FNMA stockholders?
the Delaney bill:
Delany, Carney, Hines Bill For GSE’s Has Best Chance
Posted by ToddSullivan on July 14th, 2014
This effectively kills any possibility for GSE reform until after the 2016 election. Why? We have several different plans, coming for both parties that are wholly incompatible with each other. That means there is no chance of blending the disparate plans together to form a consensus within either party, much less building one to get the two parties to agree on something. This was all but telegraphed when Johnson/Crapo limped out of committee without the backing of the most powerful Democrats (Schumer, Warren and Menendez).
From Housing Wire
Representatives John Delaney (D-MD), John Carney (D-DE), and Jim Himes (D-CT) today introduced housing finance reform legislation that would wind down Fannie Mae and Freddie Mac.
“The legislation preserves the 30-year fixed rate mortgage and protects American taxpayers by using private sector pricing to reduce the risk of future bailouts,” said the representatives in a statement.
“It shifts the housing finance market away from Fannie Mae and Freddie Mac, and keeps home ownership attainable for working families by strengthening affordable housing programs,” they said.
HR 5055, is called the Partnership to Strengthen Homeownership Act.
Additionally, the bill would establish an insurance program through Ginnie Mae.
All government guaranteed single-family and multi-family mortgage-backed securities will be supported by a minimum of 5% private sector capital, standing in a first-loss position. The remaining 95% of the risk will be shared between Ginnie Mae and a private reinsurer on a pari passu basis, the statement explained.
The bill winds down Fannie Mae’s and Freddie Mac’s current activities and revokes their charter, but allows them to be sold and recapitalized as entities with different business plans without any of their current unique powers, it added.
This legislation becomes the latest in a stream of legislative measures designed to reform the housing finance system in the U.S.
Currently under consideration in the Senate is Johnson-Crapo. The other primary contenders are the House’s PATH Act, the House’s HOME Forward Act, and the Senate’s Corker-Warner bill. (The full report on the measures from the Structured Finance Industry Group can be read or downloaded here.)
The Johnson-Crapo bill would wind down Fannie and Freddie within five years and had received support from the Obama administration.
But housing industry analysts believe that GSE reform appears to be dead until after the mid-term elections and likely dead until after the 2016 presidential election.
Other analysts from around the housing industry believe that the debate over housing finance reform may stretch out as far as 2017.
Here is the main section of the bill for $FNMA holders:
(1) GOALS.—In carrying out the receivership of each enterprise, Ginnie Mae shall strive to achieve both of the following goals:
(A) RETURN TO TAXPAYERS.—Obtaining an adequate return of taxpayer investment in the enterprise, taking into consideration the total cost to the taxpayers, the value provided to the enterprise, and the risk and exposure to the Federal Government involved, together with interest on such investment at a rate determined by the Director, in consultation with the Board of Governors of the Federal Reserve System and the Secretary of the Treasury.
(B) COMPETITIVE PRIVATE HOUSING FINANCE MARKET.—Removing barriers to private sector competition in the housing finance market by providing for the transfer of the assets of the enterprise into the private sector to compete in a functioning housing finance market.
(2) FULL PRIVATIZATION.—Any entities emerging from such receivership shall be fully private and any obligations and securities of such entities shall not constitute a debt or obligation of the United States nor or any agency or instrumentality thereof.
Here is the big one:
(5) RESTRUCTURING OF SPSPA.—The receivership shall provide for the restructuring of the Senior Preferred Stock Purchase Agreements entered into between the Department of the Treasury and the enterprise on September 26, 2008, as amended and restated thereafter, to—
(A) permit the redemption of senior preferred shares of the Department of the Treasury;
(B) provide for the cancellation of the warrants for the purchase of common stock of the enterprises issued to the Department of the Treasury; and
(C) provide for the appropriate level of compensation to the Federal Government for the financial support and commitment provided to the enterprise.
However, of the GSE bill i have seen, I think this one does have the best chance of succeeding.
Why does this have the best chance? It privatizes the entities and removes them from the gov’t which appeals to the GOP and since it was originated from a group of Democratic lawmakers, by nature it will garner plenty of Democratic backing. Further, the Ginnie Mae component will both guarantee the continuation of the 30yr mortgage that Johnson/Crapo and Corker/Warner put into peril and can allow for affordable housing goals to be reached which was I think the main reason Schumer, Warren and Menendez did not back Johnson/Crapo in committee.
It also is the only piece of legislation that deals with the issue of the SPSA in a way that won’t spawn years of litigation (at a significant cost to taxpayers), most likely a SCOTUS review and a potential humiliating rebuke from the courts.
Now what this legislation needs is the backing of a powerful legislator. I am doubtful this happens before the November elections as Congress folk tend to go fetal in the months leading up to them.
If nothing else this should give investors reassurance that Johnson/Crapo and Corker/Warner are in fact dead….
Full Bill: Partnership to Strengthen Homeownership
4tress ....I know but why would he?He really does not care about shareholders.
agree the GSE are needed and here to stay, are solid and very profitable and that that there no other good alternative strategies for the secondary mortgage market; the gov't has taken a victory lap today and other suits are still pending ;the GSE have paid back their loan (188b) with interest(219b), but WHAT incentive does the gov't have to even consider a release them from conservatorship when they have taken in 72b YTD and 5.6 b today. The back alley HERA outlet can be used also for the other cases ,forcing at best a long appeal process.As is the system is working in its current format,who would care about the stockholders? Thus the question...What is the government incentive to release??
Interesting article ,from Housing Wire on Monday,April 21,2014. http://www.housingwire.com/articles/29733-rep-delany-time-to-end-governments-role-in-setting-price-of-mortgage-finance (see below)
In January, U.S. Rep. John K. Delaney, D-Md., announced a plan for housing finance reform.
Partnering with fellow representatives John Carney, D-Del., and Jim Himes, D-Conn., the Delaney-Carney-Himes proposal calls for the use of private sector market forces to price risk while providing the security of a government guarantee behind the program.
Delany details the plan in an editorial posted Sunday on the Financial Times website, ft.com.
Delany says that with the government conservatorship of Fannie Mae and Freddie Mac, “The government now backs roughly 90% of all new mortgages in the county.”
Because of the government’s massive stake in the market, Delany says that the government sets the price of mortgage finance, “probably at the wrong level.”
Delany cites the government’s “mispricing of risk” as a significant contributor to the financial crisis and says, “We have ample evidence of what happens when the government distorts the massive mortgage market.”
Delany says that the bipartisan Senate Johnson-Crapo bill authored by Chairman Tim Johnson, D- S.D., and Sen. Mike Crapo, R-Idaho, of the Senate Committee on Banking, Housing, and Urban Affairs, is likely to stall without support in Congress because “there are legitimate concerns that it would leave the government with an outsize role in the housing market – and that it could make mortgage finance unaffordable for some households.”
Delany says that the plan he authored with Carney and Himes devises a system that combines the government’s financial muscle with the market’s ability to price risk. He calls this “the cornerstone” of the proposal.
“Under our plan the holders of mortgage-backed securities would absorb losses of up to 5% of their value,” Delany writes. “The remaining 95% would be covered by insurance, which would be provided jointly by the government and the private sector.”
Delany says that their plan would require at least a 10th of this insurance coverage to be purchased from private sources.
“The portion supplied by the government would have the same price as the private component, and it would insure against precisely the same risks,” he says. “Consequently the market – rather than government agencies – would determine the price for insuring mortgage risk, eliminating the damaging distortions that exist today. At the same time, the government would ensure that the market retained enough capacity to provide affordable homes for American households.”
Delany says that over time, their plan would give private capital a greater role, and decrease the government’s share of the reinsurance market, “since the private market, bearing the same risk and earning the same return, would have no incentive to use the government, save for lack of capacity.”
Delany says that Fannie and Freddie could “conceivably return to the private sector and insure mortgages under our scheme,” with the stipulation that the GSEs would receive no special deal from the government.
“Our plan would ensure that they do not return to monopoly status,” he says. Delany calls this “essential for effective reform.”
Delany calls their plan a “pragmatic” one because it gives the government a smaller role than Johnson-Crapo would, but a larger role than it would have under the PATH Act, sponsored by Financial Services Committee Chairman Jeb Hensarling, R-Texas.
“Over time the government needs to get out of the mortgage finance market that it has long dominated,” Delany says. “But it must do so with care, to ensure that creditworthy American households have access to the affordable housing loans they need. (Our plan) combines a gradual transition to private finance in the housing market with an immediate end to the government’s counterproductive role in setting the price of mortgage finance.”
Delany says “we desperately need to reform the mortgage finance system for the good of our economy, our taxpayers and the stability of the global financial system. Until we take important steps on housing reform, we will remain haunted by the ghosts of 2008.”
Representatives John K. Delaney, D-Md., John Carney, D-Del., and Jim Himes, D-Conn., are putting together a housing finance reform proposal that uses private sector market forces to price risk while providing the security of a government guarantee behind the program.
"We believe we will get bipartisan support," Delaney told HousingWire. "It’s a complicated bill so we wanted to get it out so it can be looked at thoroughly."
Delaney said he plans to introduce legislation based on the proposal in a few months, after getting input from colleagues and industry leaders.
"This arose from an amendment I was proposing during the final markup for the PATH Act, but the chairman (Rep. Jeb Hensarling, R-Texas) was complimentary about it to the point I thought we should explore doing this on its own," Delaney said.
(View the proposal discussion archived video here.)
Delaney said he believes the proposal he is crafting will create a housing finance system that is fair to borrowers, lenders, and taxpayers.
"I believe government should be adding liquidity and capacity to the housing market but not taking on additional risk," he said.
The core of the proposal allows the government to expand the capacity of housing finance while allowing the private sector to price all of the risk. The reform package also is supposed to create incentives for private capital’s market share in housing to grow over time.
Most importantly, for those in the market, Delaney said it creates a path for Fannie Mae and Freddie Mac to be sold as independent companies without any government support or monopoly status.
The Delaney-Carney-Himes housing finance proposal creates a structure that enables the government to significantly expand the availability of capital in the insurance market, while ensuring the mortgage market is open and efficient – with private capital participating in the market and pricing all of the risk.
The plan adds discipline to the mortgage market, creates meaningful paths and incentives for private capital to flow into the mortgage market, and ensures that the mortgage market benefits from the liquidity provided by government participation.
According to Delaney, this structure creates a unique public-private partnership mechanism whereby private "first loss" capital of up to 5% is required in all mortgage securitizations, and the government – acting through Ginne Mae – in partnership with private capital will provide reinsurance of up to 95% of any mortgage securitization.
Specifically, Ginnie Mae will provide reinsurance and prospectively contract with private reinsurance companies to share in the government’s reinsurance policy. Both the private reinsurance carrier and the government will receive the exact same pricing and bear the exact same risk.
"To ensure a stable housing finance system, we must move past the current state to a new system that engages more private sector capital and private sector pricing of risk in partnership with an explicit government role in the provision of stabilizing liquidity to the market – this bill does that. Chairman Hensarling has shined an important spotlight on housing reform and understands, deeply, how important this debate is to the economy and our fiscal future," Delaney said. "There are a lot of good ideas out there -- I think this one strikes the right balance between public and private sector involvement in the housing market."
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Article from Finnacial Times on Sunday by Delaney
A pragmatic plan to free the mortgage market from Washington
By John Delaney
Combine government financial muscle with the market’s ability to price risk, says John Delaney
A for sale sign hangs outside a property©Bloomberg
Since the collapse of Fannie Mae and Freddie Mac, American housing finance has essentially become a nationalised industry. The government now backs roughly 90 per cent of all new mortgages in the country, mainly through the failed mortgage finance companies that are in federal “conservatorship”. Washington therefore sets the price of mortgage finance – probably at the wrong level.
We have ample evidence of what happens when the government distorts the massive mortgage market. A significant contributor to the financial crisis was the government’s mispricing of risk, and the resulting perception that mortgages were effectively as safe as US Treasuries. To make matters worse, there is little evidence that these government subsidies substantially improved home ownership rates or affordability.
A bipartisan proposal to wind down Fannie and Freddie has been introduced in the Senate. It would provide government backing for new mortgages in return for stricter underwriting standards, a requirement that the private sector absorb losses of up to 10 per cent of the value of the loans, and the creation of an industry-funded mortgage guarantee fund to further shield taxpayers from the cost of any bailout. But without support in Congress, this proposal is likely to stall. There are legitimate concerns that it would leave the government with an outsize role in the housing market – and that it could make mortgage finance unaffordable for some households.
The sheer size of the mortgage book currently underwritten by taxpayers makes it unlikely that the government could retreat quickly from the housing market without causing widespread disruption. But the harmful distortions that government involvement causes can be removed straight away. The trick is to devise a system that combines the government’s financial muscle with the market’s ability to price risk. That is the cornerstone of a proposal that I have put forward with two Democratic colleagues in the House of Representatives, John Carney and Jim Himes.
Under our plan the holders of mortgage-backed securities would absorb losses of up to 5 per cent of their value. The remaining 95 per cent would be covered by insurance, which would be provided jointly by the government and the private sector. Our rules would require at least a 10th of this insurance coverage to be purchased from private sources. The portion supplied by the government would have the same price as the private component, and it would insure against precisely the same risks. Consequently the market – rather than government agencies – would determine the price for insuring mortgage risk, eliminating the damaging distortions that exist today. At the same time, the government would ensure that the market retained enough capacity to provide affordable homes for American households.
Over time our plan would give private capital a greater role, pushing down the government’s share of the reinsurance market – since the private market, bearing the same risk and earning the same return, would have no incentive to use the government, save for lack of capacity.
Fannie and Freddie could conceivably return to the private sector and insure mortgages under our scheme. But they would receive no special deal from the government. This is essential for effective reform. Our plan would ensure that they do not return to monopoly status.
Over time the government needs to get out of the mortgage finance market that it has long dominated. But it must do so with care, to ensure that creditworthy American households have access to the affordable housing loans they need.
Ours is a pragmatic plan. It gives the government a smaller role than that advocated in the Senate, but a larger one than has been suggested in the House. It combines a gradual transition to private finance in the housing market with an immediate end to the government’s counterproductive role in setting the price of mortgage finance.
We desperately need to reform the mortgage finance system for the good of our economy, our taxpayers and the stability of the global financial system. Until we take important steps on housing reform, we will remain haunted by the ghosts of 2008.
The writer is a Democratic congressman for Maryland
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should really listen to positive comments from yesterday's KNX Business News in LA ,played on the radio for all the commuters , very positive , http://losangeles.cbslocal.com/audio-on-demand/knx-business-hour/#
listen to the KNX Business News from Monday , April 23rd regarding comments on FNMA .... , comment are about 4 to 5 minutes into the hour http://losangeles.cbslocal.com/audio-on-demand/knx-business-hour/#