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Why issue more shares and then do a reverse split?
According to fidelity there are 1,158,088,000 shares outstanding.
How many shares would they need to issue to accomplish this?
Not a fan of a reverse split.
They should allow the current stock price to rise above $4? The minimum up-listing requirement. All that takes is a favorable court outcome, a favorable FHFA director and of course a 4th amendment stopping the NWS.
Wouldn’t a higher stock price make it very lucrative for the government to rob us of more money than what Moelis projects? Just let us make ours. Commons and Preferred!!!
KThomp. You may have misread my post...
I said...”But the delist occurred AFTER conservatorship was implemented”
Then they took 1 billion SPS and the right to inject up to 100 billion into each company. (DECAP)
https://www.google.com/amp/s/www.cnbc.com/amp/id/26590793
Delist was the last step. Actually the NWS was last step. So when it’s mentioned that they need to unwind the conservatorship ... In my mind means
1. STOP NWS
2. Relist
3. Recap
4. Release.
Windup in 1 order and then unwind in reverse. I subscribe to the K.I.S.S METHOD.
https://www.merriam-webster.com/dictionary/unwind
Definition of unwind
transitive verb
1a : to cause to uncoil : wind off : UNROLL
b : to free from or as if from a binding or wrapping
c : to release from tension : RELAX
2 archaic : to trace to the end
unwinding the labryinth and bringing the hero out
— Laurence Sterne
3 : to undo (a financial arrangement or position) through the necessary legal or financial steps
unwound most of its natural gas hedges
— The New York Times
intransitive verb
1 : to become uncoiled or disentangled : UNFOLD
2 : to become released from tension
Stevens and his opinion are irrelevant. I see that his tweet has been retweeted maybe 4 times and liked about the same amount. Most likely by him ?? Lol. He offers no real solutions.
Immediately make all stakeholders happy and just RELIST to a big board. FHFA has that authority.
An Uplist would increase share price and government/taxpayer investment.
I know most everyone is going to say they need to recapitalize and then end the conservatorship before this happens. But the delist occurred after conservatorship was implemented. So now the reverse needs to happen.
RELIST, Helps the RECAP, and then ensures the RELEASE.
I’m just voicing what I want to happen. It would definitely solidify the fact that the GSEs are here to stay.
I’m holding my 60k shares patiently waiting for the day that something breaks loose.
https://www.google.com/amp/s/mobile.reuters.com/article/amp/idUSTRE65F3GR20100616
Fannie Mae Announces $145 Million Investment in Low-Income Housing Tax Credit (LIHTC) Funds
BY PR NEWSWIRE — 22 MINUTES AGO
WASHINGTON, Nov. 8, 2018 /PRNewswire/ -- Fannie Mae (OTC Bulletin Board: FNMA) announced today it has committed to invest up to $145 million in three low-income housing tax credit (LIHTC) funds as part of its ongoing commitment to provide a reliable source of capital for affordable rental housing in underserved markets. The new funds are Cinnaire Fund for Housing LP 33, Ohio Equity Fund for Housing LP XXVII, and MHEG Fund 50 LP.
The Federal Housing Finance Agency (FHFA) approved Fannie Mae's (FNMA) re-entry into the LIHTC market as an equity investor in November 2017. Fannie Mae's (FNMA) return to the LIHTC market expands the company's efforts to increase and improve affordable housing stock and help those markets most in need of support.
"Fannie Mae (FNMA) plays an increasingly important role in supporting underserved markets in rural America," said Dana Brown, Vice President, LIHTC Investments, Fannie Mae (FNMA). "These funds will allow us to channel much needed capital to support neighborhoods that need it most."
"It is good to have Fannie Mae (FNMA) back as a low-income housing tax credit investor," said Bill Shanahan, President of The National Association of State and Local Equity Funds (NASLEF) and President of Northern New England Housing Investment Fund. "Working with our nonprofit NASLEF members, Fannie Mae (FNMA) is helping bring much needed capital to the rural, underserved markets. It can be a challenge to attract capital to these markets."
The three funds with investments from Fannie Mae (FNMA) announced today are members of NASLEF. NASLEF is a professional, nonprofit association that promotes efficient management of state and local equity funds.
Cinnaire Fund for Housing
Fannie Mae (FNMA) committed to invest up to $35 million in the Cinnaire Fund for Housing LP 33 with Cinnaire Corporation. The fund manages a total of $150.8 million and will invest in partnerships that own LIHTC properties located in Illinois, Indiana, Michigan, Minnesota, and Wisconsin. Thirty-seven percent of the Cinnaire Fund portfolio supports affordable housing in rural markets.
Ohio Equity Fund for Housing
Fannie Mae (FNMA) committed to invest up to $50 million in Ohio Equity Fund for Housing LP XXVII with Ohio Capital Corp. The total amount of the fund will be $250 million to $275 million. Ohio Equity Fund will invest in LIHTC housing projects in Ohio, Indiana, Michigan, Kentucky, Pennsylvania, Tennessee, and West Virginia. Thirty-four percent of the fund's investments support affordable housing in rural markets.
MHEG Fund
Fannie Mae (FNMA) committed to invest up to $60 million in MHEG Fund 50 LP with Midwest Housing Equity Group. The fund manages a total of $182 million and will invest in partnerships that own 41 LIHTC properties in Nebraska, Iowa, Missouri, Kansas, Colorado, Oklahoma, and Texas. Sixty-eight percent of the fund's current projects in its portfolio support affordable housing in rural markets.
For more information about Fannie Mae's (FNMA) Low-Income Housing Tax Credit program, visit our LIHTC program website.
Fannie Mae (FNMA) helps make the 30-year fixed-rate mortgage and affordable rental housing possible for millions of Americans. We partner with lenders to create housing opportunities for families across the country. We are driving positive changes in housing finance to make the home buying process easier, while reducing costs and risk. To learn more, visit fanniemae.com and follow us on twitter.com/fanniemae.
Cision View original content:http://www.prnewswire.com/news-releases/fannie-mae-announces-145-million-investment-in-low-income-housing-tax-credit-lihtc-funds-300746775.html
SOURCE Fannie Mae (FNMA)
Gselinks.com
Kicking the can ....
Tuesday October 30 2018
New filing in Fannie/Freddie Consolidated Class Action, click here to view. http://gselinks.com/wp-content/uploads/2018/10/13-cv-01053-0089-10-30-18.pdf
Peter Chapman writes, “The parties delivered a report to Judge Lamberth today telling him that their lawyers met and conferred on Oct. 15 and have tentatively agreed that if the Court’s ruling on the motion for reconsideration doesn’t dispose of these cases, the parties will:
— complete discovery by July 15, 2019;
— exchange expert witness reports by Aug. 14, 2019;
— file any amended complaints (which probably aren’t necessary) by Aug. 14, 2019;
— complete depositions and additional discovery from experts by Nov. 13, 2019;
— complete briefing on class certification by Nov. 26, 2019;
— complete briefing on cross-motions for summary judgment by Feb. 25, 2020;
— hopefully obtain a summary judgment ruling by July 31, 2020;
— schedule a trial to commence on Oct. 19, 2020.
Fairholme, Arrowood and the Class Plaintiffs tell Judge Lamberth they believe there’s a realistic possibility of a settlement, and would be willing to pursue mediation so long as it doesn’t delay the litigation schedule. FHFA, Fannie and Freddie tell Judge Lamberth they don’t see any reasonable prospect of a settlement.
HOW CAN YOU BE SO SURE ? A LOT HAS CHANGED SINCE THIS RICK.
https://www.reuters.com/article/us-housing-fanniefreddie-delisting/fannie-mae-freddie-mac-to-delist-shares-on-nyse-idUSTRE65F3GR20100616
What are the chances of this being up-listed on the big board before any court, administrative, or legislative action? Just wondering ... I know that there are price and other stipulations to up-list but it sure would be the easiest of all actions.
“Mortgage performance is better that it has been in 20 years”.
Sounds like housing finance reform has worked. Time to at least re-list the twins. Tired of the OTC games.
While regulations such as Dodd-Frank changed the financial world, lenders and investors also lost their appetite for risk and have changed their behavior, says Sam Khater, chief economist of Freddie Mac in McLean, Va. As a result, he says, mortgage performance is better than it has been in 20 years.
https://www.washingtonpost.com/news/business/wp/2018/10/04/feature/10-years-later-how-the-housing-market-has-changed-since-the-crash/
Politics bro. They have to give lip service to both sides of the aisle in order to be right whichever way the this cookie crumbles.
I believe they are. They want the GSEs to retain capital which is a good thing.
https://www.nafcu.org/sites/default/files/legislative-regulatory-issues/top-issues/housing-finance-reform/Housing_Finance_Reform_Principles7.pdf
#whynotme
#fanniegate
GUT-WRENCHING TRADE. Give me a break.
https://www.cnbc.com/2018/09/10/investors-who-bought-into-the-teeth-of-the-lehman-crisis-are-up-130percent.htmlBUSINESS
It was a gut-wrenching trade, but investors who bought the day before Lehman failed are up 130%
CNBC - 5h ago
Before Lehman Brothers collapsed, before AIG buckled, before the financial system fully broke down and was bailed out, stocks were already in a bear market. By Sept. 12, 2008 — the Friday before the effort to rescue Lehman came up short in a big way and ...BUSINESS
It was a gut-wrenching trade, but investors who bought the day before Lehman failed are up 130%
CNBC - 5h ago
Before Lehman Brothers collapsed, before AIG buckled, before the financial system fully broke down and was bailed out, stocks were already in a bear market. By Sept. 12, 2008 — the Friday before the effort to rescue Lehman came up short in a big way and ...
Not sure if this has been posted.
Let’s change the rule to maximize CEO and FHFA directors salary before they depart.
https://www.housingwire.com/articles/46614-fhfa-proposes-new-rule-to-reduce-compliance-burdensFHFA proposes new rule to reduce compliance burdens
HousingWire -
Remember this....
https://seekingalpha.com/article/4184507-fannie-freddie-investors-get-ready-bhatti
Good for a nickel gain then and now a .40 loss
The ole’ Trumpa Dump Dump
This is getting old. Which case will fail next ? How many total lawsuits are out? Get them all over with as soon as possible please.
https://howardonmortgagefinance.com/2018/05/03/a-view-on-affordable-housing/#comment-6987
Canceling the senior preferred, allowing the companies to recapitalize, and having the government exercise the warrants (and then sell them, not “keep them forever”) are the primary elements of the Moelis plan. There is no legal impediment to the government doing that, but to date the administration has not decided that’s what it wants with Fannie and Freddie. I and many others believe it is the best solution for the financial system and homebuyers, but the large banks and Wall Street interests oppose it–they prefer a “bank-centric” secondary market, which will give them more control over and profitability from the residential mortgage market as a whole–so we remain at impasse, with Congress unable to decide what to do and the administration unwilling to. I continue to believe that the most likely catalyst for action on secondary mortgage reform will be a victory for the plaintiffs in one or more of the lawsuits.
“Reduce Market Share”. They think we’re Dummies. For 10 years they allowed F/F to gain more market share. If they have to give a little back to the TBTF banks I’ll be O.K with half of what they were worth before the heist. $15-$30 who knows...just a guess.
Don’t want to be too Greedy
So @MilkinIstitue the #MIGLOBAL you have key players in Fanniegate. DeMarco and Bright penned a paper 9/26/2016 “Toward a New Secondary Mortgage Market”.... they run the GSEs through receivership and then make them Mutuals. Nothing specific on what happens to current shareholders. Now Bright is at Ginnie Mae....
The never ending saga of #FANNIEGATE !!!!
9 TRADING DAYS UNTIL EARNINGS ANNOUNCEMENT. USUALLY SOME VOLATILITY LEADING UP TO IT.
Fed's Quarles: 30-year fixed-rate mortgage 'probably' doesn't need government backstop
BY MARKETWATCH — 23 MINUTES AGO
Senator says housing market reform is likely next on the table for Banking Committee, which has failed to find a way forward in the past
The 30-year fixed-rate mortgage could probably survive without a government guarantee, a senior Federal Reserve official said as Congress contemplates yet another round of housing finance reform.
At a Senate Banking Committee hearing, Fed Vice Chairman for Supervision Randal Quarles was asked by Sen. Heidi Heitkamp, Democrat for North Dakota, whether a government guarantee was "essential" for "retaining" the 30-year mortgage instruments. Quarles replied: "My belief today is probably not."
Also read:Mortgage rates roar to a fresh 2018 high (http://www.marketwatch.com/story/mortgage-rates-roar-to-a-fresh- 2018-high-2018-04-19)
Heitkamp indicated she disagreed strongly.
"There are a number of people in smaller or mid-sized institutions who believe it would be difficult to take a 30-year interest-rate risk without some kind of assurance they could offset that risk," Heitkamp said.
The North Dakota Democrat suggested that reform of the market for housing finance would soon become the No.1 focus of the Senate Banking panel.
Fannie Mae (FNMA) and Freddie Mac (FMCC) were rushed into government control during the financial crisis of 2008. The question for Congress is whether and how to get them out.
Leaving the GSEs in government control would just create uncertainty that would ultimately harm the economy, Quarles said.
Housing finance should be "as private-sector driven as possible," he said.
Some analysts believe the current system works.
"It is not fixed but it's not broken," Moody's Analytics Chief Economist Mark Zandi told MarketWatch earlier this year.
Read:Fannie and Freddie aren't broken, so stop tinkering, Pimco tells Congress (http://www.marketwatch.com/story/ fannie-and-freddie-arent-broken-so-stop-tinkering-pimco-tells-congress-2018-02-21).
Congress has struggled to reform the housing finance system and several attempts have ended in failure.
Zandi sees the future Fannie and Freddie as almost utilities, guaranteeing mortgages through a common platform of standardized, homogenized securities that allows them to share the risk with the private sector.
See: Congress wouldn't do it, so Fannie and Freddie reformed themselves (http://www.marketwatch.com/story/congress- wouldnt-do-it-so-fannie-and-freddie-reformed-themselves-2017-08-03).
-Greg Robb; 415-439-6400; AskNewswires@dowjones.com
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Barclay's settles with the U.S. government over mortgage security suit https://t.co/sxNZMWjkux pic.twitter.com/8kUnBtNLYB
— Bloomberg (@business) March 29, 2018
Both the preferreds and common are in a similar downward trend.
Maybe Billy Boy will double down with his 100 mil.... https://www.cnbc.com/2018/03/22/bill-ackman-scores-a-quick-100-million-profit-on-nike-in-6-months.html
Rumor mills a churnin....
CNBC Says Larry Kudlow "Has No Plans to Leave" Amid White House Speculation https://t.co/FJRpb6CqZS via @thr
— Larry Kudlow (@larry_kudlow) March 8, 2018
Possibly a Helpful Rumor of Larry Kudlow replacing Cohn.
Shareholders @FannieMae @FreddieMac really were screwed. @gmorgenson @nytimesbusiness https://t.co/vdiqq4LyCm
— Larry Kudlow (@larry_kudlow) May 20, 2016
Thanks Ron, Congress hijacked the company those profits too good to give up even though bailout paid back a long time ago. I'm not in the stock not sure what to say but neither party eager to give up the gravy train. https://t.co/71VCRS77ZG
— Charles V Payne (@cvpayne) March 5, 2018
American Banker talking receivership again
https://www.americanbanker.com/news/how-fhfa-could-reform-housing-finance-if-congress-doesnt
1. I think you mean- don't jibe (they actually DO jive or conflict.
Yes JIBE!! Corker is a JIVE turkey
2. Read the very next paragraph too
I’m tired of anonymous sources.
I agree....definitely purposeful
It is all crazy and anyone can read any message they like from the - I assume purposeful - confusion
Now I’m suffering from the flu so I might not be thinking clearly but why would this line be in the article....
“The GSEs would be put into receivership and their charters would be repealed.”
I’ve reread the article and that statement and the quote before this statement don’t jive. It reads to me like we will have Fannie and Freddie as private companies. Then their GSEs remnants that goes through receivership.
Very confusing 2 sentences.
I don’t remember seeing in any public articles that FHFAs plan included receivership. Has anyone posted the actual plan? There is a link on Bloomberg but you must have a subscription.
Been a holder of commons since 2013 This is a dog and pony show. Public officials won’t publicly acknowledge shareholders. It’s not in their best interest in the current political climate. What political official wants their name strung across the twittersphere saying they are beholden to Hedge funds and taxpayers have been screwed. I will continue to hold and believe shareholders will remain. At what price and what form (utility) is the real question. This will all be done in the dark of night before our heads hit our pillows. They already have and have always have had plans in my mind. They are just throwing out trial balloons to get a good feel on what will make them look and feel good.
http://www.klgates.com/housing-finance-reform-the-stars-are-aligning-01-16-2018/
https://www.lexology.com/library/detail.aspx?g=a20c0752-2964-4983-baa2-c31973d8af78
U.S. Public Policy & Law
Housing Finance Reform: The Stars Are Aligning
by Daniel F. C. Crowley, Bruce J. Heiman, William A. Kirk, Karishma Shah Page, Eric A. Love, Dean A. Brazier
16 Janaury 2018
Introduction
Housing finance reform, one of the elusive, last remaining to-do items on the post-Great Recession list, may finally be addressed during the first half of 2018. Over the last few years, Congress has been setting the stage with numerous hearings, bills and studies. Now, there is growing agreement on workable principles of reform. Housing finance reform legislation, which will likely follow consideration of a separate financial regulatory reform bill, has garnered renewed interest and prioritization among a number of key Members of Congress who seek to enact legacy measures before the window for major legislative action closes prior to this year’s mid-term elections.
State of Play
Senate
Last month, Senators Bob Corker (R-TN) and Mark Warner (D-VA), long-time proponents of housing finance reform who are leading the bipartisan reform effort in the Senate, circulated a proposal for vetting by other Senators and Trump Administration officials. Senator Corker announced that he will be retiring at the end of the current term of Congress, but he will likely continue to play a meaningful role in helping to formulate the Senate proposal.
The Corker-Warner proposal contains the following features: a federal government guarantee in the event of catastrophic losses (financed by a fee on mortgages); Fannie Mae and Freddie Mac (collectively, the “GSEs”) would continue to exist under government conservatorship until competitors enter into the securitization market for mortgage loans; the GSEs would no longer have government charters and their investment portfolios would be nearly eliminated; the government would approve pricing and returns, thereby reducing the incentive for risky lending; and certain market reforms already put in place by the Federal Housing Finance Agency (“FHFA”) would be codified in law.
Senate Banking Committee Chairman Mike Crapo (R-ID) is also expected to release additional details about his proposed housing finance reform legislation. It is not yet clear which elements of the Corker-Warner proposal will be included in the proposal that Chairman Crapo is expected to release. Many anticipate that Chairman Crapo’s proposal would broaden participation in the Common Securitization Platform (“CSP”) beyond the GSEs. The CSP will be used by the GSEs to issue a common single mortgage-backed security.
Importantly, with the announcement by Senate Finance Committee Chairman Orrin Hatch (R-UT) that he will retire from the Senate at the end of the year, Chairman Crapo is a potential successor as the top Republican on the Finance Committee (unless Senator Chuck Grassley (R-IA) gives up his remaining two years as Chairman of the Senate Judiciary Committee). Given this possibility and Chairman Crapo’s stated view that housing finance reform is one of his top priorities, he is expected to push forward aggressively on reform.
House
Two key developments occurred last year. First, House Financial Services Committee Chairman Jeb Hensarling (R-TX) announced that he will retire from the House at the end of this term of Congress. Second, Chairman Hensarling delivered a speech that represents a turning point for him in the years-long discussion about how to approach reform of the housing finance system. The Chairman put forward views that were in line with positions of other key policymakers. In this speech, Chairman Hensarling stated that he fully expects that a government guarantee in the secondary mortgage market will be part of any successful attempt at housing finance reform. Additionally, he characterized a proposal offered by former FHFA Acting Director Ed DeMarco and Ginnie Mae Executive Vice President Michael Bright as a means by which to move housing finance reform forward.
According to Chairman Hensarling, “the DeMarco-Bright proposal would provide a new explicit government guarantee for mortgages by revising the Ginnie Mae charter to authorize it to accept mortgages with non-government credit enhancements from the private sector.” Just as importantly, he expressed his opinion that “any sustainable housing finance reform plan” must be consistent with the following principles: the GSEs “must be wound down and their charters repealed;” “[s]ecuritizers need strong bank-like capital and community financial institutions must be able to compete on a level playing field;” “[a]ny new government affordable housing program needs to at least be on budget, results based, and target actual homebuyers for the purpose of buying a home they can actually afford to keep;” and “[t]he Federal Housing Administration must return to its traditional role of serving the first-time homebuyer and low- and moderate-income individuals.”
Moreover, House Financial Services Housing and Insurance Subcommittee Chairman Sean Duffy (R-WI) and Ranking Member Emanuel Cleaver (D-MO) have begun working together on housing finance reform, and the Subcommittee has convened a series of hearings focused on private-sector perspectives on the issue. During the Subcommittee hearings, Republicans have emphasized the need to consider ways to bring additional private capital into the housing finance system by making the rules of the system more transparent and enforceable. Others have expressed support for allowing the government to provide certainty in the market through a federal guarantee at the catastrophic-risk level. Democrats have expressed strong support during the hearings for preserving the 30-year fixed-rate mortgage; preserving housing affordability; protecting taxpayers; furnishing stability and liquidity to the market; and ensuring access to small lenders. The bipartisan House efforts have also included a number of informal information-gathering meetings with stakeholders and other interested parties. Chairman Hensarling’s views can be expected to significantly impact the efforts undertaken by Chairman Duffy and Ranking Member Cleaver to craft bipartisan reform legislation.
For a discussion of previous iterations of the Senate Corker-Warner proposal and House reform legislation (the Protecting American Taxpayers and Homeowners (“PATH”) Act) previously championed by Chairman Hensarling, please see the K&L Gates Alert entitled “The 2014 Election: A Critical Juncture in Financial Services Legislation, Regulation, and Oversight.”
What Happens Next?
Housing finance legislation is likely to be considered in both chambers of Congress within the next six months. Among the key questions facing lawmakers is the issue of whether to adopt the DeMarco-Bright-Hensarling “issuer-model” or the Corker-Warner “guarantor model” whereby the GSEs would be reformed and repurposed as guarantors which, along with new entrants to the market authorized by the FHFA, would issue mortgage-backed securities that carry an explicit government guaranty. Additionally, lawmakers will continue to grapple with the extent to which affordable housing requirements will be included in any reform legislation. As discussions on these and other issues move forward and as legislative proposals develop, interested stakeholders must engage now in order to achieve their particular policy objectives.
Contacts
Daniel F. C. Crowley
P +1.202.778.9447
dan.crowley@klgates.com
Bruce J. Heiman
P +1.202.661.3935
bruce.heiman@klgates.com
William A. Kirk
P +1.202.661.3814
william.kirk@klgates.com
Karishma Shah Page
P +1.202.778.9128
karishma.page@klgates.com
Eric A. Love
P +1.202.778.9415
Eric.Love@klgates.com
Dean A. Brazier
P +1.202.778.9177
Dean.Brazier@klgates.com
This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. Any views expressed herein are those of the author(s) and not necessarily those of the law firm’s clients.
The High Stakes in the Looming Fannie and Freddie Overhaul
BY MARKETWATCH — 5:30 AM ET
A decade after the collapsing housing market led to a dramatic bailout of Fannie Mae (FNMA) and Freddie Mac (FMCC), Congress is gearing up to tackle the politically thorny issue (https://www.wsj.com/articles/how-the-great-fannie-and- freddie-dustup-could-end-1513880901) of housing finance reform in 2018. So far the plan is shaping up as workable compromise between the competing interests of investors, mortgage lenders, taxpayers and homeowners.
The basic objective shared by lawmakers from both parties is to end Federal government support for Fannie and Freddie, whether explicit or implicit, while keeping mortgages cheap and accessible.
A bipartisan proposal being worked on in the Senate would allow investors to set up competitors to the two companies (https://www.wsj.com/articles/government-shifts-gears-on-fannie-mae-freddie-mac-1513515600), which would then be released from government control. Fannie, Freddie and their new peers would buy mortgages from banks and other lenders and securitize them through a common platform.
When underlying mortgages go sour, the first losses will be taken by private investors who have purchased risk positions from the companies through the credit-risk transfer market (https://www.wsj.com/articles/investors-take-on- mortgage-risk-from-taxpayers-1502706600). After that, Fannie, Freddie and their competitors would take the losses. In the event these losses overwhelm their capital cushions, the securities they issued would be backstopped by the government, and the companies could be allowed to fail.
There remain many unanswered questions that will matter to a variety of investors and market participants.
First, how will the legacy mortgage-backed securities already issued by Fannie and Freddie be protected once the two companies are officially off government support? A loss of confidence in these securities, which are widely held by banks, foreign governments and more, could be destabilizing.
One solution would be for the U.S. Treasury's current financial backstop for the two companies to be transferred to their legacy securities. This would have to be done carefully and transparently.
Second, which mortgages will qualify to be packaged into the government-guaranteed securities? They could be modeled after the current guidelines for mortgages to be purchased by Fannie or Freddie, which exclude large or especially risky mortgages. There may be political pressure to only guarantee smaller mortgages. This could further hurt high-price housing markets that are already under pressure from the new tax law.
Third, will mortgage-backed securities backstopped by federal funds be considered risk-free assets by banking regulators? This would be logical, but some fear it would disproportionately benefit top banks like Wells Fargo(WFC) with large holdings of the securities.
It is also unclear what will happen to existing holders of Fannie and Freddie common and preferred shares. Unlike some previous proposals, this plan makes it possible for them to retain their stakes because it keeps Fannie and Freddie alive. But a restructuring that causes them to take some losses is also possible.
Finally, can the plan pass? Garnering bipartisan support in the Senate is one thing, but getting conservative members of the House of Representatives to go along with a Federal housing guarantee of any sort may be a challenge.
Success could have a real impact on not just on investors but on nearly every American who hopes to buy a home.
Write to Aaron Back at aaron.back@wsj.com (mailto:aaron.back@wsj.com)
-Aaron Back; 415-439-6400; AskNewswires@dowjones.com
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