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Spot on, javachip!
I personally feel that's where the current reform efforts by DeMarco are attempting to go.
DrMerlot. I have not heard anything from Obama recently concerning his stance on housing reform. I was unaware it had changed significantly. If you have a link or article to share Id appreciate reading it.
MB, I understand your sentiment completely and that's one way to look at it.
The way I look at it is, we don't really know what precipitated the 3rd amendment sweep. Was DeMarco forced/influenced to do it? Did he think this was his best option economically? In my opinion, at the time he didn't have much of a choice. The GSE's were essentially bleeding money, actually borrowing from the Treasury just to make their dividend payment. This was unsustainable...Treasury knew it, FnF knew it, and DeMarco knew it. So it was agreed that if FnF were not profitable each quarter, there would be no dividend payment due (e.g. no requirement to borrow more cash). Yes, the major downside was that FnF would have to turnover all profits in the meantime.
But what would our outstanding balance owed to the Treasury look like had the 3rd amendment sweep not been enforced? We would still owe a significant amount. Of course, the recent surging profitability of FnF would make their balance sheets look incredible and that would benefit shareholders immensely. However, we would still be hampered by seemingly endless monthly dividend payments to Treasury.
I may be alone in this thinking, but I think DeMarco made a smart decision. He basically allowed all of FnF's profits to go straight back to the Treasury for what has or will be ~1+ year. Once he can address Congress by saying "Look...we sent an equal payment in full" he will now have a much better bargaining chip for conservatorship termination with Congress and likely adopt support from main street. To top it off, by enacting the 3rd amendment sweep in this particular timeframe, he took advantage of the Treasury's quantitative easing policy to dump $85B a month into bonds and MBS (much of which directly benefits FnF).
But you're correct, perhaps in the end, DeMarco doesn't really care about the shareholders and only cares about carrying out his conservatorship plan for his own political bolstering. Time will tell...
Hi MB,
I may have to disagree with you. It seems to me that DeMarco at least has some kind of plan toward reducing the GSE's footprint, bringing in private capital to the market, and implementing a common securitization platform to consolidate the technical assets and experience of FnF. DeMarco has repeatedly stated that the GSE's cannot remain in conservatorship forever. The longer the c-ship drags on, the greater the push will be to free them. It will still be a long, winding road though full of difficult decision on how to unwind such large bedrocks of the current mortgage system without disrupting liquidity and affordable access.
Watt on the other hand is a wildcard at this point. To me, it seems that he would be happy to let FnF rot in c-ship, as long as the profits keep flowing to the Treasury. Once Treasury has been paid an amount equivalent to the bailout (i.e. net zero), I could very likely see Congress using FnF's profits indefinitely to fund a new mortgage system. Once the system is capitalized enough on the backs of FnF, I could very likely see FnF being liquidated or at least significantly wound down. However, the recent Democratic outcry for possibly preserving FnF in some form (Reid, Warren, Menendez) and the direct opposition of the Republican party to confirm Watt, does make me question whether he would be a good candidate. By good, I mean beneficial to current shareholders. Like I said, a complete wild card at this point.
Of course, this is all my opinion. The political landscape and market psychology can change so quickly on these issues.
Fannie Mae Revivalist - WSJ
Oct. 30, 2013 7:20 p.m. ET
The Obama Administration has tried for years to oust career employee Edward DeMarco from the helm of the Federal Housing Finance Agency (FHFA), the chief regulator for Fannie Mae FNMA -8.68% and Freddie Mac. FMCC -9.40% The idea is to get a loyalist in charge who is more willing to take political orders. The latest White House nominee is coming up for a Senate vote as early as Thursday, and Republicans have good reasons to block him.
President Obama wants North Carolina Congressman Mel Watt to run the FHFA, an obscure institution with enormous discretionary power. Since 2008 the agency has acted as the conservator for Fannie and Freddie and overseen the 12 Federal Home Loan Banks. FHFA oversees 48% of all outstanding U.S. mortgages and 77% of those issued last year—all taxpayer guaranteed—and Fan and Fred have $5 trillion in mortgage business.
Mr. DeMarco has interpreted the FHFA mandate to "preserve and conserve" the agency's assets to include protecting taxpayers. He has tightened underwriting standards, doubled guarantee fees, shrunk Fan and Fred's mortgage portfolios and prohibited the mortgage giants from entering new businesses.
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North Carolina Rep. Mel Watt Bloomberg
He has also championed the return of a private mortgage insurance market and—most important—refused Obama Administration calls for mass writedowns on loan principal. Democrats favor the writedowns as a political sop to some homeowners, but Mr. DeMarco rightly says this would be unfair to borrowers who pay their bills on time as well as to taxpayers who would underwrite the losses.
Meanwhile, Fannie and Freddie are minting money again because of their market oligopoly, and the political impetus to reform is diminishing. Last year Congress used the agencies to pay for an extension of a payroll tax cut, and the Administration has seized Fan and Fred's profits.
Wall Street hedge funds betting on a revival of Fan and Fred have also re-emerged as champions of the toxic titans. They want to recreate the Wall Street-Washington nexus that made the giants so politically untouchable before the panic.
As for Mr. Watt, he's spent 20 years in the House encouraging the practices that got Fannie and Freddie into trouble. As a senior member of the Financial Services Committee, he followed Barney Frank in supporting Fan and Fred's affordable housing goals and lax underwriting, as well as taking campaign contributions from the toxic twins.
Mr. Watt is also notably coy about how he'd manage Fan and Fred while Congress figures out what to do with them. In an interview with this newspaper in May, Mr. Watt said he "didn't know" what the biggest differences would be between his approach and Mr. DeMarco's, what the mission of FHFA was, nor what are the biggest challenges facing the agency.
This isn't surprising because Mr. Watt is a civil-rights lawyer who lacks the minimum experience required by the FHFA conservator statute. The Housing and Economic Recovery Act of 2008 says the conservator shall "have a demonstrated understanding of financial management or oversight, and have a demonstrated understanding of capital markets, including the mortgage securities markets and housing finance." The word "demonstrated" does not suggest on-the-job training.
On June 24, 2010, Mr. Watt asked at a Congressional conference committee: "Can somebody explain to me what's in Tier 1 capital?" and "I just don't have enough knowledge in this area to understand." In December 2011 he said that, despite his Financial Services slot, "I didn't know a damn thing about derivatives. I am still not sure I do."
One reason Fan and Fred went belly up is that they didn't hire experts in finance. They deliberately hired CEOs who were experts in politics to protect their government guarantee. That's Mr. Watt. As recently as last December, he joined other Members of Congress in writing to House leaders urging that budget talks include "assistance to homeowners who are currently underwater on their mortgages," including the Fan and Fred principal writedowns that Mr. DeMarco has resisted. Mr. Watt now says he'd have different obligations at FHFA, but he has refused to rule out writedowns.
As FHFA director he'd also have the power to steer Fan and Fred profits to a new affordable housing "trust fund" created in 2008. Mr. DeMarco has never done so, preferring to repay taxpayers first. But Mr. Watt has pointedly refused to commit himself on the trust fund, which Mr. Frank designed to channel cash to left-wing groups like Acorn and its cousins.
Congress may finally try to pass housing-finance reform in the coming months, including Fan and Fred. If Republicans confirm Mr. Watt, they'll reduce the negotiating incentive for Democrats who will figure they can accomplish their political goals through Mr. Watt. The least GOP Senators should do is keep Mr. DeMarco on the job until a reform is passed. It's bad enough putting an amateur in charge of a $5 trillion business, but it's worse when that amateur's main expertise is politics.
News! "Fannie Mae Revivalist: The Obama Administration tries again to turn on Fan's easy money spigots."
It's WSJ, so if somebody has access and can post, it would be appreciated.
http://online.wsj.com/news/articles/SB10001424127887324744104578473241814423124
Yeah. Allow me a minute to put on my tinfoil hat, but to be that pinpoint accurate you either have to know who's dumping at what time or be part of it. To accurately call it on both FNMA and FMCC makes me even more skeptical.
In any case, props to the guy for at least notifying everyone, unless it was out of pure narcissism.
For the record, I could give a $hit...long & strong. I just want people to be aware that they need to look out for themselves.
I guess that's one way to take it. If I had that kind of foresight, I'd just play the lottery.
Yep. They can walk it up and run it down. Follow the bouncing ARCA.
http://www.fanniemae.com/portal/about-us/media/speeches/2013/speech-mayopoulos-2013mba.html?p=Media&s=News+Releases&from=RSS
I know this has been posted just recently, but I think it's extremely significant. If I recall correctly, it's the first time that Fannie itself has hinted at being necessary for the future housing market, despite the reform that needs to take place. It demonstrates that they are willing to fight to remain a company. I'm betting that they are feeling more confident as they approach dividend payments equal to Treasury withdraws (i.e. net zero).
I can see pro-FnF politicians, industry leaders, and lobbyists rallying around this speech for GSE reform (not shutdown), affordable access to the 30-year fixed mortgage, and conservatorship termination. It's still going to be a long, bumpy road, but a VERY positive sign, IMHO.
RSI down to 58. She's still got some room to run, I think...
Freddie about to cross $2. I wonder if we see a slight pullback here, seeing as these two are so intimately linked?
I'm not a chartist, but I love the way the price bounced off of 1.91. Previous intraday bounce was 1.89. Higher lows and higher highs (hopefully!).
Do you think that $2 triggered a lot of sell orders? Thus the quick drop? Should we expect a lot more selling at the $2 mark?
She's trying to make a run to cross $2 right now. 1.97's up soon.
Insane 700k on the bid at 1.76
Bids stacking! Trying to take out HOD!
Damn those bids are stacking quickly!
Nice 105k slap at 1.54.
Here comes the 1.64 test. I wonder if she can do it on relatively weak volume?
Long since the 0.20's...
Here we go. 1.65s coming up!
Let's see if we get some late day buying pressure, a la Friday's last minute buys...
Monday is Columbus Day, but markets are open.
http://www.otcmarkets.com/market-hours
Here comes the 1.64 test
Haha. I love it.
If FnF are responsible for funding this new joint venture, then doesn't that equate to less money in the pockets of current FnF shareholders? Or would it just be considered part of their business?
It really has nothing to do with poor people, per se. Plenty of middle to upper-middle class families were susceptible to the same shoddy mortgage underwriting standards encouraged by the banking industry. It had more to do with people living outside their means than their socioeconomic class.
But you're correct, fix the qualification enforcement and you greatly reduce the risk associated with said mortgages. To my knowledge, FnF along with other banks have been attempting to do this.
Here comes the 1.40's...one hell of a wall too!
Nice 100k block buy at 1.34
For anybody believing the "breaking news" that FnF will consolidate into one entity, please see this link:
http://www.fhfa.gov/webfiles/23438/execcomp3912f.pdf
It's the GSE scorecard report dated: 09 Mar 2012
One page 3, you will find the following:
"In collaboration with FHFA and the other Enterprise, develop and finalize a plan by December 31, 2012, for the design and build of a single securitization platform that can serve both Enterprises and a post-conservatorship market with multiple future issuers."
Therefore, plans to consolidate FnF into one entity, as stated by the FHFA, have been proposed for nearly 2 years with essentially no changes. Therefore, I would advise against holding one's breath for said changes in the meantime.
Agreed. The collective blatant deceit is borderline unethical.
Yes, you are absolutely right. I stand corrected.
Whether you interpret this as "against the bill" he sponsors, is up to interpretation. But I think this is what members on here are referring to:
http://thehill.com/blogs/on-the-money/1091-housing/311645-warner-deems-houses-mortgage-finance-bill-doa
In fact, Warner himself refers to the co-sponsored bill as an "ideologically pure exercise" that will not receive Democratic support.
Seems to me that Warner knows that the Corker-Warner housing reform bill (as is currently) is unpalatable. Specifically, it would derail the housing market, end the 30 yr fixed mortgage, and slow securities buying.
http://jimhamiltonblog.blogspot.com/2013/08/senators-warner-and-corker-explain.html
Somebody please post that no after hours trading on OTC video... Better yet, can somebody get that thing to auto-post at closing bell every day?
It closed at 1.16. HOD was 1.18.
You might want to think about selling some more of those short 1.03's...
Huge buys rolling in now...
There was never an indication of my agreement with his views. I was simply stating the alternative proposals he listed. Obviously he has his preferred course of action--one man's opinion. As such, I do not agree with his choice of action. Again--one man's opinion.
The ability to conceive alternative scenarios and provide arguments for a preferred action is logically superior than blindly pumping a theory. Many on this board could use a bit of that.
To be fair, receivership is not the only possible course of action that Zandi proposed:
1) Most forward route is to recapitalize and reprivatize FnF.
Pros: easiest, least amount of change.
Cons: could lead to the same eventual monopoly in place today.
2) Put FnF into receivership and liquidate all assets.
Pros: Allow new investors to purchase FnF's assets and begin new mortgage system.
Cons: extremely risky and uncertain ability of new guaranteers to perform at a level comparable to FnF. Would likely severely disrupt the mortgage finance system.
3) Put FnF into receivership, strip them of key assets, and recharter them as new private entities able to buy back securities from the receiver.
Pros: Would not disrupt mortgage finance system, smooth transition, and level playing field for competition.
Cons: FnF's legacy book of mortgages ($4.5 TRILLION) would have to go on the govt's balance sheet.
As an academic, I think he did a good job of listing several possible approaches. Obviously he has his favorite, but the final decision is far from his sole choosing.
http://www.banking.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=e11b481b-1c9f-49f8-acd5-b062387038a7