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They do provide more buying opportunities.
Go FnF!
True enough for long term ____ years. (You fill in the blank) share holders. Yet anybody who does the research and has the guts can make a bundle in relatively short order from current share price. (My opinion)
Go FnF!
Every time it is beaten down I end up with more shares. My way of having little victories along the way.
Go FnF!
My $2.80 order filled. I will throw them in a drawer with the rest of my shares.
Go FnF!
U.S. housing finance agency to revisit key Fannie, Freddie capital rule
Tuesday, November 19, 2019 2:36 p.m. EST
WASHINGTON (Reuters) - The U.S. housing finance regulator on Tuesday said it planned to re-issue new capital rules for mortgage giants Fannie Mae and Freddie Mac next year, in a development that is likely to slow the pair's removal from government control.
The Federal Housing Finance Agency (FHFA) said it would again propose the rule first unveiled in July 2018 in light of the administration's decision to begin rebuilding the mortgage giants' capital bases as part of a broader plan to ultimately remove them from government conservatorship.
The decision means the proposed rule may be changed and would have to be submitted to another round of consultation and public feedback, before being finalized. The entire process could take several months.
"In fairness to all interested parties, the comments submitted during the previous rulemaking were submitted under a different set of assumptions about the future of the enterprises," said FHFA director Mark Calabria in a statement.
Fannie and Freddie, which guarantee over half the nation’s mortgages, have been in conservatorship since they were bailed out during the 2008 financial crisis, with their earnings being swept into the Treasury's coffers. Washington has since struggled to agree on a plan to get them back on their feet.
In September, the Trump administration unveiled a blueprint to recuperate them, with FHFA and the Treasury saying the pair would be allowed to retain a total of $45 billion in earnings going forward. Analysts estimate that the pair may need more than $100 billion in capital, although the final figure is largely contingent on the outcome of the FHFA capital rule.
Calabria has previously said he hopes the pair may be released from government control within the next five years.
https://wkzo.com/news/articles/2019/nov/19/us-housing-finance-agency-to-revisit-key-fannie-freddie-capital-rule/959032/?refer-section=national
Fannie, Freddie Regulator Launches Process for New Capital Requirements at Mortgage-Finance Firms
Under 2018 version of capital requirements, Fannie and Freddie would have been required to raise up to $180 billion
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Mortgage-finance companies Freddie Mac and Fannie Mae have been under government control since the financial crisis.PHOTO: ANDREW HARRER/BLOOMBERG NEWS
By
Andrew Ackerman
Nov. 19, 2019 2:51 pm ET
WASHINGTON—Fannie Mae and Freddie Mac’s federal regulator kicked off a process for the mortgage-finance companies to raise enough capital to return them to private ownership.
The Tuesday announcement by the Federal Housing Finance Agency is a sign it thinks the companies likely need more than the $180 billion in capital, as previously envisioned by the agency.
The...
https://www.wsj.com/amp/articles/fannie-freddie-regulator-launches-process-for-new-capital-requirements-at-mortgage-finance-firms-11574193078
FHFA will re-propose capital rule for Fannie, Freddie
By Hannah Lang
PublisheNovemberber 19 2019, 2:30pm EST
WASHINGTON — The Federal Housing Finance Agency will re-propose the entire post-conservatorship capital framework originally put forward in June 2018 under former agency director Mel Watt, and expects to release a revamped plan sometime next year, the agency said Tuesday.
Because Fannie Mae and Freddie Mac are now permitted to retain significantly higher levels of capital than they had when Watt originally iss
https://www.americanbanker.com/news/fhfa-will-re-propose-capital-rule-for-fannie-mae-freddie-mac
Are all preferred getting a buzz cut? I only follow fnmas.
Is it a last minute attack before the Sweeney news?
I don't know but I have a buy order in at $2.80
Go FnF!
Economic Outlook for 2020 Upgraded Despite Prominent Downside Risks
Housing Expected to Remain Supportive Through the First Half of Next Year
https://www.fanniemae.com/portal/media/corporate-news/2019/economic-housing-outlook-111819-6952.html
Fannie/Freddie Research Report Dispells False Narratives
Nov. 18, 2019 3:04 PMFederal National Mortgage Association (FNMA)FMCC
Summary
Josh Rosner's Graham Fisher commentary speaks to the difference between publicly available market commentary and what the administration is actually planning to do.
For the past decade, there have been lots of things said about Fannie and Freddie by lots of various parties, not all of which is true or accurate.
Josh Rosner's commentary, in my opinion, is the gold standard and he has a very aggressive implementation timeline for getting Fannie and Freddie ready to exit conservatorship.
Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) are two of the most profitable companies in the United States and they have been under the government's thumb since 2008 when they were placed into conservatorship. The Federal Housing Finance Agency (FHFA) is now headed by Mark Calabria who helped write the law (HERA 2008) that governs the agency and the conservatorships. The government has taken all of their money for itself since placing them into conservatorship until Trump got elected. At the end of 2017, they were allowed to hold a $3B capital buffer. At the end of September of this year that $3B was boosted to $25B and $20B for Fannie and Freddie respectively. The companies now retain their earnings but for each dollar they retain, the government's senior preferred liquidation preference also goes up by $1. In other words, the net worth sweep is still very much in effect. The net worth sweep prohibits the companies from being able to raise capital and Calabria has talked about a fourth amendment sometime early next year. There has been a lot of debate over timelines, and Josh Rosner shows reporters have been confusing the difference between the time where the companies exit conservatorship and when the companies have reached FHFA's forthcoming regulatory capital requirements and the expected consent-decree agreements are terminated:
?
Investment Thesis: This is a recapitalization story. The government still is in complete control over what's happening despite the fact that plaintiffs are now winning the lawsuits on multiple fronts. The thing about government lawsuits is that they take years to work through the system and get to the point where they can no longer be appealed and the government has been taking billions of dollars per year from Fannie and Freddie which more than offsets their legal costs of defending that taking. Nevertheless, the government is now letting the two companies Fannie Mae and Freddie Mac retain more capital with the publicly stated intention of eventually leaving conservatorship. The government has an equity position in the two companies comprised of Senior preferred stock and 79% warrants. I presently own 100% junior preferred stock and expect to convert to common sometime next year as part of settling the lawsuits and raising new capital.
Graham Fisher Commentary
Josh Rosner's Graham Fisher put out a brief this past week demonstrating that for the most part that lots of people still don't understand what's going on here because they don't accurately factor in the context of what has previously been said by whom. Josh Rosner points out that Director Calabria stated that the GSEs should retain earnings for 1-1.5 years and that they have been effectively retaining earnings since April 1:
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Josh Rosner then talks about the timeline for next steps:
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Josh Rosner also speaks to some of the concerns that I hear from time to time from larger investors, specifically if they will be able to get this done in time for the elections next year:
?
What This Means To Your Portfolio
Well, if you don't own Fannie and Freddie preferred, you probably should consider it. Although it is the only thing I own and I basically have a million dollars in it (aka all my eggs in 1 basket; therefore, making it the bane of my existence), for you - you might consider this to be a speculative position. Right now, the preferred stock trades at less than 50 cents on the dollar and that's not half bad.
Fox New's Charlie Gasparino points out that there has been lots of selling of this stock lately because of other stocks held by investors who own Fannie and Freddie preferred crashing:
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This is more of a short-term thing. Eventually, the liquidations and redemptions will come to an end. On a technical level, the junior preferred and common stock still basically are worthless because of the net worth sweep and massive liquidation preference of senior preferred stock. That said, it is impossible for the companies to raise capital with the net worth sweep in place and no one is going to put money into these companies until the lawsuits are settled. The prevailing consensus among those who are in the know is that the senior preferred will be declared paid back. If so, the warrants could be worth anywhere between $50 billion and $150 billion by some estimates. From warrant valuations, you can deduce what the commons might be worth if senior preferred aren't converted. $50-150B translates to $7-20.
I figure new money would prefer to get the lowest price possible (and consequently the most upside), so I end up on the low end of that valuation. As such, assuming the senior preferred do not convert to common it looks like the common shares have similar upside with the preferred shares. Whether the junior preferred shares convert, convert at par, or convert at par plus to resolve the breach of implied covenant claims in Lamberth's court remains to be seen.
With this in mind, noting that we should expect the final capital rule and the SPSPA fourth amendment in the next four and a half months, the junior preferred will have clear value in the face of a recapitalization. As such, I anticipate that the fourth amendment leads to a junior preferred valuation of 70-80% of par if not more (aka to settle the Lamberth court cases for damages). FNMAS currently trades at 43% of par, so that's 50-100% returns in the next ~5 months. The theory is common shares have similar upside/returns. Historically, commons go up faster and preferred go down faster in any particular event.
In the coming weeks, we will learn more about the finalization of the capital rule, but if you ask me, it sounds like it is going to get re-proposed and finalized early next year.
Summary and Conclusion
As Fannie and Freddie move towards recapitalization so that Fannie and Freddie can exit conservatorship, the government remains in complete control of staging an outcome. The government needs to play nicely with investors if it wants to attract new money. The government has already said that they need to raise new money and plan to allow the companies to exit conservatorship via consent decree:
https://seekingalpha.com/amp/article/4307547-fannie-freddie-research-report-dispells-false-narratives
Court Orders Treasury to Produce Documents in Fairholme (GSE) Case
November 18, 2019
Dennis Hollier
The Treasury Department argued producing the documents would be “unduly burdensome” and “disproportionate to the needs of the case.”
https://www.insidemortgagefinance.com/articles/216414-court-orders-treasury-to-produce-documents-in-fairholme-gse-case?v=preview
Like, oh my god of course she does. Haven't you seen her wardrobe and makeup? For real she is the bomb!
I have dry powder if we get another gift of $2.80 or lower! Every time the herd gets spooked I make money!
Go FnF!
Good information to help longs stay the course. Steady on SIR!
GO FnF!
Calabria Hints at End Date for Conservatorships
November 14, 2019
Dennis Hollier
FHFA Director Mark Calabria said to exit conservatorship Fannie Mae and Freddie Mac will have to be adequately capitalized and make appropriate changes to their culture.
https://www.insidemortgagefinance.com/articles/216376-calabria-hints-at-end-date-for-conservatorship
Fannie and Freddie Clearing the Decks for Eventual Stock Offering?
November 14, 2019
Paul Muolo
One of these days, the two mortgage giants will commence with a new stock offering. Right? The market seems to be betting on the fact, as are the government-sponsored enterprises.
https://www.insidemortgagefinance.com/articles/216369-fannie-and-freddie-clearing-the-decks-for-eventual-stock-offering
Is it possible for govt to request more time. That seems to be their go to plan. Maybe Sweeney has had enough of their b.s. excuses.
Sorry, I have no answers. I only have more speculation and more questions.
Go FnF!
TRUMP ADDRESSES THE ECONOMIC CLUB OF NEW YORK
Douglas Holtz-Eakin
Eakinomics: Trump Addresses the Economic Club of New York
Today the president addresses the Economic Club of New York, and everyone is looking for information on the outlook for two major trade policies: (a) Is there a “phase one” deal with China, and (b) Has the president shelved the idea of auto tariffs?
https://www.americanactionforum.org/daily-dish/trump-addresses-the-economic-club-of-new-york/
Read more: https://www.americanactionforum.org/daily-dish/trump-addresses-the-economic-club-of-new-york/#ixzz655NjWBn7
Follow us: @AAF on Twitter
NOBODY IS SELLING!
Go FnF!
“An accounting irregularity bordering on fraud”, Fannie Mae, Freddie Mac contradict themselves over net worth sweep
POSTED BY: MICHELLE JONES NOV 10, 2019, 9:10 AM EST
The net worth sweep continues to be a topic of major debate for Fannie Mae and Freddie Mac shareholders. On one hand, there are plenty of reports that the net worth sweep is over, but on the other, the government-sponsored enterprises’ financial reports seem to say something different. Bank analyst Dick Bove of Odeon Capital describes Fannie’s and Freddie’s latest reporting as “an accounting irregularity bordering on fraud.”
Fannie Mae senior preferred stock
Image source: Fannie Mae
Government is unwilling to do anything for shareholders
He argues that the government wants total control over the recapitalization and release of the GSEs and over their operations “for now and the future.” He also said that the courts will be the ones to provide “meaningful gains” for shareholders in the fight against the net worth sweep.
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Q3 2019 hedge fund letters, conferences and more
Bove also believes that some assumptions many shareholders are making are just wrong. For example, he doesn't expect that the government will ever concede that the senior preferred shares and their dividends have been paid. He noted that during the Senate hearings, it became clear that the Treasury secretary believes the U.S. government is a creditor of Fannie Mae and Freddie Mac even though there is no outstanding debt. In Bove's view, it looks like Secretary Steven Mnuchin sees the senior preferred shares owned by the government as debt rather than preferred equity.
He also believes the government will "take a hefty fee for providing any guarantees to Fannie Mae and Freddie Mac."
Contradictions in Fannie's and Freddie's filings
The Fifth Circuit Court ruled that the net worth sweep was unconstitutional, but the Treasury Department has asked the Supreme Court to review that decision. While it's true that the GSEs are being allowed to retain more capital, Bove spoke out again against what he has previously termed as "accounting chicanery." He called attention to several statements in Fannie Mae's and Freddie Mac's earnings reports and regulatory filings.
On the income statement in Fannie's 10Q filing for the third quarter, the GSE states "Dividends distributed or amounts attributable to senior preferred stock - $3,977 {million}. Net income (loss) attributable to common stockholders ($14 {Million}). On the second page of the same filing, it states "… no dividends were payable on the senior preferred stock for the third quarter of 2019 … no dividends will be payable for the fourth quarter of 2019."
He noted a similar contradiction in Freddie Mack's 10Q filing for the third quarter. It stated: "Undistributed net worth sweep, senior preferred stock dividends, or future increase in senior preferred stock liquidation preference - $1,848 {million}. Net income (loss) attributable to common stockholders ($139 {million}). On the second page of the same filing, it states " We were not required to pay a dividend on the senior preferred stock to the Treasury on September 30, 2019 … and we will not have a dividend requirement to the Treasury in December 2019 …"
"The reason that this approach is being taken is simple," Bove wrote. "By refusing to acknowledge that a dividend has been paid the two companies do not have to lower their retained earnings to reflect the fact that they both lost money in the quarter. Instead they raised their retained earnings by the amounts of the dividends that they show were paid but claim were not paid."
Bove also wondered why the Securities and Exchange Commission is not questioning something else in the filings. Both GSEs list two different sets of senior preferred stock. Fannie has $120.6 billion in senior preferred stock and $6.4 billion in senior preferred stock with a liquidation preference. Freddie has $72.6 billion in senior preferred stock and $4.8 billion in senior preferred with a liquidation preference. Bove states that these two groups should be the same, so it's unclear why they are listed separately.
Senior Preferred Stock Are Quasi-bonds
The bank analyst still recommends holding preferred shares of Fannie and Freddie but continues to rate their common shares as a Sell.
"Once all of the sound and fury related to legal and governmental issues are over the primary factor that will drive their stock prices will be interest rate shifts," Bove clarified. "These are equities that are really quasi-bonds. At this moment, however, investors in these stocks are buying into a lawsuit and/or the potential actions of a governmental bureaucracy."
https://www.valuewalk.com/2019/11/fannie-mae-freddie-mac-senior-preferred-stock/
I may take some of those shares. I get a few more every time.
Go FnF!
The swamp is as big as the everglades.
Home Purchase Sentiment Still Strong Despite Second Straight Decline
Fewer Americans Believe It's a "Good Time to Buy," but the HPSI Remains Near Its Survey High
NEWS PROVIDED BY
Fannie Mae
Nov 07, 2019, 08:30 ET
WASHINGTON, Nov. 7, 2019 /PRNewswire/ -- The Fannie Mae (OTCQB: FNMA) Home Purchase Sentiment Index® (HPSI) decreased 2.7 points in October to 88.8, further retreating from the survey high set in August. Five of the six HPSI components decreased month over month, including a net 7-percentage point drop in the "Good Time to Buy" component and a net 5-percentage point drop in the "Household Income is Significantly Higher" component.
"Consumer home purchase sentiment remains robust, with the HPSI still near its survey high despite dipping for a second consecutive month," said Doug Duncan, Senior Vice President and Chief Economist. "The 'good time to buy' component has declined notably, despite low mortgage rates, due in part to the persistent challenge of a lack of affordable housing supply. In turn, the net share of consumers expecting home prices to increase over the next 12 months has fallen to its lowest reading in seven years. Still, low mortgage rates and a strong labor market are supporting the index's overall strength, which is consistent with our expectation for a modest expansion in home purchase activity in the fourth quarter."
HOME PURCHASE SENTIMENT INDEX – COMPONENT HIGHLIGHTS
Fannie Mae's 2019 Home Purchase Sentiment Index (HPSI) decreased in October by 2.7 points to 88.8. The HPSI is up 3.1 points compared to the same time last year.
The net share of Americans who say it is a good time to buy decreased 7 percentage points to 21%.
The net share of those who say it is a good time to sell fell 3 percentage points to 41%.
The net share of Americans who say home prices will go up fell 2 percentage points to 27%, continuing the decline that started in June.
The net share of Americans who say mortgage rates will go down over the next 12 months fell 2 percentage points to -25%.
The net share of Americans who say they are not concerned about losing their job increased 3 percentage points to 72%.
The net share of those who say their household income is significantly higher than it was 12 months ago fell 5 percentage points to 16%.
ABOUT FANNIE MAE'S HOME PURCHASE SENTIMENT INDEX
The Home Purchase Sentiment Index (HPSI) distills information about consumers' home purchase sentiment from Fannie Mae's National Housing Survey® (NHS) into a single number. The HPSI reflects consumers' current views and forward-looking expectations of housing market conditions and complements existing data sources to inform housing-related analysis and decision making. The HPSI is constructed from answers to six NHS questions that solicit consumers' evaluations of housing market conditions and address topics that are related to their home purchase decisions. The questions ask consumers whether they think that it is a good or bad time to buy or to sell a house, what direction they expect home prices and mortgage interest rates to move, how concerned they are about losing their jobs, and whether their incomes are higher than they were a year earlier.
ABOUT FANNIE MAE'S NATIONAL HOUSING SURVEY
The most detailed consumer attitudinal survey of its kind, Fannie Mae's National Housing Survey (NHS) polled approximately 1,000 Americans via live telephone interview to assess their attitudes toward owning and renting a home, home and rental price changes, homeownership distress, the economy, household finances, and overall consumer confidence. Homeowners and renters are asked more than 100 questions used to track attitudinal shifts, six of which are used to construct the HPSI (findings are compared with the same survey conducted monthly beginning June 2010). As cell phones have become common and many households no longer have landline phones, the NHS contacts 70 percent of respondents via their cell phones (as of January 2018). For more information, please see the Technical Notes. Fannie Mae conducts this survey and shares monthly and quarterly results so that we may help industry partners and market participants target our collective efforts to stabilize the housing market in the near-term, and provide support in the future. The October 2019 National Housing Survey was conducted between October 1, 2019 and October 23, 2019. Most of the data collection occurred during the first two weeks of this period. Interviews were conducted by PSB, in coordination with Fannie Mae.
DETAILED HPSI & NHS FINDINGS
For detailed findings from the October 2019 Home Purchase Sentiment Index and National Housing Survey, as well as a brief HPSI overview and detailed white paper, technical notes on the NHS methodology, and questions asked of respondents associated with each monthly indicator, please visit the Surveys page on fanniemae.com. Also available on the site are in-depth special topic studies, which provide a detailed assessment of combined data results from three monthly studies of NHS results.
https://www.prnewswire.com/news-releases/home-purchase-sentiment-still-strong-despite-second-straight-decline-300953137.html
Yep!
Go FnF!
Sitting on/ saving/ hoarding/ strategically patiently preparing/ amassing/ anything but squandering
Confidential directives? Why confidential?
Milliman analysis: Default risk for government-backed mortgages decreases in 2019 Q2 as low interest rates spur borrowers to refinance
PRESS RELEASE PR Newswire
Oct. 30, 2019, 01:00 PM
SEATTLE, Oct. 30, 2019 /PRNewswire/ -- Milliman, Inc., a premier global consulting and actuarial firm, today announced the second quarter 2019 results of the Milliman Mortgage Default Index (MMDI), which shows the latest monthly estimate of the lifetime default risk of U.S.-backed mortgages. The goal of the MMDI is to provide a benchmark to understand trends in U.S. mortgage risk.
As of July 1, 2019, the MMDI for government-sponsored enterprise (GSE) acquisitions (purchased and refinanced loans backed by Freddie Mac and Fannie Mae) decreased to an estimated average default rate of 1.99%, down from 2.01% in Q1. This means that for the average Freddie or Fannie mortgage that originated in Q2 2019, there is a 1.99% probability the loan will become 180 days delinquent or worse. To put that in context, equivalent research from Freddie Mac shows the actual to-date default rate of GSE mortgages originated in 2007 (shortly before the financial crisis) was 13.8%.
"Low interest rates in Q2 spurred more borrowers to refinance, which typically reduces credit risk for underlying mortgages," says Jonathan Glowacki, principal and consulting actuary at Milliman and co-author of the MMDI. "But while the default rated dipped slightly in the second quarter of this year, we're also starting to see increased economic risk from slower home price growth, which may elevate mortgage default risk in the future."
For Ginnie Mae loans, the Q2 2019 MMDI rate increased from 8.09% in Q1 to 8.15% in Q2. This uptick is consistent with the overall trend for these loans, as default risk for Ginnie Mae acquisitions has been rising since 2014. Default risk is driven by various factors including the risk of a borrower taking on too much debt, underwriting risk such as certain mortgage features, and economic risk such as a recession, which can put pressure on home prices.
For more information on the MMDI go to https://www.milliman.com/mmdi/.
https://markets.businessinsider.com/news/stocks/milliman-analysis-default-risk-for-government-backed-mortgages-decreases-in-2019-q2-as-low-interest-rates-spur-borrowers-to-refinance-1028644986
What’s at Stake in the Constitutionality CFPB Case
in Daily Dose, Featured, Government, News 6 mins ago
?As the The U.S. Supreme Court prepares to hear the appeal of a California law firm that argues the Consumer Financial Protection Bureau (CFPB) is unconstitutionally structured, American Enterprise Institute Senior Fellow Peter J. Wallison argues that there is more at stake than just the constitutionality of the Bureau.
On Real Clear Politics, Wallison argues that this CFPB case is an example of Congress enacting “broadly phrased laws, essentially delegating the key legislative choices to administrative agencies and violating the Framers’ constitutional plan of separation.”
Additionally, he states that the Dodd-Frank Act is another “dangerous step.”
“First, it gives the CFPB’s director a five-year term of office, protected from removal by the president other than for ‘inefficiency, neglect of duty, or malfeasance,’” Wallison said. “This places the director outside the control of the president, whose ability to pursue the policies he was elected to implement depends crucially on the ability to remove and replace the senior officials of executive agencies.”
This means, according to Wallison, that this case is a prime opportunity to make a clearer separation of powers.
The law firm named in the case, Seila Law, alleges that the structure of the agency grants too much power to its director. According to court papers, given the CFPB’s broad law enforcement powers, the fact that the president may only remove the director of the CFPB “for inefficiency, neglect of duty, or malfeasance in office” is unconstitutional. As Wallison says, “the president has the power through the appointment and removal of executive officials to carry out the policies he was elected to pursue.” In May, the CFPB beat Seila Law before a panel of the 9th U.S. Circuit Court of Appeals.
“Seila Law contends that an agency with the CFPB’s broad law-enforcement powers may not be headed by a single Director removable by the President only for cause. That argument is not without force,” Circuit Judge Paul Watford wrote for the court.
https://dsnews.com/daily-dose/10-30-2019/whats-at-stake-in-the-constitutionality-cfpb-case
I think that he said that release does not require congressional approval. Therefore he will not wait for congress to do what Congress has already approved the FHFA to do. RELEASE
Go FnF!
When the market gives you lemmings...
Make LEMMINGADE
Go FnF!
Every time these knee jerk reaction sell offs occur I buy more! They are gifts if you are truly holding long. Of course over time you may become overweighted in FnF! There have been so many of them.
Go FnF!
Well people I just got 1100 shares for $2.80. I never thought that would happen again. I am saving some powder in case this crazy town action continues.
Go back up FnF!
If you have owned the twins for years as I have, you are used to this. FnF have been and will continue to be news/rumor driven. It sucks or it is great. We are used to it. I will purchase more tomorrow (probably). I could not follow along today but I will tomorrow. If it is getting pushed down I will wait for it to start back up. It would be amazing to get more shares at $3.00 or so.
Some day we will be able to use fundamentals. By that time we will be very happy.
Go FnF!
There’s light at the end of the tunnel for GSE Investors
? Michelle Jones
October 21, 2019 11:09 am EST
The battle over Fannie Mae and Freddie Mac and the net worth sweep has dragged on for many years, but progress toward a resolution is finally being made. It looks like their conservatorship is another step closer to ending, although there is still a long road ahead. In an interview, Tim Pagliara of CapWealth and Investors Unite told ValueWalk that the Federal Housing Finance Agency’s decision to halt the net worth sweep is an important step in the process.
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Image source: Fannie Mae
Looking beyond the net worth sweep
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??
Q3 2019 hedge fund letters, conferences and more
"FHFA’s recent decision to halt the illegal Net Worth Sweep and allow them to rebuild capital means less exposure for taxpayers," he said. "It sets the stage for an end to the conservatorship and the adoption of reforms in housing finance. The law gives the Administration considerable authority to implement reforms."
Although some of the progress in the case of the government-sponsored enterprises may have discouraged some investors, the fact that the courts are on their side is definitely a good sign.
"The courts seem to be coming around to the conclusion that the Net Worth Sweep exceeded the statute," Pagliara said. "By extension, this means taxpayers and shareholders were ill-served by the arbitrary decision by unelected officials to use the GSEs’ profits as a slush fund."
Although a court ruled against the FHFA and net worth sweep, the FHFA has been moving forward as if nothing has happened. However, Pagliara still says progress is being made, even if it's hard to see it.
Tim Pagliara on court battles
"As long as there were multiple suits working their way through the courts and no consensus on a way to end the conservatorship, inaction was unavoidable," he explained. "I think the ice jam has been broken with the most recent ruling in Collins vs FHFA, and the decision to let the GSEs retain capital. But that does not mean the policymaking process is clear of all obstacles."
He also says it's high time the battle over Fannie Mae and Freddie Mac is settled.
"The conservatorship and the Net Worth Sweep has been a stain on the government for over a decade," he said. "On the other hand, internal reforms have the GSEs leaner and less prone to financial mismanagement. The economy is doing well and the GSEs will start building up buffer capital. I hope we can put this behind us."
In the long run, he does eventually expect things to get back to normal with Fannie Mae and Freddie Mac once they exit conservatorship. He explained why the GSEs are so crucial to the housing market.
"Investors have to believe the rule of law will be upheld in order to participate in markets," Pagliara said. "Solvent, well-run GSEs are likely to remain critical to keeping the housing finance market liquid and stable. No one has offered an alternative approach that has broad political support. Once the conservatorship ends and long-term policy changes are in place, the stability and predictability will facilitate rational investment decisions."
https://www.valuewalk.com/2019/10/fannie-mae-tim-pagliara/amp/
Wh...Wh...Wh...WHAT??? Are you talking about the same RRR that has been discussed for years on this board?
Go FnF!
GSE shareholders demand the truth regarding the net worth sweep
? Jacob Wolinsky
October 20, 2019 12:50 pm EST
Letter to the editor on the net worth sweep.
Dan Mobbs is a long-time holder of Fannie Mae and has experienced the non-representation and abuse of authority that the FHFA has foisted upon us since 2012. The FHFA is supposed to represent ALL stakeholders, including the common shareholders of Fannie Mae and Freddie Mac, but he NEVER does anything that actually improves the financial condition of the entities as he is mandated to do — How hard did he have to “negotiate” with the Treasury to allow us to “keep” our retained earnings? Wow, that was a tough negotiation, the Fifth Circuit en banc essentially said the net worth sweep was an “overstepping of authority” but the “negotiations” Calabria and Treasury have had resulted in “accounting chicanery” as Dick Bove correctly points out, because it disallows any REAL building of capital or EQUITY VALUE in the stocks.
Q3 2019 hedge fund letters, conferences and more
As they have no "actual" representation or advocacy, certainly not from the FHFA Director or the puppet boards of directors at the two companies. This sham "negotiation" and the 11,000 "protected" documents still under seal, nearly 7 YEARS after the net worth sweep was imposed. Why are these documents not being opened up to the public for all to see?
What could their contents reveal that Govt defense lawyers have stated would "roil the markets" if their contents were revealed? Seven years later?
Opening these documents might finally give the Fannie Mae and Freddie Mac shareholders the justice and TRUTH that they deserve with respect to the net worth sweep and the goings on leading up to it, and since then.
https://www.valuewalk.com/2019/10/fannie-freddie-the-net-worth-sweep/amp/
FHFA may use consent decrees to reduce GSE “election risk”
The method would keep Fannie Mae and Freddie Mac on the path to privatization
October 18, 2019 By Kathleen Howley
The Trump administration has laid out more than two dozen unilateral actions it wants to take to put Fannie Mae and Freddie Mac firmer ground and release them from government conservatorship.
But, there’s a little thing called “election risk.” If President Donald Trump isn’t re-elected, or if the ongoing impeachment inquiry results in him either resigning or being removed from office, a new president can throw the blueprint in the trash. A court ruling last month said the head of the Federal Housing Finance Agency, the regulator of the GSEs, can be replaced without cause. In other words, FHFA Director Mark Calabria serves at the pleasure of the president.
In a note to investors obtained by HousingWire, Cowen Washington Research Group is suggesting the FHFA may resort to using consent decrees to ensure the GSEs stay on the path to privatization whether Trump is in office or not.
“A new president could replace Calabria as FHFA director,” the Friday note said. “There is no guarantee that the new director will support the same post-conservatorship structure. Having the consent decree in place would make it tougher for the new regulators to derail recap and release. As such, this would reduce election risk.”
Other federal regulators use concent decrees – sometimes called consent orders – to legally bind the companies they regulate to act in predetermined ways. For the Federal Reserve and the Office of the Comptroller of the Currency, it’s a normal way to ensure their orders are carried out.
“The bank regulators use consent decrees with banks that have become undercapitalized to lay out a plan and a timeline for them to recapitalize,” the Cowen note said. “Such orders also tend to include conduct restrictions on the banks.”
Calabria has discussed using consent decrees to facilitate the recap and release of Fannie and Freddie, the note said.
“The idea is to include conduct restrictions in the decree such as the prohibition on volume discounts as well as to specify firm dates by which each enterprise has to raise specific amounts of new capital,” it said. “We believe this could even include requiring Fannie and Freddie to reach an agreement with Treasury and junior preferred shareholders on the future of their stakes. The advantage of this approach is that it could put Fannie and Freddie on a path to recap and release next year even if they are not ready to approach new investors until 2021 or 2022.”
But, there’s a drawback, the Cowen note said.
“Our concern is that we believe FHFA cannot use a consent decree to establish permanent restrictions on an enterprise,” it said. “Eventually, consent decrees expire. This could be because the target has completed what is required in the decree or the issuer can conclude it is no longer needed. We are unsure how one could make a consent decree permanent.”
https://www.housingwire.com/articles/fhfa-may-use-consent-decrees-to-reduce-gse-election-risk/
GSE scam? Net worth sweep remains in play after “accounting chicanery”
? Michelle Jones
October 9, 2019 11:27 am EST
The net worth sweep continues to be a hot topic for Fannie Mae and Freddie Mac. There seemed to be some light at the tunnel when signs suggested it would be eliminated, but now that an official “agreement” is in the books, nothing has actually changed. Bank analyst Dick Bove of Odeon Capital referred to the situation as “the GSE scam” in a note released on Wednesday.
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Image source: Fannie Mae
Agreement reached?
The Treasury Department reached an agreement with the Federal Housing Finance Agency (FHFA), which oversees the GSEs, last week. It would seem that a momentous occasion like that would mean that big changes are on the horizon, but Bove said the only thing that’s really changing is the way Fannie Mae and Freddie Mac will be doing their accounting books. Essentially, instead of eliminating the net worth sweep, the Treasury Department and the FHFA have agreed to change how the sweep is handled in the GSEs’ books.
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Q2 hedge fund letters, conference, scoops etc
It has widely been expected that the net worth sweep would be eliminated soon, but that isn't actually the case, based on the Treasury and FHFA's agreement. According to Bove, the accounting changes the two agencies agreed to will make it look like Fannie's and Freddie's net worth has increased even though it hasn't actually done so in real terms.
Bove emphasized that his report expresses his opinion, which he reached after days of calls to independent accountants to understand what has been done.
Here's what could happen when earnings are reported
The bank analyst believes the accounting change will affect Fannie Mae's and Freddie Mac's earnings reports in four steps. He believes at the end of each quarter, the two GSEs will calculate what they owe the Treasury using the same methodology they have used since the net worth sweep was instituted in 2012.
The second step will be reporting earnings as they always have, including net income. Then they deduct from that net income the dividend that was calculated as due under the net worth sweep. The GSEs will then "report earnings per share based upon the deduction of the net worth sweep amount."
However, the third step will be different. Instead of deducting the dividend payment from the net worth sweep on Fannie's and Freddie's balance sheets, there will be "a notation on the financial statements indicating that the companies owe the senior preferred holders an amount of money equal to the dividend payment." Since the Treasury holds their senior preferred shares, this refers to the net worth sweep. Since the sweep is being accounted for as a notation instead of an actual deduction, it will appear that the GSEs' net worth or book value is rising.
Bove describes the fourth step after the end of each quarter as this: "At some point, in order that the companies are released from their conservatorships, the money that is owed and notated on the balance sheets but not paid out, must be paid to the senior preferred stock holder – i.e. the United States Treasury. Thus, the funds that were deferred will be paid so that in real terms the retained earnings of these companies never went up."
"Accounting chicanery"?
Bove argues that the U.S. government is essentially trying to pull one over on GSE investors, thinking they "will never figure out what is going on." He explained that in 2008, the government forced Fannie Mae and Freddie Mac to take a "non-cash accounting entry that would destroy their capital and give the government the right to take them over," a rule that is being contested in court.
Then in 2012, he said the government "blatantly lied to Congress, the press, and ultimately the courts." According to Bove, the government claimed the GSEs were in "dire financial" straits even though it knew they had returned to financial health. This revelation was revealed in discovery documents in the U.S. claims court. At that time, the government used this false claim to create the net worth sweep.
Now the most recent "agreement" which simply switches the accounting around is the latest chapter in this ongoing saga.
"Perhaps Congress and the Press cannot figure these things out, but investors can," Bove summed up. "Rather than becoming infuriated at the hedge funds that have turned up this information, one should be thanking them. There is too much at risk in housing and the economy to keep playing these games."
https://www.valuewalk.com/2019/10/gse-scam-net-worth-sweep/amp/