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It is a win,win for me. Up or down, I am happy. Just glad to finally have another buy order in, this past month has been a pain in the butt.
I wont tell you who wrote this post, but it is some pretty interesting advice. You might want to think about about what this guy is saying...
Posted by: *******
Date: Thursday, October 02, 2008
In reply to: A deleted message
You sound bitter. Why not profit instead? Stock selling is a brutal business, and we all know it. It's not kindergarten or Romper Room...nicest and most helpful person you'll meet is Cramer, and a lot of people don't like him! I stand by my expectations of FRE recovering; I attempted to deceive no one. Again, you imply that FRE is a penny stock that our board could pump up; the sheer amount of capital necessary to fuel a 1000% increase in such a stock is far greater than our humble message board. I'm weary of arguing these points with you, as you keep coming back with the same dogma (toxic, POS, pumpers, ect)...if you don't like it, then get out of the stock. No one is forcing you to trade it, and we all take risks when entering the stock market. I thought we'd be back up to $5 by now, but with the bailout floundering in the House we didn't hit it. Without doubt, I think the recovery would have gone up to $5 at least had the House voted yes on Monday; the momentum was still there. It may be difficult to muster up the momentum again, at least in the short term. CNBC reported that FRE/FNM own 70% of all mortgages, which is higher than the 50% previously reported. Tell me, how can two companies own 70% of all financed homes, and be a toxic POS? Do you own a home? It's likely financed through these "toxic POS" stocks you're bashing. You do not seem to understand how important these two GSE's are, or you're just bitter and lashing out; I'm not sure which one it is...
P.S. If anyone lost money on FRE, it's because they were too cautious and waited to see how high it would go before getting in. I lost 85% of my initial investment three weeks ago...85% of my ENTIRE ACCOUNT in a matter of MINUTES so I'm the wrong one to whine about this to...I know what the risks are, and I took a big chance at buying back in @ .32. Big risks also can equal big rewards. Why didn't you buy in at .25 and sell at 2.90? Would you hold onto your stock and lose money out of dedication to some arbitrary number you thought it would hit, or would you take your profits when you can and do your best? I'm not going to lose money so someone else can gain it, that would be insane...
I am not saying it will stay at .36 for long, it will be quick, that is why I have my order in now. Congrats on your buy. GLTY...
Very high volume...
I got a buy order in for .36, betting on a double bottom. They gotta hit the stop losses, before we do anything...
Well if Eddie and Goldman are okay with it, so am I. I dont think they will need to, or will do a R/S. It wont change the market cap, and that is a problem for many financial institutions. There are many more reasons why this will go way up from here, and the lower it goes there becomes less reasons for why it will drop further. I think we hit or come close to our previous low then boom. Just my opinion, but since you are offering yours, then I might as well share. GLTA(except shorts)
I am going with number three. JMO
14 straight red days, this is ready to reverse soon, IMO. BWTFDIK?
Maybe Eddie and Goldman aint done yet?
Fannie Mae (FNM:$0.50,00$-0.0400,-7.41%) after a brief hiatus returned to the long-term debt market with $2 billion of issuance but had to pay higher financing cost for these securities.
The mortgage-finance company reopened its existing five-year and three-year benchmark notes to sell $1 billion of each Monday.
Monday's auction was a way for the mortgage company to gauge investor demand for its debt, which froze in October. The deepening of the credit crisis that month forced Fannie and its sibling Freddie Mac (FRE) to cancel issuance of long-term bonds.
Market participants say that banks were the main buyers of these notes this time around.
The reopened three-year note sold at yield of 2.948%, 143 basis points over comparative Treasury yields at an afternoon auction. The bond sold at a price of 101.766, and is expected to settle on Wednesday.
Market participants had expected the three-year note to sell at higher premium as investors wait for competing new bank debt that comes with a full government guarantee.
Earlier Monday, the $1 billion of five-year notes sold at 101.206, and a yield of 3.59% - about 128 basis points over comparative Treasury yields.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13G
Under the Securities Exchange Act of 1934
(Amendment No. 1)*
Federal National Mortgage Association
(Name of Issuer)
Common Stock
(Title of Class of Securities)
313586109
(CUSIP Number)
October 31, 2008
(Date of Event Which Requires Filing of this Statement)
Check the appropriate box to designate the rule pursuant to which this
Schedule is filed:
[X] Rule 13d-1(b)
[ ] Rule 13d-1(c)
[ ] Rule 13d-1(d)
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class
of securities, and for any subsequent amendment containing information
which would alter the disclosures provided in a prior cover page.
The information required in the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of
that section of the Act but shall be subject to all other provisions of
the Act (however, see the Notes).
CUSIP: 313586109 Page 1 of 5
1 NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Capital Research Global Investors **
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE
INSTRUCTIONS) (a)
(b)
3 SEC USE ONLY
4 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
5 SOLE VOTING POWER
20,192,360
6 SHARED VOTING POWER
NUMBER OF
SHARES NONE
BENEFICIALL
Y OWNED BY
7 SOLE DISPOSITIVE POWER
EACH
REPORTING 61,816,950
PERSON
WITH:
8 SHARED DISPOSITIVE POWER
NONE
9 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
61,816,950 Beneficial ownership disclaimed pursuant to Rule
13d-4
10 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (9) EXCLUDES CERTAIN SHARES
(SEE INSTRUCTIONS)
11 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 9
5.7%
12 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
IA
** A division of Capital Research and Management Company (CRMC)
CUSIP: 313586109 Page 2 of 5
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Schedule 13G
Under the Securities Exchange Act of 1934
Amendment No. 1
Item 1(a) Name of Issuer:
Federal National Mortgage Association
Item 1(b) Address of Issuer's Principal Executive Offices:
3900 Wisconsin Avenue, NW
Washington, DC 20016
Item 2(a) Name of Person(s) Filing:
Capital Research Global Investors
Item 2(b) Address of Principal Business Office or, if none,
Residence:
333 South Hope Street
Los Angeles, CA 90071
Item 2(c) Citizenship: N/A
Item 2(d) Title of Class of Securities:
Common Stock
Item 2(e) CUSIP Number:
313586109
Item 3 If this statement is filed pursuant to sections 240.13d-1(b)
or 240.13d-2(b) or (c), check whether the person filing is a:
(e) [X] An investment adviser in accordance with
section 240.13d-1(b)(1)(ii)(E).
Item 4 Ownership
Provide the following information regarding the aggregate
number and percentage of the class of securities of the issuer
identified in Item 1.
(a) Amount beneficially owned:
(b) Percent of class:
(c) Number of shares as to which the person has:
(i) Sole power to vote or to direct the vote:
(ii) Shared power to vote or to direct the vote:
(iii) Sole power to dispose or to direct the disposition of:
(iv) Shared power to dispose or to direct the disposition of:
See page 2
Capital Research Global Investors is deemed to be the
beneficial owner of 61,816,950 shares or 5.7% of the
1,074,847,390 shares of Common Stock believed to be outstanding
as a result of CRMC acting as investment adviser to various
investment companies registered under Section 8 of the
Investment Company Act of 1940.
CUSIP: 313586109 Page 3 of 5
Shares reported by Capital Research Global Investors, include
1,790 shares resulting from the assumed conversion of 1,790
shares of 5.3750% Convertible Preferred Stock redeemable on
12/31/2049.
Shares reported by Capital Research Global Investors, include
5,029,600 shares resulting from the assumed conversion of
5,029,600 shares of 8.75% Non-Cumulative Convertible Preferred
Stock Series 08-1.
Item 5 Ownership of Five Percent or Less of a Class. If this
statement is being filed to report the fact that as of the date
hereof the reporting person has ceased to be the beneficial
owner of more than five percent of the class of securities,
check the following: [ ]
Item 6 Ownership of More than Five Percent on Behalf of Another
Person: One or more clients of Capital Research Global
Investors have the right to receive or the power to direct the
receipt of dividends from, or the proceeds from the sale of,
the Common Stock of Federal National Mortgage Association.
Item 7 Identification and Classification of the Subsidiary Which
Acquired the Security Being Reported on By the Parent Holding
Company or Control Person. : N/A
Item 8 Identification and Classification of Members of the Group:
N/A
Item 9 Notice of Dissolution of Group: N/A
Item 10 Certification
By signing below, I certify that, to the best of my knowledge
and belief, the securities referred to above were acquired and
are held in the ordinary course of business and were not
acquired and are not held for the purpose of or with the effect
of changing or influencing the control of the issuer of the
securities and were not acquired and are not held in connection
with or as a participant in any transaction having that purpose
or effect.
Signature
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
statement is true, complete and correct.
Date: November 10, 2008
Signature: Timothy D. Armour***
Name/Title: Timothy D. Armour - Senior Vice President
Capital Research Global Investors
CUSIP: 313586109 Page 4 of 5
***By /s/ James P. Ryan
James P. Ryan
Attorney-in-fact
Signed pursuant to a Power of Attorney dated December 21,
2007 included as an Exhibit to Schedule 13G filed with the
Securities and Exchange Commission by Capital Research Global
Investors on January 10, 2008 with respect to Lowes
Companies, Incorporated.
CUSIP: 313586109 Page 5 of 5
We did need to get these quarterly reports behind us. I think at first the market, interpreted Paulson's actions as putting out a larger fire, which is the safe reaction. There is a chance,(maybe a probability from what they are saying)that the mortgage industry is no longer the biggest problem, and is sustainable going forward. If that is indeed the case, then yes we may have bottomed or are near the bottom. As with anything, once everybody has figured out we have bottomed, it will be too late for them. Not for us. He who laughs last...
Asset-backed security
In finance, an asset-backed security is a type of debt security that is based on pools of assets, or collateralized by the cash flows from a specified pool of underlying assets. Assets are pooled to make otherwise minor and uneconomical investments worthwhile, while also reducing risk by diversifying the underlying assets. Securitization makes these assets available for investment to a broader set of investors. These asset pools can be made of any type of receivable from the common, like credit card payments, auto loans, and mortgages, to esoteric cash flows such as aircraft leases, royalty payments and movie revenues. Typically, the securitized assets might be highly illiquid and private in nature.
In some cases it can be used as credit enhancement by creating a security that has a higher rating than the issuing company which monetizes its assets. This allows it to pay a lower rate of interest than would be possible via a secured bank loan or debt issuance.
On January 18, 2005, the United States Securities and Exchange Commission (SEC) promulgated Regulation AB which included a final definition of Asset-Back Securities. [1]
"Definition of ABS. The term "asset-backed security" is currently defined in Form S-3 to mean a security that is primarily serviced by the cash flows of a discrete pool of receivables or other financial assets, either fixed or revolving, that by their terms convert into cash within a finite time period plus any rights or other assets designed to assure the servicing or timely distribution of proceeds to the security holders. The SEC staff has historically interpreted the phrase "convert into cash by their terms" to exclude from the definition most assets that require positive action to be realized upon – such as non-performing assets and physical property. It has also interpreted the "discrete pool" requirement in such a way as to disqualify most securities issued in transactions where the composition of the pool is not set on the date of issuance or can change over time. The new rules modify these existing interpretations in certain respects while codifying them in others.
Lease-Backed Securities. The new rule expands the definition of "asset-backed security" to include lease-backed securities as long as the residual value of the leased property is less than 50% of the original securitized pool balance (or less than 65% in the case of motor vehicle leases). However, such securities may be shelf-registered on Form S-3 only if the residual value of the leased property represents less than 20% of the original securitized pool balance (or less than 65% in the case of motor vehicle leases).
Delinquent and Non-performing Assets. The new rules provide that a security may be considered to be an "asset-backed security" even if the underlying asset pool has total delinquencies of up to 50% at the time of the proposed offering as long as the original asset pool does not include any "non-performing" assets. However, consistent with current practice, shelf registration on Form S-3 will be available only if delinquent assets constitute 20% or less of the original asset pool. An asset is considered to be non-performing if it satisfies the charge-off policies of the sponsor (or applicable bank regulatory agencies) or if it would be considered a charged-off asset under the terms of the applicable transaction documents.
Exceptions to the "Discrete Pool" Requirement. The new rules generally codify the SEC staff’s position that a security must be backed by a discrete pool of assets in order to be considered an ABS. However, the new rules establish the following exceptions to address market practices.
(1) Any security issued in a master trust structure would meet the definition of "asset-backed security" without limitation.
(2) "asset-backed securities" will also include securities with a prefunding period of up to one year during which up to 50% of the offering proceeds (or, in the case of master trusts, up to 50% of the aggregate principal balance of the total asset pool whose cash flows support the ABS) may be used for subsequent purchases of pool assets.
(3) The new rules also include within the definition of "asset-backed security" securities with revolving periods during which new financial assets may be acquired. In the case of revolving assets such as credit cards, dealer floorplan and home equity lines of credit, there is no limit to the length of the revolving period or the amount of new assets that can be purchased during that time. For securities backed by receivables or other financial assets that do not arise under revolving accounts, such as automobile loans and mortgage loans, an unlimited revolving period will be permitted for up to three years. However, the new assets added to the pool during the revolving period must be of the same general character as the original pool assets.
According to Thomson Financial League Tables, US issuance (excluding mortgage-backed securities) was:
2004: USD 857 billion (1,595 issues)
2003: USD 581 billion (1,175 issues)
Types
Home equity loans
Securities collateralized by home equity loans (HELs) are currently the largest asset class within the ABS market. Investors typically refer to HELs as any nonagency loans that do not fit into either the jumbo or alt-A loan categories. While early HELs were mostly second lien subprime mortgages, first-lien loans now make up the majority of issuance. Subprime mortgage borrowers have a less than perfect credit history and are required to pay interest rates higher than what would be available to a typical agency borrower. In addition to first and second-lien loans, other HE loans can consist of high loan to value (LTV) loans, re-performing loans, scratch and dent loans, or open-ended home equity lines of credit (HELOC),which homeowners use as a method to consolidate debt. [2]
Auto loans
The second largest subsector in the ABS market is auto loans. Auto finance companies issue securities backed by underlying pools of auto-related loans. Auto ABS are classified into three categories: prime, nonprime, and subprime:
Prime auto ABS are collaterized by loans made to borrowers with strong credit histories.
Nonprime auto ABS consist of loans made to lesser credit quality consumers, which may have higher cumulative losses.
Subprime borrowers will typically have lower incomes, tainted credited histories, or both.
Owner trusts are the most common structure used when issuing auto loans and allow investors to receive interest and principal on sequential basis. Deals can also be structured to pay on a pro-rata or combination of the two. [2]
Credit card receivables
Securities backed by credit card receivables have been benchmark for the ABS market since they were first introduced in 1987. Credit card holders may borrow funds on a revolving basis up to an assigned credit limit. The borrowers then pay principal and interest as desired, along with the required minimum monthly payments. Because principal repayment is not scheduled, credit card debt does not have an actual maturity date and is considered a nonamortizing loan.[2]
ABS backed by credit card receivables are issued out of trusts that have evolved over time from discrete trusts to various types of master trusts of which the most common is the de-linked master trust. Discrete trusts consist of a fixed or static pool of receivables that are tranched into senior/subordinated bonds. A master trust has the advantage of offering multiple deals out of the same trust as the number of receivables grows, each of which is entitled to a pro-rata share of all of the receivables. The delinked structures allow the issuer to separate the senior and subordinate series within a trust and issue them at different points in time. The latter two structures allow investors to benefit from a larger pool of loans made over time rather than one static pool.[2]
Student loans
ABS collateralized by student loans (“SLABS”) comprise one of the four (along with home equity loans, auto loans and credit card receivables) core asset classes financed through asset-backed securitizations and are a benchmark subsector for most floating rate indices. Federal Family Education Loan Program (FFELP) loans are the most common form of student loans and are guaranteed by the U.S. Department of Education ("DOE") at rates ranging from 95%-98% (if the student loan is serviced by a servicer designated as an "exceptional performer" by the DOE the reimbursement rate was up to 100%). As a result, performance (other than high cohort default rates in the late 1980's) has historically been very good and investors rate of return has been excellent. The College Cost Reduction and Access Act became effective on October 1, 2007 and significantly changed the economics for FFELP loans; lender special allowance payments were reduced, the exceptional performer designation was revoked, lender insurance rates were reduced, and the lender paid origination fees were doubled.
A second, and faster growing, portion of the student loan market consists of non-FFELP or private student loans. Though borrowing limits on certain types of FFELP loans were slightly increased by the student loan bill referenced above, essentially static borrowing limits for FFELP loans and increasing tuition are driving students to search for alternative lenders. Students utlilize private loans to bridge the gap between amounts that can be borrowed through federal programs and the remaining costs of education[2].
Stranded cost utilities
Rate reduction bonds (RRBs) came about as the result of the Energy Policy Act of 1992, which was designed to increase competition in the US electricity market. To avoid any disruptions while moving from a non-competitive to a competitive market, regulators have allowed utilities to recover certain "transition costs" over a period of time. These costs are considered nonbypassable and are added to all customer bills. Since consumers usually pay utility bills before any other, chargeoffs have historically been low. RRBs offerings are typically large enough to create reasonable liquidity in the aftermarket, and average life extension is limited by a "true up" mechanism.[2]
Others
There are many other cash-flow-producing assets, including manufactured housing loans, equipment leases and loans, aircraft leases, trade receivables, dealer floor plan loans, and royalties. [2] Intangibles are another emerging asset class. [3]
Trading asset-backed securities
"In the United States, the process for issuing asset-backed securities in the primary market is similar to that of issuing other securities, such as corporate bonds, and is governed by the Securities Act of 1933, and the Securities Exchange Act of 1934, as amended. Publicly issued asset-backed securities have to satisfy standard SEC registration and disclosure requirements, and have to file periodic financial statements." [4]
"The Process of trading asset-backed securities in the secondary market is similar to that of trading corporate bonds, and also to some extent, mortgage-backed securities. Most of the trading is done in over-the-counter markets, with telephone quotes on a security basis. There appear to be no publicly available measures of trading volume, or of number of dealers trading in these securities." [4]
"A survey by the Bond Market Association shows that at the end of 2004, in the United States and Europe there were 74 electronic trading platforms for trading fixed-income securities and derivatives, with 5 platforms for asset-backed securities in the United States, and 8 in Europe." [4]
"Discussions with market participants show that compared to Treasury securities and mortgage-backed securities, many asset-backed securities are not liquid, and their prices are not transparent. This is partly because asset-backed securities are not as standardized as Treasury securities, or even mortgage-backed securities, and investors have to evaluate the different structures, maturity profiles, credit enhancements, and other features of an asset-backed security before trading it."[4]
The "price" of an asset-backed security is usually quoted as a spread to a corresponding swap rate. For example, the price of a credit card-backed, AAA rated security with a two-year maturity by a benchmark issuer might be quoted at 5 basis points (or less) to the two-year swap rate." [4]
"Indeed, market participants sometimes view the highest-rated credit card and automobile securities as having default risk close to that of the highest-rated mortgage-backed securities, which are reportedly viewed as substitute for the default risk-free Treasury securities."[4]
Securitization
Main article: Securitization transaction
See also: Credit enhancement
Securitization is the process of creating asset-backed securities by transferring assets from the issuing company to a bankruptcy remote entity. Credit enhancement is an integral component of this process as it creates a security that has a higher rating than the issuing company, which allows the issuing company to monetize its assets while paying a lower rate of interest than would be possible via a secured bank loan or debt issuance by the issuing company.
ABS indices
See also: asset-backed securities index
On January 17, 2006, CDS Indexco and Markit launched ABX.HE, a synthetic asset-backed credit derivative index, with plans to extend the index to other underlying asset types other than home equity loans.[5] ABS indices allow investors to gain broad exposure to the subprime market without holding the actual asset-backed securities.
Advantages
A significant advantage of asset-backed securities is that they bring together a pool of financial assets that otherwise could not easily be traded in their existing form. By pooling together a large portfolio of these illiquid assets they can be converted into instruments that may be offered and sold freely in the capital markets. Their bankruptcy remoteness allows the investor to take on credit risk of the asset without taking on specific corporate credit risk of the originator. The tranching of these securities into instruments with different risk/return profiles facilitates marketing of the bonds to investors with different risk appetites and investing time horizons.
Asset-backed securities enable the originators of the loans to enjoy most of the benefits of lending money without bearing the risks involved. They offer originators the following advantages:
Selling these financial assets to the pools reduces their risk-weighted assets and thereby frees up their capital, enabling them to originate still more loans.
Asset-backed securities lowers their risk. In a worst-case scenario where the pool of assets performs very badly, the owner of ABS would pay the price of bankruptcy rather than the originator.
The originators earn fees from originating the loans, as well as from servicing the assets throughout their life.
"The financial institutions that originate the loans sell a pool of cashflow-producing assets to a specially created third party that is called a special-purpose vehicle (SPV). The SPV is designed to insulate investors from the credit risk of the originating financial institution. The SPV then sells the pooled loans to a trust, which issues interest bearing securities that can achieve a credit rating separate from the financial institution that originates the loan. The typically higher credit rating is given because the securities that are used to fund the securitization rely solely on the cash flow created by the assets, not on the payment promise of the issuer. The monthly payments from the underlying assets—loans or receivables—typically consist of principal and interest, with principal being scheduled or unscheduled. The cash flows produced by the underlying assets can be allocated to investors in different ways. Cash flows can be directly passed through to investors after administrative fees are subtracted, thus creating a “pass-through” security; alternatively, cash flows can be carved up according to specified rules and market demand, thus creating "structured" securities." [6]
See also
Structured finance
Collateralized bond obligation
Collateralized debt obligation
Mortgage-backed security
Asset-based loan
Asset-based lending
Securitization transaction
Credit enhancement
Pooled investment
Tranche
Privatization
Thomson Financial League Tables
References
^ "Financial Services Alert" Goodwin and Procter, January 18th 2005, Vol. 8 NO. 22
^ a b c d e f g Fixed Income Sectors: Asset-Backed Securities: A primer on asset-backed securities, Dwight Asset management Company 2005
^ Intangible Asset Finance
^ a b c d e f T Sabarwal "Common Structures of Asset-Backed Securities and Their Risks, December 29, 2005
^ Markit
^ "Fixed Income Sectors: Asset-Backed Securities", Dwight Asset Management Company, 2005.
I believe it will be much harder to manipulate.JMO.
NYSE kills sub-penny halt rule, re-list 91 stocks
11/14 10:43 AM
* NYSE to relist 91 stocks, including Fannie, Freddie
* Stocks below $1.05 will no longer go to Arca
* NYSE to round sub-penny quotes to nearest penny
NEW YORK, Nov 14 (Reuters) - The New York Stock Exchange will no longer halt trading in stocks that fall below $1.05, allowing the exchange to relist some 91 securities, including U.S. mortgage giants Fannie Mae (FNM:$0.53,00$-0.0900,-14.52%) , Freddie Mac (FRE:$0.6705,$-0.0595,-8.15%) and Nortel Networks Corp (NT:$0.639,0$-0.1410,-18.08%) .
The exchange's parent, NYSE Euronext (NYX:$25.94,00$-1.06,00-3.93%) , said it received approval from the U.S. Securities and Exchange Commission to relist the securities, starting Monday.
The move eliminates the "sub-penny trading halt" rule that bumps depressed stocks to NYSE's small-cap Arca platform. As of next week, the NYSE will round quotes that trade in increments below one cent to the nearest penny. (Reporting by Jonathan Spicer; editing by Jeffrey Benkoe)
CREDIT MARKETS: TARP Changes Concern Investors
11/13 03:42 PM
NEW YORK (Dow Jones)--The shifting nature of the U.S. government's bailout fund continued to rattle credit market investors Thursday.
On Wednesday, Treasury Secretary Henry Paulson said the government would no longer buy mortgage-related assets under its $700 billion bailout program. That has sparked confusion among investors yearning for direction.
Debt issued by Fannie Mae (FNM:$0.593900,$-0.086100,-12.66%) and Freddie Mac (FRE:$0.69,00$-0.0600,-8.00%) slumped amid a lack of clear signs of the mortgage giants' fates. A benchmark high-grade credit derivatives index, a barometer of investor sentiment toward credit, weakened sharply.
"The Bush administration's change of tack on TARP - the funds will no longer be used to buy distressed and illiquid assets from financial firms - has created uncertainty and unnerved markets," wrote Gavan Nolan, vice president, credit research at Markit.
Agencies
After a brief period of gradual improvement, risk premiums on debt securities issued by Fannie Mae (FNM:$0.593900,$-0.086100,-12.66%) and Freddie Mac (FRE:$0.69,00$-0.0600,-8.00%) reversed course on a bevy of negative news that the market has had to digest this week.
It started with Fannie Mae's (FNM:$0.593900,$-0.086100,-12.66%) record loss of $29 billion on Monday. Then on Wednesday, Treasury Secretary Henry Paulson made comments on the need for either explicit or no government backing of the bonds issued by these companies, and the change of focus on how the $700 billion bailout would be spent.
"Investors are going back to all these concerns," said Mark Noble, of MF Global (MF:$2.4600,$0.3800,18.27%) . "There is no stability in the market place."
On Thursday, risk premiums on longer notes were weaker by 5 to 14 basis points. Fannie's two-year benchmark note was 12 basis points wider, to 132 basis points, over comparative Treasury yields. Meanwhile, Freddie's 4.125% note due 2013 was weaker by 12 basis points, to 129 basis points, according to data provider TradeWeb.
Also, the U.S. Treasury bought $21.5 billion of agency mortgage-backed securities in October, a tad higher than the expected range of $15 billion to $ 20 billion, and a step up from the $5.1 billion it bought in September. Agency mortgage bonds, which were significantly weaker on Thursday, received a boost from this news. Risk premiums on these bonds were 1 basis point wider late afternoon, an improvement from the 4 basis point widening seen earlier in the day.
Commercial Paper The pace of expansion in the U.S. commercial paper market slowed markedly in the past seven days, according to Federal Reserve data.
Commercial paper outstanding went up $2.9 billion on a seasonally adjusted basis in the week ended Wednesday, according to the latest data from the Fed released Thursday. Tuesday, the market was closed for the Veterans Day holiday.
This week marked the third week of increases since the Fed's backstop program to support the commercial paper market became functional.
But the expansion was much slower than in the previous two weeks. In the prior week, commercial paper expanded by $50.5 billion, after a healthy $100.5 billion gain the previous week.
U.S. Asset-Backed Securities Some investors were trying to offload bonds backed by risky mortgage assets after the Treasury said it won't be the ultimate buyer of this toxic debt.
At least 25 lists of bonds for sale hit the market Thursday, according to Andrew Brenner, a senior vice president at MF Global Inc.
The lists include a variety of asset-backed securities such as subprime and second-lien residential mortgages, and some commercial mortgage-backed securities. The bonds were sold by various banks such as Bear Stearns, Washington Mutual (WAMUQ:$0.0615,$-0.0015,-2.38%) , Countrywide and Morgan Stanley (MS:$13.1400,$1.2000,10.05%) . There was also debt issued by Citicorp Residential Mortgage Securities and Renaissance Home Equity Loan Trust, among others.
Meanwhile, the lingering concerns about the commercial mortgage bonds blew up this week, and the derivative index that tracks these bonds has lost nearly 100 basis points in the last two trading sessions.
"What is happening today in spreads and prices can only be described as disgusting," said Derrick Wulf, a portfolio manager at Dwight Asset Management. "It feels a lot like capitulation today."
Risk premiums on the Markit CMBX AAA 4 index were trading at 355 basis points late afternoon, 52 basis points weaker from its close on Wednesday. The index had hit a record wide of 390 basis points during the day, but improved as the stock market recovered in the afternoon, and investors who had bought protection in the morning covered in the afternoon.
Investment-Grade Corporates The benchmark high-grade credit derivatives index, the Markit CDX IG11, was quoted at 204 basis points late Thursday afternoon, weaker compared to Wednesday's close at 199.9 basis points. The index last closed above 200 basis points on Oct. 31.
Meanwhile, the spate of new bond deals slowed, with only two deals, totaling $ 2.6 billion, on offer from Time Warner Cable (TWX:$8.92,00$0.31,003.60%) and Pacific Gas and Electric.
Junk Bonds
Junk bonds moved slightly lower Thursday as volatile stocks straddled opening levels throughout the day. The high yield CDX index was mostly unchanged, while trade in cash bonds was modest. Among the more active issues, Chesapeake Energy's (CHK:$21.49,00$1.36,006.76%) 7.625% notes due 2013 fell a quarter point to 86, and General Motors Corp.'s (GM:$2.98,00$-0.10,00-3.25%) 8.375% notes due 2033 gained 1.9 points, but still traded at just 23 cents on the dollar, according to MarketAxess (MKTX:$6.06,00$0.79,0014.99%) .
-By Romy Varghese, Dow Jones Newswires; 201-938-4287; romy.varghese@ dowjones.com
(Michael Aneiro, Kate Haywood, Prabha Natarajan and Anusha Shrivastava contributed to this report.)
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=1bP0hrf3cEF8XItNaEuUZQ%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
11-13-081542ET
Copyright (c) 2008 Dow Jones & Company, Inc.
US mortgage applications rise as interest rates drop
11/13 11:09 AM
By Julie Haviv
NEW YORK, Nov 13 (Reuters) - U.S. mortgage applications rose last week, recovering from an almost 8-year low, as potential borrowers took advantage of a sharp drop in interest rates, an industry group said on Thursday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications <USMGM=ECI>, which includes both purchase and refinance loans, for the week ended Nov. 7 increased 11.9 percent to 425.0, up from the previous week when the reading hit its lowest since December 2000.
The increase in home loan demand indicates some sign of stabilization, according to Torsten Slok, senior economist at Deutsche Bank in New York.
"But, clearly given the global financial and credit situation, we are not out of the woods yet and we still need to have more support for the housing market," he said.
"Any government support for the housing market is warmly welcomed," he said.
U.S. housing finance giants Fannie Mae (FNM:$0.5900,$-0.0900,-13.24%) and Freddie Mac (FRE:$0.697900,$-0.052100,-6.95%) , this week were called upon to stage a plan to rescue homeowners. Federal Housing Finance Agency Director James Lockhart unveiled an initiative that would see the two companies lead a plan to help borrowers, namely by adjusting the interest rates on mortgages.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.24 percent, down 0.23 percentage point from the previous week. It was the largest drop since the week ended Sept. 12 when it fell by 0.24 percentage point to 5.82 percent.
Interest rates are below the peak of 6.59 percent reached during the summer, but above the 2008 low of 5.49 percent in January, according to the trade group.
Interest rates were below year-ago levels of 6.19 percent.
Treasury yields, which are linked to mortgage rates, have fluctuated sharply in recent months, causing home loan demand to shift sharply on a weekly basis.
The MBA's seasonally adjusted purchase index <USMGPI=ECI> rose 9.0 percent to 284.4. The index came in well below its year-ago level of 432.6, a drop of 34.3 percent.
Overall mortgage applications last week were 39.9 percent below their year-ago level. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 3.7 percent.
WEEKLY REFINANCING ACTIVITY JUMPS
The group's seasonally adjusted index of refinancing applications <USMGR=ECI> jumped 16.1 percent to 1,248.4, but was down 46.1 percent from its year-ago level of 2,315.7.
The refinance share of applications increased to 45.1 percent from 42.9 percent the previous week.
The adjustable-rate mortgage (ARM) share of activity dropped to 2.3 percent from 2.5 percent the previous week.
That is in stark contrast to the ARM share of activity several years ago when it reached a record high of 36.6 percent in March 2005. The survey has been conducted since 1990.
Fixed 15-year mortgage rates averaged 5.90 percent, down from 6.14 percent the previous week. Rates on one-year ARMs decreased to 6.77 percent from 6.86 percent.
The U.S. housing market is currently suffering the worst downturn since the Great Depression. A huge supply of unsold homes, tighter lending standards and record foreclosures have pushed down home prices, deflating a bubble from the early part of this decade.
U.S. foreclosure activity in October rose 25 percent from a year earlier, although filings in California fell by double-digit percentage points for the second consecutive month due to a state law slowing the foreclosure process, according to a monthly report by RealtyTrac.
Foreclosure filings -- default notices, auction sales notices and bank repossessions -- rose by 5 percent from September to 279,561 in October, according to Irvine, California-based research firm RealtyTrac. (Additional Reporting by Helen Chernikoff and Patrick Rucker, Editing by Chizu Nomiyama)
Fannie, Freddie Debt Weakens Again On Investor Concerns
11/13 10:33 AM
NEW YORK (Dow Jones)--Risk premiums on debt securities issued by mortgage giants Fannie Mae (FNM:$0.60,00$-0.0800,-11.76%) and Freddie Mac (FRE:$0.6949,$-0.0551,-7.35%) took a turn for the worse Thursday morning, as investors sold on continued uncertainty about the fate of the twin mortgage giants.
After a brief period of gradual improvement of risk premiums, or spreads, over comparable Treasury yields, they reversed course on a bevy of negative news that the market has had to digest this week.
It started with Fannie Mae's (FNM:$0.60,00$-0.0800,-11.76%) record loss of $29 billion on Monday, Treasury Secretary Henry Paulson's comments on the need for either explicit or no government backing of the bonds issued by these companies, and the change of focus on how the $700 billion bailout would be spent on Wednesday.
"Investors are going back to all these concerns," said Mark Noble, of MF Global (MF:$2.15,00$0.07,003.37%) . "There is no stability in the market place."
A spate of selling by overseas investors, especially in the three-year notes, pushed the shorter notes to wider levels on Thursday. There were buyers, mostly domestic investors, in the market.
"But the buying has been mostly on the front-end, and demand for debt that matures in 18 months and under," Noble said.
That also is the main reason that both Fannie and Freddie have issued most of their debt as short-term bills, recently.
Fannie, in its third-quarter filing, said it has "experienced reduced demand for our debt obligations from some of our historical sources of that demand, particulalry in international markets."
This, the company said, has made it difficult "to issue debt securities with maturities greater than one year."
This bleak outlook of its inability to raise capital through long-term bonds worried investors.
On Thursday, risk premiums on longer notes were weaker by 5 to 14 basis points. Fannie's two-year benchmark note was 7.5 basis points wider at 128 basis points over comparative Treasury yields.
While Freddie's 4.125% note due 2013 was weaker by 13.5 basis points at 131, according to data provider TradeWeb.
-By Prabha Natarajan, Dow Jones Newswires; 201-938-5071; prabha.natarajan@ dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=1bP0hrf3cEF8XItNaEuUZQ%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
11-13-081033ET
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Investors deny hindering foreclosure relief
11/13 12:52 AM
WASHINGTON (AP) - Mortgage industry representatives told skeptical lawmakers Wednesday that investors in mortgage-backed securities are not hindering government efforts to stem an increasing tide of foreclosures.
"Because foreclosure is usually the most costly means of resolving a loan default, it is typically the least-preferred alternative for addressing a defaulted loan," Tom Deutsch, deputy executive director of the American Securitization Forum, told the House Financial Services Committee.
Mortgage service companies that handle billing, property taxes and other tasks have the power to modify loans and are obligated to if the change produces less of a loss for an investor than a foreclosure would, he said.
Lowering the interest rate or reducing the principal on mortgages that have been bundled into securities would cut monthly payments for strapped homeowners. But that also would lock in lower yields for investors.
"Fear of being sued by unhappy investors has served as powerful disincentive for mortgage services considering whether to modify a troubled borrower's mortgage," said Alabama Rep. Spencer Bachus, the committee's top Republican.
Another deterrent is that the service companies mailing out statements and taking in monthly payments from homeowners earn fees or commissions on foreclosures, but not on loan modifications.
Thirty years ago, banks that issued the loans usually owned them. But today, a mortgage -- or a portion of it -- is just as likely to be owned as a mortgage-backed security by a pension fund or other investor.
The Federal Reserve says $2.8 trillion of the $14.8 trillion in outstanding mortgage debt in the U.S. is held in private mortgage-backed securities created through loan pools. Mortgage underwriters Fannie Mae (FNM:$0.592,0$-0.0880,-12.94%) and Freddie Mac (FRE:$0.69,00$-0.0600,-8.00%) -- both now taken over by the government -- created $4.8 trillion in securities on mortgages they purchased from original lenders.
The committee chairman, Rep. Barney Frank, D-Mass., said he has heard too many stories from people unable to get mortgage help to believe there is not a problem. He suggested new legislation may be needed beyond bills that Congress passed in August and October providing federal loan guarantees for renegotiated mortgages.
"Who am I going to believe, you or my own eyes?" Frank asked.
Deutsch said mortgage servicers could be sued for "over-modification" but are equally liable for not doing enough.
Benjamin Allensworth, legal counsel for the Managed Funds Association, which represents large hedge funds, said they, too, believe that effective mortgage modifications are preferable to foreclosures.
But he said hedge funds are opposed to a one-size-fits-all formula for determining whether vast numbers of borrowers should qualify for help. They also worry that a qualified borrower may again get into trouble and default, he said.
Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Here's their website...
http://www.sec.gov/
US SEC final short sale rule seen vastly different
11/13 01:28 PM
NEW YORK, Nov 13 (Reuters) - U.S. regulators' final rule on short sale disclosures could be "vastly different" from the interim rule In effect until next August, a top Securities and Exchange Commission staffer said on Thursday.
Under the current rule, the SEC requires large institutional investors to disclose their daily short positions to regulators, while the SEC solicits comment and fine tunes details for a final rule.
After the Commission goes through its rule making process "the final rule could potentially be vastly different," Brian Breheny, Deputy Director for Legal and Regulatory Policy in the agency's Division of Corporation Finance said at a Practising Law Institute conference in New York.
One area in which he said the final rule could differ is whether it applies to only large institutional investors, or a "broader category."
Ultimately, Breheny said the rule would depend on the public comments received over the next few months. If the SEC does not act on the rule in the next year, it will expire after Aug. 1, 2009.
"The public has been very interested in the disclosure that is required," Breheny said. "We'll have to see what the comments say when the comment period closes."
The proposal is open to a 90 day comment period.
Short sellers borrow stock they expect will fall in price in the hope of buying it back for less and pocketing the difference when they return it to the lender. They have been blamed by corporate executives for driving down the price of their companies' stock in recent months and the SEC has instituted a variety of emergency rules to crack down on improper short selling. (Reporting by Emily Chasan; Editing by Andre Grenon)
What a click...
I dont like Paulson very much.
Anybody know what this means?
...to funnel funds to non-banks so that officials can thoroughly assess the impact and evaluate the size and focus of the new program...
What is he talking about?
...Additionally, Paulson said Treasury is still evaluating ways to help mitigate foreclosures and also considering programs that could use funds from the rescue program known as the Troubled Asset Relief Program, or TARP, to help attract private capital into financial markets.
"We are carefully evaluating programs which would further leverage the impact of a TARP investment by attracting private capital, potentially through matching investments," the secretary said in a broad speech on TARP, the global credit crunch and the government's recent steps to address the financial meltdown. "In developing a potential matching program; broadening access in this way would bring both benefits and challenges."
Paulson said it could be more difficult for the government to protect taxpayers under a program that provides funds to non-bank financial firms because many are not directly regulated and are involved in a wide range of businesses. At the same time, those firms provide credit "that is essential to U.S. businesses and consumers," he said.
He also said that the first $250 billion program to inject government cash into financial firms should be completed before embarking on the second program to funnel funds to non-banks so that officials can thoroughly assess the impact and evaluate the size and focus of the new program.
Paulson said Treasury's initial idea to purchase firms' illiquid assets doesn't seem like it would be very effective.
"Our assessment at this time is that this is not the most effective way to use TARP funds, but we will continue to examine whether targeted forms of asset purchase can play a useful role, relative to other potential uses of TARP resources, in helping to strengthen our financial system and support lending," he said, according to his prepared remarks...
Tsy Paulson: Buying Troubled Assets Is Not Best Use Of TARP
11/12 10:30 AM
WASHINGTON (Dow Jones)--U.s. Treasury Secretary Henry Paulson Wednesday signaled that the department is ready to enter the second phase of its $700 billion bailout plan, but it is unlikely to include the original proposal to buy up troubled assets from the balance sheets of banks.
Instead, Paulson pointed out that the non-bank consumer finance sector is facing considerable challenges, which is raising the cost and reducing the availability of car loans, student loans and credit cards. He said Treasury is looking at ways to possibly use the financial-rescue program funds to encourage private investors to return to that troubled market.
Additionally, Paulson said Treasury is still evaluating ways to help mitigate foreclosures and also considering programs that could use funds from the rescue program known as the Troubled Asset Relief Program, or TARP, to help attract private capital into financial markets.
"We are carefully evaluating programs which would further leverage the impact of a TARP investment by attracting private capital, potentially through matching investments," the secretary said in a broad speech on TARP, the global credit crunch and the government's recent steps to address the financial meltdown. "In developing a potential matching program; broadening access in this way would bring both benefits and challenges."
Paulson said it could be more difficult for the government to protect taxpayers under a program that provides funds to non-bank financial firms because many are not directly regulated and are involved in a wide range of businesses. At the same time, those firms provide credit "that is essential to U.S. businesses and consumers," he said.
Meanwhile, Paulson said Treasury's initial idea to purchase firms' illiquid assets doesn't seem like it would be that effective.
"Our assessment at this time is that this is not the most effective way to use TARP funds, but we will continue to examine whether targeted forms of asset purchase can play a useful role, relative to other potential uses of TARP resources, in helping to strengthen our financial system and support lending," he said, according to his prepared remarks.
-By Maya Jackson Randall, Dow Jones Newswires; 202-862-9255, maya.jackson- randall@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=gyqrrrOUgvITV9NeLavKMw%3D%3D. You can use this link on the day this article is published and the following day.
(Updates to add new quotes, details throughout.)
By Maya Jackson Randall Of DOW JONES NEWSWIRES
WASHINGTON ()--U.S. Treasury Secretary Henry Paulson Wednesday signaled that the department is ready to enter the second phase of its $700 billion bailout plan, but it is unlikely to include the original proposal to buy up troubled assets from the balance sheets of banks.
Instead, Paulson pointed out that the asset-backed securitization market - particularly the non-bank consumer finance sector - is facing considerable challenges, which is raising the cost and reducing the availability of car loans, student loans and credit cards. He said Treasury is looking at ways to possibly use the financial-rescue program funds to encourage private investors to return to that troubled market.
"Although the financial system has stabilized, both banks and non-banks may well need more capital given their troubled asset holdings, projections for continued high rates of foreclosures and stagnant U.S. and world economic conditions," he said.
To prop up the consumer finance sector, Treasury is considering working with the Federal Reserve to create a new liquidity facility for highly-rated AAA asset-backed securities, said Paulson.
Additionally, Paulson said Treasury is still evaluating ways to help mitigate foreclosures and also considering programs that could use funds from the rescue program known as the Troubled Asset Relief Program, or TARP, to help attract private capital into financial markets.
"We are carefully evaluating programs which would further leverage the impact of a TARP investment by attracting private capital, potentially through matching investments," the secretary said in a broad speech on TARP, the global credit crunch and the government's recent steps to address the financial meltdown. "In developing a potential matching program; broadening access in this way would bring both benefits and challenges."
Paulson said it could be more difficult for the government to protect taxpayers under a program that provides funds to non-bank financial firms because many are not directly regulated and are involved in a wide range of businesses. At the same time, those firms provide credit "that is essential to U.S. businesses and consumers," he said.
He also said that the first $250 billion program to inject government cash into financial firms should be completed before embarking on the second program to funnel funds to non-banks so that officials can thoroughly assess the impact and evaluate the size and focus of the new program.
Paulson said Treasury's initial idea to purchase firms' illiquid assets doesn't seem like it would be very effective.
"Our assessment at this time is that this is not the most effective way to use TARP funds, but we will continue to examine whether targeted forms of asset purchase can play a useful role, relative to other potential uses of TARP resources, in helping to strengthen our financial system and support lending," he said, according to his prepared remarks.
Meanwhile, Paulson encouraged all banks to engage in responsible lending as a way to revive credit markets and the broader economy. Earlier Wednesday, federal regulators released a joint statement encouraging banks to continue to lend to businesses and households.
"All banks - not just those participating in the Capital Purchase Program - have benefited, so they all also have responsibilities in the areas of lending, dividend and compensation policies, and foreclosure mitigation," said the secretary. "I am particularly focused on the importance of prudent bank lending to restore our economic growth.'
-By Maya Jackson Randall, Dow Jones Newswires; 202-862-9255, maya.jackson- randall@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=gyqrrrOUgvITV9NeLavKMw%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
11-12-081030ET
Copyright (c) 2008 Dow Jones & Company, Inc.
That was very funny. LOL
GOBAMA!!!
I think the market could be waiting for the Treasury pick...
PREVIEW-Hints of Fannie and Freddie roles sought in filings
11/06 03:12 PM
By Al Yoon
NEW YORK, Nov 6 (Reuters) - Equity investors burned by the government seizure of Fannie Mae and Freddie Mac in September may soon get clues of how the housing finance giants may be remaking themselves under conservatorship.
Fannie Mae (FNM:$0.7449,$-0.1051,-12.36%) and Freddie Mac (FRE:$0.8699,$-0.0401,-4.41%) will file reports in coming days outlining third-quarter results, which analysts expect to show fifth consecutive quarterly losses on the back of deferred tax asset write-downs that could total a combined $39 billion.
With shares of the companies trading below $1, the focus for investors is shifting from future profitability to how the government will control the companies known for a decade of reliable profit as the housing market boomed. Also watched will be whether another jump in foreclosure-related credit costs is enough to force capital injections by the U.S. Treasury.
Philosophically, a bigger question for investors is how much the regulator will push Fannie Mae and Freddie Mac to stabilize the ailing housing market, regardless of the cost. The regulator can exercise more control than ever over the "missions" of the government-sponsored enterprises, raising doubts the companies could act in the name of shareholders.
Bond investors also want to know the degree of government support to the companies, which were taken into conservatorship to prevent a dangerous erosion in capital they need in their roles as the top providers of funding for U.S. home loans.
"We think the uncertainty surrounding the conservatorship could represent a credit cliff," said Victoria Wagner, an analyst at Standard & Poor's in New York. Concerns are "what their legal status could be, when the conservatorships will end and how they are managed under the conservatorship," she said.
For now, even the riskier subordinated debt of Fannie Mae and Freddie Mac enjoys "explicit support" of the government, S&P said on Wednesday as it upgraded the debt rating.
Fannie Mae and Freddie Mac spokesmen declined to specify dates of their Securities and Exchange Commission filings, but they are expected before the Nov. 10 deadline.
Expected write-downs of deferred tax assets -- or credits used to offset future income taxes -- at Fannie Mae and Freddie Mac will be big drag on third quarter results, and an admission of sorts that a weightier public policy role is trumping profitability under the conservator, Wagner said.
It's likely "they will very much be run with a public policy focus," she said.
For the second quarter, Fannie Mae and Freddie Mac relied on forecasts for future earnings to justify $20.6 billion and $18.4 billion in deferred tax assets, respectively, which bolstered capital. Fannie Mae's notice last month of pending third quarter write-downs could be interpreted as a reversal of those profit expectations, Wagner said.
Blows to stockholders' equity could trigger the U.S. Treasury's commitment to maintain positive net worths for the GSEs, and put capital injections in motion.
Fees on the GSE's mortgage bond businesses are another clue on larger public policy roles.
In normal times, the companies can protect profit by boosting fees on loans they guarantee. But with housing still reeling, government officials are pulling out the stops with emergency programs to encourage lending. Lower fees would make it easier for borrowers to refinance or get a new loan.
The GSEs have already been shouldering more responsibility for housing over the last year as the credit crunch froze other lending programs, including Wall Street securitizations. Owning or guaranteeing nearly half of all U.S. residential mortgages, they have a unique view on the market that drives investment decisions elsewhere.
"We view the upcoming releases as a way to learn more on the state of the housing market, the credit quality of the GSE's book of business, and the GSE's support to the mortgage market, and to determine the magnitude of the capital injection that may be required by Treasury, if any," Meera Chandan, an analyst at JPMorgan said in a report.
Credit losses are expected to rise to the high end of Fannie Mae's last forecast, Chandan said, keeping provisions "elevated" at $3.7 billion. She added that Fannie Mae's credit losses should rise from 18 basis points in the second quarter to the high end of its 23 to 26 basis point forecast, which it has increased several times since 2007.
A similar expectation holds for Freddie Mac and its $2.5 billion in second-quarter provision for credit losses.
Valuations on the $1.6 trillion in debt of the two GSEs will be less affected by financial results than in the past, due to the government support, Chandan said. (Editing by Tom Hals)
Obama's White House Chief Of Staff Has Deep Business Ties
11/06
03:08 PM
WASHINGTON (Dow Jones)--President-elect Barack Obama's pick for chief-of- staff, Rep. Rahm Emanuel of Illinois, puts a political insider with deep ties to the business community at the top of the new Democratic president's staff.
Emanuel, 48, has accepted the position, Democratic aides said Thursday. He will leave his U.S. House seat and return to the White House almost a decade after serving as a senior adviser to former President Bill Clinton.
Emanuel left the White House at the end of Clinton's term for an investment banking job at Wasserstein Perella & Co. in Chicago. Emanuel also joined boards, serving as a director at housing-financier Freddie Mac (FRE:$0.8757,$-0.0343,-3.77%) ; the Chicago Mercantile Exchange, now owned by CME Group (CME); and at smaller companies such as RxDrugstore and public-relations firm BSMG Worldwide Inc., now a part of Interpublic Group (IPG).
Emanuel was elected to Congress in 2002 and steadily advanced through the ranks. He eventually won a coveted spot on the tax-writing House Ways and Means Committee and became the chairman of the House Democratic Caucus, the No. 4 spot in the House. He also chaired the Democratic Congressional Campaign Committee during the 2006 elections, helping usher in Democratic control of the U.S. House for the first time in 12 years.
Emanuel's interest in business and finance deepened in Congress, where he used his position to help Chicago companies. Last year, Emanuel and Durbin wrote to the Federal Communications Commission, urging the agency to act quickly on the sale of Tribune Co. (TRB) to real-estate magnate Sam Zell. The lawmakers said that the FCC shouldn't allow its review of its media-ownership rules to delay completion of the transaction.
Earlier this year, Emanuel and Sen. Richard Durbin, D-Ill., wrote to the Justice Department criticizing it for raising questions about the merger between CME and the New York Mercantile Exchange. Chicago companies say that they don't expect any special treatment as a result of Emanuel's new role.
Terrence Duffy, the executive chairman of CME, said that the company won't be looking for any "political favors" from the new administration and it intends to "play within the rules of the game." But he speculated that Obama's Chicago roots may mean he has a much deeper understanding of futures markets.
Emanuel's reach extends beyond Chicago. Earlier this year, after talking with Aubrey McClendon, the chief executive of natural-gas producer Chesapeake Energy Corp. (CHK:$22.46,00$-2.37,00-9.54%) , Emanuel pushed tax credits for natural-gas vehicles and natural-gas fuel pumps. He was impressed with the Oklahoma company's foray into shale regions, areas in which new technology has allowed access to new natural gas reserves.
Emanuel was on the board of Freddie Mac (FRE:$0.8757,$-0.0343,-3.77%) during one of the more controversial periods in its history. The Securities and Exchange Commission last year charged the housing finance company with accounting fraud between 1998 and 2002.
The SEC said that the fraud stemmed from a corporate culture that emphasized steady growth even though its earnings were volatile. Emanuel was never named in the complaint.
Emanuel has at times scrutinized the business community even as he has advanced business interests. In 2006, he questioned Securities and Exchange Commission Chairman Christopher Cox about the agency's probe into stock-options backdating, a scandal in which companies pretended that options were granted at an earlier, more beneficial date when the price was lower.
-By Siobhan Hughes, Dow Jones Newswires; 202-862-6654; Siobhan.Hughes@ dowjones.com
(Sarah N. Lynch and Corey Boles contributed to this report.)
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=yaK%2B9URUjz2GfabgsG5QBg%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
11-06-081508ET
Copyright (c) 2008 Dow Jones & Company, Inc.
Obama's White House Chief Of Staff Has Deep Business Ties
11/06 03:08 PM
WASHINGTON (Dow Jones)--President-elect Barack Obama's pick for chief-of- staff, Rep. Rahm Emanuel of Illinois, puts a political insider with deep ties to the business community at the top of the new Democratic president's staff.
Emanuel, 48, has accepted the position, Democratic aides said Thursday. He will leave his U.S. House seat and return to the White House almost a decade after serving as a senior adviser to former President Bill Clinton.
Emanuel left the White House at the end of Clinton's term for an investment banking job at Wasserstein Perella & Co. in Chicago. Emanuel also joined boards, serving as a director at housing-financier Freddie Mac (FRE:$0.8757,$-0.0343,-3.77%) ; the Chicago Mercantile Exchange, now owned by CME Group (CME); and at smaller companies such as RxDrugstore and public-relations firm BSMG Worldwide Inc., now a part of Interpublic Group (IPG).
Emanuel was elected to Congress in 2002 and steadily advanced through the ranks. He eventually won a coveted spot on the tax-writing House Ways and Means Committee and became the chairman of the House Democratic Caucus, the No. 4 spot in the House. He also chaired the Democratic Congressional Campaign Committee during the 2006 elections, helping usher in Democratic control of the U.S. House for the first time in 12 years.
Emanuel's interest in business and finance deepened in Congress, where he used his position to help Chicago companies. Last year, Emanuel and Durbin wrote to the Federal Communications Commission, urging the agency to act quickly on the sale of Tribune Co. (TRB) to real-estate magnate Sam Zell. The lawmakers said that the FCC shouldn't allow its review of its media-ownership rules to delay completion of the transaction.
Earlier this year, Emanuel and Sen. Richard Durbin, D-Ill., wrote to the Justice Department criticizing it for raising questions about the merger between CME and the New York Mercantile Exchange. Chicago companies say that they don't expect any special treatment as a result of Emanuel's new role.
Terrence Duffy, the executive chairman of CME, said that the company won't be looking for any "political favors" from the new administration and it intends to "play within the rules of the game." But he speculated that Obama's Chicago roots may mean he has a much deeper understanding of futures markets.
Emanuel's reach extends beyond Chicago. Earlier this year, after talking with Aubrey McClendon, the chief executive of natural-gas producer Chesapeake Energy Corp. (CHK:$22.46,00$-2.37,00-9.54%) , Emanuel pushed tax credits for natural-gas vehicles and natural-gas fuel pumps. He was impressed with the Oklahoma company's foray into shale regions, areas in which new technology has allowed access to new natural gas reserves.
Emanuel was on the board of Freddie Mac (FRE:$0.8757,$-0.0343,-3.77%) during one of the more controversial periods in its history. The Securities and Exchange Commission last year charged the housing finance company with accounting fraud between 1998 and 2002.
The SEC said that the fraud stemmed from a corporate culture that emphasized steady growth even though its earnings were volatile. Emanuel was never named in the complaint.
Emanuel has at times scrutinized the business community even as he has advanced business interests. In 2006, he questioned Securities and Exchange Commission Chairman Christopher Cox about the agency's probe into stock-options backdating, a scandal in which companies pretended that options were granted at an earlier, more beneficial date when the price was lower.
-By Siobhan Hughes, Dow Jones Newswires; 202-862-6654; Siobhan.Hughes@ dowjones.com
(Sarah N. Lynch and Corey Boles contributed to this report.)
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11-06-081508ET
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'Rahmbo' joins Obama's team
11/06 02:52 PM
Rep. Rahm Emanuel, D-Ill., the architect of the 2006 Democratic takeover of the House, will take his aggressive, pragmatic style of politics to the White House.
President-elect Barack Obama asked his Chicago political ally to be the White House chief of staff, an offer Emanuel accepted Thursday, media reports said.
Caught heading out of his Chicago office for lunch with his wife, Amy, Emanuel said he was "happy that my parents are still alive" to see him have the choice of being a congressman and being the "chief of staff in a historic presidency."
In an August interview with Politico, Emanuel said Obama needed an aggressive agenda to fulfill his campaign promises.
"In the White House, you can be on the pitcher's mound or you can be in the catcher's position," he said. "Put points on the board. Show people you can govern. Deliver on what you said you were going to deliver on."
It will be a homecoming of sorts because Emanuel was an adviser to former President Bill Clinton in the Washington and on the campaign trail.
"My first impression was, 'This guy is going to help us win.' And he did. I doubt we could have done it without him," Clinton said in a 2006 Chicago Tribune interview on Emanuel's role in his 1992 campaign.
The 48-year-old Chicago congressman and chairman of the House Democratic Caucus -- making him the fourth most powerful Democrat in the House -- has been described in the past as a profane and hyperactive, TIME magazine and CNN reported in a profile that ran Thursday.
Elected to the House in 2002, Emanuel's Washington pedigree is seen as a complement to Obama's relative inexperience of just four years in Congress.
Emanuel's "high energy directness will serve him well" as chief of staff, said Mack McLarty, Clinton's chief of staff.
For his dogged effort to return the House to Democrats, Emanuel earned the moniker "Rahmbo."
After studying ballet in high school -- and offered a scholarship to the Joffrey Ballet -- Emanuel earned a bachelor's degree from Sarah Lawrence College and a master's degree from Northwestern University.
Before working for Clinton, Emanuel worked for Chicago Mayor Richard M. Daley. In between his stints in Washington, Emanuel was an investment banker and once sat on the board for mortgage financer Freddie Mac (FRE:$0.8671,$-0.0429,-4.71%) . He recuses himself from any congressional votes on the mortgage giant.
UPDATE:Credit Markets: Attention Turns From Politics To Econ
11/05 03:53 PM
By Romy Varghese and Deborah Lynn Blumberg
OF DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--As the historic U.S. presidential election removed some of the political uncertainty facing credit markets, participants on Wednesday returned their focus to the deteriorating U.S. economy.
Treasurys pushed higher, and a worse-than-expected private-sector jobs report ignited worries that the government's payrolls report Friday could be very painful.
"Now that we're through the election, the market is becoming more focused on the economic data," said Tom di Galoma, managing director and head of Treasurys at Jefferies & Company in New York.
Meanwhile, funds continued to liquidate portfolios. Accounts were asked to submit bids Wednesday on roughly $237 million of subprime mortgages and home equity loans, according to the list of securities seen by . There were also collateralized loan and debt obligations on offer.
Still, there were bright spots. A key interbank lending rate fell further Wednesday, a sign that short-term lending continues to improve following measures implemented by governments and central banks. This has also contributed to a more positive tone for bonds issued by investment-grade companies.
According to data from the British Bankers' Association, three-month U.S. dollar Libor dropped to 2.51%, the lowest this year, from Tuesday's fixing of 2.72%. The rate has fallen consistently since peaking at 4.82% on Oct. 10.
Commercial Paper
"There is good rhythm in asset-backed commercial paper," said one trader at a primary dealer, noting rates are lower and there is more confidence in the market. While weaker names are "struggling," they are still getting done, he said.
Meanwhile, commercial paper borrowing for 81 days or more fell to $9.61 billion on Tuesday from $19.9 billion on Monday, data from the Federal Reserve show. That was the fourth day of declines. Overall outstanding levels across the board also fell to $148.97 billion from $159.89 billion on Monday. The number of issues that came to market for 81 days or more fell to 398 from 591 on Monday. On Friday, that number was 1,063.
The Fed will release total outstanding levels for the week ending Nov. 5 on Thursday. It will also release data on how much companies borrowed from its backstop facility in the second week of its operation on Thursday afternoon.
Agency Debt
Lower Libor rates contributed to the lower yields seen on agency bills.
Fannie Mae's (FNM:$0.8302,$-0.0698,-7.76%) $1 billion of three-month bills sold Wednesday at a yield of 0.902%, about 43 basis points over comparable Treasury yields. The $1 billion of six-month bills sold at a yield of 1.532%, about 51 basis points over comparable Treasury yields.
This week's yields were significantly lower than what Fannie paid last week - 2.202% for the three-month bill, and 2.84% on the 6-month bill. Fannie and Freddie Mac (FRE:$0.9366,$-0.1134,-10.80%) have in recent weeks relied on these short-term bills to meet their funding needs. Risk premiums on their debt securities have pushed to historic heights, making it uneconomical for the two mortgage finance giants to raise money through the debt markets.
The short supply of new Fannie and Freddie bonds, however, has sparked a strong demand for these new bills, said Jim Vogel, an agency strategist at FTN Financial.
Investment-Grade Corporate Bonds
The high-grade corporate bond market continued to show signs toward normal functioning, as another bond deal estimated around $1 billion tested investor appetite.
Cigarette maker Altria Group Inc. (MO:$18.25,00$-0.84,00-4.40%) was offering a three-part deal Wednesday. Proceeds were to go toward its acquisition of UST.
Risk premiums were at 600 basis points, a hefty concession that may have been due to concerns about the Philip Morris (PM:$43.9500,$-0.8000,-1.79%) spinoff and UST acquisition. "When a company changes that much, its cash flows and ability to service debt naturally come into question. And anything that's even remotely questionable gets treated with investor skepticism in these markets," said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott in Philadelphia.
Junk Bonds
Tuesday's rally faded in the junk bond market Wednesday, according to KDP Investment Advisors, Inc. With the election over, investors have turned their attention back to earnings and economic data and trading activity has so far been fairly light, KDP said. Investors said Tuesday's rally came as little surprise, especially considering how low valuations have got. "The oversold nature of the credit market was so staggering, it makes sense that spreads would have a bounce from where they were," said James C. Camp, managing director and portfolio manager at Eagle Asset Management.
Residential Capital's bonds were lower Wednesday after GMAC Financial Services said that without its support, ResCap is unlikely to survive. ResCap's 8.375% bond of 2010 was 25 points lower at 23.5, according to MarketAxess (MKTX:$4.94,00$-0.37,00-6.97%) .
Asset-Backed Securities
The tightening of credit conditions shut out companies with consumer loans from the securitization market in October.
Effectively, this means consumers who had easy access to credit from mortgage loans to credit card debt now directly feel the brunt of economy's contraction.
Issuance of securities that bundle consumer debt such as car, student and auto loans ground almost to a standstill in October. If companies can't raise money by repackaging and selling these loans as securities, then they scale back on the loans made to consumers.
The only security to be issued in October was a $500 million transaction from AmeriCredit (ACF:$6.40,00$-0.94,00-12.81%) that was backed by subprime auto loans.
"The consumer ABS new issue market is effectively shut," said Joseph Astorina and team in a Barclays Capital research note.
-By Romy Varghese, Dow Jones Newswires; 201-938-4287; romy.varghese@ dowjones.com
(Prabha Natarajan, Anusha Shrivastava, Min Zeng, Kate Haywood and Keith Jenkins in London contributed to this report.)
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11-05-081553ET
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FED WATCH: Fed Still Struggling To Manage Funds Rate Market
11/05 03:24 PM
NEW YORK (Dow Jones)--Yet another tweak in the formula used by the Federal Reserve to pay interest on bank reserves shows the central bank is struggling to get an important new policy tool to function properly.
What's more, economists still remain uncertain the Fed has found the sweet spot giving it the desired control over the fed funds target rate, at a time when the bank is moving heaven and earth to get liquidity into the troubled financial system.
On Wednesday, the Fed again revised the formula that determines the interest rate it pays banks for reserves they are required to hold at the central bank. The Fed said the rate on required reserves will now be equal to the average funds rate over the two week period of the reserves balance cycle. The rate on excess reserves will be equal to the lowest target rate during the two week period. The new rates take effect on Nov. 6.
The Fed was granted the ability to pay interest on reserves as part of emergency legislation that gave the Treasury the power and funding to buy distressed assets and inject cash into banks via stock purchases. The Fed sought this power to gain greater control over the fed funds rate.
The funds rate is the best known and bluntest tool used by the Fed to influence the economy. The current target of 1% matches the low point of the modern era, and it got there after a half percentage point easing last week. But even as the Fed sets an official objective, it is still a market-based rate that can fluctuate, and those movements require the central bank to intervene daily to tweak bank reserves.
Traditionally, the Fed has done a good job getting the markets to keep the funds rate where it is supposed to be. But the massive liquidity injections since late summer 2007 have made managing reserves much more difficult, and the incentives that drive trading in the reserves market have changed.
The forces that drive the daily level of the funds rate are esoteric, and the direct management of the funds rate is highly technical. In essence, as Fed Vice Chairman Donald Kohn said in an Oct. 15 speech, the ability to pay interest on reserves means "we can expand our lending and still maintain the federal funds rate target."
But since the Fed embarked on its emergency actions the funds rate has been trading well below its desired level, and that's a problem.
When the Fed got this new power, its novelty meant some experimentation would be needed. That was expected. Even so, it's becoming clear the Fed is having a hard time finding out what it should be paying.
Michael Feroli, an economist with JPMorgan, noted that under the most recent interest formula - it paid interest at a rate below that of the funds rate - the effective funds rate has traded consistently nearly 75 basis points under that of the 1% official target.
The economist said the central bank had hoped its new tool would set a floor under which the funds rate would not fall, and clearly, that wasn't happening. Feroli attributed that to the fact some institutions, like the nationalized mortgage giants Fannie Mae (FNM:$0.8415,$-0.0585,-6.50%) and Freddie Mac (FRE:$0.9434,$-0.1066,-10.15%) , are unable to earn interest on their reserves. Because of that, they lend their reserves out and thwart the Fed's goals.
For Feroli, "it remains to be seen whether (Wednesday's) change brings the effective fed funds rate closer to the target funds rate."
Barclays Capital'sJulia Coronado is also unsure the Fed will accomplish its objective. But she observed Wednesday's action shows the Fed is "generally concerned" about the softness of the funds rate.
"It seems from this change that they are hoping that banks will increase their arbitrage activity, borrowing cash from non-depositories and earning the target rate," she told clients. She added "more arbitrage activity would presumably push up the effective rate."
The stakes for the Fed on this issue are not trivial. Feroli said that for a central bank that has made a virtue of communicating its goals, the disconnect between the objective for the funds rate and the actual funds rate must be resolved, sooner rather than later.
(Michael S. Derby, a special writer with Dow Jones Newswires, has covered the Federal Reserve since 2001. He also writes about bond markets and the economy. He can be reached at 201 938 4192 or by email: michael.derby@dowjones.com.)
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11-05-081524ET
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Fannie Mae sells $2 bln bills at lower rates
11/05 09:52 AM
NEW YORK, Nov 5 (Reuters) - Fannie Mae (FNM:$0.851,0$-0.049,0-5.44%) <FNM.P> on Wednesday sold $2 billion in bills at lower interest rates compared with sales of the same maturities and size a week ago.
Fannie Mae (FNM:$0.851,0$-0.049,0-5.44%) said it sold $1 billion of three-month benchmark bills due Feb. 4, 2009 at a stop-out rate, or lowest accepted rate, of 0.900 percent and $1 billion of six-month bills due May 6, 2009 at a 1.520 percent stop-out rate.
The three-month bills were priced at 99.772 and have a money market yield of 0.902 percent, and the six-month bills were priced at 99.232 and have a money market yield of 1.532 percent, according to Fannie Mae (FNM:$0.851,0$-0.049,0-5.44%) .
On Oct. 29, Fannie Mae (FNM:$0.851,0$-0.049,0-5.44%) sold $1 billion of three-month bills at a 2.190 percent stop-out rate and $1 billion of six-month bills at a 2.800 percent stop-out rate.
Settlement for the new bills is Nov. 5-6. (Reporting by Caryn Trokie; Editing by Theodore d'Afflisio)
Mortgage securities market seeks liquidity measure
11/05 03:05 PM
By Al Yoon
NEW YORK, Nov 5 (Reuters) - An industry group is seeking comment on a proposal aimed at boosting trade and prices in parts of the $4.5 trillion market for guaranteed mortgage-backed securities.
The Securities Industry and Financial Markets Association's plan would let dealers re-package a type of structured mortgage bond into a security eligible for a more liquid market, according to a letter to SIFMA members obtained by Reuters.
Re-packaging collateralized mortgage obligations, or CMOs, with attributes similar to plain-vanilla mortgage bonds could increase their values and help solve a nagging problem for dealers and other holders who have found the securities tough to sell as the global financial crisis turned investors away from risk. CMOs are created with basic "agency" MBS, but structured to make cash flows and prepayment risks attractive to investors.
A recent slump in trading in the overall market for guaranteed MBS issued by Fannie Mae, Freddie Mac and Ginnie Mae has been blamed for inflating mortgage rates that banks can charge to borrowers. Pricing on CMOs are now "significantly lower" than MBS with the same attributes, creating a negative arbitrage, SIFMA said in its letter.
But making new bonds based on CMOs eligible for the "to-be-announced" market -- where generic issues are bought and sold before the bonds are actually delivered to investors -- would lay additional supply on the market as it adapts to softened demand from investors such as foreign buyers, Fannie Mae (FNM:$0.851,0$-0.049,0-5.44%) and Freddie Mac (FRE:$0.95,00$-0.10,00-9.52%) .
TBA issues offer some of the financial markets' best liquidity, an attribute more dear to traders and investors in turbulent times.
"It's one way to facilitate a market," said Matthew Peterson, a trader at RBC Capital Markets in New York.
However, investors are not expanding balance sheets, and if "all it does is increase supply, is that something we want to do?" he asked.
SIFMA executives declined to comment on the proposal, a spokeswoman said.
Supply for MBS paying 5.5 percent interest -- a large segment of the overall market -- in CMOs is about $116 billion, he said. Something less than that could be made into the new securities known as re-REMICs, or re-real estate mortgage investment conduits, he said.
I think Obama's favorable rating overseas could be a big boost for American markets from foreign investors. Assuming the sentiment is the same towards Obama amongst foreign investors, than it is with "Joe the Foreigner", LOL...
I really like this board. Nobody even flinched yesterday when they down-ticked us 5 cents after the bell. Bunch of poker players here...