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Probably a liquidity discount...
Whose buying, Warren leave the cheapies for us!
We'll see if the FHFA publishes their results. Single Family Delinquencies rose 1 BP in November from October, wonder if these programs had anything to do with it. Assuming that the Single Family Book of Biz is approximately $3.5T (out of a $4.2T total book which includes MF) a 1 basis point monthly increase is approximately $3.5B of Mortgage Unpaid Principal in new seriously delinquent loans or $40B per year.
•Fannie Mae's Guaranty Book of Business decreased at a compound annualized
rate of 0.4% in November.
•The Conventional Single-Family Serious Delinquency Rate increased by 1 basis
point to 0.54% in November.
•The Multifamily Serious Delinquency Rate increased 3 basis points to 0.47% in
November.
•As of November 30, 2023, Fannie Mae's maximum exposure to Freddie Mac
collateral that was included in outstanding Fannie Mae resecuritizations was
$216.9 billion.
IMPORTANT NOTE:
Fannie Mae has been under conservatorship, with the Federal Housing Finance
Agency (FHFA) acting as conservator, since September 6, 2008.
https://www.yahoo.com/finance/news/wall-street-expects-homebuilders-shocking-153024849.html
Homebuilder stocks are on pace for their biggest annual advance in over a decade, a remarkable feat considering how rising interest rates sent mortgage rates soaring in 2023. Now that bond yields are coming down, Wall Street expects that rally to carry over into 2024.
Whose buying these at the end of 4Q23, to juice up their 2024 returns?
Is this guy buying? https://finance.yahoo.com/news/warren-buffett-just-added-589-141500556.html
https://finance.yahoo.com/quotes/fmcc,fnma,fmckj,fmcki,fmccm,fmcck,fmcct,fmcci,fmckk,fmccg,fmcch,fmccl,fmccn,fmcco,fmccp,fmccj,fregp,fmckp,fmccs,fmcko,fmckm,fmckn,fmckl,fnmap,fnmao,fnmfo,fnmam,fnmag,fnman,fnmal,fnmak,fnmah,fnmai,fnmaj,fnmas,fnmat,fnmfm,fnmfn/view/v1
Alan Blinder, todays WSJ on the potential effect of Capital Ratios on Financial Institutions determined by government agencies (like the FHFA):
"The optimal amount of bank capital is a complicated issue with reasonable arguments on both sides. I won't attempt to resolve the debate. More important is that if the plaintiffs win in the mifepristone and fishing-boat cases, the banking agencies' authority to set minimum capital requirements could be further undermined.
Nor will the evisceration of the administrative state end there. U.S. law is crammed with financial regulations handed down by the Federal Reserve, Federal Deposit Insurance Corp., Securities and Exchange Commission and other agencies over the years. All need interpretations. If the government loses in both cases, the FDA and Commerce Department won't be the only losers. Judges could call into question the financial, health, safety and commercial regulations across the federal bureaucracy.
The justices doubtless know that. Their rulings ought to show a little judicial restraint. Will they?
---
Mr. Blinder is a professor of economics and public affairs at Princeton and a visiting fellow at the Peterson Institute for International Economics. He served as vice chairman of the Federal Reserve, 1994-96.
Credit: By Alan S. Blinder"
David Maxwell definitely turned Fannie Mae around, remember when the $10B of bad loans he inherited where finally off the books?
"No. 7: David Maxwell
Turned a turnaround into art
Fannie Mae was losing $1 million a day when he arrived—’an opportunity to make (it) into a great company.’
In 1981, as the stock of Chrysler hit an all-time low, America was beginning its enthrallment with the man hired to save it. Lee Iacocca would soon be a national icon—bestselling author, star of more than 80 commercials, and everyone’s image of a turnaround artist.
That same year, as the stock of Fannie Mae hit an all-time low, a different executive was hired to save the deeply troubled mortgage lender. David Maxwell would not become a national icon—nor even a recognizable name. Yet by the time both men retired in the early 1990s, Maxwell’s Fannie Mae had beat the stock market at a rate more than twice that attained by Chrysler under Iacocca.
More inspired than inspiring, more diligent than dazzling, Maxwell took a burning house and not only saved it but built it into a cathedral. Some steps, such as selling off $10 billion in unprofitable mortgages, were classic fireman stuff. But his deepest genius was to frame the rebuilding around a mission: strengthening America’s social fabric by democratizing home ownership. If Fannie Mae did its job well, people traditionally excluded from owning homes—minorities, immigrants, single-parent families—could more easily claim their part of the American dream. If turnaround is an art, Maxwell was its Michelangelo."
https://readingraphics.com/top-10-ceos-of-all-time/
Didn't many of the PMI's end up insolvent or unable to pay the massive incoming claims from the 2008 GFC?
Rocket is a nonbank and has a big market share of the Primary Mortgage Market. When there is another inevitable downturn in the US Housing Market will Rocket and the other nonbanks proliferating the Primary Mortgage Market be able to buy back Mortgages from the GSES, since they do not have access to a depositor base like banks do, and the financial markets will be unwilling to lend to them during another downturn?
Borrowers with only 1% skin in the game seems risky to me.
I dug this up the other day, it seems David O. Maxwell was pushing for Fannie Mae to sever their Government Charter (like Sallie Mae did) but Jim Johnson talked him out of it and became the successor to David Maxwell.
"When Maxwell retired as chairman in 1991, Fannie Mae was earning $4 million a day and had a $1.36 billion annual profit. The company was profitable enough that Maxwell considered separating it from its congressional charter, which provided some tax breaks and exemption from certain securities rules, but he was convinced by other executives at the company to keep the charter. Despite Maxwell's amazing turnaround of the company, controversy in Congress arose over his initial $27-million retirement package because many felt a government-sponsored agency should not pay such a large amount. Maxwell, concerned about the impact of his retirement payment on Fannie Mae, chose to forgo his second $5.5-million payment and requested that it be used to finance low-income housing. Despite this offer, Congress passed legislation in 1992 requiring closer oversight of Fannie Mae. The legislation did not reduce Fannie Mae's profitability, and the company expanded its programs for low-income families and provided $1 trillion in financing for a program to buy loans on apartments for low-income families."
Read more: https://www.referenceforbusiness.com/biography/M-R/Maxwell-David-1930.html#ixzz8MY7fo4OQ
James M Landis and the Wilsonian Progressives believed that these federal agencies (aka the 4th Branch of government) would be run by 'experts in their fields' without political bias and that these 'career bureaucrats' would take the best interests of the country as a priority instead of self interest or political party interests.
Look at Demarco here, he purposely Nationalized our Corporations, when he should have rehabilitated them and is now making triple his Gubmint Salary at a TBTF Banking Lobbying Group:
https://www.housingpolicycouncil.org/
https://www.causeiq.com/organizations/housing-policy-council,832778151/
Nationalization from 2008? GW Bush apparently told Hank Paulson that "We don't want this to look like a Nationalization".
After over 15 years, the Defacto Nationalization continues while the current administration, "Waits for the US Congress to determine the future of the US Housing Finance Market."
About to go under, my arse! When the August 17, 2012, Net Worth Sweep was signed it was pretty clear the US Housing Market had turned positive and would continue to do so.
How many US Corporations make $84 BILLION/YR in NET INCOME?
Fannie Mae did in 2013 (coincidentally JUST as the Conservator was sweeping their profits in CASH to the US Treasury.
https://www.nytimes.com/2014/02/22/business/economy/fannie-mae-reports-84-billion-in-profit-for-2013.html
Freddie Mac's 2013 Net Income (that's after taxes) was about $45 Billion.
Too bad you didn't make it to the Lamberth trial, they did a great job showing this to the Jurors, you too would have been enlightened. Never too late to learn.
https://www.nytimes.com/2017/07/23/business/fannie-freddie-treasury-lawsuit.html
That's $120B+ in 2013 alone that should have been used to pay off the funds advanced from the US Treasury and/or to begin to build Capital.
https://theconversation.com/a-brief-history-of-the-mortgage-from-its-roots-in-ancient-rome-to-the-english-dead-pledge-and-its-rebirth-in-america-193005
"Early US housing history
The English colonization of what’s now the United States didn’t immediately transplant mortgages across the pond.
But eventually, U.S. financial institutions were offering mortgages.
Before 1930, they were small – generally amounting to at most half of a home’s market value.
These loans were generally short-term, maturing in under 10 years, with payments due only twice a year. Borrowers either paid nothing toward the principal at all or made a few such payments before maturity.
Borrowers would have to refinance loans if they couldn’t pay them off.
Rescuing the housing market
Once America fell into the Great Depression, the banking system collapsed.
With most homeowners unable to pay off or refinance their mortgages, the housing market crumbled. The number of foreclosures grew to over 1,000 per day by 1933, and housing prices fell precipitously.
The federal government responded by establishing new agencies to stabilize the housing market.
They included the Federal Housing Administration. It provides mortgage insurance – borrowers pay a small fee to protect lenders in the case of default.
Another new agency, the Home Owners’ Loan Corp., established in 1933, bought defaulted short-term, semiannual, interest-only mortgages and transformed them into new long-term loans lasting 15 years.
Payments were monthly and self-amortizing – covering both principal and interest. They were also fixed-rate, remaining steady for the life of the mortgage. Initially they skewed more heavily toward interest and later defrayed more principal. The corporation made new loans for three years, tending to them until it closed in 1951. It pioneered long-term mortgages in the U.S.
In 1938 Congress established the Federal National Mortgage Association, better known as Fannie Mae. This government-sponsored enterprise made fixed-rate long-term mortgage loans viable through a process called securitization – selling debt to investors and using the proceeds to purchase these long-term mortgage loans from banks. This process reduced risks for banks and encouraged long-term mortgage lending."
David Maxwell was a stand up guy! Fun working there as well. Remember all the Bloomberg terminals peppered throughout 3900 & 4000?
I think there's a Wegmans at 4000 now...
https://www.c-span.org/person/?4652/DavidMaxwell#:~:text=David%20Maxwell%20is%20a%20Chair,was%20a%201986%20House%20Committee.
I was an employee of Fannie Mae between 1988-93 and met David Maxwell on several occasions.
At one Company Christmas party (yes, that was a thing) David Maxwell told me, "The number one risk for this stock is political risk."
It was true then as well as today!
BTW, Made an f'ing killing on Annual Employee Stock Option Plan!
Ahhhh, the 1980's! !
"If the broad light of day could be let in upon men’s actions, it would purify them as the sun disinfects."
-Louis Brandeis, US Supreme Court Justice
https://en.m.wikipedia.org/wiki/Louis_Brandeis
https://sunlightfoundation.com/2009/05/26/brandeis-and-the-history-of-transparency/
Wouldn't the quickest route to release be if this guy were ultimately in charge of the FHFA?
Do you think he has the patience to "Wait around for Congress to decide the future of the US Housing Finance Market?"
https://www.cnbc.com/2023/12/19/trump-wipes-out-bidens-lead-with-latino-voters-in-2024-cnbc-survey-.html
¡El año que viene, este tipo votará a favor de la liberación de las tutelas!
Personally I think American Citizens Liberty and Rights are better protected with more checks and balances not less. Some of these federal agencies can sue you first in their own internal tribunal with their own Judges. If the Federal Agency disagrees with their own Judges ruling, then a Commission inside the federal agency can overrule it.
Because it costs tons in legal fees, very few Americans can effectively mount a defense to an administrative agencies accusations and about 90% or more settle with the federal agency.
https://www.scotusblog.com/case-files/cases/securities-and-exchange-commission-v-jarkesy/
"Issues: (1) Whether statutory provisions that empower the Securities and Exchange Commission to initiate and adjudicate administrative enforcement proceedings seeking civil penalties violate the Seventh Amendment; (2) whether statutory provisions that authorize the SEC to choose to enforce the securities laws through an agency adjudication instead of filing a district court action violate the nondelegation doctrine; and (3) whether Congress violated Article II by granting for-cause removal protection to administrative law judges in agencies whose heads enjoy for-cause removal protection."
After watching this slow train wreck called the Net Worth Sweep, you still don't think these federal agencies need to have some of their powers over the American People reigned in or at least subject to being overruled by the Judicial Branch?
Having the Executive Branch decide to unilaterally deplete the Net Worth of their Conservatives and take it for the US fisc was not what the lawmakers who passed HERA in 2008 had in mind.
The Federal Government could have wound them down in Receiverships but not during Conservatorships.
The Jury's verdict showed that the federal government has unclean hands here. Shame on Uncle Suggy for implementing the Net Worth Swipe to make sure that these great corporations, "never go pretend private again.", and acting in bad faith and unfair dealing.
What a mess the federal government has made here! In 2012, the Executive Branch decides to replace the GSES with some unknown entities that only the Legislative Branch can dream up and in the meantime drains $120B in CASH from the balance sheets of Fannie Mae and Freddie Mac in 2013, and continues to deplete Capital all the way to almost zero. Then in 2019 they change their minds and realize having Capital to back Trillions in MBS is a good idea.
Good points. As Capital grows plus the realization that there is no real viable alternative, the idea of release from what should have been a temporary conservatorship seems more viable.
But, I think any current or future administration could if they don't want to release the GSE'S for whatever reason, simply say, "We're waiting for Congress to decide the future of the US Housing Finance Market."
Lobbying by the MBA, NAR, and the NAHB could also impact the end of conservatorships.
I wonder if we could do a FOIA request and find out for sure?
Allegedly it's a government for the people by the people, but for the 15 years of CONservatorships it seems like a government for the government at the expense of the people.
In 2022, 5% of loan acquisitions had Original Loan to Value Ratios of > 95%, in 2023, 7%.
When home prices are moving upward no problem but in a downturn they have much higher probabilities of default along with FICOS < 680.
PG. 11 FINANCIAL SUPPLEMENT
https://www.fanniemae.com/newsroom/fannie-mae-news/third-quarter-2023-financial-results
"[15] How much net worth would be needed for GSE conservatorship exit is a matter of great debate. To be considered “adequately capitalized” under today’s regulations (which are quite controversial), it would require roughly three times the current level."
Don Layton on the August 17, 2012, Net Worth Swipe: "[14] This rather unusual capital situation aligned with the Obama administration’s view that the GSEs would be wound down on their way to be replaced by “something else,” thus not requiring any capital in the future. There were lawsuits about the legality of how this was decided and implemented. The government won all of them until just recently, when investors initially won a relatively small amount that may or may not be appealed by the government."
"Rather Unusual" ? Don left out US Treasury Secretary Mnuchin comments that another reason was to fund the US Government for Obamacare. What were the CASH PAYMENTS in 2013 to the US Treasury, $120 BILLION PLUS!
Meanwhile, the US Government denies the American People the whole truth and hides behind Executive Privilege and National Security Privileges.
"Q9: If the decision was made to exit conservatorship today, how long would it take to complete?
A: It is very hard to generalize how such an exit would occur, given that nothing like this has ever really happened before. But in the most likely scenario, in my view, it will take at least three to five years. This is a roughly estimated time needed for net worth to grow via earnings retention to reach a level of capital that might be deemed sufficient for conservatorship exit and for all the other mechanics to be put into place for post-conservatorship regulation that retains the GSE conservatorship reforms made in the last fifteen years.
Also, importantly, the end of conservatorship does not mean the end of government control, as Treasury would, upon such exit, own the vast majority of the company's equity. [16] It would then take at least another several years for Treasury to sell its shares and resolve various stockholder-related issues. As a rough estimate, these two steps add up to six to ten years before the GSEs would once again truly be public-market shareholder-owned companies."
Mark Calabria no doubt scooping up some cheapies !
Nice one day uptick, getting any trading volume? Is that right 1.58m on FNMAS?
https://finance.yahoo.com/quotes/fmcc,fnma,fmckj,fmcki,fmccm,fmcck,fmcct,fmcci,fmckk,fmccg,fmcch,fmccl,fmccn,fmcco,fmccp,fmccj,fregp,fmckp,fmccs,fmcko,fmckm,fmckn,fmckl,fnmap,fnmao,fnmfo,fnmam,fnmag,fnman,fnmal,fnmak,fnmah,fnmai,fnmaj,fnmas,fnmat,fnmfm,fnmfn/view/v1
Real Estate is cyclical and if US Housing Prices fall, so to will the GSES earnings and likely Capital. Historically, < 680 FICOS + > 90 LTV'S perform the worst during downturns, are more costly to service, and most importantly dislocate and often financially devastate those families that can least afford it.
Didn't we learn this lesson in 2006-08?
Interesting, cross subsidizing higher credit and default risk by those mortgagors with lower credit and default risk?
So, those who paid their debts on time always and saved more for a down payment are subsidizing or pay more for Fannie Mae and Freddie Mac loans?
Are both those statements correct or partly correct or not correct at all?
Would it be fair to say, that but for the cross subsidizing, there would more Capital build organically?
Don't worry, Fannie Mae and Freddie Mac are designing new programs (FICO's less than 680 with LTV'S in the high 90's?):
"For example, within the Residential Mortgage-Backed Securities (RMBS) sector, Fannie Mae’s and Freddie Mac's labeled social and sustainability programs proactively cater to underserved borrowers, including first-time homebuyers and those who may be cost-burdened, income-challenged, disabled or from minority communities. Fannie Mae’s HomeReady program and Freddie Mac’s Home Possible program both further address cost barriers through lower down payment requirements and increased flexibility for borrowers. These programs provide the most appealing financing relative to borrowers’ credit profiles. As a result, cashflows backed by these pools are generally much more predictable and may make them more enticing for investors given the increased certainty of repayment timing. While mortgages typically have higher prepayment rates when rates are falling, periods where investors least prefer to receive their capital back sooner, the appeal of RMBS backed by these programs to investors is they are less likely to seek alternative financing in these periods. This typically results in more stable prepayment profiles over the life of these securities."
https://www.brownadvisory.com/us/insights/importance-evaluating-social-factors-mortgage-bond-analysis
That sounds about right, MBS prepayment speeds in general may have lengthened to about 8.0-8.5 years due to all the 1.5%-2.5% coupons issued in 2020-2022.
Also, Americans are staying in their homes or moving less frequently than they used to and home sales have remained slow due to the rapid increase in the 30 year Fixed Rate Mortgage.