Fannie Mae-No Politics (FNMA)

[chessmaster315]

Buffet Considering FNMA

Source: http://timhoward717.com/

Buffet said:

Warren: I think the 30-year fixed rate mortgage is a terrific boon for homeowners, but it’s not a great instrument to own as an investor. It’s done a lot for home ownership in the country. Let people get into homes earlier, kept costs down — the government guarantee keeps the cost down.

Home mortgages are an $11 trillion market, and there is no capacity for private industry to do the job. The question is how to keep the government in the picture without keeping politics in the picture. You’ve found Fannie Mae and Freddie Mac doing dumb thing with politicians prodding them into it.

I think there could be a way. I wrote an article 30 years ago when S&Ls were falling apart, suggesting how to get the private sector into pricing and evaluating risk. But essentially the government being the main insurer. There could be a way that model works in terms of home mortgage insurance.

I don’t think we’d likely be a player, because others would be more optimistic in setting rates. In the end the government would need to be the main insurer. Perhaps private industry could set the price and take 5%, and the government would take 95%.

Now, lets look at Buffets quote. First, he says, "I think there could be a way." But, later he says, "I dont think we'd likely be a player."

He is obviously "thinking" about FNMA. And, look at the obverse of his statement that "I dont think we'd likely be a player." That means he has not ruled it out, first, and look at his reasons (for "not" acting), which have everything to do with interest rates. So, when HE finds the interest rate market to be favorable, this means his reason for not acting could evaporate, and he could buy.

I think he is coming in, especially, if you consider Charlie Munger's comments. Remember, Buffet likes to buy and hold, so he wants to buy cheap, and he does to pay too much. And remember, Charlie Munger and Buffet go way, way, back, and Buffet considers Munger's advice before any one else.