Fannie Mae-No Politics (FNMA)

[navycmdr]

Fannie Mae (FNMA) and Freddie Mac (FMCC) are the Most Undervalued
Stocks in the Entire Market - Here's Why self.stocks

Best law firms in the country fighting our lawsuits 10.

Election risk for the democrats.

If a republican gets elected president they might lose the ability to control the outcome for the housing market and housing market groups, which are big political supporters and contributors.

All signs point to this situation being resolved before a new president takes office. The time to buy the stock is now. (in my opinion)

Submitted 1 day ago * by olesentv

In 2008 Congress passed the Housing Economic Recovery Act. This legislation gave the government the power to take control of the Government Sponsored Enterprises, or GSEs, if certain threshold criteria were met and their regulator made a determination that intervention was needed to restore operations at the companies.

Approximately 3 months after HERA passed, the Treasury secretary at the time, Hank Paulson, made the decision in consultation with the president, George W. Bush, to takeover operations of the companies and to place them into conservatorship.

In his book 'On the Brink' he characterizes his mentality in making the decision by recalling a conversation he had with the president just before taking control of the enterprises.

The quote is "Do they know it's coming, Hank?" President Bush asked me. "Mr. President," I said, "we're going to move quickly and take them by surprise. The first sound they'll hear is their heads hitting the floor." To read a more in-depth excerpt of the decision:

http://abcnews.go.com/GMA/Books/book-excerpt-brink-henry-paulson-jr/story?id=9713451

The major problem with the attitude displayed in that quote is that these companies had, and continue to have, investors. Their shares are publicly traded. So while the goal of protecting the economy and taxpayers is very noble, shareholder's in these companies have taken an almost total loss in the value of investments. Fannie Mae, for instance, has been profitable for 17 consecutive quarters(4 years, 3 months), yet still remains in government control.

Within the next 6 weeks, an appeals court is expected to make a decision in relation to the legality of the present arrangement. Their conservator, FHFA (Federal Housing Finance Agency), signed an agreement, normally referred to as the '3rd Amendment', that gives their net worth to the Treasury Department forever. 22 lawsuits are challenging the legality of that agreement.

The Treasury Department GSE Game Plan:

Get Congress to pass HERA

Use the financial crisis as an excuse to take over the GSEs and put them into conservatorship

Fire the managers and reconstitute the boards of directors with cronies

Delist the companies

Force the GSEs to borrow capital from Treasury at 10 percent interest in the lowest interest rate enviornment in history, AAA credit ratings, and 400 billion dollars in unencombered and unpledged MBS. Also deny them access to the discount window at the FED while simultaneously telling the public that they have access to the discount window at the FED.

Use Fannie and Freddie to buy up bad mortgage assets from banks at a rate of "50 billion dollars per month" 7 Encourage NEW public investment in GSE preferred stock and then abuse those good faith patriotic investments by never paying the promised dividends on those investments. (22 billion in preferred stock sold in 2007-8
Give GSE profits to Treasury forever

Aggressively fight GSE shareholder lawsuits even when 100 percent in the wrong
Abuse trust in government by having Congressmen and women introduce unconstitutional GSE reform legislation like Corker/Warner, the Path Act, and Pay Back the Taxpayers etc.

Put the auditors of the GSEs, like Deloitte, in a precarious situation by allowing them to be sued and endangering their investors.

Have the Justice Department claim executive privilege, and other privileges, on 11,000 documents having nothing at all to do with protecting national security or trade secrets.

Encourage Justice Department lawyer's to make a mockery of the legal system by making ridiculous and asinine arguments on behalf of the United States in courtrooms around the country. Have them act extremely arrogant and disrespect the judges, like Judge Sweeney.

Make a mockery of conservatorship by drawing out the process for 8 years and 17 consecutive quarters of profitability.

I own common stock in Fannie Mae(FNMA), which currently trades at a price of 1.77 share and market cap of 10.16 billion. That market cap includes an option the Treasury Department has to purchase 79.9 percent of the common stock for .000001 per share. That option has not been exercised yet, but it makes sense in valuing the company to assume it will be exercised even if there is a possibility that it won't be.
Historically, Fannie Mae, traded with a P/E ratio of between 15-20 times earnings. So the probable market cap of the company out of conservatorship after being relisted would probably be somewhere between 150-200 billion. It is worth noting that the GSEs have doubled their Guarantee fees which has probably doubled their overall profitability. There are 1.2 billion shares outstanding for Fannie Mae. 20 percent of 200 billion is 40 billion.

Which means that the shares of Fannie Mae out of conservatorship should be worth $33.33 per share, at minimum. If the common stock warrant that Treasury holds is never exercised the shares would be worth 165 dollars per share. That's almost 100 times their current market price.

Here are the current positive factors that make it unlikely you can lose money holding these shares long term. But even better the situation is binary which means because there are no in-between investment results possible besides the shares going to 33 or 165, that the share prices are vastly under-valued presently.
22 lawsuits pending and very damaging information coming out in documents in those lawsuits.

An appeals court decision within the next 6 weeks
Very positive media coverage recently. Rolling Stone, New York Times, The Washington Post, all are on the story and telling it in ways that are great for shareholder's

The GSEs have paid over 240 billion dollars to the Treasury on borrowings of 187 billion.

The GSEs are involved with almost 90 percent of mortgages in the United States. This makes replacing them arbitrarily or quickly extremely challenging.

They are operating with very low amounts of retained capital. This makes it likely that a decision will have to be made soon that changes the current circumstances.
Very vocal grassroots investors movement.

Large hedge fund investments in the companies.

Best law firms in the country fighting our lawsuits 10.Election risk for the democrats. If a republican gets elected president they might lose the ability to control the outcome for the housing market and housing market groups, which are big political supporters and contributors.

All signs point to this situation being resolved before a new president takes office. The time to buy the stock is now. (in my opinion)

https://www.reddit.com/r/stocks/comments/4i46c5/fannie_mae_fnma_and_freddie_mac_fmcc_are_the_most/