Fannie Mae-No Politics (FNMA)

[jacklanvo99]

On Tuesday Freddie Mac announced a net loss of $354 million for the first quarter of the year. The loss was due mostly to how decreases in interest rates affect Freddie’s derivative holdings and not a weakening housing market. In fact, an accompanying statement from CEO Donald H. Layton confidently declared, “Freddie Mac’s first quarter business results continued to be strong, reflecting our transformation to be a more competitive company.” Fannie Mae, meanwhile, announced today quarterly profits of $1.1 billion. Of course, $919 million of that was snatched up by Treasury.

Indeed, both companies’ statements noted that the terms of the conservatorship, amended by the 2012 Net Worth Sweep that will whittle their capital to zero by 2018, make it inevitable that they will experience a negative net worth and have to draw from public funds.

This week’s earnings reports were eagerly anticipated. Many market watchers suspected the stage was set for a draw by Freddie or Fannie back in February when Federal Housing Finance Agency Director Mel Watt warned that D-day was looming. Watt’s deliberate candor about his concerns over dwindling rainy day capital made news but he was merely summarizing financial reality. Of course, the GSEs’ 2015 net income was a far cry from the companies’ historic 2013 earnings, when Fannie and Freddie posted record profits following the reversals of off-balance sheet losses that the government forced them to write down in the wake of the Great Recession. But the GSE business model clearly remains very healthy – slight income and profit declines and market fluctuations happen to the best of companies. Just ask Apple.

Of course, what Apple has going for it is that it gets to keep its earnings. By doing so it has created an ample capital buffer – $233 billion in cash and securities – far beyond ample, in fact. Thus, even if iPhone sales slow, the company should be fine over the long term. It is remarkable how resilient companies can be when they are allowed to retain capital and function based on market principles.

http://investorsunite.org/fannie-freddie-capital-sank-closer-zero-first-quarter-planned/