What We’re Hearing: The Nation’s Volume Leader in the ‘New’ Nonconforming Is… / Sales Executive Departs / Don’t Stop Believin’ (in Fannie and Freddie)? / ‘Contract Law’ and GSE Common Shares / A Legislative Snafu Called Donald Trump?
By Paul Muolo
pmuolo@imfpubs.com
Inside Nonconforming Markets on Friday published its first post-crisis ranking of the “new” class of nonconforming lenders. The loans include an array of products and are definitely not eligible for sale to Fannie Mae and Freddie Mac. The market leader might surprise you, or maybe not. See INM for more details…
Meanwhile, we heard that a top sales executive at one of these firms recently departed. For more on that story, see IMFnews early next week…
Investment firm Pershing Square had some bad news for its shareholders this week, disclosing in its midyear report that the fund’s investment in Fannie Mae and Freddie Mac common was a dud in the second quarter. But actually it wasn’t all that bad. Pershing – which has made some horrendously bad stock bets the past few years (Herbalife, Valeant) – listed the GSEs as “losers.” Fannie lost 2.6 percent of value in 2Q while Freddie dropped by 1.5 percent…
But there is good news to this story. Pershing reminds investors that both GSE stocks continue to trade “above our average purchase prices of nearly four years ago…” In 2013, Bill Ackman’s fund first disclosed that it owned 9.98 percent of Fannie common and 9.77 percent of Freddie common. And now back to the bad news: Pershing Square owns mostly the “common” and not the junior preferred, which is what Fairholme and other speculating investors own. If there is, in fact, an eventual legal settlement between plaintiffs in the GSE “takings” cases and the Treasury Department, it will be the junior class of preferred holders who might get something of value from Uncle Sam, not the common holders, or so we’ve been told. In other words, the common shares may be near-worthless since they’re not covered by contract law…
And one last note on the topic of GSE common: Pershing’s report reflects share values at June 30. According to our calculation, Fannie common now trades at $2.80, a 20.17 percent improvement since the close of 2Q17, while Freddie’s value rose 21.08 percent to $2.70. For now, Pershing Square is telling its backers that when it comes to the GSEs “there is likely to be significant positive developments at both companies in the short term…”
But before you head to the race track known as the stock market, there is a political wild card to think about: the Trump White House. The president’s comments earlier in the week regarding who was to blame for the white supremacy-related violence in Charlottesville, VA, are causing political allies to bolt. The legislative outlook didn’t look good to begin with, but if Republicans, including key senior staffers, continue to abandon this president, the passage of any type of legislation might become even more problematic…
AI
