Please Don’t listen to anything Gasparino has to say, like ever. Even though he reported favorably the guy still managed to say “Conservatorship means the government owns the companies.” And, "this is a penny stock." He is an IDIOT.
For me the real news from yesterday was he Budget Plan Guarantee Fees.
“ a plan to raise $31.7 billion over 10 years by boosting the fees housing finance giants Fannie Mae and Freddie Mac charge to guarantee the mortgage market.”
The assumption is a "full faith and credit" guarantee of the MBS that GSEs issue.
Good or Bad? Here are my thoughts, I might be way off since this is not my expertise. Please provide input as I am always learning.
First remember what Trump really wants, open competition. Multiple charters etc, eventually going to full private and no more government guarantees.
So why explicit guarantees?
1) Income justification for forgiving/considering Senior Preferred Stock paid back.
2) Capital Requirements: GAAP as applied to guarantee fee’s
“A guarantee occurs when an entity accepts responsibility for an obligation if the party with primary responsibility is unable to settle the obligation. It is most commonly given to a related party, where the guarantor has an interest in the financial success of the related party. For example, a guarantee may be issued by a company for the debt of a joint venture in which it is an investor. Similarly, a guarantee may be issued by a corporate parent for the debt of a subsidiary.
A guarantee can create a liability for the guarantor that may need to be recognized, if the amount of the eventual payment can be reasonably determined and the payment is probable.”
My Interpretation: Fannie Mae can count the government guarantee fee against their balance sheet Reducing their capital requirements. Since it will not be “reasonably determined” that payment is “probable” the government will not have to account for the guarantee. i.e. Ginnie Mae.
3) If the government is guaranteeing the mortgages why not open the market to everyone? Exactly.
4) Want to raise capital? Sell off assets with a "full faith and credit" guarantee. Reduce footprint, and further reduce capital requirements. Look at the balance sheet. Write off 120 billion Senior Preferred Stock, sell 120 Billion worth of assets what do you get???
To me this starts to look like a tweak of Crapo’s Plan. Without receivership. It is a lot easier to just discharge the governments stake in the current GSEs and sell assets, result is essentially the same.
Sort run this could be great, long run, post conservatorship, this may have a substantial impact on GSE ability to make $.
Lastly, it is a Budget plan, Congress is going to get a say.
Thoughts?
-Yes, I have another paper that I am procrastinating as I sit in the library.
AI
