Fannie Mae Preferred S (FNMAS)

[skibrian]

bloomberg article says no $$$ for us:

slams it pretty hard into the ground, multiple sources say no way anyone below sr. preferred status gets paid. is this the final-final-final warning to get out?????

http://www.bloomberg.com/news/2013-03-18/demarco-calls-for-new-push-on-reform-as-fannie-profits-return.html?cmpid=yhoo



DeMarco Calls for New Push on Reform as Fannie Profits Return
By Cheyenne Hopkins & Jody Shenn - Mar 18, 2013 5:36 PM CT



Fannie Mae and Freddie Mac, the two government-seized mortgage financiers, appear increasingly likely to pay billions of dollars to the U.S. Treasury, focusing attention in Washington on what should replace them.

Edward J. DeMarco, the acting regulator of the two companies, is scheduled to appear before the House Financial Services Committee tomorrow and will urge lawmakers to reduce or eliminate the mortgage market’s reliance on taxpayers. At the same time, a Senate panel will hear testimony from the authors of an alternate plan for housing-finance reform issued in February by an independent commission.

“I have been observing a developing ‘consensus’ among private-market participants that the conforming conventional mortgage market cannot operate without the American taxpayer providing the ultimate credit guarantee for most of the market,” DeMarco said in written testimony prepared for delivery at the House hearing. “That clearly is one outcome, but I do not believe it is the only outcome that can give our country a strong housing finance system. I believe that our country, and its financial system, are stronger than that.”

Washington-based Fannie Mae (FNMA) and McLean, Virginia-based Freddie Mac have been under U.S. conservatorship since 2008 and have drawn nearly $190 billion in taxpayer aid to stay afloat during that time. Lawmakers who don’t want the companies to return to their previous government-sponsored status are becoming concerned that political momentum for winding down and replacing them could erode as the housing market rebounds and profits soar.
Paying Billions

Fannie Mae, in a regulatory filing on Thursday, raised the possibility that it could soon be required to send as much as $62 billion to the U.S. Treasury because, once it is profitable, it may have to start counting potential tax credits as part of its net worth. The company said it would delay filing its earnings report for the quarter ending Dec. 31, 2012 while it studies the accounting issue.

Regardless of the outcome, Fannie Mae said it still expects to report “significant net income” for the quarter.

The news helped send Fannie Mae’s preferred stock soaring to the highest point since September of 2008, when it was seized by the government and dividends were suspended. Fannie Mae’s $7 billion of 8.25 percent preferred shares climbed to $2.96 in New York on March 15 from $2.08 on March 13. Shares fell to 2.79 at 4:15 p.m. today.

The company’s common shares, which reached as high as $69.49 in 2007, soared almost 7 percent over the two trading days through today to 52 cents.
No Repayment

The securities may be worthless unless the companies can pay off the funds they owe to taxpayers or see their bailouts reworked. Under the current terms of the companies’ aid agreements, any money they send to Treasury is considered a return on the taxpayers’ investment, not a repayment. That’s because the federal government structured the bailout so that they could not regain independence without a new housing finance system in place.

Lawmakers including Louisiana Republican David Vitter and Elizabeth Warren, a Massachusetts Democrat, Thursday introduced a bill that would ensure Fannie Mae and Freddie Mac wouldn’t be able to emerge from government control even if they end up paying more back to the Treasury than they took in aid. The measure would ban sales of senior-ranking U.S. Treasury-owned preferred shares without congressional approval.

“This bill shows that Republicans and Democrats do agree on the urgency required to reform the mortgage finance system,” Vitter said in a statement. “Reform can’t happen if the U.S. Treasury pulls a fast one on taxpayers by selling their preferred share investment, but our bill will ensure the taxpayers will get the reform they were promised in 2008.”
Outlook Improved

Even without legislation, Treasury is extremely unlikely to change the rules to allow the companies to emerge from conservatorship, said Thomas Lawler, a former Fannie Mae economist who’s now a housing consultant in Leesburg, Virginia.

“Even though the outlook for the company has dramatically improved, I don’t think anyone would agree that it’s a good idea for them to become any kind of stand-alone,” Lawler said in an interview.

Investors are wrong to expect that Fannie Mae and Freddie Mac (FMCC) will emerge from government control in a manner similar to American International Group Inc., the insurer that repaid its government bailout in December, said Ed Mills, an analyst at FBR Capital Markets & Co. in Arlington, Virginia.
‘Political Baggage’

“The difference between AIG and Fannie and Freddie couldn’t be more stark,” Mills said in a telephone interview. The two mortgage companies were government-sponsored with long histories of implicit taxpayer support before their rescues. In addition, he said, Fannie Mae “has the greatest amount of political baggage of any company to have ever existed in the history of the United States.”

Ralph Axel, a Bank of America Corp. analyst, wrote in a March 15 report that while “the market is clearly looking past the current agreements at a possible future in which private GSEs are profitable and paying dividends to existing private equity holders,” the reality is that “such a future is not in the cards.”

A privatization isn’t feasible in part because the companies would need to raise “a great deal” of capital along with repaying the government, Axel wrote. At the same time, the size of their investment portfolios are being shrunk and the holdings’ profitability would be limited if they didn’t have taxpayer backing, which reduces their borrowing costs, he said.
Awaiting Overhaul

Meanwhile, Democrats and Republicans remain divided on what should replace the two companies, and the White House has yet to present a plan for a housing-finance overhaul. That leaves DeMarco, who leads the Federal Housing Finance Agency, to gradually shrink them on his own.

President Barack Obama is getting closer to nominating a replacement for DeMarco, 52, a career government employee who has been in his current post since 2009. DeMarco has been criticized by housing advocates and Democratic lawmakers for refusing to let the two U.S.-owned companies cut debt for borrowers whose mortgages exceed the value of their homes. At the same time, he has earned praise from Republican lawmakers for his focus on improving the bottom line at the two companies.

One of the potential replacements for DeMarco: North Carolina Congressman Mel Watt, a Democrat, who sits on the Financial Services Committee.

In his prepared testimony, DeMarco urged Congress to act on an overhaul.

“The U.S. housing finance system cannot really get going again until we remove this cloud of uncertainty and it will take legislation to do it,” he said.

To contact the reporter on this story: Cheyenne Hopkins in Washington at [e-mail]

To contact the editor responsible for this story: Maura Reynolds at [e-mail]