Fannie Mae-No Politics (FNMA)

[obiterdictum]

Where We Stand

The GSEs are private companies. They are not federal agencies.

Fannie Mae and Freddie Mac are under temporary federal conservatorship. The GSEs are controlled and regulated by the FHFA that acts as a private entity joined with the GSEs management. The FHFA now stands authoritatively in the place formerly held by preferred and common shareholders and government appointees. "The purpose of the conservatorship is to preserve and conserve each Enterprise's assets and property and restore the Enterprises to a sound financial condition so they can continue to fulfill their statutory mission of promoting liquidity and efficiency in the nation's housing finance markets. "

Even though both GSEs are operating as private companies, the FHFA calls the final shots and determines whether or not and how the GSEs will be reorganized, rehabilitated or wound down during the conservatorship. Nationwide, private and corporate investors have negative sentiments towards government control of private economic enterprises serving the public, the citizens. Caution is ruling because the Republican and Democrats are not decided on what to do with the GSEs

The temporary conservatorship and the powers of the control and regulation held by the FHFA over the private GSEs is one basis for a range of sentiments and reasons that work against institutional buyers (mutual fund managers, private and corporate investors, etc.) going long on purchasing GSE common shares of FNMA and FMCC. Billions of dollars were painfully lost by individual investors who depended on institutional brokers to make and protect their investment and return a profit in the long term. The complex set of relations that caused such incredible losses was at first placed almost entirely on the GSEs. Nowadays, nearly five years later, it is become publicly apparent that banks and others were involved in fraudulent reporting practices that led to the GSEs purchasing faulty securities that failed investors.

Even so, the bad taste and feeling remains regardless of that news. That bad taste and feeling will be removed when the GSEs continue to report profit and more importantly, when the FHFA makes a positive report about the GSEs such that they are progressing towards good health and that the conservatorship is nearing its end. Also, the proposed legislation of the Republicans and Democrats made about the GSEs is gradually reaching the public ear.

Any talk of reorganizing or restructuring or winding down the GSEs will have a negative impact on share price by fostering uncertainty and fear.

FNMA and FMCC share price at the moment is based mainly on the bid and ask of MMs responding to supply and demand of profit-taking day and swing traders in the market (there is not much demand for buying long and holding given the current conflicting reports and information and the complex sentiments arising thereafter) and their own to and fro fractional cent long and short buying and selling market making activities designed to keep the market active and moving.

Volume is not an accurate indicator. MMs are generating the majority of the volume in the past two days buying from and selling to each other and they are not into positive sentiments at the moment.

This is in spite of positive news that always is countered with negative news. A veritable seesaw sentiment environment....

Positive News
http://www.usnews.com/news/blogs/home-front/2013/04/10/why-fannie-and-freddie-should-exist-in-the-new-mortgage-market

Negative News
http://dealbook.nytimes.com/2013/04/09/in-the-markets-at-least-fannie-and-freddie-still-astound/

Given the state purpose of the conservatoship, there is no danger that in the short term (5 years) that the GSEs will be restructured or wound down. There is no reason to do so given the huge profits made and their return as dividends to the federal governement. There are no financial institutions established to replace them or to take on the work they do without creating a financial upset in the mortgage security market. By size they can out compete all. There are no acceptable plans on the political tables.

If news is sought, the determing decisions and news will be found in the White House and FHFA announcements. The signals that the MMs and institutional buyers are listening to come from there and the signals will be about the future disposition of the GSEs.

Positive signals will be for the continuance of the GSEs as is and this will increase demand and holding and then a steady increase in share price will follow. Negative signals will be government (Congressional) interference with the GSEs for the purpose of gaining political party capital in one way or another with supporters.

The next moves will be what the Democrats will do in response to the Republican pressure to wind down or restructure the GSEs. See an example of proposed wind down legislation:
http://www.govtrack.us/congress/bills/112/hr1224/text

See the Republican Plans: http://www.lawrencegmcdonald.com/house-republican-strategy-on-gse-reform-–-dissension-in-the-ranks/

Get on board with the real issues.