FnF - Emotional stocks - not data driven, yet!
When FNF are trading (and holding) at 20+ it will be very easy to ask "how could companies that have billions in profit and a virtual monopoly in the housing business ever been at less than $1 for such a long time, and why didnt i buy more"?
These companies are here to stay, in some shape or form forever. They are too big to wind down and could never be replaced.
My guess is that some in DC will have to be appeased, so they may merge them into 1 company, and make them take on less paper. The unintended consequence of that will be higher rates and not enough access to capital for the "tax payer". The tax payer is FnF's client. That is the joke of the whole thing. The tax payer will end up getting screwed with no FnF. Without FnF, the interest rates would be at 8% (double today) and underwriting guidelines would be much harder, not like they are easy now.
The funny thing about the subprime loans that almost ended the world a few years ago is that they were only 7% of the total mortgage market. The problem was that the banks had leverage on that 7% of 50 to 80-1 in some cases, and that over leverage is what almost did all of the banks in when the loans stopped performing. Now the new bill, which wants banks to lend wants them to have 10%. That is 10-1 leverage. So if they get rid of FnF, we can go bailout a bank or insurance company instead. We need FnF as the default regulator in the mortgage business, otherwise, banks would either not lend at all, which would kill housing, or make up their own guidelines to lend (I understand qualified mortgages, but they are not the solution either). FnF never did subprime loans, never. They were forced to take the garbage of those who did, which made them look bad on paper and have worked through that bad paper in the last 5 years and are incredibly run today and have a portfolio that performs great and virtually free of risk (there is always a the risk that comes with nature of course).
in a few years, if book value is what stocks trade based on, we will be between 70-100 share on FnF (conservatively). Google trades nearly 4 times book value, and apple trades nearly 2.5 times book value. Neither one of them makes as much money as FnF.
My thought is that we will at some point have the money that has already been paid as dividend be transferred to principal paydown, and then pay some interest on top of that, and then be regulated a little more (but there is really nothing to regulate because FnF have already self regulated, but I am sure that they can regulate the amount of loans made per month for example, which is the unintended consequence from above).
A good question to ask the authors of the bill is, which I am positive that they could not answer, would be, "what is wrong with FnF today"? I would love to hear the answer. If the answer has anything to do with the protection of the tax payer not footing the cost in a calamity, that would be a joke, because remember, the tax payer is FnF's customer, they are one in the same. That is the connection that needs to be made here, they are acting like FnF are lending to people on another planet, when they are indeed making loans to the tax payer that they are using as a prop to give the control back to the banks, it is so transparent.
I mentioned this before, but 90% of homeowners/tax payers (which have debt on their home) have a loan that is either an FnF security, or underwritten to FnF standards, this may even include the authors of the bill. That would be interesting to ask them who holds their loan, 50% chance they know the answer. If they took a poll of their constituents who had mortgages, it would be 90% plus with FnF financing.
Lets get some positive/make sense press in the next few weeks and open up strong tomorrow!
