Fannie Mae-No Politics (FNMA)

[obiterdictum]

Timeline - Edward DeMarco, FHFA Acting Director or a future FHFA Director, is the only person who has the statutory authority and power to release the GSEs from conservatorship. So, it is too him that one must look for an answer to that question.

DeMarco has not presented a timeline. He has consistently answered that question in reports, statements, testimony, lectures, interviews, etc. by saying that lawmakers are the ones who must determine and set adequate policy and legislative conditions related to GSE and housing finance reform that will allow the FHFA (DeMarco) to release the GSEs from the conservatorship. In the meantime, as the Congress works towards adequate policy, legislation and regulation, DeMarco says he will work within the conservatorships according to a detailed plan to prepare the GSEs for the day when the policy, legislative and regulatory conditions are sufficient for GSE release.

Here is one excerpt from the Strategic Plan Federal Housing Finance Agency Fiscal Years 2013-2017: - http://www.fhfa.gov/webfiles/23930/FHFA%20Draft%20Strategic%20Plan%202013-2017.pdf

While waiting for important public policy questions ahead to be resolved, FHFA will pursue a
series of initiatives and strategies set forward in this plan, which will serve to improve current
mortgage processes, inspire greater confidence among prospective market participants, and set
the stage for recovery and an improved future system of housing finance. FHFA’s strategic plan
builds on the strategic plan for the conservatorships that I sent to Congress on February 21, 2012.

You can listen to same sort of reference a year earlier in this video: Edward DeMarco: "Maintaining Housing Finance in a World of Uncertainty

The statement is made as an answer to a direct question about a timeline beginning at 41:39 or so in the video.

The GSE release from conservatorship will signal that all is in place for continued housing recovery and a smooth transition in accordance with suitable policy, legislation and regulation. GSE release from the conservatorship is tied to these conditions and therefore investors must keep an eye on the progress made by the Congress and the Administration in setting up the conditions for reforming the housing finance system. Such adequate policy, legislative and regulatory conditions do not exist at the moment and so the GSEs are still in conservatorship.

Though DeMarco says this, there are also other conditions influencing his decision-making. These conditions relate to his fiduciary duties as regulator and conservator of the GSEs and the GSEs broad mission in providing liquidity and stability to the housing finance system and industry. DeMarco is bound by law to protect the GSEs role by preserving and conserving their assets in a manner that protects the taxpayer from financial loss and systemic finance system catastrophe. He cannot play political games with the GSEs and has the authority and power to resist both the Congress and President and he has done so without flinching. So, DeMarco is not sitting on his hands waiting for the Congress and Administration to come up with adequate reform plans. DeMarco is reforming the GSEs in the conservatorship and by doing so is setting at least partially the direction of the reforms to be made by the Congress and Administration.

So far, DeMarco has eliminated all new business products and ideas. Also DeMarco is reducing the GSEs retained MBS and MBS related portfolios, streamlining GSE business operations to reduce operational risk, introducing risk-sharing transaction and securities to reduce exposure to credit risk, increasing refinancing through HARP, increasing foreclosure prevention assistance to homeowners, increasing guarantee fees, standardizing securitization through a new technological data infrastructure (CSS), attempting to reduce conforming loan limits to increase private capital participation, increase efforts to obtain and retain appropriate personnel to maintain operations during this period of uncertainty over the future of the GSEs, establishing new rules and regulations, performing a net worth sweep and decapitalization of the GSEs, moving the Federal Home Loan Banks forward. There are more details on these and those details can be found here: http://www.fhfa.gov/webfiles/23930/FHFA%20Draft%20Strategic%20Plan%202013-2017.pdf

Of all of these, the only one of serious concern to investors is the net worth sweep and decapitalization. Lawsuits have been filed to address this development.

So, watching and waiting is all we can do. An eye must be kept on the FHFA and Congress and the Administration as well as the lawsuits for progress made. it is most likely that before GSE release occurs there will be rumors, then announcements. Before that happens, policy, legislation and regulation must firm up with certainty and consensus.

Get to know the FHFA Acting Director. Review these video to get a taste of DeMarco and politicians in action. Republican appear to like and support DeMarco and Democrats appear that they do not. Of course, like and support comes from where DeMarco stands in relation to their agendas and in the videos below the issues are principal reduction and GSE reform.

DeMarco says Dem GSE bill was effective to Barney Frank

Tierney & DeMarco on Principal Reduction

Sen. Toomey questions Edward DeMarco at Senate Banking hearing

Crapo asks DeMarco about GSE Reform

Welcome, Keynote, Discussion with Ed DeMarco

PPS - I rarely make pps predictions for GSE stocks, common or preferred. That is mainly due to the fact that the GSEs are in an unsettled corporate position and their future status and condition in the housing finance market is not clearly determined. This uncertainty allows a great deal of price direction speculation for the short term with the result that day traders, prop shops, hedge funds, and market makers are the daily trading players who, more or less, seek immediate profits by shorting, flipping, buying and holding for a short term and selling for gain and/or on fear when the price drops and exploiting the MM spread. The price is moved by news, events, larger market conditions, market making activity, herd or big money traders driving up the price only to take profits before the top and leave shares in the hands of the less informed or driving it down to shake shares loose for low prices and or buying to cover.

Long term retail and institutional investors are not yet on board with sufficient shares held to reduce the float and increase demand for the stocks because of the GSE status uncertainty. When that uncertainty is removed in the positive, the pps will rise enormously.

So, by the end of 2013, the pps can rise or fall, significantly or insignificantly, depending on positive or negative news, events, larger market conditions, market making activity, and herd, big money, or MMs traders driving or walking the price up or down.

I infrequently watch the daily price and have little concern for the changes because I have shares locked up with a GTC sell limit order priced far away from the current market price to prevent shares from being used by my broker for any purpose other than what I determine. I watch so I do not get caught with my shares being sold at market before I determine to do so. Price jumps of several dollars or more in a day are not unlikely in the right conditions for the highly undervalued GSE stock.