Replies to post #299155 on Fannie Mae-No Politics (FNMA)

[ferrarif2399]

MW Treasury document helps Fannie, Freddie suits: analyst

May 01, 2015 16:42:00 (ET)

By Ruth Mantell, MarketWatch

A four-year old Treasury Department document may help shareholders of federally controlled mortgage-finance giants Fannie Mae and Freddie Mac sue over a bailout agreement that forces the companies to send their profits to the government, an analyst said Friday.

In a Jan. 4, 2011, memorandum to then-Treasury Secretary Timothy Geithner, staff members wrote proposals for winding down government sponsored-enterprises Fannie and Freddie and trying to increase private capital in the mortgage market, among other issues. The recently released document's first "end state" option called for privatizing the GSEs once they were "adequately capitalized."

The Treasury document (http://www.insidesources.com/wp-content/uploads/2015/04/DOT-1.4.2011.pdf)"will certainly be beneficial to GSE shareholder lawsuits, as it states that the path to privatization was a goal when the companies were placed into conservatorship," wrote Edwin Groshans at Height Analytics. "It is clear there is no discussion or reference to implementing a cash sweep of all earnings."

However, the memorandum is no silver bullet for shareholders, analysts said.

"We simply do not see how these comments change the current legal or legislative landscape for GSE shareholders," said Isaac Boltansky, an analyst at Compass Point Research & Trading, a Washington-based investment firm. "While we believe the release of this memo is likely to embolden advocates of the GSE trade, as well as those in the certain corners of Congress that are pushing for additional scrutiny of the GSE bailout, our view is that the contents of this memo do not present new information and therefore its overall impact should be viewed as marginal."

Shareholders of Fannie (FNMA) and Freddie (FMCC), which have been in federal conservatorship since 2008 (http://www.fhfa.gov/Conservatorship/Pages/History-of-Fannie-Mae--Freddie-Conservatorships.aspx), have filed suits over 2012 deal (http://www.fhfa.gov/Conservatorship/Documents/Senior-Preferred-Stock-Agree/2012-8-17_SPSPA_FreddieMac_Amendment3_N508.pdf)with the government that forces Fannie and Freddie send almost all of their profits to the U.S. Treasury Department. That agreement prevents shareholders from reaping financial rewards as the companies have strengthened along with the broader housing market. While the government has profited (http://www.marketwatch.com/story/congress-is-in-no-hurry-to-wind-down-fannie-and-freddie-2014-11-06)from its arrangement with Fannie and Freddie, preventing the companies from building capital comes with risks, too. Earlier this week Fannie and Freddie's regulator reported that the companies could need to draw up to almost $160 billion from the U.S. Treasury during "severely adverse" (http://www.marketwatch.com/story/fannie-freddie-could-need-160-billion-from-us-stress-test-2015-04-30)circumstances, such as a large jump up for unemployment.

-Ruth Mantell; 415-439-6400; [e-mail]


Subscribe to WSJ: http://online.wsj.com?mod=djnwires

[Dollars1]

Yes