FNMA- ya that was last Friday's news. It's complicated.
Interestingly, the suspension of divs will allow the debt to be paid down a lot quicker (as long as they're profitable and without the interest payments they suddenly look much more profitable, almost $8 billion in firs tsix months this year). Starting 2013.
Had there not been the acceleration to close the Capital Markets biz segment (15% forced revs degradation per year vs 10% previously), I would have ventured it would be potentially GOOD news for the common holders (bad for preferreds, more risk w shorter payback timeframe).
As it is, the company is likely to show nice profits starting 2013 once the treasury div interest payments go away as long as housing keeps up. FNMA made almost $8 billion in first six months w/o the preferred payments. yes some of that was on redutcion in reserves for bad loans so operationally it wasn't as sweet but not bad either.
One problem is, their Capital Markets mortgage segment has been nicely profitable but is being forced out of existence even quicker now at 15% a year reduction (revs) starting 2013.
My guess is this forced reduction entity is directly competing with the private sector and winning so is being forced out faster so the private sector can increase margins and take on that business outside the govt controlled FNMA/FMCC.
Not great IMO for taxpayers short term and common shareholders longer term but what to expect from govt run company LOL. i.e. why reduce the consistently profitable segment in recent history if you are trying to get back money for taxpayers quicker?
Probably direct competition with private biz driving that IMO. Bank lobbyist pressure?
Some banks have done well having FNMA and FMCC around to take on the loans while banks get the quick and easy loan origination biz (see Wells Fargo).
So the SDH and MFH loan ports are going to be encouraged to stay intact at the institutions as long as they help the banks offload these loans and allow the quick and easy $ from loan originations and fees w/that. It will also help drive quicker loan processing and such if the banks know FNMA/FMCC will be taking over the loans.
What I'm unsure of is what happens to the cleaner and cleaner SFH (single fmaily home) and MFH (mutli) loan portfolios FNMA and FMCC are taking on if banks hit a point where they see better profitability if they start taking on the risks of holding these long term loans vs offloading to FNMA/FMCC? There already are private sector companies also tkaing on loans but FNMA/FMCC are the lions in the ring.
If interest rates climb, more biz/banks may start wanting more of that long term SFH/MFH loan port segment. If that happens (more private sector biz seeing it can be profitable and somewhat stable potentially), the same thing that is happening to the Capital Markets segment may happen to the other 2 segments, i.e. govt will force them to wind down and quit competing directly with private sector wants.
My guess is if these portfolios are attractive enough (and they are pretty attractive given banks are much more stringent in approving loans with LTVs etc and FNMA is therefore receiving better loans quality when the banks offload them to FNMA and FMCC), that these loans will be scalped and sold at fractional prices to the private sector as long as Uncle Sam gets some sort of guarantee or at least warrantee of getting paid back what is owed taxpayers with the sales. Not sure why that didn't happen (smacking the private sector directly) in the first place instead of a mammoth bailout (except for taxpayers) but whatever.
I think the 'end game' might be as soon as Uncle Sam gets paid back or if we get politicians more interested in scrapping involvement with FNMA and FMCC which would allow private sector to do the scalping of the companies' loan ports now that they're profitable. So it is a bit hard to see how owning FNMA common will work out long term for sahreholders. But ther eis potential upside (major) if govt doesn't just scrap them altogether. prob is the better they do, the increased chance they get totally scrapped ot the private sector (something I prob didn't consider enough when buying in on earnings).
After that I'm guessing we'll have a revitalized private sector biz segment hedging (not THAT word again!) against higher interest rates and keeping these healthy loan ports with low LTV levels.
Funny that banks/lenders screwed up (IMO driven simply by easy dollars to be made short term w/o foresight to worry about longer term probs) and in the end got to offload their garbage to FNMA/FMCC/the treasury(taxpayers).
Then as things recover, probably will be able to get right back in when the water's better.
Don't worry, the govt has their back LOL. I'm sure a new smart crowd of sociopaths will come in driven by greed to screw it all up again.
What's their punishemnt? if history is a guide, not much at all IMO. So these types will probably continue to proliferate and climb the ranks in our current system. Hmm, wonder how many politicians fit that above description...
If the private sector taking over SFH and MFH loans segment (FNMA/FMCC currently dominate) happens, the losers may be all investors in FNMA/FMCC and taxpayers in the sense at less chance of MAKING money and instead just getting paid back. Not a bad thing but could be better for taxpayers IMO considering taxpayers took on the risks these private sector bums sluffed off when the poo hit the fan. Looks like it will be the private business sector being the victors even after at least in part causing the mess along with other counterparties (fed easing loan restrictions, worthless oversight and regulation without teeth, people living well outside their means, etc).
History repeats itself? Had the whole thing blown up back in 2008 and 2009 w/o 'saving' things then IMO all the lessons would be engrained hard in those that risked and failed along with most of the populace.
I'd at least feel a lesson was learned for those that had it coming and in the process yes everyone else got hurt too. But that would keep public pressure on not doing it again for some time.
I'm personally convinced that our govt and country are more and more a reflection of corporate welfare, entitlement systems poorly regulated and often abused, and policy set by special interests, lobbyists, etc instead of individuals. IMO this will continue to concentrate more and more power to the elite few over time if left status quo but I digress quite a bit and am rambling so I'll shut up LOL. Got other things to do.
Good luck.
All IMO only.
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