Replies to post #2934 on GoodFellas and Orions Penny Stock Plays

[New Waters]

Howdy Cj, NBG rising above the tide, KUDOS! SPXU lives! :)

[TheFinalCD]

Thx just flippin for donuts now

[New Waters]

FMCC FNMA - DJN, 6.6.13, Wheels of Reform Slowly Turning at GSEs

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The Battle is on ... Go Ralph, Go Ralph, Fight for the average David folks! :) Congress will go down in flames "if" they try to rip off Mom & Pop, Joe Public! IMO, of course.

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So there may be value in their common shares -- it's just that the market is having a hard time concluding what that value might be. And even if there is value in the shares, it is uncertain if Congress would reward such speculative bets once the final bill is approved, especially if there is a loud public outcry.

Wheels of Reform Slowly Turning at GSEs

By Michael White
A DOW JONES BANKING INTELLIGENCE COLUMN

U.S. Senators Corker and Warner are reported to be preparing a bill to address the elephant in the room of housing reform. The bill is sure to anger those hoping for a larger governmental role in housing finance, but the return of the mortgage market to private capital, at least in part, would be a step in the right direction.

GSE reform refers to the efforts by Congress and the Administration to reform the institutions that help fund mortgages in the U.S. GSE stands for Government Sponsored Enterprise, and is generally used as a generic reference for agencies chartered by the government to facilitate the flow of money into mortgage products. Fannie Mae (FNMA, Federal National Mortgage Association), Freddie Mac (FHLMC, Federal Home Loan Mortgage Corporation) and Ginnie Mae (GNMA, Government National Mortgage Association) are examples of GSEs.

The reported bill is still being drafted, and likely has a long, winding and uncertain road ahead of it. Still, the fact legislatures are working on GSE reform is a positive in that it finally addresses the looming question of what to do with Fannie Mae and Freddie Mac. The two agencies were taken over by Treasury in 2008 and the Federal Housing Finance Agency has been responsible for conserving their assets until Congress and the White House determines what to do with them.

Initial reports indicate the bill builds on the stealth reforms initiated by Ed DeMarco, acting director of the FHFA, put forth in March. The proposal is seen incorporating a common securitization platform and provides a larger role of private capital through risk-sharing agreements. Private financiers would provide a first-loss buffer adequate to cover losses as steep as those seen during recessions over the past century. A new entity, the Federal Mortgage Insurance Corporation, would be created to insure against catastrophic losses above those levels, as well as support the new securitization platform and assist smaller lenders to issue securities.

Legacy Fannie and Freddie are expected to be liquidated over a five-year period, while the Treasury would be responsible for its existing mortgage guarantees. Proceeds from the liquidation would first be used to repay the $187.5 billion of senior preferred securities held by Treasury. Additional proceeds, if any, would then go to junior preferred holders followed by common shareholders.

Interestingly, this could potentially provide some economic value to Fannie and Freddie's existing junior preferred and even common shareholders. Indeed the GSEs' common stock prices have been on a wild ride of late. In the first 19 trading days in May, Fannie's common shares advanced nearly 400% before tumbling 38% the following week. Freddie has had a near identical rollercoaster journey over that time. So there may be value in their common shares -- it's just that the market is having a hard time concluding what that value might be. And even if there is value in the shares, it is uncertain if Congress would reward such speculative bets once the final bill is approved, especially if there is a loud public outcry.

Many investors and residential mortgage professionals had hoped GSE reform would follow a different path and allow Fannie and Freddie to return as recapitalized, publicly traded versions of their former selves. They are likely to be deeply disappointed in the direction that Senators Corker and Warner are driving the bus.

That direction, however, reduces sovereign commitments. It also moves government out of the way of private enterprise, at least in part. That makes it a step in the right direction.

(Michael White, a senior columnist at Dow Jones Investment Banker, has spent 20 years in investment banking, commercial banking and investment management, focusing on financial institutions while at firms such as Merrill Lynch and Bank of America. He can be reached at [phone] or by email at [e-mail].)

This article first appeared on DJ Banking Intelligence, our specialist subscription-only service that provides transaction-focused forward-looking commentary and opinion from our sector experts. Further details are available at www.djbanking.com

(END) Dow Jones Newswires

June 06, 2013 04:58 ET (08:58 GMT)