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Fannie (FNM) and Freddie (FRE) |
HenryTo
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 Posted: Wed Aug 08, 2007 2:50 am Post subject: Fannie (FNM) and Freddie (FRE) |
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Both stocks bounced substantially since Friday afternoon and will most probably lead the next housing bull cycle, however muted it is (actually, the more muted the better, as long as the pipeline is growing). Now that the jumbo loan market is starting to freeze up as well, senators and regulators alike are entertaining the though of easing the caps of both quasi-government companies.
Following is courtesy of the WSJ:
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Big Fans for Fannie, Freddie Some Lawmakers See
One-Time Pariah Firms As Subprime Salvation
By JAMES R. HAGERTY
August 8, 2007; Page C1
The mortgage-market meltdown isn't over, but it already has produced two clear winners: Fannie Mae and Freddie Mac, the nation's biggest investors in home loans.
Until recently, politicians in Washington were arguing about how best to rein in the two giant government-sponsored companies, both recovering from accounting scandals and lapses in financial controls. Now, as worry about the housing market trumps accounting scruples, the political debate has shifted to whether Fannie and Freddie need to grow even bigger to buy more loans and calm mortgage investors.
Sen. Christopher Dodd (D., Conn.), chairman of the Senate Banking Committee, yesterday called on the companies' regulator to consider raising the caps placed last year on the amount of mortgages and related securities Fannie and Freddie can hold, as a way of ensuring that plenty of money is available to fund mortgage loans.
Sen. Charles Schumer (D., N.Y.) also called for higher caps. Both Fannie and Freddie are pushing for the same move. A spokeswoman for their regulator, the Office of Federal Housing Enterprise Oversight, or Ofheo, said the agency will respond to the senators shortly.
Fannie's shares gained 3.1% to close at $64.43 on the New York Stock Exchange yesterday, while Freddie was up 2.7% to $61.64.
The two stocks have held steady over the past month amid anxiety over mortgage defaults, while shares of Countrywide Financial Corp., the nation's largest home-mortgage lender, have fallen 27%.
Fannie and Freddie are benefiting because investors are still happy to buy the mortgage securities they create, backed by loans purchased from lenders scattered across the country. The two companies collect fees for guaranteeing the interest and principal payments on the loans backing those securities. Although Fannie and Freddie are private-sector companies, they were created by Congress to funnel money into housing, and investors assume that Congress would bail them out in a crisis.
Sticking With Uncle Sam
With loan defaults rising and house prices falling, investors now are shunning, at least temporarily, mortgage securities packaged by Wall Street firms and others that don't have any implied backing from Uncle Sam. That makes it hard for lenders to find buyers for loans that can't be sold to Fannie and Freddie. Regulations prevent them from buying loans of more than $417,000 on single-family homes, and they have stricter standards on down payments and verification of income than were imposed by Wall Street during the housing boom.
The result is a spike in rates on some types of loans that can't be sold to Fannie or Freddie, such as prime, 30-year, fixed-rate jumbo loans, those above $417,000. Yesterday, the average rate on such loans was 7.44%, according to a survey by financial publishers HSH Associates. That's 0.84 percentage point higher than the average rate on "conforming" loans, those that meet Fannie and Freddie's standards. Typically over the past decade, the premium paid for jumbo loans has been around 0.20 to 0.30 point.
Even middle-class people often pay $500,000 to $700,000 for a humdrum home in high-cost areas. So the higher rates on jumbo loans could be "devastating" for the housing market in some areas, says Michael Menatian, president of Sanborn Mortgage Corp., a mortgage bank in West Hartford, Conn.
As lenders recoil from riskier types of mortgages, "we're turning a lot of people away now," says Jeff Lazerson, chief executive of Mortgage Grader, a mortgage broker in Laguna Niguel, Calif.
Many investors hope that alarm over the housing market will induce Ofheo to ease restraints on Fannie and Freddie.
But Joshua Rosner, an analyst at the New York research boutique Graham Fisher & Co., describes as "mass delusion" the idea that they can save the day for investors exposed to billions of dollars of ill-advised home loans now heading toward foreclosure. For one thing, he says, Ofheo has required Fannie and Freddie to follow stricter standards, recently imposed by banking regulators, in assessing borrowers' ability to repay. So they can't buy up loads of reckless loans to speculators or people failing to pay bills.
Richard Syron, chief executive of Freddie, agrees that there are limits to what his company can do. "Neither we nor anyone else can buy at par loans that probably shouldn't have been made in the first place," he says.
Freddie's Limited Help
Mr. Syron says Freddie can provide funding to refinance many subprime borrowers stuck with loans due to reset to sharply higher monthly payments, but not most of them. In addition, he says, Freddie could help the market by buying and holding more mortgage securities packaged by Wall Street if the cap on its holdings rises.
Fannie and Freddie may be able to buy subprime mortgage securities at discounts that more than make up for the credit risk, Kenneth Posner, an analyst at Morgan Stanley, said in a research note. They also may be able to charge more for providing guarantees on securities sold to others, he said: "We can't imagine anyone complaining -- right now there's no other game in town."
The flight of other investors from the mortgage market "does show the role and the need" for Freddie and Fannie to act as steady providers of mortgage funding, Mr. Syron says. Still, he says, Freddie isn't gloating: "You don't want to take a lot of joy in other people's suffering."
Write to James R. Hagerty at bob.hagerty@wsj.com |
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Fannie (FNM) and Freddie (FRE) Replies |
rffrydr
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rffrydr
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rffrydr
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| Posted: Wed Jun 16, 2010 8:48 pm Post subject: |
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Delisted: end of an era. 
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rffrydr
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| Posted: Wed Mar 03, 2010 8:01 am Post subject: |
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Forget common equity, these beasts will do much to define our state in the immediate future. So much is bundled up in them. Is limbo an option? --Is limbo a necessity??
And don't forget the 35 billion in preferreds wiped off equity that were held by every small bank in the nation.
Fed Fischer's out today pushing breakup(down) plan; would he look in the mirror???:
| Quote: | | The 10 largest U.S. banks’ share of the industry’s assets has increased to 60 percent in 2009 from 44 percent in 2000 and about 25 percent in 1990, Fisher said. |
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HenryTo
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| Posted: Wed Mar 03, 2010 6:40 am Post subject: |
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Morningstar's latest notes on FNM common equity:
| Quote: | Fannie Mae FNM posted a $16.3 billion net attributable loss to shareholders in the fourth quarter, making a total loss of $74.4 billion for the year versus $59.8 billion last year. With a net worth deficit of $15.3 billion at year end, an equal amount will be requested from the U.S. Treasury in the form of additional senior preferred equity, bringing the related total to $76.2 billion by the end of the first quarter. Given the 10% coupon payment required on this part of the government's investment, the pro forma annual payment of $7.6 billion would more than wipe out net interest and guaranty revenues minus (only) administrative expenses as experienced in 2007. While the company is currently benefiting from a much steeper yield curve, this can't last forever and guaranty fees are likely to come under substantial pressure once refinance activity ultimately slows to a crawl after a multidecade decline in mortgage rates.
As the firm has wiped out its pre-crisis equity base several times over at this point, the only hope for owners of Fannie equity (effectively severely under water call options) is an ill-advised gift from policymakers at some point in the future. The administration recently pushed off its proposed resolution for the GSEs until at least next year as it appears to have no desire to bring all of the GSEs' debt onto its own balance sheet due to outright nationalization.
Similarly, the government is likely to eschew the risk of a disorderly mortgage market at this juncture, which could easily arise if it were to substantially change the form and function of the GSEs without proper planning. As there are numerous signs that the mortgage credit loss peak is at hand, losses should begin to slow at Fannie Mae as the year progresses, even considering its relatively thin combined loss reserves. Despite a potential turn around in credit fundamentals, we think Fannie is already too far gone and advise against speculating in the firm's common equity. |
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rffrydr
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| Posted: Fri Feb 19, 2010 8:55 am Post subject: |
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rffrydr
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| Posted: Fri Feb 12, 2010 8:15 pm Post subject: |
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I've said that GSE buy-outs should be a positive for the big investment banks lower-level leveraged loan operations (LLLLO's) clearly are not:
Tom Graffe
| Quote: | For those that missed it, Fannie Mae and Freddie Mac announced they will both be repurchasing any loan which is at least 120 days delinquent in their guarantee portfolio. This is expected to have a very large impact on prepayment speeds, particularly among "affordability" products like hybrid ARMS and interest-only loans. Since these bonds are trading above par, the impact will be negative for these bonds.
Today we saw few sellers of hybrid-ARMS but there are few buyers. These bonds have traded down 1 to 1.5 points in reaction to the news, and it looks like current owners of these types of bonds are willing to sell at those levels.
Meanwhile a company like Annaly Capital is directly exposed to this problem. They buy primarily hybrid-ARM agency MBS, and that entire universe is currently trading in the $104-$107 dollar price. The prepayment is estimated to be about 13% of principal in March alone. Assuming a $105 average price, Annaly would suffer losses of 0.65% of assets, and at 6x leverage, they'd suffer about 4% loss vs. capital.
Not only that, they won't be able to re-invest the proceeds at yields as high as the pre-paid ARMs. I know it has a huge dividend but there are lots of risks here. |
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rffrydr
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| Posted: Thu Jan 14, 2010 11:08 am Post subject: |
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Pick your bank to fade this kind of bearishness (100% of reworks at 50% severity, really!). This guy obviously hasn't been to SoCal--and that's the heart of the matter.
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rffrydr
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| Posted: Tue Jan 05, 2010 9:31 am Post subject: |
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Rep Frank calls FNM and FRE public utilities – suggesting the government will keep the agencies afloat to supporting real estate.
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rffrydr
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| Posted: Mon Jan 04, 2010 7:54 pm Post subject: |
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| Quote: | Tom Graff
Did the Fed lower mortgage rates?
1/4/2010 4:03 PM EST
In a paper published by the NBER (available here for a fee) Professors John Taylor (of the Taylor Rule) and Johannes Stroebel attempt to estimate the impact of the Fed's $1.25 trillion mortgage purchase program on actual borrowing rates faced by consumers. They found the impact was... virtually none. Essentially the estimate that most of the decrease in mortgage spreads (yield differential vs. Treasury rates) had to do with the easing of the credit crisis and not the Fed's purchase program directly.
I'm afraid this is a dangerous conclusion to draw. The professors may be right about the specific conclusion drawn. Maybe mortgage borrowing rates were little changed by the Fed's program. But the writers don't just question the benefits of the program, but also the "costs in terms of higher interest rates of gradually reducing" their MBS holdings.
But the law of supply hasn't been revoked. If the Fed removes $1.25 trillion in bonds, that must have some positive price impact on some security somewhere. When the Fed stops buying (only 2 months away) that will result in a huge effective increase in supply. Prices will react. |
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rffrydr
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rffrydr
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rffrydr
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| Posted: Tue Oct 21, 2008 1:23 pm Post subject: |
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A wave of the accounting wand and banks wide and diverse will be able to write off loses against EARNINGS.
Foreign holders without subsideraries...?
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rffrydr
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HenryTo
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| Posted: Mon Oct 06, 2008 11:47 pm Post subject: |
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Settlement of Fannie and Freddie resulted in an "anti-climax." Everyone is now awaiting the Lehman and the WaMu settlement:
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Fannie, Freddie CDS recovers 91.5-99.9 pct in auction
Mon Oct 6, 2008 4:19pm EDT
NEW YORK, Oct 6 (Reuters) - Sellers of protection on mortgage finance companies Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) (FNM.P: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) (FRE.P: Quote, Profile, Research, Stock Buzz) will be repaid between 91.5 percent and 99.9 percent of protection they sold, based on the results of an auction on Monday to determine the value of the contracts.
Protection sellers on the companies' subordinated debt were the biggest winners, with contracts on Fannie Mae's subordinated debt recovering 99.9 percent of the sum insured, and swaps on Freddie Mac's subordinated debt recovering 98 percent, according to results published by auction administrators Creditex and Markit.
Credit default swaps on the senior debt, by contrast, will recover less, with Fannie Mae's senior swaps recovering 91.51 percent the sum insured and Freddie Mac's senior swaps recovering 94 percent. |
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