Fannie Mae (FNM)

[HenryTo]

Fannie Mae looks to be getting cheap here from a traditional valuation standpoint. However, there are definitely many uncertainties surrounding the company, such as its upcoming earnings restatement, the flattening of the yield curve, and the continued calls for reining in its portfolio.

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[gregf]

$5, Jimmy is a bit pessimistic. It is interesting, neither Schwab nor Goldman have a rating on FNM, hmmmm.

It's also interesting to note what finace.yahoo.com has for a profile of FNM - that includes:

"The United States government does not guarantee, directly or indirectly, Fannie Mae's securities or other obligations."

[HenryTo]

Yes, but apparently no one listens to that.

Moral hazard is still a problem in our financial system and in society, me thinks. Look at all the marginal homeowners who are taking the huge variable mortgages - this is definitely something new.

[gregf]

only 3 votes on 70 views, hmmmm

[HenryTo]

And they're all different as well!

[gregf]

somebody, PLEASE break the tie!!!

[HenryTo]

More accounting problems at Fannie Mae. And from a Peter Primelow article: "On Thursday, the Wall Street Journal reported that the government-created mortgage monster could be forced to recognize additional losses from its derivatives portfolio of as much as $2.8 billion because of new accounting concerns raised by its chief regulator."

http://www.marketwatch.com/news/story.asp?dist=yhooquotenews&param=archive&siteid=yhoo&guid=%7BBD3CE547%2D25DC%2D428D%2DA2ED%2D93E259A5FB7B%7D&garden=&minisite=

[lindalu]

sell Fannie Mae,
_________________
lindalu

[HenryTo]

From marketwatch.com:

Fannie Mae agrees to more reforms
Will restate financial reports 'as necessary'
By Robert Schroeder, MarketWatch
Last Update: 1:54 PM ET March 8, 2005


WASHINGTON (MarketWatch) - Housing finance giant Fannie Mae agreed with its federal regulator to implement more reforms designed to shore up the troubled firm's corporate governance.

Under an agreement with the Office of Federal Housing Enterprise Oversight, Fannie (FNM: news, chart, profile) will beef up rules for accounting ledger entries, put in place a plan to stamp out problems with portfolio accounting, separate its chairman of the board and chief executive officer and take other steps.

The office, a division of the Department of Housing and Urban Development, is investigating massive losses at Fannie, which ousted its chief officers in December over an accounting scandal.

"We must put in place all necessary reforms not just to correct the problems of the past, but to also safeguard against problems emerging in the future," said Armando Falcon, Jr., the director of OFHEO.

Fannie's shares sank following the announcement and were lately trading down 50 cents to $57.50.

Stephen Ashley, the chairman of Fannie Mae's board, said the company is committed to implementing the agreement as it works to complete a restatement of its earnings.

The SEC ruled last December that Fannie overstated its profits by about $9 billion since 2001. The company has since halted quarterly financial reporting.

Part of the agreement calls for Fannie to conduct a restatement of prior earnings "as necessary."

Fannie Mae and its smaller sibling Freddie Mac (FRE: news, chart, profile) pump money into the housing market by buying mortgages from banks and repackaging them into securities. Investors around the world hold Fannie's stock and bonds, and the company is one of the largest financial services firms in the country.

The company also agreed with its regulator to create an office of compliance and ethics which will review internal complaints and whistleblower reports. The company's general counsel will also report misconduct directly to the board.


Robert Schroeder is a reporter for MarketWatch in Washington.

[HenryTo]

This is a step in the right direction, IMHO:
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Fannie Mae Changes Bonus Pay System
Friday March 11, 8:05 pm ET
Hitting Wall Street's Profit Targets No Longer Sole Gauge for Fannie Mae Bonuses

WASHINGTON (AP) -- Hitting Wall Street's profit targets will no longer be the sole gauge for awarding bonuses to executives at Fannie Mae, in changes to its pay system made by the embattled mortgage giant that were disclosed Friday.
Federal regulators who found serious accounting problems last year at the biggest U.S. buyer of home mortgages also raised the possibility of deliberate accounting maneuvers designed to meet earnings targets and thereby bring bigger annual bonuses to top executives.

Fannie Mae is facing a restatement of earnings back to 2001, as ordered by the Securities and Exchange Commission, a correction that could reach $9 billion or more.

In a filing Friday with the SEC, Fannie Mae said its board had revised the gauges for awarding bonuses to also include achieving the government-sponsored company's mission of making housing affordable for low-income and minority people, making progress in the restatement project and improving the corporate culture.

The changes were approved by the Office of Federal Housing Enterprise Oversight, the agency that supervises Fannie Mae and has been investigating its accounting, the company said in its filing.

It also disclosed an increase in the base salary of Daniel Mudd, the interim chief executive who replaced ousted chairman and CEO Franklin Raines in December, from $746,000 to $850,000. The salary boost reflected increased responsibilities for Mudd, who had been chief operating officer, the company said.

Washington-based Fannie Mae recently stopped awarding stock options to senior managers.

Fannie Mae and Freddie Mac, its smaller rival in the $8 trillion home-mortgage market, were created by Congress to pump money into the home-mortgage market. They buy and guarantee repayment of billions of dollars of home loans each year from banks and other lenders, then bundle them into securities that are resold to investors worldwide.

[HenryTo]

Hmmm... the scandals from FNM just keep on coming?
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Fannie Mae workers faked signatures-regulator
Thu Mar 17, 2005 09:29 AM ET

(Recasts with confirmation from Fannie Mae's regulator)
WASHINGTON, March 17 (Reuters) - U.S. investigators have found instances of Fannie Mae (FNM.N: Quote, Profile, Research) employees falsifying signatures on accounting ledgers and making changes in earnings-related records without following proper procedures, a regulatory official said on Thursday.

"We have found instances of falsifying signatures on accounting ledgers and making changes to database records," an official from the Office of Federal Housing Enterprise Oversight, Fannie Mae's regulator, said on condition of anonymity.

The investigation is on-going, and the Securities and Exchange Commission is also conducting a probe.

Fannie Mae faces a multibillion-dollar earnings restatement after accounting problems surfaced last year that led to the ousting of top executives and a probe by federal regulators.

Shares of Fannie Mae closed Wednesday at $56.95 on the New York Stock Exchange.

[HenryTo]

UPDATE 4-Fannie sees additional losses, stock tumbles
Thu Mar 17, 2005 06:14 PM ET

(Rewrites throughout)
By Kristin Roberts

WASHINGTON, March 17 (Reuters) - Fannie Mae (FNM.N: Quote, Profile, Research) on Thursday said it would have to record $2.4 billion in additional losses for 2004 if the company's accounting for its mortgage commitments as derivatives is not allowed.

The embattled mortgage finance company would have had to record a $2.8 billion loss through June 30, 2004, if it did not qualify for such accounting treatment, the company said in a filing with the U.S. Securities and Exchange Commission.

That would come on top of the roughly $9 billion in losses related to derivatives Fannie Mae said it would have to record based on accounting problems raised earlier.

The announcement coincided with revelations that company employees falsified signatures on accounting ledgers and made changes to earnings-related records without following proper procedures -- driving Fannie's stock down more than 4 percent.

"We have found instances of falsifying signatures on accounting ledgers and making changes to database records," an official from the Office of Federal Housing Enterprise Oversight, Fannie's regulator, said on condition of anonymity.

Fannie's stock dropped $2.45 to close at $54.50. It hit an intraday low of $53.88, its lowest level since September 2000.

"The act itself is bad in its own right, but that's not what's driving the stock," said Paul Miller, equity analyst at Friedman Billings Ramsey. "What's driving the stock is that if these guys were at the point of falsifying signatures, what else are they doing?"

Fannie Mae declined to comment on the regulator's statement that employees had falsified signatures.

Investigations by OFHEO and the U.S. Securities and Exchange Commission continue into Fannie's accounting problems, which led to the ousting of top executives last year.

Fannie Mae will not file its annual financial report on time with securities regulators, the company also said Thursday.

STIFFER OVERSIGHT

Fannie's accounting problems are unfolding as Congress considers tougher oversight of the company and sister housing enterprise Freddie Mac (FRE.N: Quote, Profile, Research) .

Republicans in the House and Senate have said they will consider legislation to create a stronger regulator with the power to shut down the government-sponsored housing enterprises (GSE) in the event of insolvency.

The companies carry congressional charters and are charged with ensuring a liquid mortgage market.

A bill could be offered in the House as early as Friday, sources said.

The Senate Banking Committee has scheduled hearings on GSE legislation for April. Federal Reserve Chairman Alan Greenspan will testify April 6, followed by Treasury Secretary John Snow and Housing and Urban Development Secretary Alphonso Jackson on April 7.

Fannie Mae and Freddie Mac buy mortgages from originators and package them as mortgage-backed securities. They also keep mortgages in their portfolios as whole loans or securities. In 2003, the GSEs accounted for 47.2 percent of total residential mortgage debt outstanding, their regulator said.

[HenryTo]

Interesting article on FNM and GM on thestreet.com. Talks about the potential capitulation in GM - says that FNM hasn't bottomed yet but he does give price targets - although where it will end up is anybody's guess:

http://www.thestreet.com/_yahoo/markets/danfitzpatrick/10213908.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA

[HenryTo]

Treasury Secretary also gets in the act of calling for curbs to both FNM and FRE. Interestingly, FRE didn't decline in price immediately after earnings, but instead declined 3.72% after a one-day lag (yesterday). On a P/E basis, FRE is now much more overvalued than FNM.
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Snow Seeks Limits
For Mortgages
At Fannie, Freddie

By JAMES R. HAGERTY and DEBORAH LAGOMARSINO
Staff Reporters of THE WALL STREET JOURNAL
April 1, 2005; Page A2

Treasury Secretary John Snow called on Congress to limit holdings of mortgage loans by Fannie Mae and Freddie Mac.

Mr. Snow's remarks to reporters during a visit to Bismarck, N.D., were the clearest sign yet that the Bush administration has ratcheted up its demands for legislation to tighten regulation of the two government-sponsored enterprises, or GSEs.

Earlier yesterday, Freddie reported a 41% decline in net income, largely reflecting losses on derivatives used to hedge against interest-rate risks. The McLean, Va., mortgage company offered investors some comfort by reporting a 13% increase in the market value of its net assets.

Both Fannie and Freddie rely heavily on derivatives to manage the risks of holding large portfolios of mortgages, whose value gyrates with changes in interest rates. Those derivatives, however, can create sharp swings in earnings. In the past two years, both companies have ousted top executives after findings by regulators and auditors that executives had violated accounting rules in an attempt to conceal some of the volatility.


The accounting scandals have prodded Congress into renewed debate over legislation that would create a more powerful regulatory agency to oversee Fannie, Freddie and the Federal Home Loan Banks. Mr. Snow and Federal Reserve Chairman Alan Greenspan are due to discuss such legislation before congressional panels next week.

Mr. Greenspan recently told Congress that he saw no need for Fannie and Freddie to hold more than $100 billion to $200 billion of mortgages apiece. At present, their combined holdings are about $1.5 trillion. Aside from buying mortgages for their own portfolios, the companies earn fees by guaranteeing payments on mortgage-backed securities held by other investors. That business is considered less risky than the large portfolio holdings.

Mr. Snow didn't specify how the portfolios should be limited, a goal that could be achieved through curbs on their borrowings or through caps on the total value of mortgage loans and related securities they hold. "We will be suggesting there be some constraints on the GSEs' holdings of these securities, while at the same time making sure they are fully capable of fulfilling their basic mission of making sure we have a strong secondary market for mortgages," Mr. Snow said.

Fannie and Freddie declined to comment.

Freddie's net income in 2004 declined to $2.83 billion, or $3.78 a share, from $4.82 billion, or $6.68 a share, a year before. Accounting rules require Freddie to record the current value of derivatives while recording some loan-related assets at their historical, or original, value . That can present a misleading picture of results. Thus, some analysts consider the "fair value" of net assets, based on the current market value of all of the company's assets and liabilities, a better gauge of performance. Freddie estimated the fair value of its net assets at $30.8 billion at the end of 2004, up from $27.3 billion a year earlier.

Bert Ely, a financial consultant in Alexandria, Va., said that based on its fair-value estimates, Freddie had a return on its common-stock equity of about 19% in 2004, down from 26% in 2003.

In a conference call with investors, Freddie officials said they have begun relying less heavily on derivatives to control interest-rate risks, partly by selling more debt that can be repaid early if funding needs change.

Freddie hadn't previously reported any results for 2004 and included its quarter-by-quarter results for last year in the latest release. They ranged from a loss of $1.5 billion in the third quarter to earnings of $2.74 billion in the second quarter. Freddie has been tardy in its reporting since early 2003, when it disclosed that company officials had manipulated accounting practices to smooth out earnings. Those disclosures forced the company to restate earnings for 2000 through 2002.

Shares of Freddie fell 70 cents, or 1.1%, to $63.20 in 4 p.m. composite trading on the New York Stock Exchange.

[HenryTo]

Seems like there is always something new coming out of the financial sector every day...
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Fannie Mae Stock Tumbles on Report
Monday April 4, 12:46 pm ET
Fannie Mae Stock Drops to New 52-Week Low on Trust Accounting Report

NEW YORK (AP) -- Shares of Fannie Mae tumbled Monday to their lowest intraday level in more than 10 years on a report that the mortgage financing company's chief regulator is looking into possible improper accounting of trusts it uses to sell mortgage-backed debt.
Shares of Fannie Mae, a government-sponsored entity that buys mortgages from banks and then repackages and sells them as bonds called mortgage-backed securities, fell $2.68, or 5 percent, to $50.56 in midday trading, and was one of the New York Stock Exchange's biggest percentage losers and most active issues. The stock dropped to a new 52-week low of $49.75 earlier in the day, down about 30 percent since early January.

On Monday, the Wall Street Journal reported that Armando Falcon Jr., director of the Office of Federal Housing Enterprise Oversight, or Ofheo, is looking into Fannie Mae's accounting methods for trusts set up to issue mortgage-backed securities.

Ofheo is still trying to quantify the potential problem, the Journal reported, citing an interview it conducted with Falcon. A Fannie Mae spokesman declined to estimate the potential impact, the Journal said.

Last year, regulators found that Fannie violated accounting rules over its treatment for derivatives used to hedge interest rate risk. The company is in the midst of restating its financial results from over the past several years