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   Strategies & Market TrendsFreddie Mac (FRE) pops the housing bubble

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From: mlkr9/16/2009 10:09:48 PM
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By Lynn Adler

NEW YORK, Sept 10 (Reuters) - The government's seizure and support of home funding companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N) a year ago will likely muddy efforts to restructure the companies, according to a Government Accountability Office study.

Tasking Fannie Mae and Freddie Mac with limiting the scope of the housing crisis "may be necessary," the GAO said, but it may also "significantly affect the costs of the conservatorship and transition to a new structure."

Since the takeover, which the Congressional Budget Office estimated will cost taxpayers nearly $400 billion, the government has relied heavily on both companies to revive U.S. housing, the bane of the economy during a deep real estate slumpthat began more than three years ago.

As part of the conservatorship, the companies can increase their mortgage investment portfolios to help restore housing market stability before having to start cutting the holdings in 2010.

But the government had to come to the rescue of the two finance companies who had more than $5 trillion in outstanding obligations by pumping tens of billions of dollars in capital into Fannie and Freddie through stock purchases among other financial supports. As of June 30, the Treasury had provided about $85 billion to the GSEs.

"Investors might be unwilling to invest capital in reconstituted enterprises unless Treasury assumed responsibility for losses incurred during their conservatorship," the report said.

The GAO said the two companies have a mixed record in meeting their housing mission objections and both capital and risk management problems compromised their safety and soundness.

The GAO said its study, released on Thursday, was prepared with broad input from regulators and the entities, to guide Congress in its debate about the fate of Fannie and Freddie.


The two companies are structured as government agencies owned by shareholders, but investors grew to rely on expectations that the government would bail out Fannie Mae and Freddie Mac debt in a crisis.

Although the debt did not carry an "explicit guarantee", the U.S. a year ago did intervene and commit to backing the finance companies via company stock and debt purchases. This only reinforced the market's perception of a government guarantee that may be hard to sever.

The debt of both companies has rallied through the last year, pushing risk premiums down from record highs versus Treasuries during the worst of the markets meltdown in the past year to record lows.

"While the enterprises are now a critical component of the federal government's response to the housing crisis, such support would not be possible without Treasury's financial support and the Federal Reserve's plans to purchase almost $1.45 trillion of their MBS and debt obligations as well as those of other entities," GAO said in the study.

The U.S. Federal Reserve has set a goal to buy up to $1.25 trillion of agency MBS and $200 billion of agency debt before the end of this year to help lower home loan borrowing costs.

The Fed purchases of agency MBS total $836.5 billion so far in 2009 while the Fed's purchases of agency debt totals $122.366 billion.

Fannie Mae, through spokesman Brian Faith, declined to comment on the GAO report.

Sharon McHale, Freddie Mac spokeswoman, was not immediately available to comment.


The main options Congress will consider, with some overlap, are as follows:

-- Reconstitute the GSEs as for-profit corporations with government sponsorship but add restrictions to control risks. This could eliminate or reduce portfolios, establish executive compensation limits, or convert GSEs from shareholder-owned corporations to associations owned by lenders.

-- Create government corporations or agencies. The entities would focus on buying qualifying mortgages and issuing mortgage-backed securities but eliminate portfolios. The Federal Housing Administration, which insures mortgages for low-income and first-time borrowers, could assume more responsibility for promoting homeownership for targeted groups.

-- Privatize or terminate Fannie Mae and Freddie Mac. This would disperse mortgage lending and risk management through the private sector. Some proposals involve establishing a federal mortgage insurer to help protect lenders against catastrophic mortgage losses.

Each option has its trade-offs. All would need probably need a transition period to mitigate market disruption and ease the development of a new mortgage finance system, GAO said.

See the report here

See also a scenarios factbox on likely options for Fannie and Freddie in the future [ID:nN10402864]

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From: mlkr12/28/2009 2:50:44 PM
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Last update: 12/28/2009 2:16:15 PM
U.S. stocks rose slightly Monday, as the Dow Jones Industrial Average gained 7.3 points to 10527, the Standard & Poor's 500 rose a fraction to 1127 and the Nasdaq Composite climbed 3.2 points to 2289. Among the companies whose shares are actively trading in the session are Fannie Mae (FNM), Freddie Mac (FRE) and 3PAR Inc. (PAR).
Shares of mortgage-finance companies Fannie Mae ($1.26, +$0.21, +20.00%) and Freddie Mac ($1.58, +$0.32, +25.55%) gained Monday. Late last week reports surfaced that the U.S. Treasury Department has agreed to provide Fannie Mae and Freddie Mac with as much capital as they need over the next three years. The companies were placed in government conservatorship in 2008. American International Group Inc. (AIG, $32.08, +$1.96, +6.51%), which also received a bailout from the government, also gained.

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From: mlkr12/29/2009 10:26:39 AM
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FRE 1.71 vs FNM 1.38.. Active extended hrs and regular hrs trading..

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From: mlkr3/4/2010 1:11:00 PM
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FRE 1.22 vs FNM 1.01 ; looks new wave of upward move underway! Way too oversold by shorties despite good reporting and new capital raisings tru their own means!

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From: mlkr3/10/2010 3:33:53 PM
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FRE 1.36 FNM 1.17 NEW WAVE of increases: GSE have more to offer with wounded financial giants' positive news today

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From: mlkr6/21/2010 10:55:00 AM
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FRE 050 vs FNM 040 after delisting decision by FHA.

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From: mlkr7/8/2010 10:14:29 AM
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Fannie, Freddie find new home over the counter
Published: Wednesday, 7 Jul 2010 | 6:04 PM ET

McLEAN, Va. - Shares of Fannie Mae and Freddie Mac will begin trading over-the-counter Thursday, nearly a month after the government-sponsored mortgage buyers said they could no longer meet the requirements of companies listed on the New York Stock Exchange.

Freddie Mac's common stock, now unlisted, will trade under the symbol "FMCC." Investors will be able to trade Freddie Mac's 20 classes of preferred stock.

Fannie Mae's common stock will trade under the symbol "FNMA." Its preferred shares also will be listed.

Last month, the companies' regulator, the Federal Housing Finance Agency, said that Fannie's shares have been below the $1 average price level for 30 trading days. NYSE rules require a company to take action to boost its shares or delist. Freddie's shares have hovered close to the $1 mark.

Fannie and Freddie were created by Congress to buy mortgages from lenders and package them into bonds that are resold to investors. Together they own or guarantee almost 31 million home loans worth about $5.5 trillion. That's about half of all mortgages.

During the housing boom, the two loosened lending standards for borrowers and were broadsided when the housing market crumbled.

The government took over the two companies in September 2008 after they suffered huge loan losses.

In 2007, shares of both companies traded above $60. As the housing crisis deepened the stocks lost almost all of their value, plummeting below $1 by September 2008.

During the last day on the NYSE Wednesday, shares in Freddie Mac closed down 5 percent at 34 cents, then tumbled another 5 percent in after-hours trading.

Shares in Fannie Mae slid 17 percent to close below a quarter each.

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To: mlkr who wrote (46)7/8/2010 4:52:04 PM
From: Sr K
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>> Fannie Mae's common stock will trade under the symbol "FNMA." Its preferred shares also will be listed. <<

Actually, its preferred shares have been delisted.

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From: mlkr7/8/2010 7:41:36 PM
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Freddie Mac’s Delisting – A Good Move As We Are In A Housing Double-Dip
By: iStockAnalyst Tuesday, June 22, 2010 1:43 PM

Freddie Mac (FRE: 0.34, -0.02) is now in the company of Fannie Mae (FNM) which has been languishing as a penny stock since May 18. Meredith Whitney, one of the star analysts and founder of New York-based Meredith Whitney Advisory Group, said on CNBC "You're going to see banks post additional reserves associated with this double-dip in housing, and that means weak performance going forward." She says that we have entered a double-dip for housing. Whether you agree with her thesis or not, clear signs of danger are emerging from Freddie Mac's share price dips. Stock markets generally announce positive news early and delay the announcement of negative news as late as they can.

Institutional Holdings (As on 3/31/2010)



Vanguard Group Inc



Kinetics Asset Management Inc



Barclays Global Investors UK Holdings Ltd



Capital Research Global Investors



Legal & General Group Plc



State Street Corp



Morgan Stanley



Geode Capital Management LLC



California Public Employees Retirement System



Northern Trust Corp



On June 15, I posted an article titled ‘Fannie Mae – Is There A Respite?' At that time, I was hoping good news will not let pairs trading convergence between Freddie Mac (which was then trading above $1) and Fannie Mae so that FRE wouldn't fall to penny stock status as it has had been languishing since June 16. If you look at the institutional shareholding pattern of FNM and FRE, you will then realize that my fears were well founded. In the above table, I have given the shares held by top 10 institutional holders in FRE and also their shareholding in FNM. Fir Tree Inc (4th largest shareholder in FNM), Susquehanna International Group, LLP (9th largest shareholder in FNM), and Schwab Charles Investment Management Inc (10th largest shareholder in FNM) were not listed in the above table as they don't feature among the top 10 holders of FRE shares. As on 31st March 2010, only State Street Corp had decreased its holdings in FRE while only Susquehanna International Group, LLP had decreased its holdings in FNM. I expect there significant changes in shareholdings (although major players will remain same) of top 10 shareholders in FRE and FNM.

FRE performance and outlook
FRE reported net loss of $6.7 billion in Q1-2010, compared to Q1-2009. Loss could have been higher but for the positive impact of changes in accounting standards adopted on January 1, 2010. Results were positively impacted by less significant increases in delinquencies and average severity rates in the first quarter of 2010 as compared to the first quarter of 2009. However, the company reported higher losses on derivatives and investment securities.

On June 16, FRE notified NYSE) that it is withdrawing its common stock and 20 classes of NYSE-listed preferred stock from listing on the NYSE. The decision was taken pursuant to a directive from the Federal Housing Finance Agency (FHFA), Freddie Mac's Conservator and regulator. Delisting from NYSE is in a way good move to preserve FRE's net worth. In the last few months, we have seen increasing levels of programmed trading on NYSE. FRE and FNM being two of the stocks most heavily program traded, continued listing on the bourses without any signs of returning to financial health would have caused substantial damage to these entities.

Relisting on NYSE
Though FRE will be delisted on NYSE, its shares will continue to be traded on OTC Bulletin Board (OTCBB), a centralized electronic quotation service for over-the-counter securities, under a ticker symbol that has yet to be assigned. FRE could reconsider relisting on NYSE at an opportune time when its financial performance and health could afford such a move. However, this is a distant dream as I share Whitney's views on double-dip in housing.

Double-dip in housing
There is no standard definition for ‘double-dip'. However, since recession is defined to be two consecutive quarters of GDP decline, we can have a working definition of double-dip in housing as two consecutive quarters of house price declines followed by a slight recovery and then again followed by two consecutive quarters of house price declines. According to economist Robert Shiller's S&P Case-Shiller Home Price Index, we are already in the midst of a double-dip in housing.

Existing home sales in April posted a sharp 7.6% jump to a 5.77 million annual rate. But, in a big disappointment, supply on the market jumped 11.5% to 8.4 months. But at least for April, prices did firm, up 2.1% to a median $173,100. Looking ahead, the settlement date for special tax credits has been extended to the end of June for contracts signed by the end of April. This extension will help support existing home sales (based on closing) but most of the action probably has already taken place and we may see sales slip in May and months in the near term. Based on purchase-only mortgage applications, which fell 27.1% for the month, sales are likely to drop in May. If double-dip in housing is true then we are likely to see drop in house prices May through October, unless Obama's administration revives housing sector.

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From: mlkr7/20/2010 9:22:51 AM
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KBW Calls for Comprehensive Reform of Government Sponsored Enterprises
9:00a ET July 20, 2010 (Business Wire)
KBW, Inc. (NYSE: KBW) a full service investment bank that specializes in the financial services sector, today urged the Obama Administration to review the nation's housing finance system and offered its own plan for comprehensive reform of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.

"Although Congress passed, and the President is expected to soon sign, comprehensive financial reform, one huge part of the financial services industry was forgotten," noted John G. Duffy, KBW Chairman & Chief Executive Officer. "The U.S. mortgage business is now left essentially nationalized with no plan in place to address reform. At $145 billion and rising, the GSE bailout will undoubtedly turn out to be far and away the single largest cost to the taxpayer from the recent financial crisis," Duffy added.

In response to the Treasury Department's request for public input on this issue due tomorrow, KBW is proposing a plan for comprehensive GSE reform that maintains the critical function of the GSEs to sustain the housing market while also eliminating the market distorting operations of the past. Under the KBW plan, GSEs would be transformed into cooperatives of mortgage lenders, putting those lenders' capital at risk ahead of the taxpayer. Specifically, KBW is recommending a three step approach:

-- Recapitalization of the GSEs with private sector funding in order to achieve a stable system with market discipline, including "skin in the game" by private mortgage originators.

-- Phasing out of the GSEs portfolio retention activities except those that support the guarantees of conforming mortgages, including setting up a "Bad GSE/Good GSE" structure to aid in the transition.

-- Continuity of the mortgage securitization process during reform to ensure that there is no major disruption in mortgage availability.

"In our view, the GSEs play a critical role in U.S. mortgage finance, creating a liquid market for long dated mortgages preferred by customers but difficult for banks to keep on their balance sheets," said KBW's Duffy. "However, we recognize that the GSEs also played a critical role in the excessive leverage in U.S. housing that precipitated the downturn. As a result, we believe that reform is necessary to ensure that federal policy does not exacerbate future boom and bust cycles."

More details of the KBW plan on GSE reform can be found in an open letter to the U.S. Treasury Department, submitted today, and accessible online at

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