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


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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)

FRE

FNM

Vanguard Group Inc

27,282,997

45,145,341

Kinetics Asset Management Inc

14,324,647

13,024,575

Barclays Global Investors UK Holdings Ltd

9,277,905

15,581,945

Capital Research Global Investors

5,300,000

10,000,000

Legal & General Group Plc

2,657,290

3,276,590

State Street Corp

2,380,309

4,520,505

Morgan Stanley

1,949,790

6,173,110

Geode Capital Management LLC

1,581,395

2,729,175

California Public Employees Retirement System

1,485,370

4,728,365

Northern Trust Corp

1,369,418

2,170,789

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 kbw.com.

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From: mlkr7/21/2010 11:16:00 AM
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Growth Expectations Shifting Down According to Fannie Mae's Economics & Mortgage Market Analysis Group
Federal National Mortgage Association Common Stock (OTCBB:FNMA)
Intraday Stock Chart

Today : Wednesday 21 July 2010
Click Here for more Federal National Mortgage Association Common Stock Charts.

Concerns about the global economic recovery, including lingering worries regarding European sovereign debt, and increasing caution at home among private employers and consumers are evidence of the tenuous nature of the current economic recovery, according to the July 2010 Economic Outlook released today by Fannie Mae's (OTC Bulletin Board: FNMA) Economics & Mortgage Market Analysis Group. The group has revised its projected growth for 2010 to 2.8 percent from 3.2 percent, and remains on guard for a setback amidst increased uncertainty and downside risks.

"We have shifted into a lower gear in the economic expansion, due in no small part to the increase in financial-market volatility in recent months," said Fannie Mae Chief Economist Doug Duncan. "As a result, private-sector employers are tentative about hiring decisions; businesses are building cash, but generally are investing in capital rather than labor. That reluctance to hire has had a knock-on effect on consumers, who are spending less as the deleveraging process continues."

The headwinds in housing have also picked up, according to the group. Though the anticipated expiration of the homebuyer credit had led to forecasts of diminished activity in the third quarter, the fall off was steeper than expected. The group now expects housing sales in 2010 to be basically flat, though it expects a modest recovery for housing in the fourth quarter and into next year -- due in large part to the support that historically low mortgage rates are providing.

"We believe that residential investment will have a neutral effect on economic growth this year, which makes the current recovery quite unusual," Duncan said. "Housing has historically played a significant role in leading the country out of recession."

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