Commercial real estate to grow steadily in 2017

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Commercial real estate is expected to experience steady growth in 2017, according to new data from the National Association of Realtors.

Nationwide, office vacancy rates are expected to fall by 1.1% to 12.1% due to job growth and the need for additional office space; industrial space is expected to fall by 1.3% to 7.1%; and rent availability is expected to decrease by 0.7% to 11.2%. 

“Last year was the 11th year in a row of subpar GDP growth, but renewed corporate optimism leading to a focus on investment and a desperately needed boost in residential construction should pave the way for modest expansion this year of around 2.4 percent,” said Lawrence Yun, NAR chief economist. “Steady hiring and low local unemployment levels are finally supporting higher wages and increased spending, which in turn bodes well for sustained demand for all commercial property types.”

Meanwhile, the multifamily sector is projected to experience little change in availability as new apartments maintain vacancy rates at 6.5%. Homeownership rate will likely remain low due to ongoing supply and affordability challenges; most likely, rent will also preserve its stable growth.

“Especially in the costliest metro areas, higher home prices and mortgage rates are squeezing the budget for many renters looking to buy and inevitably forcing them to sign a lease for at least another year,” Yun said.

Related stories:
Morning Briefing: Existing sales rise at fastest pace in a decade
Morning Briefing: These states have the highest rates of homeownership


Fewer contracts signed for homes in January

WASHINGTON — Fewer Americans signed contracts to purchase homes last month as rising prices, higher mortgage rates and a dwindling supply of available homes appeared to frustrate many potential buyers, especially in the West.

The National Association of Realtors said Monday that its seasonally adjusted pending home sales index fell 2.8 percent to 106.4, the lowest level in a year.

The decline suggests that higher mortgage rates, which have risen by about a half-percentage point since the presidential election, may be starting to bite into sales. And the number of homes for sale has fallen to near-record lows, forcing many would-be buyers to bid up prices. The combination of higher prices and rising mortgage rates are making homes less affordable.

These trends are apparent in the regional data. The pending home sales index in the West plunged 9.8 percent in January and is now slightly below where it was a year ago. The West includes some of the highest-priced housing markets in the country, particularly San Francisco, Seattle, and Denver. The sharp decline in that region suggests some of those markets could be starting to cool.

Contract signings also fell in the Midwest, while rising in the Northeast and inching up in the South.

Pending home sales were up 4.3 percent in January in the Twin Cities metro area from a year before, according to the Minneapolis Area Association of Realtors.

Still, with hiring solid and the stock market at record highs, Americans are confident in the economy and are more interested in buying a home than at any time since the Great Recession, the NAR said.

Yet those potential buyers are dealing with a highly competitive market: The typical home was available for sale for only 50 days last month, down from 64 a year earlier.

The price of a typical home jumped by more than double the pace of wage gains in January from a year earlier, and mortgage rates have risen in the past six months. That has slowed the pace of contract signings.

The NAR said last week that Americans bought homes in January at the fastest pace in a decade. But Monday’s data measures contract signings, which typically become closed sales in the next month or two. Last month’s decline in the pending home sales index suggests that final sales will likely decline in the coming months.

Pending Home Sales Weaken in January

WASHINGTON, Feb. 27, 2017 /PRNewswire/ — Insufficient supply levels led to a lull in contract activity in the Midwest and West, which dragged down pending home sales in January to their lowest level in a year, according to the National Association of Realtors®.

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, decreased 2.8 percent to 106.4 in January from an upwardly revised 109.5 in December 2016. Although last month’s index reading is 0.4 percent above last January, it is the lowest since then.

The National Association of Realtors Pending Home Sales Index decreased 2.8 percent to 106.4 in January from an upwardly revised 109.5 in December 2016. Although last month's index reading is 0.4 percent above last January, it is the lowest since then.

The National Association of Realtors Pending Home Sales Index decreased 2.8 percent to 106.4 in January from an upwardly revised 109.5 in December 2016. Although last month’s index reading is 0.4 percent above last January, it is the lowest since then.

Lawrence Yun is chief economist and senior vice president of research at the National Association of Realtors(r). Yun oversees and is responsible for a wide range of research activity for the association including NAR's Existing Home Sales statistics, Affordability Index, and Home Buyers and Sellers Profile Report. He regularly provides commentary on real estate market trends for its 1 million Realtor(r) members. (PRNewsFoto/National Association of Realtors) (PRNewsFoto/National Association of Realtors)

Lawrence Yun is chief economist and senior vice president of research at the National Association of Realtors(r). Yun oversees and is responsible for a wide range of research activity for the association including NAR’s Existing Home Sales statistics, Affordability Index, and Home Buyers and Sellers Profile Report. He regularly provides commentary on real estate market trends for its 1 million Realtor(r) members. (PRNewsFoto/National Association of Realtors) (PRNewsFoto/National Association…

Lawrence Yun, NAR chief economist, says home shoppers in January faced numerous obstacles in their quest to buy a home. “The significant shortage of listings last month along with deteriorating affordability as the result of higher home prices and mortgage rates kept many would-be buyers at bay,” he said. “Buyer traffic is easily outpacing seller traffic in several metro areas and is why homes are selling at a much faster rate than a year ago1. Most notably in the West, it’s not uncommon to see a home come off the market within a month.”

According to Yun, interest in buying a home is the highest it has been since the Great Recession. Households are feeling more confident about their financial situation, job growth is strong in most of the country and the stock market has seen record gains in recent months. While these factors bode favorably for increased sales in coming months, buyers are dealing with challenging supply shortages that continue to run up prices in many areas.

“January’s accelerated price appreciation1 is concerning because it’s over double the pace of income growth and mortgage rates are up considerably from six months ago,” said Yun. “Especially in the most expensive markets, prospective buyers will feel this squeeze to their budget and will likely have to come up with additional savings or compromise on home size or location.”

Existing-home sales are forecast to be around 5.57 million this year, an increase of 2.2 percent from 2016 (5.45 million). The national median existing-home price this year is expected to increase around 4 percent. In 2016, existing sales increased 3.8 percent and prices rose 5.1 percent.

“Sales got off to a fantastic start in January, but last month’s retreat in contract signings indicates that activity will likely be choppy in coming months as buyers compete for the meager number of listings in their price range,” added Yun.   

The PHSI in the Northeast rose 2.3 percent to 98.7 in January, and is now 3.6 percent above a year ago. In the Midwest the index fell 5.0 percent to 99.5 in January, and is now 3.8 percent lower than January 2016.

Pending home sales in the South inched higher (0.4 percent) to an index of 122.5 in January and are now 2.0 percent above last January. The index in the West dropped 9.8 percent in January to 94.6, and is now 0.4 percent lower than a year ago.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.2 million members involved in all aspects of the residential and commercial real estate industries.

1Properties typically stayed on the market for 50 days in January, down considerably from a year ago (64 days).

2January’s median existing-home price increased 7.1 percent, which was the fastest since January 2016 (8.1 percent).

*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.

NOTE: NAR’s 2017 Profile of Home Buyer and Seller Generational Trends will be released March 7, the first quarter Housing Opportunities and Market Experience (HOME) survey is scheduled for March 15, Existing-Home Sales for February will be reported March 22, and the next Pending Home Sales Index will be March 29; all release times are 10:00 a.m. ET.

Information about NAR is available at This and other news releases are posted in the “News, Blogs and Videos” tab on the website. Statistical data in this release, as well as other tables and surveys, are posted in the “Research and Statistics” tab.


To view the original version on PR Newswire, visit:

SOURCE National Association of Realtors

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ANC 3F Feb. summary: Developers’ plans for 3101 Albemarle and Fannie Mae buildings

3101 Albemarle Street NW. (photo courtesy MRIS)

by Marlene Berlin

After reading through this summary you’ll marvel that ANC 3F managed to pack everything into a couple of hours. Chair Malachy Nugent has mastered the task of keeping a packed agenda moving. The February 21st meeting included lots of updates on happenings in and adjacent to the neighborhood. You can watch the meeting here. These are some highlights:

Real estate and development

Sidwell Friends School is negotiating a two- to three-year lease-back with the Washington Home and is working on its strategic plan. The school has also purchased the Fannie Mae building at 3939 Wisconsin Avenue. The purchase of these two properties will enable Sidwell to consolidate its campuses. Its lower school is in Bethesda.

4250 Connecticut Avenue (Nov. 2015 Google StreetView image)

Fred Underwood of Bernstein Management Company, which recently purchased another Fannie Mae building at 4250 Connecticut Avenue, introduced himself to the ANC and those in attendance. He is excited to be working on what will be a mixed-use development, including retail and the possibility of student housing for UDC. Underwood will seek community input on making this a center for vibrant retail in Van Ness.

Richard Lake of Roadside Development, which owns the property housing the Van Ness Potbelly, Parklane Cleaners and Wells Fargo bank, is seeking community input on yet another Fannie Mae building: the main headquarters at 3900 Wisconsin Avenue. When Fannie Mae moves to its new downtown headquarters, Roadside will build a mixed-use matter of right development including housing, retail, arts spaces and a park. Take the survey at the project website,, and share your ideas.

Marjorie Share, a next door neighbor to the vacated Polish Embassy residence at 3101 Albemarle Street, announced that real estate developer PG Gottfried completed the purchase of this property that very day. Share, Jane Solomon and other neighbors had been concerned developers would tear down the existing home and cut down trees to build five or six “McMansions” on the site, so they approached Gottfried about purchasing this property. Gottfried intends to preserve the residence and the property in front of it, and build eight aging-friendly townhouses on the western side while maintaining as many of the mature trees as possible and addressing stormwater management issues (a great concern of close-by neighbors). Rock Creek Conservancy is interested in using the residence as its headquarters once improvements are made.

3101 Albemarle is not zoned for higher density so Gottfried will seek approval through a planned urban development (Greater Greater Washington has a great explanation of PUDs here). Share also filed an application for historic landmark status to protect the site and the land in front of it, and Gottfried will write the ANC a letter to support the landmark. See the project fact sheet for a detailed description of the evolution of this project and the reason for the landmark application.

Public policy

At-Large DC Council member Elissa Silverman was a featured speaker. Silverman, a sponsor of DC’s new paid family leave law, said Council members Mary Cheh and Jack Evans had introduced new legislation that would reduce the taxes businesses would owe. The Washington Post provides further details.

ANC 3F voted unanimously to approve a resolution opposing Trump’s executive order 13769, which bars immigrants from seven countries. A representative from UDC commended the ANC for passing this resolution.

Getting around

Van Ness Metro west side street entrance with the escalator removed. (2015 WMATA photo)

The west entrance of the Van Ness Metro station, closed off and on since June 2015 for an escalator replacement project, is due to reopen at the end of March.

Beach Drive between Broad Branch Road and Tilden Street is scheduled to close in August for the next phase of the roadway rebuilding project, and a traffic plan given to ANC 3F would detour vehicles onto Brandywine Street through Forest Hills. Malachy Nugent wrote a letter to DDOT Director Leif Dormsjo, urging planners to direct traffic onto Military Road and Nebraska Avenue instead. For more information on the Beach Drive rehabilitation segments visit the project website.

Parks and schools

On February 15, the DC Department of General Services and Department of Parks and Recreation held a community meeting at Hearst Elementary School and presented the results of a community survey on an outdoor pool at Hearst Park (3999 37th Street NW). Out of 1,164 responses, 72% supported building a pool at the park.

Regarding the Murch Elementary renovation and modernization, Patrick Davis, DC Public Schools’ director of Facility Planning and Design, said plans for traffic management, storm water management and tree preservation will be brought before the DC Public Space Committee in April. For more information about construction plans visit In response to a question about public art, Jackie Stanley of the Department of General Services stated there will be a call to both local and national artists for a public art project at Murch in September or October 2018.

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Fannie & Freddy: Mnuchin Reveals New Clues – Fannie Mae …

By Parke Shall with Thom Lachenmann

We think that new revelations made by Steven Mnuchin and missed by most of the financial analysts reveal new clues to the future of Fannie (OTCQB:FNMA) and Freddie (OTCQB:FMCC). We think comments he made last week in interviews not only confirm that Fannie and Freddie won’t be under government control much longer, but also that it could still be a couple of months before action takes place. Until then, we expect to see an appeal of last week’s court decision; a decision that came with some scathing dissent despite not falling in favor of shareholders (for the most part).

Anybody who was even in the slightest bit involved with the Fannie Mae and Freddie Mac debacle was likely watching carefully yesterday as Treasury Secretary Steven Mnuchin took to some of the financial news networks in order to help disseminate what has been going on at the White House with regard to the American economy. You can watch clips from his appearances here and here.

Mnuchin’s comments on CNBC were bullish for shareholders, as he answered Becky Quick,




(our emphasis in bold)

We think the comments that he gave were generally bullish for Fannie Mae and Freddie Mac shareholders and we took from the interview that it may just take a little bit of time, but that the Fannie and Freddie bull case is still very much on the table.

Mnuchin didn’t speak much about Fannie and Freddie but he was peppered with a couple of questions during each of the two interviews that he gave. His answers were relatively consistent with one another on both networks.

He did spend a lot of time talking about the administration’s plans for tax cuts for both the American people and businesses. This dominated a good majority of his time and he made it clear that tax cuts were his number one priority right now. There is no doubt that the administration, from a financial perspective, is focused on tax cuts right now and Mnuchin made the commentary that meaningful effects of these tax cuts would likely not be felt in 2017. However, he did reiterate several times that the tax cuts are going to need to be dealt with, simplified, and rolled out before he can move onto housing reform.

However, when speaking about housing reform, he did make some fairly bullish comments. He made it clear on both networks that he was committed to housing reform and with regard to Fannie Mae and Freddie Mac, he made the comment that he wanted to make sure there was a lot of liquidity in the 30 year mortgage market.

On Fox Business News, his comments were equally as bullish when he stated,

I think this was a ruling that was favorable to the Treasury. But having said that the DOJ is representing the Treasury, that’s for them to deal with. What we’re dealing with in this building is really how we look at housing reform going forward.

What I’ve said is we can’t leave these entities in the exact state they are, under government control for the next four years. We need to solve the issue. This issue is just kicked down the road.

So it is something we’re carefully looking at. I’ve had the chance to meet with Jeb Hensarling on this. I’ve had the chance to meet with Mel Watt this week and talk about it. Again, it’s something that we’re going to very carefully consider before we come out with a plan.

It’s something that we want to make sure that there is liquidity in the 30-year mortgage. Real estate finance is a very big part of the economy and we want to make sure there’s plenty of liquidity on the real estate markets.

On the other hand we want to make sure that we protect the taxpayers. And we don’t want to do anything that will put the taxpayers at risk going forward.

So this is something that’s going to take us a little bit more time. It’s not something that we’re going to deal with as quick as taxes which is our number one priority. But we’re committed to a solution. I think hopefully there’s a bipartisan solution here. But I’m optimistic as well that we can create housing reform under this administration.

He reiterated a sentiment that he had previously stated, which is that Fannie Mae and Freddie Mac cannot stay under government control for the next four years. This, in and of it’s self, should be encouraging for Fannie Mae and Freddie Mac investors as it is a clear sign that he wants to take action. We are guessing, based on how long it is going to take to get the tax plan done that housing reform would likely come at the end of summer or the beginning of fall of this year. While Fannie Mae and Freddie Mac shareholders may have to wait for a couple more months, it may wind up being well worth it. That is not also to suggest the details of a potential plan may not leak out over the next couple of weeks.

Mnuchin said that he had met with Mel Watt and it is clear that housing reform and the government sponsored entities are on his priority list. The only reasonable conclusion that we can draw from the fact that Mnuchin said he wanted more liquidity, but also wanted to be safe around the taxpayers, would be a substantial capital buffer that the government sponsored entities would need. This would come from the issuance of new securities and would likely wind up as part of a recapitalization that sees preferred shares already outstanding appreciate significantly. Common shares may also wind up appreciating depending on the details of a recap.

The bottom line is this. The decision that came down last week could very well be appealed and taken to the Supreme Court. The argument of whether or not this is a constitutional issue doesn’t even come close to preventing this case from going to the Supreme Court. We strongly believe that this is a constitutional issue and we strongly believe that this case is going to be appealed as quickly as humanly possible.

When the case is appealed, Judge Brown’s dissent is going to be extremely important. We believe the plaintiffs have an outstanding chance in appellate court of trying to get this decision overturned.

All of the GSE stocks finished the week looking a little stronger than they did early in the week, especially a lot of the preferred class of shares. We believe the strength to be the “smoke clearing” after a brutal week and a decision that we believe to be somewhat misinterpreted. We don’t think that the public understands that there are still many options for Fannie and Freddie shareholders to win aside from this one legal battle. There are additional outstanding lawsuits and there is also Steve Mnuchin, who pretty much has full control over the situation.

Finally, we just have the common sense angle wherein we are not sure that Mnuchin would be able to simply stiff arm guys like Berkowitz and Paulson, who are hedge fund allies of his. We think he gets a deal done that is beneficial to both of these fund managers, who own a substantial amount of preferred stock.

We’re optimistic about the future as Fannie and Freddie shareholders.

Disclosure: I am/we are long FMCC FNMA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Montgomery County real estate briefs: Week of Feb. 26 | Regional …

The myth of mortgage down payment

Did you know that the median down payment for first-time buyers has been 6 percent for three straight years?

If you answered no to this question, you are not alone. According to the National Association of Realtors’ Aspiring Home Buyer Profile, 87 percent of non-homeowners indicated that a mortgage down payment of 10 percent or more is necessary.

The Aspiring Home Buyer Profile also finds that eight out of 10 non-owners indicated that owning a home is part of their American Dream. Yet, the confusion about down payment requirements is keeping aspiring home buyers from breaking into the real estate market.

“Being unable to afford to buy is the number one reason non-owners cited as to why they don’t own. Unrealistic expectations about down payments have kept creditworthy borrowers with manageable levels of debt from exploring the prospects of buying a home,” said Eric Rehling, president of Montgomery County Association of Realtors.

Every prospective buyer is different, but consumers should talk to lenders about their qualifications before throwing in the towel on their homeownership dreams.

“Those interested in buying their first home in 2017 should gather their financial paperwork, sit down with a lender to discuss their qualifications and talk to family and friends for recommendations about a Realtor who can help them get started on their home search,” Rehling said.

For renters who are ready to join the majority of homeowners who purchased their home with less than a 20 percent down payment, Rehling offers the following tips:

1. Review your financial situation and personal savings to determine how much you can comfortably use for a down payment.

2. Visit a few lenders and seek a mortgage preapproval to determine how much money you are actually qualified to borrow.

3. Find a Realtor and discuss your budget and needs. This will help a Realtor hone in your search and only show you available homes in your price range.

4. Rely on professional help from the experts. This includes a Realtor and your lender. The U.S. Department of Housing and Urban Development also has a state-by-state resource guide of homeownership and home buying assistance programs in your state.

Buying a home can sometimes be a challenging process, but with a little work and a Realtor — a member of the National Association of Realtors — at your side, 2017 may be a good time to start looking.

Breakfast of Champions congratulated

Berkshire Hathaway HomeServices Fox Roach, Realtors recently honored Montgomery County sales associates for their sales performance for December at a monthly Breakfast of Champions.

Sales associates honored were Alex Kim and Steven Kim, of the Blue Bell office; Janet Cribbins and Michael Sivel, of the Chestnut Hill office; Laurie Curran, Nancy Lewis and AnneMarie Wagner, of the Collegeville office; Lisa Moyer, of the Harleysville Home Marketing Center; and Maryclaire Dzik and Cari Guerin-Boyle, Mary Ann Hector, Helene MacDonald and Ben McTamney, of the Jenkintown Home Marketing Center.

Berkshire Hathaway CEO meets with local sales associates

Berkshire Hathaway HomeServices Fox Roach, Realtors Chairman CEO Larry Flick recently met with a group of sales associates from Montgomery County at the William Penn Inn in Gwynedd to discuss market trends.

Pictured are, sitting from left: Kerry Boccella and Lisa Mowafi, both of the Chestnut Hill office; Cari Guerin-Boyle, of the Jenkintown Home Marketing Center; Laurie Condello, of the Spring House Home Marketing Center; and Bob Kelley, of the Blue Bell office; standing from left: Bruce Glendinning, senior vice president and regional manager; Joe Dudek and Megan Goldstein, both of the Collegeville office; Jackie Smith, of the Harleysville Home Marketing Center; Flick; Myrna Josephs, of the Spring House Home Marketing Center; Mary Ann Bowler, of the Jenkintown Home Marketing Center; Jeff Palmer, of the Blue Bell office; and Wayne Fenstermacher, of the Harleysville Home Marketing Center.

“This is a great opportunity for me to meet with some of our sales associates to get their input on how our company can best help them serve our clients,” Flick said.

Similar gatherings will be held monthly throughout the tri-state area to allow select sales associates the opportunity to engage in discussions with each other and Flick.

SVAR delegation joins real estate professionals from across Virginia …

Local contingency was among 600-plus Virginia Realtors® members who came together Feb. 8 at Capitol Square

RICHMOND — More than two dozen Southside Virginia Association of Realtors® (SVAR) members joined forces recently with real estate professionals from across the commonwealth for the 2017 Realtor® Day on the Hill.

The local contingency was among 600-plus Virginia Realtors® members who came together Feb. 8 at Capitol Square in support of the state association’s legislative package as part of the 2017 General Assembly session.

SVAR’s delegation took part in a legislative briefing led by Virginia Realtors® Legislative Counsel Chip Dicks, attended classes and, most importantly, met with the Southside Virginia’s legislators about issues affecting homeowners and buyers, landlords and real estate licensees.

They also attended the Virginia Realtors® luncheon featuring New York Times best-selling author and Emmy Award-winning Dr. Larry Sabato, founder and director of the University of Virginia’s Center for Politics.

Rounding out the day, they networked with Realtor® colleagues and policy makers during a legislative reception at The Jefferson Hotel.

Many SVAR members also took part in other Legislative Advocacy Conference events throughout the week, including committee and council planning sessions, course offerings, a broker roundtable and the Realtor® Political Action Committee Awards Ceremony and Reception.

Among those representing SVAR at Realtor® Day on the Hill were President Steve Overgard, President-Elect Brett Harris, Immediate Past President Ron Hardy, Government Affairs Chair Mary Ann White and SVAR’s CEO, Joe Croce, as well as Virginia Realtors® Board of Directors members Shanna Wiseman and John W. Brockwell, also SVAR members.

Virginia Realtors®, formerly known as the Virginia Association of Realtors®, is the largest professional trade association in Virginia. It introduced nine pieces of legislation on issues impacting the state’s over 32,000 Realtors® and the rights of property owners.

The Southside Virginia Association of Realtors® is a professional organization dedicated to promoting excellence in real estate business practices and advocating on behalf of the interests of private property owners. Its mission is to be the voice of real estate in Southside Virginia. SVAR members also are members of the 32,000-member Virginia Association of Realtors® as well as the National Association of Realtors®. SVAR encompasses Colonial Heights, Hopewell, Petersburg, Chester, Emporia and Ettrick, and Dinwiddie, Greensville, Prince George, Surry and Sussex counties and much of Chesterfield County.

The term Realtor® is a registered collective membership mark that identifies a real estate professional who is an active member of the National Association of Realtors®.

For more information on SVAR, go to, or call 804-520-4496.

GSE Preferred Shareholders Win Remand On Contract Claims

Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) are two companies that are being stripped naked of their capital as part of a government plan to leave their existing non-governmental equity shareholders with nothing and put their non-governmental debt stakeholders at risk. The government’s stake in the equity via Treasury combined with their conservatorship control via FHFA has made for a case of the “what’s yours is now nationalized” that was earlier justified by a deliberately punative accounting agreement and a batch of temporary accounting losses 2008-2011. Subsequently, the justification has become, “we can do whatever we want” and last week a three judge panel ruled 2-1 that, yes, the government can do whatever they want, but that when they step into the shoes of the board of directors and violate contracts there are consequences and that this needs to be further explored in lower court.

Investment Thesis: Any intellectually honest observer would note that the cash flows do not lie, but the accounting often does. In this case, on a net basis no matter how you do the math billions upon billions of dollars have been transferred to the government and it should be no surprise that the government orchestrated it all from their position of power but it should be a surprise that they have laced the path of getting answers with booby traps. We are now years into multiple litigation strategies attacking the government’s actions from multiple angles and while the DOJ sandbags the cases by pulling every trick in the book, the new Treasury Secretary plans for some sort of reform. Before this past week, one might expect that based on prior statements Secretary Steven T. Mnuchin would fix the GSEs very early this year but he threw cold water on that notion saying that tax reform comes first. This change of pace is likely due to the Perry Capital legal ruling. I own GSE preferred shares and I think that at some point I will get paid. The question that I will attempt to address in this article is the potential mechanics of how. I don’t know how exactly the government would politically justify putting the enterprises into receivership based on a DTA technicality when the companies aren’t actually struggling at all financially and I’m not saying that they will. I’m just saying that it looks like it is on the table if nothing changes, and for all I know maybe that’s what they’re going for. There are potentially alarming implications to different stakeholders if the receivership route continues to materialize.

Jacobs and Hindes

It has been ruled that the plaintiffs can amend their filing:

As you may recall this lawsuit centers around state claims. The claims this lawsuit centers around are very similar to the ones that the Perry Capital ruling seemed to remand. My guess is that the Perry Capital ruling put this lawsuit into a great position. Yes the government can do whatever it wants as FHFA, but can they violate state contract law? Perry Capital seems to suggest that they cannot and remanded back to district court with further instructions.

Ginsburg Millett vs. Brown – Perry Capital

The ruling in effect on a 2-1 split decision says that the government can do whatever they want, but that when they violate contracts, those claims are valid:

Brown dissented from the Perry Capital legal ruling. I found the dissent very instructive. First it is clear that Brown finds that FHFA engaged in ultra vires conduct:

Brown interprets FHFA’s actions as those outside the scope of what a conservator can do (aka ultra vires):

The fact Fannie and Freddie were liquidating their cash to Treasury was not lost on Brown. Paying out the net worth of a company during conservatorship puts senior claims (aka debt) at risk:

Judge Brown finds the net worth sweep to fundamentally transform the relationship between the companies and Treasury:

The irony is that if you look at the cash transfers on a net basis from the GSEs to Treasury so far, you’re over $100B:

Brown points out that Ginsburg and Millett’s interpretation of FHFA’s actions as conservator leaves them outside the established historical norms for what a conservator is:

This leads to a fundamental lack of conserving assets during conservatorships, increasing the risk of owning distressed companies:

Judge Brown then categorizes FHFA’s actions as inside a banana republic:

Judge Brown even provides guidance on the may vs shall debate:

Lastly, the court has provided on its own motion 7 days for a timely petition for rehearing or en banc:

Although Millett and Ginsburg (at least one of them) seemed to agree that FHFA cannot strip contractual rights away from shareholders, they do not seem to have a problem with a conservator that simply takes over an adequately capitalized company, commits accounting malfeasance to transfer cash out the back door, and then proceeds to transfer the net worth of the company to itself. It is as if the context of the government being proven to lie that was submitted to the court fell on deaf ears.

I don’t know if this goes en banc. The Perry Capital ruling permits a conservator to transfer unto itself at its discretion to whatever extent it feels like it the assets of any company in conservatorship. This uniquely depletes the intensive purpose behind what a capital structure is supposed to be. Investors of the future should not have to fight the government for contract claims if the government decides to take over and obfuscate shareholder interests by transferring cash to itself. On top of that, the government has created a labyrinth of privilege claims.

Judge Sweeney – Court of Federal Claims – “Quick Peek” Procedure

After overcoming their first motion to compel that revealed that the majority of the documents withheld were unsurprisingly improperly withheld plaintiffs have proposed the court impose the “quick peek” procedure:

The government insists that each of the documents that they asserted privilege over needs to be reviewed on a “document-by-document basis”:

If this were school, Plaintiffs would have gotten an A-, which suggests that the government’s privilege assertions were far too broad:

The timeline to resolving discovery is still months away. The final result of which will be the filing of amended complaints. The courts are extremely slow, which is why the politics are where things get interesting.

Mnuchin, Mnuchin, Mnuchin

Secretary Treasury Steven T. Mnuchin came into office with the attitude that the GSEs could be handled fairly quickly as a top priority. In the most recent video interviews on Fox and CNBC, it sounded more like this issue will be tackled after tax reform.

As a GSE investor, tax reform would likely lead to DTA impairments which would force a draw from the Senior Preferred Stock Purchase Agreement (SPSPA). This would be the first draw in years and if it were to take place, it would do so simply by design not unlike the earlier draws 2008-2011. It raises the question: does Mnuchin really plan to deal with the GSEs after tax reform? Does he mean after tax reform is complete or after he comes up with a plan for tax reform? Does this put GSE creditors at risk and do the GSEs get put into receivership? Is that how this ends for Fannie and Freddie? Are the GSE operational assets packed into new capital structures and released to new investors while the old investors muddle around in courts too slow to catch up with the political machinery?

These questions have yet to be answered. If words have meaning, it would seem that Mnuchin’s potential brinksmanship isn’t for the faint hearted. Prior Fannie Mae CFO Timothy J. Howard has speculated that only when this draw actually happens will Mnuchin take action to seek a private solution to Fannie and Freddie. I’m personally not sure. My vantage point is binary. Either Mnuchin wants to pursue a solution with lots of capital and it’s best to get started earlier than later so that the GSEs can support equal opportunity affordable housing better and more effectively as soon as possible or it would seem more likely that brinksmanship isn’t really brinksmanship but a plan to push the GSEs into receivership.

I don’t subscribe to the notion of in-betweens. Fannie Mae and Freddie Mac put out 10-K press releases from last year that seemed to change the dividend language and we are led to believe that this was after Treasury’s Mnuchin met with FHFA’s Melvin Watt.

Now, I can appreciate Mnuchin’s priority is tax reform and that maybe he doesn’t want to administratively resolve the GSEs because he may need all the support he can get on tax reform. That said, it sure seems like the $15B that the government is taking out of the GSEs pales in comparison to the benefits of exiting government control and sweeps. The companies could better enable minority home lending, decrease inequality and jumpstart economic growth which would likely create more tax revenue indirectly than the sweep.

Dialing Into What A Receivership Could Mean

If receivership is where this is going, GSE debtholders might be concerned to learn that prior to receivership the government dividended itself on a cash basis over $250B and that is only so far. In the event that FHFA writes up the value of GSE assets in the short term and they are later marked down this year due to DTA revaluations on the new tax plan then perhaps people operating in the GSE debt markets would not be made whole while the government as an equity holder has made off with what should have been theirs not unlike Madoff. Maybe then the STACR/CAS profit redistribution transactions would attract increased scrutiny but once the money is gone it is generally too late.

This receivership scenario would have a destabilizing effect on the markets and may impact mortgage market liquidity later this year, something Mnuchin has said he had planned to avoid. It remains to be seen how exactly GSE reform comes after tax reform, but that’s what Mnuchin said his priorities were. What this scenario is, however, is simply forecasting out where things are headed if nothing changes. Could this be the first receivership in history that was preceded by a conservator that put receivership assets at risk by draining the net worth?

Inquiring minds want to know but we’re not there yet and we still don’t know if a DTA revaluation with the imposition of a new tax plan would lead to a receivership or merely a massive one-time SPSPA drawdown. The problem is that the SPSPA forces cash draws not based on cash needs but based on accounting, which is how they forced Fannie and Freddie to take all that money 2008-2011 in the first place. That was money that on a cash basis they never needed and as far as I can tell if you don’t need cash and someone forces you to take it at an interest rate of their choosing, how do you gauge risk and provide loans to creditworthy borrowers?

This is the problem Fannie and Freddie have faced during conservatorship and the resolution that has been identified by Mnuchin is one of capital and the exit of government ownership. What we have here is point A which is now and point B which is that some point in the future where this is fixed and how you get from A to be is what will determine the value of the publicly traded equity and debt shares of Fannie and Freddie.

One thing that we can count on for certain is that the Senior Preferred Shareholder is going to get paid because they’ve already gotten more out than they’ve put in. What we can’t say is that the minority interests will get the same treatment as the Senior Preferred Shareholder continues to argue in court that it gets everything until it says stop to the immediate and perpetual exclusion of other equity shareholders. Creditors don’t seem too worried yet, but we could be looking at less than a year to a point where they might start worrying if receivership is where this is going. If it isn’t and neither is the never-ending perpetual conservatorship that treats the GSEs as off-balance sheet government agencies then non-governmental equity claims will have residual value starting as soon as capital requirements are imposed or the SPSPA is modified to change the mechanics of the net worth sweep.

Summary Conclusion

I own 4050 shares of FMCCH, 23088 shares of FMCCP, 7370 shares of FMCCT, 1341 shares of FMCKO, 13485 shares of FMCKP, 12788 shares of FNMFN, and 5 shares of FNMFO. Needless to say last week I lost roughly $400K or so due to devaluation. My father has suggested selling and has advised me on his birthday that he has lost the opportunity to buy a home in Florida. Happy birthday dad. The irony is that last week we got further than we’ve ever been. An appeals court ruled that my preferred share contract claims are not necessarily eviscerated and remanded back to Lamberth.

As far as Mnuchin’s words go, nothing seems to make sense to me. I’m not really a subscriber to Hollywood style ‘moonshot’ analogies where you have to shoot and accelerate around the moon to get back to earth. I think Mnuchin is either going to deplete the GSEs of capital or stop the depletion of their capital. I don’t think that it is reasonable to argue that he’ll deplete them of capital for a few more quarters and then right before they are by his own tax plan’s design forced to take a draw suddenly fixed so that it doesn’t happen. As a preferred shareholder I don’t really care either way. I’m going to get paid, it’s just a matter of how and when. That’s how I see it.

I’d prefer the government to get out of its own way and help equal opportunity affordable housing by allowing its two primary cornerstones to retain capital and reverse the policy of taking money away from those who deserve it most.


I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Local real estate market sees positive upward trend

CAPITAL REGION, N.Y. Buyer demand is continuing on an upward trend for 2017 in the local real estate market, according to a report by the The Greater Capital Association of Realtors.

Last month, pending residential sales for single-family homes rose seven percent to 816, from 762 in January 2016.

Sales totals experienced a slow start due to ongoing low inventory levels across the region, and the typical seasonal effect, dropping eight percent to 650, which is down from 710 in 2016.

The number of homes for sale in the Capital Region was down compared to this time last year, causing inventory levels market-wide to decrease by 21 percent to 5,096 units. New Listings fell six percent to 1,113 from last year.

Greater Capital Association of Realtors president Joel Koval said in a news release that new construction is part of the solution for a market facing inventory concerns.

“A drop in inventory is both typical and expected at this point until either more sellers enter the market or more homes are built for the buyer community,” Koval said.

New construction is slower than 2016, with 30 percent less new listings in January, 2017 as compared to January of last year.

Median sales price of new construction remains within one percent of last year at $385,116. Though that price is more than 50 percent higher than the existing home sale median price of $185,000, the days on market for new construction show that pent up buyer demand is sweeping up the new homes within 49 days on market.

The percent of original listing prices received at sales rose to 93.8 percent, which is good for sellers in the area.

Homes in the Capital Region are spending an average of 71 days on the market until sale. That number is down seven percent from 84 days in January 2016.

In Rensselaer County, there were 149 new residential listings, a five percent increase from January last year, but closed sales were down 18 percent to 71 transactions. However the average price rose five percent in that time to $171,857.

In Albany County, January brought 276 new residential listings, and 173 closed sales, both down from the year before. The average price was $241,388, up seven percent from January 2016.

In Saratoga County, where an average home price was up 10 percent to $301,844, new listings were down by 16 percent. A total of 184 sales closed, down two percent from last January.

Lawrence Yun, National Association of Realtors chief economist, said in the release that the housing market will favor sellers heading into the year.

“Competition is likely to heat up even more heading into the spring for house hunters looking for homes in the lower- and mid-market price range,” Yun said.

Nationwide, first-time buyers made up 33 percent of sales in January, which is up from 32 percent both in December and a year ago.

“The good news for the Capital Region’s real estate market and our region in general is that unemployment rates hit a 10-year low of less than four percent in December,” said Greater Capital Association of Realtors CEO Laura Burns in the release. “If more homes are made available for sale, the market should remain healthy well into 2017.”