Lenders, agents wary of Trump changes to Fannie and Freddie – Sarasota Herald

Privatization could stall the housing recovery, some fear

As the Southwest Florida real estate market sustains its robust rebound from the economic downturn, some are wary that major changes from the Trump administration could stall the housing recovery.

Newly confirmed Treasury Secretary Steven Mnuchin has backed the idea of privatizing Fannie Mae and Freddie Mac, the mortgage buyers that were bailed out by the federal government and placed into conservatorship in 2008.

“We are pro-Fannie and pro-Freddie,” said Roger Piro, a local real estate agent and a director of the National Association of Realtors. “We’re concerned that if they are replaced with a private version, it could affect the ability for 30-year mortgages. The private market may decide that those aren’t profitable or too risky. We’re fighting to keep them, unless they have a good replacement we haven’t seen yet.”

The two government sponsored enterprises back about half of the nation’s mortgages, providing access to loans for a broad range of buyers and support for lenders to make more loans. The 30-year, fixed-rate loan is the popular choice for many home buyers, especially first-timers.

Even in the Sarasota-Manatee region, where 47 percent of home sales were closed with cash last year — the 14th highest rate in the nation — some believe changes to the mortgage program could have an impact.

“We need to protect the buyers who can only afford the American Dream via Fannie Mae and Freddie Mac,” said Charryl Youman, an agent with Berkshire Hathaway HomeServices Florida Realty in Venice. “There is always room for improvement in any program, but I would be opposed to reinventing them to the detriment of buyers with the middle- to lower- price budget. Owning a home should not become an elitist amenity.”

Others say it is time to get the agencies out of government hands, or at least be reformed so they don’t need another bailout.

“In general, I am a fan of privatization,” said Leslie Swart, co-owner of Lakewood Ranch-based Blue Skye Lending, which just marked 10 years in business. “However, I do not see our government relinquishing control of Fannie Mae or Freddie Mac anytime soon. Their relationship is very convoluted, but what it comes down to is, our government is making too much money on Fannie Mae and Freddie Mac to let them go at this time.”

Increasing supply for lending

Freddie and Fannie were created to expand the secondary market for mortgages.

They buy mortgages on the secondary market, pool them and sell them as mortgage-backed securities to investors on the open market. That helps increase the supply of money available for mortgages and home purchases.

But critics say the agencies helped encourage the risky mortgage lending that led to the housing crisis.

“The Trump administration should move toward a future system in which private markets take the risks in mortgage lending, not taxpayers, and the basic infrastructure of the system is in a government utility, not a too-big-to-fail duopoly,” Mark Zandi, chief economist at Moody’s Analytics, recently wrote.

After getting torched by bad loans during the Great Recession, mortgage lenders tightened their credit standards, and many potential home buyers found they could not qualify for loans. An estimated 6 million fewer loans have been issued since the housing bust because of reluctant lenders.

While credit has loosened up in recent years, many borrowers — especially younger ones — still struggle to get loans to buy homes.

In Florida, the homeownership rate fell 8 percentage points to 64.4 percent last year, the lowest level since the government started tracking in 1984. The state’s homeownership rate peaked at 72.4 percent in 2006, just before the economic downturn.

Nationwide, homeownership dropped to a record low of 63.4 percent last year.

Still, a slim majority of Floridians believe now is a good time to buy a house, according to a new survey by the University of Florida. They cite favorable interest rates — which could be rising this year — low home prices, the availability of homes and favorable economic conditions.

“Home ownership is seen as an important way to accumulate wealth and build assets over time, in particular among low-income and minority groups,” said Hector H. Sandoval, director of the economic analysis program at UF’s Bureau of Economic and Business Research.

The local picture

In Southwest Florida, sales of existing and newly constructed homes have rebounded in recent years after plunging during the Great Recession and its aftermath.

Single-family and condo re-sales hit record levels in 2014 and 2015 here before easing off about 2.5 percent last year. Housing starts jumped 20 percent in 2016 over the year, and analysts say the baby boomer-driven demand still outpaces the supply of new homes.

Meanwhile, local experts point to other possible reforms that could either help or hurt the real estate market.

The Trump administration has pointed to changes in the Dodd-Frank act, which created the Consumer Financial Protection Bureau with oversight over the mortgage industry. Swart says she supports financial regulation, but the CFBP has not accomplished it.

“While it sounds good on paper, people should not be fooled, it has actually caused increased confusion in the industry and led to increased costs to the consumer, with no added benefit,” she said.

Youman says new FEMA flood zones have had an impact on home sales here.

“I recently had a buyer walk away from a home because its flood zone changed, which substantially increased the insurance required under his mortgage,” she said. “That is going to make that home very hard to sell — and it’s still sitting on the market.”

Still, lenders and real estate agents say Southwest Florida will be fine, with its weather, beaches and culture always attracting new residents.

“People will continue to buy homes here,” says Swart, noting a recent increase in the inventory of homes for sale.

“There was a lot of pent up demand, and the dam has burst,” adds Youman. “The pre-election jitters are apparently gone, interest rates are still very good, and as the prices continue to adjust upwards, people are jumping off the fence.”

Freddie Mac Prices $1.2 Billion Multifamily K-Deal, K-062

MCLEAN, VA, Feb 21, 2017 (Marketwired via COMTEX) — MCLEAN, VA–(Marketwired – Feb 21, 2017) – Freddie Mac (otcqb:FMCC) recently priced a new offering of Structured Pass-Through Certificates (K Certificates), which are multifamily mortgage-backed securities. The company expects to issue approximately $1.2 billion in K Certificates (K-062 Certificates), which are expected to settle on or about February 27, 2017.

K-062 Pricing

Class   Principal/Notional Amount (mm)   Weighted Average Life (Years)   Spread (bps)   Coupon   Yield   Dollar Price A-1   $145.471   6.48   S + 46   3.0320%   2.6742%   $101.9943 A-2   $1,016.993   9.78   S + 63   3.4130%   3.0509%   $102.9977 A-M   $79.423   9.83   S + 72   3.5050%   3.1429%   $102.9994 X1   $1,162.464   9.15   T + 165   0.3100%   4.0151%   $2.6815 XAM   $79.423   9.58   Not Offered X3   $202.168   9.65   T + 365   2.0758%   6.0475%   $15.3027                           

Details

Co-Lead Managers and Joint Bookrunners: Goldman, Sachs and Co. and J.P. Morgan Securities LLC

Co-Managers: Academy Securities Inc., Barclays Capital Inc., Morgan Stanley Co. LLC, and PNC Capital Markets LLC

Rating Agencies: Fitch Ratings, Inc. and Kroll Bond Rating Agency, Inc.

Related Links

The K-062 Preliminary Offering Circular Supplement: http://www.freddiemac.com/mbs/data/k062oc.pdf

Freddie Mac Multifamily Investor Presentation

Multifamily Securities Investor Access database of post-securitization data from Investor Reporting Packages

More information about Class A-M and Class XAM can be found at http://www.freddiemac.com/multifamily/pdf/k_deal_fixed_rate_structural_enhancement.pdf

The K-062 Certificates are backed by corresponding classes issued by the FREMF 2017-K62 Mortgage Trust (K-62 Trust) and guaranteed by Freddie Mac. The K-62 Trust will also issue certificates consisting of the Class B, C, D and R Certificates, which will not be guaranteed by Freddie Mac and will not back any class of K-062 Certificates.

Freddie Mac Multifamily is a leading issuer of agency-guaranteed structured multifamily securities. K-Deals are part of the company’s business strategy to transfer a portion of the risk of losses away from taxpayers and to private investors who purchase the unguaranteed subordinate bonds. K Certificates typically feature a wide range of investor options with stable cash flows and structured credit enhancement.

This announcement is not an offer to sell any securities of Freddie Mac or any other issuer. Offers for any given security are made only through applicable offering circulars and related supplements, which incorporate Freddie Mac’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission (SEC) on February 16, 2017; all other reports Freddie Mac filed with the SEC pursuant to Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) since December 31, 2016, excluding any information “furnished” to the SEC on Form 8-K; and all documents that Freddie Mac files with the SEC pursuant to Sections 13(a), 13(c) or 14 of the Exchange Act, excluding any information furnished to the SEC on Form 8-K.

Freddie Mac’s press releases sometimes contain forward-looking statements. A description of factors that could cause actual results to differ materially from the expectations expressed in these and other forward-looking statements can be found in the company’s Annual Report on Form 10-K for the year ended December 31, 2016, and its reports on Form 10-Q and Form 8-K, filed with the SEC and available on the Investor Relations page of the company’s Web site at www.FreddieMac.com/investors and the SEC’s Web site at www.sec.gov.

Freddie Mac makes home possible for millions of families and individuals by providing mortgage capital to lenders. Since our creation by Congress in 1970, we’ve made housing more accessible and affordable for homebuyers and renters in communities nationwide. We are building a better housing finance system for homebuyers, renters, lenders and taxpayers. Learn more at FreddieMac.com, Twitter @FreddieMac and Freddie Mac’s blog FreddieMac.com/blog.

� 2017 Nasdaq, Inc. All rights reserved.

Freddie Mac Has Fully Paid Back The Government: A Review Of Fannie And Freddie’s Q4 Results

Review of the Most Recent Quarter (Q4’16)

For the most recent quarter, Fannie Mae (OTCQB:FNMA) reported net income of $5.0 billion and comprehensive income of $4.9 billion, while Freddie Mac (OTCQB:FMCC) reported comprehensive income of $3.9 billion. Both companies benefited from fair value gains primarily driven by increases in longer-term interest rates during the quarter.

(Note: $600 million of the dividend for both companies this quarter is a result of the required reduction in residual net worth.)

Factoring in Q4’16 Dividends to Treasury, What Would the Principal Amount Outstanding Be?

Assuming that all prior dividend payments in excess of 10% reduced principal:

Fannie Mae (in billions)

Freddie Mac (in billions)

[Note: The difference between the Q4 and following Q1 dividend figures from what is reported is a result of the fact that I have moved the additional $600 million dividend payment as a result of the declining residual net worth to the next quarter (Q4 to next year’s Q1).]

Freddie Mac Has Fully Paid Back the Government

Had excess dividends to Treasury (above 10%) reduced principal, the Aggregate Liquidation Preference on the Senior Preferred for Freddie Mac would presently be -$0.7 billion, meaning that the government has now been paid approx. $700 million above and beyond what they are entitled to.

Had excess dividends to Treasury (above 10%) reduced principal, the Aggregate Liquidation Preference on the Senior Preferred for Fannie Mae would presently be $7.4 billion, which translates to a quarterly dividend (under the original 10% arrangement) of $185 million ($740 million divided by 4). For a company with the earnings power of Fannie Mae, dividend payments of $740 million per year (10% of $7.4 billion) is a negligible amount (easily manageable).

The Current Capital Reserve Amount is $600 Million for Each Quarter of 2017 and Will Decrease to Zero in 2018

Steven Mnuchin has no choice but to resolve the GSE issue this year. By the end of this year, Fannie and Freddie will no longer have any capital. Keeping the GSEs with only $600 million of capital each is highly reckless. Any unexpected shocks to the economy will result in another Treasury draw. The issue of whether or not Fannie and Freddie retain capital will be decided upon in the near future, so make sure you don’t stay on the sidelines too long.

Steven Mnuchin Has Spoken Favourably of the GSEs

In his Senate confirmation hearing, Treasury Secretary Steven Mnuchin spoke very favourably of the GSEs.

He made the point that they can be run without creating risk to the taxpayer:

“for very long periods of time, I think, that Fannie and Freddie, had been well run without creating risk to the government.”

He also made the point that Fannie and Freddie are important entities:

“I believe that these are very important entities to provide the necessary liquidity for housing finance.”

I think it’s clear that Mnuchin is going to move towards a solution that retains the GSEs.

High Net-Worth of the Trump Cabinet Means that They are Unlikely to Be Bothered By Investors Making a Lot of Money

As a long time shareholder of both Fannie and Freddie, one thing that in my opinion prevented the Obama administration from acting on the GSEs was that they did not want to see Wall Street hedge fund managers like Ackman and Paulson make so much money off investments in these entities.

Now that Trump has appointed what is very likely to be the highest net-worth cabinet in the history of the United States (and Donald Trump himself being a billionaire), I don’t think the Trump administration is going to be bothered by the fact that some on Wall Street are going to make a killing on these investments.

Business Mentality to Government Will Favour the GSEs

The government has penny warrants that entitle them to 79.9% of the common equity of the GSEs. A lot of money can potentially be made for the government under a recapitalisation scenario. It is highly unlikely that the business minds of the Trump administration would look at warrants worth potentially hundreds of billions of dollars and simply say “so what?”.

The Government Needs to Make Right What Has Happened to Existing Shareholders to Ensure New Private Capital Enters the Market

If the government does not make right what has happened to existing shareholders, it’s going to make it extremely difficult for them to attract new private capital into housing finance. Given what happened under the controversial Net Worth Sweep, private investors will simply shun housing finance altogether or demand a higher rate of return, which results in more pain for people trying to buy a home (enter the housing market). To move forward, the government has no choice but to make right what has happened.

The Government Is Now Taking More Than They are Entitled To

As I have shown with my Freddie Mac calculations, the government has now fully been paid back (after the most recent quarter’s dividends have been handed to Treasury). Any subsequent dividends that it collects from Freddie (Q2, etc.) is more than they are entitled to. If a legal takings claim had not been ripe up to this point, it is certainly ripe now. There is no way the courts will rule this legal. The Net Worth Sweep (Third Amendment) was clearly an unconstitutional act.

Price Differential Between Fannie and Freddie No Longer Justified

Given the fact that Freddie Mac has fully repaid the government, while Fannie Mae has not, I think the 10 – 15 cents differential between the common shares of the two companies (FNMA vs FMCC) is now no longer justified.

This Issue Will Definitely Be Resolved This Year, so Don’t Wait on the Sidelines Too Long

Due to the declining capital reserve (zero in 2018) and Mnuchin’s commitment to “get it done reasonably fast”, it’s very obvious that this issue will be resolved this year (maybe even within the next few months). Make sure you don’t wait on the sidelines too long. Genuinely good investment opportunities don’t come around too often.

Disclosure: I am/we are long FNMA, FMCC.

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.

Beaver County Association of Realtors elects officers, presents awards

HOPEWELL TWP. — The Beaver County Association of Realtors held its annual installation and awards banquet  Feb. 16 at the Club at Shadow Lakes in Hopewell Township.

Bob Williams was recently inducted as the 2017 president  by Abe and Robert “Wags” Wagner. Williams has been licensed since 1977 and is an agent with Oxford Realty and Associates in Center Township. He has served as past county association president (1999), Pennsylvania Association of Realtors district vice president, president of Pennsylvania Realtor Education Foundation, Realtor Political Action Committee trustee and National Association of Realtors political coordinator for former Congressmen John Murtha and Mark Critz.

Additionally, Williams serves as chairman of the Hopewell Township planning commission, is a eucharistic minister at Our Lady of Fatima Catholic Church and is a fourth-degree knight with the Knights of Columbus.

He lives in Hopewell with his wife, Louann; daughter, Jamie Shields; son, chiropractor Robert O. Williams; and  granddaughter, Madison Shields.

Installed at a prior luncheon were the following 2017 officers and directors:

President-elect Lorraine Ross of Commonwealth Real Estate Services, secretary Judy Plakosh of Howard Hanna and treasurer Ruthanne Belus of Northwood Realty Services.

Directors are Bob Bixler and Cindy McConnell, Howard Hanna; David Bodell, Debbie Sample and Leslie Pazur, Berkshire Hathaway; Ernie D’Achille, Northwood Realty Services; Lori Bianco, RE/MAX Select; Jeanie Parrish, SWC Properties; Beverly Pietrandrea, Bovard Anderson; past president Bridget Wysocki, Howard Hanna; and affiliate director Emily Kutzavitch of Liberty Mutual.

Serving as delegates to the Pennsylvania association are Williams, Ross and Plakosh. Immediate past president Bridget Wysocki is alternate.

Awards were presented to the 2016 Realtor of the Year, Pat Boylan of RE/MAX Select; and 2016 Affiliate of the Year, Ted George of Farmer’s National Bank.

Sales Volume Awards for 2016 ranged from 1 million to 20 million for residential and commercial sales. John Perry of Coldwell Banker, Cranberry Township, was the residential sales leader; Matt Ohlsson from Coldwell Banker, Cranberry, was the residential with licensed assistant leader; the Reed and Shutey team of Berkshire Hathaway, Moon Township, was the team sales leader; Corey Olszanski and Joseph Gradwell were the new-construction sales leaders; and Tracie Eckel-Ward of Bovard Anderson was the commercial sales leader.

January Home Sales Reach Highest Level in a Decade, Realtors Say

U.S. home sales rose in January to the highest level since February 2007, a sign last year’s momentum in the sector extended into 2017 despite a limited supply of properties-for-sale and rising prices.

Purchases of previously owned homes, which account for the vast majority of U.S. sales, increased 3.3% from December to a seasonally adjusted annual rate of 5.69 million last month, the National Association of Realtors said…

Trump could worsen a big problem in the housing market

Rising home prices aren’t stopping people from buying homes. The National Association of Realtors (NAR) said Wednesday US existing home sales jumped 3.3% in January — the highest level since a decade ago, when sales slowed down following the subprime mortgage crisis.

But a lack of inventory to meet pent-up demand for new homes could stand in the way of a fully healthy housing market.

“The biggest hurdle is the fact that there aren’t enough homes,” National Association of Realtors’ chief economist Lawrence Yun told Yahoo Finance. “Hopefully as we proceed through 2017, more inventory can show up, homebuilders can build more homes and there would be healthier development.”

The tight supply in home construction results from a shortage in able construction workers. And, given President Donald Trump’s aggressive ambitions to crack down on undocumented immigrants, homebuilders may have an even tougher time finding workers in the future, according to Yun.

“It’s widely known but less discussed that there are many undocumented workers at construction sites. And with the border being much tighter, it may lead to a greater construction worker shortage unless America can crank out people with the skills in construction, plumbing, lumber framing, and welding,” he said.

The US has approximately 200,000 unfilled construction jobs, which represents an 81% increase over the last two years, according to estimates from the National Association of Homebuilders.

Homebuilders like Lennar (LEN) and Toll Brothers (TOL) have cited a shortage in construction workers as a major reason they’ve had to slow down home construction.

Whether through vocational schools or intensive training programs, the US needs to produce more workers who can start building homes. “Homebuilders keep delaying as to when they can dig the ground,” Yun said. “They’re actively looking for workers, but there just aren’t enough.”

A “resilient” consumer

Despite the shortage of construction workers, Yun was surprised by the strength of the homebuying market, given that home prices have been rising much faster than Americans’ incomes.

“I would have thought that affordability problems would lead to a decline in home sales,” said Yun.

But the ravenous demand for homes, particularly among groups like single women, has triumphed over any concerns surrounding sky-high home prices and revealed the remarkable resilience of the consumer, said Yun.

Crediting continued job creation, a boost in consumer confidence and business confidence, Yun said that people are eager to buy homes.

Additionally, rising home sales have generated a “spillover effect” into areas like appliances, furnishings and lawn services, according to Chris Rupkey, a chief financial economist at Bank of Tokyo-Mitsubishi UFJ. Home Depot (HDreported a blowout quarter on Tuesday, showing that US consumers are opening their wallets for home-related items.

Other headwinds ahead

Despite an overall healthy housing market, affordability and rising 30-year fixed mortgage rates are still concerns, though Yun notes that people are staying within their budget when it comes to purchasing a home.

Thirty-year fixed mortgage rates have steadied after rising in recent months, but the average rate still remains above 4%. And Yun said there’s potential for it to climb higher.

“Exceptionally low mortgage rates of 2016 are definitely over and an ultra loose monetary policy environment is over. So consumers should anticipate that mortgage rate will be higher. It appears to be stable at the moment but could inch higher closer to 5% by year end,” he said.

Still, as long as there’s job creation and economic expansion, people can absorb rising mortgage rates. Still, Yun would urge homebuyers to stay within their means — if they’re lucky enough to actually find a home on the market.

Melody Hahm is a writer at Yahoo Finance, covering entrepreneurship, technology and real estate. Follow her on Twitter @melodyhahm.

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Frannie story isn’t over – BofA – Fannie Mae (OTCMKTS:FNMA …

While today’s appeals court ruling most likely means Fannie Mae (OTCQB:FNMA -29.2%) and Freddie Mac (OTCQB:FMCC -31.3%) shareholders aren’t going to get satisfaction in the court system, there’s still Treasury Secretary Steven Mnuchin and his desire for changes at the GSEs, says Bank of America’s Ralph Axel.

It’s unclear what Mnuchin means when he says that, but it’s possible he’s talking about the net worth sweep.

The timeline for Mnuchin dealing with this is unclear, but Axel suspects sooner rather than later.

Source: Bloomberg

Previously: Frannie now down nearly 40% following court decision (Feb. 21)

Previously: Fannie, Freddie profit sweep affirmed in appeal (Feb. 21)

Fannie And Freddie: Untouchable

Per Seeking Alpha’s very timely breaking news reporting, late yesterday morning, we learned that a D.C. Circuit court rejected most of Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) shareholders’ claims. As Housingwire’s Ben Lane put it:

In a 2-1 ruling, the D.C. Court of Appeals ruled that Fannie and Freddie shareholders, including the hedge funds that bet on Fannie and Freddie being released from conservatorship, cannot not pursue many of their claims against the government.

This was a major legal setbacks for the Masters of the Universe at Perry Capital, Fairholme Capital, and Pershing Square. Unfortunately, and I tried to warn some of the bullish SA investors, re-privitization of the Government Sponsored Entities (GSEs) was always the “third rail of politics”.

Here the links to my three bearish GSE articles:

  1. What If Steve Mnuchin Isn’t Confirmed By The Senate (January 10, 2017)
  2. Is Steve Mnuchin The John Tower Of 2017 (January 18, 2017)
  3. Looks Like I Am Eating Crow As Steve Mnuchin Appears Likely To Be Confirmed (February 8, 2017)

For younger readers, unfamiliar with the term “third rail”, enclosed below please find the Wikipedia definition and context.

Per the WSJ coverage: Court Ruling Gives Fannie Mae, Freddie Mac Investors Limited Room For Claims – we learned the following key point – that claims depend on whether investors bought the shares before or after 2008 (see below). In other words, if hedge funds bought up the most of the inventory of GSE preferreds, post crisis, at say $0.05 to $0.10 on the dollar, the government isn’t going to write them a check for par because profits started to recover many years later and only after the extraordinary accommodative government initiatives including quantitative easing, zero interest rates, and the suspension of mark to market financial accounting.

The U.S. Court of Appeals for the District of Columbia Circuit on Tuesday affirmed much of the trial judge’s ruling, saying many of the investor claims couldn’t proceed. But the appeals court revived some of the shareholders’ claims for monetary damages, on issues related to liquidation preferences and dividend rights.

The D.C. Circuit sent the case back for further trial court proceedings on those issues, and it said such claims might depend on whether investors bought the shares before or after the 2008 bailouts of the companies.

Per Bloomberg’s reporting: Hedge Funds Can’t Sue Over Investments in Fannie and Freddie, we got statements from the Masters of the Universe and their feeble attempts to somehow positively spin this news.

“We obviously disagree with that,” he said. He paraphrased the court’s conclusion as, “You may have been allowed to do it, but if you breached the contracts with the stockholders, you may still have to pay.”

Fairholme Funds attorney Charles Cooper said: “The net-worth sweep repudiated shareholders’ contracts with Fannie and Freddie, and we are pleased that today’s decision shows that shareholders will not be left without a remedy for this breach of contract.”

At this point, it appears that it is nearly midnight and Cinderella needs to get a hail pass. I am not even sure if the ex-Goldmanite, Steve Mnuchin, can successfully win this unwinnable argument. Because, remember, as the Treasury Secretary, he is acting on behalf of the American people as an objective, impartial, and faithful public servant. Therefore, I continue to believe this will remain a third rail of politics issue and the chance of a Tom Bradyesque Super Bowl 51 miracle are remote.

Lessons Learned

With shares of Fannie Mae common closing down nearly 35% on heavy volume, investors might want to reassess their position. Remember, these shares were trading at $1.65 before President Trump’s victory in November, so there could be more downside ahead.

Source: Google Finance

Although I was wrong about Steve Mnuchin getting confirmed by the U.S. Senate, in all three prior pieces, especially the eating crow piece, I tried to spell out for readers just how political rugged the terrain that needed to traversed for investors to capture the pot of gold on the other side of the rainbow. If you take a step back and I sincerely tried to crystallize this point; objectively did anyone really think that the U.S. government was going to rule in favor of scavenger hedge funds and implement sweeping policies that would directly and negatively impact housing and vast majority of Americans?

I read countless articles with grandiose claims that Fannie and Freddie preferreds would trade at par, and that the common shares could hit $50 or $100. I was scratching my head, as you need an incredible imagination to dream up a scenario where President Trump and Steve Mnuchin successfully sell the tale that providing a multiple billion dollar payout fund to hedge funds is somehow in the best interest of the country. I even provided the link to policy paper: Privitizing Fannie and Freddie: Be Careful What You Wish For by Mark Zandi and Jim Parrott. At every turn, I was met with fierce commentary that I had no idea what I was talking about and that the GSEs were home run bets and that I needed to join the party.

So I don’t write to gloat, as I hate seeing retail investors lose money buying hype peddled by hedge funds with an army of high powered lawyers on retainer. Therefore, I decided to share my lessons learned.

Here is the list of possible lessons learned for investors to consider before embarking on their next high stakes and highly risky adventure:

  1. It is really hard to win a legal case against the government. And even harder when you are arguing for extraordinary treatment that would greatly benefit a select group of hedge funds at the expense of the society as a whole. The vast majority of people benefit from the 30YR mortgage and supportive housing policies.
  2. Notwithstanding the high drama and steady whispers of conspiracy theory, Fannie and Freddie were insolvent in 2008. Therefore, given the perfect storm that swirled with housing prices collapsing upwards of 30%, on a nationwide basis, the government’s $188 billion injection of capital, guarantee, and credit line to the Treasury came at a steep cost. Somehow investors conflated play by play elements in the recent discovery phase of appeals as grounds for determining that these findings would break the case wide open and in their favor. This was always an extremely complex and uncertain case.
  3. President Trump is currently under siege by the media. I really don’t have the bandwidth to follow the play by play, but President Trump cares deeply about how he is perceived by the segment of the population that pushed him across the finish line in November. Even with Steve Mnuchin, a proponent of re-privitization, there would be very few, if any groups that would be in favor of re-privitization. Low interest rates and a strong housing market are major drivers of economic growth and have significant multiplier effects on jobs and GDP growth. Steve Mnuchin is tasked with making an unwinnable argument.

In closing, I too have made many investing mistakes, the hope is that we learn from them and become better investors. I sincerely hope that some readers readjusted their exposure downward after reading my three prior pieces.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.

Fannie And Freddie: Was There A Big Buyer Yesterday?

By Parke Shall

With Clinton as President, yesterday’s Fannie and Freddie ruling may have been a much worse body blow than 35% to 40% for shareholders. But with a pro-business Trump administration and Treasury secretary Steve Mnuchin in place, yesterday’s legal stalemate for plaintiffs may wind up meaning very little for Fannie and Freddie going forward.

Somebody was buying Fannie Mae (OTCQB:FNMA) common shares yesterday during the middle of the day, the question is who and for what purpose. The assumed buying opportunity came when shares fell mid day after a D.C. Circuit court rejected some shareholder claims and remanded additional arguments regarding liquidation preferences and dividend rights to district courts. Some say it was a profound loss for Fannie and Freddie (OTCQB:FMCC) shareholders, others think this was just a way for the courts to hand the heavy lifting back to the Treasury Secretary Steve Mnuchin.

No doubt there was a bid during the middle of the day after shares came crashing down more than 30% on the news that a court ruling determined that hedge funds could not sue to try and claim a share of Fannie Mae and Freddie Mac’s profits since the government sponsored entities have been in conservatorship. Both the common shares and the preferred shares of both entities were down between 25% and 40% yesterday depending on the class of shares.

FNMA data by YCharts

No matter which angle you looked at it from, it was definitely a bloodbath and it looked to be a relatively unexpected one that drove a primarily retail shareholder base to begin unloading shares at the bid mid day. Shares finally stabilized, but only toward the end of the day and they remained lower.

The only class of share that we saw any real action in were the common shares of Fannie Mae and Freddie Mac, both of which saw incredible volume. For instance, Fannie Mae traded over 78 million shares yesterday and there was a period, after the stock hit $2.50, where significant buying came into the picture. This pushed shares back up over $3 before they faded back to the $2.70 range toward the end of the day. It appeared to us that the size of this buying may have been significantly more than just retail, but we won’t know for sure until we hear otherwise.

The decision yesterday wasn’t all negative, however. It determined that some issues would be remanded to district courts and it also doesn’t stand in the way of treasury secretary Steve Mnuchin following through on his plans to make Fannie and Freddie reforms a “priority” for his office. The legal route to a solution has had a wrench thrown in its gears, but the billions of dollars in both common and preferred shares owned by extremely high profile, high net worth investors leads us to believe that this story is still anything but over. It has simply drifted from being more of a legal story to more of a political story now.

From the Washington Post,

In a 2-to-1 decision, the U.S. Court of Appeals for the District of Columbia affirmed an earlier ruling by U.S. District Judge Royce Lamberth.

“We hold that the stockholders’ statutory claims are barred by the Recovery Act’s [the 2009 American Recovery and Reinvestment Act] strict limitation on judicial review,” Senior Circuit Judge Douglas H. Ginsburg and Circuit Judge Patricia Millett wrote in the majority opinion. “We also reject most of the stockholders’ common-law claims.”

The decision was a setback for hedge funds and other investors who were challenging the Third Amendment, a decision by the federal government to confiscate the GSE’s profits.

“The Perry decision is undeniably a body blow for GSE shareholders, but this ruling does not constitute a knockout, as there are still both legal and administrative avenues for shareholders,” said Isaac Boltansky, an analyst at Compass Point, an investment bank, in a research report on Tuesday.

The dissent of Judge Brown is fascinating to read and we recommend that all investors do so.

Circuit Judge Janice Rogers Brown dissented, accusing the FHFA of improperly exercising a “stunningly broad view of its own power” as a conservator.

While it doesn’t change the outcome, it certainly makes it clear that Brown was not satisfied with the legal outcome that the judges had arrived at. Plaintiff counsel Hamish Hume also seemed “cautiously optimistic” with the new administration in place,

“The damages that we could recover could be very substantial, though undoubtedly the amount will be hotly disputed,” said Hamish Hume, a partner at Boies Schiller Flexner who represented shareholders in this case.

The ultimate decision of the court is somewhat disturbing from a business owners standpoint, as it almost makes it possible for the government to simply seize the assets of any failing business, but that is another discussion for another day. For the purpose of this article, just know that the conservatorship was an Obama backed idea and that President Trump doesn’t exactly agree with the Obama administration’s policy decisions across the board. Just last week, he continued signing bills that overturned Obama administration rules.

Also this is an administration that is already at war with the judicial branch of the government and so it wouldn’t surprise us if Treasury Secretary Steve Mnuchin just simply decides to impose his will with the government sponsored entities, a situation that is still completely plausible.

We wait now to hear additional information from large Fannie and Freddie shareholders, as well as the US government. While the turn was not a card that Fannie Mae and Freddie Mac shareholders liked, somebody has possibly raised the pot meaningfully and all investors still have outs on the river.

We will update our readers with more information as it becomes available.

Disclosure: I am/we are long FNMA FMCC.

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.

BRIEF-Freddie Mac prices $1.2 billion multifamily k-deal, k-062


Feb 21 Federal Home Loan Mortgage Corp

* Freddie Mac prices $1.2 billion multifamily k-deal, k-062


* Freddie Mac says expects to issue approximately $1.2
billion in k certificates , which are expected to settle on or
about february 27, 2017

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