This is the same title of an article that I wrote one year ago related to an European ISP (Internet Service Provider).
That company had no cash, so the coupons of its bonds were paid in shares. The bondholders were short-selling the stock in order to lower the share price, so they could accumulate as more shares as possible on their coupons. This way, they could recoup their investment more rapidly. A few weeks later, a debt restructuring plan was announced and the bondholders accepted a haircut and exchanged their bonds for common shares at fire-sale prices. The conversion price was even lower than the market price of the common shares, but the stock skyrocketed because the prospects of a very viable road to recovery outweighed any future dilution to common stock.
At that time, everybody thought I was crazy, ha, ha, ha, but I almost tripled my investment.
Freddie Mac and Fannie Mae: We are in the same case.
Two days ago, at the CNBC event, Obama signaled that in the General Motors´ case, everybody gave up something: government, bondholders and shareholders. This time could be the same:
1# The US government has now $152 billion in senior preferred shares. The US banks will be forced to buy all or part of the senior preferred shares and then they will be exchanged for common shares (Privatization of the GSE´s). The banks must help in the restructuring plan because they sold the bad mortgages to FnF and caused all this mess. Also, the government could accept a haircut and be part of the common shareholders. The banks, in connivance with the government, are short-selling the common stocks of Fannie and Freddie because if they trade at fire-sale prices, they will receive more common shares when the senior preferred shares are exchanged for common shares. The banks, short-selling , and the politicians trying to cool down Fannie and Freddie share price saying that they will be abolished, eliminated, wound down, etc… Both are just market manipulators and either the small investor or a hedge fund should take advantage of this.
2# Bondholders ought to take a haircut as well and swap part of the debt for equity, because the bonds are not backed by the same "full faith and credit" guarantee as bonds issued by U.S. federal government agencies (see the prospects of the bonds). Any restructuring plan needs to lower the level of debt because the companies are smaller (they are reducing their balance sheet). Larry Summers has spent the last week explaining this to the Chinese as China is a major bondholder. China has allowed to appreciate the Yuan after Larry Summers´ visit, so it seems they are be very pleased with FnF´s restructuring plan.
3# Common shareholders will be diluted 80-90%, but a very viable road to recovery outweighs any future dilution.
Another issues that will be announced in the January reform:
* F&F will merge in order to simplify the capital structure and save costs.
*The Treasury will continue to guarantee mortgages (implicit guarantee), but with a higher fee on banks in order to reduce taxpayer´s risks. That will continue to help the housing market and the whole economy. Since the first full quarter in conservatorship (4Q08), combined completed foreclosure prevention actions total 1,013,700 (Loan modifications and refinancings).
* The Treasury, if doesn´t take a haircut, will make a profit with the 10% dividend on the senior preferred shares ($16 billion so far) plus the $2 billion worth of senior preferred shares received without cost (see Bailout Agreement). It will be a profit for the risks of helping the GSEs. That´s what the 10% dividend is for. We have to take into account that the objective of any bailout is not to make a profit.
* So, the government won´t exercise the warrants to get paid. Warrants representing an ownership of 79,9% of common shares were issued to avoid any take over, as a poison pill.
* The rest of preferred shares will be exchanged for commons too with a hit, to simplify the capital structure.
It is worth noting that this is a Democrats´ plan and will be released on January. The Republicans don´t want a higher fee on banks, and will not force banks to repurchase the bad mortgages sold to FnF that, ultimately, caused a recession around the world. The Republicans always advocate for the big banks and would like to privatize the GSEs but pulling out the government guarantee. That means that the mortgage rates will skyrocket and would lead us to another recession. So, the Democrats must win in the next elections in order to avoid conflict in the Congress.
Now, everybody thinks I´m crazy, ha,ha,ha…
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This time, the conversion price to swap the senior preferred shares and bonds into common shares won´t be lower than an average price of the last six months, for instance. Curiously enough, we enter the OTC market (a market more easy to manipulate) on july 8th, and the reform will be released on January.
Now, we are talking about politicians, not a bunch of thieves like the European ISP that I referred in my post above. The politicians have a political cost. For a politician, it will be very hard to explain a conversion price into common stocks much lower than an average trading price of the last sessions.
But I believe that the government will be ashamed if they take the average price just when they were trading in the OTC Market. So, the most probable outcome could be an average price of the last year (6 months trading in the NYSE and 6 months in the OTC Market).
1 year simple moving average of Fannie Mae is now $0,88 and could be $0,76 on January.
1 year simple moving average of Freddie Mac is now $1,05 and could be $0,90 on January.
If we are treated equal, this is what we´re gonna see on January:
Stock/quote/conversion price/warrant value
Freddie/0,80/0,90/0,20
Fannie/0,70/0,78/0,18
The most probable scenario is a combined company (MacMae Inc.) being privatized among no more than 8 private lenders, as Wells Fargo said last week in the Congress´ Hearing. http://online.wsj.com/article/BT-CO-20100928-712856.html
If the common shareholder is diluted at least 92%, how can be run the new MacMae Inc. properly with 8 different owners and a free float of less than 8%? Also it will be an accounting mess!! How do they account the profits or losses in their own Profit & Loss Account?
It would be better to buy-out minority shareholders and break-up the new MacMae Inc. among the new owners.
Maybe that´s why Freddie and Fannie were not saved from entering the OTC Market with a reverse-stock split like AIG. It was better to enter the OTC Market in order to lower the share price in a more illiquid market and clear the shareholder base from the so called "high-frequency computers", that are highly hated from the government (for instance, they caused the Flash Crash a few months ago).
Here is an example when Fannie, Freddie, Citigroup and BAC comprised for 37% of the volume traded in the NYSE that day. All the high-frequency computers were there. http://seeker401.wordpress.com/2009/08/29/fannie-freddie-shares-rally-whats-going-on/
If there is a minority buy-out, the price has to include the future recovery of the companies. It could´t be an opportunistic take over. The government didn´t want the high-frecuency computers to benefit from the buy-out.
It´s worth noting that minority shareholders are also Pension Funds and Investment Funds with common shares.
The restructuring plan is done and Larry Summers has handed it to China in his latest visit, as China is a mayor bondholder and has something to say here.
The GSE´s can´t show a profit in the 3Q results (as the fourth consecutive decline in delinquency rates suggest)with no reform on desk, because we can argue that the government has inflated the previous losses with huge provisions for future losses, in order to accumulate as much senior preferred shares as possible to dilute the common shareholder once they are converted into common shares.
Also the TARP fund has been closed last Monday and, although the GSE´s were not in that fund, the taxpayer can´t admit more cash injections, it´s been enough, and the government has already started to evaluate its rescue plans.
The government wants to take the short-sellers by surprise.
I´m gobbling up shares like a mad.
Anything can happen.
"Freddie holds a disproportionately small percentage of seriously delinquent mortgages...Freddie holds almost one quarter of all the mortgages outstanding, but only 10% of all serious delinquencies as of March 31th, 2010".
http://www.freddiemac.com/corporate/company_profile/FM_housing_crisis.html
I would add that has a delinquency rate of just 3,83% in july 2010, a extremely ridiculous rate in, what it´s supposed we are, a crisis.
I guess that the huge losses come from a liquidity problem, but not because of huge mortgages going bad. A liquidity problem has to do with the mark to market of their assets (but we already know that the toxic assets are skyrocketing since one year ago), and with the utilization from the government of a private company to support the housing market and the whole economy by providing home mortgage funding.
Any minority buy-out or sale to private lenders of the GSE´s has to include these issues and a future recovery.
Take care of the US Government, it´s playing Monopoly with our economy.
China will invest more than $2 billion in the US oil sector buying a stake in CHESAPEAKE ENERGY and a cash injection to drill for oil and gas.
This is a way to hedge against inflation buying hard assets.
The next move is to swap part of its debt in the GSE´s for common equity.
Curiously enough, this is happening after Larry Summers´ trip to China.
I bet the US is allowing China to buy hard assets or strategic assets in exchange of accepting the restructuring plan of the GSE´s and more Yuan appreciation.
The Treasury will delay the currency report against China until after the G20 meeting on November 11-12.
Link http://abcnews.go.com/Business/wireStory?id=11896875
Maybe the reason for the delay has to do with the recapitalization of the GSE´s announcement before November 10th with the quarterly results as I explained in the comment above.
If China comes to rescue USA, taking a stake in the GSE´s by converting part of its debt to common shares, nobody will dare to call China "currency manipulator" , ha, ha, ha.
It doesn´t matter if the recapitalization of the GSE´s announcement is in January as planned.
All is taking shape, isn´t it?
This situation can´t happen. One company can´t draw cash from the government to fund the government!! It´s bleeding the GSE´s!!!
The restructuring plan announcement should be imminent.
Democrats! Give me more, give me more,...!
Please, release another report with potential needs of $500 billion or $800 billion!!
Please, say again that the GSE´s will be abolished, eliminated, wound down, etc..
The reason is to justify the mother of all restructuring plans that you´ve ever seen.
Also, as I´ve already said above, the politicians want to cool down the share price because they have to swap the senior preferred stocks into commons and afterwards, privatize the GSE´s (sale to private lenders).
The lower the quote of the commons, the larger the ammount of cheap commons they will receive in the swap and also, the existing common shareholder will be more diluted.
There is no company that can survive with a 10% dividend forever!!!!!!
The restructuring plan is imminent!!!!
http://online.wsj.com/article/SB10001424052702303299304575569821760465604.html.
They´ve spent two days in South Korea at the Finance Minister G20 Meeting, and they usually meet on the sidelines of the G20 meetings, but this time they needed much time to discuss a major issue, or maybe, the chinese just wants to show Geithner the city where he was born, ha, ha, ha.
The US Administration has not shown the agenda of that trip.
We are at the final stage of the restructuring plan announcement.
So, he´s an expert in financial restructuring stories, after me.
http://www.shanghaidaily.com/article/?id=452611&type=Business
So, T. Geithner needed high level talks with the expert in restructuring stories China´s Vice Premier Wang Qishan and travelled on Sunday to the city where he was born and stayed.
*Also note that in 2.009, Wang Qishan was appointed by President Hu Jintao as his special representative to chair the Economic Track of the U.S.-China Strategic and Economic Dialogue for the Chinese side.
Bottom line: It had to be a major major major major major issue to discuss with Wang Qishan, so don´t tell me that, after a G20 meeting, they were talking again and again about the appreciaton of the yuan!!!!!!!!!!
It seems that the restructuring plan announcement will be released after Elections.
http://www.ustreas.gov/press/releases/tg922.htm
And here we´ve got the fact sheet of a meeting last May where you can see that they talked widely about the GSE´s: "The Administration will request input from all stakeholders and will seek to work closely with the Congress to work out a comprehensive GSE reform plan. The Administration is also committed to pursuing further reforms in a way that will ensure the ability of GSEs to honor their obligations".
http://www.ustreas.gov/press/releases/tg722.htm
Why now there is such obscurantism?
Why they now have to hold meetings at the airports?
What are these two up to?
It seems that the recapitalizaton announcement is imminet.
Here says that “Just hours after ministers signaled a deal was unlikely and would be left to G20 leaders summit in Seoul on November 12, IMF chief Dominique Strauss-Kahn declared a historic agreement had been reached.
Analysts said the deal was fairly similar to what ministers were unable to agree just two weeks earlier at IMF meetings in Washington and questioned what had triggered the about-turn.
"It raises a possibility there may be another side to this deal," said Domenico Lombardi, a former IMF board official “.
http://www.reuters.com/article/idUSTRE69N1WR20101025?pageNumber=1
I´m not the only one who think there is another side in every deal. It seems all was very precipitated with the purpose of being announced before the G10 meeting of Leaders on November 12th.
China has achieved two important milestones in two weeks:
1st. It has been given permission to buy strategic assets in USA, buying a 25% stake in CHESAPEAKE ENERGY. (China was never allowed before by the Congress)
2nd At last it has gained weight in the IMF. Another mission accomplished.
The US will take down its trousers every time it´s needed, for the good of the future recapitalization of the GSE´s and for the good of the US companies that will gain competitiveness with the decision of China of allowing to appreciate its currency.
The recapitalization announcement could be before the G20 meeting. Let´s see…
But there it fulfilled two out of three international demands: a permanent seat in the Security Council of the United Nations, the reform of the IMF and the fortification of the G20. (Explained in my post called: "Brazil: Lula´s bubble").
Why the IMF was in a rush?
"The stop in China was only announced at the last minute".
http://english.peopledaily.com.cn/90001/90776/90883/7179741.html
Definately, the US is taking down its trousers as "the US is trying to ease China's suspicion aroused by Washington's frequent interaction with its Asian allies and its high-key re-engagement in the region".
What will China give to the US in exchange of all mentioned above?
I hope Timmy knows how to recapitalize a company.
The press just focus in the headline of $4 billion loss (a 10% dividend payment to the Treasury or $1.6 billion is included), but they forget to include the appreciation of its assets of $3.9 billion.
So, the net loss is just $58 million . That´s why Freddie will summit a ridiculous $100 million draw request to Treasury, that´s peanuts.
Before the dividend payment to Treasury, the quarterly results are an income of $1.4 billion.
http://www.freddiemac.com/news/archives/investors/2010/2010er-3q10.html
http://www.freddiemac.com/investors/er/pdf/2010fin-tbls_3q10.pdf
According to the 3Q CONSOLIDATED STATEMENTS OF OPERATIONS of the other GSE, Fannie Mae, the Net fair value gain of $525 million is included and "was attributable primarily to gains on the company’s trading mortgage securities due to rate declines and spread tightening". Page 11
http://www.fanniemae.com/media/pdf/newsreleases/q32010_release.pdf;jsessionid=IIE1NGDFV2WDPJ2FQSISFGI
BOTTOM LINE: This way, Freddie Mac published a Net loss attributable to common stockholders $ (4,069) in the 3Q CONSOLIDATED STATEMENTS OF OPERATIONS and not a loss of just $58 million.
The objective was to make the press spread the ammount of $4 billion loss in order to shock the taxpayer and make Freddie common stock trade lower, thereby it can receive more common shares when the preferred shares are swapped for commons.
If the fair value gain were incluided, Freddie Mac would have published a net loss of just $58 million, but the Government just said that number calling it Deficit to mislead investors and outside the CONSOLIDATED STATEMENTS OF OPERATIONS.
*Freddie:
FHFA projection (Q3&Q4): $ 7 billion
So far (Q 3):$ 0.1 billion
*Fannie:
FHFA projection (Q3&Q4): $ 17 billion
So far (Q 3): $ 2.5 billion
The difference is astonishing!!
In what scenario the GSE´s are supposed to be nowadays??? Super-mega- best of the bests scenarios?
A huge gain at the same time as an increase imparement in its securities??
Probably, the government decided to hide the huge gain in the 3Q CONSOLIDATED STATEMENTS OF OPERATIONS and inflated the imparements (provisions) in order to post huge losses.
Why Freddie Mac didn´t include the appreciation of the fair value of its securities in the 3Q CONSOLIDATED STATEMENTS OF OPERATIONS, but Fannie Mae did so?
1-T.Geithner has just said in an exclusive CNBC interview, that the january reform announcement of the GSE´s is on track.
2-China will make a state visit to Washington on january.
Is the GSE´s reform going to be announced before China´s visit in order to smooth the way for HU´s state visit or later?
I bet it will be before, because nowadays there is an anti-china atmosphere in the States, from politicians to small people (as BP´s chairman would say).
Remember that China is a major GSE bondholder and has something to say in the reform, hasn´t it?
It doesn´t matter if the GSE´s reform is announced after the visit.
Remember: risk-reward or risk-peniless, ha,ha,ha.
I´ve already told you why the government tries to cool down the GSE´s stock price. The lower the common stock price, the higher the amount of common shares they receive once the senior preferred shares are swapped for common shares.
1# Saying that the GSE´s will be liquidated, wound down, eliminated, etc...
2# By not saving them from the OTC market with a reverse-stock split, like AIG did.
3# With inflated estimations of draws from the Treasury, shown above.
4# Hiding $3.947 billion in the 3Q CONSOLIDATED STATEMENTS OF OPERATIONS of Freddie Mac and inflating an impairment, shown above.
Also, it´s worth mentioning the hard work of New York Times, working for the government trying to cool down the shares too:
1# "Fannie Mae and Freddie Mac face uncertain future", NYT, Nov. 3rd. http://www.nytimes.com/2010/11/04/business/04housing.html?partner=yahoofinance
2# "The administration is scheduled to release an initial proposal in January, generating what could be years of debate" NYT, Nov. 12th. http://www.nytimes.com/2010/11/13/business/13housing.html?src=busln
What the hell is The New York Times talking about???!!!!!
The ultimate reform will be announced in january, manipulators!!!!!!!!
http://investors.morningstar.com/ownership/shareholders-major.html?t=FMCC®ion=USA&culture=en-US
California is now almost bankrupt, and desperate to reduce its huge deficit!!
Why CalPERS(CALIFORNIA-PUBLIC EMPLOYEES RETIREMENT SYSTEM) has bought 5,716,694 common shares to 7,802,564 in the 3Q? Source: Morningstar website
California has $500 billion unfunded Pension Debt (http://articles.latimes.com/2010/apr/06/opinion/la-oe-crane6-2010apr06 ) so, the portfolio managers at CalPERS, can´t be allowed to buy more shares in a company tradig in the OTC Market for sure!
This is clearly an Insider Trading case. I bet they have increased their position in Fannie mae in the 3Q as well.
OUTRAGEOUS!!
The second monthly record reduction is october 08 with $16.5 billion, just after the government´s bailout.
http://www.kmph.com/Global/story.asp?S=13510570
Bottom line: The bondholders are preparing their Fannie and Freddie bond holdings for the restructuring plan that will swap part or all of their debt for common shares with a haircut, that is to swap for shares at a much higher price than current quote.
Also september was the third straight monthly reduction of F&F bonds by foreign governments and central banks. So, curiously enough, they began cutting their holdings just after Timothy Geithner announced in july that the GSE reform will be released in january.
Bottom line: Why T. Geithner will take six months to announce a GSE reform if, as I´ve mentioned widely in other post, the government had too much pressure to fix this problem a.s.a.p.?
My assumption is that T. Geithner presented the restructuring plan to the bondholders in july, and let the bondholders who didn´t want to participate in the restructuring of the GSE´s, to cut their bond holdings gradually.
Obviously, it´s because not all the foreign governments and central banks want to swap part or all of their bonds for common shares, and also with a haircut, because I´ve already mentioned that the GSE bonds are not fully guarantee by the government according to their prospectus.
So, we are seeing how some bondholders are reducing their holdings at a higher path as the deadline approaches.
Other issue that we can suggest is who is purchasing the huge amount of bonds being sold?. They are trading artificially at a quote of 100% (there´s no asset that trades normally at 100% if the company were about to bankrupt, traded in the OTC Market and there were massive sales in the market), according to China, who recently said that it had no losses in its F&F bonds because they are highly appreciated among central banks (ha, ha, ha).
And who on earth wants to buy an asset artificially trading at 100% and about to be part of a restructuring plan?
Obviously those that the government wants to be involved in the capital structure after the restructuring plan. A privatization of the GSE´s with a cooperative model (as Government Accountability Office, GAO recognized as a solution to reform the GSE´s http://gao.gov/products/GAO-11-33R ) or whatever the model is, means mortgage lenders being part of the capital in order to share risks for future capital needs.
Once the bondholders that are reducing their bonds holdings had finished, the restructuring plan will be released.
Remember that T. Geithner said that it will be released "by" january so, it could be near january.
*Note: Another personal bet is that the new MacMae Inc. will have no debt, so all existing bonholders in january will swap their bonds for common shares, but the conversion price will be huge. Huge recapitalization of the GSE´s.
GSE reform announcement countdown finalizing...
Like in the Chesapeake Energy case, the US takes down its trousers again on sundays.
Keep watching sunday´s US-China porn movie.
The single-family serious delinquency rate statistic is inflated because, according to Freddie Mac, “loans that we report as seriously delinquent before they enter the HAMP trial period remain as seriously delinquent for purposes of our delinquency reporting until the modifications become effective and the loans are removed from delinquent status by our servicers”. Bottom, page 5 http://www.freddiemac.com/investors/er/pdf/10q_3q10.pdf
So, many mortgages in the 3.83% single-family serious delinquency rate statistic of October, won´t default and will exit that statistic thanks to the HAMP, Home Affordable Modification Program.
"49% of those starting the HAMP trial process, have been cancelled and the borrowers did not receive permanent HAMP modifications". Page 72.
"But even if a borrower is not qualify after completing an existing trial process or if is not eligible for entering the HAMP, there are other non-HAMP modification programs", Page 70.
Also the delinquency rate is inflated because of “the lengthening in the modification timelines caused by various process requirements for the implementation of HAMP”.
It´s worth noting that these programs have a cost (page 74) and Freddie Mac signals that “it´s not possible to estimate if these costs will be offset by the prevention or reduction of potential future costs of loan defaults and foreclosures due to these activities”. Have you heard this Obama? You are saving your ass with the common shareholder´s money.
Also if we consider that the delinquency rate in the mortgages originated in 2009 and the new ones that are being originated in 2010, is 0.19% and 0.03% respectively, the serious delinquency rate will plummet gradually in the coming months.
http://www.gao.gov/new.items/d1133r.pdf
"The entity or entities that replace the enterprises would be privately owned and conduct secondary mortgage market operations with explicit financial support from the federal government. Such private entities could be owned by lenders under the cooperative model, through shareholders, as is the case with the enterprises today."
"If the new structure includes the cooperative model, a number of decisions would also have to be made on the number of cooperatives that would be formed and their membership requirements, governance and capital structures, and permitted business activities. Moreover, regulators would need the authority, expertise, and resources to manage a potentially lengthy transition process to the cooperative structure, while minimizing the risk to housing markets." Page 15 and 16.
"Example of Cooperative Model–The Federal Home Loan Bank System:
Organization: There are 12 FHLBanks that compose the FHLB System. They issue debt on a consolidated basis. Each FHLBank is owned by member financial institutions in its district."
"Limited number of cooperatives could promote standardization and consistency within the housing finance system because such cooperatives would likely have common forms, rules, and procedures." Page 25
BOTTOM LINE: If there is one cooperative (one GSE)the existing common shareholder will be a shareholder in the new MacMae Inc. But if there are multiples cooperatives (multples GSEs), I repeat what I said in the third comment: the actual common shareholder bothers in the procces of changing to the new structure, because if I own one common share now, is the government going to split my stock among all the cooperatives?. It´s better to buy-out the minority shareholder in january.
And again, it can´t be an opportunistic buy-out.
Curiously enough, those rumors came out before a "Conference to discuss the future of F&F" held on august 17th, where there were huge expectations about a restructuring plan announcement of the GSEs (see my post http://open.salon.com/blog/ebano/2010/06/22/china_loves_freddie_mac_fannie_mae )
This week, just a few weeks before the government deadline ("by january") to release a GSE reform, the same rumors have appeared in the WSJ.
There are strong voices trying to lower the GSE´s share price as the deadline approaches (these WSJ rumors, also JPM said last week that there will be a 10% dividend in the actual and future capital needs forever, also I´ve already talked about The New York Times,...).
What do these market manipulators owe to the US government?
All monthly data here http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/agnsect.txt
Who are these private foreign investors? There are two possibilities:
1-Stupid private foreign investors purchasing bonds like mad in companies that were about to be bankrupt, that are releasing huge losses and with prospects of enormous draws from the Treasury in the coming years, companies trading in the OTC Market, about to be reformed (with a bond haircut) and finally, purchasing bonds trading artificially at 100% as China mentioned recently when said that it had no losses in its GSE bond holding.
2- Foreign private but state-controlled companies that are forced to buy GSE bonds for political purposes (basically in order to save the GSEs, save United States). I can only imagine one country that is having a special relationship with the US since one year ago (as you can see above). It´s China, as you have imagine. In the last month we´ve seen three Chinese private but state-controlled companies that have taken a stake in American companies: China´s SAIC bought a stake in General Motors, China Huaneng Group, the nation’s largest electricity producer, bought a stake in Massachusetts-based power utility InterGen and CNOOC, China's top offshore oil producer, bought a stake in Chesapeake Energy´ oil and natural gas field in Texas.
In the Treasury data, you can also see that these “private” foreign investors have been purchasing GSE bonds massively since February 2010 and nowadays are offsetting the sales of official institutions that can´t hold GSE shares when the bonds are swapped to common shares with a haircut.
If you think that these movements of the bondholders have nothing to do with the restructuring plan in order to recapitalize the GSEs that will be released “by” January, you´re not from this planet or, definitely, you´re completely idiot.
Countdown to the GSE restructuring plan announcement finalizing…
Source: Morningstar website
And I will repeat again:
California has $500 billion unfunded Pension Debt (http://articles.latimes.com/2010/apr/06/opinion/la-oe-crane6-2010apr06 ) so, the portfolio managers at CalPERS, can´t be allowed to buy more shares in a company tradig in the OTC Market for sure!
This is clearly an Insider Trading case.
OUTRAGEOUS!!
But Wang Qishan also met today with Timothy "by january" Geithner "to continue their discussions on U.S.-China economic relations and global economic policy".
I knew they didn´t have time to discuss anything in the meeting at the airport in the flash-trip to China at the end of october.
There are two possibilities:
1. They keep discussing the GSE reform.
2. They are having an affair.
http://www.bloomberg.com/news/2010-12-14/u-s-treasury-department-schedule-for-tuesday-dec-14.html
Curiously enough, Freddie Mac began redeeming notes just after the "Conference to discuss the future of F&F" held on august 17th.
Now we know three things for sure:
1# We are seeing part of the debt restructuring plan of the GSEs that will be released "by" january.
2# Now we know why F&F were not in the FinReg approved in july, despite the huge pressure of the government to fix the GSE problem (see my previous post): The debt restructuring plan has too much administrative work and we are talking about a huge amount of money, to do it in one month. It´s better to do it in a 6 month period.
3# In january, the GSEs outstanding debt will be low.
The objective of the debt restructuring plan is to recapitalize the GSEs, not to play Monopoly with the notes. So, this stresses my idea that the new MacMae Inc, or the multiple cooperative model (multiple GSEs), will have no debt and all the existing bondholders in januray will swap their bonds to common shares with a haircut, that is a conversion price much higher than actual price to show a haircut.
Tuesday, December 14, 2010
• Freddie Mac to Redeem Zero Notes Due 2039at Bloomberg (Tue, Dec 14)
• Freddie Mac to Redeem 5.41% Notes Due 2015at Bloomberg (Tue, Dec 14)
Monday, December 13, 2010
• Freddie Mac to Redeem 5.55% Notes Due 2022at Bloomberg (Mon, Dec 13)
• Freddie Mac to Redeem 5.35% Notes Due 2022at Bloomberg (Mon, Dec 13)
• Freddie Mac Redeems 5.55% Notes Due 2022at Bloomberg (Mon, Dec 13)
Friday, December 10, 2010
• Freddie Mac to Redeem 1.7% Notes Due 2012at Bloomberg (Fri, Dec 10)
• Freddie Mac to Redeem 1.61% Notes Due 2012at Bloomberg (Fri, Dec 10)
• Freddie Mac to Redeem 3.055% Notes Due 2012at Bloomberg (Fri, Dec 10)
• Freddie Mac Redeems Step-Up Notes Due 2019at Bloomberg (Fri, Dec 10)
• Freddie Mac Redeems 1.625% Notes Due 2012at Bloomberg (Fri, Dec 10)
• Freddie Mac Redeems 2.875% Notes Due 2015at Bloomberg (Fri, Dec 10)
• Freddie Mac Redeems Step-Up Notes Due 2012at Bloomberg (Fri, Dec 10)
• Freddie Mac Redeems 4.75% Notes Due 2024at Bloomberg (Fri, Dec 10)
Thursday, December 9, 2010
• Freddie Mac to Redeem 2.25% Notes Due 2014at Bloomberg (Thu, Dec 9)
• Federal Home Loan Mortgage Corp Redeems 3.25% Notes Due 2011at Bloomberg (Thu, Dec 9)
• Federal Home Loan Mortgage Corp Redeems 2.93% Notes Due 2015at Bloomberg (Thu, Dec 9)
• Federal Home Loan Mortgage Corp Redeems 2.53% Notes Due 2014at Bloomberg (Thu, Dec 9)
Wednesday, December 8, 2010
• Freddie Mac to Redeem Step-Up Notes Due 2012at Bloomberg (Wed, Dec 8)
• Freddie Mac to Redeem Step-Up Notes Due 2015at Bloomberg (Wed, Dec 8)
• Freddie Mac to Redeem 1.55% Notes Due 2013at Bloomberg (Wed, Dec 8)
• Freddie Mac to Redeem 5.45% Notes Due 2026at Bloomberg (Wed, Dec 8)
• Freddie Mac to Redeem 5.3% Notes Due 2026at Bloomberg (Wed, Dec 8)
• Freddie Mac to Redeem 5.4% Notes Due 2026at Bloomberg (Wed, Dec 8)
Tuesday, December 7, 2010
• Freddie Mac Redeems Step-Up Notes Due 2025at Bloomberg (Tue, Dec 7)
• Freddie Mac Redeems Step-Up Notes Due 2012at Bloomberg (Tue, Dec 7)
Monday, December 6, 2010
• Freddie Mac to Redeem 5.55% Notes Due 2022at Bloomberg (Mon, Dec 6)
Friday, December 3, 2010
• Freddie Mac to Redeem Step-Up Notes Due 2012at Bloomberg (Fri, Dec 3)
• Freddie Mac to Redeem 2.875% Notes Due 2015at Bloomberg (Fri, Dec 3)
• Freddie Mac to Redeem Step-Up Notes Due 2019at Bloomberg (Fri, Dec 3)
Thursday, December 2, 2010
• Freddie Mac to Redeem 2.53% Notes Due 2014at Bloomberg (Thu, Dec 2)
• Freddie Mac to Redeem 2.93% Notes Due 2015at Bloomberg (Thu, Dec 2)
• Freddie Mac to Redeem 3.25% Notes Due 2011at Bloomberg (Thu, Dec 2)
• Freddie Mac Redeems Step-Up Notes Due 2014at Bloomberg (Thu, Dec 2)
• Freddie Mac Redeems 5% Notes Due 2024at Bloomberg (Thu, Dec 2)
Wednesday, December 1, 2010
• Freddie Mac Redeems Step-Up Notes Due 2012at Bloomberg (Wed, Dec 1)
• Freddie Mac Redeems 2.8% Notes Due 2014at Bloomberg (Wed, Dec 1)
Tuesday, November 30, 2010
• Freddie Mac to Redeem Step-Up Notes Due 2012at Bloomberg (Tue, Nov 30)
• Freddie Mac to Redeem Step-Up Notes Due 2025at Bloomberg (Tue, Nov 30)
• Freddie Mac Redeems 5.375% Notes Due 2016at Bloomberg (Tue, Nov 30)
Monday, November 29, 2010
• Freddie Mac Redeems Variable Notes Due 2025at Bloomberg (Mon, Nov 29)
• Freddie Mac Redeems Zero Notes Due 2039at Bloomberg (Mon, Nov 29)
• Freddie Mac Redeems 5.55% Notes Due 2022at Bloomberg (Mon, Nov 29)
• Freddie Mac Redeems 2.5% Notes Due 2013at Bloomberg (Mon, Nov 29)
Friday, November 26, 2010
• Freddie Mac Redeems 1.625% Notes Due 2012at Bloomberg (Fri, Nov 26)
• Freddie Mac Redeems Step-Up Notes Due 2015at Bloomberg (Fri, Nov 26)
• Freddie Mac Redeems 3% Notes Due 2015at Bloomberg (Fri, Nov 26)
Wednesday, November 24, 2010
• Freddie Mac to Redeem Step-Up Notes Due 2014at Bloomberg (Wed, Nov 24)
• Freddie Mac to Redeem 5% Notes Due 2024at Bloomberg (Wed, Nov 24)
• Freddie Mac Redeems 1.4% Notes Due 2012at Bloomberg (Wed, Nov 24)
• Freddie Mac Redeems Floating Notes Due 2022at Bloomberg (Wed, Nov 24)
Tuesday, November 23, 2010
• Freddie Mac to Redeem Step-Up Notes Due 2012at Bloomberg (Tue, Nov 23)
• Freddie Mac to Redeem 2.8% Notes Due 2014at Bloomberg (Tue, Nov 23)
• Freddie Mac Redeems 3.7% Notes Due 2012at Bloomberg (Tue, Nov 23)
Monday, November 22, 2010
• Freddie Mac to Redeem 5.375% Notes Due 2016at Bloomberg (Mon, Nov 22)
• Freddie Mac Redeems Zero Notes Due 2039at Bloomberg (Mon, Nov 22)
Friday, November 19, 2010
• Freddie Mac to Redeem 2.5% Notes Due 2013at Bloomberg (Fri, Nov 19)
• Freddie Mac to Redeem 5.55% Notes Due 2022at Bloomberg (Fri, Nov 19)
• Freddie Mac Redeems 6.32% Notes Due 2021at Bloomberg (Fri, Nov 19)
• Freddie Mac Redeems 5% Notes Due 2020at Bloomberg (Fri, Nov 19)
• Freddie Mac Redeems 4% Notes Due 2018at Bloomberg (Fri, Nov 19)
Thursday, November 18, 2010
• Freddie Mac to Redeem Step-Up Notes Due 2015at Bloomberg (Thu, Nov 18)
• Freddie Mac to Redeem 1.625% Notes Due 2012at Bloomberg (Thu, Nov 18)
• Freddie Mac Redeems 3% Notes Due 2015at Bloomberg (Thu, Nov 18)
• Freddie Mac Redeems 1% Notes Due 2011at Bloomberg (Thu, Nov 18)
• Freddie Mac Redeems Step-Up Notes Due 2013at Bloomberg (Thu, Nov 18)
• Freddie Mac Redeems 2.25% Notes Due 2015at Bloomberg (Thu, Nov 18)
Wednesday, November 17, 2010
• Freddie Mac to Redeem 1.4% Notes Due 2012at Bloomberg (Wed, Nov 17)
• Freddie Mac Redeems Step-Coupon Notes Due 2013at Bloomberg (Wed, Nov 17)
• Freddie Mac Redeems Step-Coupon Notes Due 2016at Bloomberg (Wed, Nov 17)
• Freddie Mac Redeems Step-Coupon Notes Due 2012at Bloomberg (Wed, Nov 17)
Tuesday, November 16, 2010
• Freddie Mac to Redeem 3.7% Notes Due 2012at Bloomberg (Tue, Nov 16)
• Freddie Mac to Redeem Floating Notes Due 2022at Bloomberg (Tue, Nov 16)
• Freddie Mac Redeems Zero Notes Due 2039at Bloomberg (Tue, Nov 16)
• Freddie Mac Redeems Variable Notes Due 2022at Bloomberg (Tue, Nov 16)
Monday, November 15, 2010)
• Freddie Mac Redeems 3% Notes Due 2015at Bloomberg (Mon, Nov 15)
• Freddie Mac Redeems 5.75% Notes Due 2026at Bloomberg (Mon, Nov 15)
• Freddie Mac Redeems Step-Up Notes Due 2019at Bloomberg (Mon, Nov 15)
Friday, November 12, 2010
• Freddie Mac to Redeem Step-Up Notes Due 2025at Bloomberg (Fri, Nov 12)
• Freddie Mac to Redeem Step-Up Notes Due 2020at Bloomberg (Fri, Nov 12)
• Freddie Mac to Redeem Step-Up Notes Due 2017at Bloomberg (Fri, Nov 12)
• Freddie Mac to Redeem Zero Notes Due 2039at Bloomberg (Fri, Nov 12)
• Freddie Mac Redeems 5% Notes Due 2025at Bloomberg (Fri, Nov 12)
• Federal Home Loan Mortgage Corp Redeems 2.36% Notes Due 2013at Bloomberg (Fri, Nov 12)
• Federal Home Loan Mortgage Corp Redeems Step-Up Noteat Bloomberg (Fri, Nov 12)
• Federal Home Loan Mortgage Corp Redeems 3.18% Notes Due 2015at Bloomberg (Fri, Nov 12)
Wednesday, November 10, 2010
• Freddie Mac to Redeem Step-Up Notes Due 2013at Bloomberg (Wed, Nov 10)
• Freddie Mac to Redeem 2.25% Notes Due 2015at Bloomberg (Wed, Nov 10)
• Freddie Mac to Redeem 1% Notes Due 2011at Bloomberg (Wed, Nov 10)
• Freddie Mac Redeems 1.28% Notes Due 2012at Bloomberg (Wed, Nov 10)
• Freddie Mac Redeems Step-Up Notes Due 2022at Bloomberg (Wed, Nov 10)
• Freddie Mac Redeems Step-Up Notes Due 2013at Bloomberg (Wed, Nov 10)
Tuesday, November 9, 2010
• Freddie Mac to Redeem Step-Up Notes Due 2013at Bloomberg (Tue, Nov 9)
• Freddie Mac to Redeem Step-Up Notes Due 2016at Bloomberg (Tue, Nov 9)
• Freddie Mac to Redeem Step-Up Notes Due 2012at Bloomberg (Tue, Nov 9)
Monday, November 8, 2010
• Freddie Mac Redeems Step-Up Notes Due 2025at Bloomberg (Mon, Nov 8)
• Freddie Mac Redeems 2.3% Notes Due 2012at Bloomberg (Mon, Nov 8)
Friday, November 5, 2010
• Freddie Mac to Redeem Zero Notes Due 2039at Bloomberg (Fri, Nov 5)
• Freddie Mac to Redeem Variable Notes Due 2022at Bloomberg (Fri, Nov 5)
• Freddie Mac to Redeem 4% Notes Due 2020at Bloomberg (Fri, Nov 5)
• Freddie Mac to Redeem Step-Up Notes Due 2024at Bloomberg (Fri, Nov 5)
• Freddie Mac to Redeem Step-Up Notes Due 2019at Bloomberg (Fri, Nov 5)
• Freddie Mac to Redeem 5.5% Notes Due 2026at Bloomberg (Fri, Nov 5)
• Freddie Mac to Redeem 5.65% Notes Due 2026at Bloomberg (Fri, Nov 5)
• Freddie Mac to Redeem 5.6% Notes Due 2026at Bloomberg (Fri, Nov 5)
• Freddie Mac Redeems 3% Notes Due 2014at Bloomberg (Fri, Nov 5)
• Freddie Mac Redeems 2% Notes Due 2013at Bloomberg (Fri, Nov 5)
• Freddie Mac Redeems 2% Notes Due 2012at Bloomberg (Fri, Nov 5)
• Freddie Mac Redeems Floating Notes Due 2019at Bloomberg (Fri, Nov 5)
Thursday, November 4, 2010
• Freddie Mac to Redeem Step-Up Notes Due 2025at Bloomberg (Thu, Nov 4)
• Freddie Mac to Redeem 3.18% Notes Due 2015at Bloomberg (Thu, Nov 4)
• Freddie Mac to Redeem 2.32% Notes Due 2013at Bloomberg (Thu, Nov 4)
• Freddie Mac Redeems Step-Up Notes Due 2012at Bloomberg (Thu, Nov 4)
• Freddie Mac Redeems 2.43% Notes Due 2015at Bloomberg (Thu, Nov 4)
• Freddie Mac Redeems Step-Up Notes Due 2015at Bloomberg (Thu, Nov 4)
Wednesday, November 3, 2010
• Freddie Mac to Redeem 1.28% Notes Due 2012at Bloomberg (Wed, Nov 3)
• Freddie Mac to Redeem Step-Up Notes Due 2022at Bloomberg (Wed, Nov 3)
• Freddie Mac to Redeem 1.875% Notes Due 2013at Bloomberg (Wed, Nov 3)
• Freddie Mac Redeems 2% Notes Due 2013at Bloomberg (Wed, Nov 3)
Tuesday, November 2, 2010
• Freddie Mac Redeems 1.05% Notes Due 2012at Bloomberg (Tue, Nov 2)
Monday, November 1, 2010
• Freddie Mac to Redeem Step-Up Notes Due 2025at Bloomberg (Mon, Nov 1)
• Freddie Mac to Redeem 2.3% Notes Due 2012at Bloomberg (Mon, Nov 1)
Friday, October 29, 2010
• Freddie Mac to Redeem Step-Up Notes Due 2025at Bloomberg (Fri, Oct 29)
• Freddie Mac to Redeem 5% Notes Due 2025at Bloomberg (Fri, Oct 29)
• Freddie Mac to Redeem 3% Notes Due 2014at Bloomberg (Fri, Oct 29)
• Freddie Mac Redeems Step-Up Notes Due 2012at Bloomberg (Fri, Oct 29)
• Freddie Mac Redeems Step-Up Notes Due 2016at Bloomberg (Fri, Oct 29)
• Freddie Mac Redeems 2.17% Notes Due 2013at Bloomberg (Fri, Oct 29)
• Freddie Mac Redeems Step-Up Notes Due 2022at Bloomberg (Fri, Oct 29)
• Freddie Mac Redeems Step-Up Notes Due 2020at Bloomberg (Fri, Oct 29)
• Freddie Mac Redeems 1.75% Notes Due 2012at Bloomberg (Fri, Oct 29)
• Freddie Mac Redeems 1.85% Notes Due 2015at Bloomberg (Fri, Oct 29)
• Freddie Mac Redeems 1.63% Notes Due 2014at Bloomberg (Fri, Oct 29)
• Freddie Mac Redeems Step-Up Notes Due 2015at Bloomberg (Fri, Oct 29)
• Freddie Mac Redeems Step-Up Notes Due 2018at Bloomberg (Fri, Oct 29)
Thursday, October 28, 2010
• Freddie Mac to Redeem Floating Notes Due 2019at Bloomberg (Thu, Oct 28)
• Freddie Mac to Redeem 2.43% Notes Due 2015at Bloomberg (Thu, Oct 28)
• Freddie Mac to Redeem Step-Up Notes Due 2012at Bloomberg (Thu, Oct 28)
• Freddie Mac Redeems 3.5% Notes Due 2016at Bloomberg (Thu, Oct 28)
• Freddie Mac Redeems 2.375% Notes Due 2015at Bloomberg (Thu, Oct 28)
• Freddie Mac Redeems Step-Up Notes Due 2017
• Freddie Mac Redeems Floating Notes Due 2024at Bloomberg (Thu, Oct 28)
• Freddie Mac Redeems Step-Coupon Notes Due 2015at Bloomberg (Thu, Oct 28)
• Freddie Mac Redeems 3.2% Notes Due 2015at Bloomberg (Thu, Oct 28)
Wednesday, October 27, 2010
• Freddie Mac to Redeem 2% Notes Due 2013at Bloomberg (Wed, Oct 27)
• Freddie Mac Redeems 2.5% Notes Due 2015at Bloomberg (Wed, Oct 27)
• Freddie Mac Redeems Step-Coupon Notes Due 2015at Bloomberg (Wed, Oct 27)
• Freddie Mac Redeems Step-Coupon Notes Due 2017at Bloomberg (Wed, Oct 27)
Tuesday, October 26, 2010
• Freddie Mac to Redeem 1.05% Notes Due 2012at Bloomberg (
• Freddie Mac Redeems Step-Up Notes Due 2013at Bloomberg (Tue, Oct 26)
• Freddie Mac Redeems .91% Notes Due 2012at Bloomberg (Tue, Oct 26)
Monday, October 25, 2010
• Freddie Mac Redeems Step-Up Notes Due 2024at Bloomberg (Mon, Oct 25)
Friday, October 22, 2010
• Freddie Mac to Redeem Step-Up Notes Due 2016at Bloomberg (Fri, Oct 22)
• Freddie Mac to Redeem Step-Up Notes Due 2018at Bloomberg (Fri, Oct 22)
• Freddie Mac to Redeem Step-Up Notes Due 2015at Bloomberg (Fri, Oct 22)
• Freddie Mac to Redeem 1.6% Notes Due 2012at Bloomberg (Fri, Oct 22)
• Freddie Mac to Redeem 1.75% Notes Due 2012at Bloomberg (Fri, Oct 22)
• Freddie Mac to Redeem 4% Notes Due 2018at Bloomberg (Fri, Oct 22)
• Freddie Mac Redeems 3% Notes Due 2015at Bloomberg (Fri, Oct 22)
• Freddie Mac Redeems Step-Coupon Notes Due 2015at Bloomberg (Fri, Oct 22)
• Freddie Mac Redeems Step-Coupon Notes Due 2025at Bloomberg (Fri, Oct 22)
Thursday, October 21, 2010
• Freddie Mac to Redeem 2.65% Notes Due 2014at Bloomberg (Thu, Oct 21)
• Freddie Mac to Redeem 3.2% Notes Due 2015at Bloomberg (Thu, Oct 21)
• Freddie Mac Redeems 1.96% Notes Due 2014at Bloomberg (Thu, Oct 21)
• Freddie Mac Redeems Floating Notes Due 2024at Bloomberg (Thu, Oct 21)
Wednesday, October 20, 2010
• Freddie Mac to Redeem Floating Notes Due 2024at Bloomberg (Wed, Oct 20)
• Freddie Mac to Redeem 3.05% Notes Due 2015at Bloomberg (Wed, Oct 20)
Wednesday, October 13, 2010
• Freddie Mac to Redeem Floating Notes Due 2024at Bloomberg (Wed, Oct 13)
• Freddie Mac to Redeem Step-Up Notes Due 2015at Bloomberg (Wed, Oct 13)
• Freddie Mac to Redeem 3% Notes Due 2014at Bloomberg (Wed, Oct 13)
• Freddie Mac Redeems Zero Notes Due 2039at Bloomberg (Wed, Oct 13)
• Freddie Mac Redeems 4% Notes Due 2020at Bloomberg (Wed, Oct 13)
Tuesday, October 12, 2010
• Freddie Mac to Redeem Step-Up Notes Due 2012at Bloomberg (Tue, Oct 12)
• Freddie Mac to Redeem 4% Notes Due 2018at Bloomberg (Tue, Oct 12)
• Freddie Mac to Redeem 5.125% Notes Due 2015at Bloomberg (Tue, Oct 12)
• Freddie Mac Redeems 1.65% Notes Due 2013at Bloomberg (Tue, Oct 12)
• Freddie Mac Redeems Step-Up Notes Due 2012at Bloomberg (Tue, Oct 12)
• Freddie Mac Redeems Step-Up Notes Due 2017at Bloomberg (Tue, Oct 12)
Friday, October 8, 2010
• Freddie Mac Redeems Step-Up Notes Due 2015at Bloomberg (Fri, Oct 8)
• Freddie Mac Redeems Step-Up Notes Due 2025at Bloomberg (Fri, Oct 8)
• Freddie Mac Redeems 2.85% Notes Due 2014at Bloomberg (Fri, Oct 8)
Thursday, October 7, 2010
• Freddie Mac to Redeem 3.95% Notes Due 2020at Bloomberg (Thu, Oct 7)
• Freddie Mac to Redeem 2.2% Notes Due 2013at Bloomberg (Thu, Oct 7)
• Freddie Mac to Redeem Step-Up Notes Due 2024at Bloomberg (Thu, Oct 7)
• Freddie Mac to Redeem Step-Up Notes Due 2012at Bloomberg (Thu, Oct 7)
• Freddie Mac to Redeem 4% Notes Due 2019at Bloomberg (Thu, Oct 7)
• Freddie Mac to Redeem Step-Up Notes Due 2014at Bloomberg (Thu, Oct 7)
• Freddie Mac to Redeem Step-Up Notes Due 2019at Bloomberg (Thu, Oct 7)
• Freddie Mac to Redeem Step-Up Notes Due 2017at Bloomberg (Thu, Oct 7)
• Freddie Mac to Redeem 5.7% Notes Due 2026at Bloomberg (Thu, Oct 7)
• Freddie Mac to Redeem 5.65% Notes Due 2026at Bloomberg (Thu, Oct 7)
• Freddie Mac to Redeem 5.55% Notes Due 2026at Bloomberg (Thu, Oct 7)
• Freddie Mac Redeems Step-Up Notes Due 2011at Bloomberg (Thu, Oct 7)
• Freddie Mac Redeems Step-Up Notes Due 2025at Bloomberg (Thu, Oct 7)
Wednesday, October 6, 2010
• Freddie Mac to Redeem Step-Up Notes Due 2025at Bloomberg (Wed, Oct 6)
• Freddie Mac Redeems Step-Up Notes Due 2017at Bloomberg (Wed, Oct 6)
Tuesday, October 5, 2010
• Freddie Mac to Redeem 4% Notes Due 2020at Bloomberg (Tue, Oct 5)
• Freddie Mac to Redeem Zero Notes Due 2038at Bloomberg (Tue, Oct 5)
• Freddie Mac Redeems Step-Up Notes Due 2012at Bloomberg (Tue, Oct 5)
Monday, October 4, 2010
• Freddie Mac to Redeem Zero Notes Due 2039at Bloomberg (Mon, Oct 4)
• Freddie Mac to Redeem Step-Up Notes Due 2012at Bloomberg (Mon, Oct 4)
• Freddie Mac to Redeem 1.65% Notes Due 2013at Bloomberg (Mon, Oct 4)
Friday, October 1, 2010
• Freddie Mac to Redeem Step-Up Notes Due 2025at Bloomberg (Fri, Oct 1)
• Freddie Mac to Redeem Step-Up Notes Due 2015at Bloomberg (Fri, Oct 1)
• Freddie Mac to Redeem 1.55% Notes Due 2013at Bloomberg (Fri, Oct 1)
• Freddie Mac Redeems Step-Up Notes Due 2013at Bloomberg (Fri, Oct 1)
• Freddie Mac Redeems 2.625% Notes Due 2012at Bloomberg (Fri, Oct 1)
• Freddie Mac Redeems 2.3% Notes Due 2014at Bloomberg (Fri, Oct 1)
Thursday, September 30, 2010
• Freddie Mac to Redeem Step-Up Notes Due 2011at Bloomberg (Thu, Sep 30)
• Freddie Mac to Redeem Step-Up Notes Due 2025at Bloomberg (Thu, Sep 30)
• Freddie Mac Redeems Step-Up Notes Due 2020at Bloomberg (Thu, Sep 30)
• Freddie Mac Redeems Variable Notes Due 2025at Bloomberg (Thu, Sep 30)
• Freddie Mac Redeems Step-Up Notes Due 2012at Bloomberg (Thu, Sep 30)
• Freddie Mac Redeems Variable Notes Due 2020at Bloomberg (Thu, Sep 30)
• Freddie Mac Redeems Step-Up Notes Due 2022at Bloomberg (Thu, Sep 30)
• Freddie Mac Redeems Step-Up Notes Due 2015at Bloomberg (Thu, Sep 30)
Wednesday, September 29, 2010
• Freddie Mac to Redeem Step-Up Notes Due 2017at Bloomberg (Wed, Sep 29)
Thursday, September 16, 2010
• Freddie Mac to Redeem 4.825% Notes Due 2015at Bloomberg (Thu, Sep 16)
• Freddie Mac to Redeem Zero Notes Due 2035at Bloomberg (Thu, Sep 16)
• Freddie Mac to Redeem Step-Up Notes Due 2015at Bloomberg (Thu, Sep 16)
Wednesday, September 15, 2010
• Freddie Mac to Redeem Step-Up Notes Due 2012at Bloomberg (Wed, Sep 15)
• Freddie Mac to Redeem 1% Notes Due 2011at Bloomberg (Wed, Sep 15)
• Freddie Mac to Redeem 5.49% Notes Due 2014at Bloomberg (Wed, Sep 15)
• Freddie Mac Redeems 4% Notes Due 2018at Bloomberg (Wed, Sep 15)
• Freddie Mac Redeems 3.125% Notes Due 2015at Bloomberg (Wed, Sep 15)
• Freddie Mac Redeems Step-Up Notes Due 2019at Bloomberg (Wed, Sep 15)
Tuesday, September 14, 2010
• Freddie Mac Redeems 5.68% Notes Due 2017at Bloomberg (Tue, Sep 14)
• Freddie Mac Redeems 1.25% Notes Due 2012at Bloomberg (Tue, Sep 14)
Thursday, September 9, 2010
• Freddie Mac Redeems Step-Up Notes Due 2020at Bloomberg (Thu, Sep 9)
• Freddie Mac Redeems Step-Up Notes Due 2012at Bloomberg (Thu, Sep 9)
Wednesday, September 8, 2010
• Freddie Mac Redeems 1.3% Notes Due 2012at Bloomberg (Wed, Sep 8)
• Freddie Mac Redeems 1.2% Notes Due 2012at Bloomberg (Wed, Sep 8)
Tuesday, September 7, 2010
• Freddie Mac to Redeem 5.68% Notes Due 2017at Bloomberg (Tue, Sep 7)
• Freddie Mac to Redeem 1.25% Notes Due 2012at Bloomberg (Tue, Sep 7)
Friday, September 3, 2010
• Freddie Mac to Redeem 5.8% Notes Due 2022at Bloomberg (Fri, Sep 3)
• Freddie Mac to Redeem 2.72% Notes Due 2013at Bloomberg (Fri, Sep 3)
• Freddie Mac Redeems 1.71% Notes Due 2013at Bloomberg (Fri, Sep 3)
• Freddie Mac Redeems Variable Notes Due 2024at Bloomberg (Fri, Sep 3)
• Freddie Mac Redeems Step-Up Notes Due 2016at Bloomberg (Fri, Sep 3)
Wednesday, September 1, 2010
• Freddie Mac Redeems 1.194% Notes Due 2012at Bloomberg (Wed, Sep 1)
• Freddie Mac Redeems 1.25% Notes Due 2012at Bloomberg (Wed, Sep 1)
Friday, August 27, 2010
• Freddie Mac to Redeem Step-Up Notes Due 2016at Bloomberg (Fri, Aug 27)
• Freddie Mac to Redeem 1.71% Notes Due 2013at Bloomberg (Fri, Aug 27)
• Freddie Mac to Redeem 4.375% Notes Due 2013at Bloomberg (Fri, Aug 27)
• Freddie Mac Redeems 3.05% Notes Due 2013at Bloomberg (Fri, Aug 27)
• Freddie Mac Redeems Step-Coupon Notes Due 2024at Bloomberg (Fri, Aug 27)
• Freddie Mac Redeems 2.35% Notes Due 2012at Bloomberg (Fri, Aug 27)
So, it doesn´t matter :
-what the conversion price of the bonds to shares will be.
-or the scope of China´s involvement in the restructuring plan.
-if the plan is announced in august , november, january or in four months´ time.
-if we are gonna get warrants.
-if there will be one GSE or a multiple but limited cooperative model (multiple GSEs).
-if there´s gonna be a minority shareholder buyout or we are gonna be part of the shareholders in the new GSE.
-who is purchasing the bonds sold by official foreign investors.
-if Timothy "by january" Geithner will wear a blue shirt or a white shirt the day he announces the GSE reform.
-etc...
I´m not a low profile analyst-portfolio manager, so I always want to have ideas, not to go with the crowd (optimist when the market goes up, pesimist when it goes down).
Now it´s time to Financial Times, saying that F&F will shrink and the private capital will do their functions: http://www.ft.com/cms/s/0/3d3f2892-0965-11e0-8c68-00144feabdc0.html?ftcamp=rss#axzz18L52X7rP
1# "the government is going to shrink as a mortgage lender, and the conforming loan limit is going to decline next fall" . This comes just a few weeks after the government increased the conforming loan limit in the high cost areas in order to stimulate the housing market. The experts say that this limit should be increased in all parts of the country. What the hell is FT saying about lowering the conforming loan limits!!!. http://nationalmortgageprofessional.com/blog/time-temporarily-raise-fannie-freddie-conforming-limits-nationwide
2# "officials could direct Fannie and Freddie to charge more to guarantee loans, making themselves less competitive". Nobody can compete with F&F mortgage rates because they are guaranteed to make them lower. Even if the government increases the fee to guarantee the rates, they will be low, for the good of the housing market recovery.
Fuck you Financial Times!
Who will be the next? I have for all...The truth will prevail.
Bank of America announced this week that the deadline to settle the demands of the investors about the bad mortgages will be extended to january 30. http://blogs.wsj.com/marketbeat/2010/12/16/bank-of-americas-potential-settlement-the-bull-and-bear-case/?mod=yahoo_hs
Curiously enough, it is also the deadline of Timothy "by january" Geithner to release a wide mortgage market reform. It won´t be only a recapitalizaton of the GSEs but a new structure of the mortgage market, like the so called cooperative model, and Bank of America, obviously, will be a member of the cooperative or multiple cooperatives for sure.
Wikileaks´ criminal Assange, has threatened today to release information of banks some time in january. There are speculations that BAC is the prime target. http://voices.washingtonpost.com/political-economy/2010/12/wikileaks_assange_restates_his.html
BAC knows how bad the mortgages sold to Fannie and Freddie were, so it will rush to announce the GSE reform.
Wang Qishan was supposed to hold a meeting on tuesday and wednesday for the 21st meeting of the China-U.S. Joint Commission on Commerce and Trade (JCCT). It was supposed that he would co-chair the meeting with U.S. Commerce Secretary Gary Locke and Trade Representative Ron Kirk.
Facts:
1# Wang Qishan met US Treasury Timothy Geithner "later in tuesday morning".
http://www.bloomberg.com/news/2010-12-14/u-s-treasury-department-schedule-for-tuesday-dec-14.html
2# Wang Qishan flew to India on tuesday afternoon because he arrived to India "early Wednesday morning" India time, so tuesday night US time. http://news.xinhuanet.com/english2010/china/2010-12/16/c_13650676.htm
Bottom line:
Wang Qishan could hardly have attended the meeting of the China-U.S. Joint Commission on Commerce and Trade (JCCT), that was going to co-chair. I thought that US-China Commerce dispute was the heart of the matter in the actual US-China relationship, but it is not, it´s the GSE reform.
One might think that W.Qishan and T.Geithner reviewed the economic agenda for the upcoming state visit of President Hu Jintao early next. I guess that the top offials had nothing better to discuss but HU´s preferred meals , but I´m wrong because there is now one US delegation preparing the state visit. http://www.google.com/hostednews/afp/article/ALeqM5jIsDird_ZZ_E5INsveSQHfNlfi-g?docId=CNG.ee663915284de0064f72d69189fad44d.231
I knew they didn´t have time to discuss anything in the meeting at the airport in the flash trip to China at the end of october, so W. Qishan had to make a flash trip to Washington to know how the restructuring plan of the GSEs was going.
You have always to remember the fact sheet, mentioned above, of a meeting last May where you can see that they talked widely about pursuing a GSE reform. May 27th: "The Administration will request input from all stakeholders and will seek to work closely with the Congress to work out a comprehensive GSE reform plan. The Administration is also committed to pursuing further reforms in a way that will ensure the ability of GSEs to honor their obligations". http://www.treasury.gov/press-center/press-releases/Pages/tg722.aspx
Wang Qishan, who managed the largest bankruptcy restructuring in China's history in 1998 and thereby prevented a banking crisis that could have crippled the country's growth, will save also US´ and our ass.
If you think that China, as a major GSE bondholder, has nothing to say in the restructuring plan in order to recapitalize the GSEs that will be announced "by january", you are not from this planet or, definitely, you are a complete idiot.
Recapitalization announcement imminent!
http://online.wsj.com/article/SB10001424052748703395904576025832446810032.html
A few weeks to the GSE reform announcement, that issue is already discussed between shareholders and bondholders, so there isn´t a debate about that at this stage of the restructuring plan.
Again, what does the WSJ owe to the US government?
Hey Barney!! say again that the GSEs will be abolished!!!
Say again they will be wound down, eliminated!!!
Say again there will be enormous write-downs forgiving mortgage debt in order to benefit a privileged few!!!
Two possibilites in the GSE reform in order to recapitalize the GSEs:
1# Multiple but limited Coopertive GSEs: Each private lender will be the main member in each cooperative. The actual minority shareholder bothers in the process of changing to the new structure because it will be a lengthy process according to GAO report, so there will be a $1 per share minority buyout to everybody in order to be delisted from the OTC Market.(You can write the buyout price that you want, but $1 is above the Simple Moving Average)
2# One Cooperative MacMae Inc GSE: no more than 8 private lenders will step in to share risks. The actual minority shareholder will be a shareholder in the new entity. The best scenario for us.
In each scenario, the bondholders will help in the recapitalization, swapping part of their bonds to common shares. The government will do the same with its senior preferred shares ($152 billion).
I personally bet the number 1, because it´s a better mortgage market to spread the risk among several separate entities, it´s a simpler structure to be run and because there are strong voices trying to lower the share price since one year ago. When Barney Frank heard about a minority buyout, he said publicly immediately: "The GSEs should be abolished". ha, ha, ha. He didn´t want speculators and high-frequency computers to benefit from a buyout. The former advocate of the GSEs showed us his cards with that phrase.
It´s a mess to trade in the stock market while the mortgage market is having the mother of all restructurings ever.
WE WILL BE DELISTED. Also there is no need to trade on the market for each new cooperative. Look the 12 regional FHLBs (Federal Home Loan Bank System) that are also government sponsored enterprises and cooperatives. They are not trading on the Stock Market.
Note: This is a view, it´s better the number 2 option.
* Redemptions: oct. 27 to date: 205 redemptions. Principal amount called total= $21.7 billion. Underwriters: several banks.
* New issued bonds: oct. 21 to date: 72 issuances. Amount issued total= 0.61 billion. Underwriters: just one, INCAPITAL, LLC.
Source: http://www.freddiemac.com/debt/
THE DEBT RESTRUCTURING PLAN IS ALREADY HAPPENING.
http://online.wsj.com/article/SB10001424052748703548604576037952096761400.html?mod=googlenews_wsj
*Obama administration officials are struggling to reach consensus on a future path for mortgage giants F&F.
*Republicans are likely to challenge any White House proposal that doesn't aim to wind down the companies quickly.
*Analysts expect any overhaul of the country's housing-finance system to take several years.
*Officials could also push to reduce the maximum loan limits for mortgages Fannie and Freddie can purchase.
*******WSJ, SHAME ON YOU *******
Quantitative Easing means to monetize debt. The objective is to increase the value of the financial assets in the books of the financial institutions (increase the mark to market valuation) due to rate declines and spread tightening, but also, as this is the case, to inject cash to the private sector.
Here I show you the first Government´s QE:
http://open.salon.com/blog/ebano/2009/03/24/outrageous_us_government_benefiting_hedge_funds
And now we are seeing the Government´s QE2: The US government, through its financial arm (Freddie Mac and Fannie Mae), is redeeming a large number of GSE bonds and with an enormous princpal amount called SINCE TWO MONTHS AGO. Explained above.
We can suggest that these bonds are redeemed to domestic banks according to the Federal Reserve weekly data http://www.federalreserve.gov/releases/h41/, because the Federal Reserve Bank of New York acts as a custodian in holding securities on behalf of foreign official and international institutions, and these holdings are very similar each week.
All these redemptions are purchased at face value or 100%, but we know that they are trading at 97% and that the bonds are not backed by the same "full faith and credit" guarantee as bonds issued by U.S. federal government agencies (see the prospects of the bonds), so they should never be redeemed at 100%, but take a haircut. ("Everybody should give up something in GM case", according to Obama).
We know that a complete change in the housing market structure is coming "by" january and the private lenders will take part of it (privatization of the GSEs). So, the banks will help in the recapitalization of the GSEs.
We also know the huge amount of "putbacks" or demands to the banks because of the bad mortgages sold to F&F.
BOTTOM LINE:
The banks need too much money in the coming weeks to tackle both issues, and the government is benefiting its banks friends again.
NOTE. Please note that the government nationalization of the GSEs is very similar to the Hugo Chavez´s nationalizations for political purposes.
So, we could be talking about $50 billion plus of principal amount called at a price of 100%.
Government Quantitative Easing or, in other words, government´s help to banks at the minority shareholder expense.
FACTS:
-The Federal Housing Finance Agency (FHFA) regulates Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks (FHLB).
-The 12 FHLB are government-sponsored enterprises as F&F, but they are cooperatives (Bank membership).
-FHFA press release announcing a FHLB reform: http://www.fhfa.gov/webfiles/19614/RulesFR122210F.pdf
#“The FHFA will establish the FHLB housing goals (through purchases of mortgages) that will be consistent with the housing goals established for Fannie and Freddie”. Rule is effective Jan. 26, 2011.
#“FHFA is undertaking a review of its regulations governing Bank membership (each FHLB) to identify provisions that may need to be updated”. Comments are due March 28, 2011.
BOTTOM LINE:
I´ve already mentioned above that the most probable scenario is the GSEs turning into a multiple cooperative model, as the 12 FHLB.
It seems that the FHFA will reform the FHLB risk exposure (more provisions or more capital, better the 2nd) and housing goals at the same time that announces the GSE reform, turning F&F into a multiple cooperative model (multiple cooperatives GSEs).
Note.The objective of the conservatorship in 2008 and now the recapitalization of the GSEs, is just to save the bondholders (banks and foreign official institutions) , the minority shareholders bother. We are a #!% piece of /&º\# in this process.
Will the mother of all restructuring stories be effective on January 26 mentioned above?
Will the 12 FHLB become 20 FHLB at the end of January if they all are gonna have the same "housing goals"?
Residential Capital, the mortgage division of the formerly known as GMAC, has reached a $462 million settlement with Fannie Mae, related to the mortgage repurchase demands or "putbacks".
$462 million out of $262 billion worth of loans sold to Fannie is called Government´s Quantitative Easing (QE) or, in other words, the government, through its financial arm (Fannie and Freddie), is improving the books of the financial institutions at the GSE minority shareholder expense.
BERNANKINO AND GEITHNEONE AT THEIR FINEST.
http://www.cnbc.com/id/40825842
In January or "by" January? LOL. Coincidence?
Wang Qishan is the mastermind of the GSE restructuring plan. He managed the largest bankruptcy restructuring in China's history in 1998 and thereby prevented a banking crisis that could have crippled the country's growth.
Larry Summers latest work as Top Economic Adviser was to travel to China to talk to Wang Qishan in August.
He knew he had nothing to say in the GSE reform, and didn´t want to be used as a puppet and travel thousands of km. to China just to inform about the restructuring plan process.
That´s why no one wanted the puppet-job until the GSE reform is announced and Obama didn´t want a puppet having Geithneone in that job.
The job as top Economic Adviser has been vacant since september, "and many in the administration knew well before then that he planned to return to Harvard University".
It´s better to return to Harvard University rather than being a puppet of Bernankino, Geithneone and W. Qishan.
$462 million settlement out of $262 billion worth of loans sold to Fannie is peanuts.
There´s only one reason to justify that tiny amount (apart from the government´s help to improve Ally´s books):
We saw in the Freddie Mac 3Q results an increase of $3.947 billion in AOCI (Accumulated other comprehensive income), "primarily resulting from fair value improvements on available-for-sale securities". In other words, that is a write-up because the market is improving dramatically.
That´s why Fannie Mae agreed a very low settlement in the mortgages repurchase demands issue, the assets are improving.
Remember that if borrowers are current on their payments, there is no need to a "putback", even if there is faulty mortgage information.
All the redemptions with effective date before year ends, have been already announced.
Two redemptions announced today have an effective day of january 5, 2011, and both have a redemption amount of just $50 million each, a very small amount.
-Freddie Mac to Redeem 2% Notes Due 2013at Bloomberg
-Freddie Mac to Redeem 5.965% Notes Due 2027at Bloomberg
So, we can assume that the bulk of the redemptions that started in august are done.
***THE RESTRUCTURING PLAN CAN NOW BE ANNOUNCED***
Summary:
From oct. 27 to dic 23 (effective date dic.29): 243 redemptions and $31 billion of principal amount called, plus 107 redemptions from august untill oct 27 that you can see above and that I don´t have time to add them all.
So, we could be talking about $50 billion plus of principal amount called at a price of 100%, so, without a haircut. The government is desperate to help the big banks.
Always remember that we enter Conservatorship, and these redemptions are just to help the bonds in the hand of the big banks and foreign official institutions.
LET´S GET THE PARTY STARTED.
JP Morgan Securities Inc., Citigroup Global Markets Inc., Merril Lynch Pierce FS, Barclays Capital Inc.(LEHMAN), Goldman Sanchs & Co. haven´t traded a single GSE common stock since they entered the OTC Market, but they are very active in this market with other stocks.
There is only one big broker trading with the GSEs, UBS Securities.
It´s obvious that the US Government has signed a confidential and standstill agreement with the banks if the GSEs are gonna be privatized (multiple cooperative model) and because the banks are being paid with the huge number and principal amount of GSE bonds recalled at a price of 100% or face value, so, without a haircut.
We are used to see this kind of agreements with the US government (AIG case http://www.reuters.com/article/idUSTRE6904IG20101001 )
BOTTOM LINE:
The US Government didn´t allow the banks to benefit also from a GSE common share price appreciation when the GSE reform is released, but did allow to Calpers.
"Treasury will boost its common stock stake in Ally to 74% from 56% under the deal outlined Thursday afternoon. Under the arrangement, Treasury will convert $5.5 billion of preferred stock to common shares."
http://finance.fortune.cnn.com/2010/12/30/treasury-aims-to-exit-ally-bailout/?source=yahoo_quote
Now it´s time for Fannie and Freddie.
LET´S GET THE PARTY STARTED.
US Treasury met with John Rogers, Harvey Schwartz, Steve Strongin and six other Goldman Sachs executives on Nov. 17
http://www.bloomberg.com/news/2010-12-31/u-s-treasury-met-goldman-sachs-executives-on-fannie-freddie-in-november.html
But what is more interesting is to see all the meetings held in november on the GSEs issue: http://www.treasury.gov/initiatives/wsr/Pages/DoddFrank.aspx
I would stress that the US Treasury held a meeting with State Street Global Markets(an investment/brokerage firm) on november 16, which has been very active trading with the GSEs common stocks in the OTC Market (Also note that it can pass its trading orders through other brokerage firms in order to don´t be the only broker in town).
WHAT THE HELL IS THE US TREASURY MEETING WITH STATE STREET GLOBAL MARKETS ON THE GSEs ISSUE??!!
BERNANKINO, GEITHNEONE AND DON VITO OBAMANEONE AT THEIR FINEST.
The Treasury met with Wall Street officials in november to talk about the GSEs. http://dealbook.nytimes.com/2010/12/31/whos-visiting-treasury-about-dodd-frank/?src=twrhp
Also see the Treasury november agenda mentioned before.
Obviously if they have met to talk about the GSEs, they have signed a confidential and standstill agreement.
See the november Treasury agenda: http://www.treasury.gov/initiatives/wsr/Pages/DoddFrank.aspx
We all recall hedge fund operator John Paulson’s now legendary trade against the housing market and how he made billions in the process betting against subprime mortgages.
It´s outrageous that now he is receiving confidential information about a GSE revamp.
Also I recall that he is gobbling up Citigroup and BAC shares like mad.
Remember? http://www.dailyfinance.com/story/real-estate/geithner-fannie-mae-and-freddie-mac-face-a-major-overhaul/19410617/
"After reform, the GSEs will not exist in the same form as they did in the past," Geithner.
It won´t be a small GSE reform. It will be the mother of all the restructuring stories you´ve ever heard. There will be a complete housing finance overhaul.
I´ve already mentioned that the most probable scenario is a multiple cooperative model and that there is not need for the new cooperatives to be listed in the market like the 12 regional FHLBs (Federal Home Loan Bank System) that are also government sponsored enterprises and cooperatives.
BOTTOM LINE:
It´s obvious that if Fannie and Freddie won´t exist in their current form and they change to a new structure, the huge number of bonds redemptions are gonna end one day, aren´t they? Because they won´t exist called Fannie and Freddie and the banks need the money of the redemptions, get it now?
The big banks are being paid with these huge redemptions at a price of 100% or face value, so, without a haircut. They need the cash to inject it in the new cooperatives (recapitalization).
The latest bond redemption announcement was last friday, dic 31, and had an effective date seven days later (as always), so friday january 7.
Redemptions webpage http://www.freddiemac.com/debt/data/cgi-bin/recentlycalled.cgi
Let´s see when the GSEs finish announcing bond redemptions like mad, it will be the day that will change the world (effective date seven days later).
"And by the end of the month, the Treasury Secretary must submit a report to Congress with a study and recommendations for the fate of the government-run mortgage giants Fannie Mae and Freddie Mac."
http://online.wsj.com/article/SB20001424052748704735304576058221048255628.html
A study and recommendations? Or a complete housing finance structural modification?
Again,
******WSJ, SHAME ON YOU******
1. FnF will no longer exist in their current form.
2. Bank of America will be one of the cooperatives in the multiple cooperative model.
It doesn´t matter the amount of the settlement, but the end of the dispute before the restructuring plan announcement.
Also note that it is another example of Government´s Quantitative Easing, because it seems it´s a low settlement to benefit another financial institution. It´s explained wider above.
Countdown finalizing.... Get ready.
That´s why Wang Qishan is the mastermind of the GSEs restructuring plan.
Have a look to my old post about the GSEs http://open.salon.com/blog/ebano/2010/06/22/china_loves_freddie_mac_fannie_mae
First of all I would like to recall that the Government Accountability Office (GAO) recomended a cooperative model as the best solution for the GSEs´problem. http://www.gao.gov/new.items/d1133r.pdf
****RECALL THAT THE TOXIC ASSETS (THOSE WITH LOW CREDIT STANDARDS) ARE THE HEART OF THE MATTER****See my post "How the crisi began:Dear Mr.President jun28. 2004" http://open.salon.com/blog/ebano/2010/10/13/how_the_crisis_begandear_mrpresident_june_282004
Why the cooperative model is the best solution? GAO mentions:"it would encourage safer and sounder mortgage underwriting practices as lenders could potentially lose some or all of their capital investments in a cooperative to which they sell mortgages". Page 16
What is a cooperative model about? "the entity or entities that replace the enterprises would be privately owned and conduct secondary mortgage market operations with explicit financial support from the federal government. Such private entities could be owned by lenders under the cooperative model, through shareholders, as is the case with the enterprises today, or on anonprofit basis". Page 15
FACTS:
-The Federal Housing Finance Agency (FHFA) regulates Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks (FHLB).
-The 12 FHLB are government-sponsored enterprises as F&F, but they are cooperatives (Bank membership).
-FHFA press release announcing a FHLB reform: http://www.fhfa.gov/webfiles/19614/RulesFR122210F.pdf
FHLBs REFORM:
#“The FHFA will establish the FHLB housing goals (through purchases of mortgages) that will be consistent with the housing goals established for Fannie and Freddie”. Rule is effective Jan. 26, 2011.
#“FHFA is undertaking a review of its regulations governing Bank membership (each FHLB) to identify provisions that may need to be updated”. Comments are due March 28, 2011.
Why the FHFA is going to reform the "provisions that may need to be updated"of the FHLBs? It means that the FHLBs have low capital ratios to support the risks of their activities. GAO mentions why is that :"Several FHLBanks have recently suffered significant losses because of their investments in nontraditional mortgage assets (e.g., private-label MBS collateralized by Alt-A and subprime mortgages)for their investment portfolios". Page 33
So, a cooperative model isn´t a solution itself if the cooperatives have low capital ratios to support their risks (assets).
BOTTOM LINE:
Two reforms (GSEs & FHLBs)to have better capital ratios, two reforms to have the same housing goals, the same regulator and at the same time. Coincidence? I guess no.
OUTCOME:
1-The 12 FHLBanks will turn into 20 or so FHLBanks with the privatization of Freddie and Fannie among several private lenders.
2-The minority stockholder bothers in the process of changing to the new structure because is a mess if the new structure is a multiple cooperative model (multiple GSEs) and it´s a lengthy process: "Once such decisions are finalized, a potentially lengthy transition process may be needed to move from the current situation, where the enterprises are in conservatorships,to the new structure, including cooperatives as applicable". Page 40. Remember that the 12 FHLBanks aren´t publicly traded, so the new cooperatives won´t trade in any stock exchange.**** WE WILL BE DELISTED*****
A) LOW PROVISIONS FOR FUTURE PUTBACKS DEMANDS:
There are many people wondering why the banks have very low reserves set aside for possible mortgage repurchases:
# Last Thursday, officials overseeing 11 large public pension funds that own shares in the big four banks sent a letter to the directors asking that the audit committees conduct in-depth and independent reviews of all the internal controls related to the banks’ mortgage operations.
# Last October, the SEC sent letters to chief financial officers of public companies telling them to detail the risks associated with potentially higher loan repurchase requests and defects in the loan securitization process.
Bank of America, Citigroup, JPMorgan Chase and Wells Fargo. The amounts that these banks, the nation’s four largest, have reserved for possible mortgage repurchases — about $10 billion as of the third quarter of 2010 — is microscopic when compared with the more than $5 trillion in mortgage securities issued from 2005 through 2007.
Source: http://www.nytimes.com/2011/01/09/business/09gret.html?pagewanted=2&_r=1&src=busln
B) TINY SETTLEMENTS OF THE DEMANDS:
JPM said last November that it reached agreement with Fannie Mae and Freddie Mac on repurchase demands for certain loans. Undisclosed amount.
http://www.bloomberg.com/news/2010-11-17/jpmorgan-says-it-resolved-buyback-risk-on-certain-wamu-loans.html
Bank of America agreed to pay $1.28 billion to Freddie and $1.52 billion to Fannie (not all settled).
Ally Financial Inc. announced last week that it had agreed to pay $465.1 million to resolve all mortgage repurchase liabilities with Fannie Mae. It announced a similar deal with Freddie in March.
BOTTOM LINE:
Healthy banks because of the low provisions for future demands and low settlements in their disputes with the GSEs…Where did I read that the US government is helping its banks friends?
1.It seems the government wants to close the “putbacks” demands with the GSEs, the government just wants to hear CASE CLOSED before the restructuring plan announcement.
2.This reinforce the view about a multiple cooperative model, because in a cooperative the bank member of each cooperative sells mortgages to its cooperative. If the GSEs break-up, you know how the toxic assets will be shared out.
I´ve already mentioned the announcement of a FHLB reform by the FHFA.
I repeat there the FHFA says:“The FHFA will establish the FHLB housing goals (with respect to the Banks’ purchases of mortgages) that will be consistent with the housing goals established for Fannie and Freddie”. The rule is effective Jan. 26, 2011.
How can the regulator of both (FHLB&FnF) establish an effective date for the reform of the FHLBs in order to have the same housing goals of FnF, without making public before the pending complete restructure of FnF?
Remember that the FnF reform will be a complete housing finance reform.
Countdown finalizing...
The Medium Term Bonds can even be redeemed three months after the issue date. But according to Freddie´s webpage, they usually have a high yield "Investors interested in gaining additional yield" in order to offset the uncertainty of the maturity (they can be redeemed at any time). http://www.freddiemac.com/debt/products/mtn_syncallables.html
Have a look to these bonds redeemed six months later:
1)http://www.freddiemac.com/debt/data/cgi-bin/cusipdetail.cgi?cusip=3134G1FV1
Amount Issued: $250 million. Coupon: 0.9% .
2) http://www.freddiemac.com/debt/data/cgi-bin/cusipdetail.cgi?cusip=3134G1JH8
Amount Issued: $1.5 billion. Coupon: 0.825%.
3) http://www.freddiemac.com/debt/data/cgi-bin/cusipdetail.cgi?cusip=3134G1KY9
Amount Issued: $250 million. Coupon: 0.75%.
BOTTOM LINE:
Definitely, these very low coupon bonds weren´t attractive to any investor whatsoever, so there was another side in that deal: They were issued to buy time and make the GSEs keep on posting huge provisions (losses) while providing housing finance to recoup the economy and waiting for an improvement of the books of the financial institutions that will help in the GSE restructuring plan (Multiple Cooperative Model).
BERNANKINO, GEITHNEONE AND DON VITO OBAMANEONE AT THEIR FINEST.
Continuing with my comments about a FHLB and a GSE reform:
On November 22, the FHFA (the regulator of both GSEs and the FHLBs) proposed a rule to allow the 12 FHLB (Federal Home Loan Banks) to voluntarily merger. http://www.fhfa.gov/webfiles/19513/FHLBVolMergFR112210.pdf
The merger process is explained wider. It´s funny to read that the FHFA wanted to stress the differences between the FHLBs and the GSEs (bottom page 4). But what the FHFA doesn’t say is that the GSEs will turn into a multiple cooperative model as the FHLBs are, so the new cooperatives could merger with the 12 FHLBs.
Countdown finalizing....
The Federal Reserve stated today that there won´t be a housing recovery until the GSEs are reformed. So, it wants the market to think about an imminent housing recovery after the restructuring plan announcement. http://www.housingwire.com/2011/01/13/bernanke-no-housing-recovery-before-fanniefreddie-revamp
After the mother of all the restructuring stories you´ve ever seen is announced the last week of january, it will be the black swan trigger event for the market.
I´ve already told you that if there will be a major housing finance system restructuring, so that Fannie and Freddie will no longer exist under their current form, the huge number of notifications of bond redemptions that we are seeing since august will have to end before the restructuring plan announcement.
Curiously enough, Freddie Mac was in a hurry the last day of notifications, Januray 11, because it announced bond redemptions effective date on Januray 19 and also 20. I haven´t seen a notification of redemptions with two different effectives dates, so far each day had each redemptions with the same effective date.
Fannie Mae last notification seems to be Jan 12, effective date Jan 24.
SUMMARY in Freddie Mac case:
From October 25 to January 11 (Effective date January 20): 299 redemptions and $35 billion of principal amount called, plus 43 redemptions from august untill oct 25 that you can see above and that I don´t have time to add them all.
So, we could be talking about nearly $50 billion of principal amount called at a price of 100%, so, without a haircut. The government is desperate to help the big banks.
Once all the redemptions are notified, the GSE reform can be announced. Let´s see if there aren´t more notifications of redemptions as I guess.
LET's GET THE PARTY STARTED.
On January 11, I checked out the data and it appeared there. Above you can see how many GSEs common shares they bought in the 3Q. The shares can´t disappear with the wind without notifying the sale. http://investors.morningstar.com/ownership/shareholders-major.html?t=FMCC®ion=USA
The data is still available in Yahoo webpage http://finance.yahoo.com/q/mh?s=FMCC.OB+Major+Holders
I already told you that this was an outrageous case of insider trading, that´s why the data is being deleted from the web.
BERNANKINO, GEITHNEONE AND DON VITO OBAMANEONE AT THEIR FINEST.
http://www.americanbanker.com/news/treasury-fannie-freddie-1031358-1.html
I will tell him what isn´t that healthy: to be part of a political party that led us to the worst financial crisis ever, that has destroyed so many companies and household accounts around the world.
All explained in my post: "How the crisis began:Dear Mr.President Jun28,2004 "
http://open.salon.com/blog/ebano/2010/10/13/how_the_crisis_begandear_mrpresident_june_282004
Freddie Mac issued this bond on 05/27/2009
Amount Issued: $600,000,000
Issue Price: 18.524318000000001
Zero coupon
But it was redeemed 18 months later at a price of 20.1537 http://www.bloomberg.com/news/2010-11-29/freddie-mac-redeems-zero-notes-due-2039.html?cmpid=yhoo
That is 8.8% for 18 months or a 6% annual rate.
This is outrageous because the Conservatorship mission was primarely to keep the GSEs in a safe and solvent financial condition, not to help the books of the big banks at the expense of the GSEs.
The GSEs used to get funds a few basic points more than the Treasury (1yr Treasury now stands at 0.27%).
BERNANKINO, GEITHNEONE AND DON VITO OBAMANEONE AT THEIR FINEST.
A high maturity was an excuse to pay higher yields to the bondholders (mainly banks this time) because the higher the maturity, the higher the yield.
If you are a bank that will take part of the restructuring plan, you will receive a lower yield.
But the objetive of these numerous issuances was:
1- To gain time until the books of the banks and the housing market recover. A huge housing finance system restructuring could have derailed an economic recovery if you do it very soon. Now is a good time.
2- The later the GSE reform, the lower the GSEs common share will trade, so the government can swap its senior prf. shares for commons at a lower conversion price.
(how could I have missed to think about this idea?!)
China Vice Premier, Wang Qishan, managed the largest bankruptcy restructuring in China's history in 1998 and thereby prevented a banking crisis that could have crippled the country's growth.
So, he´s an expert in financial restructuring stories, after me.
WANG QISHAN IS THE GSE REFORM MASTERMIND
The heart of the matter is to save the bonds in order to save the banks and offical foreign institutions´ investments.
Here is why China has something to say here:
1-Estimates put China's holdings of Fannie Mae and Freddie Mac´s bonds at between $300 billion and $400 billion, accounting for about 20 percent of its total foreign exchange reserves.
2- Fact sheet of a meeting last May between T.Geithner and W.Qishan where you can see that they talked widely about the GSEs: "The Administration will request input from all stakeholders and will seek to work closely with the Congress to work out a comprehensive GSE reform plan. The Administration is also committed to pursuing further reforms in a way that will ensure the ability of GSEs to honor their obligations".
http://www.ustreas.gov/press/releases/tg722.htm
3- From Paulson's book : “Treasury had been getting nervous calls from officials of foreign countries that were invested heavily with Fannie and Freddie. Foreign investors held more than $1 trillion of debt issues or guaranteed by the GSEs, with big shares held in Japan, China, and Russia. To them, if we let Fannie and Freddie fail and their investments got wiped out, that would be no different from expropriation. They had bought these securities in the belief that the GSEs were backed by the U.S. government. They wanted to know if the U.S. would stand behind this implicit guarantee.”
“I flew to China for the Olympics on August 7 [2008]. Among the many financial leaders I spoke to were my old friends Zhou Xiaochuan, the head of the central bank of China, and Wang Qishan, vice premier in charge of China’s financial and economic affairs. It was important to relay what was going on to the Chinese who owned hundreds of billions of dollars of GSE debt. They had trusted our assurances and held on to this paper at a crucial time. ‘I always said we’d live up to our obligations,’ I reminded Wang.”
BOTTOM LINE:
T.Geithner wanted to finish all the redemptions notifications before W. Qishan´s visit to Washington with China´s president.
They will all receive the restructuring plan finalished.
Then, Hu Jintao and Wan Qishan will say to T. Geithner: "Good boy, you´ve done your homework"
After China´s state visit, the GSE reform will be announced. Now you know why China´s State visit is in January, just before the GSE reform announcement deadline.
Page 74, footnote: "The Dodd-Frank Wall Street Reform and Consumer Protection Act requires Treasury to conduct a study and submit recommendations on ending the conservatorship of Fannie Mae and Freddie Mac no later than January 31, 2011. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 1074 (2010)."
http://cop.senate.gov/documents/cop-121410-report.pdf
Above you can see how many common shares were purchased by CalPERS in the 3Q .
As of January 7, CalPERS has sold all. Source: mffais.com
Fannie Mae: sold 12,508,965 shares with a 6.7% loss. Lifetime return trading with the common shares of this company:- 54,6% (loss of $288,171,205).
Freddie Mac: sold 7,802,564 shares with a 4.2% loss. Lifetime return: -47% (loss of $136,257,729).
It´s quite clear these themes:
1st A portfolio manager at CalPERS can´t be allowed to trade in an illiquid OTC Market and also with shares where it has lost that enormous amount of dollars.
2nd The portfolio managers at CalPERS knew the common stock has huge value betting on a restructuring plan.
3rd CalPERS received a phonecall from the White House saying that it can´t have that position because it could be considered as insider trading. You can imagine if CalPERS keeps on purchasing common shares in the 4Q and in January and if after the GSE reform skyrockets, it might have ended with the Obama Administration.
4th Now we know why the underperformance of Freddie Mac vs Fannie Mae the last weeks because Freddie is more illiquid than Fannie Mae (Freddie Mac always used to trade above Fannie because is a healthier company).
5th The Obama Administration reads my blog.
Bye, bye CalPERS, I´m so sorry. But after the GSE reform I will tell you the next once in a generation investment opportunity.
I´ve mentioned above what is recently granting the United States to China in exchange of the recapitalization of the GSEs (China is a major bondholder and will help to recapitalize the GSEs).
1.China has gained weight in the IMF.
2.Oil sector: it bought a stake in Chesapeake Energy.
3.Utility sector: it bought a stake in Intergen.
4.Auto sector: it bought a stake in General Motors.
Last Friday we got the latest concession:
5. Financial sector: China's State controlled bank ICBC (the world largest bank) agreed to acquire a majority stake in Bank Of Asia's US subsidiary (13 branches in NY and California). The move represents what could be the start of big expansions by Chinese financial institutions in the US.
It´s the fifth time the US takes down its trousers for the good of the taxpayer, and the GSEs' stockholders.
Why a Obama official, speaking on condition of anonymity, dares to change a Law that sets the GSE reform deadline on January 31?
http://www.reuters.com/article/idUSN2129430820110121?feedType=RSS&feedName=bondsNews&rpc=43
The Law is very clear: Page 74, footnote: "The Dodd-Frank Wall Street Reform and Consumer Protection Act requires Treasury to conduct a study and submit recommendations on ending the conservatorship of Fannie Mae and Freddie Mac no later than January 31, 2011. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 1074 (2010)." http://cop.senate.gov/documents/cop-121410-report.pdf
BOTTOM LINE:
Fannie and Freddie common stocks have been skyrocketing the last two trading sessions because of the huge expectations about an imminent restructuring plan announcement.
The Obama Administration is desperate to cool off the stock prices, thereby it eliminates the speculators from buying the stocks the next two days, because the government doesn´t want to release the mother of all restructuring stories before the Obama's State of the Union address next Tuesday in order to avoid drawing attention to what Obama will say.
But even Obama must abide by the Law and release the GSE reform before the deadline of Januray 31.
Countdown finalizing? Are you ready?
Because it was purchased recently. Here is why:
1st. It was a very small stake for Calpers, so it´s obvious that it was begining to build a stake (nobody buys just less than 0.01% position in its porfolio).
2nd. It was sold with a very small loss. That means that it was purchased very recently, after the GSEs entered the OTC Market, so they were begining to build a position and also nobody sells with a small loss if you have an investment case.
3rd. One guy with a laptop accused Calpers of insider trading because it was building a stake in recently nationalized companies about to release a restructuring plan, and received a phonecall as mentioned above.
I´M SO SORRY CalPERS!! Hahahaha.
I´ve already talked about that date in my comment of January 10.
Here is another idea why a think that the GSE reform could be announced that day: (remmeber always that I´m not in a hurry, the deadline is January 31)
January 26 is the day after Obama's State of the Union address, and the Government doesn´t want to release the GSE reform before it in order to avoid drawing attention from the speech.
You must take into account that that speech is the most important speech of an american politician because it's been delivered by all the politicians in the american history, and because it sets the political an economic agenda for the next year. So, Obama wants to make a breathtaking speech.
Another reason that makes me think about January 26 is because there has emerged a politician, speaking on condition of anonymity, trying to manipulate the media to make the people think that the GSE reform deadline will be extended to early February and not January 31 as the Dodd-Frank Law establishes.
To change a Law speaking on condition of anonymity? Does T.Geithner think that we are stupid?
The stocks have been skyrocketing the last two trading days and Geithner just wants to cool off the share prices the next two days because the reform can´t be released before the Obama State of the Union Adress. Geithner doesn´t want speculators to buy the stocks.
Speculators, high frec. computers, all the children, I say everybody.....Let's get it!!! GSEs come on!!!
http://online.wsj.com/article/SB10001424052748704115404576096301759391950.html
Now it says:
-An official delays the GSE reform deadline.
-There have also been policy disagreements between Treasury and White House officials, which has complicated efforts to reach consensus.
-The final report is likely to contain two or three proposals.
-There will be discussions in the Congress with the Republicans.
-The Administration hasn´t reached accord on key points.
-Most analysts don't expect legislation this year.
What the hell is the WSJ talking about!!!
It´s been 6 months discussing this restructuring plan and will be an ultimate plan!!!! All the plan is done!!!!
*******WSJ, SHAME ON YOU******
Freddie Mac released a profit of $1.4 billion in the 3Q if you add $3.947 billion fair value improvement on available-for-sale securities and add $1.6 billion government's dividend, to the widespread headline of $4 billion loss. So, Freddie is already profitable. Explained above.
Also, since the first full quarter in conservatorship (4Q08), the GSEs completed foreclosure prevention actions total 1,013,700 (Loan modifications and refinancings) as of June 30th.
Any minority buyout must consider these issues and a future housing market recovery, IT CAN´T BE AN OPPORTUNISTIC BUYOUT.
Even top conservative Spencer Bachus has mentioned the January 31 deadline in a CNBC interview four hours ago. I´ve seen it live.
You can imagine the conservatives on the warpath if Obama doesn´t abide by the law.
WE ARE NOT IN A HURRY!!
*Note: there has been more notifications of redemptions these days. It only means that the GSE reform couldn´t be announced that days, as we have noticed, hahaha. They are gonna end one day and before the GSE reform deadline.
On January 20, representative Jeb Hensarling said that plans to wind down Freddie and Fannie within five years. http://www.reuters.com/article/idUSTRE70J6AH20110120
Yesterday, representative Spencer Bachus, on a CNBC interview, mentioned that "we don´t even know what the government is going to do with Fannie and Freddie, and the deadline is January 31".
The convervative party already knows the restructuring plan of the GSEs for sure, they have accepted it in exchange of an extension of the "Bush tax cuts" for the wealthy. They´ve been shown the plan because they won the majority in the Congress.
BOTTOM LINE:
The convervative party is helping the government to cool off the GSEs' share price, they don´t want speculators buying the stocks before the announcement.
****CONSERVATIVE PARTY, SHAME ON YOU****
Yesterday, one day after an exclusive CNBC interview with representative Spencer Bachus where he said "we don´t even know what the government is going to do with FnF, and the deadline is January 31", the same newsreader said:" the FnF reform is expected in a few weeks' time".
What the hell is the CNBC talking about???
Didn´t the newsreader(Carl) hear to Spencer Bachus mentioning the January 31 deadline?
The government is desperate to cool off the common share price because of an imminent sweet buyout.
It´s not the first time that CNBC works for the government. Last dicember, Maria Bartiromo travelled to Europe accompanied by a member of the US Treasury staff!!!! The last stop was Spain (there is no money available to bail-out Spain now) and, curiously enough, the spanish government announced an important issue two days after the interview of Bartiromo with the spanish Prime Minister. I can´t say more about this now, but I was involved.
We all know that the US is trying to calm investors about the spanish debt crisis.
**** CNBC, SHAME ON YOU****
Yesterday,the FT said "Fannie Mae and Freddie Mac have been quietly lobbying the US Treasury to cut the dividend the housing finance groups pay on preferred stock issued as part of their government bail-out, say people familiar with the situation".
That´s why the preferreds skyrocketed yesterday and the commons were weak, because of the prospects of FnF continuing operating with the same structure as for now.
What the hell is the FT talking about?
There won´t be any dividend for no-one whatsoever because Fannie and Freddie will not exist under their current form.
There will be a complete housing finance system revamp.
The 12 FHLBanks will merger with the multiple cooperatives that will come up from Freddie and Fannie.
The US government is desperate to cool off the common share price of the GSEs.
****FT, SHAME ON YOU****
As I´ve said before, those issues don´t matter to become millionaire.
What only matters is that there will be a recapitalization of the GSEs one day or the day after.
Having seen the strong efforts of the media these days trying to cool down the GSEs common shares prices, working for the government, I bet that on January 30, one day before the deadline by law, could be a good day to announce the mother of all restructuring stories you´ve ever seen.
There will be a complete housing finance system revamp.
Fannie and Freddie will dissapear under their current structure.
The 12 FHLBanks will merge with the multiples cooperatives that will come up from Fannie and Freddie.
The minority stockholder will receive a sweet buyout because it bothers in the process of changing to the new structures, as it will be a lenghty process.
As I always say, it doesn´t matter if we have to wait a few more days. But the longer the announcement, the longer the US economic recovery. Geithner, you heard it?
Where will you be next Sunday?
As expected, Obama will not abide by the law and announce the GSE reform before the January 31 deadline.
It will be released on the week of February 7, as an Administration Official, speaking on condition of anonymity, said to reporters last week. http://www.ft.com/cms/s/721626fc-25c0-11e0-8258-00144feab49a
QUOTE in the FT:"the week of February 7 was now more likely"
Why I think Obama is extending the January 31 deadline to the week of January 7?
BECAUSE THE EMPLOYMENT DATA WILL DISAPPOINT NEXT FRIDAY.
We´ve seen how big the impact of the weather is in the GDP figure of UK (-0.5% vs +0.6% expected), because the weather affects the consumer behaviour. I´ve been a General Retailing analyst many years and I know it very well. The weather was terrific in the US last month and will affect the employment data for sure.
The GSE reform will be the mother of all restructuring stories you´ve ever seen. It will be a complete housing finance system revamp.
It will be the black swan trigger event or positive catalyst for the market, Bernake said so last week (see my investment case).
If the reform is released today, it will be overshadowed by the employment data.
SUMMARY OF THE RESTRUCTURING PLAN:
The multiples cooperatives that will come up of Fannie and Freddie will merge with the 12 FHLBanks.
All of them have the same regulator FHFA and the same housing goals since January 26.
Also, since recently, the FHFA allows the 12 FHLB to merge.
Coincidence? I guess not.
""""The Obama administration is likely to miss a January 31 deadline set by Congress to deliver its long-awaited white paper on the future of housing finance, according to people familiar with its preparation.
The paper is also likely to disappoint those who want a detailed proposal for the future of Fannie Mae and Freddie Mac, the government-sponsored enterprises whose $140bn bail-out was the costliest rescue of the financial crisis. Senior executives at the GSEs and most Republicans want a swift and comprehensive
plan.
Officials have moved away from an earlier intention to present such a plan, or even full legislative language, for the two GSEs. When the paper is published it is likely to contain a number of options and suggestions for Congress, but no grand sweeping plan.
Ultimately officials want to move towards a system where the private sector plays a much greater role in the secondary mortgage market, 90 per cent of which is controlled by Fannie and Freddie because of the dearth of interest from private investors scarred after the 2008 crisis.
Scott Garrett, the Republican chairman of the House financial services subcommittee responsible for the GSEs, demanded an early and detailed plan from the administration. “I’m hoping that they will generate specific recommendations as opposed to a list of options,” he said.
Preparations for Barack Obama’s State of the Union address on Tuesday have made it difficult to go over final bureaucratic hurdles to publishing the white paper, according to people familiar with the process, who said the week of February 7 was now more likely.
“We’re working every day to plot the future of housing finance while acknowledging continued weakness in the housing market,” said the Treasury. There is also a belief within the administration that there is little to be gained by putting out detailed proposals for Republicans to attack.
Officials are also wary of damaging the still-fragile housing market and believe that much, perhaps all, of the overhaul can be completed without legislation.
The issue of the government’s role in a future housing market remains controversial. One option being considered is a government-backed securitisation mechanism that would see the industry take a “first loss position” on mortgage-backed securities, bearing the brunt of any housing downturn, but preserving a government back-stop for a collapse.""""
1st. There won´t be any dividend restored to the junior preferred share because "past dividends were illusion, because of reckless investments", heard to politicians. Also Fannie and Freddie will disappear under their current structure to become multiple cooperatives.
2nd. The junior preferred share won´t be paid full price according to its PROSPECTUS:
1# Upon any voluntary or involuntary dissolution, liquidation or winding up of Fannie Mae, ... the Holders of outstanding shares of the Series O Preferred Stock will be entitled to receive out of the assets of
Fannie Mae ..., before any payment or distribution of assets is made to holders of Fannie Mae’s common stock ..., the amount of $50 per share.
*WE ARE NOT IN THIS CASE BECAUSE THE GSEs HAVE BEEN BAILED-OUT, SO NO DISSOLUTION, LIQUITATION OR WIND UP .
2# Neither the sale, lease or exchange (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of Fannie Mae, nor the merger, consolidation or combination of Fannie Mae into or with any other corporation or the merger, consolidation or combination of any other corporation
or entity into or with Fannie Mae, shall be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary.
*HERE MENTIONS THE CASE IF PREFERRED SHARES ARE CONVERTED TO STOCKS OR IF THE GSE´s MERGER, IT SHALL NOT BE DEEMED TO BE A DISSOLUTION, LIQUIDATION OR WIND UP.
3# the terms of this Certificate or the Series O Preferred Stock may be amended, altered, supplemented, or repealed only with the consent of the Holders of at least two-thirds of the shares of Series O Preferred Stock.
*ALL THAT IS WRITTEN, WILL BE CHANGED BY THE BIG BANKS IN THE NEGOTIATIONS WITH THE GOVERNMENT, SO THE MINORITY JUNIOR PREFERRED STOCKHOLDER WILL BE SCREWED AGAIN.
Source: http://www.fanniemae.com/ir/pdf/resources/preferred/Series_O_01032005.pdf
BOTTOM LINE:
The junior preferred share doesn´t deserve to trade with a premium and must converge towards the common share.
(Blackrock was founded by Blackstone)
FACTS:
1st. On March 24, 2009 I wrote an article here in my blog called OUTRAGEOUS US GOVERNMENT BENEFITING HEDGE FUNDS , where I denounced that the government had chosen 8 private funds to buy Mortgage-Backed Securities (MBSs). Later we´ve learnt that Blackrock was one of them and that 19 months into the program, they are gaining 27% http://www.cnbc.com/id/41228798 , because the formerly known as toxic assets have doubled from the bottom, shown here http://www.sfgate.com/cgi-bin/article.cgi?f=%2Fg%2Fa%2F2011%2F02%2F02%2Fbloomberg1376-LFYEYL07SXKX01-6EPVDPCOQOJG22O6S1E36MSKD2.DTL
So, the government has already manipulated the market once, the MBSs market this time.
2nd. Two days ago, we learned that the US government held a meeting last December with Blackstone on the GSEs. http://www.bloomberg.com/news/2011-02-01/geithner-met-with-dimon-moynihan-schwarzman-on-dodd-frank-law.html?cmpid=yhoo
BOTTOM LINE:
Has the Us Government chosen Blackstone to bottom fishing the junior preferred shares and common shares of Freddie and Fannie?
How much money will make Blackstone this time as the shares are skyrocketing?
THE US GOVERNMENT LED BOTTOM FISHING
One hour before the market closed, CNBC reported, citing unidentified sources, tried to cool down the common shares' quote.
http://www.cnbc.com/id/41429486
Obviously, the government is using a private fiancial network to manipulate the markets, saying:
-Treasury is also expected to endorse a reduction of the government's share of the mortgage market, to less than 50 percent from the current 95 percent.
WITH A COOPERATIVE MODEL IS ACHIVABLE
-Treasury is expected to propose reducing the maximum size for mortgages guaranteed by the government, to $625,500 from the current $730,000. The limit was temporarily raised in September.
IF IT WAS RAISED TO IMPROVE THE HOUSING MARKET, HOW THE HELL ARE THEY GONNA PROPOSE REDUCING THE LIMIT NOW?
It ends by saying "Sources cautioned, however, that changes to the plan could yet be made in the week before its release."
Why the government wants to advance several options a few days before the ultimate plan?
BOTTOM LINE:
THE GOVERNMENT JUST WANTED TO MAKE NOISE IN THE MARKET TO COOL DOWN THE QUOTES, BECAUSE THIS ANNOUNCEMENT DOESN´T MEAN ANYTHING.
BERNANKINO, GEITHNEONE AND DON VITO OBAMANEONE AT THEIR FINEST.
US SAYS CHINA(the $300-400 billion GSE bondholder) IS NOT A MARKET MANIPULATOR.
http://www.reuters.com/article/2011/02/05/usa-treasury-china-idINN0415539420110205
This report was due last October, but was delayed several times. Curiously enough, is released a few days before the GSE restructuring plan announcement. Coincidence? I guess not.
This is the 6th time the US Government takes down its trousers with China.
Recap of the last five months:
1.China has gained weight in the IMF.
2.Oil sector: China bought a stake in Chesapeake Energy.
3.Utility sector: China bought a stake in Intergen.
4.Auto sector: China bought a stake in General Motors.
5. Financial sector: China's State controlled bank ICBC (the world largest bank) agreed to acquire a majority stake in Bank Of Asia's US subsidiary (13 branches in NY and California).
CHINA WAS NEVER ALLOWED BEFORE BY THE CONGRESS TO BUY U.S. ASSETS.
GEITHNER, IF YOU WANT MY SHARES, PAY MORE.
The CNBC news that caused the shares to plummet one hour before the market close, was in the TV channel, not in their website.
Curiously enough, they chose Steve Lisman as a puppet to read the US Government's paper, because he is a well known economist. They didn't choose their housing sector newsreader who wronly forecasted a housing market double dip a few months ago.
****US' State-controlled CNBC, SHAME ON YOU***
The last trading session, Freddie Mac common share touched $1, they reached that level, they achived that milestone, the common shareholder saw that. Now it's a price that the common shareholders have always in mind. They know the share can reach that level again without any restructure, because Freddie Mac is already a profitable company.
Freddie Mac released a profit of $1.4 billion in the 3Q if you add $3.947 billion fair value improvement on available-for-sale securities (AOCI, Accumulated other comprehensive income) and add $1.6 billion government's dividend, to the widespread headline of $4 billion loss.
Therefore, THE GOVERNMENT CAN'T HIDE THE IMPROVEMENT IN AOCI (Accumulated other comprehensive income) FROM THE CONSOLIDATED STATEMENTS OF OPERATIONS REPORT ANYMORE (explained above), because now the common shareholders are at war.
BOTTOM LINE.
Both a delist minority buyout and a swap of the senior prfd. shares and/or bonds to common shares, ought to be well above $1 per share.
China has hiked interest rates last night.
We already know that the timing of China's interest rates hikes are well thought-out.
These are the two latest hikes:
1- The hike before the last one was on Christmas day for America. It was a great big present from the Chinese to the American stock market, because nobody paid attention to it. The effect was cooled down.
2- Last night. Do you really think that China is gonna kill itself rising interest rates the day before their stock market reopens after their Chinese New Year?
BOTTOM LINE:
As China knows all about the restructuring plan because they are the GSE Reform mastermind, it has taken advantage of the announcement that could be release tonight in order to help the Chinese to digest their interest rate hike, that is to help their stock market performance.
Maybe this is the reason for the delay of the GSE reform announcement, because the Lunar New Year began on February 2, but could last for nine days for those who took off the preceding Monday and Tuesday. So, we had to wait until the Chinese had finished their holidays to raise rates and to release the GSE reform.
*Remember that it will be the black swan trigger event or positive catalyst for the market.
***It doesn't matter if the announcement is another day of this week, as the Government said last friday***
The government leaked that news last friday. We are not in a hurry.
It didn´t occur last night, but we know that it has to occur one day after China's rate hike. There could be a pause between both events.
There are plenty of reports today in WSJ, NYTimes, etc... saying, citing people familiar with the matter, that the government will reveal a plan with three options. http://online.wsj.com/article/SB10001424052748703989504576128403630694340.html
HOW THE HELL ONE COME UP WITH A PLAN WITH 3 OPTIONS!!!
A PLAN IS A PLAN AND HAS JUST ONE OPTION!!!!!!!!!!!
DOES GEITHNER THINK WE ARE STUPID?
Any other guy paid by the government that will try to cool down the quotes before the GSE reform announcement?
THIS IS OUTRAGEOUS!!!
The government is gonna swap its $152.6b. senior preferred shares to common shares. That's very good for the actual shareholder because the prospects of a very viable road to recovery outweigh any future dilution to common shares.
THE HIGHER THE CONVERSION PRICE, THE BETTER FOR THE COMMON SHAREHOLDER.
That's why the government is desperate to cool down the quotes without hesitating to use dirty tactics leaking news in the WSJ, NYTimes, FT, CNBC and using puppets as Freddie's Director and Barney Frank again, trying to mislead investors.
*THE US GOVERNMENT IS DECLARED MARKET MANIPULATOR*
GSE Reform imminent. Let's get it.
Yesterday, two days before the GSE reform announcement, Barney Frank tried to water down the outcome of the GSE restructuring plan saying:
1st.Congress may agree to overhaul FnF by year's end.
THE COMPLETE HOUSING FINANCE RESTRUCTURING PLAN WILL BE ANNOUNCED TOMORROW, LIAR!!
2nd.He had not seen the plan.
LIAR!!
http://www.businessweek.com/news/2011-02-09/fannie-freddie-agreement-may-come-by-end-of-year-frank-says.html
It's very funny to read how the former advocate of the GSEs, tries to cool down the quotes nowadays.
Hey! Barney! Say again the GSEs should be abolished!!!
***BARNEY FRANK, SHAME ON YOU***
Curiously enough, one day before the GSE restructuring plan annuncement, a popular Chinese economist suggested that China sell the securities soon.
http://online.wsj.com/article/BT-CO-20110210-707625.html
Estimates put China's holding of GSE bonds between $300-$400 billion and now it's quite clear that China will help in the recapitalization of the GSEs swapping part of their bonds to common shares.
Both government and bondholders are desperate to cool down the common shares in order to receive more cheap shares.
Coincidence? I guess not.
Aug.31, 2010. China had to denied rumours that the country's central bank governor had fled the country because of huge losses in the GSE bonds. http://www.google.com/hostednews/afp/article/ALeqM5jrcfoUn47ZaIRQemmGY2cLIyg3Dg
Now, who on earth thinks that China is not behind the news today about a top chinese economist recommending to sell all GSE bond holdings of China commented a few minutes ago?
Both government and bondholders are desperate to cool down the common shares in order to receive more cheap shares.
"To narrow the debate about the housing finance overhaul to three options".
It seems that this report just wanted to spread the phrase "wind down the GSEs" and delay the true restructuring plan more time in order to lower the common share price of the GSEs.
Geithner added, in a CNBC interview, that the government is going to recoup all its investment (senior prfd. shares), so the government has to swap the senior shares to commons in order to recoup its investment.
I'll keep gobbling up shares like mad.
***T. GEITHNER, SHAME ON YOU***
Geithner: "Government to recoup all its investment".
It has $152.6 billion worth of senior preferred shares.
The only way to recoup its investment is to swap the senior shares to commons shares, as AIG case.
Once the GSEs are well capitalized, the prospects of a very viable road to recovery outweigh any future dilution to the common shares.
The longer it takes the government to fix the GSEs, the longer it takes to recoup the economy. Geithner, you heard it?
Obama's dog to speak next to try to lower the share prices, stay tuned to CNBC.
Geithner's plan to improve the housing market now:
1st Wind down FnF.
2nd To narrow the debate about the housing finance overhaul to three options.
3rd Higher cost of the guarantees, so higher cost to borrowers.
4th Higher down payment (higher cost to borrowers).
5th Reducing the maximum size for mortgages guaranteed by the government (that’s gonna freeze the housing market).
Does Geithner think we are stupid with this crappy plan?
Geithner, show us the real recapitalization plan!!
Dodd-Frank Law asked for ending conservatorship, not wind down FnF.
Page 74, footnote: "The Dodd-Frank Wall Street Reform and Consumer Protection Act requires Treasury to conduct a study and submit recommendations on ending the conservatorship of Fannie Mae and Freddie Mac no later than January 31, 2011. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 1074 (2010)." http://cop.senate.gov/documents/cop-121410-report.pdf
The Dodd-Frank Wall Street Reform didn't require to wind down FnF, just how to end conservatorship.
*Attempts to cool down shares, can't fool smart money forever*
That's the true restructuring plan.
The one revealed today is an attemp to cool down the shares.
IT CAN'T TAKE TOO LONG, THE HOUSING MARKET CAN'T WAIT ANY LONGER.
Bernanke said on January 13th that there won't be a housing recovery until Fannie and Freddie revamp. http://www.housingwire.com/2011/01/13/bernanke-no-housing-recovery-before-fanniefreddie-revamp
Greenspan said yesterday that he sees need for housing prices to rise 10%.
http://www.bloomberg.com/news/2011-02-11/greenspan-says-u-s-housing-prices-may-need-to-rise-10-for-solid-rebound.html
With Geithner's plan just introduces more uncertainty ("a 3 options plan"), so, a double dip in housing market will come.
Geithner, show us the real recapitalization plan.
1) Freddie Mac 4Q results on February 21. Preview:
-Profit: in the 3Q, Freddie Mac reported a profit of $1.4 billion if you add $3.947 billion fair value improvement on available-for-sale securities (AOCI, Accumulated other comprehensive income) and add $1.6 billion government's dividend, to the widespread headline of $4 billion loss. So, Freddie is already a profitable company.
-Consolidated Statement of Operations report: in the 3Q, the US government misled investors hiding $3.947 billion fair value improvement on available-for-sale securities (AOCI, Accumulated other comprehensive income) with the objective to spread the headline of $4b. loss throughout the media. This time won’t dare to do the same. We will have a close look here again.
-Impairments: it reported an increase impairment in securities from 0.4 billion to $1.1 billion in the 3Q "due to higher expected credit losses". Clearly this figure was inflated in order to show a draw request to Treasury, because it’s very weird to post a huge fair value improvement of its securities at the same time than a huge impairment. We will have a close look here again.
-Settlement of the repurchase demands (putbacks): Bank of America agreed to pay $1.28 billion to Freddie on effective date December 30. ( $1.52 billion to Fannie).
-Draws: Freddie summited a draw request to Treasury of just $100 million in the 3Q, that’s peanuts. In the 4Q results, it won’t draw any request because of the putbacks settlements and because the fair value improvements on securities have continued in the 4Q.
Bottom line:
With the second consecutive profit in the 4Q and no draw request to Treasury, Freddie could reach $1 per share very easily.
2) Review of capital levels of the 12 FHLBanks on March 28th.
FACTS:
-The Federal Housing Finance Agency (FHFA) regulates Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks (FHLBanks).
-The 12 FHLB are government-sponsored enterprises as FnF, but they are cooperatives (Bank membership).
a)FHFA press release announcing a FHLB reform: http://www.fhfa.gov/webfiles/19614/RulesFR122210F.pdf
a.1.“FHFA is undertaking a review of its regulations governing Bank membership (each FHLB) to identify provisions that may need to be updated”. Comments are due March 28, 2011.
Why the FHFA is going to reform the "provisions that may need to be updated"of the FHLBs? It means that the FHLBs have low capital ratios to support the risks of their activities. GAO mentions why is that :"Several FHLBanks have recently suffered significant losses because of their investments in nontraditional mortgage assets (e.g., private-label MBS collateralized by Alt-A and subprime mortgages)for their investment portfolios". Page 33 http://www.gao.gov/new.items/d1133r.pdf
a.2. Also both FnF and the 12 FHLBanks have the same housing goals since January 26th:
#“The FHFA will establish the FHLB housing goals (through purchases of mortgages) that will be consistent with the housing goals established for Fannie and Freddie”. Rule is effective Jan. 26, 2011.
b) On November 22, the FHFA (the regulator of both GSEs and the FHLBs) proposed a rule to allow the 12 FHLB (Federal Home Loan Banks) to voluntarily merge because they are cooperatives. (So, if FnF become cooperatives, could merge with the 12 FHLB).
http://www.fhfa.gov/webfiles/19513/FHLBVolMergFR112210.pdf
Bottom line:
I bet that the multiples cooperatives that will come up from Freddie and Fannie will merge with the 12 FHLB because, as GAO suggests in its report, the 12 FHLBs are in a bad shape, so they need an urgent recapitalization as FnF.
The regulator of both (FnF and 12FHLB) can’t debate the capital ratios of the 12 FHLBs if it’s not announced in advance that FnF will turn into multiple cooperatives.
THE GOVERNMENT HAS ANOTHER DEADLINE TO ANNOUNCE THE TRUE RESTRUCTURING PLAN: MARCH 28th.
The government can extend the deadline again, but the longer it takes to announce the reform, the higher the conversion ratio of the bonds and senior prfd. shares to commons and the later the economic recovery.
Geithner is between the sword and the wall.
200 day Exponential Moving Average now stands at 0.49.
What has happened today is just that we've gone there to rest.
It's a level that all the traders have in mind and have taken advantage of the uncertainty to attack the stock and send it to that level.
It's a strong support level.
Special mention today to Pershing's Ackman that has been short selling shares like mad. He will eat the shares sold very soon.
Next Monday 4Q results. Have a look to the preview above.
Having seen the erratic trades of Pershing's Ackman yesterday and last friday, selling shares like mad, and also buying like mad in the short squeeze seen last friday, without worrying about the price (2 or even 3 cents moves when there was no need), I bet that they have met with T. Geithner recently with the mandate to short-sell the stock.
Remember that the government has to swap its senior prfd. shares to commons, and also the bondholders. The lower the common stock, the larger the amount of cheap commons they will receive.
***IF YOU HAVE SEEN ANY NEWS ABOUT A MEETING, SEND ME AN EMAIL HERE, PLEASE***
1. Pershing's Ackman met Geithner.
2. Ackman is such an idiot!!!!!
Read the preview of the next Monday 4Q results commented above. There are huge expectations.
"China, as a major bond holder of the two companies, may suffer significant losses as a result (FnF wound down)" http://www.theepochtimes.com/n2/china/with-fannie-freddie-out-china-may-take-hard-hit-51375.html
On Aug.31, 2010. China had to denied rumours that the country's central bank governor had fled the country because of huge losses in the GSE bonds. http://www.google.com/hostednews/afp/article/ALeqM5jrcfoUn47ZaIRQemmGY2cLIyg3Dg
Also I recall that China threatened to jail anyone who dared to spread rumours about huge losses in FnF's bonds.
BOTTOM LINE:
This puts pressure to unveil the true restructuring plan for the GSEs. Geithner, you heard it?
A complete GSE reform because the 12 FHLBanks are also government-sponsored enterprises. But unlike FnF, they are cooperatives (Bank memebership). FHLB reform explained above.
And why Geithner unveiled a plan “that narrows the debate to three options”? What the hell is the decision “to narrow the debate to three options”?! In what MBA is studied?
Also Geithner mentioned that we will have higher fees (rates), higher down-payment and lower size of mortgages guaranteed. That is the worst of the worlds!!!!!!!! UUUUUUUhhhhhhhh!!!!
BOTTOM LINE:
The objective to announce a plan with 3 options is to prepare the taxpayer for a bank-membership of Fannie and Freddie (it was included as one of the three options), in order to avoid a shock to the taxpayer. This way to announce major issues is included in all the politician’s manuals.
And curiously enough, March 28th is the end of the quarter, so, the mother of all restructuring stories will have an effective date in the 2nd quarter. This way, they gain three months to prepare for the new structure: the way they will announce results, administrative work, etc…
Also Geithner will come up saying that a Government backstop is needed in order to have lower rates, so, the world will be brighter and all of us will rush to kiss Obama’s ass because is our salvator.
GEITHNER, CHECKMATE.
(Two trading days for the quarterly results. Preview above)
FACTS:
1.Treasury snubbed Morgan Stanley for the stocks sales of its 92% common stake in AIG.(Remember that the Government swapped its senior preferred shares to commons). Instead, it picked Goldman, JP Morgan, Bank of America and Deutsche Bank.
It was very strange at that time, that Goldman’s chairman Blankfein didn’t even bother to attend the meeting with the Treasury to talk with the candidates for the share sale. Morgan Stanley CEO James Gorman did attend the meeting to pitch AIG personally along with other top executives (JPM’s Jamie Dimon, BofA's Brian Moynihan,…)
http://www.businessinsider.com/aig-treasury-stock-sale-2011-1
2. The 21st meeting of the China-U.S. Joint Commission on Commerce and Trade (JCCT) was held on December 14-15 in Washington. Last Tuesday an “unofficial” US delegation met with Wang Qishan (China’s Vice Premier and GSE reform mastermind) in Beijing to “promote bilateral trade cooperation”, and curiously enough, Executive Chairman of Morgan Stanley John Mack headed the “US business delegation”. Two US-China business meetings in just two months…. ummmm.
http://news.xinhuanet.com/english2010/china/2011-02/15/c_13733605.htm
BOTTOM LINE:
This US delegation to China is a cover for another issue. Morgan Stanley was snubbed from the AIG’s common stock sale because it was granted with other mandate: to lead the final stage of the restructuring plan of the GSEs. John Mack updated W.Qishan with the ongoing restructuring process.
The most probable restructuring plan for the GSEs is:
1.Treasury to swap its senior preferred shares to commons and sell them to the banks (privatization of the GSEs).
2.The bondholders will step in the new structure with a haircut.(A haircut is to swap bonds valued at 100% but at a very high conversion price).
3.The multiple cooperatives that will come up from FnF, will merge with the 12 FHLBanks on March 28th. Explained wider above.
Finally, it’s worth mentioning that AIG common stock sale was delayed to late April or May from previously scheduled march. http://www.cnbc.com/id/41459014 .The Treasury doesn’t want to have the mother of all restructuring stories in housing finance at the same time as a massive AIG stock sale in the market (the marketing period is long). The investors and taxpayers might hardly get to sleep with two major events at the same time.
Whatever the restructuring plan, it will be very positive for the existing common shareholders because the prospects of a very viable road to recovery outweigh any future dilution.
**Also see my preview of Freddie Mac 4Q results. There are huge expectations**
That's a more proper job for an Investment Bank and will receive huge commisions in all this process.
According to the WSJ, "The US Administration is pushing a settlement with banks to writedown loans that they service on behalf of clients. Those clients include mortgage-finance giants Fannie Mae and Freddie Mac, as well as investors in loans that were securitized by Wall Street firms (MBSs)"
http://online.wsj.com/article/SB10001424052748703842004576162813248586844.html?mod=WSJ_hp_LEFTTopStories
The government keeps on misleading investors excluding the net fair value improvement in AFS securities (AOCI) from the Consolidated Statement of Operations but does include the net impairment charge in AFS securities.
Adding all together, Freddie Mac reported the second consecutive quarter with Total Comprehensive Income ($1.4b Q3 and $1.2b Q4).
Net impairment in Available-for-sale (AFS) securities increases $1.17b to $2.27b. in the quarter. The impairments were just $0.4b in the 2Q and $0.5b in the 1Q. So, the government keeps on inflating provisions.
Draw request to Treasury of $500 million because the quarterly dividend to the Treasury ($1.6b) exceeded total comprehensive income ($1.2b). That's peanuts.
Other issues:
Cost Control: Decrease in Administrative Expenses of 4 basis points to 7%.
39% of the mortgage loan portfolio as of Dec.31 was originated in 2009 or 2010 with a serious delinquency rate of 0,26% and 0,05% respectively. This is a mine.
BOTTOM LINE:
Always rememeber that we are investing in the GSEs for two reasons:
-Their books are gonna improve: Freddie Mac has shown two straight quarterly income before dividend payment, and Fannie Mae has just reported a $73 million profit in the quarter for the first time since Conservatorship.
-They are gonna be recapitalized: The restructuring plan is expected on March 28th, at the same time as the recapitalization of the 12 FHLBanks.
THE RESTRUCTURING STORY IS ON TRACK.
There is already a gap between FHFA's projections, under the best case scenario (Scenario 1)!!!, and reality about draws in the 2H2010:
Page 8 http://www.fhfa.gov/webfiles/19409/Projections_102110.pdf
*Freddie (2H 2010): :
FHFA projection $7 billion
Reality $0.6 billion
*Fannie (2H 2010):
FHFA projection $17 billion
Reality $5.1 billion
The difference is astonishing!!
In what scenario we are supposed to be nowadays: the mega-best-of the bests scenario?
It had an effective date December 31 and BofA set a $3b. provision in the 4Q 2010 related to the mortgage repurchase demands settlement with the GSEs.
It's very weird that there isn't a single comment about this settlement in Freddie Mac's earnings report.
Is the government misleading investors again because the GSEs' books are already improving dramatically?
BERNANKINO, GEITHNEONE AND DON VITO OBAMANEONE AT THEIR FINEST.
Treasury received $1 billion worth in senior preferred shares without cost at the time of the bailout agreement with the GSEs, so it’s not investment (cash).
The government considers the dividend as less cost of its investment : ”The cost of conservatorship could decline from $131 billion to $73 billion (net of dividends) by the end of 2021, according to the Obama administration's budget proposal for fiscal year 2012“. http://imarketnews.com/node/26443
Taking into account that:
1- The recent draws have an effective date the end of 1Q 2011 (it won’t begin accruing until that date).
2-Not all the senior prf. stocks are Treasury’s investment because, under the bailout agreement, the government received $1 billion worth in snr.prf.shares without cost in each GSE (it’s like a dividend received in shares).
3-We will consider the dividend payments and the shares issued to the Treasury without cost, as less cost to the government’s investment.
4-We will assume that, thanks of the putbacks settlements and books improvements, neither Fannie nor Freddie will summit any draw request to Treasury at the end of 1Q2011.
5-Also we will assume that the end of 1Q 2011 is when the true restructuring plan will be unveiled, because it’s when the 12 FHLBanks will be recapitalized according to the FHFA. Why the multiple cooperatives that will come up from FnF, will merge with the 12 FHLBs is explained wider above.
So, FnF will disappear under their current structure at the end of 1Q 2011.
6- The objective of any bailout is not to make money.
BOTTOM LINE:
This is the real Government cost AT THE END OF 1Q 2011:
# FREDDIE MAC: 20% of total Government’s investment paid.
Government investment: $63.7billion
Dividends and shares without cost received by the government: $12.6 billion
Total cost for the taxpayer: $51.1 billion
# FANNIE MAE: 15% of total investment paid.(Freddie is healthier than Fannie).
Government investment: $90.2 billion
Dividends and shares without cost received by the government: $13.4 billion
Total cost for the taxpayer: $76.8 billion
*TOTAL FnF COST TO THE GOVERNMENT: $127.9 billion, BUT WILL OWN $155.9 billion worth of Senior preferred shares.
This means that the government can swap its senior prfd. shares to commons at a price 22% higher of the quote of FnF at that time without having a loss, so, as the objective of this restructuring plan is to recapitalize the GSEs and the government has to pay for that, the conversion price will be much higher than a 22% premium. (You can’t recapitalize a company injecting capital at a very low price).
We know that the government wants to swap the senior prfd. shares to commons at a very low conversion price and then sell the cheap common shares to the big banks (bank-membership or privatization).
But selling the whole housing finance market at a fire-sale price to the big banks that caused the worst financial crisis ever has a political cost. That's why the government is leaking news against the big banks as the restructuring plan announcement approaches.
The larger the amount of government's leaks trying to cool down the common share or news about possible punishments to the big banks(just hype, nothing real), the sooner the restructuring plan announcement.
These are the latest government's leaks:
1st. Feb.23th: The WSJ leaked that the Obama Administration is trying to push a settlement worth billions of dollars with the big banks that could reduce the mortgage debt to borrowers. It's just a proposal, also called hype. News commented above.
http://online.wsj.com/article/SB10001424052748703842004576162813248586844.html?mod=WSJ_hp_LEFTTopStories
2nd.Feb.24th:US state-controlled CNBC signaled repeatedly when reporting FnF's earnings,that the worst is to come for these companies.
According to the FHLBank of Seattle, "the FHFA still considers the bank as undercapitalized, at least through the filing of the bank's second quarter 2011 Form 10-Q with the SEC" that I guess will be at the end of august 2011, "unless the Finance Agency takes additional action". Source: http://www.businesswire.com/news/home/20110217006997/en/Federal-Home-Loan-Bank-Seattle-Announces-2010
Here the FHFA explains what prompt corrective actions (PCAs) will occur if an FHLBank is classified as undercapitalized: http://www.fhlb-of.com/ofweb_userWeb/resources/capitalqanda.pdf
"An FHLBank classified as undercapitalized must submit a capital restoration plan to the FHFA for approval, execute the approved plan, suspend dividend payments and excess stock redemptions or repurchases, and not permit growth of its average total assets in any calendar quarter beyond the average total assets of the preceding quarter, unless otherwise approved by the FHFA. Additionally,
the FHLBank may not acquire, directly or indirectly, an equity interest in any operating entity (other than as necessary to enforce a security interest granted to the FHLBank) nor engage in any new business activity, unless:
· The Director of the FHFA has approved the FHLBank's capital restoration plan, the FHLBank is implementing the capital restoration plan and the Director of the FHFA determines that proposed acquisition or activity will further achievement of the goals set forth in that plan; or
· The Director of the FHFA determines that the proposed acquisition or activity will be consistent with the safe and sound operation of the FHLBank and will further the FHLBank's compliance with its riskbased and minimum capital requirements in a reasonable period of time."
BOTTOM LINE:
1st. We have a FHLBank considered undercapitalized and that there will be prompt actions to restore the capital. FHFA mentions that one action could be an acquisition.
2nd. On November 22, the FHFA (the regulator of the GSEs : FnF and the FHLBs) proposed a rule to allow the 12 FHLB to voluntarily merge because they are cooperatives. (So, if FnF become cooperatives -bank membership- could merge with the 12 FHLB because a cooperative-bank can be a member of the FHLBs).
http://www.fhfa.gov/webfiles/19513/FHLBVolMergFR112210.pdf
3rd. Also both FnF and the 12 FHLBanks have the same housing goals since January 26th:
#“The FHFA will establish the FHLB housing goals (through purchases of mortgages) that will be consistent with the housing goals established for Fannie and Freddie”. Rule is effective Jan. 26, 2011. http://www.fhfa.gov/webfiles/19614/RulesFR122210F.pdf
A PROMPT RESTRUCTURING PLAN FOR THE GSEs IS COMING.
Here is what one expert that has been involved in reform of Chinese state-owned comercial banks had to say about the privatization path of FnF:
1st. Clean up the balance sheet, it may be the introduction of the private sector to undertake the two companies, or bonds of both companies to undertake assets.
(Curiously enough, this is my view written above: Senior shares swapped to commons and then sold to private lenders, and bonds swapped to common shares).
2nd. To strip the bad assets and create a "bad bank" with the introduction of a special private equity fund to proceed slowly and then sold to the market.
Source: http://finance.sina.com.cn/world/mzjj/20110228/15019444559.shtml
Use Google translator.
Always remember that the prospects of a very viable road to recovery outweigh any future dilution to common shares.
Jeffrey Goldstein, the Treasury Department's under secretary for domestic finance has just said that they will wind down FnF "immediately gradually".
http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201102280948dowjonesdjonline000163&title=us-to-start-winding-down-fanniefreddie-immediatelygradually-official
The Treasury is so desperate to cool down the common share that doesn't even know what they are talking about because it's imposible to do something immediately gradually, hahaha.
BOTTOM LINE
Remember always that the higher the amount of attemps to cool down shares means that the real restructuring plan announcement approaches.
Please, sign.
http://www.ipetitions.com/petition/jail-politicians/
I've found this report http://fhlbsf.com/about/wa/regulations/pdf/ProposedRuleMembersFHLBanks122710.pdf
where gives information about what the meeting will be about. It seems that has nothing to do with the capital levels of the FHLBs, but the objective is to set rules to get rid of unwanted FHLBs' members that have nothing to do with the home mortgage funding market.
The FHFA is preparing the FHLBs' membership for a complete new capital structure of the entire housing finance system.
Let's see when Geithneone wants to announce the true restructuring plan, it won't take too long for the good of the US economic recovery.
In the January monthly data, Freddie points out that due to an error it has included in the 2010 multifamily delinquency data,borrowers who had entered into a forebeance agreement. The error was 3 to 7 bp. See point 13 at the end of the report. The multifamily delinquency rate stands at 0.28% in january.
Single delinquency data decreased 2 bp to 3.82% in january. Also points out that this data is inflated with the people that enters the HAMP trial period, it remains as delinquency until it is granted a modification. See point 13 at the end of the report.(I already commented this above).
BOTTOM LINE:
A decrease in the delinquency rate translates into better numbers in Freddie's books.
Even with inflated delinquency rates, they are ridiculously low in, what it's supposed we are, a crisis.
(Note that Fannie Mae has also reported a decrease of 2 basis points in the January single-family delinquency rate)
Freddie january data: http://www.freddiemac.com/investors/volsum/pdf/0111mvs.pdf
Fannie january data: http://www.fanniemae.com/ir/pdf/monthly/2011/013111.pdf
Both GSEs have reported a decrease of 2 basis points in the single-family delinquency data, and it will translate into better numbers in the 1Q 2011 report.
BOTTOM LINE:
1st. Are the low profile newsreaders at the US state-controlled CNBC gonna say again that the worst is to come for FnF?
2nd. Is the management of FnF gonna say again that they expect massive losses despite improved results ?
The January delinquency data is a hit to these market manipulators.
***CNBC AND FnF MANAGEMENT, SHAME ON YOU***
Who the hell will come manipulating the market next?
Hey Barney Frank!! it's your turn!! Say again they will be abolished!!
I KEEP ON GOBBLING UP COMMON SHARES LIKE MAD.
Home prices fell in 4Q across US. Source http://online.wsj.com/article/BT-CO-20110228-712858.html
Meanwhile, FnF have posted improved results in the 4Q, and lower delinquency rate in January 2011.
This is a fact.
BOTTOM LINE.
Geithner is forcing a housing double-dip in order to swap his FnF senior shares to cheap common shares and then sell them at fire-sale prices to the big banks.
But, on the contrary, FnF's books are improving and the share price will react positively. So, Geithner's "3 options plan" just creates uncertainty and job losses.
WE WANT GEITHNER TO CREATE JOBS, NOT UNCERTAINTY.
Low-profile Geithner should be fired immediately, for the good of american's jobs.
(Please, sign the petition mentioned yesterday)
The Independent Community Bankers of America (ICBA) told Congress today in a written statement that "Fannie and Freddie would be restructured as cooperative entities owned by mortgage originators who purchase stock commensurate with their loan sales to the co-ops. This is similar to the capitalization of the Federal Home Loan Banks (FHLBs)"
"The infrastructure of Fannie and Freddie - including their personnel, systems, automated underwriting engines - would transfer to the new co-ops."
http://www.realestaterama.com/2011/03/01/icba-outlines-proposal-for-secondary-mortgage-market-reform-ID08721.html
IN THIS WORLD, THAT's CALLED BUYOUT OF FnF.
Remember what I've already commented above:
1-The FHLBank of Seattle is considered UNDERCAPITALIZED by the FHFA.
2-The FHLB Act allows any cooperative-bank to be a member of the FHLBs.
3-The FHFA allows the FHLBs to voluntary merge.
4-GAO (Government Accountability Office) also recommended a cooperative model as the best solution for the GSEs.
BOTTOM LINE.
The mother of all restructuring stories in the housing finance system is imminent.
The FHFA March 28th meeting commented yesterday has a better link here http://www.fhfa.gov/webfiles/19613/ANPRFHLBFR122210.pdf
and I repeat that the objective is to get rid of unwanted members in the FHLBanks that have nothing to do with the home funding market.
In FnF case, if they are gonna turn into a multiple cooperative model, the Government will want to get rid of unwanted shareholders that have nothing to do with the home funding market too, that is, the actual minority shareholder. Also because the multiple cooperatives that will come out from FnF can merge with the FHLBanks.
It seems that a sweet minority buyout of FnF is taking shape.
Freddie Mac January volume figures:
* January new homes backed= $38.8 b., up versus $36.6 b. a year earlier. (83% of total are refinancings).
* Total mortage portfolio:
a)Drecreased 7.3% annual rate, month on month.
b)Decreased 4.3%, year on year.
BOTTOM LINE:
1st. A extremely ridiculous rate of total mortgage portfolio decline (4.3% in a year!!!).
2nd. Delinquency rates declining(2 bp. in January).
3rd. If the government hikes fees (they will be pass to consumers), hikes down-payments, and lowers the size of mortages guaranteed, all means better credit standards for FnF and translates into better numbers in their results.
4th. If you add: that 39% of the mortgage loan portfolio as of Dec.31 was originated in 2009 or 2010 with a serious delinquency rate of 0,26% and 0,05% respectively, plus that 83% of the new home loans are refinancings, Freddie Mac is clearing the borrowers base to leave only a gold mine in the balance sheet.
STRONG BUY.
1st. S.Bachus (House Financial Servicies Committee's chairman) said yesterday “I think we ought to approve legislation within three to four months”.
http://www.bloomberg.com/news/2011-03-01/mortgage-finance-bill-should-be-done-in-3-4-months-bachus-says.html
2nd. Geithner said the Housing Finance Reform will be released within two years.
BOTTOM LINE:
They are so desperate to cool down expectations, that don't even know how to mislead investors with a unique opinion.
I'm very confident now on a Fannie and Freddie's delisting-buyout after FHFA's March 28th meeting. The Treasury wants to get rid of any unwanted shareholder in the FHLBs and in FnF.
New trial modifications started have plunged 33% to 26,659 in January 2011 vs December 2010.
Page 2 of the January HAMP report (see also the graph) http://www.treasury.gov/initiatives/financial-stability/results/MHA-Reports/Documents/Jan_2011_MHA_Report_FINAL.PDF
(Also take into account that 5,731 trial modifications were cancelled in January before being made permanent modifications in the 3 months trial period, so, 26,659 new trials started is a very low figure for HAMP to be considered a State's help program)
I bet that this means the Treasury is closing the HAMP program before a complete housing finance system restructure.
I'm very confident now on a Fannie and Freddie's delisting-buyout after the FHFA's March 28th meeting. The Treasury wants to get rid of unwanted FHLBs' members that have nothing to do with the house finance market in that meeting, and will do the same with FnF with a delisting-buyout of the minority shareholders.
On the FHFA's March 28th meeting, they will talk about updating provisions in order to get rid of unwanted FHLBanks' members that have nothing to do with the house finance market.
I bet that the Treasury wants to get rid of unwanted shareholders for Fannie and Freddie too, because FnF will turn into a multiple cooperative model that could merge with the 12 FHLBanks.
The Independent Community Bankers of America (ICBA) told Congress two days ago, how to accomplish a multiple cooperative model for FnF: "The infrastructure of Fannie and Freddie - including their personnel, systems, automated underwriting engines - would transfer to the new co-ops."
In other words, there will be a minority delisting-buyout of FnF.
Why a meeting at the end of the 1st quarter? Is it because they want the mother of all restructuring stories with effective date 1Q 2011? The books have to be closed at the end of a quarter to accomplish the restructure (all assets valued at the end of the quarter).
Also if S.Bachus wants the Housing Finance Reform approved in 3-4 months, the books have to be closed at the end of the 1Q 2011 and then prepare the multiple cooperative model in order to be approved in 3-4 months by the Congress.
Here are other issues to take into account:
-FHFA considers the FHLBank of Seattle as UNDERCAPITALIZED and the FHFA sets "prompts actions" to restore the capital.
-FHLB Act alows any cooperative bank to be a member of the FHLBs. (FnF will turn into cooperative-banks).
- FHFA allows the FHLBs to voluntary merge.
- The FHLBs and FnF have the same housing goals since January 26th.
- January new trial modifications started have plunged 33% versus December 2010. The Treasury is already closing the HAMP program before a complete restructure of the housing finance system.
- Government Accountability Office, GAO, recommeded a cooperative model as the best solution for FnF. Also ICBA.
Also above I explain the Government's investment at the end of the 1Q 2011.
Remember always:
-The more attemps to cool down shares by the Treasury, means the restructuring plan approaches.( It has to swap its senior shares to commons, it will be at the same price as the delisting buyout, it has to show a haircut).
Also the bondholders will help in the recapitalization.
Facts:
The government is going to sell its AIG stake through a re-IPO, 1.655 billion common shares, and it leaked, through state-controlled CNBC, that the sale will be delayed until April or May from previously scheduled March.
Source: http://www.thestreet.com/story/11000601/1/aig-stock-sale-pushed-until-may-report.html?cm_ven=GOOGLEN
The soonest opening for a major AIG stock offering is late April (just after the quarterly results), then will come the marketing period or “road show” around the world (two weeks), then the pricing. -I don’t know why the previous article says that they have to wait a few weeks after the marketing period because in the GM case, it was trading in the stock market exactly two weeks after starting the IPO period (2010-11-3)-.
BOTTOM LINE:
Why the delay of AIG’s re-IPO? The government wants to sell as much shares as possible and asap, obviously. They would like to rise the size of the initial public offering in response to a strong demand. But the market now is reluctant to buy AIG shares in a sluggish economy. Therefore, how the hell is the government going to flood the market with AIG shares?!!!
It’s better to sell its stake when there is appetite in the market for this type of companies, therefore the re-IPO needed to be delayed after Timothy “3 options” Geithner unveiled the true restructuring plan to revamp the housing finance system.
The economy won’t recoup until the undercapitalized housing finance system is fixed. It will be the mother of all restructuring stories you’ve ever seen. It will be the black swan trigger event or positive catalyst for the market.
The market will be so excited after FnF revamp, that will rush to buy AIG shares in the IPO.
The true restructuring plan for FnF will be announced at any day before AIG re-IPO. So, it might be unveiled in April or May.
Also remember that S.Bachus expects to approve the housing finance reform in 3-4 months (Therefore, it must be announced before).
The government can again delay the announcement and, thereafter, the AIG re-IPO, but the longer it takes to Geithner to announce the restructuring plan, the later the economic recovery, job creation and cash infusion coming from AIG sale.
**Remember my post where I commented why Morgan Stanley was snubbed for AIG share sale. It was granted with the restructuring plan process for the GSEs.
Summary of the investment case published yesterday.
The junior preferred share has no voting rights, as the senior pfrd. shares. Therefore, they ought to be swapped to commons in order to have voting rights or to be monetized after a company restructure.
The junior prfd. shares have no Liquidation Rights after a bailout, because FnF have been bailed out, not dissolved or liquidated.(Explained above)
STOCK PERFORMANCE: The junior prfd. shares that were trading in the $0.30s (known as $25s), are now trading in the $1.80s, and those trading in the $0.60s (known as $50s), are now trading in the $3s. So, they have multiplied by 5 (400% appreciation) exactly since the bottom in January, but the common shares have multiplied by 1.7 (70%) in the same period.
The junior prfd. shares have even less rights than the commons because the common shares have voting rights. So, the common should even trade with a premium versus the junior prfd. shares after the bailout.
So, why such a difference in the stock performance?
The junior prfd. share is largely own by the financial institutions (big banks, community banks, etc…) and are desperate to increase the value of their holdings in order to show fair value improvements in its securities in the quarterly results (the so called paper profits). Don’t underestimate the financial institutions’ paper profits in this recovery. They are huge.
BOTTOM LINE:
The junior prfd. shares have received the “go” by T. Geithner to begin the share price recovery.
The common share is a more sensitive issue, it needed to trade lower to let the Treasury keep announcing that both FnF needed another draw requests to Treasury (and therefore, the housing finance system will need a complete restructure).
I’ve explained wider yesterday that I expect the true restructuring plan to be announced in April-May, before AIG re-IPO.
Also, having seen:
1st. The hard work of the Treasury cooling down the common shares in order to get rid of speculators and high frecuency computers (that's why we enter the OTC market).
2nd. Calpers was forced to sell all its common share stake in FnF early January, because one guy with a laptop was accusing Calpers of insider trading (at a time where there are several SEC insider trading investigations). Explained above. Note that was beginning to build a new position.
3rd. The objective is to recapitalize the companies or new multiple cooperatives (You can't recapitalize a company injecting capital at a very low price).
4th. If the banks will step in the new multiple cooperatives structure, the government has to exchange its senior shares to commons and then sell them to the banks, but the big banks ought to show a haircut buying at a price well above $1. If the banks that caused the worst financial crisis ever, selling bad mortgages with faulty information to FnF, step in at fire-sale prices, Obama will have a political cost.
5th. China has been granted 6 major concessions in exchange of showing a haircut when it swaps bonds to common shares. (Chinese government and Chinese commercial banks). Explained above.
** T. Geithner will give the “go” to the common shares as of Monday to rise well above $1 **
#TECHNICAL ANALYSIS. Pennant or Symmetrical Triangle Pattern. The trend will continue as of Monday.
For a technical analysis I've chosen Fannie Mae because it's a more liquid company (much larger) than Freddie Mac.
It shows a Pennant or a Symmetrical Triangle Pattern.
In both patterns, the current quote is in the vertex of the triangle and will be broken on Monday.
In both patterns, the trend is expected to continue when the price moves above the upper trendline.
Have a look to the patterns in this link http://www.investopedia.com/university/technical/techanalysis8.asp
If you've read receivership or liquidation, forget it. That's just a typical disclaimer.
1st. A profitable company can't be liquidated and Freddie Mac has just reported two consecutive quarters with profits before the government's dividend and Fannie Mae a profit before dividend in the last quarter.
2nd. FnF's expertise and infrastructure are necessary to the new structure that will come up with the reform of the housing finance system, and I give you two examples:
a) Page 13 of the January HAMP report: "Freddie Mac, serving as Compliance Agent for Treasury’s Home Affordable Modification Program (HAMP), .....conducts a number of different types of compliance activities to assess servicer compliance with HAMP guidelines for those servicers that have signed a servicer participation agreement with Treasury..." So, Freddie Mac is the only game in town and is being used to recoup the economy, at the common shareholder expense.
b) Here is the explanation of ICBA, Independent Community Bankers of America, about the path towards a cooperative model: "The infrastructure of Fannie and Freddie ( including their personnel, systems, automated underwriting engines ) would transfer to the new co-ops.".
Again, their expertise and infrastructure are necessary, you can't liquidate them.
The commons have no voting rights at the present moment (conservatorship), but I was referring after the outcome of the restructure of the GSEs.
Conservatorship will no longer exist, so the senior prfd shares have to be exchanged to commons in order to have voting rights and to be monetized (sold to the market). It's AIG case.
A few days ago I commented that the FHLBank of Seattle is still considered UNDERCAPITALIZED by the FHFA, and I've found today what I was guessing after reading a Government Accountability Office, GAO, report a few months ago (commented above): FHFA on the FHLBs STATUS: "The examination also found that the financial condition and performance of half of the 12 FHLBanks was less than adequate. The Seattle Bank was, in fact, deemed Undercapitalized".
http://www.mortgagenewsdaily.com/05262010_fhfa_gses_fhlbanks.asp
The FHFA report explains why: "The six banks with a less than adequate financial condition had heavily invested in private-label mortgage-backed securities (MBS)."
It's a report of May 26th, 2010, but I bet they are still in bad shape (the Bank of Seattle confirmed a few days ago)
But here is the FHFA's capital classification, as of August 2009: http://www.fhlb-of.com/ofweb_userWeb/resources/capitalqanda.pdf
a)Adequately capitalized
b)Undercapitalized
c)Significantly undercapitalized
d)Critically undercapitalized.
BOTTOM LINE:
The FHFA has even invented one classification between a)and b), called "Less than Adequately capitalized", in order to avoid spreading the headline of -half of the FHLBanks deemed UNDERCAPITALIZED- throughout the media.
So, half of the FHLBanks are in bad shape as FnF for sure: Seattle is still deemed Undercapitalized and 5 are in limbo (between a and b). As far as I'm concerned, their status have not been updated.
That's why the FHFA allowed the FHLBanks, a few weeks ago, to voluntary merge.
There is a SUMMARY of the investment case of FnF + FHLBanks REFORM ALL TOGETHER above.
According to the Independent Community Bankers Association, ICBA, is estimated that the Community Banks own between $15b-20b in GSE junior prfd. shares (42%-56% of total outstanding), and affects to almost one third of the 5,000 Community Banks of the Association.
Source:http://www.icba.org/files/ICBASites/PDFs/ltr031210.pdf
What the ICBA's President doesn't know, or doesn't want to say, is that Conservatorship Mission aimed to save the bonds and Mortgage-Backed Securites, MBSs, in the hands of foreign financial institutions, foreign governments, domestic banks,.... but also in hands of the Community Banks.
So, he should have said thanks to the government when he wrote a letter to Geithner. Now that the bonds and MBSs are saved, it's time for the stocks to recover.
If only the Community Banks own aprox. 50% of all the junior preferred shares, we can assume that, with the rest of financial institutions, the retail investor has a minor stake.
Have a look to the comment about their Prospectus (Feb. 2nd): The 3rd point says that they can alter everything with a 2/3 majority. So, all will be altered in their conversations with the government, like the conversion price to common shares. It's a way for the Community Banks (that are also FHLBs) to step in the cooperative-banks that will come up from FnF.
The Symmetrical Triangle Pattern mentioned two days ago is still on track.
Today Fannie Mae has gone to the lower trendline of the triangle. It should be broken in no more than 2-3 days.
Let's hope is the upper trendline the one broken, haha.
It’s very interesting what I’ve found in the Prospectus of the Treasury's Warrant and in the Prospectus of the Senior Preferred Share Agreement.
To be exact, the Warrant representing 79,9% of common shares with exercise price of nearly 0, cannot be transferred, but when the Holder (Treasury) decides to exercise the warrant, it can assign the new common shares issued to other Person (individual, corporation or any entity), so, it’s like a transfer. This Person shall be deemed Holder the exercise day, according to the covenants. (It seems that the government doesn’t want to appear in this trade).
Point 2.1 http://www.treasury.gov/press-center/press-releases/Documents/warrantfrec.pdf
We know that FnF will be privatized, in other words, the banks will step in. Maybe the way they will step in is when the Treasury assigns to them the shares coming from the Warrant.
But are they gonna pay 0 for 79,9% of FnF? I guess not.
Now we go to the Prospectus of the Senior Prfd. Share Agreement. It mentions the possibility of redeeming the Senior Prfd. Shares indirectly.
Point 5.1. http://www.treasury.gov/press-center/press-releases/Documents/seniorpreferredstockpurchaseagreementfrea.pdf
BOTTOM LINE:
When these Prospectus were written in 2008, they included the exit strategy for sure. All had to be tied and well tied.
Therefore, it’s very weird to see the two issues mentioned above written, and could be the exit strategy or GSEs final capital restructure.
The Treasury exercises the warrants but assigns to the new banks the 79,9% of common shares. These banks pay the Treasury redeeming all the Senior Preferred Shares. Obviously, the payment to the Treasury shall be the cost to the taxpayer $127.9 billion and not the $155.9 billion invested in FnF, because the Treasury has already been partially repaid with the dividend. (Figures as of March 31, 2011. Explained in my blog).
Some bondholders would like to step in along with the banks in order to help in the recapitalization.
This means a huge capital injection at very high prices, therefore it’s massively accretive to the existing common shareholder even if it is diluted in the new entity.
The prospects of a very viable road to recovery outweigh any future dilution.
Let's see.
1- Multiple cooperative model: the actual common shareholder will be delisted with a minority buyout.
2. One single GSE cooperative: commons + junior prfd. shareholders will own 20.1% of the new entity. (We could be more diluted, obviously). Also, I've already mentioned that this is the best scenario for us, having a piece of the cake, and now I think is more probable).
I'm gonna continue talking about the 2nd scenario, commented widely yesterday.
Taking into account the real Taxpayer cost (government's investment less dividends received)on March 31th: FREDDIE MAC: $51.1 billion; FANNIE MAE: $76.8 billion
...I've run some numbers:
Taking into account the number of junior prfd. shares outstanding (relying on the data out there),
-Assuming that 1 junior prfd. share called $50s is 2 junior prfd. share called $25s.
-Under this new scenario, both junior and commons will own 20.1% of the new entity.
-Assuming that 1 common share is 1 junior prfd share called $25s (After a bailout we have the same Rights)
My price for the existing common share is:
FREDDIE MAC: $8.4 pps
FANNIE MAE: $9.3 pps
Fannie' price is higher than Freddie mainly because Freddie actual common share will be more diluted in the new entity because it has more junior shares outstanding than Fannie.
Just guessing.
In this new scenario, the way the Treasury has to get rid of unwanted shareholders (as the FHFA will do with the FHLBs' members on the March 28th meeting), is just to threaten to wind down the company in order to avoid speculators from building a significant stake. So, the actual minority shareholder is wanted in the new GSE!
The support lower trendline didn't work, it usually happens. It doesn't matter. There is another support level in today's close, but let's forget the technical analysis and let's focus on fundamentals:
- Both FnF are already profitable before the government's dividend and both delinquency rates declined in january.
- The "go" given to the junior preferred shares (mostly Community Banks).
- The restructuring plan announcement before AIG re-IPO.
Timothy "3 options" Geithner won't dare to do the AIG re-IPO before a FnF reform. If that is the case, he will eat all AIG shares not sold in the IPO.
Let's wait for Geithner's "go" to the commons.
Next, I'll compare GM IPO, AIG IPO and FnF exit plan.
I'm gonna talk about the government's exit plan of all of them, not if one went to bankrupcty before or not. FnF are already in conservatorship.
In the GM IPO, the government granted GM with a $14 billion tax break ("gift"), "the fact that GM kept the tax breaks made its stock more attractive at the time of its initial public offering last November"
Article http://money.cnn.com/2011/02/23/news/companies/gm_bailout/index.htm
AIG re-IPO: The government has to sell 1.6 billion common shares, and has delayed the IPO to April-May from previously scheduled March.
How the hell is gonna make AIG stock more attractive to flood the market with shares?
Response: It will announce the Housing Finance System revamp before the AIG-reIPO.
AIG re-IPO and Morgan Stanley new Larry Summer's role is explained in a comment before.
The government delayed its January 31th FnF Reform deadline.
The government delayed its March AIG re-IPO deadline to May.
BOTTOM LINE:
Coincidence? I guess not.
All had to be delayed 3 months to finish the restructuring plan and show better numbers with the close of the 1Q.
AIG underlying results were very poor and took an increased reserve.
And reported a operating loss of $2.2 billion.
How the hell the government is gonna sell a single share without any action to attract investors?
After a FnF reform announcement, the market will gobble up AIG shares like mad in the IPO.
"Time is not on our side," DeMarco said. "While a lengthy transition is likely inevitable and necessary, we need to begin moving ahead now to determine the future of our nation's housing finance system."
- This is what I've said many times: To set a cooperative model is a lengthy process, so it has to be announced now, as DeMarco says.
"We hope Congress comes to a decision on the issue soon," Edward DeMarco said. "The longer the future housing structure remains uncertain the more alternative housing structures will emerge."
- Yes, you read correct. He asked to announce the plan soon.
This phrase deserves a special comment: he is preparing to wind down the government's position in Freddie Mac and Fannie Mae.
Now we know why the stock declined yesterday. But we all know that, in the american clown vocabulary, wind down a position means to sell a position.
http://www.thestreet.com/_yahoo/story/11035737/1/shadow-banks-need-regulation-fed-official.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA
http://www.reuters.com/article/2011/03/08/us-fannie-freddie-regulator-idUSTRE72755P20110308
Please, sign the petition to set up politicians market manipulators tribunal.
Trying to cool down the common shares we've had: FHFA's Director, Conservative Party, White House staff, Treasury's members, Government's close media, Barney Frank, US state controlled CNBC, Geithner and also a top chinese economist!! hahahaha.
Who will be next?
I bet it will be Geithner.
Remember always that the more attempts to cool down the shares, means the restructuring plan approaches.
It will be unveiled before AIG re-IPO, so April or early May.
I continue gobbling up junior prefds shares and commons like mad.
The case of a new single cooperative GSE, mentioned in a comment above, refers to a 91.5% dilution of Freddie Mac common shares and a 89.2% dilution of Fannie Mae common shares.
The prices seem foolish. But if you think of owning approximately 10% of the whole US Housing Finance System, aren't that foolish.
One month to the restructuring plan announcement before AIG re-IPO (May).
According to the New York Times, "two exceptions are Fannie Mae and Freddie Mac, the government buyers of loans, which will not allow loans that they still own to qualify for the program."
http://www.nytimes.com/2011/03/13/realestate/13Mortgages.html
This program refers to forgiving part of the mortgage debt to borrowers that owe more than their home is worth. Therefore, a program to benefit a priviledge few (Socialism).
The lenders that agree to take part in the program shall report huge losses because of higher writedowns.
There were noises in the market about FnF taking part of this program the last days, and noises about a huge impact in their results, because both guarantee most of the mortgages out there.
This is great news and should be a relief to the stock prices.
Today we’ve learnt that AIG has offered to buy back, for $15.7 billion cash, Residential mortgage-backed securities (RMBSs) to the Federal Reserve, that previously had purchased them in 2008.
This holding of RMBSs will give AIG the ”benefit from the enhanced investment income that AIG receive as a result of owning the assets”, according to the AIG’s SEC report.
But holding a $15.7 billion RMBSs portfolio isn’t a “gift” in itself. That portfolio needs to have prospects of a better housing market, but for the time being, with the uncertainty with the FnF Reform thanks to Timothy “3 options” Geithner, the housing market is heading towards a double-dip.
BOTTOM LINE.
The restructuring plan for the whole US Housing Finance System (FnF + FHLBs) will be announced before AIG re-IPO in order to attract massively investors in the 1.6 billion AIG shares IPO.
We already knew about home prices declining again and the enormous home inventory, but here is what a real-estate's CEO had to say about the shrinking housing market in his aerea and everywhere:
"Confusing discussions about the mortgage interest deduction, Fannie Mae, Freddie Mac and other housing programs are causing people, who are already cautious due to the economy, to be concerned and even more hesitant to make significant purchases.”
http://www.bizjournals.com/nashville/news/2011/03/09/nashville-home-sales-lose-ground-in.html
Yes, you read correct. The uncertainty about FnF Reform (a political issue) is causing a double dip in the housing market.
That's why FnF ought to be fixed immediately.
I've already explained that my investment case is a complete Housing Finance System reform, therefore, not only FnF but the 12 FHLBanks that are also government-sponsored entities. But we can’t leave aside the Federal Housing Administration, FHA.
FHA mortgages were created by the United States government to give borrowers with low credit scores and low down payments, who could not qualify for a FnF mortgage, the opportunity to buy a home (mainly first time home buyers). So, the worst of the worst mortgages out there.
For the time being, FHA’s guarantee fee was very low for the high risks incurred. But if you are gonna restructure the whole housing finance system where the banks will step in, these banks will require adequate fees for their risks in order to step in, won’t they?
Starting April 18th all FHA mortgages will cost more (from 0.5% to 1.5% or 1.55% if your down payment is less than 5%).
As you well know my latest bet is a new MacMae Inc. Cooperative GSE and will be announced in April, before AIG re-IPO of May.
If you think that this huge increase in fees has nothing to do with a complete GSE reform, then your view must be that the government wants a double dip in the housing market because is increasing dramatically the mortgages’ cost to future borrowers.
You choose.
http://www.startribune.com/blogs/117818493.html?elr=KArksLckD8EQDUoaEyqyP4O:DW3ckUiD3aPc:_Yyc:aUgOy9cP3DieyckcUsI
* Remember always that it doesn't matter neither the timing of the announcement nor the type of restructuring plan or colour of Geithner's tie the day he announces the real reform.
We are here just because the existing shareholders will benefit from a recapitalization. That's it.
Also rememember: risk-reward or risk-peniless.
Donald Bisenius, Freddie Mac's Executive Vice-President, said on February 24th that he had received a notification of investigation (a Wells Notice) by the SEC, and announced that he will 'voluntarily' leave the company on April 1st.
Primarily, an Executive Vice-President that could face SEC charges should leave the company immediately, and also in a company under conservatorship, but he is waiting unitl April 1st.
Here is an example:
On February 10th a former Freddie Mac's Executive, Piszel, said that he had received a SEC notification and resigned, effective immediately, as CFO of CoreLogic Inc. http://www.rttnews.com/Content/BreakingNews.aspx?Id=1550357
BOTTOM LINE:
The odds are that Bisenius received the Wells Notice the same day as the former Executive, Piszel, on February 10th. But the Treasury decided to make it public on February 24th. Why?
Maybe it's because the Treasury was interested in keeping Bisenius until the end of the quarter, and the later the announcement the closer the end of the quarter. Just to avoid noise in the media.
But the important issue: Why to keep a high-profile executive until the 1Q books are closed? Is the company finalizing a major restructure internally and this executive is needed? What will really happen on April 1st?
Reminder: my latest view is a new MacMae Inc. Cooperative GSE, after reading the Warrant's and Senior Prfd. Share's Prospectus, so it's not the multiple cooperative model with a delisting minority buyout. But whatever the restructuring plan, I'll like it.
Anything can happen.
Let's get it. GSEs come on.
If you've not noticed, for the first time in three years, both GSEs have risen risk fees, ranging from 0.25% to 0.5%, depending on your credit score and applied to all kind of borrowers.
Freddie's go into effect on March 1 and Fannie's on April 1.
http://www.builderonline.com/mortgages-and-banking/fannie-and-freddie-raise-fees-for-borrowers.aspx
Therefore, higher profitability looking forward, better credit standars since three years ago .....
BOTTOM LINE:
Keep buying commons and junior preferred shares (as hedging) like mad.
Let's remember how a Treasury Official pledged to unveil the Housing Finance System reform on January 2011, and said that the plan "will call for fundamental change".
http://www.americanbanker.com/issues/175_178/treasury-official-pledges-gse-plan-soon-1025591-1.html?pg=1
You can feel the government's pressure to unveil a reform soon in the article.
When government's members have their names ending in ..ino or ..one and one is called don Vito, it's better to buy junior preferred shares as well as commons (50%-50%), just to hedge your position if I was wrong about my first comment where I said that this time we were not talking about a bunch of thieves.
The risk-reward is much better for the junior preferred share at the present moment.
16 days to the announcement, or so... (The shareholders can wait much more, but american's jobs can't wait any longer)
January net purchases of FnF long-term bonds=$11.3 billion ($9.6b. Foreign Official Institutions + $1.9b.Other Foreigners).
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/agnsect.txt
Why are foreigners purchasing FnF long-term bonds like mad in companies that are gonna be wound down?
Now it's time for Geithner to say: "BONDHOLDERS SHOULD BE ABOLISHED".
*Read my comment about "Wind-down wishful thinking vs reality".
16 DAYS & COUNTING ...
A fragile economy in the hands of low-profile politicians, not only can delay an economic recovery (as this is the case), but could also derail it.
I've already warned in several comments, that the housing market is shrinking again thanks to the uncertainty about a FnF reform, but also because of the effect of all the politicians saying that they want to wind down the companies that are recouping the economy and saying that they are going to wind them down by rising mortgages fees, rising down payments and lowering the size of the mortgages. In other words, they are scaring the taxpayer.
But now they are aware of their mistake and are retreating (Is it because AIG is gonna purchase $16b. worth of RMBSs (toxic mortgages) to smooth the government's AIG re-IPO?):
-Government: Geithner has said today that he urges caution in winding down FnF.
http://www.smartmoney.com/breaking-news/ON/?story=ON-20110315-000247
-Conservative Party: a spokesman for Rep. Garrett said today the unveiling of the bills that urged to speed the wind down of FnF, has been pushed back.
http://blogs.wsj.com/developments/2011/03/15/do-republicans-lack-consensus-on-plan-for-fannie-freddie/?mod=google_news_blog
They know nothing of how bad things are out there!
Know. Nothing.
R.Shiller, Yale University economics professor (he created the S&P/Case-Shiller Home-Price Index), also said yesterday: “The news doesn’t look so encouraging right now with us talking about phasing out Fannie and Freddie, which are the main supports of the housing market”.
http://www.businessweek.com/news/2011-03-15/shiller-says-fannie-freddie-phase-out-threatens-housing-market.html
Geithner’s statement at Brookings on February 11th, just after he unveiled his “3 options plan” to revamp the Housing Finance System, will be remembered in future generations.
He is proud to have introduced a 3-7 years plan without legislation, that will create the necessary uncertainty in the market.
“Although we’re starting with this White Paper(3-options plan), we don’t want legislation to be too far deferred. We can do this initial transition thing in without legislation, but ultimately we’re going to have to explain to the market what the end game is going to be, and we can’t wait too long to lay that out.”
“We need to just have a little more time for that uncertainty about the future to be reduced a bit”
Page 16-17
http://www.brookings.edu/~/media/Files/events/2011/0211_
mortgage_market/20110211_mortgage_market_geithner.pdf
BOTTOM LINE: Two possibilities:
a) He is a low-profile politician that will be remembered in future generations.
b) He is just trying to avoid speculators from building a significant stake in FnF, while buying time to unveil the true restructuring plan for FnF on April.
You choose.
The Securities and Exchange Commission, SEC, has sent, during the last weeks, several notifications of investigations (Wells notice) not only to the former Freddie’s and Fannie’s chief officers, but to other former top executives and one current Freddie Mac’s executive, and “at least two others are thought to have received them”.
The SEC is investigating their disclosure practices, that is, how FnF publicly disclosed their exposure to risky loans, “according to the people briefed on the investigation who spoke on the condition of anonymity”. So, no big deal, nothing about accusations of wrongdoing or something similar.
The SEC could decline to file suit against any of those who received the Wells notice. Also they can challenge the allegations against them, and it’s what they are doing:
-Mr. Syron, ex-Freddie Mac’s CEO, said “company’s disclosures were in fact wholly accurate and complete”.
-Mr. Mudd, ex-Fannie Mae’s CEO, said the disclosures under SEC investigation "have been issued in the same form since the company went into government conservatorship".
http://dealbook.nytimes.com/2011/03/15/ex-chief-of-freddie-mac-may-face-civil-action/?ref=business
BOTTOM LINE
This is a smokescreen just to blame the former FnF’s practices of nothing, that is, to create a weird atmosphere about their corporate governance.
The government aims to prepare the taxpayer for a big banks-led takeover of FnF.
Two weeks for the real restructuring plan announcement. Time enough for more government’s shows.
REMINDER: BUY BOTH JUNIOR PREFERRED SHARES AND COMMON SHARES (50%-50%).
The U.S. Government delayed AIG re-IPO from March to May, but the odds are that it's going to cancel the IPO for two reasons that are facts:
1st. AIG is going to buy back almost $15.7 billion in residential mortgage-backed securities (RMBSs). They are the same toxic mortgages that almost collapsed the company two years ago.
AIG is buying these toxic-securities at a time when the housing market is plunging again: Housing Starts fell 22.5% in february, the biggest drop in 27 years.
2nd. AIG is one of the U.S. insures with the greatest exposure to the Japanese earthquake and resulting tsunami: http://www.thestreet.com/story/11041340/1/quake-may-wipe-out-insurer-earnings-analysts.html?cm_ven=RSSFeed
Who the hell is gonna buy a single AIG stock in the government's IPO?
BOTTOM LINE:
The government needs the Housing Finance System reform announcement desperately, in order to smooth the AIG re-IPO in May, but also to avoid another AIG bailout ($15.7 billion in RMBSs and the housing market shrinking!!!!).
Through US state-controlled CNBC, Republican J. Hensarling has announced today a bill to wind-down FnF in 5 years. The same bill that the Republican Garret pushed back two days ago (commented above). Definitely, the conservative party is fragmented.
-Republican J. Hensarling:
In a 5 year time frame, the Republicans want to shrink the company’s portfolios to $700billion, and then eventually $200 billion.
*RESPONSE:
Freddie Mac and Fannie Mae have now a mandate under conservatorship, to reduce their mortgage portfolio 10% each year.
But the reality is that in February (latest data) Fannie Mae increased its gross mortgage portfolio 5.7% year on year (735,205 to 777,259) and Freddie Mac reduced its mortgage portfolio just 4.3% yoy.
It’s very funny to hear that the Conservative Party wants to wind down the companies that are the main support to the housing market.
-Republican J. Hensarling:
And then put FnF under receivership.
*RESPONSE:
Do they really know what receivership mean? It means that all FnF’s debt would be incorporated into the Federal Budget, that is , the US Debt to GDP ratio would skyrocket to more than 160% and the world economy would collapse because of the US Debt Crisis.
BOTTOM LINE:
This is the final proof about an imminent restructuring plan announcement of FnF. They are desperate to cool down the shares before the announcement in order to avoid speculators from building a significant stake.
I told you that the more attempts to cool down the shares, means the restructuring plan approaches.
Newbie MacMae Inc. Cooperative GSE is coming.
14 DAYS & COUNTING…
Here the Washington Post mentions that the agency that oversees FnF, the Federal Housing Finance Agency (FHFA), disagrees with the SEC on the allegations about FnF’s financial disclosures: ” FHFA officials think Fannie and Freddie’s financial disclosures, which agency staff members had reviewed before the documents were released to the public, were sufficient, the sources said. One source added that FHFA has sent a letter to the SEC opposing the filing of charges”.
Is the SEC going to send a Wells notice to the FHFA as well?
http://www.washingtonpost.com/business/economy/sec-moves-toward-charging-fannie-mae-freddie-mac-executives/2011/03/17/AB535zm_story.html
Here Bloomberg mentions why the SEC just accuses FnF’s executives (among other executives after the financial crisis) of misleading in the financial disclosures, but nothing about fudging numbers, that is, accounting: “SEC clings to the position that there were no errors in those companies’ financial statements, it can’t allege there was anything wrong with the firms’ audits. That helps shield the auditors from potentially crippling liability in private securities litigation.”
http://www.bloomberg.com/news/2011-03-16/moral-for-ceos-is-choose-your-fraud-carefully-commentary-by-jonathan-weil.html
If you think that the SEC allegations, just after Gethner unveiled his 3-options-plan to revamp the housing market, have nothing to do with an imminent GSE reform announcement, you are not from this planet.
13 DAYS & COUNTING (What surprises will Geithner give us before the unveiling of the true restructuring plan? Stay alert )
The Federal Reserve deems the big banks healthy after passing a new financial “stress test” released yesterday.
http://www.washingtonpost.com/business/economy/fed-deems-several-major-banks-healthy-enough-to-pay-dividends/2011/03/18/AB7XzBs_story.html
The press just focuses on the fact that this means a “go” to increasing dividends, but the reality is that this is a “go” to the big banks to be part of the imminent privatization of the GSEs.
We shall see.
*Note: Have a look to the extremely high trading volume the last 40 minutes of session yesterday in both state-controlled AIG and GSEs, the day the options (derivative instrument) expired. I reserve my comment here.
This post will be destroyed the day after a recapitalization of the GSEs is announced.
If that is the case, it will be proved that the US Housing Finance System had to be fixed, and the politicians just tried to gain time until the banks had improved their balance sheet to carry out the privatization. In the meantime, they had to avoid speculators from building a significant stake in the GSEs.
If I were a politician, I would have used the same tactics exposed in this post. That’s why there is no need to keep this post beyond that date.
The purpose of this post was just to encourage other stockholders that have lost almost all their investment, and make them feel confident on FnF’s prospects.
Let’s get it.
GSEs, come on.
The Treasury has just announced is gonna sell its position in Mortgage-Backed Securities (MBSs) purchased to FnF during the financial crisis.
A brokerage firm woud down its stock position late last trading session, AIG is buying back its RMBSs, and now the Treasury is gonna sell its position in MBSs... Hey! Wake up! Everybody is winding down its position built during the finacial crisis! The end of 1Q will be the line in the sand.
We shall see.
*Note: The Federal Reserve has $944 b. worth of MBSs and $140 b. worth of FnF bonds. The Federal Reserve has another mandate, so it can hold the MBSs portfolio until their maturity date, and with the GSE bonds, will help the Federal Reserve in the recapitalization? Yes.
Treasury press release:
-"Treasury to begin orderly wind down of its $142b. MBSs portfolio"
-"Part of continued wind down of holdings adquired as part...."
-"Today, the U.S. Department of the Treasury announced that it will begin the orderly wind down ..."
-"We’re continuing to wind down the emergency programs that..."
-" That firm will manage the wind down of this investment..."
-"The sale of these securities is part of Treasury’s continued efforts to wind down emergency programs ..."
http://www.treasury.gov/press-center/press-releases/Pages/tg1111.aspx
Understood.
10 DAYS TO WIND DOWN THIS POST & COUNTING.
Curiously enough, I’ve ended with the same idea as my main post, a combined GSE (I’ve added later a FHLBs’ and FHA’s reform altogether, cooperative model,...), and also I’m gonna end with Wells Fargo, who was mentioned in one of the first posts (October 4th). Then, Michael Heid, co-president of Wells Fargo Home Mortgage, mentioned a combined GSE with “at least four, but not more than eight” private lenders, and today John Stumpf, chairman, president, and CEO of Wells Fargo gives us a superb teaching on the GSEs reform in a CNN article:
It's exactly my restructuring plan:
-Banks with skin in the game= cooperative model
-A "catastrophe risk" backstop up to a certain amount = a higher government's guarantee (higher fee to banks).
Also he adds a higher down-payment.
This way everybody will have skin in the game.
http://money.cnn.com/2011/04/04/real_estate/john_stumpf_mortgage.fortune/?section=money_latest
DO YOU REALLY THINK THIS SUPERB TEACHING TODAY IS A COINCIDENCE?
1-LATEST NEWS.
Freddie Mac: Single family delinquency rate fell 4 bp to 3.78% in February.
Fannie Mae: Single family delinquency rate fell 3 bp to 4.45% in January.
Both are improving dramatically.
2-WHY I THINK THE ANNOUNCEMENT IS IMMINENT:
-HAMP Termination Bill approved on March 29th. They are winding down the plans before a GSE reform.
-Geithner and W. Qishan met in China on March 31th, at the G20 Seminar (Obviousily, it couldn’t be held other day and place, hahaha).
-David Stevens resigned, effective date April 1st, as Federal Housing Agency’s commissioner (FHA). The commissioner at other agency, the FHFA (regulates FnF and the FHLBs), is still vacant since many months ago.
-Proposed rule: 5% risk retention for all mortgages with down-payment of less of 20%, except those guaranteed by the FHA and FnF (95% of the mortgage market). This would mean less private competitors and long life to FnF, so, what phasing out FnF? (also note that the politicians want to attract private lenders rising the guarantee fees to FnF, in other words, increasing FnF’s profitability and now with this proposed rule, the only game in town forever, hahaha).
Barney Frank later said, in an interview, not in the Congress, that this rule should apply to FnF, just to make noise in the market.
-On March 31th, an official report was released criticizing the high executive pay at Fannie and Freddie, in another effort to spread noise around the GSEs. Curiously enough, one of the 8 bills proposed by the Republicans before this report, talks about forbidding FnF’s employees from being paid more than analogous federal workers.
-April 8th deadline for negotiations in order to avoid a Federal Budget shutdown. But the reality is that Republicans agree to extend the budget in exchange of having a role in the preparations of the GSE reform, that is to take a hard stance on FnF reform the previous days of the announcement, utilizing TV shows, Congress Hearings, etc...
-The $14.3 trillion legal debt ceiling the US can have, would be reached on May, that’s why AIG’ and Ally financial (GMAC)’s IPO is needed, but also recouping FnF’s investment first.
-If the banks will step in, as this will be a major investment and restructure of the banks involved, it needs the Shareholders Meeting’s approval. And now begins the Shareholders Meeting period. In the European ISP that I refer to above, occurred the same, it was announced just before its Shareholders Meeting.
3-WHY I THINK IT COULD BE TOMORROW:
-On march 31th, the Conservative Party reintroduced the same 8 bills introduced one week earlier to wind down the GSEs, just to make noise in the market. The vote on the proposed rules is scheduled to April 4th, tomorrow.
-Everybody talks about FnF wound down, but if one bill talking about winding down the GSEs is approved and then signed by Obama, becoming a Law, according to the junior preferred prospectus mentioned in a comment above, they are entitled to get full price in the case of a wind up (close down), it’s called Liquidations Rights. This would translate into an imminent bankruptcy of FnF.
-Also on March 28th, 16 major organizations in the Housing Market released a report that is a hit to the politican’s rethoric of winding down the GSEs and the lack of a comprehensive reform. Yes, 16 organizations:
http://mbaa.org/files/News/InternalResource/76127_CoalitionHousingFinanceReformPrinciples.pdf
That’s why I think they won’t dare to vote something so ridiculous tomorrow and will vote the real GSE reform.
- Also in the next link, Garrett spokesman Ben Veghte said on April 2nd: “We’re a go for Tuesday”. You know that I’ve talked about the “go” of Geithner to the junior prfd. shares and that we are now waiting for the “go” to the commons. Did B.Veghte mean what I’m thinking? Hahahaha.
http://www.bloomberg.com/news/2011-04-01/homebuilders-and-realtors-ask-republicans-to-delay-gse-bills.html
LET’s GET THE PARTY STARTED!
"While an overhaul of the housing finance system will take years to complete, U.S. authorities need to step up their efforts now to develop and implement an appropriate action plan," the IMF said.
Efforts NOW. Geithner, you heard it?
Also the IMF criticizes the utilization of FnF's balance sheets to recoup the economy.
http://www.reuters.com/article/2011/04/06/us-imf-housing-idUSTRE73548320110406
The Conservative Party yesterday, IMF today,...the pressure is mounting to announce the privatization of FnF.
Also the extension of the Federal Budget deadline is next Friday, and FnF is in the table of negotiations for sure.
Let's get it.
GSEs, come on.
The restructuring plan is clear, now the timing of the announcement is left.
-We are under the brokerage firm Mercator Associates’ Trading-Conservatorship. They tumbled FnF's quotes (and also AIG) the last 40 minutes of trading on March 18th with huge volume (see the graph). And since then, we’ve been under their severe control, they lower the quotes when we try to go higher, but also they have best bid and ask every minute. It’s interesting that we are 15 trading days since that happened and on April 18th it will be 20 trading days since that happened.
-Why is important the 20 trading days? According to the Government’s Warrant prospectus mentioned above, the “Fair Market Value” of FnF means “the volume weighed average daily market price during the period of the most recent 20 trading days”. This figure is only important to value the fractions of a common shares when the warrant is exercised, so peanuts, but it has to be calculated, and it’s better if the quotes are under control the previous days of the announcement and not near $1 with all the speculators longs.
-Also April 18th is before the first Annual Shareholders Meeting among the 4 big banks, it’s Citigroup that has its meeting on April 21th. April 19th is a religious day, so it’s better to announce the GSE reform before. If there will be a major shake-up among the big banks’ mortgage units, it has to be approved in their annual shareholders meeting.
-The FHA will step in the new MacMae Inc., they are in bad shape as well. Starting April 18th all FHA mortgages will cost more (from 0.5% to 1.5% or 1.55% if your down payment is less than 5%). Everybody has to increase their fee for their risks if the banks will step in injecting capital and will be exposed to those risks. Also the FHA' commissioner resigned on effective day April 1st.
-Also the government wants to gain time while AIG is buying its RMBS portfolio to the Fed in several auctions. AIG must purchase as much toxic assets as possible before its IPO and before FnF reform announcement (Black swan trigger event).
-Also we’ve seen the huge pressure to tackle this problem, from the IMF, conservative party, to many Housing Market participants. And what the politicians have shown are stupidities, like winding down FnF, the main support of the housing market. If there is a Law talking about winding down FnF, the junior prfd. shareholders are entitled to get full price, which means the imminent FnF’s bankruptcy. Also FnF will avoid the 5% retention proposed rule, becoming the only game in town, so what phase out?
Well, this is just another idea, it could be announced after April 18th, we know. All could be a coincidence, ….. or not.
Geithner, we are not in a hurry, but don’t waste time, for the good of the economy.
If you think that the IMF and S&P hard stance against United States is a coincidence, you are not from this planet.
The U.S. protected the big U.S. rating agencies from potentially crippling liability in private securities litigation because they overrated the toxic assets that caused the worst financial crisis ever.
Also the U.S. is the largest contributor to the IMF.
Both will do what the U.S. says. The politicians need pressure to unveil the privatization of the whole U.S. Housing Finance System.
Stay tuned.
(Don't mistake my bet about the restructuring plan for the bet about the timing of the restructuring plan announcement, two different bets)
Well, it seems that the restructuring plan doesn't need approval at the big mortgage lenders' annual shareholders meeting.
Maybe the reason for the delay has to do with the quarterly results releases of all large participants in the Housing Market.
In AIG case, I mentioned in a comment above that, under regulatory requirements, the IPO should occur after its quarterly results.
Maybe we are in a similar case:
Today Morgan Stanley has published its quarterly results, and Morgan Stantley has a mortgage servicing unit.
It's reasonable to think that the mortgage-servicing practices that are under investigation, will take part in the restructure of the whole U.S. Housing Finance System, isn't it?
I think that after MS results, all traded-companies with interest in the Housing Market among the big ones, have already published its quarterly results.
Anyway, the restructuring plan will be announced before AIG re-IPO in order to smooth the government's massive AIG common-shares sale.
-The shares called $50 were trading one month ago between $3 and $3.5 aproximatelly, and most of them in the range $3.3-3.5, but now they are all trading at nearly $3 (regrouping).
-The shares called $25 have closed near $1.5.
-The shares called $25 but with large amount of shares outstanding (FNMAS,FNMAT,FMCKJ) have closed at or near $1.8.
*Just one exception: FANIP closed at 0.7 but the bid-ask gap is huge.
Prices below.
This means that the restructuring plan announcement is imminent.
...AND THE SEVENTH DAY RESUCITATED. Ebano's word 22.4.11
Freddie Mac:
FMCKJ 1,8
FMCKI 1,57
FMCKL 1,5
FMCKN 1,53
FMCKM 1,52
FMCKO 1,52
FMCCT 3,05
FMCCS 3,05
FMCKP 3,02
FMCCJ 3,01
FMCCP 3
FMCCN 3,05
FMCCO 3
FMCCM 3,12
FMCCL 3
FMCCK 3,1
FMCCG 3,1
FMCCH 3
FMCKK 3,05
FMCCI 3,05
Fannie Mae:
FNMAP 3,08
FNMAO 3,1
FNMAM 3,05
FNMAG 3,14
FNMAN 3,05
FNMAL 3,05
FNMAK 3,02
FNMAH 1,52
FNMAI 1,5
FNMAJ 1,51
FNMAS 1,82
FNMAT 1,8
FANIP 0,7
The government announced this week (leaking the news to its close media which always says:"sources with knowledge of the matter said") that is going to speed the sale of its remaining 33% GM common shares stake.
Not only GM is trading 43% below the Government's breakeven price at $53, but the stock will go lower if nothing happens till the sale day because of the huge overhang (potential massive stocks flood).
Do you really belive the government when says that "is willing to take a loss" of much more than the actual 43%?
BOTTOM LINE:
This is another reason why the GSE reform is imminent. After the black swan trigger event for the market, the government could sell the entire GM stake easily without taking a huge loss.
(It seems the Republicans forced Obama to get rid of the entire GM stake asap, as part of the ongoing negotiations: Budget, debt ceiling).
LATEST U.S.-China MEETINGS:
-Mid December- The 21st meeting of the China-U.S. Joint Commission on Commerce and Trade (JCCT) was held in Washington.
-January: China Official State visit to United States.
-February 18- An “unofficial” US delegation met with W. Qishan (China’s Vice Premier and GSE reform mastermind) in Beijing to “promote bilateral trade cooperation”, and curiously enough, Executive Chairman of Morgan Stanley John Mack headed the “US business delegation”. (Remember that I’ve commented that the Treasury picked Morgan Stanley for the GSE restructuring plan and that’s why was snubbed from AIG re-IPO).
-March 31. Geithner met with Qishan on the sidelines of a G20 Seminar held in China.
-Also the annual US-China Strategic and Economic Dialogue is expected to be held in early May.
Therefore, don’t tell me that the purpose of last week trip to China was to boost bilateral trade.
They say that the secrecy of the last-minute trip to China has to do with security reasons, but it seems that they don’t care to risk their beloved spouses’ lives, at the taxpayer cost.
Why did the US largest-ever delegation (10 senators, 10 spouses, five staff members and assorted foreign service officers) travel to China?
BOTTOM LINE:
This heavyweight delegation week-long trip has to do with Geithner’s latest chess move: to force S&P to lower the U.S. Debt rating outlook, in order to smooth the announcement of the privatization of the whole U.S. Housing Finance System and avoid a taxpayer shock.
China’s government (also China state-controlled commercial banks) is the largest holder of US Treasuries and FnF’s bonds (both with lower debt rating outlook now).
It seems that Geithner latest move took W.Qishan (GSE reform mastermind) by surprise and quickly, the largest ever U.S. congressional delegation departured to China to explain Geithner’s chess game.
But remember, after the Budget and Debt Ceiling negotiations with the Republicans, it’s not just Geithner’s chess game, but Congress chess game.
It’s the seventh time in the last 6 months, the U.S. takes down its trousers in front of China, for the good of the recapitalization of the GSEs, so for the good of the U.S. taxpayer.
Chinese officials were upset for the delay in the GSE reform announcement and S&P latest move, but felt overhelmed with this heavyweight delegation and felt very pleased. Now it’s U.S. turn again: THE GSE REFORM IS IMMINENT.
http://www.washingtonpost.com/politics/harry-reids-high-stakes-china-gamble/2011/04/21/AFGH8cKE_story.html
I've already commented several examples of how the U.S. government utilizes private media companies to leak its political messages (manipulate the markets).
Here are the two latest examples:
1-The WSJ reported that all the analysts that cover FnF say the common share is worth zero, as a response to Nader's letter to Geithner. But the reality is that the common shares will recover partially the huge loss after the restucturing plan is unveiled.
2-The Financial Times reported last week that the US largest-ever Congressional Delegation trip to China, was "a long-planned trip, which was almost delayed by budget negotiations in Washington". http://blogs.ft.com/beyond-brics/2011/04/18/bad-timing-us-senators-visit-china/ But the reality is that it was a last-minute-planned trip after Geithner forced S&P to lower the US Debt rating outlook. Commented a few days ago.
BOTTOM LINE.
Ssssshhhh. Don't say Ebano told you. Big Brother is watching you.
I said on April 21th that "all traded-companies with interest in the Housing Market among the big ones, have already published its quarterly results", but I was wrong. There are two companies left, and their names begin with the letter F.
FnF trading in the OTC Markets, are not obliged to publish quarterly results (but they said are gonna keep releasing reports), so I think they don't have any regulatory requirements whatsoever, but we need to now the quarterly results in order to know the government's investment and taxpayer cost (I've already analyzed above the figures as of March 31th).
BOTTOM LINE:
The restructuring plan could be unveiled:
1. With the quarterly results: Last year Freddie reported on May 5th and Fannie on May 10th.
2. Between the quarterly results and AIG re-IPO.
Let's get it.
GSEs, come on.
"Uncertainty about home-financing and foreclosure regulations are also weighing on (home)values, the Morgan Stanley analysts said. Lenders are tightening standards in the face of proposals to reform Fannie Mae and Freddie Mac."
Yes, again someone talks about the uncertainty about the GSE reform.
And yes, tighter standards in a FnF reform. Reform, not wind-down.
Credit standards are the heart of the matter, not FnF.
This is one of the three causes of the actual depressed housing market, according to yesterday's Morgan Stanley report.
http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/04/25/bloomberg1376-LK7OFX0YHQ0X01-3I0O1IDKK57B751AGJMI105P8M.DTL
March Single Family Delinquency Rates tumbled 15bp to 3.63%.
1Q Single Family Delinquency Rates tumbled 21bp.
This means huge improvement in the 1Q earnings report because the books are improving dramatically.
I've already commented why we are gonna see the delinquency rates plummeting gradually (monthly data) in the coming months (apart from the economic recovery):
1-The delinquency rate in the mortgages originated in 2009 and the new ones that are being originated in 2010, is 0.19% and 0.03% respectively.
2-Aproximatelly 80% of the new mortgages purchased or guaranteed are refinancings. This means that Freddie is cleaning the borrower-base, leaving only a gold mine. (This figure is declining each month because of less HAMP New Trial Modifications each month).
Superb interview to Freddie Mac CEO, Haldeman.
Another participant in the Housing Finance System that shows us what Geithner's restructuring plan will be:
A PRIVATE MORTGAGE MARKET WHERE THE GOVERNMENT WILL HAVE A ULTIMATE BACKSTOP. That is, a cooperative model where the banks will step in the new MacMae Inc Coop. GSE, with a ultimate government "catastrophe risk" guarantee.
http://www.smartmoney.com/investing/stocks/interview-with-freddie-mac-ceo-charles-haldeman-jr-1303847390543/
I've already commented a few days ago, the superb teaching of Wells Fargo about the future GSE reform.
First Ebano told you, then Wells Fargo, and now Freddie Mac CEO Haldeman.
Geithner, everybody already knows it!
The time to unveil the restructuring plan has come, for the good of the housing market (The Standard & Poor's/Case-Shiller 20-city index shows price declines in 19 cities from February to January).
It's just a brief earnings release so, it's difficult to analyze the data without more information. http://www.fhlb-of.com/ofweb_userWeb/resources/PR_20110429_FHLB_2011_Q1_Combined_Operating_Highlights.pdf
Remember my post about FHLBank of Seattle deemed Undercapitalized by the FHFA, and 5 FHLBs deemed Less than Adequate Capitalized, therefore they are in limbo between Adequate Capitalized and Undercapitalized in the Official Capital Classification.
I repeat, my view is that we are gonna see a whole Housing Finance System overhaul, that is, a complete combined entity (FnF + 12 FHLBs + FHA) where the big lenders will step in.
Commons and junior prfd. shareholders will own the other 20.1% of the new entity (MacMae Inc. Cooperative GSE).
THE IMPORTANT POINT
Once the 12 FHLBs have released the 1Q earnings report, ALL participants in the restructuring have released their earnings report, but FnF.
Two possibilites already commented:
1-The restructuring plan will be announced along with FnF earnings report (no scheduled, it could be any day).
2-It will be announced between FnF earnings report and AIG re-IPO in order to smooth the massive government's common-shares sale.
Let's get it.
GSEs, come on.
Today, the WSJ comments that the Communtity Banks don't want FnF's role to be shared just among the 4 big U.S. lenders. The small lenders want FnF's functions as well.
This article is not a coincidence, obviously.
The U.S. government, through its media arm, wants to tell the taxpayer that in the next Housing Finance System overhaul, the Communtiy Banks will have a piece in the cake, that is, the 12 FHLBanks (aprox. 5,000 Communtiy Banks) will step in the new MacMae Inc. Cooperative GSE. Already commented here.
http://online.wsj.com/article_email/SB10001424052748704473104576293512008372454-lMyQjAxMTAxMDAwMTEwNDEyWj.html
THE LAST ONE CLOSE THE DOOR.
*Just one comment, in a new single MacMae Inc. coop.gse, unlike a multiple cooperative model already ruled out, the debt outstanding of FnF will be incorporated to the new entity. Like the 12 FHLBanks, the cooperativists will issue debt on a consolidated basis. Therefore, the huge notifications of redemptions won't need to end before the GSE reform announcement, as previously suggested.
On April 29, 2011, Peter J. Federico, Executive Vice President - Investments and Capital Markets and Treasurer of Freddie Mac informed Freddie Mac that he will resign from his position effective May 15, 2011. http://biz.yahoo.com/e/110503/fmcc.ob8-k.html
-It's the second Executive Vice President that resigns. Donald Bisenius resigned on April 1st.
-Also FHA's commissioner resigned on April 1st.
-3,400 mortgages jobs axed by Wells Fargo and Bank of America in the last month. http://oregonbusinessreport.com/2011/04/3400-mortgage-jobs-axed-by-wells-fargo-bank-of-america/
NEWBIE MACMAE INC. COOPERATIVE GSE IS COMING, STAY TUNED. (I like the day May 15th, I don't know why, hahaha)
It's very strange that, at this point in time (May 4th), there isn't a single website that dares to forecast FnF's earnings report date.
Last year Freddie reported on May 5th and Fannie on May 10th.
FnF always say they don't publish the earnings report schedule, but always Yahoo and Housingwire (among others) forecasted the date. Yahoo's been wrong some times, and they don't say where they got the information.
BOTTOM LINE
1st.The stocks depressed: I recall when Treasury sources appeared at CNBC 15 minutes before the close, the day FnF reached $1, in order to lower the quotes (they ended plummeting). Therefore the government wants the stocks depressed, that's why we are under Mercator Associates trading-conservatorship since March 18th massive selloff the last 40 minutes of session.
2nd. Everybody is suspiciously quiet....
THIS TIME IS DIFFERENT!!
NewBie MacMae Inc. Cooperative GSE is coming.
Freddie Mac (unlike Fannie Mae) continues to publish the fair value improvement in its Available For Sale (AFS) securities outside the Consolidated Statements of Operations, in order to spread a negative figure throughout the media.
CONSOLIDATED STATEMENT OF OPERATIONS:
Net income : $676 million
- Government’s usurer dividend: $1.6 billion
= Net loss “attributable to shareholders”: $0.9 billion
OUTSIDE THE CONSOLIDATED STATEMENTS OF OPERATIONS:
Net income: $676 million
+ Fair falue change in AFS securities (AOIC): $2.1 billion
= Total comprehensive income “attributable to Freddie Mac”: $2.7 billion
It’s very funny to read when the company differentiates between the loss “attributable the shareholders” and the profit “attributable to the company”.
HEY, GEITHNER! THE SHAREHOLDERS ARE THE COMPANY!!!!!!
Page 96, 10-k report http://www.freddiemac.com/investors/er/pdf/10q_1q11.pdf
OTHER POSITIVE TRENDS SEEN IN THE REPORT:
-Net interest yield (spread between the company’s mortgage-related investments portfolio and the unsecured debt which funds those investments) rose 4 bp to 79 basis points (0.79%).
-Sixth consecutive quarterly decline in the company’s provision for credit losses.
-Delinquency rate plummeted to 3.63% vs 3.84% 3 months earlier.
-42% of the mortgage portfolio are mortgages originated in 2009, 2010 and 2011, with delinquency rates of just 0.31%, 0.07% and 0% respectively. This is a gold mine.
-Freddie Mac doesn’t need any draw request to Treasury. It published a net worth of $1.2 billion (after paying the Government’s usurer dividend).
THE STOCK SHOULD BLOW UP.
The SEC must send a 'Wells Notice' to the FHFA's Director and the ultimate responsible, Geithner, in order to investigate Freddie Mac's disclosure practices.
Freddie Mac publishes the fair value improvement in Available For Sale (AFS)securites (AOCI)outside the Consolidated Statements of Operations in order to spread a negative figure throughout the media.
The company says the loss in the Consolidated Statements of Operations is attributable to the shareholders, but later says that the huge profit in the Total Comprehensive Income (incluiding the huge fair value improvement in AFS securities)is attributable to Freddie Mac (nothing about the shareholders). Commented before.
This quarter Freddie Mac has changed its disclosure practices: "Beginning in the first quarter of 2011, Freddie Mac began disclosing total comprehensive income on the face of its Consolidated Statements of Income and Comprehensive Income", in other words, the company continues to differenciate between the Consolidated Statements of Operations and the figure of Total Comprehensive Income as I've mentioned, but it's true that this time both are shown in the same table.
http://imarketnews.com/node/30274
BOTTOM LINE
If this quarter the company has changed its disclosure practices, it's because knows that was doing something wrong. That's for sure. Isn't it?
If the SEC sends a Wells Notice to Geithner, it would end with Conservatorship and with Geithner's career.
Ralph Nader should know this important issue. Some of you should email him. I don't have his email address.
The main driver of the huge loss in the 1Q was an increased reserve ($11 billion in the quarter to a total figure of approximately $120 billion) for future credit losses.
But this is what I’ve found in the 10-k report that is not mentioned in the press release:
“The vast majority of these losses are attributable to single-family loans we purchased or guaranteed from 2005 through 2008. While loans we acquired in 2005 through 2008 will give rise to additional credit losses that we have not yet realized, we estimate that we have reserved for the substantial majority of the remaining losses on these loans.”
Page 14, 10-k report http://www.fanniemae.com/ir/pdf/earnings/2011/q12011.pdf
BOTTOM LINE
If the company says that its future credit losses are fully reserved, means that the future earnings reports will stress the other 64% of the mortgage portfolio that is profitable, in other words, the profits will shine more if there aren’t more provisions for future credit losses in the quarterly earnings report.
MONDAY SHARE PRICE REACTION
The stock plummeted on Friday in anticipation of the earnings release, but once they’re out and after the company says it’s fully reserved for future credit losses it should go higher.
Also the stock closed on the upper trendline with the lows of April 28th and May 4th in a OHLC graph, it’s a support level and should recoup from here.
GREAT FIND IN THE 10-k REPORT THAT IS NOT INCLUDED IN THE PRESS RELEASE.
Reminder: The astonish $8.5 billion draw request of Fannie Mae to Treasury won't begin accruing "interest" or 10% dividend untill Jun 30th, because is when the company gets the money and issues the senior preferred shares worth $8.5 billion.
Once Fannie Mae is healthy enough to be privatized, a bet that the privatization announcement will be on June 30th or along the 2Q earnings report.
The Treasury is fine-tuning the privatization of FnF.
First, explanation of the huge provision for future losses in Fannie Mae's 1Q report:
Total future loss reserve coverage to total nonperforming loans, as of end of quarter:
FREDDIE MAC
3Q 2010: 31.5%
4Q 2010: 31.8%
1Q 2011: 31.6%
The figures are stable each quarter.
FANNIE MAE
3Q 2010: 30.3%
4Q 2010: 30.9%
At the end of the 2H 2010, Fannie Mae had a stable ratio, it was a little bit lower than Freddie, but nothing dramatic. Fannie Mae released a profit at the end of the 4Q 2010 and added: “Our expectation that our draws from Treasury for credit losses will abate and our draws will increasingly be driven by dividend payments”. Page 55 http://www.fanniemae.com/ir/pdf/earnings/2010/10k_2010.pdf;jsessionid=GC52KKVJPMLATJ2FECHSFGI
1Q 2011: 34.7%
Suddenly, an astonish huge increase in the provision for future credit losses that increased the ratio to 34.7%. What happened?!!
BOTTOM LINE
We know FnF will be privatized (one the the Geithner’s 3 options plan), in other words, the banks will step in the new entity. Now we know what is delaying the privatization announcement. The banks, during the negotiations with the Treasury, noticed that the quality of the mortgage portfolio of Fannie Mae was worst that previously estimated by the compay (Countrywide was the best client) and ought to be more reserved for future losses (healthy balance sheet).
It’s been corrected in one shot, one big provision of $11 billion in the 1Q and that’s it, now Fannie is fully reserved for sure and can be privatized now.
The huge $8.5 billion draw request to Treasury won’t begin to accrue the 10% usury dividend until June 30th, because is when the company gets the money and issues the senior preferred shares, therefore, the damage is limited because the privatization will be announced on June 30th or along the 2Q earnings report. I bet on June 30th, there is not need to pay more dividends to the Treasury if the restructuring plan is crystal clear and someday the can must be stopped from being kiked down the road.
Hey! Both FnF are already fully reserved! LET’s GET THE PARTY STARTED.
Note: In the newbie MacMae Inc. Cooperative GSE not only will step in the big lenders but the FHLBs and the FHA.
Read my comment called: Warrant transferred, Senior Preferred Shares redeemed indirectly.
The junior preferred shares have no Rights since Conservatorship (you already knew it). There is only the Liquidation Rights but they will never apply because we aren't in one of these 3 cases: liquidation, dissolution or wind-up, according to their prospectus. Commented above.
After the GSE reform is unveiled, that is, after Conservatorship, the junior preferred share will have even less Rights than the common share because, unlike the common share, it has no voting rights. That's why it needs to be exchanged to common shares in order to allow the junor prfd stockholders to monetize their position, because now they can't sell they stock as they are very illiquid, and also to simplify the capital structure.
The retail investor will be screwed again because the FHLBs (5,000 Community banks owners of 50% of the junior prfd.shares outstanding) will gain FnF's functions.
Geithner gave the "go" to the juniors first, in order to make the Community banks (FHLBs) post huge "paper profits" in their 1Q earnings report. That's it, not big deal.
Both junior and common stocks will own 20.1% of the new entity MacMae Inc. Cooperative GSE, and the other 79.9% will be shared among the big banks, FHLBs, FHA and some bondholders that will help in the recapitalization as well.
A $50 prfd. share is 2 $25 prfd. share.
The Treasury is utilizing FnF to bailout the banks, with provisions for future losses in the credits bought to the big lenders and other financial institutions. Later, the private lenders step in a new MacMae Inc. fully reserved.
It’s being a shadow bailout, at FnF's common shareholder expense.
The Warrant's Prospectus of the government establishes that it will always have a 79.9% interest in the common shares of the GSEs. But if the government exercises the warrant in each GSE and later combines both to form MacMae Inc., it will never take into account if one stock is healthier than the other, the quality of their mortgage portfolio, the amount of draw requests to Treasury, the amount already paid to Treasury, etc… It even favors the company that draws more cash to Treasury, because receives more money with the same dilution to the other shareholders that always will own the other 20.1%.
Therefore, my previous investment case considered that the government exercises the warrants and then FnF are combined, but it will no longer be valid.
Here is my view if the government first combines FnF, favoring the healthy GSE Freddie Mac in the convertio ratio vs Fannie Mae, and later exercises the warrant:
1 Freddie Mac common stock is 1 common stock in the new entity MacMae Inc. Cooperative GSE.
1 Freddie Mac common stock is 1.2 Fannie Mae Common stock.
1 $25 junior preferred share is a common stock of each company.
1 $50 junior preferred share is 2 $25 junior prfd. share.
I take into account the taxpayer cost as of June 30th, not the Government’s investment because it has been partially repaid with the dividends and senior shares issued without cost to the goverment:
- Freddie Mac: $48.5 billion (24% of the government’s investment already paid).
- Fannie Mae: $81.9 billion (17% of the government’s investment already paid).
In the new MacMae Inc. Cooperative GSE, these are the prices per share:
Freddie Mac common stock= $11.5
Fannie Mae common stock = $9.6
Etc…
Curiously enough, not only Fannie Mae's ratio: total future loss reserve to total nonperforming loan skyrocketed to 34.7% in the 1Q because of the huge provision in the loss loan reserve ($11 billion), but also the nonperforming loans declined from $212,858 in 4Q 2010 to $206,098 in the 1Q 2011 (the figure was $212,305 at the end of 3Q 2010, stable vs 4Q 2010).
This confirms my view that they've discovered the mortgage portfolio of Fannie Mae was worst than previously estimated (because of Countrywide) and needed to be more reserved.
But it has been corrected in one shot, one big provision and that's it.
Now Fannie Mae is fully reserved and the privatization of FnF can be announced.
You know……, I’ve been in many battles, and a Friday afternoon isn’t a proper time to release an earnings report. That’s it.
There must be one reason to report on a Friday afternoon, and is this one:
The US-China Strategic and Economic Dialogue began on Washington on Monday (What was the latest US delegation to China for? hahaha). Geithner had to present Wang Qishan (GSE reform mastermind) the homework done, that is, to present a Fannie Mae fully reserved for future credit losses that has been the cause of the delay in the privatization announcement.
Remember that some bondholders (China or China state-controlled commercial banks) could help in the recapitalization, a haircut is to swap bonds valued at 100% to common shares, but at a very high convertio ratio.
Now, all the planets are aligned:
- Common shares drepressed: they are not trading at $1 with all the speculators long like in January (it prompted Treasury sources to appear on CNBC 15 minutes before the close to tumble the quotes)
- Now both FnF are fully reserved. (Fannie should never have released a profit in the 4Q, but a loss and the huge provision seen in the 1Q. If that were the case, the privatization would have been announced when I said).
THE PRIVATIZATION ANNOUNCEMENT IS EXPECTED IN JUNE 30th.
*See the comment called WARRANT TRANSFERRED, SENIOR PREFERRED SHARES REDEEMED INDIRECTLY.
1- FnF's workers won't have free lunch anymore.
2- FnF's workers will have to bring their personal laptop to the office.
3- They all will wear a donkey-look like hat.
4- They'll have to suffer insults and harassment.
5- They won't be allowed to report to the media.
6- They will be threatened to lose their home.
7- Gays and lesbians' Association will do FnF's functions.
8- FnF will be auctioned begining at 0.5 a share.
9- FnF's workers will be paid similar wages to Federal workers.
10- All of them will be forced to divorce from their husbands and espouses.
11- They will lose their son's custody.
12- FnF will be renamed Beavis and Butt-head GSEs.
13- U.S. Treasury Secretary will be called Lord Of The Land.
14- Americans will be allowed to cultivate their backyard if their home is foreclosured.
15- U.S. politicians will establish three Hearnings each week about the Housing Market to appear to be working, after each Hearing they will kick a can down the road.
16- Also U.S. politicians will be forced to come up with 16 ridiculous bills each quarter about the Housing Market until it shows any sign of recovery.
But this is the bill that I recommend:
-To imprison the U.S. politicians that forced FnF to lower their credit standards that caused the worst financial crisis ever worldwide. Explained in my post: HOW THE CRISIS BEGAN:” Dear Mr. President, June 28th, 2004”
http://open.salon.com/blog/ebano/2010/10/13/how_the_crisis_begandear_mrpresident
Yesterday, on a Bloomberg TV Charly Rose interview, W. Qishan (GSE reform mastermind) took a tough stance on housing in front of Geithner!!
He said twice: "Housing hasn't been addressed yet"!!!
W.Qishan first said that the U.S. economy improved in the 4Q and also in the 1Q, but suddenly, with a petrified expression on his face, said that the bad thing is housing, it hasn't been addressed yet, housing is important for jobs, and so on...
I was even impressed with his tough stance on housing in front of Geithner!
I know he is very upset about the delay in the privatization announcement, and with the U.S. politicians' wind-down rhetoric, kicking the can down the road everyday.
Remember always that a Cooperative Model will take time to work, so it needs to be announced asap.
Fed’s QE2 ends on June 30th: the $600 billion bond buying program with the objective to manipulate the U.S. Bond Market by intentionally bidding up prices of Treasuries, lowering the rates at which the taxpayer finance, refinance or modificate mortgages and also it increases the value of the assets in the banks’ balance sheets thanks not only to lower rates, but also to spread tightening.
It will come with no surprise to me if also on June 30th is when FnF are finally privatized (with an ultimate government’s backstop). FnF have been the government’s tools to manipulate the housing market by providing home mortgage funding. It's the day Fannie gets the cash of the draw request to Treasury and issues the $8.5 billion worth of Senior Preferred Shares.
Coincidence? I guess not. It could be the exit-day to the mother of all state-interventions in an economy ever. The line in the sand.
Maybe Fannie Mae’s 1Q huge provision for future credit losses ($11 billion) and the consequent $8.5 billion draw request to Treasury was premeditated:
The Treasury doesn’t want the common stocks at $1 pps, with all the speculators longs building a stake, like in January before the government’s supposed deadline (it prompted Treasury sources to appear on CNBC 15 minutes before the close to tumble the quotes).
My view is that the Treasury intentionally forced Fannie Mae to report a profit in the 4Q and kept the provision for future credit losses to nonperforming loans ratio much lower than Freddie Mac (30.9% vs 31.8%). Also it’s been a lower ratio during several quarters before (30.3% vs 31.5% in 3Q 2010), even knowing that Fannie’s mortgage portfolio was worst than Freddie because of Countrywide (just see the delinquency rates, 3.63% FRE vs 4.27% FNMA, as of March 31).
Later, Fannie Mae corrects the under-loss loan reserve with an astonish $11 billion provision in the 1Q 2011 in order to shock investors, with the objective to make FnF trade smooth or lower until the privatization announcement, June 30th. Remember also that now, unlike January, we are under Mercator Associates trading-conservatorship, it’s our Market Manipulator or Market Maker.
You know…, it’s very strange that Fannie were under-reserved so long with a higher delinquency rate than Freddie and with Countrywide its best client. It’s very strange that they didn’t notice before the 1Q results, as I previously thought, because they are the bad mortgages originated in 2005-2008, therefore, they already know everything about them, and the economy has even improved the last quarters. So, Fannie was under-reserved premeditatedly too long.
JUNE 30th , THE DAY THAT CHANGED THE WORLD.
*See my post called: WARRANT TRANSFERRED, SENIOR PREFERRED SHARES REDEEMED INDIRECTLY to know how the banks will step in.
Also, the new MacMae Inc. not only the big banks will step in, but the 12 FHLBs ( 5,000 Community banks) and the FHA.
The reason to the delay in the privatization announcement has to do with waiting until the banks are healthy enough, the taxpayer learns about what a privatization with an ultimate Government's backstop means (one of Geithner’s 3 option plan) and also the economy gains strenght.
I told Geithner that he wouldn't dare to do an IPO without unveiling in advance the FnF privatization (black swan trigger event or positive catalyst) and that he will eat all the shares not sold in the IPO.
That's why he will do a partial IPO, much less than expected. He can't delay the entire IPO twice. He's been foolish to schedule the IPO before FnF privatization, so he will sell just 12.5%-15% of its stake and with a loss.
If he delays the entire IPO twice, we will be considered the most low-profile Treasury Secretary in U.S. history.
Therefore, his low professionalism will turn into a loss to the taxpayer in the small stake offering.
This is another hit to Geithner's Personal Reputation. He has no idea how financial markets work. He should have delayed in january the entire IPO to the 3Q or announce FnF privatization before, as I told him.
Also AIG unveils today a capital increase along the Treasury sale share, it will sell 100 million shares (29%-33% of the total share sale offering) and will put more downward pressure to the stock.
At least, he has read my comment and has delayed the other 85%-87.5% AIG's stake after FnF privatization. It would have been funny to see Geithner eating the shares not sold in the IPO, hahaha.
WSJ today: "Two legislators are set to unveil legislation on Thursday to replace Fannie and Freddie with at least five private mortgages that would issue MBSs with explicit federal guarantees".
It adds that will have the same regulator as FnF, the FHFA.
http://online.wsj.com/article/SB10001424052748704681904576317524068112278.html?mod=WSJ_hp_LEFTWhatsNewsCollection#articleTabs%3Darticle
BOTTOM LINE
Do they think we are stupid?
Are they gonna replace FnF with 5 FnFs? hahahaha.
My goodness!
Do I have to recoup my previous idea again about a multiple cooperative model with a $1 minority delisting buyout? because, how are they gonna split my share among 5 cooperatives?
Remember alwas what ICBA said: "The infrastructure of Fannie and Freddie - including their personnel, systems, automated underwriting engines - would transfer to the new co-ops."
They can't replace FnF, but takeover FnF.
Continuing with the previous comment.
Right, so the WSJ has today the headline : BILL PROPOSES MORTGAGE SHAKE-UP, but CNBC (another government-controlled media company) says nothing? It seems that the government leaked the news to the WSJ but doesn't want to spread too much noise throughout the media, the stocks must trade lower until the restructuring plan announcement.
Also note that the lawmakers are one Republican and one Democrat.
HEY! WAKE UP! THIS IS MY RESTRUCTURING PLAN AND WILL BE DEBATED ON THURSDAY!!!
LET's TRACK THIS BILL!! IT COULD BE THE RESTRUCTURING PLAN!!
Let's get it.
GSEs, come on.
because they will turn into a multiple cooperative model or a single MacMae Inc. Cooperative GSE.
This phrase is what I've been saying repeatedly the last months!!
Or, in other words, FnF will be replaced with a multiple coop. or combined coop..
AND THAT's THE BILL INTRODUCED YESTERDAY IN CONGRESS!
My investment case is being debated in Congress.
The bill was introduced by one Republican and one Democrat. But here mentions that "it is unusual that it has the backing of both a Republican and Democrat".
http://www.foxbusiness.com/industries/2011/05/12/sets-private-firms-mortgages/
That's called: WANG QISHAN EFFECT: just two days after the two-day official trip to Washington of Wang Qishan, and after I had mentioned the tough stance of W. Qishan on U.S. housing in front of Geithner, because "housing hasn't been addressed yet" as he said twice in front of Geithner in a Bloomberg TV interview last Tuesday.
Forget the "wind-down" rhetoric! FnF technology and personnel are necessary in the new cooperatives, as the ICBA said(already explained).
Let's track the EXECUTION VERSION of the Bill introduced last Thursday, not the press releases and other bills re-introduced several times, again and again (yesterday 6 more!!!), about the wind-down rhetoric of the politicians market manipulators. Prfd. stockholders are entitled to get full price if a bill about wind-down becomes Law, therfore, FnF bankrupcty and U.S. Government bankrupcty. That's why I own 50%-50% commons and junior prfd. stocks. I'm fully hedged against U.S. politicians.
I've explained that I found how the banks will step in the new entity/s in the EXECUTION VERSION of the Warrant and Senior Prefd. Share Prospectus. In the press releases just mentioned a few details like the 79.9% interest and so on.
Obviously, the politicians won't show the EXECUTION VERSION until the end.
Track the bill here: http://www.govtrack.us/congress/bill.xpd?bill=h112-1859
Let's get it.
GSEs, come on.
One month ago a Republican reintroduced the same 8 bills introduced by another Republican one week earlier.
This week, on Friday one Republican introduced a bill against the bill introduced by other Republican the day before:
THRUSDAY: Democrat + Republican Bill: WSJ: Two lawmakers are set to unveil legislation to replace Fannie Mae and Freddie Mac with at least five private companies that would issue mortgage-backed securities with explicit federal guarantees. The regulator will be the same regulator as FnF, the FHFA.
FRIDAY: Rep. Steve Stivers (R-OH). Ensure an Exact GSE Replica is not Created: a government charter and private stockholders, Fannie/Freddie model, is a failed model and should not be recreated. This legislation ensures that if the entities are put into receivership, their businesses are wound down and no new entity with taxpayer backing is set up.
http://garrett.house.gov/News/DocumentSingle.aspx?DocumentID=241309
HEY! WANG QISHAN! COME AGAIN TO PUT ORDER IN THE U.S. POLITICIANS' MESS AGAIN.
All the bills have one thing in common: FnF's STOCK PERFORMANCE HARASSMENT.
That attitude ought to be punishable. Ralph Nader should have a say here, again. Send him another email.
We have the Bill H.R. 1859 to create at least five private companies to do FnF's functions (to create 5 FnFs). Obviously, they are the actual private lenders the only ones that can do that functions.
But this news was written above on May 3rd:
Two out of four big U.S. private lenders are axing jobs in their mortgage units!!!!!!
3,400 mortgages jobs axed by Wells Fargo and Bank of America just in April.
http://oregonbusinessreport.com/2011/04/3400-mortgage-jobs-axed-by-wells-fargo-bank-of-america/
BOTTOM LINE.
If they are axing jobs is because the don't need them anymore if they will utilize FnF's existing personnel.
The big lenders along the 12 FHLBs (5,000 Community banks) and the FHA, will step in the new entity/s. Read my comment WARRANT TRANSFERRED, SENIOR PREFERRED SHARES REDEEMED INDIRECTLY to know how the banks will step in the new entity/s with a 79.9% stake.
That's the privatization of FnF.
On Friday May 13th, one day after the bill H.R. 1859 where talks about the privatization of FnF among at least 5 private lenders (RECAPITALIZATION OF FnF), the Republicans unveiled 7 bills to harass FnF's stock performance (10% dividend forever, dismantling FnF, etc..). The media said the bills have been introduced but in Garret's webpage he said first they are introducing but later says they will introduce the 7 bills.- http://garrett.house.gov/News/DocumentSingle.aspx?DocumentID=241309
But the reality is that none of the 7 bills have been introduced yet.
TWO PROOFS:
1- Here is mentioned that "A spokesman for Rep. Don Manzullo (R-Ill.) said the latest Republican bills are "discussion drafts" and have not been formerly introduced." http://www.housingwire.com/2011/05/13/republicans-release-second-wave-of-gse-reform-bills
2- In a government's webpage where you can see the Newly Bills Introduced, I've not seen none of the 7 bills neither on May 12th, nor on May 13th.
Here are the bills introduced on May 13th http://www.govtrack.us/users/events.xpd?monitors=misc:introducedbills
Tomorrow they will be the ones of May 16th.
I will post in other comment all the bills introduced on May 12th and May 13th.
BOTTOM LINE.
After Wang Qishan official visit to Washington, there is a new mode of addressing the Housing Finance System failure, and that's why the U.S. politicians were forced to introduce our RECAPITALIZATION OF FnF BILL H.R. 1859.
I bet he prohibited any U.S. politician to introduce more ridiculous bills that harass FnF's workers and shareholders. Wang Qishan said it's been enough.
Republican Party: a House of liars.
(None of them are the republicans' 7 bills)
May 11 - H.R. 1855:To amend title 38, United States Code, to improve the provision of rehabilitative services for...
May, 11- H.R. 1856:To amend the International Religious Freedom Act of 1998 to strengthen the promotion of religious...
May 11 -H.R. 1857:For the relief of Bartosz Kumor
BILLS INTRODUCED ON MAY 12th:
H.R. 1858:To reauthorize the Northwest Straits Marine Conservation Initiative Act to promote the protection...
* PRIVATIZATION FnF - H.R. 1859:To ensure the availability of reasonably priced conventional mortgages to borrowers in all...
H.R. 1860:To promote neutrality, simplicity, and fairness in the taxation of digital goods and digital services
H.R. 1861:To greatly enhance America's path toward energy independence and economic and national security,...
H.R. 1862:To launch a national strategy to support regenerative medicine through funding for research and...
H.R. 1863:To amend title 38, United States Code, to ensure that veterans in each of the 48 contiguous...
H.R. 1864:To limit the authority of States to tax certain income of employees for employment duties...
H.R. 1865:To protect the right of individuals to bear arms at water resources development projects...
H.R. 1866:To require Members of Congress to disclose delinquent tax liability and to require an ethics...
H.R. 1867:To amend title IV of the Employee Retirement Income Security Act of 1974 to require the Pension...
H.R. 1868:To require the inclusion of coal-derived fuel at certain volumes in aviation fuel, motor vehicle...
H.R. 1869:To amend the Internal Revenue Code of 1986 to establish lifelong learning accounts to provide an...
H.R. 1870:To safely increase domestic oil and gas production, and for other purposes
H.R. 1871:To amend the Internal Revenue Code of 1986 to prevent the extension of the tax collection period...
H.R. 1872:To require the Administrator of the Environmental Protection Agency to consider the impact on...
H.R. 1873:To amend title 9 of the United States Code with respect to arbitration
H.R. 1874:To amend title 5, United States Code, to increase the maximum age limit for an original...
H.R. 1875:To lower gas prices by making investments in cleaner vehicle technologies and infrastructure
H.R. 1876:To allow Americans to earn paid sick time so that they can address their own health needs and the...
H.R. 1878:To require that the same access to transportation and public accommodations that is afforded to...
H.R. 1878:To require that the same access to transportation and public accommodations that is afforded to...
H.R. 1879:To promote secure ferry transportation and for other purposes
H.R. 1880:To require, on the occasion of the 30th anniversary of the first reported cases of AIDS,...
H.R. 1881:To require the Secretary of Energy, in coordination with the Secretary of Labor, to establish a...
H.R. 1882:To ensure that local educational agencies and units of local governments are compensated for tax...
H.R. 1883:To amend the Internal Revenue Code of 1986 to regulate the subsidies paid to rum producers in...
H.R. 1884:To designate additional segments and tributaries of White Clay Creek, in the States of Delaware...
H.R. 1885:To require that State and local pretrial services agencies receiving federal financial assistance...
H.R. 1886: To allow travel between the United States and Cuba
H.R. 1887: To lift the trade embargo on Cuba, and for other purposes
H.R. 1888:To facilitate the export of United States agricultural products to Cuba as authorized by the...
H.R. 1889: To amend the Internal Revenue Code of 1986 to suspend the excise tax on highway motor fuels, and...
H.R. 1890 : To amend the Outer Continental Shelf Lands Act to require, as a condition and term of an
BILLS INTRODUCED ON MAY 13th:
Introduced: H.R. 1903: To amend the Elementary and Secondary Education Act of 1965 to provide grants to local educational agencies to encourage girls and underrepresented minorities to pursue studies and...
Introduced: H.R. 1916: To designate as wilderness certain Federal portions of the red rock canyons of the Colorado Plateau and the Great Basin Deserts in the State of Utah for the benefit of present and future...
Introduced: H.R. 1917: To authorize the Secretary of the Interior, through the United States Fish and Wildlife Service, to conduct a Joint Venture Program to protect, restore, enhance, and manage migratory...
Introduced: H.R. 1891: To repeal ineffective or unnecessary education programs in order to restore the focus of Federal programs on quality elementary and secondary education programs for disadvantaged students.
Introduced: H.R. 1892: To authorize appropriations for fiscal year 2012 for intelligence and intelligence-related activities of the United States Government, the Community Management Account, and the Central...
Introduced: H.R. 1893: To amend the Internal Revenue Code of 1986 to extend the funding and expenditure authority of the Airport and Airway Trust Fund, to amend title 49, United States Code, to extend the...
Introduced: H.R. 1894: To amend title 10, United States Code, to clarify the right of an accused to plead guilty in a trial by a military commission for a capital offense.
Introduced: H.R. 1895: To amend the Children's Online Privacy Protection Act of 1998 to extend, enhance, and revise the provisions relating to collection, use, and disclosure of personal information of...
Introduced: H.R. 1896: To amend the Omnibus Crime Control and Safe Streets Act of 1968 to enhance the COPS ON THE BEAT grant program, and for other purposes.
Introduced: H.R. 1897: To amend the Public Health Service Act to require a Federal commitment to Alzheimer's disease research to advance breakthrough treatments for people living with Alzheimer's disease.
Introduced: H.R. 1898: To amend title 38, United States Code, to clarify the conditions under which certain persons may be treated as adjudicated mentally incompetent for certain purposes.
Introduced: H.R. 1899: To amend the Sherman Act to make oil-producing and exporting cartels illegal; to improve competition in the oil and gas industry, to strengthen antitrust enforcement with regard to...
Introduced: H.R. 1900: To authorize programs and activities within the Transportation Security Administration to enhance the security of surface transportation, including mass transit, and for other purposes.
Introduced: H.R. 1901: To create and encourage the creation of jobs for youth, and for other purposes.
Introduced: H.R. 1902: To establish in the Department of Commerce the Minority Business Development Program to provide qualified minority businesses with technical assistance and contracting opportunities, and...
Introduced: H.Res. 268: Reaffirming the United States' commitment to a negotiated settlement of the Israeli-Palestinian conflict through direct Israeli-Palestinian negotiations, and for other purposes.
Introduced: H.R. 1904: To facilitate the efficient extraction of mineral resources in southeast Arizona by authorizing and directing an exchange of Federal and non-Federal land, and for other purposes.
Introduced: H.R. 1905: To strengthen Iran sanctions laws for the purpose of compelling Iran to abandon its pursuit of nuclear weapons and other threatening activities, and for other purposes.
Introduced: H.R. 1906: To amend title 41, United States Code, to prohibit executive agencies from requiring the disclosure of political contributions by an entity submitting an offer for a Federal contract.
Introduced: H.R. 1907: To require the Secretary of the Treasury to establish a program to provide loans and loan guarantees to enable eligible public entities to acquire interests in real property that are in...
Introduced: H.R. 1908: To specify the priority of the obligations of the United States Government if the debt ceiling is reached, to provide for an emergency appropriation of funds to pay for certain defense...
Introduced: H.R. 1909: To create a charter for Federal Financial Services and Credit Companies.
Introduced: H.R. 1910: To extend for one year the authority of certain members of the Armed Forces and veterans to transfer unused Post-9/11 Educational Assistance benefits to family members.
Introduced: H.R. 1911: To amend the Servicemembers Civil Relief Act to permanently extend the period of protections for servicemembers against mortgage foreclosures, and for other purposes.
Introduced: H.R. 1912: To direct the Secretary of Commerce to establish a Make It in America Block Grant Program, and for other purposes.
Introduced: H.R. 1913: To amend title I of the Omnibus Crime Control and Safe Streets Act of 1968 to provide for improvements under the Edward Byrne Memorial Justice Assistance Grant Program to reduce racial...
Introduced: H.R. 1914: To provide for the sale of light grade petroleum from the Strategic Petroleum Reserve and its replacement with heavy grade petroleum.
Introduced: H.R. 1915: To amend subtitle D of title I of the Patient Protection and Affordable Care Act to clarify Congressional consent to and expand flexibility for interstate health choice compacts.
Introduced: H.J.Res. 63: Proposing an amendment to the Constitution of the United States to require a two-thirds vote of each House of Congress to increase the statutory limit on the public debt.
Introduced: H.J.Res. 64: Expressing support for designation of September 2011 as "Gospel Music Heritage Month" and honoring gospel music for its valuable and longstanding contributions to the culture of the...
Introduced: H.R. 1918: To provide grants to promote financial literacy.
Introduced: H.R. 1919: To authorize the Secretary of Health and Human Services to conduct programs to screen adolescents, and educate health professionals, with respect to bleeding disorders.
Introduced: H.R. 1920: To amend the Clean Air Act to conform the definition of renewable biomass to the definition given the term in the Farm Security and Rural Investment Act of 2002.
Introduced: H.R. 1921: To provide for certain enhanced border security measures, and for other purposes.
Introduced: H.R. 1922: To provide U.S. Customs and Border Protection with access to Federal lands to carry out certain security activities in the Southwest border region, and for other purposes.
Introduced: H.R. 1923: To amend title 18, United States Code, to prohibit public officials from engaging in undisclosed self-dealing.
Introduced: H.R. 1924: To amend title 23, United States Code, to protect States that have in effect laws or orders with respect to pay to play reform, and for other purposes.
Introduced: H.R. 1925: To provide for increased Federal oversight of prescription opioid treatment and assistance to States in reducing opioid abuse, diversion, and deaths.
Introduced: H.R. 1926: To provide for the design, production, and presentation of a Gold Medal of Remembrance to the children of members of the Armed Forces who die while serving on active duty in support of...
Introduced: H.R. 1927: To extend the prohibition on asylum applications in the case of aliens arriving from the Commonwealth of the Northern Mariana Islands, and for other purposes.
Introduced: H.R. 1928: To amend title 10, United States Code, to repeal the ground combat exclusion policy for female members of the Armed Forces.
Introduced: H.R. 1929: To provide relief for the shortage of nurses in the United States, and for other purposes.
Introduced: H.R. 1930: To amend title 38, United States Code, to provide for certain requirements relating to the immunization of veterans, and for other purposes.
Introduced: H.R. 1931: To authorize the Secretary of the Interior, in consultation with the Groundwork USA national office, to provide grants to certain nonprofit organizations.
You just need to say publicly that "the preferred stock could be an eight- to 10-bagger from here" and stress your are "not interested in the equity of the GSEs", while holding the illiquid preferred shares, as the hedge fund manager Bass mentioned recently.
http://www.marketwatch.com/story/hedge-fund-managers-ponder-armageddon-2011-05-12?pagenumber=2
FACTS:
1- The junior preferred shares will be swapped to common shares in the imminent recapitalization plan. BILL H.R. 1859.
2- Prior Conservatorship, the issuer established a conversio ratio of a $50 preferred share to commons of 1.81. FANIP had mandatory conversion to 1.81 fnma common shares last May 13th.
3- There are no reasons whatsoever to think that, once Conservatorship ends with the imminent restructuring plan announcement, the issuer/Treasury will fix a different conversio ratio to common shares than the one established before, that is, 1 $50prfd. shares converts to 1.81 common shares (1:1.81).
4- Both juniors and commons have the same rights since Conservatorship, zero rights, because all of them have been abolished. The junior prfd. share has only Liquidation Rights but they just apply upon liquidation, dissolution or wind-up, not in a bailed out company that will be restructured.
BOTTOM LINE.
Taking into account the current quotes, the existing conversio ratio is:
1 $25 preferred share is 7.7 common shares.
1 $50 preferred share is 13.5 common shares.
THEY ARE THE HIGHEST CONVERSIO RATIOS EVER!!!!!
Even if the preferred shares rise more after the recapitalization announcement, as their conversio ratio will be much lower than the existing one, there is much more upside for the common shares at current market prices.
Also, it's worth mentioning that approximately 50% of the outstanding junior preferred shares are owned by the Communtiy Banks (12 FHLBanks) and, obviously, other financial institutions own a great stake of the remaining shares.
The 12 FHLBs (5,000 Community banks) will step in the new entity/s to do FnF's functions, and that's why the won't fight for a better conversio ratio.
They will be granted with a piece of FnF's cake and the retail investor will be screwed again.
I've got the impression that the 7 bills supossed introduced last friday, with the objective to harass FnF's workers and stock performance, will be introduced at some point before or after the RECAPITALIZATION BILL H.R. 1859 (introduced last thursday) is debated in the Housing Committee next month.
Obviously, the objective will be to make the same noise in the financial markets as last friday.
THE REPUBLICANS' SHOW MUST GO ON.
Fact: The junior preferred shares are entitled to get full price ($25 or $50 per share) if the final restructure of FnF is deemed: LIQUIDATION, DISSOLUTION OR WIND UP.
If one investor has purchased the junior preferred shares because has learnt that high-ranking government officials and conservative party representatives are saying repeatedly they are gonna dismantle (DISSOLUTION) or wind down (WIND UP) FnF, could that investor sue them because of the misleading statements if finally that's not FnF's fate?
I can't even imagine the crippling liabilities if that happens.
(Once the BILL H.R. 1859 is introduced, it goes to the House Committee on Financial Services and after the Hearing it goes to the House of Representatives, then the Senate and then is signed by Obama becoming a Law).
Hearing entitled “Legislative Proposals to Determine the Future Role of FHA, RHS and GNMA in the Single-and Multi-Family Mortgage Markets”
Insurance, Housing and Community Opportunity Committee
May 25, 2011 10:00 AM in 2128 Rayburn HOB
Hearing entitled “Transparency, Transition and Taxpayer Protection: More Steps to End the GSE Bailout”
Capital Markets and Government Sponsored Enterprises Committee
May 25, 2011 2:00 PM in 2128 Rayburn HOB
Not only the big banks, the 12 FHLBs and the FHA will step in the new Entity/s, but the RHS and Ginnie Mae, obviously, other Federal Agencies created to promote "affordable" housing or subprime mortgages.
As I've mentioned before, the important text is the EXECUTION VERSION, not the press releases or other texts where the politicians will keep harassing FnF's workers and stock performace. I guess the EXECUTION VERSION won't be released until it's approved in the House of Representatives.
Read my comment WARRANT TRANSFERRED, SENIOR PREFERRED SHARES REDEEMED INDIRECTLY to know how all of them will step in with a 79.9% stake. Also some bondholders could step in as well, everybody is welcome to help in the recapitalization and Housing Finance System revamp.
May 18th, FHFA's Acting Director, DeMarco: “Each company, in whole or in pieces, may be transformed in some fashion so that taxpayers realize value from this investment in the way lawmakers determine is in the country’s best interest.”
http://www.fhfa.gov/webfiles/21255/Exchequer_Club_051811_final.pdf
It's the second time I read about a multiple cooperative model or a break-up of FnF from top-ranking government officials, apart from the GAO (government accountability office) report that was key in my investiment case, obviously.
The first time was in the BILL H.R.1859 introduced last May 12th, commented above. The WSJ said: "Two lawmakers (D+R), are set to unveil legislation Thursday to replace mortgage giants Fannie Mae and Freddie Mac with at least five private companies that would issue mortgage-backed securities with explicit federal guarantees." "The companies would operate more as public utilities and likely wouldn't have exchange-listed shares." Also they will have the same regulator as FnF, the FHFA.
http://online.wsj.com/article/SB10001424052748704681904576317524068112278.html?mod=WSJ_hp_LEFTWhatsNewsCollection#articleTabs%3Darticle
What I've been saying is that the existing common shareholders bother in the process of turning into a multiple cooperative model, because how are they gonna split my stock among the cooperatives?. Also GAO mentioned that it is a lengthy process. It would be better to buyout the existing common shareholder with a delisting minority buyout.
But maybe the smart guys at Morgan Stanley are thinking how to break-up the common shareholders as well. Anything can happen.
Other important DeMarco's quotes that are worth reading:
1-“When Congress takes up housing finance reform, I expect the FHLBs to be part of the discussion as they remain an important element in the housing finance infrastructure.” THE FHLBs WILL STEP IN.
2-“at some time in the future Fannie Mae and Freddie Mac, as we have known them, will no longer exist”
“For a company in conservatorship, and unlikely to continue to exist in its current form". HE HAS COPIED MY QUOTES!!
3-“why preserve and conserve these assets? I offer this—to protect taxpayers from further losses, to ensure market stability and liquidity, to give lawmakers options for the future, and to protect the future value of the Enterprises’ intangible assets for future utilization and value recognition for the benefit of taxpayers and markets. Even though we do not know the future of the companies, it makes no sense to diminish, denigrate, or erode their tangible or intangible assets.” HE IS SAYING: STOP HARASSING FnF's WORKERS!!!
4-“Since conservatorship, underwriting standards have been strengthened and several price increases have been initiated to better align pricing with risk.” WE ARE A GOLD MINE.
5-“the incoming Administration and Congress could decide the ultimate resolution of the Enterprise and the legal and institutional framework to replace them.
I have said many times that conservatorship cannot go on indefinitely and that certain risks associated with conservatorship increase over time”.
SUPERB QUOTES.
Last May 18th, we saw at 11:06 AM-BLOCK 36,128,000 SHARES TRADED-FMCKJ at $3 exactly, and obviously, we should see a similar enormous block traded in open market in FNMAS very soon.
FREDDIE MAC $25 junior prfd. share called Fmckj, has 240 mll shares outstanding.
FANNIE MAE $25 junior prfd. share called Fnmas, has 280 mll. shares outstanding.
Both FMCKJ and FNMAS are the ones with more shares outstanding by far among all the series of preferred shares.
The objective is to change of ownership among the Community banks and other entities that will step in the new Entity, so that the final picture of the Capital, thanks to the restructuring plan, is the one the Treasury wants.
Always a change of the name of the holder of a share has to pass through the open market in order to avoid regulatory questioning. It's much better that way.
It's important to know the price at which the holders are swapping the shares each other, it could be a reference price in the restructuring plan.
According to the Independent Community Bankers Association, ICBA, is estimated that the Community Banks own between $15b-20b in GSE junior prfd. shares (42%-56% of total outstanding), and affects to almost one third of the 5,000 Community Banks of the Association.
I've commented why 1 Freddie Mac stock should be 1.2 Fannie Mae (it's healthier), so, next FNMAS block traded should be at $2.5. We shall see.
Also 1 common stock ought to be 1 $25junior preferred stock. Both have the same rights since Conservatorship, none rights.
Or even a higher conversio ratio, because once released from Conservatorship, the common, unlike the junior prfd. stock, will have voting rights.
Yesterday Wells Fargo CEO, Stumpf, mentioned that "the reform of the federally backed companies that guarantee home mortgages isn’t likely before 2013. Resolving the status of Fannie Mae and Freddie Mac may be delayed in part by the 2012 election cycle".
FACTS:
1st. He gave us a superb teaching about the GSE reform on April 4th: (comment above)
2nd. The BILL H.R. 1859 was introduced last May 12th by one Republican and one Democrat. The WSJ said: "Two legislators are set to unveil legislation on Thursday to replace Fannie and Freddie with at least five private mortgages that would issue MBSs with explicit federal guarantees".
It adds that will have the same regulator as FnF, the FHFA and they will be no-publicly traded.
Also I remind you that on October 4th, I wrote above that Michael Heid, co-president of Wells Fargo Home Mortgage, mentioned a combined GSE with “at least four, but not more than eight” private lenders, in a Congress Hearing.
DOES JOHN STUMPF THINK WE ARE STUPID?
So, primarily he showed us the GSE reform and, once it's introduced in Congress, later says that it will be approved in 2.013.
HEY! WAKE UP!! OUR RECAPITALIZATION BILL H.R. 1859 IS NOW IN THE HOUSE COMMITTEE IN FINANCIAL SERVICES!!!
After the two Hearings tomorrow, the mark-up session of the BILL H.R. 1859 should be announced.
I expect the RECAPITALIZATION-DAY on June 30th: it's the day when the Treasury receives the last $8.5 billion worth of senior preferred shares and Fannie Mae gets the cash of the draw request to Treasury.
COUNTDOWN CONTINUES....
-I told you that I'll be right one day or the day after. The time has come.
-I remind you that it won't matter the colour of Geithner's shirt the day he announces the recapitalization plan. I'll like whatever the restructuring plan is.
-Also: risk-reward or risk-penniless.
I've written several times about my October 4th comment, when Michael Heid, co-president of Wells Fargo Home Mortgage, mentioned a combined GSE with “at least four, but not more than eight” private lenders, in a Congress Hearing.
He told us then, what the GSE reform will be.
Because the WSJ link written no longer works (why did WSJ delete the news?), I'm gonna repeat the whole article:
WASHINGTON (Dow Jones)--A Wells Fargo Home Mortgage Inc. senior executive Tuesday said the U.S. government should gradually hand Fannie Mae's and Freddie Mac's loan guarantee functions to private companies.
New mortgage securities insurance companies wouldn't be backed directly by the federal government, though the government would still regulate the industry and guarantee the payment of principal and interest to investors in mortgage-backed securities packaged by the new private companies, Michael Heid, co-president of Wells Fargo Home Mortgage, said in testimony prepared for a House Financial Services Committee hearing Wednesday.
"An explicit federal guarantee is needed to ensure a steady flow of mortgage finance at a reasonable cost to borrowers," Heid said.
Heid's comments come as politicians debate the future of the mortgage giants, which the government took over in September 2008 as they faced a financial crunch.
The government-sponsored enterprises have performed a central role in the housing market since the real estate bubble burst by purchasing mortgages from lenders, packaging those loans into securities, and then guaranteeing the payment of interest and principal on those securities.
But that's come at a cost to taxpayers. So far, the government has committed $148 billion to keep Fannie Mae and Freddie Mac afloat.
Heid said the so-called mortgage securities insurance companies could eventually take over that function from Fannie and Freddie. But the government would still backstop the mortgage industry by guaranteeing the principal and interest on securities for investors.
Mortgage downpayments, private mortgage insurance, shareholder equity and reserves that are generated from fees would stand between the companies and taxpayers.
"These layers of private capital should insulate the taxpayers from paying claims on the guarantee," he said.
Heid said at least four, but not more than eight, such companies would be needed to serve the market. Groups of banks are seen as potential investors in the mortgage securities insurance companies.
Still, Freddie and Fannie aren't expected to disappear anytime soon.
"Given the size, importance and complexity of the housing finance system, expectations should be for this transition to potentially take multiple years to be realized," Heid said.
Heid's statement was on behalf of the Financial Services Roundtable's Housing Policy Council, which represents 30 leading national mortgage finance companies.
-By Jeffrey Sparshott; Dow Jones Newswires; 202-862-9291; jeffrey.sparshott@dowjones.com
EBANO TOLD YOU IN THIS BLOG.
Today's DeMarco statement in Congress
http://financialservices.house.gov/uploadedfiles/052511demarco.pdf
FHFA's newly initiatives to improve the Housing Finance System:
-Uniform Mortgage Data Program: Related to develop standard data.
-Servicing Compensation: Related to how to better compensate the companies that provide mortgage services.
-Servicing Alignment: Related to how to provide servicing to delinquent mortgages.
-Loan-Level Disclosure: Related to MBS' disclosure for better pricing.
All of them have on thing in common: FnF technology is absolutely necessary for the new cooperatives or private companies that will do FnF's functions.
As the ICBA said: "The infrastructure of Fannie and Freddie - including their personnel, systems, automated underwriting engines - would transfer to the new co-ops."
http://www.realestaterama.com/2011/03/01/icba-outlines-proposal-for-secondary-mortgage-market-reform-ID08721.html
THAT's WHAT I CALL: TAKEOVER OF FnF.
First of all, I remind you that we've had a mandatory conversio of a $50 junior prfd. share to commons of 1.81 (FANIP, last May 12th). That's a fact.
Have a look to the latest blocks traded in the junior preferred shares, the last 5 sessions:
* Freddie $50 prfd. share: AVERAGE 5.23
FMCCS 490,000 -5.25
240,000 -5.22
325,000 -5.25
FMCCM 235,900 -5.25
FMCKK 430,500 -5.2
*Freddie $25 prfd. share: AVERAGE 2.83
FMCKJ 4,100,000 2.94
FMCKL 137,600 2.78
FMCKM 814,900 2.85
FMCKO 150,000 2.75
* CONVERSIO RATIO: 1 Freddie Mac $50 prfd. share is 1.85 $25 prfd. share.
* Fannie $50 prfd. share: AVERAGE 4.65
FNMAM 142,400 4,8
FNMFN 500,900 4,5
*Fannie $25 prfd. share: AVERAGE 2.6
FNMAT 501,000 2.6
* CONVERSIO RATIO: 1 Fannie Mae $50 prfd. share is 1.79 $25 prfd. share.
BOTTOM LINE (taking round numbers)
If one $50 prfd. share converts to approximately 1.81 $25 prfd. share and one $50 prfd. share converts to 1.81 common share (FANIP case), a $25 prfd share is equal to one common share.
...and that's what I've been talking about since many months ago. While in Conservatorship, we have the same rights, none rights. And once released from Conservatorship the prfd share will have even less rights than the common share because it will have no voting rights.
Also, from this analysis we can suggest that 1 Freddie Mac stock is approximately 1.1 Fannie Mae stock in the Newbie MacMae Inc. before being broken-up.
This analysis has nothing to do with financial markets knowledge, but Decision-Making Theory knowledge.
THE RECAPITALIZATION-DAY WILL ALSO BE KNOWN AS CATCH UP-DAY.
http://thomas.loc.gov/cgi-bin/query/z?c112:H.R.1859:
The BILL H.R. 1859 is the recapitalization plan: FnF will turn into several "Associations".
I've already warned you that you must forget the wind-down rhetoric and wait until the EXECTUION VERSION of the bill, not this text.
Two important issues:
-If the bill talking about winding down FnF is approved, the junior preferred shares are entitled to get full price ($25 or$50 per share). Therefore, it won't happen.
- The text requires:
a) measures to ensure the continued operation of the enterprises during the transition period, including the retention of qualified personnel;
b) the transfer of qualified personnel and systems from the enterprises to associations.
1st. It's impossible to retain qualified personnel if the company is set to wind down.
2nd. In this world, you can't just transfer assets and personnel from one company to another different company, without paying for it. If you want them, you must TAKEOVER FnF.
3rd. How can you transfer FnF's assets and personnel (FnF account for 75% of the mortgage guarantee market as of the end of 1Q 2011, according to DeMarco's latest statement) at the same time as begining to wind-down the enterprises gradually (5 years). If the personnel and assets are transferred when the new associations are established, is the cleaning lady going to operate the 75% of the mortgage guarantee market?
The politicians won't show us the EXECUTION VERSION until the end. I expect it to be announced on June 30th. It's when Fannie Mae issues the latest $8.5 billion worth of Senior Preferred Shares and receives the cash.
Remember that the WSJ wrote the headline "MORTGAGE SHAKE-UP" at the time when the BILL H.R.1859 was introduced. Now we know the text of the bill, but nobody says a word in the States. Ssssssssssshhhhhhhhhhhh.
The multiple attempts to harass FnF’s workers and stock performance, leads the government to write another stupidity, this time in the BILL H.R. 1859:
-Mandatory Receivership- The Director shall place the enterprises into receivership no later than one year after five or more associations, two of which are not special purpose associations, have been chartered.
But just before is written that: Not later than 12 months after the date of the enactment of this Act, the Director shall issue in final form regulations governing the chartering (capital required, etc…). Later says that following the completions of the actions mentioned before, the Director may commence accepting, and acting upon, applications for the chartering of associations.
BOTTOM LINE.
If the Director has a deadline of 12 months to establish regulation and later may commence accepting applications of the associations, we can assume that no later than 12 months, at least 5 associations have been chartered (they will be the 5 big Mortgage lenders plus 12 FHLBanks, for instante).
Thereby, no later than two years FnF will be placed into receivership, that is, 75% of the mortgage guarantee market (as of end of 1Q 2011, according to DeMarco latest statement) will be placed into receivership, which means that the enormous FnF’s Debt will be incorporated into the Federal Budget, the U.S. Debt/GDP ratio would skyrocket to more than 130% and the world economy would collapse because of a U.S. Debt Crisis.
The requirement to transfer qualified personnel to the new associations goes against the other requirement that requires measures to retain qualified personnel during the transition period. What do we do? Retain or transfer? you can't do both at the same time.
Two facts:
-BILL H.R. 1859 establishes a MORTGAGE SHAKE-UP of 100% of the Mortgage Guarantee Market. The bill is now in the House Committee on Finacial Services. Text just released.
-FnF account for 75% of the Mortgage Guarantee Market, as of the end of 1Q 2011, according to DeMarco's latest statement in Congress.
BOTTOM LINE.
To the "full faith and credit" of the U.S. government, a "full proper manners to operate in the financial markets" should be added.
When legislation that will shake-up 100% of the market is in Congress, enterprises accounting for 75% of that market must be halted from trading in the stock exchange, pending legislation announcement.
Whatever the outcome of the legislation, and I say WHATEVER, trading with all types of stocks of Fannie and Freddie must be halted, PENDING PARLIAMENTARY PROCEEDINGS.
In the BILL H.R. 1859, there isn't a single comment about the government's Warrant representing 79.9% of FnF's common shares, with exercise price of nearly zero.
Also, there isn't a single comment about the $162.4 billion worth of Senior Preferred Shares owned by the government.
Is the government gonna let the warrant expire without exercising it?
Is the government gonna recoup the money invested in FnF in the form of Senior Prfd. Shares or will just lose it?
Will the warrant and senior prfd. shares disappear with the wind?
I hope you also think there is always other side in every deal.
Stay tuned.
U.S. Rep. John Campbell, co-sponsor of the BILL H.R. 1859: "There are now rumors of a bill to be introduced that would effectively reconstitute the GSEs".
http://www.ocregister.com/articles/campbell-302346-entities-mortgage.html
As time goes by, the economy improves, delinquency rates decline, profitability increases and more voices are heard talking about reconstituing the GSEs.
Therefore, if the government wants to revamp the Housing Finance System, it must be now.
The outcome will be a mix: the GSEs are reconstituted, then broken-up among the big banks that will inject the capital requiered redeeming the Senior Prfd. Shares owned by the government and receiving the 79.9% of common shares comming from the Warrant.
All this post is what I've been talking about since many months ago and why I thought the GSE reform was imminent.
Buy the way, the co-sponsor of the BILL that proposes to wind down the GSEs, spreading rumors about reconstituing the GSEs? Was it intentionally?
Let's get it.
GSEs, come on.
Text of the BILL H.R. 1859: "The association may be chartered as a corporation, mutual association, partnership, limited liability corporation, cooperative, or any other organizational form that the organizer may deem appropriate. The Director may not require the organizer to adopt any particular organizational form."
Here you've got the MULTIPLE COOPERATIVE MODEL.
The community banks can form a "Special Purpose Association" in order to take FnF's functions.
Text of the Bill H.R. 1859: "SPECIAL PURPOSE ASSOCIATIONS—The Director may issue a special purpose charter to the organizer of an association if the operations of the proposed association would be limited to serving a particular mortgage market, such as multifamily housing, or a particular category of mortgage lenders, such as community banks. All provisions of this Act that apply to associations shall apply to special purpose associations, including the criteria for obtaining a charter."
In my blog, I've already explained that half the 12 FHLBanks are in bad shape: 1 is still considered Undercapitalized and 5 are in limbo "Less than Adequately Capitalized", classification that doesn't really exist (between Adequate Capitalized and Undercapialized).
If they create Cooperatives to take FnF's functions, they will have to inject cash to the cooperatives to start operating (I guess the capital ratios will be high enough), but they've already lost almost all of their investment in the form of junior preferred shares!!!
How can they commit more cash to the new Cooperatives?!
The Community Banks own approximately 50% of the junior prfd. shares outstanding and affects to 1/3 of the 5,000 community banks.
If FnF are set to wind down, they won't recoup their investment ever (10% dividend, etc...).
BOTTOM LINE
There's no way the community banks can commit more cash to the new 'associations' if they've already lost billions of dollars in their investment.
This is another reason why the combined FnF will be broken up after the Government assigns to the incoming 'associations' the 79.9% of common shares coming from the Warrant, paying for it redeeming the Senior Preferred Shares. But the other 20.1% of MacMae Inc. will be owned by the existing common shareholders and the junior preferred shareholders, after they are forced to swap their prefd. shares to commons.
I ran some numbers many weeks ago, and taking into account all the junior prfds shares outstanding, they would own approximately 10% of the new MacMae Inc.(10% for the existing common shareholders)
Therefore, they will take their 10% stake in FnF's cake to form the 'Special Purpose Associations'.
*Read my comment called WARRANT TRANSFERRED, SENIOR PRFD. SHARES REDEEMED INDIRECTLY to know how the new associations could step in.
Let's get it.
GSEs, come on.
What the hell is doing the co-sponsor of the bill 1859 that proposes to wind down the GSEs, spreading rumors about reconstituing the GSEs?
Was it intentionally?
I bet he is preparing the field to introduce a bill to reconstitute the GSEs and attach it to the bill HR 1859, so that the final bill will be my Restructuring Plan.
Or maybe a new bill introduced isn't needed. They just need to amend the bill HR 1859, to form a CLEAN BILL.
** POSTPONED **-- "Hearing to Receive the Annual Testimony of the Secretary of the Treasury on the State of the International Financial System"
Wednesday, June 1, 2011 11:30 AM in 2128 Rayburn HOB
Full Committee
Coincidence? I guess not.
We are at the final stage of the Housing Finance System shake-up, and Geithner is 24/7 commited to the restructuring plan that will have an effective date June 30th.
DON'T DARE TO DISTURB HIM!!
A Government Accountability Office (GAO) report and also the FHFA's Director have already mentioned many months ago that to establish a Cooperative Model (private cooperativists) is a LENGTHY PROCESS, thereby, it has to be announced now. (commented above).
In the BILL H.R. 1859 we've seen why they mentioned it's a LENGTHY PROCESS:
a)No later than 6 months of enactment of this Act (BILL 1859), the FHFA's Director must name a Deputy Director for Housing Finance Guarantee Associations.
b)No later than 12 months of enactment of this Act (BILL 1859):
-Establishment of the Office of Securatization and the creation of a standarized Mortage Security.
-Establishment the Charter Applications and the Auditing Division within the FHFA to conduct regular audits of the processes and systems used by associations, and later commence to accept the Charter Applications.
-etc...
BOTTOM LINE
1st.WHATEVER the final 'CLEAN' BILL is, it has to be approved now.
2nd.WHATEVER the final 'CLEAN' BILL is, the phrase "wind down the GSEs" won't appear, because the junior preferred stockholders are entitled to get full price($25 or $50 a share) if the restructuring plan for the GSEs is deemed: DISSOLUTION, LIQUIDATION OR WIND-UP.
3rd.The government can't exercise the WARRANT now, because it will assign to the incoming associations the 79.9% of common shares issued with the warrant, but these associations shall be deemed holders the exercise day, according to the prospecuts(explained in my blog). And these associations won't be chartered or created until one year or less after the bill is approved.
4th.If the phrase "wind down the GSEs" isn't included, I bet that it will say "THE GSEs WILL BE RECONSTITUTED", because once we are fully reserved for future losses, Conservatorship and the 10% dividend is not needed.
Statutory Mission of Conservatorship :"to restore soundness and solvency to insolvent regulated entities and to preserve and conserve their assets and property". The mission has been accomplished and is no longer needed.
This way, the government prepares the path to exercise the warrant in one years time or less.
Title: "Fannie Mae, Freddie Mac & FHA: Taxpayer Exposure in the Housing Markets"
Date: Thursday, June 2, 2011
Time: 10:30am
Location: 210 Cannon House Office Building
Witnesses:
Deborah J. Lucas
Assistant Director
Congressional Budget Office
Alex J. Pollock
Senior Fellow
American Enterprise Institute for Public Policy Research
Sarah Rosen Wartell
Executive Vice President
Center for American Progress & Center for American Progress Action Fund
______
Take into account that Alex. J. Pollok advocates for a division of FnF in three parts: good bank to be privatized, bad bank and a government agency. But a bad bank is not necessary because all the bad mortgages are fully reserved, and we already have a government agency (the FHA). So, he should propose just the privatization of FnF.
Alex J. Pollok had a similar Hearing on February 9thm 2011.
http://financialservices.house.gov/media/pdf/020911Pollock.pdfHOW MUCH MONEY DOES HE RECEIVE IN EACH HEARING?
STOP KICKING THE CAN DOWN THE ROAD, AND ACT NOW!!!!
THE HEARINGS SHOULD BE ABOLISHED!!!
BOTTOM LINE
A Hearing in the House Budget Committe to talk about the taxpayer exposure, ummmm....
I bet they are talking about the exit strategy.
The government needs pressure to announce the privatization of FnF among the big banks in order to avoid a public outcry.
That's why it forced S&P to lower the debt-rating outlook and the day after, the U.S. largest-ever Congressional Delegation (10 lawmakers, 10 espouses plus staff) departured to China to explain this chess-move to Wang Qishan (commented above).
Yesterday we saw the latest chess-move: the Treasury forced the Congressional Budget Office (CBO) to report that Fannie and Freddie will cost $42 billion more to the taxpayer over 2012-2022.
Curiously enough, that projection comes when Freddie Mac has just released, in the 1Q results, a cash injection to the taxpayer of $1.6 billion because it not only didn’t submit any draw request to Treasury, but paid $1.6 billion usurer dividend (10%) to Treasury. Also the delinquency rate declined 6 b.p. to 3.57% in April vs 4.06% a year earlier, therefore, the trend continues in the 2Q because the books are improving dramatically.
That’s why the lawmakers held yesterday a Hearing in the House Budget Committee with a CBO official as witness. They needed to spread throughout the media a huge taxpayer cost projection, and dressed the Hearing up with Alex J. Pollok, the same witness of the Hearing held on February 9th, 2011 to say the same, obviously:
http://financialservices.house.gov/media/pdf/020911Pollock.pdf
Rating-outlook downgrade, huge taxpayer cost projection,…. All the planets are now aligned: THE GSE REFORM IS IMMINENT.
Superb article where shows the industry is upset with the harassment to FnF.
http://www.housingfinance.com/aft/articles/2011/may-june/0511-frontlines-GSE-Brain-Drain-Concerns-Industry.htm
The U.S. politicians' harassment to FnF's workers and stockholders with the "wind down" rhetoric will be remembered in future generations.
In the meantime, the U.S. economy is heading towards a double-dip, while the politicians keep holding multiple Hearings kicking the can down the road.
THIS IS OUTRAGEOUS!!!!
SOCIAL MEDIA REVOLUTION HAS BEGUN.
"Freddie Mac (OTC: FMCC) is making another financing product eligible for its multifamily Capital Markets Execution(SM) (CME). Beginning today, adjustable rate mortgages are eligible for securitization into K Certificates, Freddie Mac multifamily mortgage-backed securities"
http://www.bradenton.com/2011/06/03/3246480/freddie-mac-adds-multifamily-arms.html
BOTTOM LINE
If Freddie is adding a new product, what the hell is the "wind down" rhetoric? HAHAHAHAHAHA.
The reason of adding this new business is because the demand for multifamily mortgages is increasing because of the rental booming.
Two bills already introduced, but I expect a third one:
First BILL. Representative Jeb Hensarling (R) introduced a bill on March 17th, to wind down the GSEs within 5 years. That's it.
Second BILL. Both a Republican and a Democrat introduced the BILL H.R. 1859 on May 12th with two objectives:
-Wind down the GSEs within 5 years.
-Plus at least 5 cooperatives with private capital will take FnF's functions.
I've already commented that this is my investment case (Multiple Cooperative Model), but the "wind down" rhetoric. We all agree they are getting closer.
But I've got the feeling that the second bill won't be discussed in a mark-up session as the first one, it will die. It's better to introduce a new one. I expect a 3rd bill to be introduced that will be an Ebano's restructuring plan replica, on effective date June 30th. (It's when Fannie issues the $8.5 billion worth of Senior Prfd. Shares and gets the cash. Both are already fully reserved for future losses (Ratio Total future loss reserve coverage to total nonperforming loans, FMCC: 31.6% and FNMA: 34.7%). FNMA added $11 billion to this reserve in the 1Q, in order to increase the ratio from 30.9% to 34.7%. It was the last shot to fine-tune the restructuring process.
Third BILL to be introduced. Effective date JUNE 30th: BILL H.R. "EBANO": A Multiple Cooperative Model as the 2nd bill H.R. 1859, but the GSEs won't be set to wind-down, instead, the cooperatives will step in (In order to not disrupt the market and because FnF's personnel and technology are absolutely necessary):
a)The multiple cooperatives will step in a combined MacMae Inc.. The Treasury will assign to the incoming cooperatives the 79.9% of common shares coming from the Treasury's Warrant. These cooperatives will redeem the Senior Prfd. Shares owned by the Government at the taxpayer cost. (Read my comment called WARRANT TRANSFERRED, SENIOR PFD S. REDEEMED INDIRECTLY, written on March 7th).
b)Then, the combined MacMae Inc. will be broken up among the cooperatives.
I'd rather prefer that the smart guys at Morgan Stanley know how to break the existing common shareholder up among the incoming cooperatives, because I'd like to be part of the House Finance System at the bottom of the cycle and because I guess that the big banks will pay much less than the $10 per share the commons are worth.
But the reality will be that the new cooperatives will be no publicly traded companies (WSJ said so), therefore, the existing common stock will be delisted with a minority buyout at the current price of the $25 junior preferred share (currently at $2.7-$3.3 per share).
I expect the BILL H.R."EBANO" to be introduced on July 1st, with effective date to value the restructuring plan June 30th.
COUNTDOWN CONTINUES....
Let's get it.
GSEs, come on.
About the timing:
1st.Wang Qishan (GSE reform mastermind) said two weeks ago in a Charly Rose Bloomberg TV interview, “housing hasn’t been addressed yet”. He repeated it twice in front of Geithner. Also added: “it’s necessary to create jobs” and so on….
2nd. To establish a Cooperative Model is a lengthy process. A GAO report and FHFA’s Director said so, and we’ve seen it in the BILL H.R. 1859 (6 months just to name a Director, 1 year to write the Charter Applications, value the catastrophic fee, etc…).
Therefore, fact : Whatever the restructuring plan is, it must be announced now.
Once we know that it will be announced now, WHAT WILL BE ANNOUNCED?
Primarily, we’ve got the latest BILL, H.R. 1859: Two objectives:
1-Wind down the GSEs within 5 years.
2-Establishment of a Multiple Cooperative Model (at least 5 ‘associations’) that will take FnF’s functions.
The point 1 will never happen because:
A-the junior prfd. Shareholders are entitled to get full price ($25 or $50 a share) if the restructuring plan is deemed: LIQUIDATION, DISSOLUTION OR WIND UP.
B-it will disrupt the market.
So, What will accompany the point 2? Two possibilities: (Note that the warrant can’t be exercised until the associations are chartered because the government will assign to them the 79.9% of common shares coming from the Warrant, and these associations shall be deemed Holders the exercise day (according to a Warrant Prospectus’ covenant, explained above)).
1-Nothing, it will be business as usual until the associations are chartered in 1 years time and then, the government exercises the warrant. 0% probability.
2-The GSEs are reconstituted: 100% probability, because:
A-FHFA’s Director, DeMarco, mentioned two weeks ago “I have said many times that conservatorship cannot go on indefinitely and that certain risks associated with conservatorship increase over time”
http://www.fhfa.gov/webfiles/21255/Exchequer_Club_051811_final.pdf
B-Statutory Mission of Conservatorship :"to restore soundness and solvency to insolvent regulated entities and to preserve and conserve their assets and property". The mission has been accomplished: FnF are fully reserved for future credit losses and Conservatorship is no longer needed.
C-U.S. Rep. John Campbell, co-sponsor of the BILL H.R. 1859, spreaded that rumor one week ago. Was he preparing the field?: "There are now rumors of a bill to be introduced that would effectively reconstitute the GSEs".
http://www.ocregister.com/articles/campbell-302346-entities-mortgage.html
BOTTOM LINE.
BILL H.R. “EBANO” to be introduced on July 1st. Two objectives:
1-July 1st. Merging and reconstituing the GSEs with effective date June 30th (means that we exit Conservatorship and 10% dividend cancelled) The junior preferred shares are swapped to commons. Conversio ratios to common shares: $25 prfd. Share, 1:1 and $50 preferred share, 1:1.81.
2-In 1 years time: Establishment of a Multiple Cooperative Model (at least 5 ‘associations’) that will take FnF’s functions when these associations are chartered (1 years time approximately), then the government exercises the Warrant and there will be a delisting buyout.
Share price reaction: the stocks will skyrocket to $10 per share.
I'll explained now why a delisting buyout at $3 per share on July 1st is not probable.
The problem with the other scenario, a delisting buyout on July 1st at $3 per share, is that the government can’t sell to the big banks for $3 when its breakeven price is $12 (I will explained this price in other post), therefore, losing the taxpayer 75% of the bailout cost.
We know that the objective of any bailout is not to make money, but not losing 75% . Assuming the government sells its senior preferred shares at $10, the loss will be just 18% ($23 billion out of $130.4 billion taxpayer cost), avoiding a public outcry selling FnF at fire-sale prices to the big banks that sold the bad mortgages with fraudulent information to FnF.
Remember that on May 18th, FHFA's Acting Director, DeMarco, said: “Each company, in whole or in pieces, may be transformed in some fashion so that taxpayers realize value from this investment in the way lawmakers determine is in the country’s best interest.”
http://www.fhfa.gov/webfiles/21255/Exchequer_Club_051811_final.pdf
And realize value is not losing 75% of the taxpayer cost.
On May 18th, FHFA's Acting Director, DeMarco, said: “Each company, in whole or in pieces, may be transformed in some fashion so that taxpayers realize value from this investment in the way lawmakers determine is in the country’s best interest.”
http://www.fhfa.gov/webfiles/21255/Exchequer_Club_051811_final.pdf
So, let’s calculate the government’s breakeven price:
Assuming:
First, the junior preferred shares are swapped to commons and afterwards the government exercises the warrant (79.9% of the commons).
-1 $25 prfd. share is 1 common share
-1 $50 prfd. share is 1.81 common share
-1 Freddie common stock is 1.1 Fannie
-1 Freddie common stock is 1 common stock in the Newbie MacMae Inc.
OUTCOME. Percentages in the new MacMae Inc.
Government: 10.7 billlion shares, 79.9%
Freddie: 1.1 billion shares, 8.6% (commons+ juniors)
Fannie: 1.5 billion shares, 11.5% (commons+ juniors)
Other statistics:
Existing common shareholders, 12.4%
Existing junior prfd. shareholders, 7.7%
In this scenario, the government needs to sell its common shares in the Newbie MacMae Inc. at $12 to breakeven (Total taxpayer cost as of June 30th= 130.4 billion).
As the objective of any bailout is not to make money,we can assume the government sells its shares at $10, the loss will be just 18% ($23 billion out of $130.4 billion taxpayer cost), avoiding a public outcry selling FnF at fire-sale prices to the big banks that sold the bad mortgages with fraudulent information to FnF.
A $12 breakeven price for the government, means a price of $12 for the existing Freddie common stock and $11for Fannie Mae.
Now, you just have to bet what will be the government loss in this investment, and you reach your minority delisting buyout (I’ve assumed 18% loss or $10 per share).
The Congressional Budget Office (CBO) has reported that the true taxpayer cost is not $130 billion (government's investment less dividends paid), but $317 billion.
The reason is because the CBO accounts the government's guarantee as a cost to FnF.
But, what about the cost of technology, personnel or cost in USD because of the more than 1 million refinancings and modifications since Conservatorship began? Is the government going to pay FnF for it?
Furthermore, if the CBO wants to account the government's guarantee as a cost, no problem, FnF will transfer that cost to the borrower as a higher mortgage rate, what about 2% higher?
FnF are 75% of the market...
Obviously, this is another attempt to utilize the government's machinery to spread an astonish figure to shock the taxpayer, so that the politicians can keep on harassing FnF, with the objective to be free of doing whatever they want with FnF (primarily, let the large banks take FnF's functions for free).
http://www.cnsnews.com/news/article/true-cost-fannie-freddie-bailouts-317-bi
The politicians should never be allowed to run a company that large. Not in the States, only in Hugo Chavez's Venezuela.
FREDDIE MAC amended its Bylaw on June 3th, concerning the voting common stocks to be issued at any time. Basically the amendment says that the new common stocks issued shall hold the same rights as the old common stocks since Conservatorship began. http://www.freddiemac.com/investors/sec_filings/index.html
Analysis:
FACT: Freddie Mac will issue new common shares very soon.
Three possibilities:
1-Senior Preferred Shares are swapped to commons.
2-The government exercises the Warrant (79.9% of common shares).
3-Junior Preferred Shares are swapped to commons.
You already know my view: Combined + Reconstituted + Multiple Cooperative Model. The first two will be announced now but the last one (similar to BILL H.R. 1859) will be announced when the new cooperatives are chartered (aprox. 1 years time), because the government will assign the 79.9% of new common shares coming from the Warrant to the incoming cooperatives, and these shall be deemed Holders the exercise day, therefore, they shall be chartered before for the government exercises the Warrant. The incoming cooperatives shall redeem the Senior Preferred Shares at the taxpayer cost (type WARRANT TRANSFERRED/ SENIOR PRFD. SHARES REDEEMED INDIRECTLY here or see Ebano’s Blog. for an explanation of each Prospectus).
With this paragraph, the points 1 and 2 are ruled out, because won’t happen or will ocurr in 1 years time, not now.
So, point 3 + combined + reconstituted are left.
Reading the amendment, it seems that Conservatorship will continue, so we will be half reconstituted: 10% dividend cancelled but we will be one more year under Conservatorship (no problem, it just means our regulator, the FHFA will still have a close eye on us, much better because they are the ones that have resuscitated FnF as profitable companies).
Now, the point 3 and a combined GSE are left.
My investment case assumes the junior preferred shares are swapped to commons and both GSEs are combined.
A-Juniors swapped to commons: conversio ratios:
1 $25 prfd. share is 1 common share : after Conservatorship both have the same Rights, none Rights, and after Conservatorship the common will have voting rights, unlike prfds. Geither just gave the “go” to the juniors first to make the Communty Banks (owners of 50% of all juniors outstanding) post huge “paper profits”.
1 $50 prfd. share is 1.81 common share (FANIP had mandatory convesio ratio of 1:1.81 last May 12th).
B-Combined GSE: it seems that the way the Treasury will merge the GSEs is through Freddie Mac, because is the only one that has released a 8k-form amending its Bylaw (so, the only one that will issue new common shares). So, Freddie Mac will takeover Fannie Mae (takeover of equals, no premium) after their juniors are swapped to commons.
Conversio ratio: With the government’s warrant, both FnF will be equal diluted (a combined 79.9%), so the only way I see to punísh the enterprise in worst shape that has drawn more cash to Treasury is in the conversio ratio when both are combined.
I’ve assumed 1 Freddie Mac is 1.1 Fannie Mae.
OUTCOME MacMae Inc. Percentages:
Freddie: 1.1 billion shares, 42.9% (commons+ juniors)
Fannie: 1.5 billion shares, 57.1% (commons+ juniors)
OUTCOME MacMac Inc IN 1 YEARS TIME, after the government exercises the Warrant (also Seniors redeemed indirectly)
Government: 10.7 billlion shares, 79.9%
Freddie: 1.1 billion shares, 8.6% (commons+ juniors)
Fannie: 1.5 billion shares, 11.5% (commons+ juniors)
The prospects of a very viable road to recovery outweigth any future dilution.
THIS IS THE RESTRUCTURING PLAN I WAS EXPECTING FOR.
Let’s get it.
GSEs, come on.
MGIC Investment Corp. is the biggest mortgage insurer for both Fannie and Freddie.
MGIC Delinquency loans: -3.3% April and -1.5% May.
FREDDIE MAC Delinquency rates (so far): -6 bp to 3.57% in April.
With MGIC's May data, we can assume that Freddie's delinquency rate has been down in May as well.
BOTTOM LINE
The 2Q will show another huge drop in Freddie Mac's delinquency rates and this translates into better profitability because its books are improving dramatically.
In the 1Q FMCC injected $1.6 billion to the taxpayer because not only didn't submit any draw request to Treasury but paid $1.6 billion usurer dividend to Treasury (10% dividend).
FMCC is a cash cow.
FBR Analyst, apart from saying that FnF are here to stay, mentioned yesterday: "We estimate that combined the GSEs could eventually be worth $62 billion, assuming .....eliminating the 10% senior preferred dividend and raising the guarantee fee (gfee) to 50 bps."
He adds that with $62 billion can't pay the $164.4 billion government's investment in the form of Senior Prfd. Shares and also the government has a Warrant representing 80% of commons for free. Therefore all type of stocks are worthless. (He didn't even mention the dividends already paid to Treasury!!).
FACT: A recapitalization of a company means to inject cash in exchange of shares.
Therefore, the government can't receive Senior shares in exchange of the cash infusions plus 80% of the common shares, altogether. It's a double retribution only seen in Hugo Chavez's Venezuela.
My investment case assumes that ACCORDING TO EACH PROSPECTUS, the government will assign the 80% of common shares coming from the Warrant to the incoming "associations" (BILL H.R. 1859) and these cooperatives shall redeem the Senior Preferred Shares indirectly at the taxpayer cost.
OUTCOME. MacMae Inc. common shares and percentages.
Government: 10.7 billlion shares, 79.9%.
Freddie: 1.1 billion shares, 8.6% (commons+ juniors swapped to commons).
Fannie: 1.5 billion shares, 11.5% (commons+ juniors swapped to commons).
If low profile analysts at FBR say a combined GSE is worth $62 billion, means that with a total of 13.4 billion common shares, the commons will be worth $4.6 per share.
http://www.streetinsider.com/Analyst+Comments/FBR+Capital+on+Financial+Institutions%3A+If+Fannie+and+Freddie+Are+Here+to+Stay...What+Are+They+Worth%3F/6567689.html
Also I must add that a valuation of 75% of the whole U.S. House Finance System (FnF, according to DeMarco) only of $62 billion is very, very low, isn't it?
Two possibilities:
1-FBR's analysts are the worst low profile analysts ever seen.
2-The government has paid for this report a few days before the restructuring plan announcement to cool down the common shares.
You choose.
Ummm. I've got the feeling that on July 1st, a merger between Fannie and Freddie and the 10% dividend cancelled will be announced. That's why this report was released: the government is preparing the field for the announcement using its machinery to cool down the quotes also after the announcement.
*Attempts to cool down shares, can't fool smart money forever*
BARNEY FRANK TO APPEAR VERY SOON TO COOL DOWN THE QUOTES ALSO.
STAY TUNED.
21 days to the restructuring plan announcement & counting:
-FnF will be resconstituted (which means FnF are here to stay).
-FnF will be combined (Freddie will issue new shares to adquire Fannie 1:1.1, also junior prfd. will be swapped to commons)
-10% dividend cancelled.
-NEW BILL to charter at least 5 private cooperatives (when they are chartered in a few months time, the government will exercise the Warrant and will assign the 79.9% of comon shares coming with the warrant to the new cooperatives. These cooperatives shall redeem the Senior Preferred Shares indirectly at the taxpayer cost, according to each Prospectus that I remind, both were amended a few weeks after they were approved, explained above).
The prospects of a very viable road to recovery outweigh any future dilution to common shares.
Let's get it.
GSEs, come on.
1-On September 3rd, Wall Street knew the GSE will be combined:
Charles Gasparino, then CNBC’s worker, mentioned, citing Wall Street sources, that the GSEs will be combined.
"What we have heard is over the last couple of weeks the Treasury began holding significant meetings with Wall Street executives to come up with a solution to Fannie and Freddie,"
“The report citing Wall Street sources said that the two mortgage firms will be combined into one agency.”
http://www.streetinsider.com/Insiders+Blog/Fannie+Mae+and+Freddie+Mac+Could+Be+Combined/5945829.html
2-On September 28th, Wall Street knew the government’s plan: Multiple Cooperative Model, replica of the BILL H.R. 1859:
In testimony prepared for a House Financial Services Committee hearing, Michael Heid, co-president of Wells Fargo Home Mortgage mentioned: “U.S. government should gradually hand Fannie Mae's and Freddie Mac's loan guarantee functions to private companies”, “at least four, but not more than eight, such companies would be needed to serve the market. Groups of banks are seen as potential investors in the mortgage securities insurance companies”, “But the government would still backstop the mortgage industry by guaranteeing the principal and interest on securities for investors. “,“Mortgage downpayments, private mortgage insurance, shareholder equity and reserves that are generated from fees would stand between the companies and taxpayers.”, "These layers of private capital should insulate the taxpayers from paying claims on the guarantee," he said.
And all this statement in Congress is a replica of the bipartisan BILL H.R. 1859 introduced last May 12th in Congress. Therefore, Wall Street knew the plan 8 months in advance.
The WSJ article with this news has been deleted, but I mentioned it on October 4 and copied-pasted it entirely on May 24 in Ebano’s Blog.
3- If a Bill that will shake up 100% of the Mortgage Gurantee Market is going to be introduced on July 1st (whatever the plan is), enterprises accounting for 75% of that market (FnF as of end 1Q, according to a DeMarco’s latest statement in Congress) ought to be halted from trading, pending the final outcome, that is, pending the new associations to be chartered in a few months time. Once they are chartered, the government exercises the Warrant and assigns the 79.9% of common shares to the incoming cooperatives, that will redeem the Senior Pref. Shares indirectly at the taxpayer cost (explained above).
BOTTOM LINE.
Because Wall Street knows the restructuring plan in advance, and all is already written in the Warrant and Senior Prfd. Shares’ Prospectuses, trading must be halted on July 1st.
Nobody wants Wall Street members’ families to benefit from the restructuring plan utilizing INSIDER TRADING.
I’ve already denouced the stake that was beginning to build Calpers, and sold immediately.
REMINDER: THIS POST WILL BE DELETED THE DAY AFTER THE FULL RESTRUCTURING PLAN IS UNVEILED
The economy is being put on the brink of recession premeditadely:
-Politicians don’t reach an agreement to raise the Debt Ceiling and this translates into a default of the U.S. Debt on August 2nd. One and a half months left!!! AAAAAHHHHHH!!!!
-S&P has already lowered the U.S. Debt credit outlook and other agencies have threatened to put the U.S. Debt rating in Junk status if there is a default. AAAAAHHHHHH!!!!!
-Fed's QE2 ends on June 30th, and everybody is thinking the economy will shrink because of the end of the stimulus program. AAAAAHHHHH!!!!
-Housing and the whole economy showing signs of a double dip. AAAHHHH!!!
-Geithner’s plan on housing is: higher downpayments, lower size of mortgages, higher fees, 5% retention rule. All will freeze the housing market. AAAAHHHHHH!!!!!!
-Because of the above the stock market has begun to trade lower sharply. AAAHHHH!!
But the politicians've got a card in their pockets. On July 1st is when the true GSE restructuring plan will be unveiled.
The government will prompt the charter of the incoming associations in less than a month (they will be the big banks and FHLBs), so that it will recoup FnF`s bailout cost, and raising the Debt Ceiling won’t be necessary anymore.
Today, Ally Fiancial IPO has been delayed to the 2H, after FnF’s restructuring plan announcement, also the government delayed 85% of its AIG’s share sale, because of “market conditions”.
FnF restructuring plan will be the 'black swan' trigger event or positive catalyst for the market. The government will sell its financial stakes easily after it. Not now.
On July 1st, all of us will rush to kiss the politicians’ @ss because they will appear to be our salvators, but the reality is that they are the ones that are putting our economy on the brink of recession premeditadely.
The House Finace System overhaul should have been announced at the end of the 1Q, many enterprises and jobs could have been saved, and many others created.
You already know that the Fed decided to sell the assets RMBSs, previously owned by AIG, individually at auction.
Last Thursday, the Fed just accepted bids on $1.9 billion of the $3.8 billion in face amount put up for sale.
The Fed has sold nearly $10 billion from the portfolio, which had an initial face value above $30 billion, since April 6.
But it’s interesting what is mentioned in the next news:
“The Fed in late May agreed to slow its sales from the portfolio after hearing a litany of complaints from dealers warning it of disruptions to the market, according to a dealer. The Fed's next planned sale from the AIG portfolio, called Maiden Lane II, is early July.”
http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201106091644dowjonesdjonline000652&title=updateny-fed-hits-shaky-mortgage-market-in-maiden-lane-sale
BOTTOM LINE
If a $30 billion face value RMBS portfolio is causing disruptions in the market, can you imagine the disruptions in the market if FnF are set to wind down and the more than $1 trillion mortgage related portfolio is put up for sale on a 5 year period?
My goodness! I doubt the taxpayer could even go to sleep at night!
I’ve already mentioned this idea above of a market disruption if FnF are set to wind down, therefore, it won’t happen.
The FHFA is the regulator of both FnF and the 12 FHLBanks.
I've already mentioned that 5 out of 12 FHLBs had "Less than Adecuately Capitalized", classification that doesn't even officialy exist, between "Adequeately Capitalized" and "Undercapitalized".
Also there is one FHLB that still is deemed "Undercapitalized".
Yesterday, the FHLB mentioned: "The 2010 financial condition and performance of the FHLBanks stabilized but several FHLBanks continued to be negatively affected by their exposure to private-label mortgage-backed securities."
Why the FHFA doesn't inform of the real official capital classification of each FHLB?
Remember: The FHFA established Prompt Corrective Actions (PCAs) if a FHLB is deemed "Undercapitalized" (explained above).
What's the meaning of the letters "PCAs" for the government?!
I guess we ought to see these PCAs very soon....
The majority of the credit-related losses come from the mortgages originated between 2004-2007, because at that time, the conventional, conforming mortgages had a low percentage as total of mortgages originated (between 33%-47%). See graph in page 4.
1- Let’s compare the 2010 ending balance Reserve for Future Credit Losses vs real Charge-Offs between 2008-2010.
Enterprise/ 3 years charge-off net, sum/ 2010 ending balance reserve/ %
Fannie Mae/ $39 b./ $60 b./ 54%
Freddie Mac/ $22 b./ $39 b./ 77%
Both FnF have a 2010 ending balance reserve for future credit losses 54% and 77% respectively, above the sum of the net charge-offs the previous three years, just after ended the period 2004-2007 where all the worst mortgages were originated. And also at a time when both delinquency rates are declining monthly since one an a half years ago.
Also note that, during 2008 and 2009, there are provisions for future credit losses 5 or up to 8 times higher than the actual charge-off net of that year!!! Wow!!!
So, why the ending balance reserve is much higher than the sum of the charge-offs the previous three years?
2- Page 9 and11 of the report. Also, 2008-2010 period, Sum Provisions for Future Losses during three years, as a percentage of Total Capital Erosion during that period.
Fannie: 70.9%. (100 out of $141 billion)
Freddie: 70.3% (64 out of $91 billion)
In other words, both FnF, total sum of the provisions for future losses accounted for 70% of the capital deficit in the 3 year period. Therefore, if FnF were not over-reserved there weren’t such a capital deficit, so, the government wouldn’t have accumulated $155 billion worth of Senior Preferred Shares (used to fund the capital deficit)
http://www.fhfa.gov/webfiles/21169/Conservator's_Report_4Q_4_20_11.pdf
BOTTOM LINE
FACT: FnF have been over-reserved for future credit losses. This way, both have published huge losses the previous quarters, then huge capital deficit and, therefore, the government has injected the capital needed to fund the losses in exchange of Senior Preferred Shares.
WHY FnF HAVE BEEN OVER-FUNDED, OVER-RESERVED OR OVER-CAPITALIZED PREMEDITATEDLY?
1st. To make FnF publish huge losses and tumble the share prices.
2nd. To shock the taxpayer with outstanding FnF losses and enourmous projections for future losses, so that the government could manipulate the housing market and establish the future of the House Finance System freely (sale cheap to the big banks). (note that this is very similar to the government’s terrorist alerts: the objective is to shock the taxpayer so that it can function freely)
3rd. The big banks will step in a combined FnF over-reserved for future losses, that is, with excess of cash in their balance-sheet.
4th. Big banks entering in an enterprise full of cash paying fire-sale prices for it, means a shadow bailout of the big banks.
___________________________________________________________________
Also the report remarks in the page 9: “The establishment of a deferred tax asset valuation allowance, which reduced capital by $21 billion for Fannie Mae and $14 billion for Freddie Mac in 2008, is also contributing to the total capital erosion.
Therefore, if FnF are reconstituted and combined, they will recoup the deferred tax asset valuation allowance of $35 billion, plus new deferred tax assets of the losses incurred in 2008-2010, and all will increase the capital of FnF (easy recapitalization, isn’t it?).
_____________________________________________
FHFA’s draw projections: The combined projected Treasury draws for the Enterprises for the second half of 2010 ranged from $24 billion to $48 billion. The actual combined Treasury draw for the second half of 2010 was $6 billion. OUTSTANDING!! (already commented above).
2H 2010: Freddie Mac drew just $600 million, but paid $3.2 billion preferred dividend to Treasury, therefore, it injected $2.6 billion to the taxpayer.
1Q 2011: Freddie Mac wrote a $1.6 billion check for Treaury's dividends and did not submit any draw request to Treasury, therefore, it injected $1.6 billion to the taxpayer.
OUTRAGEOUS!
I've already commented that FMCC amended its Bylaw on June 3th and explained the first part, where says that the new common stocks to be issued from time to time, will have the same rights as the old common stock since Conservatorship, basically.
But it's worth commenting the last phrase: "No holder of Common Stock shall as such holder have any preemptive right to purchase
or subscribe for any other shares, rights, options, or other securities of any class of the Corporation which at any time may be sold or offered for sale by the Corporation."
This means that new commons shares will be issued and, as the existing common shareholder will be massively diluted (aprox. 90%), the amendment establishes that they won't have any preemptive right to purchase any of the new shares issued in order to avoid being diluted and mantain its current percentage of ownership. They will have no choice but to obey and be diluted.
I'm not sure if a judge would accept such restrictions of the common shareholder's rights.
All shareholders have PREFERENCE SUBSCRIPTION RIGHTS, and these must prevail over any Conservatorship, Nationalization or whatever you want to call it.
Ralph Nader should have a say here as well, if he truly exists.
Continuing with the brain storming, I’ve got a possible scenario combining a MacMae Inc. reconstituted with the BILL H.R. 1859, which:
-Avoids to break-up the combined MacMae Inc. among the new cooperatives.
-Avoids a possible delisting minority buyout (the combined MacMae Inc. could have a free-float of 20.1%).
Two types of entities separated:
COMBINED MacMae RECONSTITUTED + MULTIPLE COOPERATIVE MODEL
In other words: there will be shareholders of MacMae Inc. + cooperativists of the multiple cooperatives. But the same cooperativists ought to be also the shareholders of MacMae Inc..
Freddie Mac will take over Fannie Mae and the junior pref. shares will be swapped to commons, to form MacMae Inc. Later it will be reconstituted and be renamed Office of Securitization.
The multiple cooperatives:
1-will issue, through the Office of Securitization (MacMae Inc.), Federal Housing Finance Agency securities (new MBSs).
2-will guarantee the timely payment of principal and interest on Federal Housing Finance Agency securities and charge a fee for such guarantee.
The Office of Securitization (MacMae Inc.):
1-will impose and collect the fee for the catastrophic federal guarantee (on an annual basis) to the cooperatives, with respect to Federal Housing Finance Agency securities. (It seems that this “catastrophic fee” is just an annual provision to increase the Loss Loan Reserve Fund).
2-can contract with GNMA (guarantees the MBSs issued by the FHA, VA, RHS and the PIH) some or all of its functions. This point is not clear in the Bill. GNMA should turn into a Cooperative or Freddie should buyout GNMA in order to have skin in the game.
3-the BILL establishes whatever fees are necessary to fund the Office of Securitization activities. (It seems that the new MacMae, after being reconstituted, will operate as a Utility Model. Ben Bernanke and Hank Paulson have already commented about the possibility of regulating Fannie Mae and Freddie Mac like public utilities http://www.nera.com/67_7044.htm).
4-Taking into account the Section 1394 of the Bill, called BUDGET NEUTRALITY, the Office of Securitization ought not to be within the FHFA, just regulated by the FHFA, as FnF nowadays.
RESERVE FUND
The Bill H.R. 1859 mentions a Reserve Fund to be used as a layer of private capital to insulate the taxpayers from paying claims on the guarantee, I guess that the Reserve Fund will be the existing ending balance Reserve for Future Losses or Loan Loss Reserve of the combined MacMae Inc., $107.1 billion as of the end of 1Q 2011 (now you know why FnF are over-reserved premeditadedly).
That’s why the entities that will step in the new MacMae Inc. (Office of Securitization) will be the cooperativists of the new multiples cooperatives. The cooperatives that issue the new MBSs (through the Office of Securitization) will have skin in the game with the Reserve Fund. That’s why the cooperativists must be also shareholders of MacMae Inc.
BOTTOM LINE
If the new coopertivists will also purchase the 79.9% government’s stake in MacMae Inc. to have skin in the game, what price will the pay?
Assuming that the financial assets are equal to the liabilities, at least the incoming shareholders ought to pay: the ending balance Loan Loss Reserve (Reserve Fund) +Deferred Tax Assets + the technology, personnel, patents, fixed assets (buildings, furniture,…)
Taking into account that the 1Q 2011 ending balance Loan Loss Reserve of MacMae Inc. is $107.1 billion, with 13.41 billion shares outstanding when the government exercises the Warrant, the common stock ought to be valued at $8 per share just for the value of the Reserve Fund, later you have to add the value of other assets of MacMae Inc.
This analysis is based on a MacMae Inc. reconstituted + BILL H.R. 1859, but we know that the final text of the Bill could be very different to what is already written in the bill.
We shall see…
Let’s get it.
GSEs, come on.
You know…..When at least two market participants in the about to be announced House Finance System revamp, have the same view about one of the major questions, it’s because they are carrying out an order, and the most probable scenario is that their view won’t ocurr.
The restructuring plan is crystal clear (more or less), but the timing of the announcement is left. Here are two views about the timing from market participants:
-Wells Fargo CEO, Stumpf, mentioned that "the reform of the federally backed companies that guarantee home mortgages isn’t likely before 2013. Resolving the status of Fannie Mae and Freddie Mac may be delayed in part by the 2012 election cycle". Commented above on May 24.
-John Koskinen’s interview, chairman of Freddie Mac’s Board, released two days ago: “There are a lot of options being bounced around Congress but it’s probably unlikely that any final conclusion will be reached before the Presidential election, which means that over the next year and a half or two, we’re going to have the continued challenge of managing in a time of uncertainty in terms of what the future brings.”
Isn’t likely before 2013 vs It’s probable unlikely before Presidencial election (nov.2012).
What is most likely is that both statements are very similar, hahaha.
I rather prefer to read these small lies instead of the “wind-down” rhetoric that repeatedly was used to harass FnF’s workers and stockholders.
Countdown continues…
We shall see…
_____________________________________________
In the same interview, it’s worth mentioning this paragraph: “What we have of great value here is a tremendous amount of experience and data from the past 40 years on how the housing and mortgage markets work. A minimum threshold of success would be to provide data and information to people so that whatever structure the Congress ultimately choses, the system would actually be able to be managed. It’s a complicated business, and it’s pretty easy to get it wrong.”
Therefore, Freddie Mac’s systems and personnel have value. The politicians can’t just transfer them to the big banks for free.
http://www.businessinsider.com/defining-the-future-of-freddie-mac-2011-6
Disparity between real defaults and projections of defaults.
We already know that the prospects of draws to Treasury and losses have been deadly wrong, therefore, primarily we have to doubt when we are reading the data of non-performing loans and afterwards, analyze it:
Let’s compare the real data of defaults so far vs the estimations of loans that will be difficult to recoup (non-performing loans).
1-Facts (or real data). Freddie Mac.
-Delinquency rate: 3.63% as of the end of 1Q 2011. A extremely low delinquency rate.
-Ending balance Loss Loan Reserve at the end of 2010 is 77% higher than the sum of the charge-offs net during 2008-2009-2010. (Take into account that the credit losses come from the loans originated between 2004-2007, and as these loans aged, the probability of default declines).
We can assume with this data that Freddie Mac is over-reserved for future losses.
2-But the company provides other data to confront this assumption: Loan loss reserves as a percentage of Total non-performing mortgage loans= 33.3% as of end of 1Q 2011.
But this ratio is not so high, as the previous data of real defaults could suggest!!!
The first thing one analysts could think is that the non-performing loans are overstated, so, let’s analyze the data of non-performing loans:
Usually a loan is deemed nonperforming when payments of interest and principal are past due by 90 days or more.
But, hey! What I have found here!! Freddie Mac considers the loans called TDRs as non performing loans, so that the final figure of Total non performing assets is the sum of ‘traditional’ non-performing loans plus TDRs.
TDRs “troubled debt restructurings”: loans are meant to be classified as TDRs once a bank grants a concession to a borrower in financial difficulty that it wouldn’t normally consider. Basically, they are the so called loan refinancings and modifications. To be clear, this is totally legal (FAS 15, and later amended by SFAS 114): classifying loans as TDRs does usually shift the loan into non-performing status, which requires increased reserves, primarily because these TDRs have a redefault rate.
BOTTOM LINE
1-Amendment ASU 2011-2: It’s now up to the banks to figure out if the borrower’s in difficulty. Take into account that FnF have been the government’s tools to manipulte the housing market by providing home funding and through loan modifications to taxpayers, therefore, with mortgage rates at all time low, everybody is pushed to ask for a modification, even if you are current on your payments, so, everybody is pushed to be deemed TDR.
2-This economic recovery is based on the loan modifications, primarily that’s what Fed’s QE2 was about: the $600 billion bond buying program with the objective to manipulate the U.S. Bond Market by intentionally bidding up prices of Treasuries, lowering the rates at which the taxpayer finance, refinance or modificate mortgages. More than 4.5 million modification arrangements were started between April 2009 and April 2011, according to Treasury http://www.loansafe.org/remarks-by-assistant-secretary-mary-miller-at-the-women-in-housing-finance-annual-dinner
3- 91% of the TDRs loans are performing loans or less than three monthly payments past due, but are considered Non-performing assets. Page 69 http://www.freddiemac.com/investors/er/pdf/10q_1q11.pdf
4-We have to consider that Total TDRs account for 29.3% of total non-performing assets as of end 1Q. If we strip the performing TDRs of the Total non-performing assets, the ratio Loss Loan Reserve to total non-performing assets would be 45.4%. We also have to mention the pending put-backs demands to the banks that sold mortages to FnF with fraudulent information. So, many non-performing loans will be transferred back to the banks.
Therefore, the ratio of 33.3%, that before you thought it was a normal ratio, after reading this post, you will throw that figure to the wastepaper basket, and keep stick to my view that FnF have been over-reserved for future losses premeditatedly in order to make them post huge losses and allow the big banks to step in a MacMae Inc. full of cash.
IT WILL BE DEEMED SHADOW BAILOUT, IF THE BANKS DON'T PAY FULL PRICE FOR IT.
*Superb explanation about the TDRs here http://ftalphaville.ft.com/blog/2011/05/20/574091/the-extend-and-pretend-expose-coming-to-a-bank-near-you/
I already told you that there is nothing weird as far as FnF are concerned. More to come for sure.
-July 9th 2010. The FHFA established a Proposed Rule, open to discussion. "The rule seeks to protect the public interest in the transparency of conservatorship and receivership operations for FnF and the 12 FHLBs". Basically it explains what is already contemplated by the Housing and Economic Recovery Act of 2008 (HERA). “It sets out the basic and general framework for conservatorships and receiverships”. “Reflecting the approach in HERA”.
http://www.fhfa.gov/webfiles/15921/Conservatorship_published_NPR_75_FR_39462_(7-9-2010).pdf
-June 14th 2011. The FHFA approves the Final Rule. http://www.fhfa.gov/webfiles/21592/Conservatorship_and_Receivership_Final_Rule-signed.pdf
Three issues:
1st. If we compare the two texts, there is a paragraph added in the Final Rule, at the end of the section called Background, that was not written in the Proposed Rule, Page 6:
“At the time FHFA established the conservatorships, and on several occasions since, FHFA has noted that the conservatorships, combined with the Treasury Senior Preferred Stock Agreements described above, provide an opportunity for Congress to direct the ultimate resolution of the Enterprises.”
We already know that FHFA has mentioned it, if you’ve read my blog.
2nd. Is explained in the text that the FHLBs urged FHFA to delay issuing a conservatorship and receivership rule that covers the Banks, until it first approves the rule that allows the 12FHLBs to volutarily merge, still under discussions (commented above).
I agree that is very strange to approve this rule talking about a possible conservatorship or receivership of the 12 FHLBs, before approving the rule to allow the FHLBs to merge in order to increase their capital ratios and avoid Conservatorship.
Therefore, the objective of this Final Rule could be other. Have a look to the bottom line.
3rd. “The final rule contains several provisions that address whether and to what extent claims against the regulated entities by current or former holders of their equity interests for rescission or damages arising from the purchase, sale, or retention of such equity interests will be paid while those entities are in conservatorship or receivership. The rule classifies a payment of these types of claims as a capital distribution, which is prohibited during conservatorship.
Prohibiting capital distributions and payment of securities litigation judgments:
The Safety and Soundness Act and HERA grant FHFA broad authority as Conservator to manage the conservatorship estate, including the authority to restrict capital distributions that would cause a regulated entity to become undercapitalized”.
BOTTOM LINE
It seems that this Final Rule, that I repeat it just explains what is already contemplated in HERA (it seeks transparency), will be distributed to the media after the restructuring plan announcement in order to make clear:
1- the FHFA led the conversations to restructure the House Finance System and deserves a medal.
2- where fits a lawsuit in your body if you’ve made losses in your investment as shareholder of FnF.
Let’s get it.
GSEs, come on.
I like very much the scenario commented in the post called FREDDIE MAC TO BE RENAMED OFFICE OF SECURITIZATION written on June 16th, but I’m gonna fine-tune it because I see three problems:
1- The banks will have to commit too much capital: primarily to form a Cooperative and later to buyout part of the government’s stake in MacMae Inc..
2- If the government “sells” its 79.9% stake to private entities, conservatorship will no longer exist, because it’s a complete private company. Therefore, MacMae Inc (Office of Securitization) would be subject to the 5% Risk Retention rule for all mortgages with down-payment of less of 20%. This will freeze the housing market.
3- The BILL H.R. 1859 says: “The Director shall establish an Office of Securitization within the Agency (FHFA)”, and I mentioned that it should be outside the Agency, just regulated by the FHFA as nowadays.
I will solve these issues adding an adjustment to the same scenario:
I have the feeling that the govenrment wants the new MacMae always under conservatorship, or in other words, within the Agency (FHFA).
It’s logic this view, primarily because MacMae Inc. issues securities guaranteed by the U.S. Government, therefore is benefiting a company thanks to a govenrment guarantee (and it should have a cost if the government is not the owner of the company, as the CBO mentioned recently), therefore, it would be better if the government is the shareholder of that company and not private entities.
BOTTOM LINE.
-The banks will just form the cooperatives, they won’t be shareholders of MacMae Inc.
-The goverment will swap the Senior Preferred Shares for the warrant representing 79.9% of the common shares (or cancel the Seniors in exchange of commons…): this way MacMae Inc. won’t be incorporated into the Federal Budget (less than 80% stake), MacMae is established within the FHFA (as mentioned in the BILL H.R. 1859) and the 5% retention rule won’t apply to MacMae Inc because it will be within the FHFA and the securities issued are guaranteed by the government.
The rest of the scenario remains intact: MacMae reconstituted, Utility Model, 20.1% free float, 10% dividend cancelled, etc…
The only problem with this adjustment is that the government won’t recoup its investment instantly, but will own 79.9% of the Office of Securitization (a more proper role for a government that provides a guarantee to the securities of the Office).
It will be outrageous if the government decides to hold both a 79.9% stake after exercising the Warrant and the Senior Preferred Shares at the same time, just to harass the stock performance. Curiously enough, this was the view of FBR Capital mentioned above. It's very suspicious that analysis (reconstitution, dividend cancel, etc) when nobody has mentioned it before.
GEITHNER, STOP FnF’s STOCK PERFORMANCE HARASSMENT AFTER THE RESTRUCTURING PLAN!
1-Capital distributions: As the bad mortgages originated during 2004-2007 aged (since then, FnF have better credit standards), the probaility of default of those mortgages decline and adding that both FnF are over-reserved for future losses, the government could get paid by distributing from time to time, the excess of Loss Loan Reserve to the shareholders (government would have a 79.9% stake).
The cooperatives ought to cover that Reserve Fund decline partially (there is not need for such an enormous Reserve Fund) as the shareholders are reimbursed with the capital distributions, this way they can commit more capital as they become healthier (they can’t commit much capital now), that’s why the capital distrubutions would be from time to time. The way to cover the Reserve Fund decline is to increase the annual "catastrophic fee" that year (contemplated by the BILL H.R. 1859).
You know…..When the Fed has to announce that is going to utilize a company as a monetary policy tool because that company has excess of cash in the balance-sheet, and is lending to the fiancial system an enormous amount of cash daily, it means that there is something wrong with that company: The Fed announced on May 24 it will use FnF to reverse repo couterparties to eventually drain cash from the financial system.
http://www.reuters.com/article/2011/05/24/usa-fed-gse-idUSNYD00380920110524
2-Annual dividend to the common shares, continuing with the idea of a Utility Model.
Again, the government shouldn’t say it will hold both a 79.9% stake and Senior Prfd. Shares, that’s a double compensation. It should swap Senior Prefds. Shares for a 79.9% stake.
Let's get it.
GSEs, come on.
TOTALLY PUBLIC UTILITY MODEL (MacMae Inc.- 79.9% government ownership within the FHFA) + PRIVATE MULTIPLE COOPERATIVE MODEL (Bank ownership)
It’s a mix public-private sector. Mix of public regulation + private sector evaluations of credit risk and the private market stimulus to innovation.
This is the best organizational form for the GSEs I’ve ever seen!
It’s a win-win scenario for everybody.
Let’s get it.
GSEs, come on.
Philosophy: loan loss reserves represent capital that should be “built up” during good economic times, to absorb losses during bad times.
The charge-offs (losses once the mortgage is foreclosured or short sold) go against the loss loan reserve and not against earnings, therefore the loss loan reserve is considered Tier 2 capital.
Freddie Mac provides the figures of Core Capital and Minimum capital requirement, signaling “FHFA is the authoritative source for our regulatory capital”, but Freddie doesn’t unveil the figure of regulatory capital (sum of Tier 1 and Tier 2 capital).
The FHFA has been increasing the loss loan reserve (TIER 2 capital), but by doing so, reduces the TIER 1 capital (more provisions, more losses, more deficit).
Under regulation Basel II, there is a 1.25% limit in the amount of TIER 2 capital can be added to TIER 1 capital to form Regulatory Capital. So, an excess of loss loan reserve as total mortgage porfolio ratio above 1.25% has no effect on regulatory capital.
When an abnormal and opportunistic loan loss reserve increases, reflects the management has something to hide: or mismanagement or, as this is the case:
a) utilization of the enterprise to help borrowers and the whole economy: more loan modifications (TDRs) means increased reserves (at the expense of the existing shareholders)
b) utilization of the enterprise to allow the big banks (multiple cooperatives) take its functions and take its excess of Loan Loss Reserve for free.(at the expense of the shareholders).
The excess of loan loss reserve is the excess above 1.25% in the loss loan reserve as total mortgage porfolio ratio. Freddie Mac’s ratio stands at 2.02% ratio as of March 31 and stood at 0.30% in 2Q 2008, just before conservatorship.
BOTTOM LINE
The excess of loss loan reserve ($15 billion just calculating Freddie Mac’s case) ought to be distributed to the shareholders (government 79.9% stake) in full.
The incoming associations (big banks) can’t use the excess of loan loss reserve of FnF along with FnF’s functions! All free!
I’ve already mentioned that, in the case of Freddie Mac, 70.3% of the capital deficit from 2008 till the end of 2010 had to do with the sum of provisions for future losses (but I’ve proved FnF have over-funded the Loss Loan Reserve and also I've mentioned that's TIER 2 capital), and I will add:
A) 11% has to do with the usurer dividend to Treasury for the Senior Preferred Shares (10% dividend) to fund that deficit.
B) 15% with “the establishment of a deferred tax asset valuation allowance, which reduced capital by $21 billion for Fannie Mae and $14 billion for Freddie Mac in 2008, is also contributing to the total capital erosion”, according to FHFA’s latest quarter report. So, an accounting issue.
Therefore, 96.8% of the capital deficit in the 3 year period till the end of 2010, had to do with the nationalization of FnF to help borrowers (increased reserves for loan modifications -TDRs - even if they are performing loans) and banks (shock the taxpayer with huge losses to later transfer freely FnF’s functions to the big banks and allowing them to utilize the combined GSE over-Reserved Fund for free).
But the existing reserve fund belongs to the government (79.9% stake) and to the existing shareholders (20.1% stake).
THE INCOMING ASSOCIATIONS OUGHT TO BUILD UP THEIR OWN RESERVE FUND.
This way MacMae Inc's excess of reseve fund already built up, can be reimbursed to the shareholders.
The associations can inject a first capital payment to build their reserve fund in order to avoid a public outcry (the government would be delighted to announce an initial payment of the taxpayer' cost), to later continue to build up their own reserve fund annually at the same time as MacMae Inc reimburses the excess of reserve fund to its shareholders.
But this issue ought to be written very clear in the restructuring plan announcement.
A mortgage is a secured loan, guaranteed by the home itself. If the borrower defaults on the loan, the lender can take possession of the home.
That's why even a 1.25% ratio of Loss Loan Reserve as Total Mortgage Porfolio is CRAZY, when we are three years after the period where the bad mortgages were originated (2004-2007) and as these mortgages aged, the probability of default decreases dramatically.
That ratio shouldn't be above 0.50% at this point in time for sure.
(Continuing the comment of June 7th)
-The previous Certificate of Designations written in 2008 established that “the Common Stock shall consist on 4,000,000,000 shares that have been issued or authorized for issuance (without limitation upon the authority of the board of directors to authorize the issuance of additional shares from time to time)”
http://www.freddiemac.com/investors/pdffiles/8th-cert-of-designation.pdf
-It was amended on June 3, 2011 saying “the Common Stock shall consist of such number of shares as may be issued or authorized for issuance from time to time by the Board of Directors (without limitation upon the authority of the Board of Directors to authorize the issuance of additional shares from time to time)”
Analysis:
The Certificate written in 2008 limited the amount of shares to 4 billion. Only outstanding commons (0.65 b) + government 79.9% warrant are 3.22 billion common shares. So, they didn’t contemplate juniors swapped to commons, and least Freddie taking over Fannie Mae with shares in order to combine them. What a mistake in 2008!! Hahaha.
This is a sign that Freedie is going to issue very soon much more shares than 2.5 billion. A merger is imminent.
The bill is a replica of my latest scenario:
WSJ: “Under his bill, Miller said, Fannie and Freddie will disappear. "There will be something else that we believe will be better," he said.
Miller's bill would create a government-chartered corporation that would act much like Fannie and Freddie, buying up mortgages, packaging them into government-backed securities and selling to them to investors, according to a person familiar with the matter. Issuers of mortgage backed securities would pay fees to create a fund that could be tapped to cover losses during a downturn.
The corporation would assume the assets of Fannie and Freddie and would have government-appointed board members, according to the person briefed on the plan.”
Analysis:
-“The government-chartered corporation would assume the assets of FnF and would have govt.-appointed board members” means the combined FnF will be reconstituted and renamed OFFICE OF SECURITIZATION within the FHFA.
-“Issuers of mortgages paying fees to create a fund to cover losses”: issuers is plural and government-chartered corp. is one entity, therefore, he refers to private issuers (multiple cooperatives) paying the catastrophic fee to fund the Loss Loan Reserve.
This is a replica of my latest organizational form: a 79.9% owned government entity packaging guaranteed mortages + multiple cooperatives separated.
http://online.wsj.com/article/BT-CO-20110624-709254.html
Also I’m going to respond to Garret’s spokesboyfriend Ben “we’re a go” Veghte cooling down Miller’s plan (I bet he is also Barney Frank’s spokesboyfriend). This is the Congress’ circus where everybody has a role: one unveils a plan and, at the same time, the other dismisses it with stupidities and says he will introduce a better bill later. He said wants no guarantee in the market, and doesn’t mention a corporation with a 79.9% government stake wouldn’t be incorporated into the Federal Budget.
TIMING **It’s also worth mentioning, Treasury Undersecretary Jeffrey Goldstein commented reporters about the GSE reform: “we are happy to move forward as quickly as possible”, and also: “I think we'll be in a position to be able to have a more detailed conversation on all three options in the not so distant future." What about July?
Hey! All wanna compete with Ebano telling the restructuring plan and timing of the announcement in advance to the public? Stop this crappy show and release the ultimate restructuring plan now!
In the meantime, the housing market collapsing. Wang Qishan should come here to put order in the politicians' mess.
http://www.reuters.com/article/2011/06/24/usa-housing-gses-idUSN1E75N0FQ20110624?feedType=RSSfeedName=bondsNews&rpc=43
That's why FnF can't be set to wind-down.
http://www.nytimes.com/2011/06/23/business/23views.html?_r=1
______________________________________________
INTERVIEW TO ROBERT TOLL, chairman and CEO of Tolls Brothers.
Another hit to the uncertainty introduced by Timothy “3 options” Geithner:
Q: “What is restraining the market, then?”
A: “It doesn't matter whether you do put the GSEs out of business, and it doesn't matter if you do take away some of the mortgage interest rate deduction, as long as you give us a static situation where people know what the rules of the game are. Right now, people are confused.”
http://www.usatoday.com/money/companies/management/bartiromo/2011-06-17-toll-brothers-bartiromo_n.htm
NEWS. JULY 6, WSJ: “Bill calls for Fannie, Freddie merger”
http://online.wsj.com/article/SB10001424052702303982504576428082692469762.html?mod=googlenews_wsj#articleTabs_comments
The WSJ explains the bill that will be introduced by representative Gary Miller. I’ve mentioned before it’s a replica of my latest organizational form for the GSEs when I combined the BILL H.R. 1859 with the idea of GSEs reconstituted, commented above: two entities separated: Public Utility model MacMae Inc.79.9% owned by the government + Multiple Cooperatives bank membership.
The cooperatives would issue the MBSs through MacMae inc and would pay a catastrophic fee to fund MacMae’s Loss Loan Reserve and a fee to fund MacMae operations (utility model).
The article doesn’t give us additional data. Not if you don’t know how to read between lines, hahaha.
1st. Remember that the previous bill calls for BUDGET NEUTRALITY (Section 1394 of the Bill H.R. 1859), which means the government can’t own more than a 79.9% stake in the combined “government-held corporation” MacMae Inc.. in order to not incoporate more than $11 trillion mortgage market onto the federal government's balance sheet.
2nd. (Point already commented) Freddie Mac, unlike Fannie Mae, amended the Certificate of Designations in its ByLaw with effective date June 3. Why was that?
-The previous Certificate of Designations written in 2008 established that “the Common Stock shall consist on 4,000,000,000 shares that have been issued or authorized for issuance (without limitation upon the authority of the board of directors to authorize the issuance of additional shares from time to time)”
http://www.freddiemac.com/investors/pdffiles/8th-cert-of-designation.pdf
-It was amended on June 3, 2011 saying “the Common Stock shall consist of such number of shares as may be issued or authorized for issuance from time to time by the Board of Directors (without limitation upon the authority of the Board of Directors to authorize the issuance of additional shares from time to time)”
Analysis: the Certificate written in 2008 limited the amount of shares to 4 billion. Only outstanding commons (0.65 b) + government 79.9% warrant are 3.22 billion common shares. So, they didn’t contemplate juniors swapped to commons, and least Freddie taking over Fannie Mae with shares in order to combine them. What a mistake in 2008!!
This is a sign that Freedie could issue very soon much more shares than 2.5 billion.
3rd. The WSJ mentions in today’s article “The new corporation would assume the assets and liabilities of Fannie and Freddie and would continue to pay the Treasury dividends that are owed as part of its bailout. Those payments would cease once the company had repurchased nearly $162 billion in preferred shares that are held by the Treasury. The bill doesn't outline how that would take place.”
BOTTOM LINE
So, we have Freddie Mac that can issue now all new common shares it wants, and also it is mentioned that the dividend payment would cease once the company had repurchased the Senior Preferred Shares, and also we have that the government can’t own more than a 79.9% stake in the new govenrment-held corporation…. ummmmmmm….
Possible scenario: Freddie Mac will merge with Fannie Mae (also junior prfds swapped to commons) issuing shares and later will buyout with shares the Senior Preferred Shares issuing the amount necessary so that the government would own just a 79.9% stake. This will benefit the Pulp and Paper Industry.
POSSIBLE OUTCOME
Government: 10.7 billlion shares, 79.9%
Freddie: 1.1 billion shares, 8.6% (commons+ juniors)
Fannie: 1.5 billion shares, 11.5% (commons+ juniors)
I’ve assumed :
-1 $25 prfd. share is 1 common share (juniors have less rights than the voting-common shares)
-1 $50 prfd. share is 1.81 common share (FANIP case)
-1 Freddie common stock is 1.1 Fannie
-1 Freddie common stock is 1 common stock in the Newbie MacMae Inc.
I will change this assumptions to consider that 1 Freddie Mac buys 1.25 Fannie Mae. Freddie is a gold mine.
$162 billion in Senior Preferred shares swapped for 10.7 billion common shares means that FnF have received a cash infusion worth $15.12 per common share. (Note that almost all the cash is still held as Loss Loan Reserve, so it hasn't been utilized)
(with my data I’ve got the government holds $164.4 worth of senior prfd. shares but has invested $162.4 billion in cash, because it received $1 billion worth in senior prfds. in each GSE without cost at the time of the Senior Prfd. Agreement).
Isn’t it accretive if you buy the stock at the current market prices?
*In this possible scenario, the government’s warrant representing 79.9% of common shares won’t be exercised, obviously.
Let’s get it.
GSEs, come on.
Co-sponsor, democrat McCarthy.
BILL H.R. 2413 : "To establish a sustainable Federal Secondary Market Facility for Residential Mortgages that is financed by private capital, to terminate the conservatorships of Fannie Mae and Freddie Mac and repeal the charter Acts of such enterprises, and for other purposes".
http://www.govtrack.us/congress/bill.xpd?bill=h112-2413
It's a replica of my latest scenario, if we compare it with what appeared on the WSJ a few days ago (commented above). Let's track this bill. I have the feeling that this is the ultimate bill and won't die, it will go to a mark-up session to be approved.
The shareholders' Rights will prevail over any nationalization. This is not Hugo Chavez' Venezuela.
The latest bipartisan bill, H.R. 2413, mentions that MacMae inc will be 100% owned by the government but we all know that it can't hold more than 79.9% in order to not incorporate FnF's debt into the Federal Budget.
WHY THE ANNOUNCEMENT SHOULD BE BEFORE THE CONGRESS RECESS NEXT SUNDAY:
* JULY 12th: “According to Bachus, Donovan said last week that he “would get me something in the next week or two.” Bachus said the administration officials had asked him to wait to advance a comprehensive overhaul of government-controlled mortgage giants Fannie Mae and Freddie Mac because they were hoping to unveil something soon.”
http://www.campbell.house.gov/index.php?option=com_content&view=article&id=3030:bachus-says-administration-preparing-new-housing-overhaul-plan-cq&catid=16&Itemid=300031
* OCTOBER 1: is when the high loan limits expire if Congress doesn't take action before. If they are not extended, the housing market will freeze, much more.
Here is mentioned that: “Freddie also reminded us that "Congress might act on loan limit legislation again before October 1, 2011. Should that occur we will provide you with further guidance."”
http://www.mortgagenewsdaily.com/channels/pipelinepress/07272011-loan-limits-flagstar.aspx
Are they gonna act after their summer holidays on September 9th? I guess not, too much uncertainty will hurt the housing market, they should act now.
The latest two bipartisan bills about FnF revamp talked about the extension of loan limits, so it will come altogether.
* The House Committee on Financial Services postponed the only two Hearings of the week scheduled last August 3 and 4. This means they are fully committed to studying the restructuring plan.
*Fannie Mae quarterly resultas last friday before the market open: it usually reports a thursday or friday after the market close. I've just seen one quarter that reported before the market open and it was Monday (1Q 2010) not Friday. This means that Geithner wanted the stocks to plummet last session, before the GSE reform announcement this weekend.
FHLBs' PCAs:
The FHFA on August 5 disclosed that it has approved plans for all but one of the 12 Federal Home Loan Banks to boost capital. The other is still under review.
http://online.wsj.com/article/BT-CO-20110805-716078.html
I already warned that half the FHLBs were undercapitalized but the FHFA just deemed one (the others were in limbo, unofficial classification “less than adequately capitalized”). I told you that we would see the so called “Prompt Corrective Actions, PCAs” very soon. Note that if the FHLBs will be shareholders of the new MacMae Inc.(through their preferred shares) and will sell mortgages to the new entity, they have to be properly capitalized.
Something changed Geithener's behaviour towards FnF's revamp. Something derailed his plans to assign the 79.9% warrant to private lenders according to the Warrant's Prospectus.
Now the idea is FnF reconstituted and has prompted a "changed behaviour" against big banks:
1- July 18: Geithner shifts to hard stance against banks: “don’t listen to banks…Their interests are not aligned perfectly with the broad interests of the American economy. Their job is to evade, or avoid, or weaken, any constraint on their ability to operate our job to make sure we’re protecting the american economy from the risks they inevitably take.”
2- Two days later: “The president did not want the new rules to end up being written by those who brought us to the edge of catastrophic financial failure”.
Clearly, he has changed his mind when he changed his GSE restructuring plan that goes against the banks (two new fees: to increase the reserve fund and to fund the GSEs).
http://www.bloomberg.com/news/2011-07-18/geithner-says-don-t-listen-to-banks-on-financial-regulation.html
1- FHFA lawsuit against UBS, a game changer. FHFA sued UBS and other defendants over the sale of $4.5 billion in private-label mortgage backed securities, the so called “put backs” demands. In the suit, FHFA claims misrepresentations were made about the quality of loans underlying the securities and on underwriting guidelines.
Here is mentioned that is the beginning of more successful suits against underwriters of private-label MBS deals.
http://www.housingwire.com/2011/08/02/analyst-calls-fhfa-v-ubs-suit-a-game-changer
2 examples of this game changer:
A- Bank of America confirmed on August 4 this “changed behaviour”: “we have previously disclosed that GSE behavior is evolving in a way that diverges from our longstanding course of dealing with them”. Fannie and Freddie were demanding that it buy back delinquent loans "in numbers that were not expected."
http://www.bloomberg.com/news/2011-08-04/bank-of-america-sees-claims-rising-from-fannie-mae-for-mortgage-buybacks.html?cmpid=yhoo
B- Wells Fargo also said on August 5, demands from Freddie Mac and Fannie Mae that it repurchase soured loans may cost it as much as $1.8 billion in addition to the $1.2 billion it had set aside for such costs as of June 20.
http://www.latimes.com/business/la-fi-wells-settlement-20110806,0,3642513.story
2- NYT's CHANGE OF MIND: "SOME BANKERS NEVER LEARN"
“Do mortgage bankers ever learn?”. “…taxpayers have funneled $154 billion to Fannie Mae and Freddie Mac. Investors have suffered even greater damage.”
http://www.nytimes.com/2011/07/31/business/do-mortgage-bankers-ever-learn.html
Also it’s the first time someone talks about the huge losses of investors.
Let's get it.
GSEs, come on.
The plan to boost the FHLBanks' capital is to "obligate the Banks to allocate funds ... to new restricted retained earnings accounts. This will increase the Banks’ retained earnings and capital." In other words, to set aside provisions to build up a Reserve Fund also known as retained earnings reserve which is deemed capital according to the FHFA.
http://www.fhfa.gov/webfiles/21861/Refcorp080511.pdf
What? Do they think we are stupid?
It's the same plan they are carrying out with Fannie and Freddie and I've mentioned above!!!
INCREASING THE LOSS LOAN RESERVE MEANS INCREASING TIER2 CAPITAL.
Loss Loan Reserve as of end of 1Q 2011:
Freddie Mac: $39.3 billion.
Fannie Mae: $72.1 billion.
BOTTOM LINE
A combined $111.4 billion Loss Loan Reserve (Tier2 capital) means that Fannie and Freddie are Adequately Capitalized.
THE TRUTH WILL PREVAIL.
July 19. And it's the New York Times, not just Ebano's view.
Yeah, I've said the New York Times, catch it?
http://www.nytimes.com/2011/07/19/business/economy/time-for-action-on-freddie-and-fannie-reuters-breakingviews.html?_r=1
Astonisht cry out for ending conservatorship.
http://open.salon.com/blog/ebano/2011/08/09/freddie_macs_open_letter_to_obama
I thought the restructuring plan would be announced before the summer recess, because I've said that the extension of the loan limits, that expire on October 1st, will be included in the House Finance System revamp, like in the two bipartisan bills already introduced (H.R. 1859 and H.R. 2413), and is better to announce it asap because the uncertainty about the extension will freeze the housing market.
1-But Geithner preferred to delay the announcement of the extension of the loan limits in order to push homeowners to refinance their home, because the politicans are threatening saying that the loan limits will expire.(if they expire you cannot refinance your loan if your loan is higher that the new low limit).
2-Instead of that, we had the S&P's downgrade and, curiously enough, is making the yields decline sharply so that it will push more homeowners to refinance.
3-I remind you that the objective of the QE2 was to lower the yields (buying treasurys) in order to push homeowners to refinance their home.
Concidence? I guess not. Refinancings are up 30.2% this week and state-run media companies are repeatedly saying it's good time for refinancings.
New government's tool: S&P-Quantitative Easing
Also the S&P's downgrade will allow the politicians (both D and R) to announce a plan opposite to what they've been advocating repeatedly: dissolution, abolition, wound down, privatization, etc... Instead, FnF will merge and be reconstituted. They will say that is the only way to recoup the AAA rating.
As Obama said after S&P's downgrade: it doesn't matter if the market goes up or down. Because they just act in a way to save their Ass, at the expense of american's jobs.
BOTTOM LINE
The restructuring plan will be announced before the deadline of October 1st for the extension of the loan limits.
Are you ready?
This Administration is master in decision making: to reduce the debate to 3 options and now to introduce a debate about renting. Wow! Where is the legislation? Where is the beef?!
_______________________
This week we learned the Obama Administration's plan to shrink the pool of foreclosures and boost home prices: yatch and private-jet owners adquiring blocks of foreclosured homes owned by Fannie and Freddie to rent them later.
Who the hell is gonna buy blocks of properties if nobody is buying one at this moment? Also, how do you manage a pool of rentals located in very different places? What a mess!
The uncertainty about the future of the failed House Finance System is shrinking the housing market, Geithner, you heard it? fix FnF.
But I'm gonna explain the reality about the pool of foreclosured homes (REO inventory) in FnF's balance-sheet:
REO inventory (in properties as of end of the period):
FMCC: 60,599 2Q 2011 vs 72,079 4Q 2010 (-16% 1H 2011, -32% annualized)
FNMA: 135,719 2Q 2011 vs 162,489 4Q 2010(-16% 1H 2011, -32% annualized)
FNMA signals the most common reasons for its inability to market properties for sale are:
1) properties are being repaired.
2) properties in redemption status.
3) properties in occupied status.
“As of June 30, 2011, approximately 28% of our properties that we were unable to market for sale were in redemption status (properties are within the period during which state law allows the former mortgagor and second lien holders to redeem the property), which lengthens the time a property is in our REO inventory by an average of two to six months.
Additionaly, approximately 34% of our properties that we were unable to market for sale were in occupied status (properties are still occupied by the person or personal property and the eviction process is not yet complete), which lengthens the time a property is in our REO inventory by an average of one to three months.”
Page 77. FNMA 2Q 2011- SEC 10-k report.
BOTTOM LINE
The rate of disposition of properties net (less properties adquired through foreclosure) is extremely high in just two quarters (-32% annual rate). Therefore, Obama's renting plan is a stupidity and the objective is other:
Obama has delayed the announcement of, not only the House Finance System overhaul, but the annoucement of the extension of the mortgage limits that expire on October 1st.
The objetive of the delay is to push homewoners to refinance their home, that's why also forced S&P to downgrade the U.S. sovereign debt rating (it's lowered yields much more).
This uncertainty with the delays is freezing the housing market, that's why Obama has introduced the debate about renting, in order to push undecided future homeowners to purchase their home now (with the renting plan, FnF's foreclosure pool would shrink and home prices would rise, in theory but not in reality), just to buy time until just before the October 1st deadline, where the extension of the loan limits and FnF's restructuring plan will be announced.
Black swan trigger event is coming.
Brian Moynihan, Bank of America’s President and CEO, met privately last week with Treasury Secretary Timothy Geithner and Federal Reserve governor Daniel Tarullo.
Here is what the WSJ mentioned last Friday: “During the meetings on Wednesday, Mr. Moynihan stressed the urgency of reaching a wide-ranging settlement with several federal agencies and 50 state attorneys general that would allow Bank of America to atone for past foreclosure errors. Bank of America and four other mortgage servicers—J.P. Morgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc.—have been in talks with public officials since March about the ultimate cost of ending the foreclosure controversy.”
http://online.wsj.com/article/SB10001424053111904823804576502680497287052.html
Do you really believe that four financial institutions have already talked about the same issue before, and it hasn’t been made public like now with BofA?
Do you really think BofA’s CEO just talked about the foreclosure mess?
“Mr. Moynihan told investors the bank was properly reserved for any future mortgage-related losses”. But we all agree that if he wants to calm investors it has to settle also the putbacks demands issue (mortages sold to FnF with fraudulent information and now are being putback to the banks) with the GSEs and also other entities. And, by the way, is the major uncertainty surrounding Bank of America, not the foreclosure issue.
During the last two weeks BofA has aknowledged more expected losses with the GSEs: Fannie and Freddie were demanding that it buy back delinquent loans “in numbers that were not expected”, according to a BofA filing, and also AIG has recently sued BofA about the bad mortgages with faulty information, the suit seeks to recover more than $10 billion in losses on $28 billion of investments. The foreclosure controversy is not on the news since many months ago.
But there are two issues in the text that have surprised me: the words wide-ranging settlement and federal agencies.
State-run WSJ talks just about the foreclosure controversy (supposed faulty information to speed up foreclosures), but 50 general attorneys are the ones investigating the banks, not the federal agencies. Bank of America would have to negociate with the general attorneys in this case or directly with the Federal Reserve that is the ultimate responsible for determinating if the homes have been wrongfully foreclosured. Here is mentioned that a Fed's report is expected to claim that after an investigation, no wrongful foreclosures have been carried out by US banks.
http://www.rawstory.com/rs/2011/03/11/federal-reserve-expected-to-claim-no-homes-have-been-wrongfully-foreclosed/
The Federal Agency FHFA (regulates FnF) has sued several banks over the putbacks demands issue, therefore Bank of Amerca’s boss would have to negociate with the Federal Agency FHFA over this issue (Countrywide was Fannie Mae's best client), and the ultimate responsible of the FHFA, is the Treasury Secretary T. Geithner.
There you have the explanation of the meeting with T. Geithner and a Federal Reserve Governor. And also now we know the meaning of a “wide-ranging settlement”: both foreclosure mess and putbacks demands.
Now the phrase “a wide-ranging settlement with several federal agencies and 50 state attorneys general”, makes sense.
And I’ll write it again: “Mr. Moynihan stressed the urgency of reaching a wide-ranging settlement”. It’s urgent, Geithner, you heard it?
BOTTOM LINE
A wide-ranging mortgage mess settlement surrounding the mortgage market participants along the House Finance System revamp will come altogether and is imminent. The lawmakers will arrive to Congress on September 6 from their summer recess.
Don’t go far away from September 6-31 (deadline to announce the extension of the loan limits), you could hardly recongnize your own country.
...after Ebano.
The government is preparing the taxpayer leaking the new organizational form for FnF.
Obviously it won't tell you openly. It would be leaked to its close- media companies and written in a 3 pages article to confuse investors, also adding comments refuting the previous idea, recouping the idea of phasing out FnF, etc. Hey! why not a 10 pages article, Obama?
http://www.washingtonpost.com/business/economy/on-mortgage-rates-government-should-keep-significant-role-obama-says/2011/08/15/gIQA8wP0HJ_story.html
The Washington Post signals "restructuring Fannie and Freddie as public utilities overseen by a government regulator" (MacMae inc reconstituted and banks paying a fee to fund MacMae inc., that's a utility model) and a fee, paid also by the banks, to build up a reserve fund and "to limit the exposure of taxpayers".
MacMae inc. overseen by a government regulator means only that the 5% risk retention rule won't apply to the new Co.
It’s a mix public-private sector. Mix of public regulation + private sector evaluations of credit risk and the private market stimulus to innovation.
This is a replica of the bipartisan bill H.R. 2413, where is mentioned that MacMae would be 100% owned by the government, but we all know it can't hold more than 79.9% of the new Co. in order to not incorporate FnF's debt into the Federal Budget.
MacMae inc. would pay an up to 5% dividend (also utility model), according to the bill.
It's the best organization form for the GSEs, I've ever seen.
Let's get it.
GSEs, come on.
I've already told you the objective of this post was to ecourage FnF's shareholders about FnF's fate because they've lost almost all of their investment.
An investor has just written in a board: "EBANO FOR PRESIDENT!!! without his encouraging insights, i probably woulda given up"
http://messages.finance.yahoo.com/Stocks_(A_to_Z)/Stocks_F/threadview?m=tm&bn=7269&tid=326913&mid=326913&tof=1&rt=2&frt=1&off=1
On the contrary, the politicians' harassment to FnF's shareholders and workers will be taught at the Schools of Moral and Ethic.
The loan limits expire on October 1st and people are reluctant to buy because if the limits are not extended, the housing market would collapse.
But the situation now is even critical: Wells Fargo’s deadline for accepting loan applications under the temporary loan limits ended yesterday, August 15th, and all application for loans of $625,501 or more will now be considered as jumbo loans (with higher rates and downpayment).
http://loanrateupdate.com/mortgages/wells-fargo-institutes-new-loan-limits
The housing market is now frozen for mortgages over $625,501! Outrageous!
That’s why Congress ought to take action on Fannie and Freddie and on the loan limits just on their arrival from their summer holidays on September 6.
Both issues were jointly contemplated in the only two bipartisan bills already introduced about the House Finance System overhaul.
Also both issues, despite being announced early september, could have an EFFECTIVE DATE SEPTEMBER 30, in order to allow the Treasury to receive FnF's 10% dividend (quarterly payment) and also to inject to the GSEs the draws already requested (also quarterly payment).
Let's get it.
GSEs, come on.
"The Obama Administration is working on a proposal to maintain a large government role in mortgage finance, effectively preserving most of the functions of Fannie Mae and Freddie Mac, according to a person with direct knowledge of the effort. "
http://www.bloomberg.com/news/2011-08-16/fannie-and-freddie-would-survive-in-new-form-under-obama-plan.html
Firstly, the Washington Post, commented before, now Bloomberg. Today is the day of leaking the news!!!!
Obviously, in the article they add that FnF could be wound down, bla, bla, bla, ...
They give us the cake and the stick. It's a way to leak the news, hahaha.
LET's GET THE PARTY STARTED!
On July 7, 2011, Robert E. Bostrom, Executive Vice President - General Counsel and Corporate Secretary of Freddie Mac (Legal Department) announced that he will resign from his position effective Friday, July 29, 2011. R. Bostrom is scheduled to join a new firm in mid-August.
Here is mentioned that “he advised on the creation of a new corporate governance structure and also advised on implementing a critical $100 billion senior preferred stock purchase agreement with the US Department of the Treasury”. http://www.snrdenton.com/news__insights/press_releases/2011-07-13_robert-bostrom.aspx
He was a top senior legal-department executive and signed every SEC document. I bet he has left the company on July 29 to the private sector(MacMae inc. will be 79.9% owned by the government) with the new organitational form for FnF written, because I remind you that the Treasury has already presented it to the Republican Party at the end of July. Two proofs:
1-July 12th news: “According to Bachus, Donovan said last week that he “would get me something in the next week or two.” Bachus said the administration officials had asked him to wait to advance a comprehensive overhaul of government-controlled mortgage giants Fannie Mae and Freddie Mac because they were hoping to unveil something soon.” link above.
2-Another proof that confirms that both parties have already discussed the restructuring plan because is done, is when two important Hearings for the Republicans (SEC Reform and GSE Reform) appeared postponed the last week before the summer recess.
POSTPONED -- Hearing entitled “Fixing the Watchdog: Legislative Proposals to Improve and Enhance the Securities and Exchange Commission”
August 4, 2011
POSTPONED -- Hearing entitled “Legislative Proposals to Determine the Future Role of FHA, RHS and GNMA in the Single- and Multi-Family Mortgage Markets, Part 2”
August 3, 2011
Both Democrats and Republicans were studying the House Finance System overhaul before their summer recess.
___________________
Yesteday I mentioned that Wells Fargo doesn't accept applications for mortgages above $625,501 since August 15 because the loan limits expire on October 1. The housing market is frozen. This is unsustainable!
BOTTOM LINE
Congress will take action on both issues just on their arrival from holidays on September 6.
Both issues with effective date September 30 (quaterly dividend and draw requests payments
This is Geithner's plan to improve the economy: to put cash in the taxpayers' pockets throughout the remaining life of their mortgage, thanks to the refinancings.
Now the loan modifications don't rock: mortgage modifications dropped 42% in first half 2011. Geithner finally noticed that FnF have to set aside a reserve if a mortgage is modified, because TDRs (modified mortgages) remain categorized as non-performing throughout the remaining life of the loan regardless if they are performing. And it's a stupidity and costly to allocate a reserve for a performing asset!!
Fed’s QE2 ended on June 30th: the $600 billion bond buying program with the objective to manipulate the U.S. Bond Market by intentionally bidding up prices of Treasuries, lowering the rates at which the taxpayer finance, refinance or modificate mortgages and also it increases the value of the assets in the banks’ balance sheets thanks not only to lower rates, but also to spread tightening.
Now, Geithner has forced S&P to downgrade the U.S. sovereign debt rating to reduce yields and push more homeowners to refinance their mortgage. One day I'll explain the press release when S&P lowered the U.S. rating OUTLOOK last April, talking widely about the future losses of FnF as the main cause of the negative Outlook, and now with the rating downgrade, when there isn't a single comment about FnF's future losses. Coincidence? I guess not.
MBA WEEKLY DATA:
/july 22 /july 29 /August 5 /August 12
Purchase Index - W/W Change /-3.8% /5.1% /-0.9 % /-9.1 %
Refinance Index - W/W Change /-5.5% /7.8% /30.4 % /8.0 %
refinance share of mortgage activity of total applications:
/69.6% /70.1% /75.6% /78.8%
The weekly refinance data is surging, but purchases of homes through a mortgage are plummeting 9.1% because of the stock market turmoil. Geithner! What have you done?! That's why the introduction of the supposed Obama's rental plan for foreclosured homes owned by FnF commented this week. Just a future debate or hype. And yesterday, Obama announced a jobs plan just after labor-day. Why the announcement two and a half weeks in advance? They are afraid because the housing market is frozen and plummeting.
Latest weekly data shows an increase of just 8% in refinancings but the MBA signals that was caused by "the decision of some lenders not to drop rates last week, largely due to the need to manage their pipelines", which means that they can`t cope with the huge requests to refinance their home because of their technology, lack of sufficient personnel, etc... The MBA signals that there were some lenders reporting increases in refinance applications in excess of 50% last week!
BOTTOM LINE
All right Geithner, a few weeks of stock market turmoil, more uncertainty and the subsequent decline in home purchases, in exchage of huge benefits throughout the entire life of the loans to a priviledged few.
But we all give you two more weeks of refinancings. On September 6 Obama should announce the House Finance System overhaul, and the taxpayer will forget this market turmoil.
Wang Qishan said so in front of Geithner in a Bloomberg TV interview last May: "Housing hasn't been addressed yet and it's important to create jobs".
I bet that W.Qishan repeated this to Geithner when he phoned Wang last Tuesday, read today somewhere.
A black swan trigger event for the market is coming.
LIQUID ASSETS: cash and marketable securities.
Cash and cash equivalents, federal funds sold and securities
purchased under agreements to resell and non-mortgage related securities (Treasury Notes,…) as of end June 30:
-Freddie Mac: $37.2 billion, $11.55 per common share on a diluted basis (the government exercises the warrant representing 79.9% of common shares).
-Fannie Mae: $71.9 billion, $12.53 per common share on a diluted basis.
-Combined FnF: $109.1 billion.
-U.S. Government: according to the latest daily statement from the US Treasury, the government had an operating cash balance of $73.738 billion at the end of the day yesterday. https://www.fms.treas.gov/fmsweb/viewDTSFiles?dir=w&fname=11072700.txt
In other words, Fannie and Freddie have more cash than the world's largest sovereign government.
If FnF were to hand out a one-time dividend of $12 per share, the price-per-earnings ratio (PER) would drop to the floor (Freddie Mac is already profitable), transforming them to stunningly cheap and a Harvard University MBA's case.
-Apple's last earnings report showed that the company had $76.2 billion in cash and marketable securities at the end of June. I recall when traders referred to Apple as a defensive play last month because was sit on a cash mountain. Is any broker covering FnF? Obviously not, just Ebano.
Now you know why the Fed uses FnF as a monetary policy tool: since July 27 are used as Fed repo counterparties to eventually drain liquidity from the financial system.
1-Minority shareholders have benefited from the Government's help providing liquidity to FnF and also will be benefited with the imminent FnF reconstitution announcement (the government swaps Senior Preferred shares to commons up to a 79.9% stake).
2-In exchage, the minority shareholders have accepted FnF's public mission and now agree with Obama's rental plan of selling instantly pools of foreclosured homes at fire-sale prices (if accomplished, home prices and home purchases would surge).
The situation is critical and the economy is on the brink of recession, that's why despite FnF's annualized 30% rate of dispositions net of foreclosured homes in the 1H 2011 is a huge rate, we agree with Obama's plan because the effects are instant.
If they are sold, the write-offs (losses once a home is foreclosured or short-sold) go against the Loss Loan Reserve and not against earnings.
But FnF are over-reserved for future losses (combined $111.4 billion Loss Loan Reserve as of end of June and that's Tier2 capital).
Under regulation Basel II, there is a 1.25% limit in the amount of TIER 2 capital can be added to TIER 1 capital to form Regulatory Capital. So, an excess of loss loan reserve as total mortgage porfolio ratio above 1.25% has no effect on regulatory capital.
The excess of loan loss reserve is the excess above 1.25% in the loss loan reserve as total mortgage porfolio ratio. Freddie Mac’s ratio stands at 2.01% ratio as of June 30 and stood at 0.30% in 2Q 2008, just before conservatorship.
But FnF are mortgage lenders, not banks. A mortgage is a secured loan, guaranteed by the home itself. If the borrower defaults on the loan, the lender can take possession of the home.
That's why even a 1.25% ratio of Loss Loan Reserve as Total Mortgage Porfolio is CRAZY, when we are three years after the period where the bad mortgages were originated (2004-2007) and as these mortgages aged, the probability of default decreases dramatically.
That ratio shouldn't be above 0.50% at this point in time for sure.
BOTTOM LINE
The minority shareholders accept to sell the bulk of foreclosured homes at fire-sale prices (it will increase the write-offs and subsequent will decline the Loss Loan Reserve) if there aren't new provisions filling that decline in the coming quarters.
Write-offs in exchange of FnF reconstitution and better economic prospects.
It's a win-win scenario for everybody.
*Note that under the only two bipartisan bills about the House Finance System overhaul already introduced, and confirmed by the recent Washington Post's article, the banks ought to pay a fee to build up a Reserve Fund to protect the taxpayer. Therefore they will create a new Reserve Fund, and the actual inflated Reserve Fund that belongs to the shareholders (government 79.9% stake) will be in limbo, or you have to set it to work (reimbursing it to the shareholders or more write-offs to help the economy).
Maybe, this is what the Obama Administration has now in mind.
DO IT, BUT DO IT NOW.
Where's the legislation?
Where's the beef?!
That phrase written yesterday is a little bit confusing, because FnF will never distribute such a high dividend.
The cash and other non-mortgage related securities are accounted as Loss Loan Reserve. In other words, part of the Loss Loan Reserve is in the form of that liquid assets mentioned.
They can't be touched or distributed unless the companies decide to reduce the Loss Loan Reserve as total mortgage portfolio ratio.
That comment was just to say to the world:
"hey! we have that huge amount of liquid assets, so we have reserve fund, we have capital, we are adequately capitalized!"
Summary:
LOSS LOAN RESERVE as of end of June:
-Freddie Mac: $39.1 billion
-Fannie Mae: $74.8 billion
-Combined FnF: $113.9 billion (I previously wrote $111.4 billion but that figure is end of 1Q)
LIQUID ASSETS: cash and marketable securities.
Cash and cash equivalents, federal funds sold and securities
purchased under agreements to resell and non-mortgage related securities (Treasury Notes,…) as of end of June:
-Freddie Mac: $37.2 billion.
-Fannie Mae: $71.9 billion,
-Combined FnF: $109.1 billion.
FnF ARE ADEQUATELY CAPITALIZED AND SITTING ON A CASH MOUNTAIN.
*REMINDER: This post will be destroyed just after the GSE reform.
FnF record write-offs at the time they take ownership of a property through foreclosure (it's written in several comments before, I forgot it)
Also in calculating the fair market value of REO assets at foreclosure, the GSEs must substract the selling costs.
Therefore, at the time of disposition of the REO inventory, the bulk of write-offs have already been recorded, there might be just a small adjustment with the new appraisal.
BOTTOM LINE
Obama’s rental plan to sell pools of foreclosured homes won’t bring more write-offs (or just a small amount) to FnF as I previously commented, because they were already recorded at the time of foreclosure.
On the contrary, it will save to FnF the costs associated with managing the REO inventory (REO expenses), besides boosting the economy, if accomplished.
Great Obama’s plan.
Let’s get it.
The rumors always appear just before an important date.
'Underwater' progam: forgiving part of the mortgage debt to borrowers that owe more than their home is worth. Therefore, a program to benefit a priviledged few (Socialism).
1-Before August 17, 2010: In this link http://www.moneynews.com/StreetTalk/Treasury-Denies-Big-Fannie-Freddie-refinance/2010/08/05/id/366736 the Treasury denied rumors about Freddie and Fannie forgiving a portion of the mortgage debt of millions of Americans who owe more than than what their home are worth.
Curiously enough, those rumors came out before a "Conference to discuss the future of FnF" held on august 17th, where there were huge expectations about a restructuring plan announcement for the GSEs.
2-December 20, 2010 before the January 31 deadline by Dodd-Frank Law to announce the GSE Reform: The Wall Street Journal came again trying to lower the GSEs share price with the forgiving mortgage debt issue, playing the government´s game.
http://online.wsj.com/article/SB10001424052748703395904576025832446810032.html
3-Yesterday, August 21. The New York Times editorial mentioned: “The administration needs better ideas. It can start by working with Fannie Mae and Freddie Mac, the government-run mortgage companies, to aggressively reduce the principal balances on underwater loans and to make refinancing easier for underwater borrowers. If the president championed aggressive action, and Fannie and Freddie, which back most new mortgages, also made it clear to banks that they expect principal reductions, the banks would feel considerable pressure to go along.”
http://www.nytimes.com/2011/08/22/opinion/homeowners-need-help.html
The NY Times attitude in connivance with the government trying to cool down the shares should be prosecuted.
****NY TIMES, SHAME ON YOU****
For the second time in a row, the NY Times Editorial calls for "a principal reduction for stressed borrowers who are current in their payments".
http://www.nytimes.com/2011/08/23/opinion/its-a-flawed-settlement.html
BOTTOM LINE.
The post: "FREDDIE MAC's OPEN LETTER TO OBAMA" is on fire!
http://open.salon.com/blog/ebano/2011/08/09/freddie_macs_open_letter_to_obama
Send the open letter to Ralph Nader: shareholders@nader.org
There is an email button in the post. It takes just 5 seconds.
The minority shareholders' rights will prevail over any nationalization.
Aug 15, 2011.
http://www.freep.com/article/20110816/NEWS06/108160379/Mortgage-principal-reductions-mired-controversy
Freddie Mac spokesman Brad German said if Freddie cuts principal, it will raise the cost of home financing.
"We're financing a mortgage with the expectation that principal is going to be repaid. If there is a new scenario where it may not be repaid, that increases the cost to us and that will be factored into the way we price credit," German said.
"We're pricing risk. If the risk goes up, the price goes up."
Despite pressure from the White House and U.S. Treasury, Fannie and Freddie have been able to resist reducing principal because their independent regulator, the Federal Housing Finance Agency (FHFA), opposes it.
Peter Swire, an Ohio State University law professor who was President Barack Obama's point person on loan modifications, notes that Edward DeMarco, a Bush administration holdover who runs the FHFA, opposes principal reduction.
"He has repeatedly stated his job is to maximize profits for Fannie and Freddie," Swire said. "He has been very skeptical of anything that doesn't directly tie into raising revenues" for the mortgage giants.
DeMarco told the Free Press in a statement that the FHFA remains committed to helping homeowners avoid foreclosure. But he said the agency also is responsible for conserving Fannie and Freddie assets under the terms of the 2008 bailout of the mortgage companies and minimizing costs to taxpayers.
_______________________________________________
SAY BYE BYE TO THE SOCIALIST 'UNDERWATER' PROGRAM TO BENEFIT A PRIVILEDGED FEW!!!
ENJOY!
'Underwater' progam: forgiving part of the mortgage debt to borrowers that owe more than their home is worth. Therefore, a program to benefit a priviledged few with taxpayer's money (Socialism).
If there is a principal reduction on a loan, the mortgage-related securities suffer. Even if the principal of the MBS is guaranteed by FnF, the MBSs are trading well above 100 (108,...) because the Treasury yields are below the coupon at the time the MBS was issued, but they will be retired at 100 (principal amount), which means huge losses to the existing MBS holder.
Do you really think the government will damage the $10 trillion mortgage-related securities market?
I remind you when the Fed came up the day after S&P downgraded FnF's debt rating, saying that the interest rates will remain low two more years!! What monetary policy is that to say two years in advance what you are going to do with the interest rates? The purpose was to stabilize the MBS market because was selling-off that day. With the Fed's statement, the investors rush to purchase MBSs backed by FnF because they offer a higher yield, at a time of low yields during at least two more years.
Also the Fed had to halt the RMBSs auctions early July because of 'market conditions'. It's the RMBS portfolio adquired to AIG during the crisis. They are not backed by FnF, but will plummet as well.
Furthermore, the government is also selling its MBS portfolio backed by FnF ($142 billion).
You can't change the rules in a market, that's called regulatory uncertainty similar to Hugo Chavez' Venezuela.
Wake up! the underwater program will prompt another financial crisis worldwide!
YOU MUST PAY THE PRINCIPAL YOU OWE! UNDERSTOOD?
Better default than principal reduction for the taxpayer.
PAGE 53. FREDDIE MAC 2Q SEC 10-Q report.
http://www.freddiemac.com/investors/sec_filings/index.html
For FnF it's better the borrower to default rather than a principal reduction because they mitigate the credit loss thanks to a mortgage insurance required to be purchased, at the borrower's cost, for mortgages with downpayments of less than 20%..
Freddie Mac received payments under mortgage insurance of $1.3 billion in the 1H 2011. FMCC had outstanding receivables from mortgage insurers, of $1.4 billion as of June 30, 2011.
Freddie Mac Mortgage Insurance: Principal covered: $209.7 billion Primary insurance and $50.2 billion Pool insurance.
You don't want to use taxpayer' money if the loss is covered by private mortgage insurers, do you?
Isn't it funny? just one a half month later, the CBO says the estimated cost of FnF is $9 billion higher that the previous projection for the period 2012-2021. Hahahaha.
I told you the GSE reform was going to be announced at the end of June, but was delayed. This is a proof: the CBO estimates are announced just before the GSE reform announcement.
http://www.housingwire.com/2011/08/24/cbo-ramps-up-estimated-cost-of-fannie-mae-freddie-mac
Another desparate attempt to make noise in the market and harass FnF's shareholders and workers!!!
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NYT COMES AGAIN WITH THE 'UNDERWATER' PROGRAM
Isn't it funny? For the third time in a row, the NYT calls for the underwater program.
http://www.nytimes.com/2011/08/25/business/economy/us-may-back-mortgage-refinancing-for-millions.html?pagewanted=1&_r=1
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Geithner, what surprises are you leaving for next week? it will be a long week....enjoy!
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In the meantime, the housing market is plummeting... I told you that an economic recovery in the hands of low-profile politicians not only would delay the full recovery, but could also derail it. Wise words commented many months ago above.
The recovery was very strong until the proposed FinReg in january 2010 (more than 300 rules, but 95% of them have not been implemented yet, just creates uncertainty), later Obamacare, FinReg approved in July 2010, uncertainty about the House Finance System, talks about tighter rules with Basel III, german and french banks unwilling to take a haircut in their Greek bonds as everybody does when has made a bad investment (they could mitigate the loss purchasing greek equity at fire-sale prices, what equity? everything that is state-controlled), etc...
The lack of leadership both in the States and Europe is making a financial crisis even worst. A financial crisis is solved just in one meeting, this is not real-economy related crisis (business-cycle), but a crisis in the financial markets (MBSs market, debt market,...) plus an uncertainty cloud.
No more market interventions! they just worked with the MBSs maket crash early 2009. The U.S. government is not the Fed!
Does Geithner know he is not working in the NY Fed since late 2008?
Now let the market be without uncertainties and the economy will gain strenght rapidly.
Remember: all solve in one meeting, call Angela Merkel.
-One can wonder why Obama recently has named W.Buffet in several times during the debt ceiling fight.
-One can wonder why Buffet has appeared several times (NYT article, Bloomberg TV Charly Rose interview, etc...)talking about the tax increase to the wealthy, supporting Obama's view.
-Finally one can wonder why W.Buffet has just announced a $5 billion investment in Bank of America after Brian Moynihan, Bank of America’s President and CEO, met privately on August 10 with Treasury Secretary Timothy Geithner and Federal Reserve governor Daniel Tarullo, urging a wide-ranging settlement on the mortgage mess issue.
BOTTOM LINE
A wide-ranging settlement about the foreclosure and putbacks demands issues and the House Finance System revamp is imminent.
This isn't an insider trading case because W. Buffet is purchasing well above market price and the stock will decline sharply after the mortgage settlement and GSE reform announcements.
GSE reform: the banks will pay two fees: one to fund MacMae inc. (utility model) the other to build up a Reserve Fund. Banks' investors won't like this idea, but they have to pay for the risk they incur.
This is just Buffet's upper-hand to help the U.S. government and don't create a financial institutions meltdown triggering another financial crisis. It's a good move.
Without this move, we might have seen BofA trading at $3 per share after the Housing Finance System shake-up (there were massive short-positions there), and financial stocks selling-off.
BUFFET IS THE STATE-CHAMBER INVESTOR.
Toll Brothers’ Chairman “My sources in D.C. say you shouldn't be surprised to see an extension to the conforming loan limits," Toll said in a conference call with investors Wednesday.
http://www.housingwire.com/2011/08/24/toll-bros-executive-chairman-anticipates-conforming-loan-limit-extension
The loan limits expire on October 1st, and Wells Fargo has already lower them since August 15 because it takes time for a mortgage to be closed.
I’ve alredy mentioned that the only two bipartisan bills already introduced in Cogress about the House Finance System overhaul, talk about the extension of the loan limits. Therefore, all will come up jointly.
BOTTOM LINE.
This is a proof that we’re gonna see legislation very soon, as soon as just after the Congress recess.
My goodness! today is the 4th time in a row, the NYT urges to forgive part of the mortgage debt to thousands of borrowers that are underwater using taxpayer' money (socialism).
http://www.nytimes.com/2011/08/26/opinion/a-lifeline-for-underwater-homeowners.html?_r=1
I'll say it again:
-The taxpayer has to inject cash to FnF because of the massive write-downs with the principal deductions.
-FnF own mortgage insurance to cover the credit loss in a foreclosured home, so why to use taxpayer' money if it's already covered by private insurers?
-The $10 trillion MBS market will tumble because it's trading well above 100 and the securities will be retired at 100 if a loan is refinanced. The spreads will rise and it will make mortgages more expensive when the MBS market recovers in many months time. All of this will trigger a worst financial crisis than the one in 08.
We want Geithner to create jobs (this would increase the home equity value), not to manipulate the markets artificially.
Fix the House Finance System.
One week, five trading-days, five desperate attemps to cool down FnF’s prospects before the GSE reform announcement this weekend-Monday morning.
NYT 4 times with the ‘underwater’ program issue, and the CBO with FnF updated cost projections just one a half month later:
Links above.
Monday, August 22: NYT, homeowners-need-help.
Tuesday, August 23: NYT, ts-a-flawed-settlement.
Wednesday, August 24: CBO releases new projection of FnF cost, just adds $9 billion for the period 2012-2021 to the previous estimation in June.
Thursday, August 25: NYT, us-may-back-mortgage-refinancing-for-millions.
Friday, August 26: NYT, a-lifeline-for-underwater-homeowners.
I recall when the GSE reform was scheduled for January 31 by Dodd-Frank Law, the stocks skyrocketed to $1 the previous days and the GSE reform had to be delayed to early February and finally changed to Geithner’s “3-options plan”. Selling 79.9% of FnF to the big banks at fire-sale prices with all the speculators long, it wasn’t a good idea, hahahaha. This time the plan is other and the Treasury wanted the quotes under control before the announcement.
The House Finance System revamp should be announced after Congress recess, but taking in account all of the above, it will be announced now.
Also the housing market is plummeting, cancellations of purchases signed surging, mortgage financing frozen pending the extension of the loan limits, etc… and Congress on holidays? No way.
The Congress has already submitted the GSE reform to China, a major GSE bondholder: Senator Richard Shelby (R) , ranking member of the Senate Committee on Banking, Housing and Urban Affairs travelled to China on August 8 to meet China Vice Premier Wang Qishan. Nobody has reported that visit, just this state-run agency http://news.xinhuanet.com/english2010/china/2011-08/10/c_131041526.htm
Shelby has been always advocating for a Housing Finance System Reform, saying repeatedly it should have been included in the FinReg. Shelby on March 29, 2011: “I propose that the Committee establish a formal process for considering housing finance reform…”
Wang Qishan said twice in front of Geithner in a Bloomberg TV Charly Rose interview last May, that housing hasn’t been addressed yet, with a petrified expression on his face. He wants the reform now, enough is enough.
Finally: Freddie Mac has announced today it will delay its weekly bill sale announcement until Monday due to the potential impact of Hurricane Irene. The reference bills are always announced a Friday for the auction next Monday. Freddie Mac said it will assess what impact, if any, the storm has had on the operations of the capital markets. Isn’t it a stupidity to delay a bill auction on Monday because of an hurricane? I’m hearing it will be like a snow storm. On the contrary, the U.S. Treasury Department said on Thursday it will auction $29 billion 91-day bills and $27 billion 182-day discount bills on Monday. Isn't there a hurricane for the Treasury next Monday?
The reason for the delay is that Freddie Mac can’t carry out an auction the same day as FnF announce they will merge, the House Finance System overhauls, the stars fall to the earth and Ebano appears sitting on a black swan.
Rep. Campbell is co-sponsor of the bipartisan bill H.R. 1859 introduced on May 12.
-Conforming Loan Limits: “If the limit goes down as scheduled on Oct. 1, 42 states would see a reduction in the conforming loan limit. That’s a whole lot of houses that will be difficult to sell because there will be a lot fewer qualified buyers who can buy them. This will put a further drag on the home market which is a drag on the economy and move us towards double dip.” Therefore, the limits should be extended before October 1.
-GSE Reform: “The more likely scenario for this bill is not that it is a stand-alone bill but that it gets included in legislation that will fund the government for fiscal year 2012.”
And fiscal year 2012 begins on October 1st, 2011.
http://www.marketwatch.com/story/republican-on-need-for-government-role-in-housing-2011-08-29?pagenumber=2
Two different issues, one legislation: loan limits extension and GSE reform that will occur at the same time before October 1.
And that’s what I’ve been saying long ago.
Let's get it.
GSEs, come on.
A two-part post:
1-FNMA says two-thirds of Total Loan Loss Reserve are TDRs.
This recovery is based on loan modifications. TDRs (modified mortgages) remain categorized as non-performing assets throughout the remaining life of the loan regardless if they are performing, but FnF have to set aside a reserve if a mortgage is classified as TDR.
FNMA signals in its 2Q SEC 10-Q report, page 32:
“The increase in our loan loss reserves in the second quarter 2011 was driven by:
• an increase in the number of modified loans that are subject to individual impairment”
“Because of the substantial volume of loan modifications we completed and the number of loans that entered a trial modification period in 2010 and the first half of 2011, approximately two-thirds of our total loss reserves are attributable to individual impairment rather than the collective reserve for loan losses. Individual impairment for a troubled debt restructuring (“TDR”) is based on the restructured loan’s expected cash flows over the life of the loan, taking into account the effect of any concessions granted to the borrower, discounted at the loan’s original effective interest rate.”
Yes, you read correct: two thirds of the Total Loss Loan Reserve is attributable to loans that are performing!!!!! Outrageous!! (I’ve already mentioned that 91% of the TDRs loans are performing loans, according to FMCC)
2-Total Capital Deficit breakdown:
2008-2010 period, Sum Provisions for Future Losses during three years, as a percentage of Total Capital Erosion during that period.
Fannie: 70.9%. (100 out of $141 billion)
Freddie: 70.3% (64 out of $91 billion)
In other words, both FnF, total sum of the provisions for future losses accounted for 70% of the capital deficit in the 3 year period.
Page 9 and 11 of the FHFA report. http://www.fhfa.gov/webfiles/21169/Conservator's_Report_4Q_4_20_11.pdf
Percentages of Total Capital Erosion:
-I’ve just commented that 70.9% has to do with the sum of provisions for future Losses. Therefore, 2/3 (according to FNMA) of 70.9% or 47% of Total Capital Erosion has to do with the TDRs loans. If 91% are performing, then 43% of Total Capital Erosion is artificial (an accounting issue: to reserve a loan that is performing called TDR), not because FnF are in bad shape.
-11% artificial because has to do with the usurer dividend to Treasury for the Senior Preferred Shares (10% dividend) to fund that deficit.
-15% artificial because of “the establishment of a deferred tax asset valuation allowance, which reduced capital by $21 billion for Fannie Mae and $14 billion for Freddie Mac in 2008, is also contributing to the total capital erosion”, according to FHFA’s latest quarter report. So, another accounting issue.
Therefore, 69% of the Total Capital Erosion, and subsequent draw request to Treasury and issuance of Senior Preferred Shares, has been artificial!! OUTRAGEOUS!
Fannie Mae considers the modifed loans as non-performing assets, because they are not performing the way they should be when were signed, because have been modified, hahahahahah.
"When a TDR is executed, the loan status becomes current, but the loan will continue to be classified as a nonperforming loan as the loan is not performing in accordance with the original terms." Page 33. SEC 10-Q report. hahahahahaha.
A loan "current" classified as nonperforming loan just because the terms have been changed, hahaha.
But this isn’t funny, it’s the reality.
FASB says in the section: Recognition of Impairment: Paragraph 8 “A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement" "Usually, a loan whose terms are modified in a troubled debt restructuring already will have been identified as impaired because the condition specified in paragraph 8 will have existed before a formal restructuring. The creditor shall apply the provisions of this Statement to that loan when it is restructured”.
Also is mentioned that “Loan impairment should be recognized based solely on deterioration of credit quality evidenced by a decrease in expected future cash flows.”
http://www.gasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere=1175820927999&blobheader=application%2Fpdf
But, hey! After a mortgage is modifed, the probability of the creditor to be unable to collect all amounts due is nearly zero (if not, it's better to let the borrower to default), because that’s why the mortgage has been modified for.
On the contrary, there should be an increase in expected future cash flows, and no Loan impairment should be recognized (just the allowance when the present value of the modified loan is less than the company’s investment in the loan).
Usually a loan is deemed nonperforming when payments of interest and principal are past due by 90 days or more, and it shouldn't be because it has been modified, because after a modification, the loan is performing. So, there are no risks whatsoever in a loan that is performing and you don't need to allocate a reserve.
According to FMCC, 91% of the loans classified as TDRs are performing.
BOTTOM LINE
At a time when is very difficult to raise capital, it’s a stupidity to obligue lenders to commit more capital to impair an asset that now is performing after a modification. That accounting rule should be abolished and more capital would flow in the economy.
That rule was established when nobody thought about the worst financial crisis ever that we are in, and based on the mortgage market, and the economic recovery based on loan modifications.
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This reminds me my post about the stupidity of the Mark-to-market rule when there is no organized market and no liquidity in the market, written on march 09 (the formerly known as "toxic assets" have doubled since then, AIG even wants to buy them back, but the losses, panic and subsequent household pain have already been recorded and the effects continue).
The academics are completely toxic to the world with their accounting rules.
Why the U.S. largest mortgage lender, Wells Fargo, isn’t among the 17 big banks sued by FnF?
Obviously, it isn’t because Wells Fargo didn’t misrepresent the quality of the mortgages sold to FnF, but because they did understand that FnF will be reconstituted and the U.S. government is seeking the mother of all settlements with the mortage industry (this is what a called the government’s changed behaviour against banks since last July).
Wells Fargo, with a dominant position in the U.S. mortgage market, wants a wide-ranging settlement: it said on August 5, demands from Freddie Mac and Fannie Mae that it repurchase soured loans may cost it as much as $1.8 billion in addition to the $1.2 billion it had set aside for such costs as of June 20. So, not big deal, and Wells Fargo has agreed on a coming settlement.
But other banks didn’t get it and thought it was all a joke, or needed a lawsuit before settling a dispute, therefore the FHFA took action in court.
I remind you that on August 10, Brian Moynihan, Bank of America’s President and CEO, met privately with Treasury Secretary Timothy Geithner and Federal Reserve governor Daniel Tarullo stressing the urgency of reaching a wide-ranging mortgage-mess settlement.
Bank of America surprisingly, has raised $14 billion in one week with Buffet’s investment and CCB’s stake sale. It seemed BofA was in a hurry to raise capital corroborating the idea of a urgent mortgage settlement.
Do you really think that Geithner’s response to BofA’s request for an urgent settlement because the stock was plummeting, is to sue 17 banks and enter into a long litigation process?
One of the banks sued is Ally Financial (former GMAC). The government owns 74% of Ally Financial and on June 10th the IPO was delayed to the 2H2011. Do you really think the goverment seeks a long litigation process? It has also announced to sell AIG and GM’s stake in the 2H.
The Financial Times says that, according to banking sources, “all banks had been in discussions with regulators with a view to settling the legal action and such deals might still be reached in the coming weeks”.
http://www.ft.com/intl/cms/s/0/c3656efc-d57c-11e0-9133-00144feab49a.html#axzz1WroHXwjs
BOTTOM LINE
The mother of all dispute settlements ever seen is coming in the coming weeks. Also Obama’s rental plan to release the REO inventory. The government seeks a line in the sand in housing.
But before we will see the House Finance System overhaul announcement. Is it going to be voted on Wednesday at 6:30 pm? Note that the U.S. politicians are desperate to announce a bipartisan law to avoid a public outcry.
*The black swan is now near me. I will appear sitting on the black swan on FnF Reconstitution-day and the stars of heaven will fall to the earth.
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I didn't post this WSJ's article written on June 20 with the headline "GOVERNMENT STAYS GLUED TO THE HOUSING MARKET".
http://online.wsj.com/article/SB10001424052702304186404576389863819100854.html
Basically it said that FnF are here to stay.
1.The bad mortages were originated during 2004-2006 because at that time, the conventional, conforming mortgages had a low percentage as total of mortgages originated (between 33%-47%). See graph in page 4.
http://www.fhfa.gov/webfiles/21169/Conservator%27s_Report_4Q_4_20_11.pdf
2.And who packaged those bad mortgages during 2004-2006 and sold to investors or to FnF? Private-label MBSs issuers had the highest market share vs FnF/FHA.
http://www.housingwire.com/wp-content/uploads/2011/07/GSE1QMBSissuances.png
Private-label MBSs issuers went crazy at that time, and now FnF want to recoup the losses in their investments in private-label MBSs sold with fraudulent information.
The FHFA is the regulator of Fannie and Freddie, but also the regulator of the 12 FHLBs (Federal Home Loan Banks) owned by more than 5,000 community banks.
Last Friday’s lawsuits filed in court by the FHFA have the objective to recover just FnF’s losses in their investments in private-label MBSs.
FHFA’s press release: headline “FHFA sues 17 firms to recover losses to Fannie Mae and Freddie Mac”.
“The Federal Housing Finance Agency (FHFA), as conservator for Fannie Mae and Freddie Mac (the Enterprises), today filed lawsuits against 17 financial institutions, certain of their officers and various unaffiliated lead underwriters. The suits allege violations of federal securities laws and common law in the sale of residential private-label mortgage-backed securities (PLS) to the Enterprises.”
Surprisingly, there isn’t a single word about recovering the FHLB’s losses, but they invested in similar securities as FnF and are suffering huge losses as well.
Above you can read two times where a federal agency mentions the losses of the 12 FHLBs because of their investments in private-label MBSs:
1. November 15, 2010. The Government Accountability Office, GAO, signaled: "Several FHLBanks have recently suffered significant losses because of their investments in nontraditional mortgage assets (e.g., private-label MBS collateralized by Alt-A and subprime mortgages) for their investment portfolios".
Page 33 http://www.gao.gov/new.items/d1133r.pdf
2. June 13, 2011. The FHFA mentioned: "Although the financial condition and performance of the FHLBanks generally stabilized in 2010, the FHLBanks continued to be negatively affected by exposure to private-label mortgage-backed securities (MBS)"
Page 2. FHFA’s 2010 report to Congress: http://www.fhfa.gov/webfiles/21570/FHFA2010RepToCongress61311.pdf
BOTTOM LINE
This is proof that the announcement of FnF’s reconstitution is imminent. The government had to inform the taxpayer that FnF are not to blame for the worst financial crisis ever, and their huge losses are gonna be recovered because both are here to stay.
But also the government wants a limited impact in the financial institutions and the FHLBs are left apart.
The banks must pay a dispute settlement to FnF (20% of the investment), or more lawsuits will come. I think the banks will understand this comment.
FHFA’s recent lawsuit against UBS last August, tries to recover more than $900 million in losses in FnF’s investment in their private-label MBSs portfolio worth $4.5 billion, which means that FnF want to recover 20% of their investment.
FHFA’s latest lawsuit sums roughly $200 billion investment in private-label MBSs, so we can assume that FnF want to recover $40 billion (20%), later we add UBS lawsuit, Wells Fargo’s future demand settlement because is not in the list of 17 institutions sued (a lawsuit was not needed if they have already agreed),…
Roughly $40 billion with 13.05 billion common shares of the Newbie MacMae inc., means a cash infusion of $3.06 per common share in the newCo, taking into account:
1 FMCC common stock is 1 MacMae inc. common stock.
1.15 FNMA common stock is 1 MacMae inc. common stock.
1 $50 junior preferred share is 1.81 common stock (FANIP case).
1 $25 junior preferred share is 1 common stock (should it be half $50 prfd.? the juniors have no voting rights).
The U.S. government would own 79.9% common shares in MacMae inc.
Therefore, the possible settlement represents $3.06 per existing common share for Freddie Mac and $2.67 per existing common share for Fannie Mae.
The Statute of Limitations begins to run when you have done something contrary to the terms of your agreement for which you can be sued.
FHFA’s recent lawsuits were filed because 17 financial institutions sold private-label MBSs with fraudulent information, they misrepresented the quality of the mortgages.
Therefore, the statute of limitations started to run when the MBSs were issued and purchased (written agreement signed) by Fannie and Freddie.
FHFA’s lawsuits were filed in New York and Connecticut’s courts, and both states have 6 years of Statute of Limitations for written agreements.
All lawsuits seek to recover losses from MBSs issued after September 7th, 2005 (Two first MBSs sued, issued by Goldman Sachs and the other by JPM), therefore within the 6 years period.
BOTTOM LINE
Now we know why the lawsuits were filed last Friday, September 2.
Therefore, it’s not true that the suits were filed because the Statute of Limitations of the FHFA (Conservator) expires next Wednesday, the third anniversary of Conservatorship, “according to people familiar with the matter”, said the press. http://online.wsj.com/article/BT-CO-20110902-711635.html
It has to do with the imminent announcement of the reconstitution of Fannie and Freddie, therefore the government had to file the suits before in order to inform the taxpayer that FnF aren’t the cause of the worst financial crisis ever and the losses will be recovered.
But what about all the fraudulent private-label MBSs issued from 2004 until September 2, 2005? FnF have forgiven the huge losses incurred with those securities, but at least, they are gonna recover the losses from September 2, 2005 to August 8, 2008 (the last security sued).
Yes you read correct. FnF’s shareholders have forgiven suing the big banks for the losses of the MBSs purchased on that period.
Another cost to FnF’s shareholders. Their pain should be partially relieved with an imminent recapitalization announcement.
The WSJ says that, in order for refinancing to deliver any kind of economic boost, policy makers will have to tackle a series of “technycal winkles”:
http://online.wsj.com/article/SB10001424053111904537404576552523376670978.html#articleTabs=article
-First, the WSJ mentions that banks are reluctant to refinance because FnF could force the bank to buy back the mortgage if they discover a fraudulent loan. No problem! The WSJ writes a supposed view of one guy saying: “FnF could help, he said, by agreeing to indemnify lenders against buy backs” What? Not only FnF suffer the loss, have been misled, but they have to pay a compensation to the banks?
-Second. The WSJ uses a supposed view of another economist to say that FnF could wave the fee that they are charging to riskier borrowers since two years ago. What? The main cause of this financial crisis is that borrowers didn’t pay for the risks they incurred, therefore, the banks didn’t have a proper Reserve Fund built up for those risks. Everybody has to pay according to its risk.
-Third. Is the WSJ suggesting to sign off a insurance against default (FnF forgiving the payment they receive if a mortgage defaults), in order to forgive part of the mortgage debt to a priviledged few? Therefore, not only waving revenues but also suffering a loss.
Also they suggest to wave appraisals fees (it’s better if the guy that makes the appraisal works for free, isn’t it?)
Finally, the article says that the government doesn't have to spend money to refinance. Hey! FnF are the taxpayer! Wake up! If FnF have invested in a MBS or have issued a MBS, they own or owe the principal and if that principal is forgiven, FnF have to write-down the loss!!!
The WSJ just refers to the loss to other investors in MBSs backed by FnF of less future yields when they invest the cash they get after a refinancing. What? What about the loss if the MBS is retired at 100 when it is refinanced? (all the securities are trading well above 100 because the yields now are lower than the coupons when the MBS was issued).
I remind the WSJ that Fannie Mae and Freddie Mac allowed more than 28,000 underwater borrowers to refinance through a government program called HARP in June, up roughly 12% from the previous month. FnF are not compensated for the costs incurred with these programs.
THE WSJ (specially Nick Timiraos) IS THE STATE-CHAMBER MEDIA COMPANY.
*I would like to be one of the numerous american journalists that are touched by the finger of the U.S. government. A bunch of journalists that receive multiple U.S. government’s leaks, and they just add “people familiar with the matter say”, “according to Treasury sources”, “people with knowledge on the situation say”, etc…or simply say what the government wants to say to the public at that time. It’s very easy to recognize one journalist with this upper-hand, they have a white bright aureole, with lines radiating from their heads, but I bet that their background has a low profile.
I recall Housingwire’s Jon Prior who prior to joining Housing Wire on July 09, he wrote and managed the sports page for a small-town newspaper north of Dallas called The Lake City Sun. He spreaded rumors a Friday evening about lowering the conforming loan limits much lower than the previous low limit!!!: "Rumors even flew Friday afternoon of a possible reduction to the conforming loan limit below the reduction that is already scheduled to occur Oct. 1."
http://www.housingwire.com/2011/07/29/fannie-and-freddie-cuts-vanishing-from-debt-ceiling-proposals.
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OBAMA’S RECENT DECISIONS TAKEN:
-To reduce a debate to three options related to the failed House Finance System.
-To indroduce a debate about rental plan.
-To manage state-chamber journalists to guide the taxpayer.
-To create a Construction-Bank: mix of Public Bank + a State-paid workforce which means more votes. This is the same issue I denounced in my post “Argentina turns into Chavez’s Venezuela” because Kirchner was copying what is already in place in Venezuela: workforces doing small jobs like repairing a public-school, lighting, streets, etc… they are future votes for Hugo Chavez. Did I say a plan to repair public-schools? The same as Obama’s plan! Does Obama have a Simon Bolivar’s portrait in the Oval Office as well?
WHERE IS THE LEGISLATION?! WHERE’S THE BEEF?!
I’ve just learnt that to talk about the statute of limitations for FnF, there is a specific Law written in 2008.
(see page 91, under “statute of limitations” in the 2008 law)
http://www.mbaa.org/files/ResourceCenter/HERA/HousingandEconomicRecoveryActof2008-asenacted.pdf
Again, it’s not true that the lawsuits were filed because the Statute of Limitations expires three years after Conservatorship, because all the securites sued were originated after September 2, 2005, therefore the clause (II) should apply.
The Law says “ in the case of any tort claim (fraud), the longer of:
(I) the 3-year period beginning on the date on which the claim accrues (the day Conservatorship began); or
(II) the period applicable under State law.”
And the longer period for securites issued after September 2, 2005 is clause (II): the period applicable under State law (6 years since the MBS was issued), not clause (I) as the press continues to say: http://blogs.wsj.com/developments/2011/09/06/ten-questions-on-the-fhfa-mortgage-lawsuits/
The clause (I) should apply if there was a security issued before September,2005, because the longer the period would have been the 3-year anniversary of Conservatorship.
But there aren’t securities issued before September 2005 sued!!!!. All those fraudulent securites, because of the statute of limitiations in the 2008 Law, now can’t be sued because we will be 3 years after Conservatorship on Thursday!! Neither the clause (I) nor (II) can be applied after 3-years of Conservatorship. One day left!!
The purpose of conservatorship is to preserve and conserve each Enterprise's assets and property and restore the Enterprises to a sound financial condition so they can continue to fulfill their statutory mission of promoting liquidity and efficiency in the nation's housing finance markets. The FHFA will miss its duty if it doesn’t sue the banks for the securities sold before September 7, 2005 to FnF with fraudulent information, before the deadline of the Statute of Limitation for those securities, that is, the 3-year anniversary of Conservatorship, tomorrow. It has just one day to file the lawsuits.
The bad mortgages were originated between 2004-2007, and the FHFA will leave almost the first two years of fraud without punishment, and FnF’s losses already recorded.
List of financial institutions sued. Note the first date a security sued is issued, all are issued after september 2005.
Name Number of Securitizations (Date) Sum (= $ billion)
1.Ally (former GMAC) 20 (sept.23,2005-may 30,2007) 6.0
2.Bank of America 23 (sept.30,2005-nov.5,2007) 6.0
3.Barclays 8 (oct.28,2005-febr.28,2007) 4.9
4.Citigroup 10 (sept.13,2005-may 31,2007) 3.5
5.Countrywide 86 (aug.30,2005-jan.23,2008) 26.6
6.Credit Suisse 43 (sept.28,2005-nov.23,2007) 14.1
7.Deutsche Bank 30 (sept.28,2005-june 29,2007) 14.2
8.First Horizon 5 (sept.30,2005-april 30,2007) 0.883
9.General Electric 2 (sept.28,2005-dec.19,2005) 0.549
10.Goldman Sachs 40 (sept.7,2005-oct.29,2007) 11.1
11.HSBC 17 (dec.20,2005-july 3,2007) 6.2
12.JP Morgan 103 (sept.7,2005-sept.19,2007) 33.0
13.Merrill Lynch 72 (sept.29,2005-oct.10,2007) 24.853
14.Morgan Stanley 33 (sept.12,2005-sept.27,2007) 10.58
15.Nomura 7 (nov.30,2005-april 30,2007) 2.0
16.Royal Bank of Scotland 68 (sept.30,2005-jan.23,2008) 30.4
17.Société Générale 3 (may 11,2006-dec.14,2006) 1.3
Sum 196.165
*This is my view after reading the Law, maybe I'm wrong. Have a look to the Law.
We want to see those securities sued as well. One day left to file the suits in Court under the 2008 Law.
State-run NYT is comparing a case of fraud (17 financial institutions have been sued for fraud) with the investigations to former FnF's executives, saying that last Friday’s fraud suit “is a similar accusation to the one the S.E.C. is leveling at Fannie and Freddie”.
The SEC is investigating FnF’s disclosure practices, that is, how they publicly disclosed their exposure to risky loans. So, no big deal, nothing about accusations of wrongdoing (fraud).
The state-run media company talks about an investigation with “civil and criminal elements”, but later rectifies saying that “But three years on, the civil settlement would be the only government action against the companies”,
Then, a civil settlement can only be reached with the former executives investigated, but the NYT talks about a possible settlement with FnF (not the former executives) when even the SEC has not filed yet a suit against any of those former executives who received a Wells notice.
Also the former executives can challenge the allegations against them, and it’s what they are doing:
-Mr. Syron, ex-Freddie Mac’s CEO, said “company’s disclosures were in fact wholly accurate and complete”.
-Mr. Mudd, ex-Fannie Mae’s CEO, said the disclosures under SEC investigation "have been issued in the same form since the company went into government conservatorship".
http://dealbook.nytimes.com/2011/03/15/ex-chief-of-freddie-mac-may-face-civil-action/?ref=business
Also, this issue released last March, prompted a regulators-struggle: the Washington Post mentioned that the agency that oversees FnF, the Federal Housing Finance Agency (FHFA), disagrees with the SEC on the allegations about FnF’s financial disclosures: “FHFA officials think Fannie and Freddie’s financial disclosures, which agency staff members had reviewed before the documents were released to the public, were sufficient, the sources said. One source added that FHFA has sent a letter to the SEC opposing the filing of charges”.
http://www.washingtonpost.com/business/economy/sec-moves-toward-charging-fannie-mae-freddie-mac-executives/2011/03/17/AB535zm_story.html
The U.S. government, through its media companies, wants to create a cloud of shit around Fannie and Freddie before the GSE reform announcement. It’s been delayed because the settlement with the 17 financials institutions has not been reached yet (possible cash infusion of $40 billion to FnF), therefore, the government wants to cool down FnF’s prospects until that date saying that a new settlement about accusations to FnF is said to be near. That’s it, not big deal, or a case even worst than the Watergate scandal.
I already told you that the U.S. government just tries to shock the taxpayer in order to transform the system freely, like the terrorist alerts.
NYT’s article: http://dealbook.nytimes.com/2011/09/08/settlement-said-to-be-near-for-fannie-and-freddie/
The media continuosly says that is the same a case of fraud against 17 financials intitutions sued because were selling securities with fraudulent information to FnF, with SEC's investigations to former FnF's executives about how they publicly disclosed information, nothing about fudging numbers (fraud). It's not the same.
"FHFA argues that Fannie and Freddie were misled about the quality of the mortgages underlying the home loan bonds. It is the same allegation the companies face from the SEC, and from a raft of private litigants who are trying to hold Fannie and Freddie accountable for alleged wrongdoing."
If even the SEC doesn't dare to file a suit in court against the former executives!!!
The same allegations, Financial Times? Are you sure liar?
http://www.ft.com/cms/s/0/9be84cde-db29-11e0-912b-00144feabdc0.html#axzz1XWeHHiTq
The U.S. government's machinery is in full capacity. Take care out there.
WSJ, FT, NYT.... THE TOXIC MEDIA SHOULD BE ABOLISHED.
FnF reconstituted, 100% privately-owned within the FHFA, taxpayer recovers its investment in FnF.
The latest bipartisan bill H.R. 2413 contemplates the combined company FnF (called Facility) can purchase the Senior Preferred Stocks (page 31), but it doesn’t say how it can be possible.
But I can tell you:
Assuming:
1-FnF receive $40 billion cash infusion from the settlement with the 17 financial institutions sued + UBS + Wells Fargo.
2-FnF’s existing low delinquency rate will plummet to nearly zero if there is a facelift to the existing ‘underwater’ program called HARP. The banks were reluctant to refinance because FnF could put back the mortgage if they discover fraudulent information. Now, if the demands are settled for the mortgages sued with date of issuance after September 1, 2005, plus the Statute of Limitations that expired on the third anniversary of Conservatorship last September 7 for the securites premeditatedly not sued (all those issued before September 1, 2005), there could be a wave of refinancings.
3-According to the only two bipartisan bills already introduced about the GSE reform, the banks will pay a fee to build up a Reserve Fund to shield the taxpayer from future losses.
4-Obama’s rental plan will reduce the REO inventory to nearly zero. (I always talk about round numbers).
5-There is also coming a settlement about the foreclosure issue against banks. FnF are not compensated for the costs incurred with the government’s or enterprises’ programs to help borrowers. The government could use this money to implement the new facelift of HARP and also pay FnF for the costs incurred in the past. That settlement should go to FnF’s balance sheet.
Therefore, what the hell will do FnF with a combined $113.9 billion Reserve Fund as of end of June ($109.1 billion in the form of liquid assets) plus $40 cash settlement injected, with a delinquency rate nearly zero, no REO inventory and the banks paying a new catastrophic fee to build up a new Reseve Fund on top of the one already in place? They would have a combined $153.9 billion. It’s an inefficient balance-sheet.
Let’s calculate the taxpayer cost as of end of September = Senior preferred shares less dividends received, less $1 billion senior prfd. shares in each GSE received without cost at the time of the Agreement in 08.
Freddie Mac: $50.62 billion
Fannie Mae: $86.48 billion
Combined: $137.1 billion
BOTTOM LINE:
$153.9 billion can pay the taxpayer cost, $137.1 billion (Senior pfd. shares would be cancelled), and the difference would be $16.8 billion plus the settlement about the foreclosure wrongdoing that could be injected to FnF, is enough money to implement the new facelift of the refinancing program HARP and the new rental plan (small write-offs because the bulk is recorded at the time of foreclosure).
Therefore FnF will be reconstituted with no government involvement, just will remain within the FHFA (regulator).
The combined FnF will have zero delinquency rate thanks to HARP, zero REO inventory and the banks paying a fee to fund FnF (utility model) and another fee to build up a Reserve Fund.
*Representative Campell signalled recently that the new fee to build up a Reserve Fund will be paid by the MBSs investors.
Yes, you read correct. The U.S. government could announce $137.1 billion payment into the Federal Budget.
It’s time to do justice and announce FnF’s shareholders reconstituted because the enterprises are recovering past losses and the taxpayer will recover in full its investment in FnF. Recovery time.
Did the government recoup the old news about the SEC investigation this week, saying that FnF misled investors about their exposure to risky mortages, the path to announce the partial reconstitution of the investors’ losses? It took me two days to get it, sorry Geithner. Hahaha.
Here Bloomberg says that FnF will settle with the SEC about no allegations of fraud and paying no fine. It seems that the government just wanted to “make” the opinion that FnF misled investors, in other words, shareholders (the only ones that have suffered huge losses).
http://www.bloomberg.com/news/2011-09-09/fannie-freddie-said-near-settlement-with-sec-on-loan-disclosure.html
Let's get it.
GSEs, come on.
Bloomberg's article mentioned yesterday, deserves a special comment.
It's the best example of how to properly inform the public about the SEC investigations to FnF.
"None (former executive) has been accused of wrongdoing". Therefore, there is no fraud.
FnF "failed to inform investors of their exposure to subprime mortgages before the 2008 credit crisis".
"The housing companies will neither admit nor deny defrauding investors, nor will they pay any fines under the proposed settlement with the SEC".
Therefore, FnF will settle about no accusation of fraud and paying no fine.
Also Bloomberg stresses the idea that FnF have misled investors, that is shareholders, the only ones that have suffered losses (not bond or MBS holders).
Finally, Bloomberg doesn't compare this issue with the 17 financial institutions sued with fraud last week.
http://www.bloomberg.com/news/2011-09-09/fannie-freddie-said-near-settlement-with-sec-on-loan-disclosure.html
******EXCELLENT ARTICLE OF BLOOMBERG******
Freddie Mac: $50.33 billion
Fannie Mae: $91.58 billion
Combined FnF: $141.91 billion
Percentage of draw requests paid with dividends as of end of September:
Freddie Mac: 23%
Fannie Mae: 16%
The bill says that the dividend will be reduced to 5% for the Senior Prfd. shares outstanding after the restructuring plan if some are not canceled.
"The new option, called a Standard Modification, is designed for borrowers who are ineligible for a Home Affordable Modification Program (HAMP) loan modification or have previously defaulted on a HAMP or other loan mod."
"The new Standard Modification replaces an existing type of Freddie Mac loan modification called a Debt Coverage Ratio".
http://community.nasdaq.com/News/2011-09/freddie-offers-new-loan-mod-option.aspx?storyid=94347
Again, this is not a government's program (HAMP) but a Freddie Mac's program. The enterprises are not compensated for the costs incurred with these programs that help financially distressed homeowners.
The U.S. government should compensate FnF for this public mission.
Once the ultimate restructuring plan for the GSEs is fixed, it takes time for the politicians to unveil it. It cannot be made in one shot and we are seeing the ongoing process to announce the reconstitution of a combined FnF as a 100% privately-owned enterprise:
-FnF sued 17 financials institutions in order to show the american people that FnF are not to blame for the worst financial crisis ever worldwide, but private-label MBS issures. FnF are victims.
-It was recouped the old news about the SEC investigation to FnF’s former executives just to tell the taxpayer that FnF misled their shareholders about their risk exposure, that’s why the shareholders deserve to partially recover their enourmous losses.
-Last week Freddie Mac announced a new Loan Modification program of its own, to help financially distressed homeowners.
-Also last week CNBC released a special report about Fannie Mae signaling that the servicers (private companies that work for FnF) are the ones to blame about the poor service to the delinquent loans, not Fannie Mae. That’s why Fannie Mae started a new initiative releasing Servicer Ratings with cash incentives and cash penalities to the servicers.
-Yesterday we had the American Mortgage Conference in NC, and a White House advisor, FnF’s CEOs and FHFA’s DeMarco attended the event. If you read just the topics of their speeches, you realize they all talked about the future of the House Finance System, obviously, without unveiling it. They were preparing the industry and the taxpayer for the incoming GSE reform with flashes like saying that FnF will increase fees to allow private lenders to compete with them.
https://www.ncbankers.org/index.php?content=american_mortgage_conference_agenda
It’s a process to clean FnF’s public image and prepare the taxpayer for the GSE reform announcement in the foreseeable future (before October 1 deadline). The politicians need time.
Just wait and relax, the government is now on our side.
-End of July: “According to the Congressional Budget Office, the original Boehner plan and subsequent Reid proposals would have saved the government $30 billion over 10 years via raising the guarantee fees. This, sources within the House told HousingWire, would have meant raising the guarantee fees — the fees Fannie and Freddie charge for guaranteeing a pool of mortgages — up 5 basis points (0.05%).”
http://www.housingwire.com/2011/07/29/fannie-and-freddie-cuts-vanishing-from-debt-ceiling-proposals
-Yesterday: Obama’s plan to increase gradually guarantee fees starting with 0.1% in 2012. The increase would save the budget $28 billion over 10 years.
If the data is correct, how can save the same amount of money over the same period of time, an increase of 5 basis points than a gradual price increase starting with 10 basis points? This means that the amount the government is saving has nothing to do with the rate increases, but with the amount that one “academic” wrote one day as possible FnF's draw requests to Treasury during the next 10 years. So, they reach the $30 billions savings over 10 years just deleting that line in the Projected Budget after FnF are reconstituted, hahaha, because has nothing to do with the guarantee fees.
Purpose of the rate increase: “These guarantee fees should be increased over time to help the private market compete on a level playing field and reimburse taxpayer assistance.” Page 22 http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/jointcommitteereport.pdf
Let’s explain this:
1-To help the private market compete on a level playing field: The objective is to allow the private sector to compete with FnF once FnF’s guarantee fees are close enough to the private sector. The increase would be gradually, in order to not damage the housing market now.
The extension of the loan limits (now at $729,750) should occur before October 1 deadline, but the private sector would like to take the segment above $625,500.
Applications for mortgages between $625,500 and $729,750 fell 34% in August, according to Mortgage Bankers Association data. Because the conforming-loan limits expire on October 1, lenders are already pricing in the new low limit. This is a proof we should see legislation before October 1.
The odds are that the loan limits will be extended just one year to help the housing market now, so that in October 1, 2012 the private sector will take the segment above $625,500 without damaging the housing market in that segment because FnF’s higher guarantee fees will make their mortgage rates have a small gap versus the private lenders.
Latest price increase: “both GSEs have risen risk fees, ranging from 0.25% to 0.5%, depending on your credit score and applied to all kind of borrowers. Freddie's went into effect on March 1 and Fannie's on April 1”, commented above. Therefore, FnF are used to large price increases, so even if the guarantee fees start with 0.1% in 2012, if the private sector is going to compete with FnF at the end of 2012, we should see a huge price hike at that time.
By the way, if you want “FnF to compete with private lenders on a level playing field”, the enterprises or the combined FnF ought to be 100% privately owned, obviously.
2-FnF “reimburse taxpayer assistance”, means taxpayer cost paid in full with the cash set aside in the Reserve Fund. Note also that DeMarco supports the development of "security structures that allow for a portion of the credit risk currently undertaken by the Enterprises to be sold off." This means that with lower risks, less capital is needed, so less Reserve Fund is required.
BOTTOM LINE
The purspose of increasing the guarantee fees is not only to allow private lenders to compete with FnF, but to help FnF build up a new Reseve Fund because it will be diminished after paying the taxpayer assistance (taxpayer cost).
Therefore, neither the banks nor MBSs’ investors will be the ones paying a fee to build up FnF’s Reserve Fund, as the previous two bills introduced in Congress contemplated. It will be paid by the borrowers.
If everbody is increasing its fees to borrowers, we will see a bond market manipulated by the Fed (artificial low yields) forever in order to not damage the housing market. It will be the new normal.
Let’s get it.
GSEs, come on.
If FnF are combined and reconstituted, here is why the juniors prfd. shares cannot emerge from Conservatorship with their previous Prospectus, how the hell are they gonna be paid the same dividend in $ than before!!!!
PROSPECTUS: "Dividends payable on the Series O Preferred Stock for each full Dividend Period will be computed by dividing the per annum dividend rate(7%) by four. The amount of quarterly dividends per share will be calculated by multiplying the preceding rate by the stated value per share of $50"
http://www.fanniemae.com/ir/pdf/resources/preferred/Series_O_01032005.pdf
So, if the preferred stocks were reconstituted: dividend 7% of $50 is $3.5, but the stock is trading at $3pps, so the annual dividend is 117%.
How the hell is gonna pay FnF an annual dividend of $3 per junior prfd. share? There are no enough earnings now.
BOTTOM LINE
The prospectus of the junior prefd. shares will disappear. In other words, the junior preferred shares will be swapped to commons.
FnF will be reconstituted as a 100% privately-owned company.
We shall see...
I told you that this is the "new normal":
-purchases of $400 billion of long- term debt while selling an equal amount of shorter-term securities (to lower long term yields).
-reinvesting maturing housing debt into mortgage-backed securities instead of Treasuries (to lower MBSs' yields).
The lower the bond yields, the higher the guarantee fees FnF will charge to borrowers without damaging the housing market aiming to allow the private sector compete with FnF "on a level playing field" (similar high mortgage rates). All proceeds go to FnF's pockets. Also the new normal.
We know that is a stupidity to blame Fannie Mae “for not implementing a programme to detect -and probably to prevent- foreclosure abuses”, instead of blaming those private companies, working for Fannie Mae, that made the fraudulent foreclosure abuses.
Those private companies or servicers (among those are the big banks’ mortgage-servicing arms) have already been sued by 50 general attorneys in the so called “robo-signing” case, a process to speed up foreclosures.
We know why the big banks were speeding up the foreclosure process. They are the same banks recently sued by the FHFA for selling fraudulent MBSs to FnF. The big banks wanted to foreclosure a home rapidly so that FnF didn’t realize that the mortgage had fraudulent information and FnF could “put back” that mortgage (FnF transfering the fraudulent mortgage to the big banks’ balance-sheet).
The fraudulent MBSs sold to FnF and the foreclosure 'robo-signing' case have the same cause, the fraudulent mortgages packaged by the big banks, when they went crazy during 2004-2007 for profit motives.
The system worked, FnF worked, what failed was the big banks' profit motives and now they have been sued with FRAUD. In the end, they will settle the demands, that's the skin in the game.
BOTTOM LINE
Yesterday’s watchdog report about Fannie Mae aims to tell the taxpayer that Fannie Mae is going to be taken over by Freddie Mac because Freddie is a better company in all aspects.
We already knew that Freddie Mac is better prepared to handle the servicing-programmes (loan modifications, foreclosures, etc…), that’s why Freddie Mac serves as Compliance Agent for Treasury’s Home Affordable Modification Program (HAMP), conducting a number of different types of compliance activities to assess servicer compliance with HAMP guidelines for those servicers that have signed a servicer participation agreement with Treasury.
Furthermore, a second watchdog’s report released also yesterday, aimed to tell the taxpayer that the FHFA needs more resources to oversee FnF. That’s why the FHFA will be reinforced when FnF are merged.
http://online.wsj.com/article/SB10001424053111903703604576587580289589392.html
On August 25, I said to Geithner: "Remember: all solve in one meeting. Call Angela Merkel".
They held the meeting last weekend in Poland. Now the time has come.
Geithner, Merkel: PUSH THE BUTTON!!
Please, stay safe at home this weekend. Every mountain could be moved out of its place.
To write all the analysis, the objective of the recent announcement of Fed's purchases of MBSs while its existing MBS holding backed by FnF ($879 billion as of Sep. 22) mutures, not only is to lower the MBSs yields but to support the MBS market due to the incoming over-supply of issuances of new MBSs thanks to the imminent mother of all waves of refinancings.
I commented on Sep. 10, why we are about to see the mother of all waves of refinancings: "The banks were reluctant to refinance because FnF could put back the mortgage if they discover fraudulent information. Now, if the suits are settled for the mortgages sued with date of issuance after September 1, 2005, plus the Statute of Limitations that expired on the third anniversary of Conservatorship last September 7 for the securites premeditatedly not sued (all those issued before September 1, 2005), there could be a wave of refinancings."
A refinancing boom means a wave of issuances of new MBSs, therefore an over-supply of the market (if a mortgage is refinanced, the MBS is retired at a price of 100 and a new MBS is issued). That's why the Fed will support the MBS market in order to avoid a over-supply and subsequent panic triggering higher MBSs' yields.
All IS LINKED AND READY, AWAITING GEITHNER's "GO!"
I've already given my "go".....several times, hahaha. But I'll say it again: " This is a go!!"
Let's get it.
GSEs, come on.
New-fee: fee “to absorb a portion of the Enterprises’ risk exposure, in a way to allow for greater private sector risk sharing”.
The objective is to make the banks (private sector) have skin in the game, and FnF operating as a utility model (stable and predictable return with very low risk).
My latest scenario is a combined FnF 100% privately-owned. Therefore, the same as before, isn’t it? But we now that there is one issue that failed in the previous model, if the banks commit fraud selling toxic mortgages, they make FnF have huge losses and the taxpayer pays the bill. And we don’t want that model anymore.
FHFA’s director DeMarco latest statement at the American Mortgage Conference held on September 19, in NC., added one issue that nobody has talked about before and it could be Geithner’s ultimate plan.
Page 9 http://www.fhfa.gov/webfiles/22617/NCSpeech91911.pdf
Risk Sharing
Primarily, DeMarco talked about the mortgage insurance required to be purchased, at the borrower’s cost, on mortgages with loan-to-value ratios grater than 80%.
But the next is NEW:
“Another way to allow for greater private sector risk sharing is to develop security structures that allow for a portion of the credit risk currently undertaken by the Enterprises to be sold off. There are numerous securities structures that could be considered in this space, and we will be evaluating some of those in the coming months.
Considering these types of risk sharing alternatives has an added benefit of providing feedback into the Enterprises’ guarantee fee pricing decisions. If the market price to absorb a portion of the Enterprises’ risk exposure is greater than the charged guarantee fee, that would be a signal of how much prices would have to rise to attract private capital and move the Enterprises’ guarantee fee pricing more in line with private markets.”
The banks originate the mortgage, later there are two options:
1- package that mortgage with others and sell the MBS to investors or FnF,
2-sell the mortgage to FnF which are the ones that package and sell the MBS to investors.
Market participants (fees paid, received and risks):
*Borrower:
-pays guarantee-fee: $1
*MBS investor:
-has no risk: the MBS is guaranteed by FnF
*combined FnF:
-receives guarantee-fee: $1
-pays new-fee to the private sector in order to have no risk: $0.3
-profit:$1-$0.3=$0.7
-no risk: it has been transferred to the private sector, this way the existing high Reserve Fund is not needed and it will be diminished so that FnF can “reimburse taxpayer assistance” (taxpayer cost, senior prfd. shares cancelled).
*Private Sector (banks):
-receive new-fee: $0.3
-assumes risk. The banks receive the new-fee ($0.3) to undertake the risk that previously was held by FnF. This is the new skin in the game.
The guarantee-fee has to be high enough to pay the new-fee to the private sector, that’s why the long term yields will be manipulated low forever so that the final mortgage rate (Treasury yield + guarantee fee) is low in order to not disrupt the housing market.
High guarantee-fee to pay the private sector (banks) the new-fee for undertaking FnF’s risk (risk of default of the mortgage that was originated by the same banks). This is the banks’ skin in the game. Now the banks will be more responsible on the origination of the mortgage or when they package the mortgages as MBS, if that is the case, the could make huge profits with the new-fee. The big banks will like this idea, that’s why they will accept to settle the recent suits.
Also the guarantee fee will be high in order to allow the private sector to compete with FnF on a level playing field (similar mortgage rates). Already commented.
It’s a win-win for everybody (taxpayer, banks, FnF’s shareholders and existing long term yield-Treasuries’ investors), at the expense of future long term yields-Treasuries’ investors (Wang Qishan’s grandchildren)
What I don’t like is when DeMarco said that “we will be evaluating some of those (securities to undertake FnF's risk) in the coming months”.
What coming months? It shoulda been done yesterday! We cannot wait any longer, the economy is shrinking.
The market needs certainty about the House Finance System.
The market needs certainty about the big banks’ settlement of the recent lawsuits.
The market needs certainty about the robo-signing settlement.
The market needs certainty about the refinancing boom needed in the economy.
The government must clear these uncertainties now, the ultimate fine-tuning could be announced in the coming months.
---By the way, when I say combined FnF reconstituted as a 100% privately-owned enterprise, means existing shareholders reconstituted (they are the private capital). Reconstituted means to go back to the previous situtation before Conservatorship---
Having seen the continuation of the political fight between Dems and Reps. and the fact that the Republican Party would never have agreed on suing 17 financial institutions totalling roughly a $200 billion portfolio (+Wells Fargo+UBS), I think that the Democrats have broken the pack of cards and will restructure the whole House Finance System alone, this is the reason of the delay in the announcement: they are elaborating a new restructuring plan for the House Finance System (new-fee, etc...)
-The loan limits will never be extended, so the new limit will drop to $625,000 from $729,000 (already price in since mid August). The mortgages above $625,000 have been handed to the private sector (banks) in exchange of paying the incoming enormous settlement to FnF. That's why the Fed is lowering the long term-Treasury' yields like mad, this way, the jumbo loans' rates (private sector) will be very low.
-I commented yesterday that DeMarco said the new-fee will be in place "in the coming months". The banks will like to receive this new-fee, again, in exchange of paying the enormous settlement to FnF.
There are two pending settlements: mortgage-fraud settlement and robo-signing settlement. Both settlements ought to go to FnF's balance-sheets. It will be used to reimburse taxpayer assistance and help the economy (more refinancings).
Reconstituing FnF as a 100% privately-owned company won't need Congress action, in other words, political fight. It's an agreement between the Treasury and the Enterprises.
The economy can't wait any longer for the announcement (I began saying this on January 28, 2011 and here we are, the economy shrinking)
BOTTOM LINE
Democrats cannot announce the House Finance System overhaul before October 1 because they would be forced by the public opinion to announce the extension of the loan limits at the same time, it's better for their plan to let the loan limits expire quietly without action, than showing that, having unveiled legislation, you intentionally are letting the loan limits to expire. This is how politics works.
1-The Democrats are letting the loan limits to expire on October 1.
2-The taxpayer will be shocked after learning that the loan limits expired. Everybody will begin to talk about Great Depresion II. Ahhh!!
3-That's why immediately after October 1, the new House Finance System will be announced.
THIS IS THE PLAN.
Let's get it.
GSEs, come on.
_____________________________________________
FANNIE AND FREDDIE WILL HAVE NO RISK
So, the plan is FnF paying a fee to lower their risk, but now 20% of the home value has no risk with the 20% downpayment or with the mortgage insurance (paid by the borrower) to cover the Loan-To-Value loans greater than 80% if there is less than 20% downpayment.
So, the new-fee pays for a new-security that will cover the rest of the home value, but a home value 100% insured is not efficient (it's expensive). FnF will only need to insure 30% of the home value for example, so that at the end the home value is 50% insured (FnF will begin to suffer losses if the home value declines more than 50%, this is the meaning of a company with no risk)
DeMarco said that they are "considering numerous securities structures" to lower FnF's risks and it will be unveiled "in the coming months".
It seemed that he was talking about searching for a high-engineered security structure, an advanced-tech security, a high-standard structured product or, in other words, an Engineered-Name-To-Fool-You security.
In the end, it's just a simple MORTGAGE INSURACE like the one that the borrower is now paying for Loan-To-Value loans greater than 80%.
FnF will pay a new-fee for a new mortgage insurance to lower their risk (to insure 30% of the home value for example, so the outcome is a home value 50% insured).
That's why the economy cannot wait for "the coming months" to unveil a simple new-mortgage insurance, and it will be unveiled just after October 1.
What are you doing? we cannot wait any longer, the economy is plummeting!
Where's the legislation?
Where's the beef?!
The first day of this year we learned that Bank of America agreed to pay $1.28 billion settlement to Freddie Mac applied not only to outstanding claims but also to future ones.
My view is that FHFA's Inspector General report, due to be released today, aims to tell Bank of America's shareholders, that that agreement is no longer valid, so they are warned that is better to do nothing in Court about the enormous settlement that will be announced in the coming days.
The FHFA should review other claims already settled with JP Morgan and Ally Financial. Read the superb post written on January 9.
Now, there is a changed behaviour in the Obama Administration.
For the times they are a-changin'.
http://online.wsj.com/article/SB10001424052970204010604576595080080783812.html
California Attorney General, Kamala D. Harris, has pulled out of the negotiations with other AGs to settle the foreclosure case (robo-signing case).
Someone should tell her, that Fannie and Freddie are the ones that help distressed homeowners through the state-program HARP and through Enterprises' programs, utilizing FnF's technology and personnel, leaving FnF suffering the losses when a mortgage is modified.
Therefore, the settlement ought to go to FnF's balance-sheet TO CONTINUE with these programs plus the boom of refinancings needed and to pay past programs.
This is what California homeowners have been waiting for.
She won't investigate anything because the big banks have already been investigated and finally sued by 50 AGs and the FHFA, and we are just awaiting a settlement for their wrongdoing.
We don't need a demagogic person coming up to scene.
Why women have always to prove they are smart?
I rather be in enterprises that have more cash than the U.S. government like Apple ($60 billion) and Fannie and Freddie (combined $109.1 billion as of end of June, commented on August 21).
That's why the Fed uses Fannie and Freddie as reverse repo counterparties to eventually drain cash in the financial system since July 27 (commented on June 18).
Yes, you read correct, not only the U.S. government nationalized a private company to pursue a public mission, but the Federal Reserve uses the same enterprise as a monetary policy tool.
On september 23, I commented this report blaming Fannie Mae for not investigate the foreclosure practices of the big banks' mortgage-servicing arms. But yesterday, the same report was released again!!!
http://www.nytimes.com/2011/10/04/business/fannie-mae-ignored-foreclosure-misdeeds-report-says.html
Fannie and Freddie don't service the mortgages. The FHFA's Inspector General should join the case of 50 Attorney Generals against the big banks mortgage-servicing arms and end this crappy show.
Who is behind this watchdog that is working so hard the latest weeks?
After 700 people have been arrested in Brooklyn for demonstrations against the banks and the crisis, this report is not released twice by chance.
Obama's close friend Warren Buffet has been interviewed several times the last days and, surprisingly, he always adds that Fannie and Freddie took part in this crisis (he owns several stakes in the banks: Wells Fargo, Banks of America, ...)
This way to shock and manipulate the taxpayer's opinion means the system will be transformed very soon.
What are the U.S. government and Warren Buffet up to?
STAY ALERT.
The Federal Housing Administration (FHA), unlike Fannie and Freddie, is a Federal Agency.
It has a Congress’ mandate to increase its Reserve to Mortgage Portfolio ratio to 2% but, almost four years after the financial crisis, its ratio still stands at 0.50%.
Source: http://www.thestreet.com/story/11265399/1/mortgage-mess-next-shoe-to-drop-is-fha-analyst.html
On the contrary, Fannie and Freddie’s Reserve to Mortgage Porfolio was very low after the financial crisis (Freddie Mac 0.30% in the 2Q 2008), but the government has been injecting cash into the Enterprises to increase this ratio (Freddie= 2.01% and Fannie=2.30% as of end of June 2011).
BOTTOM LINE
This is the reason of FnF’s huge losses the last years: the allocation of provisions into a Reserve Fund, and not because FnF were in bad shape as the government and big banks lobbysts have told repeatedly to the taxpayer.
But increasing the Reserve Fund (TIER 2 capital) has prompted FnF to post huge losses (a provision widens the losses, losses mean capital deficit, then less TIER1 capital, therefore FnF submit a draw request to Treasury and subsequently, FnF issue Senior Preferred Shares). Commented on June 27.
And by the way, it’s the same plan the regulator of FnF, the FHFA, has approved to boost the 12 FHLBanks' capital: to "obligate the Banks to allocate funds ... to new restricted retained earnings accounts. This will increase the Banks’ retained earnings and capital." In other words, to set aside provisions to build up a Reserve Fund, also known as retained earnings reserve, which is deemed capital according to the FHFA. Commented on August 6.
http://www.fhfa.gov/webfiles/21861/Refcorp080511.pdf
Why the government is not injecting cash to the FHA in order to increase its Reserve Fund to a 2% ratio, but did it with FnF? Was it to make FnF post huge losses and shock the taxpayer in order to transform the system freely? (cheap sale of FnF to the big banks in order to take their functions).
I’ve already mentioned that a 2% ratio is crazy when we are almost four years after the financial crisis (the bulk of delinquencies of the toxic mortgages originated during 2004-2008 have already happened) and these companies are mortgage lenders, not banks (they can take possession of the home and own mortgage insurance).
The FHA, with a 0.50% ratio, will never reach its Congress’ mandate of a 2% ratio. Instead, FnF should lower their ratio to 0.50%, allowing them to reimburse taxpayer assistance.
Nobody can rewrite history (and less the big bank-lobbyst Warren Buffet), that’s a reckless endangerment.
THE TRUTH WILL PREVAIL.
Reminder.
The U.S. goverment approved a scheme to be twice compensated for the help of providing funding to the GSEs. It received Senior Preferred Shares and also warrants representing 79.9% of the common shares with an exercise price of nearly zero ($ 0.00001).
THE OBJECTIVE OF ANY BAILOUT IS NOT TO MAKE MONEY.
Upon the GSEs reimburse taxpayer assistance, the Senior Preferred stocks would be cancelled.
Afterwards, the U.S. government can't neither hold the warrant betting on a increased value of the warrant (a government cannot gamble in the stock market), nor exercise the warrant for common shares paying nearly zero dollars in order to make profits selling the common stocks later, because the taxpayer assistance has already been reimbursed (and subsequently, Senior Prfd. Shares cancelled).
The warrant should be also cancelled.
Huge pressure on FHFA’s DeMarco to approve a plan that forgives debt to those who owe more than their home is worth utilizing taxpayer’s money (Socialism).
Yesterday, NewYorkTimes’ 5th psychopath attempt to put pressure with the ‘underwater’ program, this time talking about an eldery woman who “had heart trouble and had outlived her doctor’s prognosis”. NYT is pathetic.
http://www.nytimes.com/2011/10/06/business/opposition-from-freddie-and-fannie-stalls-debt-reduction.html
Today, the WSJ with the headline “Democrats seek to oust key housing regulator”.
http://online.wsj.com/article/SB10001424052970204294504576615394086377146.html
The same Democrats that pressured FnF to lower their credit standars to make more toxic mortgages (Read my post: How the crisis began: “Dear Mr. President June 28, 2004…), now are holding FnF nationalized to utilize them as a tool to back-door stimulus programs at the expense of their shareholders, without knowing that the cause of the sluggish economy is the preservation of the nationalization of FnF and the lack of a comprehensive new framework in the House Finance System.
The market needs certainty about a new blueprint of the House Finance System, to allow the private sector prepare to compete in the securitization market with a combined FnF.
What policy is to forgive mortgage debt? A home value moves everyday, we cannot forgive the debt to anyone who is underwater anytime in his life!
______________________________________________
Some politicians are well-intentioned people who lack knowledge of the consequencies of their decisions. It would be better for the economy, if those politicians are pulled out to avoid taking a solution with unintended consequencies.
*On march 12, I commented that the FHA will increase fees starting on April 18th, 2011.
This is HUD’s press release about the objective of the FHA’s price hike: “After careful consideration and analysis, we determined it was necessary to increase the annual mortgage insurance premium (MIP) at this time in order to bolster the FHA’s capital reserves and help private capital return to the housing market,” said FHA Commissioner David H. Stevens.” “This quarter point increase in the annual MIP is a responsible step towards meeting the Congressionally mandated 2% reserve threshold”.
http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2011/HUDNo.11-013
*On March 14, I commented that Fannie and Freddie will increase fees starting on March 1st and April 1st, 2011. Also, Obama has recently signaled that both will continue to increase fees gradually starting with 0.10% in 2012, in order to allow the private sector compete with them.
*On August 6, I commented the new FHFA’s plan to boost the 12 FHLB’s capital: to allocate part of the quarterly earnings into a Reserve Fund.
BOTTOM LINE
The U.S. government has allowed to increase the FHA and FHLBs’ capital reserves on their own, through price hikes and retained earnings.
On the contrary, with Fannie and Freedie the government preferred to inject cash, hiding to the taxpayer that the cause of the huge losses was the allocation of a quarterly provision into a reserve fund (FMCC ratio was 0.30% in 2Q2008 and now stands at 2.01%) and not because FnF were in bad shape. History will also hold big banks’ lobbysts accountable.
FHA’s ratio is still at 0.50%, therefore we can assume that four years after the financial crisis had ended, it’s the optimal ratio, taking into account that all of them will continue to increase fees in order to allow the private sector to return to the housing market and compete with them. That’s just fair.
______________________________________________
DEMARCO LOOKING FOR TWO SECURITIES
Note that DeMarco’s recent statement signaled that not only FnF will reduce future risk, but the risk currently undertaken by the Enterprises. Therefore, DeMarco is seeking two different securities.
-Current risk: Demarco: “to develop security structures that allow for a portion of the credit risk currently undertaken by the Enterprises to be sold off.” The objetive of a Reserve Fund for future losses is to undertake future risk, therefore if now there is a new security that undertakes that risk, that’s why I’ve said the Reserve Fund would be useless, it would be diminished reimbursing taxpayer assistance.
Maybe someone read my post where I said that is a stupidity to make Fannie Mae have two-thirds of Total Loan Loss Reserve due to the TDRs (modified mortgages that are currently performing).
-Future risk: DeMarco: “Considering these types of risk sharing alternatives has an added benefit of providing feedback into the Enterprises’ guarantee fee pricing decision.” This means that the cost of the security depends on the guarantee fee charged to the individual mortgage, therefore the payment of the new security is a percentage of the mortgage, that’s why I called it a “new fee”. A new-fee that pays the private sector for undertaking FnF’s future risk. This is a simple mortgage insurance.
Financial Times writes today that “Asian and Middle Eastern central banks and sovereign wealth funds are increasingly anxious about the safety of their investments in the debt of Fannie Mae and Freddie Mac , despite the assurances of US government officials.
“The GSEs are not safe,” said one senior official at an Asian central bank, who added that his institution was reluctant to sell its existing holdings because of fears of spooking the market.
“We have become hostage to the irresponsible behaviour of politicians,” said Bader al-Saad, head of the KIA (Kuwait Investment Authority).”
http://www.ft.com/cms/s/0/1de57e0e-f22d-11e0-b439-00144feab49a.html#axzz1aM8CjKpB
As you can imagine, my comment will be that this is another step in the reconstitution of a combined FnF as private entities’ process. Once it's unveiled, people will think that this will reassure bond investors.
Bader al-Saad has sumarized my paragraph written three days ago about some politicians as well-intentioned people. But my paragraph is more polite and funny, hahaha.
_______________________________________________
*I've seen in serveral Budget 2012 documents, that the government wants to stress that FnF are still private entities while in Conservatorship: "Conservatorship preserves the status as private shareholder-owned companies". Just in case one low-profile guy is surprised when FnF emerge from Conservatorship to resume independent operations.
Bernanke and Geithner used to work together because Geithner was president of the Federal Reserve Bank of New York before joining the Treasury.
It’s obvious that both have agreed to make the mortgage rates lower in order to help indebted taxpayers:
1-Fed QE2.
2-Geithner forced-S&P downgrade of U.S. debt just after QE2 ended. “Never understimate the Fed and government’s tools to recoup the economy”, Geithner said recently.
3-Fed Operation Twist.
It’s outrageous that Fannie and Freddie, under Treasury control, have not prepared their derivatives portfolio for this new normal (Treasury yields lower to make mortgage rates drop).
“The Conservator and Treasury have also not authorized us to engage in certain business activities and transactions, including the purchase or sale of certain assets, which we believe may have had a beneficial impact on our results of operations or financial condition, if executed”, Freddie Mac’s 10-Q SEC 2Q report. Page 108.
http://www.freddiemac.com/investors/sec_filings/index.html
Freddie’s latest income statement showed more volatility than the underlying business because FASB requires the company to mark-to-market its derivative portfolio.When Freddie needs to issue long-term debt to fund its mortgage portfolio, it uses a pay-fixed swap: Freddie will pay the counterparty a fixed-rate and the counterparty will pay Freddie a short-term rate, which will be used to pay the rate on the short-term debt. Freddie will rollover the short-term debt until the pay-fixed swap matures.
Every quarter, Freddie must mark-to-market this portfolio of pay-fixed swaps (again another accounting issue that one toxic academic approved). When interest rates decline in a quarter like Q2, Freddie must report a loss, which it did to the tune of $3.4 billion.
If we are looking at Freddie’s income statement to get an idea of the company’s long-term performance and profitability, we need to ignore the derivatives mark-to-market line item. But we know that the state-run media companies, big banks-lobbysts and the politicians don’t do this.
We’ve seen interest rates declining further in the Q3, is Freddie Mac going to post losses again in its derivate portfolio?
Is the U.S. government mismanaging FnF intentionally, not hedging their derivative portfolio for the new normal, just to make FnF post huge losses due to the mark-to-market rule in order to shock the taxpayer to transform the system freely?
If that is the case, FnF’s management, along with FHFA’s director DeMarco and Geithner ought to be fired immediately.
Before being all fired, FnF’s 3Q report must stress the underling business taking out the derivatives mark-to-market line item.
All right, Freddie Mac’s CEO had to leak yesterday, in a MBA’s conference, what securities are they thinking about to off-load some of the credit risk on home loans.
They are thinking about a security similar to the current K-certificates, now only available in Freddie Mac’s multifamily business (apartment-lending), an apply it to the single-family business (home loans).
http://online.wsj.com/article/BT-CO-20111011-713009.html
As far as I’m concerned, the K-certificates structure is:
It relates to the mortgages already in Freddie Mac’s mortgage portfolio. Freddie sells the mortgages to the banks, they securitize the mortgages (create a bond backed by the mortgages) and guarantee the bond, Freddie buys these bonds guaranteed by the banks and securitize them (creates another bond) with its own guarantee and sells them to investors.
Basically is the securitization of private-label guaranteed bonds, which securitize a pool of mortgages previously owned by Freddie Mac, after being originated by the banks.
Also Freddie Mac could sell mortgages to the private sector without guarantee.
Multifamily K-certificates: http://www.freddiemac.com/mbs/docs/mf_kcert_fact_sheet.pdf
Maybe it’s also a tool to eliminate the current Reps and Warranties clause (so-called putback risk) that is the cause of the low number of refinancings (explained above). It would be very funny to see a bank buying-back a loan that previously originated and discovers it has faulty information but now it has to gurantee it, hahaha.
Anyway, this won’t eliminate the Reps and Warranties clause on mortgages that have already defaulted or the ones that won’t be “off-load” to the private sector.
I want to see the big banks eating all the fraudulent securities sold to FnF during 2004-2008.
(Reminder: BofA's tiny settlement with FMCC about future liabilities ought to be repealed).
Comment.
I don’t want to know that you are planning a plan!
I don’t want to know it in advance leaking news to the media, get it? Do it , but do it now.
Stop this crappy show of leaking news to the media!
Where’s the decision?
Where’s the legislation?
Where’s the beef?!
Are you laughing at the shareholders while we are in limbo?
_______________________________________________
GEITHNER
I’s been very funny to hear what Geithner had to say about last weekend Merkel and Sarkozy meeting, where they announced they have a plan of a plan to solve the Europe debt crisis, without any decision taken.
Geithner said yesterday in a Bloomberg TV interview: “...but markets want to see people act.”
Hahahahahahahahaha.
Geithner, and what about your plan to overhaul the House Finance System unveiled last February?: “A plan that narrows the debate to three options”.
****Sometimes I think I’m from other planet****
JP Morgan has set aside a $1 billion provision to fight lawsuits related to the bad mortgages sold:
$1 billion----Corporate - additional litigation expense predominantly for mortgage-related matters, JPM said. Nothing about a provison to settle the mortgage-related lawsuits.
The FHFA sued with fraud JPM on Sep.3. It would be seeking $6.6 billion in losses on a $33 billion porfolio on behalf of Fannie and Freddie (20% loss as the FHFA said when sued UBS last summer).
Is JPM gonna fight the government in a long litigation process? Are they crazy?
Fitch Ratings yesterday reviewed its ratings for some banks signaling these liabilities.
Do the banks still think they are too big to fail? They must raise capital now and dilute their shareholders.
_______________________________________________
*The Fed and Treasury ought to respond why JPM was allowed to repurchase $4.4 billion of common stock in 3Q11, knowing all the mortgage liabilities pending (robosigning case, MBS fraud case and mortgage putback case).
*Also the SEC ought to respond why, since on year ago, is still investigating banks about the low provisions for future liabilities, as the FT commented on Sep. 29, 2011: “The SEC is examining whether banks misled shareholders about the number of loans they might be forced to buy back because of early defaults – known as loan repurchase requests – and set aside sufficient reserves to fund those purchases or handle related litigation, people familiar with the matter said.”
http://www.ft.com/cms/s/0/29d8127a-e9dc-11e0-a149-00144feab49a.html#axzz1ZJslHVru
One year ago, the SEC sent letters to chief financial officers of public companies telling them to detail the risks associated with potentially higher loan repurchase requests and defects in the loan securitization process. Read the superb comment written on January 9th.
************OCCUPY THE FED************
************OCCUPY THE TREASURY************
************OCCUPY THE S.E.C. ************
“FHFA had operated under the assumption that they would be reimbursed for the full cost of administering the loan- modification effort, which pays mortgage servicers for each borrower they help, the inspector general reported.
The contracts with Treasury committed “significant resources at a time when there were substantial concerns about the enterprises’ financial and operational capacity,” the inspector general found.
The enterprises have not been reimbursed for work related to mortgages they own or guarantee, the inspector general reported.
The housing agency agreed with the recommendation and will establish dispute resolution measures by the end of the year, senior associate director Meg Burns said in a written response.”
http://www.bloomberg.com/news/2011-08-12/fannie-freddie-should-renegotiate-treasury-contracts-watchdog.html
Now the taxpayer assistance stands at roughly $141 billion. Once Fannie and Freddie are released from Conservatorship, the Treasury ought to subtract the enormous amount owe to FnF and pay for future anti-foreclosure programs (both modification and refinancing programs) and enterprises’ resources.
This report should be sent to the 50 State Attorney Generals now about to settle the robosigning case with the banks, that will force them to modify mortgages (many of which are now guaranteed by FnF and in their balance-sheets).
Also we are about to learn about a wave of refinancings under Obama’s highly anticipated plan.
I’m not sure the balance will be in favor of the taxpayer.
On October 7, I said: “The market needs certainty about a new blueprint of the House Finance System, to allow the private sector prepare to compete in the securitization market with a combined FnF.” But the reality is that I copied a Bernanke’s quote: “Bernanke suggested Tuesday before the congressional Joint Economic Committee, that the first step to initiating confidence in the private market is for Congress to create a clear blueprint for the housing sector. Laying out a clear path for dealing with Fannie and Freddie and the large overhang of distressed properties would go a long way towards encouraging private-label securitization participation in the housing finance market.”
http://www.reversereview.com/news/1-daily-news/4561-bernanke-calls-for-clear-blueprint-for-housing-finance-system.html
This is what Kirk Kordeleski, CEO of Bethpage Federal Credit Union, had to say about the future of the secondary mortgage market: “we, as credit unions, need to develop contingency plans in case the future developments fail to produce a favorable outcome for our industry.”
http://www.cutimes.com/2011/10/16/housings-future-hinges-on-planning-guest-opinion?t=lending
Therefore, the Credit Unions are also calling for a BLUEPRINT.
First step, a blueprint.
Markets need certainty.
Markets want people act.
_______________________________________________
CREDIT UNIONS CRY OUT FOR FnF SURVIVAL!!
“Credit unions originate a relatively small portion of the total volume as evidenced by our 6% market share.”
“The great strength of the current government-sponsored enterprise model for credit unions is that it forces equal behavior and provides unparalleled asset/liability management options. If those options disappear, our business model will be crushed. If we don’t have equal access then the largest and smallest of the movement will not be able to compete on price and potentially service with the largest banks.”
“To lose access or to lose equal pricing could dramatically change our business.”
“GSEs mitigate credit and interest rate risk, provide liquidly, standardization and allow us to retain mortgage servicing rights. Any or all of this could change without a GSE model or government entity that regulates these issues. If the current model gives way to privatization, then large banks would dominate the market and set the rules to play the game. They are not likely to care about our interests or treat us fairly.”
“Without the GSEs, during difficult times, we may not have a conduit to the secondary market.”
He should be greatful because the privatization of FnF among “at least four, but not more than eight” private lenders was not accomplished, as Wells Fargo mentioned in a Congress’ Hearing (Read May 24 comment)
--------------------------NEW--------------------------------
Remember that on March 1, ICBA (Community Banks) mentioned: “Fannie and Freddie would be restructured as cooperative entities owned by mortgage originators … This is similar to the capitalization of the Federal Home Loan Banks (FHLBs)”.
http://www.realestaterama.com/2011/03/01/icba-outlines-proposal-for-secondary-mortgage-market-reform-ID08721.html
We now know the Obama Administration changed its behaviour towards the House Finance System overhaul and a cooperative model is no longer valid. But it was on desk and Ebano first told you.
For the times they are a-changin'.
Taking into account the new private-sector risk-sharing ideas, like K-certificates... (also note they are thinking about greater mortgage insurance coverage as I previously wrote)
http://www.reuters.com/article/2011/10/14/usa-housing-mortgages-idUSN1E79D0YE20111014?feedType=RSS&feedName=marketsNews&rpc=43
...both private-label and agency MBSs (also known as pass-through securities) will be formed by mortgages that have previously passed-through a reinforced regulator (FHFA), using FnF, as a way to make investors feel confident on the MBSs again or whatever the final structured product is, that help to fund american-homeownership and american-renting as well.
The business of home financing is based on confidence.
Knowing that FnF are fully-private companies competing with the rest of the private sector and they will be operating under a utility model (low risk, predictable returns and stable dividend), therefore it will be always operating even in the through cycle. FnF will be renamed MacMae Backstop inc.
This model is where the mix public-private sector reaches its zenith. Mix of public regulation + private sector evaluations of credit risk and the private market stimulus to innovation.
But we now have learnt a private sector without a strong oversight creates, over a long period of time, a very complex structure, as far as home financing is concerned, that ultimately was another cause of the financial crisis. Private sector innovation is necessary but needs a strong oversight beginning with the underlying assets (mortgages) they trade.
That’s why the FHFA ought to be reinforced.
The U.S. government utilizes again the media to link FnF with the accusation of wrongdoing in the robosigning case.
It accuses FnF to have a pool of attorneys, some of whom mishandled the foreclosure process working for the mortgage-servicing arm of the banks, instead of stressing that the banks are the ones that hired these law firms to work out the foreclosure process, and they are the same banks under investigation by 50 State Attorney Generals in the robosigning case.
Yesterday FnF announced they will phase out this pool of attorneys so that the banks can hire the same attorneys without being in a pool.
http://online.wsj.com/article/SB10001424052970204346104576639401499924570.html?mod=googlenews_wsj
THERE IS NOTHING WRONG OF HAVING A POOL OF ATTORNEYS!
THAT’s NOT THE WRONDOING IN THE ROBOSIGNING CASE!
DOES THE U.S. GOVERNMENT THINK AMERICAN PEOPLE ARE ALL STUPID?
STOP FnF’s HARASSMENT!!
**Stay alert, U.S. government's machinery is in full capacity**
Ongoing negotiations in the robosigning case leaked to the press:
“Under the proposed terms of the settlement -- which could total $25 billion -- banks would get a broader relief from potential state civil lawsuits in exchange for refinancing underwater loans, those mortgages where borrowers owe more than their homes are worth, the sources said.
The plan would apply only to mortgages owned by the banks, the Journal said, citing people familiar with the matter.
Federal officials have been trying to broker a settlement with the five largest mortgage servicers - Ally Financial, BofA, C, JPM and WFC- the Journal said.”
http://www.reuters.com/article/2011/10/19/financial-regulation-mortgages-idUSN1E79H21620111019?feedType=RSS&feedName=marketsNews&rpc=43
Comment.
It seems it has to do just with mortgages in the banks’ balance-sheet, not the ones that have been packaged as MBS and sold to investors or the ones guaranteed by FnF (some 80% of mortgages are securitized). Therefore it’s a limited refinancing plan worth $25 billion.
This is because the government recognizes that refinancings have a cost on the banks and that cost is the settlement:
1-They are swapping a high coupon mortgage for another with low mortgage rate, so less future revenues.
2-The new mortgages, after being refinanced, will have a Loan-To-Value ratio much greater than 100%, therefore you are forcing the banks to leverage when it’s supossed the banks must delevarage in order to avoid another financial crisis.
BOTTOM LINE
If a limited refinancing plan has a $25 billion cost, what’s the amount owed to FnF that the Treasury will pay by the end of the year (commented on October 16) and the cost of the imminent Obama’s plan about FnF’s mother of all waves of refinancings?
Again, if we subtract all the costs of the anti-foreclosure measures from the taxpayer assistance ($141 billion), I’m not sure the balance will be in favor of the taxpayer.
REMINDER: Fannie and Freddie have had a cost: more than 4.5 million modification arrangements were started between April 2009 and April 2011, according to Treasury. http://www.loansafe.org/remarks-by-assistant-secretary-mary-miller-at-the-women-in-housing-finance-annual-dinner
Today the goverment, through FT, says the banks will settle the robosigning case paying billions of dollars into a federal programme to help distressed borrowers: “About 80% of the penalties would be earmarked for the federal fund.” Not only loan refinancings but loan modifications.
http://www.ft.com/intl/cms/s/0/1ae9e320-fa98-11e0-8fe7-00144feab49a.html#axzz1bIvEWpWK
Why don’t they call it: A-Paid-By-The-5-Big-Banks-And-Not-By-FnF’s-Shareholders Federal programme?
I’ll say it again, if a $25 billion settlement pays for a programme to help distressed borrowers, what’s the amount owed to FnF for their programmes (State but managed by FnF and FnF's own programmes) and future programmes (incoming HARP-facelift)?
This is a proof, any anti-foreclosure programme has an enormous cost.
The U.S. government cannot utilize FnF as a tool to back-door stimulus programs at the expense of their shareholders. The government ought to pay for it.
Yesterday, the Fed wanted to reassure MBS investors about the imminent mother of all waves of refinancings. What was said when the Operation Twists is not enough: reinvesting maturing housing debt into mortgage-backed securities instead of Treasuries. Yesterday two top Federal Reserve officials said mortgage bond purchases should be on the table, therefore they will be more agressive. I’ve already explained the objective not only is to lower mortgage yields but to support the MBS market due to the incoming over-supply of MBS issuances in a refinancing boom (one is retired at 100 and a new MBS is issued).
http://www.reuters.com/article/2011/10/21/us-usa-fed-idUSTRE79J6TC20111021
Boom of refinancings: everybody gets paid:
1-Borrower gets paid: it will reduce its monthly payment dramatically.
2-MBS investor: the Fed will be buying MBSs as a backstop in order to avoid mortgage rates from skyrocketing. Therefore, if the MBS investor wants to take profits because all are trading well above 100, it sells the security to the Fed, leaving the Fed with the loss when a mortgage is refinanced (anticipated principal prepayment, in other words, the MBS is retired at 100%). The Fed is the only one that has made huge profits during this crisis: it bought $1.25 Trillion MBSs ($992 billion of them were agency-MBSs) in the peak of the financial crisis and also bought $600 billion in Treasuries (QE2). It’s time for the Fed to compensate the profits with losses. In other words, the Fed will transfer its wealth to the borrowers because the Fed’s mission is not to accumulate wealth. Therefore, it won’t be a transfer of wealth from MBS investors to borrowers with a limited impact on the economy, as I’ve recently read.
3-But, who is gonna pay FnF the costs of this boom of refinancings in the mortgages held by FnF? If we add the costs of more than 4.5 million modification arrangements (commented yesterday) already carried-out, the taxpayer assistance NET to FnF should be zero, in other words, both Senior Preferred Shares and Warrant should be cancelled before announcing a House Finance System blueprint.
WE DON'T WANT A TRANSFER OF WEALTH FROM FnF's SHAREHOLDERS TO BORROWERS. The government cannot utilize FnF as a tool to back-door stimulus programs at the expense of their shareholders.
According to FHFA, the Enterprises have completed nearly 1.8 million foreclosure prevention actions since the first full quarter in conservatorship (4008) until the end of June 2011. More than half of these actions were loan modifications (you already know FnF have to set aside a reserve if a mortgage is modified called TDR, it's a double cost because not only is less future revenues but the allocation of a provision for a TDR loan has prompted FnF to post huge losses and draw requests to Treasury, so an accounting issue).
http://www.fhfa.gov/webfiles/22584/FPM2Q090111combined.pdf
The figure of 4.5 million modification arrangements commented before relates not only to FnF’s programs but others like HOPE NOW, FHA, etc…and include trial starts (some not completed).
Anyway, how many distressed borrowers will help the 5 big banks with the $25 billion robosigning settlement?
Once we got that number we can extrapolate how much money the U.S. government owes to FnF for their 1.8 million foreclosure prevention actions as of end of June plus the incoming HARP-facelift.
The government should pay for it cancelling its Senior Prfd. Shares and Warrant and releasing FnF from Conservatorship. This would create millions of jobs.
THIS IS THE TRUE OBAMA’s JOBS PLAN.
FHFA press release:
“When will these enhancements become available?
Timing will vary by mortgage lender. The Enterprises will be sending operational instructions to lenders by November 15th. Some lenders may be able to accommodate mortgage applications under some of the enhancements by December 1 while it could take other lenders additional time to incorporate the expanded program into their systems. In addition, some of the enhancements such as delivery of loans with LTV greater than 125 should be operational during the first quarter of 2012. “
http://www.fhfa.gov/webfiles/22721/HARP_release_102411_Final.pdf
WSJ says: “New Rules Aim to Speed Refinancing”.
But the instructions will be sent by November 15th and the main measure, to lift the 125% LTV cap, would be operational during the 1Q 2012.
To speed refinancing? Really?
BOTTOM LINE
It seems they want to gain time until 2012, when the credit risk of FnF will increase dramatically with the new loans with LTV ratio much greater than 125%.
And why to gain time until 2012?
Obviously, this higher credit risk ought to be offset with a measure that lowers the credit risk of the Enterprises. Guess what, we have recently learnt about the private-sector risk-sharing ideas to off-load the Enterprises’ credit risk: K-certificates for home loans (it would release FNMA's 2/3 Total Reserve Fund in full because they are covering mortgages that are performing after being modified, called TDRs. Their delinquency rate is plummeting) and more mortgage insurance coverage (I’ve already mentioned the mortgage originators ought to enter in this business in order to have skin in the game during the entire life of the mortgage, it spreads the Counterparty-Risk among more mortgage insurers and the mortgage-insurance business will be larger). Also this new mortgage insurance will be cheaper because it's the mortgage originator selling the insurance, therefore it knows everything about the borrower and also as a bundle offer).
-Obama said FnF will raise g-fees starting on 2012, in order to compete with the private sector on a level playing field.
-Bernanke said “the first step to initiating confidence in the private market is for Congress to create a clear blueprint for the housing sector. Laying out a clear path for dealing with Fannie and Freddie and the large overhang of distressed properties would go a long way towards encouraging private-label securitization participation in the housing finance market” Commented on October 17th.
Therefore, if we assume that all of the above will occur early 2012 and knowing that a blueprint means to announce plan in advance to prepare the machinery, the House Financial System overhaul should be announced in the coming weeks…..for the good of the economy.
There is no way the government can announce the private-sector risk-sharing ideas shake-up, without unveiling at the same time a complete House Finance System overhaul. The economy needs a major shake-up, it needs a bazooka. Push the button.
Let’s get it.
GSEs, come on.
*The shareholders agree with this plan because DeMarco is defending FnF's credit risk exposure while they help more distressed borrowers. If we take into account Geithner's pressure on Europe a few weeks ago, now both are beginning to take some decisions, this is the leadership needed in a financial crisis when everybody was paralysed.
Both HARP (refinancings) and HAMP (loan modifications) are part of the Making Home Affordable (MHA) Program.
Congress approved payments under TARP for the MHA program. TARP disbursements updated: as of October 25th, just $1.77 billion out of $29.88 billion committed on MHA.
http://www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-daily-summary-report/Pages/default.aspx
*MHA Program Guidelines:
Payments to Servicers, Lenders and Responsible Borrower :
1.Lenders (or whoever owns the mortgage):
-A payment in the amount of one-half of the difference between the borrower's monthly payment, as modified, and the lesser of: (a) the monthly payment of the loan at a 38% Front-End DTI Ratio, or, (b) the borrower's current monthly payment. This compensation will be paid for up to five years.
-A bonus incentive of $1,500 for any loan modified while the borrower is still current (including less than 30 days delinquent), subject to de minimis restraints.
-Compensation to partially offset probable losses from home price declines for loans that have already been modified.
2. Servicers:
-An initial payment of $1,000 for each successful modification.
-Annual payments of up to $1,000 for the first three years following successful modification, provided the borrower stays in the program.
-A bonus incentive of $500 for any loan modified while the borrower is still current (including less than 30 days delinquent), subject to de minimis restraints.
3. if the borrower makes mortgage payments on time during the first five years after the modification, the principal on the loan will be reduced by an additional $1,000 each year.
http://mortgagemeltdown.typepad.com/my_weblog/2009/03/guidelines-for-obama-loan-modification-program.html
AN INDEPENDENT ENTITY SHOULD CALCULATE WHAT’S OWED TO FnF UNDER MHA PROGRAM.
Once upon a time, a government took control of a private company in order to force it to make costly programs, calling them Federal Programs or President’s Programs, aiming to help highly indebted taxpayers. One day, the government decided to exit the company, does the government pretend to recoup all the amount invested in the company, leaving the shareholders bearing the costs of the programs?
Is the government going to enter always in private companies like a loose bull in a china shop?
Continued…
Author’s note:
-Credit Losses is different to Credit Losses in a short period (late 08-early09) of the mortgage portfolio due to the mark-to-market rule (read my post “Real Crisis or Accounting Crisis”).
-Credit Losses is different to Losses due to the allocation of provisions into a Reserve Fund for future losses.
-Reserve Fund for future losses is different to a Reserve Fund for modified mortgages that are performing (FNMA’s two-thirds Total Reserve Fund is due to modifed mortgages that are performing)
*THE GOVERNMENT SHOULD PAY ITS “FAIR SHARE” IN THE MHA PROGRAM*
Conflict of interests: the banks originate a mortgage and sell it to investors (first-lien mortgage) and the banks are servicers of that mortgage. At the same time, the mortgage servicer (bank) grants a second mortgage or a home equity line of credit to the same borrower (second-lien mortgage), this time accounted into its balance-sheet.
For mortgages with LTV ratio of 80% (FnF’s conforming loans), the second-lien mortgage would be used to pay the down-payment (20%) on the first lien and also it could be granted to borrowers with equity in their home (LTV ratio less than 100%).
A servicer is supposed to maximize the value of the first-lien for the investor. But, on the contrary, the servicers wanted the borrower to foreclosure rapidly because they hold the second-lien mortgage. This way, they maximize profits on second-lien mortgages because the borrowers keep paying them.
One wonders, why does the government allow the banks to account their second-lien mortgages at near face value in held-to-maturity portfolios? This is an incentive to foreclosure the first-lien mortgage in order to protect the payments to the second-lien mortgage in every slowdown in economic activity.
The high number of foreclosures has triggered home-prices down sharply (due to an over-supply of the market), and Fannie and Freddie suffering the losses.
The theory is that, in the case of a default, second mortgage lenders are only supposed to be paid after the first mortgage lender has been paid. So, why the government is protecting the banks at the expense of FnF’s shareholders?
BOTTOM LINE
At least 95% of the settlement in the robosigning case ought to go to FnF’s balance sheet to pay past losses due to home-value declines and future foreclosure prevention actions.
SOLUTION GOING FORWARD: If a servicer holds a second-lien mortgage, the payments on the second-lien mortgage should be used to pay the investor in the first-lien mortgage at the very moment the borrower begins to be delinquent. (trick: a bank could hide second-liens as personal loans, therefore a full disclosure of the relation borrower-servicer should be investigated at the time of foreclosure)
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We can summarize the cause of the worst financial crisis worldwide with two phrases:
-high number of foreclosured homes driving home-prices lower sharply: banks were speeding up the foreclosure process to protect their second-lien mortgages.
-high number of subprime mortgages: banks misled investors about the quality of the securities sold. In other words, they committed fraud selling subprime securities as prime securities.
Both issues are in court.
1-If you’ve read my comment of October 11th, you already knew Freddie Mac was going to report huge losses due to the sharp decline in long term Treasury yields, affecting the mark-to-market in its derivative portfolio, so an accounting issue.
There was a superb and extensive explanation in the WSJ yesterday about this item: “…the investments may not actually lose value over time, but they often result in earnings volatility”
http://online.wsj.com/article/SB10001424052970203716204577015720867838672.html
Therefore, if we add the $4.8 billion derivative portfolio mark-to-market loss and the $1.6 billion dividend to Treasury, to the $6 billion “Deficit”, actually we’ve got a profit.
2-Less income due to changes in the fair value of the company’s available-for-sale AFS securities (in other words, this is the mark-to-market valuation of RMBSs or CMBSs held in portfolio that have been improving dramatically since the peak of the financial crisis in early 09, and it was the true cause of the nationalization of FnF (read my post: “Real crisis or accounting crisis”), but this quarter the improvement has been very small, just $46 million (it was $3.9 billion in 3Q 2010!!!), due to spread widening because of the market turmoil after U.S. debt downgrade. These securities will continue to improve dramatically once the financial market turmoil is resolved.
Yes, a short-term event (losses due the mark-to-market rule on its portfolio during late 08-early 09), was the cause of the nationalization, but the portfolio has increased dramatically since then. (Later the improvement is being offset by the reserve of modified mortgages that are performing). This will be a Harvard-case to study for future generations.
3-HARP-facelift. “Freddie Mac’s release of certain representations and warranties to lenders, credit losses associated with loans identified with defects will not be recaptured through loan buybacks. The company could also experience declines in the fair values of certain agency mortgage-related security investments classified as available-for-sale”. If Obama keeps calling all the MHA programs as Obama’s programs, he should pay FnF his "fair share" or we will call them Hugo Chavez-like Programs.
4-It’s worth mentioning that DeMarco doesn’t know the provision for credit losses, over a period of time, tends to equal the charge-off net, but this quarter we’ve seen a provision of 3.6 billion vs charge-off net of 3.1 billion, that’s why the reserve fund to total portfolio ratio has increased from 2.01% to 2.06%, but even FHA’s is still at 0.50% when it has a 2% Congress’ mandate! Astonish!
5-CASH. If we take into account the consolidated Variable Interest Entity, VIE (securitization trusts) and the restricted cash (I didn’t take into account this with my last data as of June 30), Freddie Mac’s cash and cash equivalents, restricted cash, federal funds sold and securities purchased under agreements to resell and non-mortgage related securities (Treasury Notes,…) as of end September: $54.5 billion vs $53.4 billion as of end of June.
Freddie Mac is sitting on a cash mountain.
+ TDR ACCOUNTING.
The first payment to lenders under MHA program commented on October 26th is half the concession to borrower. FMCC shows its “Associated Allowance” when a mortgage is modified. So, the Treasury owes Freddie half $14.8 billion ($7.4 billion) just with that point, later we have to add other payments to modified mortgages, refinancings and servicers.
By the way, it’s supposed FnF account differently the reserve for modified mortgages. I can’t believe Freddie, with a Total Reserve Fund of $39.7 billion, when says that it has just $14.8 billion individually impaired its TDRs (37% of Total Reserve Fund) due to the “Associated Allowance”, that is the concession to borrower. On the contrary, Fannie’s individual impairment is the entire mortgage modified or TDR (it accounts for two-thirds of its Total Reserve Fund).
I cannot believe Freddie, in a much better shape than Fannie, its performing TDRs reserved account for much less than Fannie’s as Total Reserve Fund ratio. In other words, Freddie’s true reserve for expected losses (not reserve of performing TDRs) cannot be larger than Fannie’s as total mortgage portfolio ratio.
I guess than Freddie is accounting its reserve for TDRs the same as Fannie, so it’s not true when says “The measurement of impairment for TDRs is based on the excess of our recorded investment in the loans over the present value of the loan’s expected future cash flows”. And instead, is doing the same as Fannie : “Individual impairment for a troubled debt restructuring (“TDR”) is based on the restructured loan’s expected cash flows over the life of the loan, taking into account the effect of any concessions granted to the borrower, discounted at the loan’s original effective interest rate”.
Just guessing… Anyway, why do both treat differently the TDR impairment accounting?
Restricted cash: Freddie Mac’s consolidated Variable Interest Entities (VIEs), or securitization trusts, had $1.8 billion accounted as restricted cash on June 30th and now stands at $25.2 billion.
Theory. Restricted cash : Such cash cannot be used by a company until a certain point or event in the future.
What event do we expect related to the securitization trusts? As far as I’m concerned, the cash is a safety net to pay MBS investors.
The odds are that the incoming events are two:
1-A expected increase in the level of refinancing activity: incoming HARP-facelift, but it’s available until the end of 2013, and we expect similar monthly refinancings as the current HARP.
2-A expected increase in the level of securitization activity: K-certificates for home loans (it will release all the reserve for modified mortgages -TDRs- that are performing, raise capital and reduce credit-risk).
Yes, you read correct, performing loans are being reserved! :
- FNMA: “approximately two-thirds of our total loss reserves are attributable to individual impairment (TDRs) rather than the collective reserve for loan losses”, commented on August 31th.
- FMCC: undisclosed amount: “The provision for credit losses in the three and nine months ended September 30, 2010 also reflected a higher volume of completed loan modifications that were classified as TDRs” .
TDRs REDEFAULT RATE: It doesn’t matter if TDRs have a redefault rate because any statistic that keeps taking into account the toxic mortgages originated during 2004-2008 that have already defaulted is worthless because we are 4 years after that period, so the bulk of defaults of that toxic mortgages has already happened. At the present moment, those TDRs that have survived are a gold mine and should be securitized.
TRIPLE BENEFIT OF THE K-CERTIFICATES FOR HOME LOANS:
1-It lowers FnF’s credit risk because the market will rely less on their balance sheet.
2-FnF raise capital selling the k-certificates, thereby making more capital available to FnF for reimbursing taxpayer assistance and afterwards, lending more to taxpayers (more liquidity to the market).
3-It will release part of the reserve fund of the Enterprises that is covering performing TDRs.
So FnF could raise double amount the capital invested: first when the mortgage exits their balance-sheet and second when the current reserve for the performing mortgage is released.
If Freddie Mac’s CEO Haldeman came up with the idea of K-certificates for home loans (commented on October 12), he deserves the $2.3 billion bonus.
TO RESERVE A LOAN THAT IS PERFORMING IS INSANE
1-The Junior Preferred Share’s dividend was illusion, because of reckless investments, heard to politicians.
2-The Junior Preferred Shares have the same rights as the common shares since Conservatorship, zero rights.
3-The illiquid Junior Preferred Shares need to be monetized being exchange for the voting common shares.
That’s why 1 $25 Junior Preferred Share should be less than 1 common share.
1 $50 preferred share should be less than 2 common shares (the one called FANIP had conversion rate of 1.81 last May).
Holders of the Junior Preferred Shares are mostly Community Banks. The U.S. government can’t use the conversion rate for common shares to bailout the battered Community Banks.
The swap preferreds for common shares can’t be a shadow attempt to own a large stake in FnF by the Community Banks (FHLBanks) utilizing a inflated conversion rate, after the previous attempt to form a multiple cooperative model with FnF failed. Proof:
March 1, ICBA (Community Banks) mentioned: “Fannie and Freddie would be restructured as cooperative entities owned by mortgage originators … This is similar to the capitalization of the Federal Home Loan Banks (FHLBs)”.
http://www.realestaterama.com/2011/03/01/icba-outlines-proposal-for-secondary-mortgage-market-reform-ID08721.html
Both common shares and juniors should recoup starting at a similar price.
We will have a close look to the conversion rate.
Since July 2010, Fannie and Freddie are trading in the OTC market, an illiquid market more easy to manipulate. That’s why the government won’t dare to use the current stock price as a reference price upon a restructuring of Fannie and Freddie.
The webpage otcmarkets.com provides the data of short interest (they bet the stock will decline), 3 months average daily volume and days to cover if all that have a short interest decide to cover their position (purchase the stock on the open market to hedge the short-sale of the stock).
*As of October 14th, 2011: FMCC common stock.
-Short interest: 26,978,372 shares
-3 months avg. daily share volume: 1,453,649
-Days to cover: 19 trading days, that is 1 month assuming the short sellers purchase all the volume traded in the day, but that’s imposible if they don’t want to shake-up the stock (send it to $500-$800 pps upon a short-squeeze, like Porsche-Volkswagen case).
Source: http://www.otcmarkets.com/stock/FMCC/short-sales
Assuming they buy 20% of the daily volume traded, they would need 93 trading days to cover, that is 19 weeks or more than 4 months and a half to cover their position.
*As of Otober 14th, 2011: FNMA common stock
-Short interest: 32,068,170 shares
-3 months avg. daily share volume: 3,006,536
-Days to cover: 11 trading days, that is more than 2 weeks. But assuming they purchase only 20% of the daily volume, they would need more than 2 and a half months to cover.
Source: http://www.otcmarkets.com/stock/FNMA/short-sales
BOTTOM LINE
The S.E.C. or better, and independent entity, should investigate who is short selling the common stocks of Fannie and Freddie like mad and who is behind those institutions (who’s the client?). That information must be made public. Ralph Nader, a well-known consumer advocate, should investigate this important issue. Send him another email.
There is no way a portfolio manager or an Institution can be allowed to short-sell a stock with that huge short-interest and trading in the Over-The-Counter Market (OTC) if it doesn’t have an open-interest in FnF’s fate.
I’ve shown you the risk is huge and also at a time when everybody is delevering.
I’ve got several names in mind beginning with the junior preferred stockholders (Community banks) about to exchange their shares for common shares.
Upon the junior preferreds stockholders exchange their shares for common shares, the conversion rate must be similar to the common shares (explained before).
If the conversion rate is inflated (as the current quotes suggest), a court ought to issue a subpoena to the custodians of the short interest parties as of October 14th, with the objective to know who are these short sellers and if they have benefited directly or indirectly with the restructuring plan, how are they going to hedge their position and who will suffer the losses of the position and fund the losses.
Common shareholders are at war.
Why the government allows to have a short position on the taxpayer's interest?
-If we add $4.5 billion derivatives porfolio mark-to-market loss (remember: this portfolio is used as a hedge, so it won’t lose value over time) plus the 10% usurer dividend to Treasury of $2.5 billion to the $7.8 billion "deficit", actually we've got just a $0.8 billion loss.
-Fannie Mae keeps saying, without being ashamed, that "approximately two-thirds of our total loss reserves are attributable to individual impairment rather than the collective reserve for loan losses", therefore, it isn’t a reserve for expected losses and most of it is covering performing loans.
-That’s why the Total reserve fund as mortgage portfolio ratio stands at 2.38% vs 2.30% as of end of June. But FHA’s is still at 0.50% even with a Congress’ mandate of a 2% ratio.
_______________________________________________
FnF ARE BEING FORCED TO BE A GARBAGE TRUCK
Freddie Mac denounced in its 2Q 10-Q SEC report that: “The Acting Director of FHFA stated that FHFA does not expect we will be a substantial buyer or seller of mortgages for our mortgage-related investments portfolio, except for purchases of seriously delinquent mortgages from PC trusts.”
Therefore, FnF are used as a garbage truck to purchase seriously-delinquent mortgages called credit-impaired loans. Afterwards, FnF have to account a charge-off and a provision on that securities!
FNMA 3Q SEC 10-Q report: http://phx.corporate-ir.net/phoenix.zhtml?c=108360&p=irol-secQuarterly&control_SelectGroup=Quarterly%20Filings
1-Provison for Credit Losses: “Individually impaired loans include TDRs, acquired credit-impaired loans, and other multifamily loans regardless of whether we are currently accruing interest”. In other words, TDRs (modified mortgages) and purchases of impaired-loans are being reserved regardless if they are performing loans. Outrageous! Page 121
2-Charge offs: “Impact on charge-offs of credit- impaired loans, acquired from MBS trusts”. Page 38
This has widened artificially the losses ans subsequent draw requests to Treasury.
_______________________________________________
FnF’s CHARGE-OFFS NET OF RECOVERIES vs WELLS FARGO’s
Wells Fargo is the U.S. largest mortgage lender.
Charge-offs: losses upon foreclosure. This is the real metric of losses and not:
1-the mark-to-market of the derivatives portfolio that won’t lose value over time,
2-fair-value changes of Available-For-Sale securities (MBS portfolio),
3-the allocation of provision for future credit losses (mostly performing TDRs loans or provisions inflated to reach a Total Reserve to Total Mortgage Porfolio ratio above 2% when it was below 0.50% before Conservatorship).
4-the allocation of provisions for credit losses and charge-offs of impaired-loans adquired to MBS trusts regardless if they are performing. (FnF are being forced to purchase serious-delinquent loans by the FHFA).
Charge-offs net of recoveries as percentage of the average loan portfolio in the 3 months period:
Fannie Mae: 42.8 bp 3Q 2011 vs 50.4 bp 2Q 2011 vs 98.7 bp 3Q 2010.
Freddie Mac: 67.5 bp 3Q 2011 vs 64.3 bp 2Q 2011 vs 79.6 bp 3Q 2010 (Includes purchases of impaired-loans to MBS trusts)
Wells Fargo: 288 bp 3Q 2011 vs 308 bp 2Q 2011.
BOTTOM LINE
With this metrics, Fannie and Freddie are a gold mine being used as a garbage truck to bear all the accounting charges in this economic recovery.
Fact: Hedge Fund manager Kyle Bass holds a stake in the illiquid Junior Preferred Shares (mostly owned by the Community Banks) and has stressed repeatedly he is "not interested in the equity of the GSEs" (that is, the common shares).
http://www.marketwatch.com/story/hedge-fund-managers-ponder-armageddon-2011-05-12?pagenumber=2
On November 7th, we learned he bought a 4.9% stake in the mortgage insurer MGIC, at a time when another mortgage insurer, PMI, has recently been put under Federal control amid rising losses. But, curiously enough, we are about to learn about the House Finance System overhaul, meaning a bottom in the housing market. He is known for correctly betting on the housing market’s collapse four years ago and now, he nailed it again, no?
There is no reason to say he "is not interested" in the common shares while holding the illiquid Junior prfds., when at the same time he is betting on a viable road to recovery for FnF (this is good for both types of shares), unless he is betting at the same time on the Junior Prfd. to common shares conversion rate.
"he said the companies are currently making money before interest payments on 10% debt they owe the U.S. government "."Big tax-related assets could be brought back onto their balance sheets, and the fee they charge for guaranteeing mortgages should be increased from 20 basis points to 60 basis points over several years, he added."
Having seen the recent divergence between the Junior Prfd. Shares and the Common shares:
1-Does the Hedge Fund manager know something about the conversion rate Junior Prfd. Shares to voting Common shares?
2-Does he have D.C. sources?
3-Is a Hedge Fund manager lobbying Congress as the Community Banks are continuously doing?
4-Is Congress lobbying a Hedge Fund manager to manipulate stocks in the illiquid OTC market?
Common shareholders are not garbage truck at the expense of benefiting both borrowers and Junior Prfd. Stockholders.
Junior Prefd. Shares for Common shares conversion rate ought to be similar.
Richard Perry, founder of the Hedge Fund Perry Capital said on Wednesday he is long GSE junior preferred shares.
He “believes GSE's will soon be breakeven and/or in a position to recapitalize themselves”. “At 8.5 cents on the dollar, Perry thinks they offer asymmetric risk reward for huge upside. By changing the guarantee fee "a little bit," the CBO says they could raise $30 billion for each 10bps increase in fee”. Search the quote in Google.
The junior prfd. shares are not trading on any cents on a dollar because there is no dollar, no face value, no redemption price since Conservatorship. Now both juniors and commons have the same rights, zero rights. That’s why the conversion rate juniors for commons ought to be 1.
Last May, a $50 junior prefd. share called FANIP had mandatory conversion rate of 1.81. There hasn’t been any change in the capital structure of the enterprises, therefore the conversion rate can't change before and after Conservatorship.
It seems all the Hedge Funds are buying the junior prfd. shares and hedging the position short-selling the common stocks:
Short-sale position on the common stocks updated as of October 31, 2011:
-FMCC: 27,223,227 shares. 20 trading days to cover.
-FNMA: 30,396,086 shares. 11 trading days to cover.
Amazing!
Source: http://www.otcmarkets.com/stock/FMCC/short-sales
Again, a court ought to investigate if the junior prfd. shareholders have benefited with an inflated conversion rate for commons, short-selling the common stocks (as the current quotes suggest).
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MORGAN STANLEY & GOLDMAN MULL REDUCING MARK-TO-MARKET ACCOUNTING
According to the WSJ, "GS and MS are discussing whether to reduce their use of mark-to-market accounting, in which companies immediately take profits or losses as asset values fluctuate"
http://online.wsj.com/article/SB10001424052970203537304577028422145660162.html
Fannie and Freddie should do the same. There are huge accounting losses.
_____________________________________________
On Wednesday, another low-profile politician, republican Bob Corker, introduced a bill (S. 1834) with the only objective to wind-down Fannie and Freddie.
This harassment to FnF’s workers and shareholders ought to be criminally prosecuted by Law.
Please sign the petition in this link:
http://www.ipetitions.com/petition/prohibitshort-sales/
The same politicians that now are outraged because Fannie and Freddie’s executives receive huge compensations while the enterprises are in Conservatorship, should introduce a bill to prohibit short-sales on the enterprises in Conservatorship.
Congress can’t allow investors to have a short-position on the taxpayer’s interest.
On November 11th, I commented the WSJ wrote about Goldman and Morgan Stanley mulling to reduce the mark-to-market accounting and use the historic-cost accounting in the held-to-maturity assets.
Was it a government's trial balloon?
My goodness! Can you imagine if Fannie and Freddie recoup all the accounting losses (write-up of reserves) in their held-to-maturity assets (many of them are funded with 30 years' bonds):
-MBS portfolio: RMBS, CMBS,... (line item AOCI, Accumulated other comprehensive income). Why are they called Available-For-Sale securities (AFS) if FnF's function is not to trade with these securities but to provide liquidity to the market holding them to maturity? FnF are not MBSs speculators!! Their classification ought to be changed to Held-To-Maturity securities and their mark-to-market valuation eliminated. Also FnF purchase these securities getting funds with long term maturities.
-Derivatives porfolio. On October 11th, I explained widely the losses due to the derivatives portfolio mark-to-market line item used as a hedge, therefore this porfolio won't lose value over time.
*My post "Real crisis or Accounting crisis" was very simple but so true!
Charge-offs net of recoveries as percentage of the average loan portfolio in the 3 months period:
Fannie Mae: 58.5 bp 3Q 2011 vs 51.1 bp 2Q 2011 vs 108.1 bp 3Q 2010.
Again, FnF are a gold mine. The mark-to-market accounting should be eliminated in order to diminish the huge cash mountain in their balance-sheets due to accounting losses.
Let's get it.
GSEs, come on.
Freddie Mac says: “We are primarily a buy-and-hold investor in mortgage-related securities”.
Page 34. FMCC 3Q SEC 10-Q report
BUY-AND-HOLD investor means Freddie Mac is not a MBS speculator but a housing market liquidity supplier.
Therefore, these securities shouldn’t be called Available-For-Sale securities but Held-To-Maturity securities and the mark-to-market accounting abolished.
As of end of September, 2011, Freddie Mac had $20.8 billion gross unrealized losses, pre-tax, on available-for-sale mortgage-related securities, compared to $23.1 billion at December 31, 2010.
Freddie Mac signals “these unrealized losses were mainly attributable to poor underlying collateral performance, limited liquidity and large risk premiums in the market for residential non-agency mortgage-related securities”.
BOTTOM LINE
Freddie Mac has suffered losses due to an illiquid market for these securities and high risk premiums in the market (investors are scared), both issues have nothing to do with the performance of the mortgages (underlying collateral), that is, expected losses.
http://www.sacbee.com/2011/11/17/4061524/freddie-mac-to-securitize-previously.html
I’ve already mentioned two securities where FnF are setting aside a reserve regardless if they are performing:
1-TDR loans or modified mortgages.
2-Delinquent mortgages purchased to their Securitization Trusts. FnF have to purchase mortgages to their MBS trusts that are 4 or more months delinquent.
Today, we’ve just learned Freddie Mac will begin to securitize mortages purchased to MBS trusts “that were delinquent but reinstated to performing status”.“Reinstated loans must be current at least four consecutive months”.
These mortgages “have not been modified”, so maybe they got a refinancing.
Two benefits:
-It releases its balance-sheet in order to keep providing liquidity to the market.
-It releases the provision for credit losses: “Individually impaired loans include acquired credit-impaired loans…”
This is “an important step in Freddie Mac's disposition strategy for its distressed asset portfolio”, said Freddie Mac.
2nd step: it’s time to securitize performing TDRs (modified mortgages).
Let’s get it.
GSEs, come on.
http://open.salon.com/blog/ebano/2011/11/19/fannie_freddie_can_reduce_331_billion_us_deficit
The politicians don't agree on how to reduce the deficit by $1,200 billion over 10 years, and I've just written how to reduce it $359 billion and instantly.
Definitely, we've got to occupy Congress.
WSJ: “Former Chief Executive Maurice R. "Hank" Greenberg is launching a broad legal assault that paints the government's move as unconstitutional.
Starr International Co., a firm headed by Mr. Greenberg that was AIG's largest shareholder at the time of the 2008 government rescue, filed a lawsuit Monday in the U.S. Court of Federal Claims. The action accuses the U.S. government of using the giant insurer as a vehicle to ship cash to AIG's trading partners.
The suit alleges that by getting a nearly 80% stake in AIG in exchange for providing tens of billions of dollars in aid, the government took valuable property from Starr and other AIG shareholders in violation of the Fifth Amendment, which says that private property can't be taken for "public use, without just compensation."
“The Government's actions were ostensibly designed to protect the United States economy and rescue the country's financial system," the suit says. "Although this might be a laudable goal, as a matter of basic law, the ends could not and did not justify the unlawful means employed by the Government to achieve that goal."
Starr seeks damages for itself and other shareholders of at least $25 billion, which the suit says was the value of the federal government's stake on Jan. 14, the date the government received its common shares in the company.
AIG is listed as a "nominal defendant" in the suit, which also seeks damages for the company.
http://online.wsj.com/article/SB10001424052970204443404577051983133404566.html
This is a game changer.
1st. I told you it was very strange the same day of Conservatorship, the Warrant Prospectos signalled the government could assign it’s 79.9% stake in FnF, upon exercising the warrant, to other Person (private lenders, …) and this Person shall be deemed holder the exercise day. Commented on March 7th.
2nd. It seems the banks knew the plan. “Wells Fargo Home Mortgage Inc. senior executive Tuesday said the U.S. government should gradually hand Fannie Mae's and Freddie Mac's loan guarantee functions to private companies.”. “take over that function from Fannie and Freddie”.“Heid said at least four, but not more than eight, such companies would be needed to serve the market.” Commented on May 24th.
3rd. The U.S. government hasn’t paid a single dollar to FnF for the Making Home Affordable programs (both HARP and HAMP) or enterprises’ own programs if the borrower was not eligible for MHA.
4th. Hank Greenber’s “action accuses the U.S. government of using the giant insurer as a vehicle to ship cash to AIG's trading partners.” In FnF’s case the U.S. government wanted to reassure bond and MBS investors: Fact: from Paulson’s book: “Treasury had been getting nervous calls from officials of foreign countries that were invested heavily with Fannie and Freddie. I flew to China for the Olympics on August 7 [2008] (one month before Conservatorship). It was important to relay what was going on to the Chinese who owned hundreds of billions of dollars of GSE debt”. Full comment posted on January 18th. But the government's cash infusions haven't been necessary to reassure bondholders, but to inflate their Reserve Fund with cash due to accounting losses. FNMA=2.38% and FMCC=2.06% reserve fund ratio.
It seems the government put FnF under Conservatorship to break-up the combined enterprise among 4-8 private lenders and, in the meantime, use them to recoup the economy.
Isn’t it unconstitucional?
This should put an end to Conservatorship.
Continuing with the previous comment.
5th. As I’ve explained almost all the losses have been due:
1. Unrealized losses, accounting losses of fair value changes in their PLMBS and derivatives portfolio that shouldn’t have mark-to-market accounting but held-to-maturity accounting, becasue both are a buy-and-hold investors in MBSs and the derivates are used as a hedge.
2. Reserves for modified mortages (TDRs) and impaired loans acquired to their MBS trusts. These mortgages are reserved regardless if they are performing, but to reserve a loan that is performing is insane, that's why FMCC has just announced it will begin to securitize these impaired-loans.
Therefore, all is “artificial” and has only inflated their Reserve Fund for future losses. The cash is placed in FnF’s balance-sheets, that’s why the figure of Total Reserve Fund as Total Mortgage Portfolio has skyrocketed since conservatorship. FNMA=2.38% and FMCC=2.06%, when it was below 0.40% before conservatorship (Federal Agency FHA has just announced a 0.24% ratio!!!!!)
Total Reserve Fund as of end of september:
FMCC= $39.7 billion.
FNMA= Total Loss Reserve: $92.6 billion. $75.6 billion consolidated, but it adds separately $17 billion related to purchases of impaired-loans to unconsolidated MBS trusts and says : “two-thirds of this amount (of $17 b.) represents credit losses we expect to realize in the future and approximately one-third will eventually be recovered”, but as the mortgages are paid off. Page 31. SEC 10-Q report.
Even Fannie Mae says part of its reserve fund will be recovered! So, it's inflated. Is Fannie Mae laughing at us?
The shareholders want to know:
1. The amount of reserve fund covering impaired-loans acquired to unconsolidated MBS trusts that are performing (I don’t want to know the meaning of the words “we expect to realize in the future”, but which are performing).
2. The amount of reserve fund covering impaired-loans acquired to consolidated MBS trusts that are performing.
3. The amount of reserve fund covering performing TDRs (modified mortgages).
We already know that TDRs and impaired-loans account for two-thirds of FNMA’s total reserve fund, but we want to know which are performing. FNMA says “two-thirds of our total loss reserves are attributable to individual impairment (TDRs, impaired-loans,…) rather than the collective reserve for loan losses” (Commented on August 31th).
All these performing loans ought to be securitized and, along with the foreclosure disposition of impaired-loans, it would diminish massively FnF’s reserve fund (write-up of reserves) that now it's useless having seen their extremely low delinquency rate and Charge-offs net to Total mortgage portfolio ratios.
Also, the shareholders urge FHFA’s DeMarco to change the mark-to-market accounting in their PLMBS and derivatives portfolio, to Held-To-Maturity accounting.
I’ve heard repeatedly to management, media and government that FnF’ve got a public mission. Really?
Freddie Mac was chartered by Congress in 1970, but in their charter the words “public mission” don’t appear:
(1) to provide stability in the secondary market for residential mortgages;
(2) to respond appropriately to the private capital market;
(3) to provide ongoing assistance to the secondary market for residential mortgages (including activities relating to mortgages on housing for low- and moderate-income families involving a reasonable economic return that may be less than the return earned on other activities) by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing; and
(4) to promote access to mortgage credit throughout the Nation (including central cities, rural areas, and underserved areas) by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing.
http://www.freddiemac.com/governance/pdf/charter.pdf
Basically, FnF’s function is to provide liquidity to the market regardless of the income of the borrower or the area in the country (these are the activities the charter says, not refinancings or loan modifications), because FnF are housing market liquidity suppliers or market-makers. But, are you gonna say also the market-markers in the Stock-Exchange have a public mission? Market-makers are market-makers, it isn’t a public mission.
FnF’s function is not to help the overall economy:
1st. The government can’t take private property to pursue what is already written in their charters, that is, to provide liquidity to the market, primarily because all the government’s cash infusions are in their balance-sheets and are used by the Fed in reverse-repo counterparty operations to eventually drain cash in the financial system since July (FnF have accumulated so much cash in their balance-sheet that are lending to the financial system huge amount of money in daily operations, and the Fed eventually wants to stop it with the repo operations). Therefore, the government’s cash infusions to FnF are providing liquidity to the financial system, not to taxpayers, in other words, the cash infusions don’t have the charter’ purpose, they are just inflating their cash mountain and lending to the financial system.
2nd. The government can’t take private property to recoup the overall economy with government’s programs like Making Home Affordable (both HARP and HAMP), even without paying FnF for it. Also the government is forcing FnF to wave the Rep. and Warranties clause on the new HARP-facelift, and that's a huge cost to the enterprises. Commented on Nov. 4th.
As Henk Greenberg AIG’s case, we can say too: “the government took valuable property from ……shareholders in violation of the Fifth Amendment, which says private property can't be taken for "public use, without just compensation"."The government is not empowered to trample shareholder and property rights even in the midst of a financial emergency," the suit against the government said.”
The case is very clear, FnF’s conservatorships are UNCONSTITUCIONAL.
Please, write all the consumer advocates you know.
In the next post I explain why the government amended FnF's charters 38 days before Conservatorship began, in order to allow the Treasury to approve later the punitive 10% dividend on the Senior Preferred Shares.
Their previous charters only allow Treasury to receive a rate similar to the U.S. debt on any obligations (MBSs, bond, securities) it purchases to FnF.
But the government is not empowered to trample shareholder and property rights. Fannie Mae and Freddie Mac are private shareholder-owned enterprises even in Conservatorship.
http://open.salon.com/blog/ebano/2011/11/23/are_fannie_freddie_conservatorships_illegal
(summarizing the two previous posts)
The U.S. government can’t change a charter of a private company (FnF’s charter amended on July 30th, 2008) trampling shareholders and property rights:
1st. The U.S. government can’t take control of private property to pursue what was already written in their charters, that is, to provide liquidity to the housing market.
2nd.The U.S. government can’t take control of private property saying that it was needed to inject cash purchasing FnF’s securities with a 10% dividend, because their previous charter already contemplated the Treasury could purchase FnF’s securities “established to yield a rate of return determined by the Secretary to be appropriate, taking into consideration the current average rate on outstanding marketable obligations of the United States as of the last day of the month preceding the making of the purchase”.
In other words:
1st. When the housing finance market begins to freeze up, like it did in 2007, FnF’s step in to help the housing market providing liquidity because it’s what is written in their charter.
Proof:
-Remarks made by Mudd in Fannie Mae annual report 2006. “Recently, as credit issues have shaken the capital markets, investors seeking safety and liquidity have increased demand for our guaranteed MBS, and we have made significant gains in market share as a result (a trend that has accelerated into 2007).
-And he continues in the 2006 letter to shareholders: "As the market turmoil deepened and expanded beyond the subprime segment, Fannie Mae stepped up to play a stabilizing role."
http://www.fanniemae.com/ir/pdf/annualreport/2006/2006_annual_report.pdf
http://www.fanniemae.com/ir/pdf/annualreport/2006/ceo_shareholder_letter.pdf
Therefore, investors abandoned private-label issuances due to their risks and purchased agency-MBSs.
2nd. When the economy begins to go south, the government can’t seize a private company to inject cash if its charter (before being amended) already contemplated the government can inject cash purchasing securities or bonds “at an appropiate rate”, and by the way, that’s the so called “government’s implicit guarantee”.
Both must abide by the charters approved by Congress, but the U.S. government hasn’t complied with its part in the charter (provide liquidity purchasing securities “at an appropiate rate”).
It’s quite clear, the intentions back in July 30th, 2008, were what later was written in the Warrant Prospectus: to assign FnF’s stake to other entities.
The shareholders require to the U.S. government and Congress:
1st. Immediately release FnF from Conservatorship.
2nd. Immediately repeal the subsection called “TEMPORARY AUTHORITY OF TREASURY TO PURCHASE OBLIGATIONS AND SECURITIES” incorporated in FnF’s charters when the “HOUSING AND ECONOMIC RECOVERY ACT OF 2008” was enacted in July 30th, 2008.
Therefore, to go back to the previous charter and undo everything.
The shareholders could seek to recoup the price of the stocks the day before FnF’s charters were amended on July 30th, 2008.
If the government doesn’t want to inject cash in FnF anymore and to have healthier GSEs, it’s very easy: FnF ought to raise their guarantee-fee.
Treasury should have purchased any “notes, debentures, bonds, or other obligations”, such as convertible bonds (their conversion feature gives them features of equity securities), issued by Fannie and Freddie, “established to yield a rate of return determined by the Secretary to be appropriate, taking into consideration the current average rate on outstanding marketable obligations of the United States”, according to the previous charter. So, it wasn't necessary to amend it.
That’s the government’s implicit guarantee, and that’s the charter.
-The government’s implicit guarantee is: when Fannie and Freddie need funds the Treasury, as a backstop tool, may provide funds “at an appropiate rate”, according to the charter. That’s why the MBSs and Bonds backed by FnF (they aren’t backed by the government) will always be paid. Thanks to this government’s implicit guarantee, FnF can get funds at a rate a few basis points above the Treasury’s yields in the market.
-The government’s implicit guarantee is not: Tresury provides funds to FnF at a 10% rate after the seizure of the private company under Conservatorship and all the shareholder and property rights are taken out.
_______________________________________________
FREDDIE GETS FUNDS AT A 6% ANNUAL RATE. OUTRAGEOUS!
(Commented on January 17)
Freddie Mac issued this bond on 05/27/2009
http://www.freddiemac.com/debt/data/cgi-bin/cusipdetail.cgi?cusip=3128X8G89
CUSIP DETAIL: 3128X8G89
Amount Issued: $600,000,000
Issue Price: 18.524318000000001
Zero coupon
Maturity Date: 05/27/2039
But it was redeemed 18 months later at a price of 20.1537 http://www.bloomberg.com/news/2010-11-29/freddie-mac-redeems-zero-notes-due-2039.html?cmpid=yhoo
That is 8.8% for 18 months or a 6% annual rate. Outrageous!
But I’ve just mentioned FnF get funds at a rate a few basis points above the Treasury’s yields thanks to the government’s implicit guarantee.
Who has purchased this bond?
How many bonds with high yields have been issued since Conservatorship?
Have been used Fannie and Freddie as a tool to bailout the big banks by improving their books with this high yield bonds?
People want to know.
Not only Treasury may provide funds to FnF “at an appropiate rate” (that is the government’s implicit guarantee or government’s bailout) according to their charters (Law), but also the Law says the government ought to pay FnF for the Making Home Affordable programs (both HAMP and HARP). Even they are called Obama’s programs!
Congress approved payments under TARP for MHA program. TARP disbursements updated: as of November 25th, just $1.94 billion out of $29.88 billion committed on MHA.
http://www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-daily-summary-report/Pages/default.aspx
The U.S. government can’t take control of private property to protect the United States economy (it’s the Fifth Amendment), even if it determines Emergency (provision approved on July 30th,2008):
(B) EMERGENCY DETERMINATION REQUIRED.—In connection with any use of this authority, the Secretary must determine that such actions are necessary to—
(i) provide stability to the financial markets;
(ii) prevent disruptions in the availability of mortgage
finance; and
(iii) protect the taxpayer.
The government can't self-impose a function as taxpayer protector in order to trample shareholder and property rights. Even in Venezuela, Hugo Chavez pays the private company when he decides to nationalize it.
This is not a question if the U.S. government and Republican Party want to bailout FnF or not, or pay FnF for the MHA program or not.
It’s the Law and even Congress must abide by the Law.
1-Bloomberg News reports today that Henry Paulson disclosed nonpublic information on Fannie and Freddie Conservatorships in a meeting with “a dozen or so” hedge-fund managers on July 21, 2008.
http://www.bloomberg.com/news/2011-11-29/how-henry-paulson-gave-hedge-funds-advance-word-of-2008-fannie-mae-rescue.html
“Paulson explained that under this scenario, the common stock of the two government-sponsored enterprises, or GSEs, would be effectively wiped out. So too would the various classes of preferred stock, he said.”
2-WARRANT. Paulson didn't profit from the information or trade on it, but his objective was the assault on Fannie and Freddie’s functions by the big banks: the Warrant prospectus signalled the government’s 79.9% stake may be assigned to other Person (private lenders, etc…). Commented above. And also it’s his current view: Nov. 18th, 2011: “those agencies have got to be just radically reformed and downsized.”
Source: http://www.nationalreview.com/articles/283465/paulson-s-downpayment-brian-bolduc?pg=1
A few days after Conservatorship began, Lehman Brothers, surprisingly, was allowed to file bankruptcy, triggering a global financial shock (it prompted the markets to freeze up). Coincidence? (Even current president of IMF Lagarde, phoned her friend Paulson at that time telling him it was a mistake, remarks made in a recent Al-Jazeera documentary in english about the financial crisis).
3- WARRENT BUFFET used to have a large stake in Freddie Mac, but on August 22th, 2008 he said: “Fannie and Freddie don’t have any net worth”. “The game is over as independent companies”
Source: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ar3Dc8YAkiIQ
At that time he was beginning to build his current stake in Wells Fargo, according to the article.
“Buffett said he may have increased his stake in Wells Fargo or American Express, without being more specific.”
Isn’t it weird to say FnF will no longer be independent and, at the same time, begin to build a stake in the U.S. largest mortgage lender? That’s why he said he was buying one “or” the other, and all before Conservatorship and before the Warrant was written.
Warren Buffet said on September 30th, 2011, in a Bloomberg TV Charlie Rose interview, that a few years ago “I made a lot of money out of owning Freddie Mac and Fannie Mae mortgage pass-throughs, I got a lot of interest income on that, but I also entered into getting a pretty much capital gain on it”.
Source: Around 19:08 http://www.charlierose.com/view/interview/11919
A pass-through security is a Mortgage-Backed Security (MBS), but it’s very difficult “to make a lot of money” with a fixed-income security backed by the U.S. government’s implicit guarantee. Was it utilizing derivatives instruments like CMOs? (CMOs, Collateralized Mortgage Obligations: derivative instrument, when issuing “private label” CMOs, they often use agency mortgage pass-through securities as collateral in some of the “tranches” -slices-) . We all doubt it because he’s said repeatedly “derivatives are weapons of mass destruction”.
I’m pretty sure, Paulson didn’t give Warrent Buffet any nonpublic information on Fannie and Freddie before Conservatorship.
Yesterday Bloomberg News said the same day Paulson spoke with NYT “to give a signal of confidence to the markets” on July 21, 2008, he held a meeting with hedge-fund managers with a different message.
But I’ve found other NYT’s article written before, on July 14th 2008, with the headline: “Bush offers plan to save Fannie, Freddie”.“The plan calls on Congress to give the government the authority over the next two years to buy an unspecified amount of stock in the two companies. Over the same period of time, it would permit the companies to have greater access to the Treasury, by expanding the credit line that each company has from the Treasury.”
”Announcement of the plan on Sunday evening was intended to send a sharp signal to both stock markets and debt markets that the government was standing behind the beleaguered companies.”
“senior officials at both the Fed and the Treasury have been talking in recent days of possibly taking steps to “harden the (implicit) guarantee.”
http://www.nytimes.com/2008/07/14/washington/14fannieweb.html
A U.S. Treasury Secretary can’t give one message to the markets and a different message to his friends hedge-fund managers in order to accomplish his objective: break-up of FnF among the big banks.
Short-sellers were not enough, that’s why he needed a global financial shock in his attempt to wipe-out the shareholders and Lehman was allowed to file bankrupcty. But he now has learned, when a financial shock begins, nobody knows how it evolves and ends. 99.99% of the population has learned it as well.
The politicians-bankers linkage is the disease of the world.
It's time for a judge to step in, he will explain to the american people that the Government’s implicit guarantee=Lender of last resort=Backstop tool=Government-Sponsored Enterprises=Government’s bailout=”Treasury may purchase any obligations at an appropiate rate”, according to their charter.
“Fed statement on Freddie Mac, Fannie Mae
Sunday Jul 13, 2008
The Board of Governors of the Federal Reserve System announced Sunday that it has granted the Federal Reserve Bank of New York the authority to lend to Fannie Mae and Freddie Mac should such lending prove necessary. Any lending would be at the primary credit rate and collateralized by U.S. government and federal agency securities. This authorization is intended to supplement the Treasury's existing lending authority and to help ensure the ability of Fannie Mae and Freddie Mac to promote the availability of home mortgage credit during a period of stress in financial markets.”
http://www.reuters.com/article/2008/07/13/us-fannie-freddie-fed-text-idUSN1336142820080713
This is big news because it means Fannie and Freddie had on July 13, 2008, unlimited line of credit at below-market rates approved by the Federal Reserve!!!!
FnF have just a $2.25 billion credit line with Treasury, set 40 years ago by Congress. At the time, Fannie had only about $15 billion in outstanding debt. In 2008, it had total debt of about $800 billion, while Freddie had about $740 billion. (It’s of common sense to think the limit was obsolete and should be updated).
Anyway, if FnF had already an unlimited credit line with the Fed approved, both the Senior Preferred Stock Agreement with the Treasury and Conservatorship were not necessary.
Unless the only purpose of H. Paulson was to wipe-out FnF's shareholders in order to break-up FnF among the big banks, trampling the shareholder and property rights.
(FnF’s charters were amended on July 30th, 2008 to lift the $2.25 billion cap in the credit line with Treasury, but Congress forgot to include the phrase “funding at an appropiate rate” included in the previous charter. Anyway, FnF had already a Fed credit line approved. H. Paulson took advantage of this mistake to trample shareholder and property rights).
A reminder of what is coming:
-The legal case is quite clear, but forget it. We are about to learn about the House Finance System overhaul.
The private sector has disappeared from the securitization market since three years ago (that’s why the FHA increased its loan limits urgently two weeks ago) because nobody wants to purchase a single security issued by the private sector (too much fraud and subsequent losses to investors around the world) and the politicians are gonna approve a new House Finance System for a greater participation of the private sector, that’s why DeMarco talks continuously about the private-sector risk-sharing ideas.
One is more mortgage insurance coverage, but the important is the other: the FHFA has improved the Loan Level Disclosures with the idea of better pricing the securities in the different “tranches”-slices- of a MBS or a K-Certificate for home loans (currently only available for the multifamily business). The idea is the private sector guaranteeing some of the slices in the agency-MBSs, that’s why FnF ought to increase their guarantee fee (it has to be above the one of the private sector to make money), also some of the tranches could be unguaranteed bonds, in other words, to shift part of the risk away from FnF and back into the private sector.
A pass-through security is a MBS, therefore these new securities will be called pass-through regulator securities (through FHFA using FnF). The private sector innovation is necessary but needs a strong oversight (different as more regulation), beginning with the underlying asset (mortgages) they trade with.
I began talking about it on Sep. 25th, but also it’s worth reading the comments of Oct. 9th, 12th, 18th and 24th to know how I began creating this idea (it's the best example of brain-storming).
In short, the damage is already done. It’s time to move on.
Bloomberg Markets magazine reported a few days ago an exclusive about a $1.2 trillion secret Fed loans to banks in just one day.
http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html
Yesterday, Fannie Mae’s CEO mentioned another secret lending program to banks: “Through our early funding program, we have also provided over $290 billion in short-term liquidity for small and medium-sized lenders so they can continue to meet the demands of their customers during unsettling economic times. Banks — including many small and medium-sized lenders — simply would not continue lending on this scale without liquidity from Fannie Mae.”
http://financialservices.house.gov/UploadedFiles/120111williams.pdf
Now you know what FnF are doing with the taxpayer assistance.
Treasury is utilizing FnF as a Federal Reserve tool with funtions of lender of last resort or a shadow TARP to provide liquidity to banks.
This is how Conservatorship works: Increase the Reserve Fund from 0.38% before Conservatorship to 2.06% as total mortgage portfolio ratio (FMCC), due to provisions just because a mortgage has been modified and for acquired impaired loans regardless if they are performing and reserves for unrealized losses in PLMBS and derivatives portfolio. Therefore, the bulk of the reserve fund in not for expected losses. Once FnF begin to be sitting on a cash mountain due to these reserves set aside, Treasury forces them to lend to banks.
The Fed announced on May 24 it will use FnF to reverse repo couterparties activities to eventually drain cash from the financial system due to the amount of cash both are lending daily to the financial system.
http://www.reuters.com/article/2011/05/24/usa-fed-gse-idUSNYD00380920110524
Cash and cash equivalents, restricted cash, federal funds sold and securities purchased under agreements to resell and non-mortgage related securities (Treasury Notes,…) as of end September:
Freddie Mac= $54.5 billion
Fannie Mae=$116.2 billion
Do they record this massive lending to banks as “securities purchased under agreements to resell”?
The FHFA prohibits FnF from offering new products, but it seems that lending to banks is allowed to help the overall economy.
BOTTOM LINE
The U.S. government can’t take control of private property to protect the United States economy (Fifth Amendment), even if it determines emergency (commented on November 28th).
A lawsuit filed against the government in the U.S. Court of Federal Claims in Washington is needed.
I’ve written that Treasury refused to abide by the Law providing funds to Fannie and Freddie “at an appropiate rate” according to their charter, and also the Fed had already approved a credit line. But instead, the government decided the seizure of FnF.
On the contrary, on March 23, 2009, Treasury approved a scheme called Public-Private Investment Funds (“PPIFs”) to provide federal funds to private investors with the objective to buy Private-Label MBSs and leverage the investment 7-to-1 with federal funds guaranteed by FDIC.
In other words, the investment will have 85% debt provided by the Federal Reserve and Treasury. The equity part of the investment (15%) would be shared 50-50 private capital-Treasury capital.
http://dpc.senate.gov/pdf/wh/032309_ppip_whitepaper.pdf
7 asset-purchase power= 1 equity + 6 public funds guaranteed by FDIC
The FDIC will receive a fee in return for its guarantee.
Example: mortgage with face value=100 ; purchase price=84 ; Treasury capital=6 ; private capital=6; Debt=72
But the Federal Deposit Insurance Corporation (FDIC) is the entity that insures the deposits of the taxpayers in banks for at least $250,000. “The FDIC insures deposits only”, read in its website.
Program: http://dpc.senate.gov/pdf/wh/032309_ppip_whitepaper.pdf
9 months into the program, the 8 priviledged hedge-funds chosen were gaining up to 20%.
Source: http://www.nytimes.com/2010/10/10/business/mutfund/10distress.html?src=busln
BOTTOM LINE
Hedge-Funds are being allowed to use low-cost government financing, government guarantees and government equity as incentives, but FnF were prohibited to receive Treasury or Fed funds “at an appropiate rate” even if it’s included in their charters.
*It’s worth mentioning a second part of the program where a private investor would be qualified to be Fund Manager (FM) so that he would be allowed to share capital with Treasury and leverage the capital to 2-to-1.
This second program is tailored to the chamber-investor called Warren Buffet and other billionaires because here I show you a letter to Henry Paulson back in October 6, 2008 where he proposes a similar structure (5-to-1 leveraged-entity funded with a Treasury credit line where he would be willing to personally invest $100 million). This second part of the program should be called “Buffet’s rule”.
Letter at the bottom of this webpage http://pragcap.com/the-many-myths-of-warren-buffett
Basically Warren Buffet was proposing a replica of FnF but funded by Treasury. Now you know why he continuosly is saying FnF were the cause of the crisis.
They all want to wipe-out FnF’s shareholders to take their functions.
A JUDGE SHOULD STEP IN.
2-Are you still shocked after learning that Fannie Mae had a program to bailout small and medium banks in the peak of the financial crisis?
While the bailout was ostensibly designed to protect the United States economy (MHA program called Obama’s program) and rescue the country’s financial system (Fannie Mae early lending program to banks), the ends could not and did not justify the unlawful means employed by the government to achieve that goal.
FnF, with a GSE status, already had Treasury funding contemplated in their charters “at an appropiate rate” and a Federal Reserve credit line approved a few weeks before Conservatorship.
This case involves the loss of property value through regulation and a lawsuit ought to be filed in the U.S. Court of Federal Claims in Washington.
That court handles cases against the federal government for money, including claims that the U.S. took private property for public use without just compensation in violation of the Fifth Amendment to the Constitution.
It seems that H.Paulson went crazy at that time, leaking confidential information to everybody about his plan to put FnF under Conservatorship and wipe-out their shareholders.
NYT reported on July 11, 2008, “U.S. weighs takeover of two mortgage giants”. “Senior Bush administration officials are considering a plan to have the government take over one or both of the companies and place them in a conservatorship if their problems worsen, people briefed about the plan said on Thursday”.”Under a conservatorship, the shares of Fannie and Freddie would be worth little or nothing”.
http://www.nytimes.com/2008/07/11/business/11fannie.html?pagewanted=all
This article cites “government officials”.
This news was leaked on July 10th, and published on July 11th. Freddie Mac opened 50% lower in the stock market that day, but closed just 3% lower thanks to this H.Paulson’s statement:
The following statement was posted online by the U.S. Department of the Treasury on July 11th:
Secretary Henry M. Paulson, Jr. made the following comment today on news stories about "contingency planning" at Treasury:
"Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission.
"We appreciate Congress' important efforts to complete legislation that will help promote confidence in these companies. We are maintaining a dialogue with regulators and with the companies. OFHEO will continue to work with the companies as they take the steps necessary to allow them to continue to perform their important public mission."
http://money.cnn.com/2008/07/11/news/companies/paulson_statement/index.htm
H. PAULSON’s PLAN: leak confidential information to NY Times and hedge-fund managers (Bloomberg Magazine’s exclusive) in order to destabilize the financial markets with uncertainty and lower FnF’s stock prices. His objective was to use later the provision called: EMERGENCY DETERMINATION REQUIRED, to take over FnF. That provision was approved by Congress and incorporated in FnF’s charters when HERA was enacted on July 30th, 2008.
In the meantime he was giving an official message of confidence to the shareholders and market: “support FnF in their current form”. That’s the angel-devil role.
This is the story of the plot to financially strangle Fannie Mae and Freddie Mac in the run-up to take over FnF if Treasury determines “emergency”.
* July 9, 2008, William Poole, a former president of the Federal Reserve Bank of St. Louis, said that FnF were insolvent: “Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer”.
Poole should know that a liquidity problem due to illiquid markets for PLMBS has nothing to do with the solvency of a company.
Poole is “a long-time critic'', said at that time Sharon McHale, a spokeswoman for Freddie Mac.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=as4DEc5UFopA
Curiously enough, he appears in the recent Bloomberg’s exclusive about Henry Paulson-hedge fund managers insider-trading case:-The situation also generates some sympathy for Paulson. “It seems to me, you’ve got to cut the guy some slack, even if he tipped his hand,” William Poole says. “How do you prepare the market for the fact that policy has changed without triggering the very crisis that you’re trying to avoid? What is he supposed to say without misleading these people?”-
*July 10th, 2008, WSJ’s Editorial: “Investors are saying that a Bear Stearns-like run on the companies is a real possibility, and they're right”.”But one danger is a run on the debt of either company, putting pressure on the Treasury and Federal Reserve to publicly guarantee that debt to prevent a systemic financial collapse. In an instant, what has long been an implicit taxpayer guarantee for both companies would be made explicit”.”Investors are saying the chance of a collapse is greater than our politicians want to admit”.”Why is there so little Washington or Wall Street alarm about this?”.”Their risk of insolvency has grown”.
http://online.wsj.com/article/SB121565255349741343.html?mod=opinion_main_review_and_outlooks
*July 10th, 2008, WSJ frontpage: “Administration Ramps Up Contingency Planning as Mortgage Giants Struggle. The Bush administration has held talks about what to do in the event mortgage giants Fannie Mae and Freddie Mac falter, according to three people familiar with the matter, as the stock prices of both companies continue to fall sharply”.” Treasury officials are nonetheless talking about what the government could — or should — do if Fannie and Freddie become so pressed that they are unable to borrow money and continue operating.” “If investors suddenly decide they don’t want to buy the companies’ debt, the companies might have to unload some of their holdings”
http://online.wsj.com/article/SB121564782376340951.html?mod=hpp_us_whats_news
Fannie Mae tumbled 24% in early trading and closed 14% lower that day and paid a record yield relative to Treasuries on the sale of $3 billion in two-year notes. Shares of Freddie Mac which were down 34% at their low, closed with a 22% loss.
*July 11th, 2008, NYT’s unethical article commented yesterday.
*July 21th, 2008, H.Paulson-hedge fund managers chat (Bloomberg Market Magazine’s exclusive).
Note that FnF’s decline helped drag the broad stock market into bear market territory.
Treasury Secretary Paulson, hedge-fund managers, media, power, cronies, greed, chamber-investors, bankers, ex-Fed officials, trampling constitutional rights………..TOO SHIT TO PREVAIL (coming soon to theatres).
Paulson’s plan (“the strongest case” as he calls it): to create a financial turmoil in order to financially strangle FnF, making them have difficulties in accessing the capital and debt markets, while the enterprises report bad numbers due to the mark-to-market of their PLMBS trading in illiquid markets (they plummeted due to panic, the same assets Warrent Buffett wanted to purchase later with a fund just for “intelligent investors” with Treasury funding, as he describes it in the letter to Paulson, and now is managing a $400 million fund thanks to Obama's "PPIFs" program for FM, commented above).
H. Paulson explains the cause of the decision of Conservatorship in his book:
“But investors were losing faith in them -- for good reason. Combined, they already had $5.5 billion in net losses for the year to date. Their common share prices had plunged -- to $7.32 for Fannie the day before from $66 one year earlier. The previous month, Standard & Poor's, the rating agency, had twice downgraded the preferred stock of both companies. Investors were shying away from their auctions, raising the cost of their borrowings and making existing debt holders increasingly nervous. By the end of August, neither could raise equity capital from private investors or in the public markets. Moreover, the financial system was increasingly shaky.”
“We wanted to be sure we had the strongest case possible in the event they chose to fight”.
“But even now, at the 11th hour, we still had concerns that FHFA had not effectively documented the severity of Fannie's and Freddie's capital shortfall and the case for immediate conservatorship.”…“That was a big problem because only FHFA had the statutory power to put Fannie and Freddie into conservatorship”. "(Former FHFA’s director) Jim Lockhart, a friend of the president's since their prep school days. "Jim," I'd say, "you don't want to trigger a meltdown and ruin your friend's presidency, do you?"
...“Now, however, neither could raise any private money. The markets simply did not differentiate between Fannie and Freddie. We would not, either. I recommended conservatorship”
Book. http://abcnews.go.com/GMA/Books/book-excerpt-brink-henry-paulson-jr/story?id=9713451
If you read that chapter, it will scare the hell out of you.
That book should be psychologically studied.
Greenspan. Aug. 14, 2008: "They should have wiped out the shareholders, nationalized the institutions with legislation that they are to be reconstituted -- with necessary taxpayer support to make them financially viable -- as five or 10 individual privately held units," which the government would eventually auction off to private investors, he said.”
http://online.wsj.com/article/SB121865515167837815.html
On July 14, 2008 NYT said: “Those who denied the existence of the (implicit) guarantee included Treasury secretaries Robert Rubin, Lawrence Summers and Henry M. Paulson Jr., and Federal Reserve Chairmen Alan Greenspan and Ben S. Bernanke.”
-THE BANKER
On Sep. 28th, 2010. In testimony prepared for a House Financial Services Committee hearing, Michael Heid, co-president of Wells Fargo Home Mortgage mentioned: “U.S. government should gradually hand Fannie Mae's and Freddie Mac's loan guarantee functions to private companies”, “at least four, but not more than eight, such companies would be needed to serve the market. Groups of banks are seen as potential investors in the mortgage securities insurance companies”, “But the government would still backstop the mortgage industry by guaranteeing the principal and interest on securities for investors. “,“Mortgage downpayments, private mortgage insurance, shareholder equity and reserves that are generated from fees would stand between the companies and taxpayers.”, "These layers of private capital should insulate the taxpayers from paying claims on the guarantee," he said. WSJ’s article commented on May 24th.
And all this statement in Congress is a replica of the bipartisan BILL H.R. 1859 introduced last May 12th, 2011 in Congress. Therefore, Wall Street knew the plan 8 months in advance. Also it's similar to Greenspan’s view.
…But the plan failed last June.
-THE HERO
To be continued...
Deleverage-process rhetoric= another attempt to purchase assets at fire-sale prices by prompting a run on a bank.
Warren Buffett said in the 2008 letter to Paulson that he “talked with Bill Gross and Mohamed El-Erian of PIMCO” about the fund to purchase distressed-assets with low-rate Treasury funds. I guess that they are also one of the 5 FMs mentioned above, or they are managing Buffett’s $400 million fund, having seen his low-profile (he was incapable of explaining the fundamentals behind his recent purchase of IBM, he just said twice he got the idea in the bathroom).
Also there are multiple hedge-funds out there raising money to purchase distressed-assets. But there is one catch: there aren’t assets on sale at fire-sale prices in the market. That’s why everybody talks about the deleverage-process and solvency of the european banks with the objective to prompt a run on a bank.
Mohamed El-Erian:
“private creditors are forcing certain banks to de-lever -- a process that is amplified by the sharp decline in bank stocks and the accompanying erosion in capital cushions.”
“We are also witnessing a loss of trust in instruments that many market participants use to manage their balance sheet risks”
“across-the-board shrinkage in the balance sheet of the western banking system”
“Europe where some institutions (e.g., in Greece) are also experiencing meaningful deposit outflows.”
“With some banks teetering on the edge, certain European governments (e.g., Greece) will have no choice but to nationalize part of their financial system.”
-The same article appears in several places during the week:
http://blogs.reuters.com/mohamed-el-erian/tag/banks/
http://www.huffingtonpost.com/mohamed-a-elerian/eurozone-market-volatility_b_1129790.html
In the absence of the S.E.C., I would like to see 5 OWSers in the frontdoor of PIMCO’s headquarters. They should explain to Mohamed where fits this kind of articles in his body. Only articles talking about how to solve problems, like mine, are allowed.
Finally, it’s worth reading an article by journalist Matt Taibbi in Rolling Stone magazine contended that naked short selling had a role in the demise of both Bear Stearns and Lehman Brothers. Sound familiar?
http://www.rollingstone.com/politics/news/wall-streets-naked-swindle-20100405
We are at war.
It’s time to denounce all the attempts of the private sector or the republican party-bankers linkage, to operate with a government’s guarantee. Enough is enough.
Everybody criticizes Fannie and Freddie because they’ve got a government’s implicit guarantee in their charters. But the same critics want to operate with a government’s guarantee for themselves, what’s up here!
-Warren Buffett rushed to ask for a fund with government funding in the 2008 letter to Paulson.
-I bet Warren Buffett asked to make American Express FDIC-insured (he is shareholder)
-Goldman Sachs and Morgan Stanley status changed to bank and the deposits FDIC-insured.
-Obama’s PPIFs and FMs are FDIC-insured.
-Wells Fargo mentioned FnF shall transfer their functions to private lenders…MBS with explicit government's guarantee.
-BILL H.R. 1859: multiple associations issuing MBSs guaranteed by the government, and other bills introduced in Congress.
*Last week another attempt by chairman Scott Garrett, creating a Discussion Draft ‘‘Private Mortgage Market Investment Act’. Mark-up of the draft discussion tomorrow.
Garret talks about a new market for Private Label MBSs with better standarization and MBS disclosure (he should know the FHFA is already working on it). But at the end we have a surprise:
“SEC. 304. FDIC SAVE HARBOR.
If a pool of mortgages meets the standards set forth by the Federal Housing Finance Agency … and is securitized in accordance with the standards set forth under title I, then the Federal Deposit Insurance Corporation safe harbor rule under section 360.6 of title 12, Code of Federal Regulations,shall apply to the pool of mortgages.”
Which means that the U.S. government will have to eat all the toxic mortgages or MBSs the big banks issue.
http://financialservices.house.gov/UploadedFiles/PMMIA_bill.pdf
Scott Garrett, I caught you!
What’s up in the States? Everybody wants to be FDIC-insured.
Geithner should stop this psychopath behaviour of the business communtity.
Geithner should make clear which enterprises are GSEs and that no one more will be FDIC-insured or government- guaranteed. Geithner should draw a line in the sand.
Garrett, the big banks will never issue MBSs FDIC-insured. Their MBSs will be guaranteed by themselves. Good try though.
They all are so desperate to accomplish this objective, that are capable of prompting the worst financial crisis ever world-wide in 2008.
The effects of the financial shock in 2008 and the battle to accomplish their objective continue... We are at war.
Curiously enough, the S.E.C. accuses former FnF’s executives of making misleading statements to shareholders and the public about their exposure to mortgages with a higher risk than the conventional mortgages.
Basically, the S.E.C. accuses them of having an angel-devil role, the same accusation I made to Henry Paulson on the comment of December 5th.
Coincidence?
Everyone knows that George W. Bush was shouting out a policy of home ownership in the minority communities. He could have told these enterprises to boost the exposure to higher risk mortgages, which would increase the fees of the big banks that make these mortgages (FnF just guarantee the payments of these mortgages) until they give the “go” to their final resolution on FnF’s fate. I’m surprised to learn that the S.E.C. doesn’t mention J. Lockhart.
Former FHFA’s director Jim Lockhart, “a friend of the president's since their prep school days”, assumed the position of Vice Chairman of WL Ross & Co. LLC in September 2009. As Vice Chairman, Lockhart coordinates WL Ross’ investments in financial services firms and mortgages. WL Ross & Co. LLC is a subsidiary of Invesco, and it manages the Mortgage Recovery Fund, a fund that invests in Invesco’s Public-Private Investment Fund (PPIFs explained above).
BOTTOM LINE
J. Lockhart appears in the downturn and also in the upturn in the economy, like the chamber-investor mentioned above. Only in America.
*I see one mistake in this post. I’ve been wrong when I said the assault attempt on FnF’s functions by the big banks began 38 days before Conservatorship. It began a few years before.
The S.E.C. is wrong when says the purpose of the former executives was to increase FnF’s market share in order to receive fat bonuses. Primarily because sooner or later the information about their credit risk exposure would be brought to light, so it’s a stupidity to hide that information to the public, unless they were told FnF would be abolished in a few months’ time.
The purpose of the former executives, along with former FHFA’s director, was to increase FnF’s exposure to subprime and higher risk mortgages, but hiding it to the public and shareholders.
But that's the same purpose of the big banks when sold Private-Label MBSs to FnF with fraudulent securities, that is, they hid the information about the true quality of the mortgages packaged in a MBS to the public and shareholders. It’s the same attack to FnF coming from two different places.
But holding mortgages and PLMBSs with higher credit risk exposure (not all subprime) is not a problem. The problem comes when a financial shock suddenly appears.
And now is when we have to read again, the superb article of Matt Taibbi in Rolling Stone magazine in the link written above. I spent 12 hours a day watching the financial markets, and I say that at that time, it was not trading as usual.
Scott Garrett’s Private Mortgage Market Investment Act mentioned above was approved (AGREED TO) last December 14th, by a recorded vote of 18 ayes to 15 nays.
http://financialservices.house.gov/Calendar/EventSingle.aspx?EventID=272002
Remember that the act allows the big banks to issue MBSs with a government’s explicit guarantee (FDIC- INSURED). (FnF own government’s implicit guarantee, that is their MBSs are guaranteed by FnF but “Treasury may provide funds at an appropriate rate…”)
But there is one catch: they approved a Discussion Draft. The bill that incorporates the PMMI Act was formally introduced in Congress the previous day, Dec. 13th (bill H.R. 3644) but the House decided to vote the Discussion Draft and not the Bill.
H.R. 3644 http://www.govtrack.us/congress/bill.xpd?bill=h112-3644
The Republican Party didn’t dare to approve a bill that allows the big banks to issue MBSs with a government’s explicit guarantee, but a discussion draft.
Message to the Republican Party-bankers linkage: We will never allow the big banks to issue MBSs with a government’s guarantee. There will always be 9,999 of us for every 1 of you.
BOTTOM LINE
Nobody sees that this is the heart of the matter?
Nobody sees that this is the cause of the financial crisis?
To allow the big banks take FnF’s functions (to issue MBSs with a government’s guarantee), the assault attempt on FnF’s functions by wiping out their shareholders:
1st. To swell FnF’s portfolio with subprime and higher risk mortgages and PLMBSs hiding the information.
2nd. To prompt the mother of all financial shocks ever. Objective: financial markets turmoil triggering asset prices lower and FnF in conservatorship.
3rd. Language: A Key Mechanism of Control (Newt Gingrich's 1996 GOPAC memo). That is, to utilize the media to tarnish FnF’s image: multiple articles by WSJ, NYT (among others) or allowing other people to spread their message in these newspapers, like recently did Peter Wallison, co-director of financial policy studies at the American Enterprise Institute, writing in the WSJ and also appearing in Bloomberg TV and Jonathan Weil writing recently two incendiary articles in Bloomberg News saying that FnF cooked their books. http://www.bloomberg.com/news/2011-12-16/the-sec-s-fannie-freddie-cases-are-theater-of-the-absurd-the-ticker.html
The Far West period, isn’t that far. It’s still alive.
People think the 2 months payroll tax-cut extension will be paid for by the revenues of the increase in FnF’s guarantee-fees, but it’s not.
Raising the guarantee fees reduces the U.S. deficit by reducing the opportunity costs or subsidy costs incorporated into the U.S. Federal Budget according to the Congressional Budget Office (CBO), but this has nothing to do with the new revenues FnF will receive.
Explained in my post: “FnF can reduce $359 billion U.S. Deficit”
http://open.salon.com/blog/ebano/2011/11/19/fannie_freddie_can_reduce_331_billion_us_deficit
Payroll tax-cut extension bill: TEXT BILL 3630 http://www.opencongress.org/bill/112-h3630/text
*Guarantee fee: “The amount of the increase required under this section shall be determined by the Director to appropriately reflect the risk of loss, as well the cost of capital allocated to similar assets held by other fully private regulated financial institutions, but such amount shall be not less than an average increase of 10 basis points for each origination year or book year above the average fees imposed in 2011 for such guarantee.”
“allowing each enterprise to increase the guarantee fee charged by the enterprise gradually over the 2-year period beginning on the date of enactment of this section, in a manner sufficient to comply with this section.”
Which means that FnF will increase fees gradually over the next 2 years in order to reach a fee similar to the private sector beginning with no less than 0.10%.
* “DEPOSIT IN TREASURY- Amounts received from fee increases imposed under this section shall be deposited directly into the United States Treasury, and shall be available only to the extent provided in subsequent appropriations Acts. The fees charged pursuant to this section shall not be considered a reimbursement to the Federal Government for the costs or subsidy provided to an enterprise.”
But the costs or subsidy provided to an enterprise is the subsidy cost or the opportunity cost charged into the U.S. Federal Budget due to preserving FnF in Conservatorship, according to the Congressional Budget Office (CBO), and this cost has nothing to do with the government’s Senior Preferred Shares (note that they are called Variable Liquidation Preference of the Senior Preferred Shares, so it’s variable and should be redeemed at the taxpayer assistance amount) or the taxpayer assistance (draw requests less dividends paid to Treasury).
BOTTOM LINE
The revenues coming from the gradual fee increases will allow the enterprises to redeem the Senior Preferred Shares at the taxpayer assistance amount, over the next 10 years, depositing the amount directly in Treasury and, at the same time, FnF reduce the U.S. Federal Deficit by reducing the subsidy costs charged into the U.S. Federal Budget.
A g-fee increase achieves two different themes= more revenues to FnF+ less U.S. deficit. Furthermore, in my post I explain that if FnF are released from Conservatorship, the U.S. Deficit reduction is massive. We shall see how CBO considers it.
______________________________________________
TAXPAYER HELPS THE GSEs - GSEs HELP TAXPAYERS AND REIMBURSE THE ASSISTANCE
The taxpayer’s help is the so called government’s implicit guarantee included in their GSE status. Fannie and Freddie, in exchange of this help:
1-Have completed nearly 2 million foreclosure prevention actions (1 million of loan modifications, very costly to the enterprises because they had to set aside a reserve that widens the losses) since the beginning of Conservatorship until 3Q 2011.
2- New HARP-facelift that will begin in 2012 (specially designed for under-water borrowers)
3-FnF are the main support of the housing market well before the 2008 financial shock began and since then thanks to the taxpayer assistance. It’s the stabilizing role in the housing market contemplated in their charters. This function is why FnF are here to stay.
*FnF pay back the taxpayer assistance:
In 2011, FnF have issued 1 trillion worth of MBSs, assuming an annual 5% increase, the enterprises will need to raise roughly 25 basis points the g-fees “gradually” over the next 2 years, to reach the $146 billion taxpayer assistance, so that the taxpayer is paid back in full in a 10 year period. *Round numbers.
We shall see.
I mentioned on October 24th we were waiting for a blueprint, that is the announcement of the Housing Finance System “in the coming weeks” but with effective date later in order to allow all the market participants to prepare the machinery.
DeMarco announced the 0.10% g-fee increase contemplated in the Payroll tax-cut law with effective date April 1st, another proof the blueprint would be announced on January 1-3.
Also it should be announced along with the exit from conservatorship and the payroll tax-cut extension paid for by FnF, and in early January continue the negotiations Dems.-Reps.
New Housing Finance System:
1-Better Loan Level Disclosure: In order to implement the “private sector risk-sharing ideas”, with the objective of a greater participation of the private sector in the housing finance market. Explained on December 1st.
2-Uniform Mortgage Data Program (UMDP): Related to develop standard data.
3-Servicing Compensation: Related to how to better compensate the companies that provide mortgage services.
4-Servicing Alignment: Related to how to provide servicing to delinquent mortgages.
They are FnF’s programs under the direction of FHFA’s DeMarco, who advanced these programs in a Congress Hearing on May 25th. Read the comment of that day.
FHFA, on behalf of FnF, sued 18 financial institutions (17 + UBS, by the way, where is Wells Fargo? Has Obama’s close friend, Warren Buffet, something to do with the absence of Wells Fargo as defendant?) with fraud a few months ago. I’ve already talked on September 6th, about the specific 2008 Law talking about the Statute of Limitations.
But today I’ve learned about the Statute of Repose: “in no event” shall an action be brought more than three years after the offering or sale of the security at issue, and that the statute of repose is not subject to equitable tolling.
And this is what the defendants are arguing and it could wipe out most of FHFA’s claims with a single ruling.
http://newsandinsight.thomsonreuters.com/Legal/News/ViewNews.aspx?id=35830&terms=%40ReutersTopicCodes+CONTAINS+%27ANV%27
Defense plan: the 2008 federal law that sent Fannie Mae and Freddie Mac into conservatorship did not extend the three-year statute of repose, but the statute of limitations.
Also there have been some judges’ decisions corroborating their defense plan: “Congress included statutes of repose because of fear that lingering liabilities would disrupt normal business and facilitate false claims. It was understood that the three-year rule was to be absolute. The application of equitable tolling principles to extend the three-year period of repose would contravene congressional intent.”
FHFA’s DEFENSE
FnF’s case is different to all: The tolling agreement in the 2008 law (it specifically introduces an extension to the third anniversary of Conservatorship, Sept. 7th 2011, to file a complaint) can’t contravene congressional intent, because it was Congress the one that signed it.
It’s obvious that if Congress extended FnF’s Statute of Limitations, it’s applied to the Statute of Repose (Congressional intent). Even a school-boy understands this.
Ben Bernanke, the one that welcomed the U.S. troops when arrived from Irak a few weeks ago, yesterday made an unusual request to Senate and the House.
Bernanke’s white paper on housing:
-to forgive the fraud committed by the big banks when sold mortgages with fraudulent information to FnF. He recommends to stop the mortgage putback requests: “Aggressively putting back delinquent loans to lenders helps the GSEs maximize their profits on old business and thus limits their draws on the U.S. Treasury, but at the same time, it discourages lenders from originating new mortgages.”
-to use FnF to refinance ‘underwater’ borrowers with non-GSE loans. In other words, to sift mortgages with low revenues and high credit risk (LTV greater than 125%) to FnF’s balance sheet, instead of forcing the banks to do it as part of the robosigning-case settlement.
-Land Bank: another psychopath attempt to give the private sector low-cost government funding to operate. The private sector is forgetting to do business with risk.
-More loan modifications with principal reduction, that is, forgiving mortgage debt to a privileged few. Even Bernanke signals to reduce payments to less than 31% of borrower’s income in order to protect their second-lien mortgage held into the big banks’ balance-sheets, at the expense of FnF’s shareholders.
BOTTOM LINE
Basically, Benanke is urging a more aggressive use of Fannie and Freddie “in the near term” to recoup the economy (which translates into more losses to the enterprises),…
“unresolved role of FnF, in both the near term and long term-This paper does not discuss alternatives for longer-term restructuring-”
…and this is the same view of Henry Paulson, Nov. 18th 2011: “we really need to use Fannie Mae and Freddie Mac to do anything that’s reasonable to provide financial support to the mortgage market— in the short term, at least. In the long term, those agencies have got to be just radically reformed and downsized.”
http://www.nationalreview.com/articles/283465/paulson-s-downpayment-brian-bolduc?pg=1
According to NYT, Bernanke is one of those who deny the existence of the government’s implicit guarantee in FnF’s charters (commented above). Has he ever read the charters?
OCCUPY THE FEDERAL RESERVE, NO MORE PSYCHOPATHS RUNNING OUR COUNTRY.
The FBI must be reinforced. We are at war.
Ben Bernanke, Henry Paulson and former FHFA’s director J. Lockhart summoned former Fannie Mae’s and Freddie Mac’s CEOs, at FHFA’s headquarters on G Street.
“We wanted to be sure we had the strongest case possible in the event they chose to fight.
We decided to lead with Fannie Mae, figuring they were more likely to be contentious.
"Hank," he asked, "what's going on?
We'd been operating in secrecy.
We'd asked both CEOs to bring their lead directors.
Between our group from Treasury, the Fed's team, Lockhart's people, and Fannie's executives, there must have been about a dozen people in the glass-walled conference room.
He said that we all hoped they would agree to do this voluntarily; if not, we would seize control.
As he spoke I watched the Fannie Mae delegation. They were furious. Mudd was alternately scowling or sneering. Once he put his head between his hands and shook it.
Ben Bernanke followed and made a very strong speech. He said he was very supportive of the proposed actions. It was in the best interests of the country to do this, he concluded.”
Book. http://abcnews.go.com/GMA/Books/book-excerpt-brink-henry-paulson-jr/story?id=9713451
You can feel the tension in that meeting reading that chapter.
But now I’m gonna tell you in the next comment, what really could have happened in that meeting.
(Laughs…Laughs…..More laughs…..) We nailed it, didn’t we?
I’ve told all the participants in this criminal conspiracy against our own country to step up their philanthropic role, increase our appearances in TV shows, write books and articles to blame the Affordability Policy for the crisis, showing the hidden subprime portfolio of the enterprises, nobody knows it yet, but we. The American Enterprise Institute, WSJ and the NYT have agreed (Laughs). We need language, as a mechanism of control, working 24/7.
One of their books should be called “Reckless Endangerment”. I said. But my book will be called: On the brink. (Laughs)
“You could call it: On the wink” said one. And all of them wink at each other laughing.
One of them asked: What will happen if the financial shock that we are gonna prompt to transform the Housing Finance System and the overall Financial System, goes out of control, destroying millions of enterprises and household accounts around the world, and sending one entire world-generation to limbo? The chairman of the Fed rushed to respond: No way, my friend. I’ve studied the financial shocks during all my life. I’ve even invented a machine, similar to CNBC’s Jim Cramer’s. The first measure will be pulling the handle called: Massive Secret Lending to Banks (link above). All is ready and nobody will discover it (Lot of laughs) .
I added: Yeah, but don’t forget to help only the financial institutions we want them to survive, the others will disappear or will be gobbled up. Because the massive lending will be secret, we can argue the financial institutions have disappeared because they were highly leveraged and had no asset-collateral. Nobody will notice that what happened is that our friends, unlike the others, had received secret financial support with baseball-stamps as collateral.
The chairman of the Fed added: All is very simple, my friend. Nothing can go wrong. (laughs)
The billionaire, now almost trillionaire chamber-investor, will present my book interviewing me in a CNBC event. He now calls me “friend”.
Also we need a movie based in one of our books, where I’ll be portrayed as a hero in the peak of the financial crisis (More laughs). There are always stupid people out there that think a movie is a documentary. I have a contact in NYT, an ex-girlfriend, that knows several journalists hungry enough that will help. I need to tell the journalist about my meeting in June 2008 with Goldman Sachs’ Board of Directors in Moscow, before other people discover it, in order to make clear that I, as ex-CEO of Goldman Sachs, wasn’t conspiracing jointly with my former colleagues.
http://blogs.reuters.com/felix-salmon/2009/10/20/the-secret-paulson-goldman-meeting/
I need to make clear to the taxpayers that I just met with them in Moscow by chance. If someone asks where the journalist got the information, he could tell a bird twittered him the info, now there are many people confused about Twitter and the real twitters of a bird.
The chamber-investor is ready to help Goldman Sachs if necessary.
In case one guy with a laptop begins to write about our criminal conspiracy against our country, the Fed Chairman will have to welcome the U.S. troops to create a patriotic role for him.
A Federal Reserve Chairman welcoming the U.S. troops? Said one (Lot of laughs).
In no event, we will allow the enterprises to improve their books.The chairman of the Federal Reserve ought to put pressure with a White Paper on housing that will increase FnF’s losses. Two days later, a Fed governor must continue the pressure. Always remember our GOP memo: Language, a key mechanism of control.
A Federal Reserve Chairmain pressuring the Senate and the House? Isn’t it unconstitutional? Asked one of them. My friend, we are psychopaths, so we can trample the Constitution whenever we like. I responded. (Lot of laughs)
My ex-girlfriend at NYT, could make the newspaper write 5 articles (4 out of 5 in just 5 days, links above) pressuring the government about the principal reductions to distressed borrowers, that is, forgiving mortgage debt, which translates into more losses to the enterprises.
Also we could launch a rumor in the market about a "January surprise" in the form of a trillion-dollar massive mortgage-refinancing scheme, as a desperate measure. The pressure on the government will be huge.
Are the FBI and the SEC going ever to investigate the 2008-2009 personal income of the billionaire chamber-investor to see if he made a lot of money tumbling Fannie and Freddie’s related-securities utilizing insider-trading information? Yeah, the same insider-trading information you gave to “a dozen or so” hedge-fund managers at Eton Park’s headquarters. I know he is too old and could say he made a lot of money trading with the enterprises in a TV interview in three years’ time! The chamber-investor has the instruction to be always the President’s best friend, just in case we lose the next general elections, and even he will manage to make all the U.S. Presidents call him seeking advice, but he should never say it in a Bloomberg TV interview!… Signaled one of them. (everybody was petrified).
I responded: That will never happen. We are all in this together. (Everybody in the room was rolling on floor laughing).
Let’s party tonight, but I’ll write in my book that this day I went to bed at 9:30 p.m. , and that I'm an "early to bed, early to rise" fellow. (lot of laughs)
Now it was former Freddie Mac’s CEO turn, and Fannie Mae’s CEO left. As he came in the room, both wink at each other with a half-smile Gioconda’s style.
They all were excited feeling the “conspiracy experience”.
The ‘robosigning’ talks continued the day before Obama’s SOTU speech.
http://money.cnn.com/2012/01/23/news/economy/attorney_general_foreclosure_deal/?source=cnn_bin
But they don’t reach an agreement on the settlement because the banks don’t want:
-Mortgage debt forgiveness with the principal reductions.
-Refinance mortgages and hold them into their balance-sheet.
-Refinance mortgages and package them to investors as new MBSs, because nobody wants to purchase any security issued by the big banks (too much fraud the previous years).
-And they want immunity from lawsuits.
SOLUTION
FnF and the FHA will refinance non-agency mortgages but charging an extra guarantee-fee on top of the current g-fee to cover this higher risk of mortgages with LTV greater than 100% (underwater), taking into account that these are borrowers that were current on their payments. (Big banks-advocate Bernanke didn’t mention an extra g-fee on banks in his dark white-paper)
That's why it would need Congress approval, they are above FnF's conventional loans (80% LTV) and FHA loans (97.75% LTV).
This extra g-fee functions as a settlement in the robosigning-case, so it won’t be passed through to the borrower.
This extra g-fee also helps to recapitalize FnF and the FHA, the ones that have suffered the losses due to robosigning wrongdoing because when the big banks were speeding up the foreclosure process in order to protect their second-lien mortgage held into their balance-sheet, prompted over-supply of homes and, subsequently, home prices declining sharply and FnF-FHA recording the losses.
“A small fee on the largest financial institutions will ensure that it won’t add to the deficit”, because it will be used to increase their Reserve Fund for future losses.
Just guessing, we shall see. Maybe FnF are not in this plan and just the FHA.
As far as the immunity from lawsuits is concerned, Obama announced in the SOTU speech that “tonight, I’m asking my Attorney General to create a special unit of federal prosecutors and leading state attorney general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis”.
“Everyone plays by the same set of rules”, which means that we just won’t be defeated.
The Republican Party ought to accept this plan as part of a broad Housing Finance System overhaul announcement, and forget the political fight.
SOTU speech http://www.nytimes.com/interactive/2012/01/24/us/politics/state-of-the-union-2012-video-transcript.html?hp
Let’s get it.
GSEs, come on.
The government has just announced it pretends to use taxpayer money to pay the medical bills, credit-card debt, second-lien debt and other “higher levels of secondary debt” without specifying more, of a priviledged few.
http://www.treasury.gov/connect/blog/Pages/Expanding-our-efforts-to-help-more-homeowners-and-strengthen-hard-hit-communities.aspx
The FHFA ought to withstand whatever the pressure comes from populist politicians.
U.S.A. is not Hugo Chavez’ Venezuela.
Forget the mortgage debt forgiveness rhetoric. Everybody should pay at least the principal they owe.
I’ll say it again, the cause of the sluggish economy is the preservation of the nationalization of FnF, the lack of a comprehensive new “framework” in the Housing Finance System and the big banks’ reluctance to refinance underwater borrowers (non-agency mortgages).
After the rumor in the market a few days ago about a trillion-dollar massive mortgage-refinancing scheme already mentioned, today we had one article by NPR and ProPublica. Later, all the toxic media echoed this report to put more pressure on the government
-Article:
Freddie Mac is betting against struggling homeowners, using complex mortgage securities that brought in more money for Freddie Mac when homeowners in higher interest-rate loans were unable to qualify for a refinancing.
Freddie has taken steps to make it harder for homeowners to refinance.
"We were actually shocked they did this," says Scott Simon, who heads the mortgage-backed securities team at PIMCO. "It seemed so out of line with their mission, out of line with what Congress wanted them to do."
Those trades "put them squarely against the homeowner," PIMCO's Simon says.
Fannie and Freddie have taken part in an existing federal program known as "HARP" to help Americans refinance, but many economists say far more homeowners would benefit if Fannie and Freddie were to implement the program more aggressively.
http://www.propublica.org/article/freddy-mac-mortgage-eisinger-arnold
COMMENT
Other day I’m gonna talk more about PIMCO. It appears everywhere.
Note that they are talking about a hedge worth $4.3 billion out of a $663 mortgage portfolio.
Freddie Mac is not betting against the homeowners.
Freddie Mac doesn’t prevent homeowners to take advantage of today’s mortgage rates.
Freddie Mac’s own financial health doesn’t improve when homeowners can’t refinance.
Freddie Mac doesn’t make trades against the homeowners.
Freddie Mac’s investment's decisions are approved by the FHFA or the Treasury.
Freddie and Fannie have already in place a program to refinance underwater borrowers, the ones that are reluctant to refinance underwater borrowers are the big banks.
The article can’t discredit Freddie’s operations saying that it uses “complicated securities”, if you don’t understand them, go to college!
1) Excerpt taken from the FANNIE MAE 10-K filed on May 2, 2007, but for the year ended December 31, 2005 (FNMA reviewed reports). Page 158
http://www.wikinvest.com/stock/Fannie_Mae_%28FNMA%29/Filing/10-K/2007/F1283803#437
“Statutory Critical Capital Requirement.
Our critical capital requirement is the amount of core capital below which we would be classified as critically undercapitalized and generally would be required to be placed in conservatorship. Our critical capital requirement is generally equal to the sum of:
* 1.25% of on-balance sheet assets;
* 0.25% of the unpaid principal balance of outstanding Fannie Mae MBS held by third parties; and
* up to 0.25% of other off-balance sheet obligations”
Also, on June 9, 2008, when the former FHFA’s director Lockhard classified Fannie and Freddie as Adequately Capitalized as of March 31, 2008 (one month after the 1Q SEC filings, why did it take so long to classify FnF? Is it because May-June were the happy-months? Management and regulator releasing happy statements and reducing the capital requirements, before the July panic-month), he mentioned: “The critical capital level is the amount of core capital below which an Enterprise must be classified as critically undercapitalized and generally must be placed in conservatorship”.
http://www.fhfa.gov/webfiles/1486/5608statement.pdf
http://www.fhfa.gov/webfiles/2155/1Q2008CapClass.pdf
Therefore, we know when FnF would be required to be placed in Conservatorship, it has to do with the Statutory Critical Capital. Let’s see what happened with that capital measure.
2) Fannie Mae (and fmcc) as of June 30, 2008 (filing 10-Q): Page 120. ($ in millions)
-Core capital: $46,964 ($37,128 fmcc)
-Statutory critical capital: $16,912 ($14,746 fmcc)
Therefore, Fannie Mae had 177% surplus of core capital over statutory critical capital (152% in the case of fmcc)
http://www.wikinvest.com/stock/Fannie_Mae_%28FNMA%29/Filing/10-Q/2008/F1283590#122
http://www.wikinvest.com/stock/Freddie_Mac_%28FMCC%29/Filing/10-Q/2008/F84967689#313
3) Fannie Mae (and fmcc) as of September 30, 2008 (filing 10-Q): Page 106
-Core capital: $16,645 ($10,839 fmcc)
http://www.wikinvest.com/stock/Fannie_Mae_%28FNMA%29/Filing/10-Q/2008/F1283554#168
http://www.wikinvest.com/stock/Freddie_Mac_%28FMCC%29/Filing/10-Q/2008/F84967664#313
And the Statutory critical capital? It doesn’t appear in the SEC filing of 3Q2008, the first filing after the enterprises were placed in Conservatorship.
Not only the Senior Preferred Stocks of the Treasury aren’t included in Core Capital (according to fmcc filing, page 138), but the first $1 billion worth of Seniors Prfd. Stock the Treasury received for free (without injecting cash) when the Agreement with Treasury was signed, reduced the Core Capital. Astonishing.
“The $1 billion decrease to additional-paid-in capital to record the initial senior preferred stock issued to Treasury is reflected as a reduction to core capital as of September 30, 2008”
The FHFA required to suspend the disclosure of capital measures after conservatorship.
All the hard work of the “group”, creating panic in the stock market to make Fannie and Freddie’s common and preferred stocks plummet (commented on December 6 and before, it will be updated), in order to reduce their Core Capital (sum of (a) the stated value of our outstanding common stock (common stock less treasury stock); (b) the stated value of our outstanding non-cumulative perpetual preferred stock; (c) our paid-in capital; and (d) our retained earnings), but they didn’t know that if they create panic in the market, the Statutory critical capital also declines (the value of the assets on-balance sheet decline, because they are the toxic Private-Label MBSs trading in illiquid markets).
*Note that fnma's Statutory critical capital on June 30 is just 1.8% above the Core capital of Sep.30, but if we add the $1 billion mentioned before to the core capital and reduce the Statutory critial capital of June 30 due to the market turmoil in the 3Q, the probability of the core capital to be above the statutory critical capital as of sept. 8 and sept. 30 is huge.
The shareholders require to know the amount of Statutory Critical Capital on September 8, 2008 (day of conservatorship), because it's the capital measure to place the enterprises in Conservatorship.
I bet the Statutory critical capital was below the core capital at the time.
Article:
“On Thursday at noon, (ex–marine) de los Santos, his friends and neighbors, and activists from the Alliance of Californians for Community Empowerment (ACCE) will protest at Freddie Mac's west coast headquarters (444 South Flower St.) in downtown Los Angeles. They will call on Freddie Mac CEO Charles Haldeman to get the mortgage giant to renegotiate a fair modification of de los Santos' loan, including reducing the mortgage principal.”
“Chase told de los Santos that in order to negotiate a loan modification he had to be in default on his loan. Chase notified de los Santos that it was rejecting him for a permanent modification, that they would refuse to accept further payments, and that they intended to foreclose on his home, even after he provided the bank with evidence showing that his income had recovered to its previous level. De los Santos was caught in a Catch-22, but it turns out that -- according to the NPR/Pro-Publica investigation -- this was not an anomaly but part of Freddie Mac's strategy.”
http://www.huffingtonpost.com/peter-dreier/exmarine-fights-freddie-m_b_1243417.html
COMMENT
What we don’t know is if the ex–marine holds a second-lien mortgage with Chase (robosigning case).
Obama, as the ultimate responsible of the Democratic Party and the government, will be responsible of all the quarrels in the streets that will come. They have transmitted the idea to all the americans that everybody has the right to have their mortgage debt forgiven, and the american people will fight to achive it, even if they “get arrested”, as the ex–marine mentions.
Obama and the Democratic Party have helped to create this bomb that is getting bigger each day. They should be responsible politicians and defuse it now:
-FnF to pay the 2-year payroll tax-cut extension due to the accounting stuff of the CBO.
-FnF to refinance underwater borrowers with non-agency mortgages that the big banks are reluctant to refinance.
Tomorrow, I’m sure that someone will talk about the same eldery woman who “had heart trouble and had outlived her doctor’s prognosis”, commeted on October 7.
Always comes an elderly woman story after an ex–marine story.
What if I tell you that the same person that leaks an information to the media that makes a tough accusation against one company, later appears in other report saying at it will investigate that accusation.
It’s the so-called devil-angel role, also known as % U.S. politicians in the american history.
You know…it’s very strange that the information about Freddie Mac’s investment in complex products like “inverse floater” securities is brought to light, at a time when the government wants to fire FHFA’s director DeMarco in order to approve a massive refinancing plan, mortgage forgiveness plan or free lunch for everybody, to smooth the path to the next general elections.
The NYT, hasn’t reported a single information about Fannie and Freddie (just one about Freddie Mac forbearance plan for unemployed, when even the company announced it many days before) since many weeks ago, when a management shake up happened (I guess you don’t need me to tell you what and why it happened, if you read my blog). The NYT didn’t even report last Friday evening the information about the HAMP extension. They were quiet.
But today, surprisingly, there is an article in the NYT with the headline: “Treasury investigates Freddie Mac Investment”. They were echoing the words that Jay Carney, a White House spokesman, said on Monday.
http://www.nytimes.com/2012/01/31/business/freddie-mac-investments-under-scrutiny-by-treasury-dept.html
Why the Treasury and the White House haven’t refuted the false allegations against Freddie Mac, as the FHFA has done yesterday, and instead they have said they are investigating Freddie Mac investments?
The Housing Finance System overhaul has been already submitted to the major bondholders, China and Japan, in early January (Why Geithner didn’t travel to another major importer of Iran’s oil, India?
Major foreign holdings of long term Agency Debt (Bonds and MBSs) by country, as of June 30, 2010 (latest data):
China: BONDS $62 billion ; MBSs $298 billion
Japan: BONDS $128 billion ; MBSs $106 billion
BOTTOM LINE
The Teasury just wanted the headline they are investigating Freddie Mac’s investments, and the NYT had to publish it. That’s why Jay Carney or the Treasury didn’t refute the accusations as the FHFA.
The U.S. government is intentionally halting the announcement of a Housing Finance System revamp, waiting, not for the legislation about FnF’s refinancings of the big banks’ mortgages (non-agency mortgages) announced in the SOTU speech because it takes just a few days to write the legislation, but for the moment to fire FHFA’s DeMarco (a recess appointment), leaking information to the media saying that FnF bet against the homeowners, in order to approve later a demagogic plan to benefit homeowners utilizing taxpayer money, that would put Obama in the White House another term.
This is the plan. This is the dirty war, and I will write it in real-time. Enjoy.
We just won’t be defeated.
Isn’t it funny that the same U.S. goverment that derailed the plan of the bunch of conspirators, now has the same goal of the conspirators? Firing DeMarco and approve a massive refinancing/debt forgiveness plan that will increase FnF’s losses and taxpayer money draw requests.
One has the objective to be re-elected another term, and the others to keep FnF under conservatorship until a bill that allows the big banks take their functions is approved.
All have one thing in common: dirty war.
We are all with DeMarco. OCCUPY THE WHITE HOUSE movement has just begun. FHFA’s DeMarco will be the next U.S. president.
The U.S. government is utilizing Fannie and Freddie to improve the big banks’ books, allowing them to invest in FnF’s securities with a 5%-6% annual yield in a 1.5 or 2 year period respectively. But FnF usually get funds just a few basis points above the Treasury yields, thanks to the government’s implicit guarantee.
FnF, since Conservatorship began, have been issuing 30 year obligations to mislead the taxpayers, so that they can argue the higher the maturity the higher the yield, but the reality is that they are bonds that were born to be redeemed a few months after the issuance (callable MTN).
I’ve just found these two bonds recently redeemed:
FREDDIE MAC
Cusip/ISIN: 3134G1NW0
Issue Date: 08/03/2010
Zero coupon.
Amount face value: $106 million
30 year maturity but callable.
Investor paid 23.575545% or $25 million
http://www.freddiemac.com/debt/data/cgi-bin/cusipdetail.cgi?cusip=3134G1NW0
Bond redeemed 18 months later. The investor got 25.3419% or $26.9 million
http://www.bloomberg.com/news/2012-01-27/freddie-mac-to-redeem-zero-notes-due-2040-correct-.html
That is 7.6% for 18 months or a 5% annual rate for a 18 months obligation.
But Freddie Mac 12 month bill stands at 0.137%
FANNIE MAE
ID: US31398AE995
Amount face value: $550 million
30 year maturity but callable.
The investor paid 18.202987% or $100.1 million, and this bond was redeemed 2 years later at a price of 20.3933% or $112.2 million.
That is 12% in two years or a 6% annual yield for a 2 year investment.
But Fannie Mae 2 year note rate stands at 0.199%
http://www.bloomberg.com/news/2012-01-26/fannie-mae-to-redeem-zero-notes-due-2040.html
http://www.efanniemae.com/syndicated/documents/mbs/debtmarketing/DEBENTUR/8AE99.html
Therefore, for investors, the President's plan gives a rate of less than 0.2% but if you are a big bank crony, it tailors for you a bond with a 5%-6% yield for the same maturity.
This President's plan should be streamlined to all the taxpayers and, especially, it should be designed for our seniors, who are suffering in their savings the ultra-low interest rates policy of Bernanke.
All the 30-year MTN zero coupon should be immediately investigated.
The taxpayers require to know which banks have been benefited with this high-yield securities and also a full explanation about the hidden Fannie Mae's early lending program to bailout small and medium-sized banks commented on December 2.
BOTTOM LINE
I’ll say it again, while the bailout was ostensibly designed to protect the United States economy (MHA –HARP and HAMP- program called Obama’s program) and rescue the country’s financial system (Fannie Mae had early lending program to small and medium-sized banks and high yield MTN for the big banks), the ends could not and did not justify the unlawful means employed by the government to achieve that goal.
FnF, with a GSE status, already had Treasury funding contemplated in their charters “at an appropiate rate” and a Federal Reserve credit line approved a few weeks before Conservatorship.
This case involves the loss of property value through regulation and a lawsuit ought to be filed in the U.S. Court of Federal Claims in Washington.
That court handles cases against the federal government for money, including claims that the U.S. government took private property for public use without just compensation in violation of the Fifth Amendment to the Constitution.
Having seen the dirty war the Obama Administration has begun (commented on January 31) and the continue harassment to FnF’s workers, shareholders, management and the FHFA, the shareholders must join forces and set up an Association to seek whatever actions are necessary to ensure that our rights will prevail.
A lawsuit filed against the Obama Administration, Bush Administration, Democratic Party and Republican Party, will be the blueprint for an America built to last.
It seems that a judge is the only one that can release the enterprises from Conservatorship and avoid the continue utilization of FnF as a tool to backdoor stimulus programs, like the massive refinancings and debt forgiveness plans.
THE LAW IS ON OUR SIDE.
THIS IS THE SOCIAL MEDIA REVOLUTION: http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_F/threadview?m=me&bn=7179&tid=592368&mid=592368&tof=1&frt=2#592368
The next comment will have the headline: THE MAKING.
WSJ’s article. September 8, 2008-Mounting Woes Left Officials With Little Room to Maneuver-
By DEBORAH SOLOMON, SUDEEP REDDY and SUSANNE CRAIG
WASHINGTON -- In the end, Fannie Mae and Freddie Mac had no choice.
Summoned to separate meetings on Friday with Treasury Secretary Henry Paulson and other top officials, the two mortgage giants were told they could either agree to a government takeover or one would be foisted upon them.
"We have the grounds to do this on an involuntary basis, and we will go that course if needed," Mr. Paulson told senior executives at the two companies, who had little idea such a move was coming, according to three people familiar with the meetings.
There was no dramatic trigger, nor was there fear of imminent collapse. Instead, the sweeping government intervention stemmed from a growing realization by Treasury and Federal Reserve officials that the two companies couldn't survive in their present forms, and that any collapse would be devastating to the economy.
The decision was hashed out over weeks of meetings. They included a conclave of Federal Reserve officials during their annual retreat at Jackson Hole, Wyo.; a mid-August polling of bond-market players by Morgan Stanley bankers advising Treasury; and a marathon session over the Labor Day weekend, fueled in part by Diet Coke and Coke Zero.
Dozens of bankers and lawyers were involved in the process. One junior banker joked that the round-the-clock schedule was tougher than prison -- at least there, you got three square meals a day.
In the end, Mr. Paulson, Federal Reserve Chairman Ben Bernanke and James Lockhart, head of the companies' regulator, the Federal Housing Finance Agency, concluded that the two companies had lost the confidence of the markets and couldn't survive as currently structured. No one could say how much money from the Treasury, either via a loan or an equity investment, would be enough to get them through the housing mess. Hence, the need for the government to step in and stabilize what has become a vital cog for the housing and mortgage market.
This account of the government's dramatic decision is based on interviews with government, Wall Street and company officials and others.
The Treasury's Hope
In July, Mr. Paulson received authority from Congress to prop up the companies through a loan or equity investment. Although he said he had no plans to intervene, he hired Morgan Stanley to review Fannie and Freddie's books and come up with ways to structure an investment, should one be needed.
Inside Treasury, the hope was that merely receiving authority to backstop the two companies would comfort markets enough that they could raise capital on their own. Both companies needed to replenish their capital, which had been eroded by billions of dollars in mortgage losses.
Mr. Paulson did not want to intervene, one government official said, in part because doing so would require a lengthy explanation to Congress. "We stood on the steps of Treasury and said we had no plans to use this authority," the official said. Going back to Congress would not be "an easy pivot."
Two things would soon force Treasury's hand. Uncertainty about Treasury's plans and how any intervention would affect shareholders caused shares of Fannie and Freddie to fall sharply, making it all but impossible for them to raise equity. At the same time, government bank supervisors and Morgan Stanley bankers studying the loans that are guaranteed and owned by Fannie and Freddie determined that the companies were facing serious capital shortfalls.
On Aug. 7, the lead bankers on the Morgan Stanley team, Robert Scully and Ruth Porat, met with Mr. Paulson for the first time. Mr. Paulson told them nothing was off the table in terms of structuring an intervention.
Inside Treasury, the working theory was that if they had to intervene, an equity investment would be the most likely course. Mr. Paulson and his staff debated the impact on shareholders. If they made an investment, Mr. Paulson told his staff, he did not want it to benefit shareholders. He didn't want the government to be seen as bailing out investors who profited from the companies' hybrid status as private entities that have the implicit backing of the government.
Morgan Stanley, which had about 40 bankers working on the matter, broke into teams. They provided ongoing updates to Mr. Paulson, often meeting with him as early as 7 a.m. or as late as 11 p.m.
Morgan Stanley started soliciting outside input. During a conference call in mid-August -- one in a series -- bond-market investors with known positions in Fannie and Freddie debt were invited to give their views. Morgan Stanley bankers participated in listen-only mode so no one could interpret their reactions. Minutes of the meeting were distributed to other Treasury officials.
Financial institutions, investors and other market participants were painting a grim picture: Investors weren't going to invest more in the company unless Treasury kicked in some money, or made clear what would happen to those who did pony up funds.
Treasury asked how much money it would need to inject. It soon became clear that no amount was going to be enough. If Treasury were to inject $10 billion, the market would want to see $20 billion. If Treasury put forth $20 billion, the market would want $30 billion.
At Fannie Mae and Freddie Mac, executives were painting a much rosier picture. They insisted they could raise capital if Treasury would step in and provide some kind of support. Fannie Mae proposed that the government guarantee that new investors would be protected if the government later intervened -- a move Fannie thought would help it raise money.
After shaking up his top management team, Fannie Chief Executive Officer Daniel Mudd wrote in a memo to employees: "Now it is time to pull on our boots and march out of this mess."
Three Options
On the morning of Aug. 18, the Morgan Stanley team presented its preliminary findings to Treasury officials. The meeting, held in Mr. Paulson's conference room overlooking a courtyard, lasted the entire day. About 30 people participated.
The upshot: The companies were facing a deep financial hole. While their capital might meet the letter of regulatory requirements, they still might not have enough to cover their expected losses. Morgan Stanley bankers scoured the books on the loans guaranteed and owned by Fannie and Freddie. Using assessments about what would happen to the housing market over the next 18 months, they determined that the companies were in need of as much as $50 billion.
At that point, Mr. Paulson and his staff began to realize an equity investment might not work. The companies needed so much capital that if Treasury were to go in, it would have to structure the investment on generous terms to gain shareholder approval, something Mr. Paulson did not want to do.
Morgan Stanley presented three options to Treasury: receivership; a less aggressive option called conservatorship, in which the companies' regulator, the FHFA, would essentially run the companies' operations; and the even more incremental step of having the companies try to raise money on their own.
In late August, during the Fed retreat in Jackson Hole, top central-bank officials from Washington and New York slipped out of conference sessions and met for several hours in a lodge conference room to discuss options. Mr. Paulson had asked the Fed in July for its expertise, and its bank supervisors had begun poring over the firms' finances. Fed officials had been warning about the firms for a decade.
Fannie and Freddie were still able to fund themselves, but it was getting more expensive to do so. Foreign officials, whose central banks own Fannie and Freddie debt, were calling Mr. Paulson to express concern.
Sen. Charles Schumer, a New York Democrat, said he was told by government officials that foreign investors were threatening to bail out. "There was a real fear that foreign governments would start dumping Fannie and Freddie...and not buy the bonds," he said.
Once Treasury realized conservatorship was a possibility, it assembled a transition team to work with the FHFA on how such a takeover would work. The team -- led by Jim Wilkinson, Treasury's chief of staff, and Edward DeMarco, FHFA's chief operating officer -- reviewed how to ensure that the companies could continue to operate and how to keep employees from leaving, among other things.
The big decision came together during a marathon series of meetings over Labor Day weekend at Treasury's offices. A dozen Treasury officials, including Mr. Paulson, gathered together with Mr. Bernanke, Fed Governor Kevin Warsh, the Fed general counsel and a top banking official and Mr. Lockhart's team.
The group gathered in a conference room across from Mr. Paulson's office at 8:30 a.m. that Saturday. They were dressed mostly in business-casual khakis and shirts. They began discussing their overarching principles, and evaluating the pros and cons of each option.
They recognized they only had bad alternatives, but agreed that the risks of doing nothing were too great. By late Saturday, they were leaning toward conservatorship as the best option. They spent the next two days thinking through legal and market implications. Mr. Paulson led the sessions. Mr. Bernanke and other top officials weighed in.
More Analysis
Treasury planned to tell the two companies about the plan last Friday, and complete it by Sunday, in time for the opening of Asian markets. Mr. Paulson needed one more thing: He later pressed for Mr. Bernanke to issue a statement of support.
Mr. Lockhart, however, wanted more analysis. Without his approval, the takeover would not happen. After looking at data assembled by the Fed, the Office of Comptroller of the Currency and FHFA, Mr. Lockhart agreed that the companies were in a severe capital hole.
On Friday, Mr. Mudd, Fannie's CEO, and Richard Syron, Freddie Mac's chief executive, were summoned to FHFA's offices in Washington for separate meetings. Messrs. Lockhart, Paulson and Bernanke sat on one side of the conference room table. Company executives sat on the other side.
Mr. Lockhart spoke first, telling the firms that they were going to be taken over. Mr. Paulson then told the executives they could go along willingly, or FHFA would declare them undercapitalized and take them over involuntarily.
Mr. Paulson raised concerns about the companies' capital positions. The companies needed to take more reserves to cover mortgage-related losses, but doing so might have put them in violation of the standards that govern them.
Mr. Syron was taken aback, according to two people familiar with his thinking. While the companies had expected Treasury to take some action, he didn't expect this. As of Tuesday, the Freddie board still had been whittling down the list of possible candidates for the CEO job, and was exploring other ways to raise capital on its own, according to one person familiar with the matter.
Mr. Mudd said he would have to take the issue to his board, which he did the next day.
Mr. Syron called a board meeting immediately after his FHFA meeting. "Paulson said, 'Accept or it will happen,'" Mr. Syron told the board, according to a person familiar with the matter.
http://online.wsj.com/article/SB122083060663308415.html
Paulson’s book just talks about teams of Federal Reserve, Office of the Comptroller of the Currency (OCC), FHFA examiners, “we had all been putting in 18-hour days during the summer and through the preceding Labor Day holiday weekend” and also he adds a person from the FDIC.
But there isn’t a single word about Morgan Stanley’s work in his book. The WSJ said Paulson hired Morgan Stanley after July 2008 to review FnF’s books and Morgan Stanley had about 40 bankers working on the matter, they broke into teams.
“On the morning of Aug. 18, the Morgan Stanley team presented its preliminary findings to Treasury officials. About 30 people participated (in that meeting).”
They had weeks of meetings, marathon sessions, a conclave of Federal Reserve officials, round-the-clock schedule,… “Morgan Stanley provided ongoing updates to Mr. Paulson, often meeting with him as early as 7 a.m.or as late as 11 p.m”. Morgan Stanley even presented three options to Treasury.
The link provided above (Dec.7) shows the entire first chapter of Paulson’s book and MS isn’t even mentioned, so we can assure that Henry Paulson has hidden premeditatedly Morgan Stanley’s work on FnF’s books, hired by him since July 2008. Why?
It seems that he didn’t know when he wrote his book in 2010, that one guy with a laptop could recoup the WSJ’s article of September 8th 2008, where MS’s intensive work is explained wider. MS is mentioned 10 times in the article.
Also thanks to a Bloomberg News’ exclusive, we’ve recently learned about the massive Federal Reserve secret lending to banks and that Morgan Stanley took $107 billion of these secret loans in September 2008. Who had the deep financial hole then?
http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html
So many weeks of meetings, Federal Reserve officials and 40 Morgan Stanley bankers working on FnF’s books since July 2008 and Morgan Stanley is the one that had the deep hole in its books! hahaha. Thanks God it took just a few days to study Morgan Stanley’s books after Lehman collapse to come up with the figure of secret lending of $107 billion and not weeks of meetings, a conclave of Federal Reserve officials, etc. like FnF’s case…….Oh! wait a second, or were they working since July on the financial shock they were about to prompt with Lehman collapse, choosing winners and losers? In other words, ‘reorganizing’ the overall Financial System and Housing Finance System.
The former chief of Lehman Brothers told a panel investigating the financial crisis that the Wall Street firm could have been rescued, but regulators refused to help. “Lehman was forced into bankruptcy”. “Lehman’s demise was caused by uncontrollable market forces, and the incorrect perception and accompanying rumors that Lehman did not have sufficient capital to support its investments,” Fuld testified. But he said Lehman proposed measures to federal regulators that could have saved the firm, and “each of those requests was denied.” Other financial firms later received the government assistance that Lehman was denied, Fuld said. Lehman was “mandated” by regulators to file for bankruptcy on Sept. 15, 2008 — the only firm ordered to do so, he said.
“Lehman was forced into bankruptcy not because it neglected to act responsibly or seek solutions to the crisis, but because of a decision, based on flawed information, not to provide Lehman with the support given to each of its competitors,” said Fuld.
http://www.nj.com/business/index.ssf/2010/09/ex-lehman_brothers_ceo_fuld_fe.html
I would like to know his opinion now that we have recently learned about the massive secret Fed lending ($107 billion MS in september 08!)
Always remember the superb article by journalist Matt Taibbi in Rolling Stone magazine contended that naked short selling had a role in the demise of both Bear Stearns and Lehman Brothers. Commented on December 11.
The shareholders require to our regulator FHFA’s DeMarco to don’t allow the recent ‘President’s plan’ that urges a massive refinancing scheme before the general elections.
Whatever the plan that FHFA’s DeMarco accepts, first of all Fannie and Freddie should be released from conservatorship.
After 3 and a half years in Conservatorship, with 3-option-plans, wind-down rhetoric, plan of plans, etc.. we just can’t believe any announcement of forthcoming reform.
The politicians don’t want to wind-down the GSEs, they want to bury them.
MORGAN STANLEY, A COMPETITOR OF FnF, TOOK THE DECISION OF CONSERVATORSHIP
Statutory critical capital, the measure to place FnF in conservatorship, revisited (comment of Jan 31).
1) So many hours of work by 40 Morgan Stanley bankers and Federal Reserve staff and the first emergency decisions are:
-Place FnF in conservatorship.
-"Initial Commitment Fee": The enterprises issued $1 billion worth of Senior Preferred Shares each, under the Agreement with Treasury and effective-date the day of Conservatorship, but without receiving any cash in exchange, they were issued for free.
The Agreement says that when the enterprises report a negative Net Worth (Deficit) in one quarter, they will submit a draw request to Treasury, then the Treasury gives the enterprises the cash at the end of next quarter ("within sixty (60) days of its receipt of such request") and receives Senior Preferred Shares in exchange of the cash (it shall "occur simultaneously with such funding").
http://www.treasury.gov/press-center/press-releases/Documents/seniorpreferredstockpurchaseagreementfrea.pdf
I’ve been always wondering why the need to issue $1 billion worth of Senior Prfd. Shares effective the first day for free. Now we know why: so many hours working on FnF’s books and they came up with the idea they needed to lower the Core Capital $1 billion more and don’t show the Statutory Critical Capital to don’t make people compare both capital measures.
2) WSJ: “Mr. Lockhart spoke first, telling the firms that they were going to be taken over. Mr. Paulson then told the executives they could go along willingly, or FHFA would declare them undercapitalized and take them over involuntarily”.
I told you above that the Far West period, isn’t that far. It’s still alive. What is it to say that you are going to be taken over, you could go along willingly or the regulator would declare you undercapitalized and take you over involuntarily? Hahaha. Unbelievable.
According to the regulator and the enterprises’ SEC filings, the way to place the enterprises in conservatorship is: “The critical capital level is the amount of core capital below which an Enterprise must be classified as critically undercapitalized and generally must be placed in conservatorship”.
How can an enterprise enter in conservatorship willingly, without being declared critically undercapitalized, if that’s the measure of capital considered in an enterprise to be placed in conservatorship?
This is a proof the former management was in collusion with the FHFA and H. Paulson and they surrendered the enterprises. (They were in a hurry because the elections were coming).
3) WSJ: “While their capital might meet the letter of regulatory requirements, they still might not have enough to cover their expected losses. Morgan Stanley bankers scoured the books on the loans guaranteed and owned by Fannie and Freddie. Using assessments about what would happen to the housing market over the next 18 months, they determined that the companies were in need of as much as $50 billion.” Morgan Stanley presented three options to Treasury: receivership, conservatorship or raising capital.
This means that the decision of Conservatorship was based on expected losses using assessments from Morgan Stanley, that is a competitor of FnF in the securitization market, about what would happen to the housing market over the next 18 months, and not based on any rule of capital measure at that moment. I bet they wrote as input in their forecasting-model: the incoming forced-Lehman bankruptcy, subsequently the financial markets will be frozen, markets panicking, then consumer spending collapse, millions of household accounts destroyed, millions of enterprises around the world filing for bankruptcy and, the last input, an entire world-generation in limbo.
A competitor of FnF, Morgan Stanley, helped in the decision of placing the enterprises in Conservatorship, but on September 2011 Morgan Stanley was sued by the FHFA, on behalf of FnF, for the sale of 33 securitizations (PLMBSs) from sept.12, 2005-sept.27, 2007, worth $10.58 billion with fraudulent information. (There are other 17 financial institutions sued, totalling a $200 billion portfolio of toxic PLMBSs. Others, surprisingly, haven't been sued, like Wells Fargo).
The scheme is quite clear, to swell FnF’s portfolio with subprime and higher risk mortgages and toxic PLMBSs hiding the information, later takeover of FnF and wind them down in order to bury the sale of these toxic mortgages and take FnF’s functions. Commented on december 23.
A JUDGE MUST STEP IN (the current politicians will never allow the enterprises to exit conservatorship, Geithner will finally surrender FnF to the big banks or the GSEs will be buried).
WHY WAS HIRED MORGAN STANLEY?
1- H. Paulson hired Morgan Stanley after he received authority from Congress to intervene , according to the WSJ. This authority was given by Congress when HERA was enacted on July 30. But Bloomberg News recently reported that Henry Paulson disclosed nonpublic information on Fannie and Freddie Conservatorships in a meeting with “a dozen or so” hedge-fund managers at Eton Park’s headquarters on July 21, 2008. “Paulson explained that under this scenario (conservatorship), the common stock of the two government-sponsored enterprises, or GSEs, would be effectively wiped out. So too would the various classes of preferred stock, he said.” Commented on Nov. 29.
A fund manager said that "he was shocked that Paulson would furnish such specific information -- to his mind, leaving little doubt that the Treasury Department would carry out the plan".
Therefore, Paulson already had the determination to place FnF in conservatorship before hiring MS. Then, why was hired MS with 40 bankers working, weeks of meetings, a marathon session, often meeting with him as early as 7 a.m.or as late as 11 p.m, a conclave of Federal Reserve, etc…?
2- Why did Paulson hire MS to restructure FnF if the Treasury has a Restructuring Department? Here is said that Jim Millstein served as chief restructuring officer at the Treasury Department, where he oversaw the reorganization of AIG, therefore there was a restructuring department.
http://www.politico.com/news/stories/1111/67705_Page2.html
3- WSJ: “He hired Morgan Stanley to review Fannie and Freddie's books and come up with ways to structure an investment, should one be needed.The companies needed so much capital that if Treasury were to go in, it would have to structure the investment on generous terms to gain shareholder approval, something Mr. Paulson did not want to do. Morgan Stanley presented three options to Treasury: receivership; …conservatorship,…and…to raise money on their own.”
You hire an investment bank to restructure a company, but later you say that it won’t happen because it will be very generous to the shareholders. Generous? What an excuse from someone that is seeking a restructuring of an enterprise! It seems that Paulson didn’t want a restructuring in the first place and he had hired them for nothing. By the way, there wasn’t needed any restructuring, just to abide by their charters: “Treasury may provide funding at an appropiate rate…” (government's implicit guarantee).
Oh, wait a second, MS came up with 3 options: receivership, conservatorship, or raising capital. But even a school-boy knew these 3 options before, so why hiring MS?
BOTTOM LINE
40 bankers ‘working on the matter’ and weeks of meetings? All of the above is a proof that MS was working on others’ books and not only on FnF’s books. They were studying the forthcoming capital needs of the financial institutions they wanted them to survive, so that the Federal Reserve could provide rapidly the secret-Fed-loans, the others (the losers) will be shut down or gobbled up.
Finally, the WSJ’s article is a proof that the ‘group’ later embarked on a PR campaign and a misleading campaign, utilizing books, movies, philanthropic events, CNBC events, etc… to change the public opinion about what really happened, because Morgan Stanley’s work is not mentioned in his book, therefore H. Paulson was intentionally rewriting history with his book. Commented on January 8.
MORGAN STANLEY, CHINA AND THE BIG DECISION DAY
WSJ said that Morgan Stanley had a conference call –one in a series-- with FnF’s bondholders (presumably China, the largest GSE debt-holder) in mid-August 2008 (after H. Paulson travelled to China on August 7th 2008). (Yes, you read correct: Government, a competitor and a bondholder meeting in a room with the objective to wipe-out the shareholders).
WSJ: “During a conference call in mid-August -- one in a series -- bond-market investors with known positions in Fannie and Freddie debt were invited to give their views. Morgan Stanley bankers participated in listen-only mode”.
Let’s see who has travelled to China recently…
Now it makes sense when Morgan Stanley chairman John Mack headed a unofficial U.S. delegation to China on Feb. 2011, less than two months after the official meeting US-China JCCT was held in the States (commented on Feb.20). He thought he was still co-Treasury Secretary three years later, and travelled to China to seek advice because the housing finance reform was not announced on the January 31 deadline by law: Wang Qishan would say that they should write a bill about a Cooperative Model (or John Mack submitted this idea to China), he will travel to the States on May to pressure Geithner about the need of a housing finance reform (comment May 11), and a few days later the politicians would introduce in Congress the bill H.R.1859 (comment May 14, among others), a bill that allows the big banks take FnF’s functions issuing MBSs with a government’s guarantee, by setting up multiple cooperatives and wiping out existing FnF’s shareholders.
W.Qishan (China Vice-premier expert in banking restructurings, see comment of Oct.24) also pressured Geithner on Dec.19, 2010 (see comment), and the official state-visit to the States on January 2011 (comment Jan.18), and he also forced a top chinese economist to recommend selling all GSE bonds to cool down the shares, because Qishan thought that Geithner was not releasing the restructuring plan on the deadline Jan.31 because the common stocks were skyrocketing, hahaha (comment Feb.10). All the speculators with insider-trading information were longs waiting for the announcement, hahaha.
According to the WSJ’s article, “the big decision came together during a marathon series of meetings over Labor Day weekend at Treasury's offices. A dozen Treasury officials, including Mr. Paulson, gathered together with Mr. Bernanke, Fed Governor Kevin Warsh, the Fed general counsel and a top banking official and Mr. Lockhart's team.”
A top banking official taking the big decision?
Who was the top banking official?
Was he Morgan Stanley’s chairman John Mack?
Clive R. Boddy, a former British academic, propagated a theory of the financial crisis: The “corporate psychopaths” at the helm of our financial institutions are to blame.
He says psychopaths are the 1% of “people who, perhaps due to physical factors to do with abnormal brain connectivity and chemistry” lack a “conscience, have few emotions and display an inability to have any feelings, sympathy or empathy for other people.”
He argues in a recent issue of the Journal of Business Ethics, such people are “extraordinarily cold, much more calculating and ruthless towards others than most people are and therefore a menace to the companies they work for and to society.”
http://www.springerlink.com/content/9072633443675517/
Morgan Stanley New York told the spanish unit the decision of the sale on November 30th 2007. At the time, it was very unexpected because MS Spain was built after the purchase of a well recognized firm called AB in 2000 and profitable.
It was sold to a spanish bank after an auction at the end of January 2008. It’s funny to read that they agreed on a price, but it would be adjusted in the 2Q2008. It’s the devil-angel role because Bear Stearns collapsed, due to naked short selling and CNBC’s David Faber (see Matt Taibbi’s article) on March and MS didn’t want to be found suspicious.
Obviously, they said they wanted to focus on ultra high net worth individuals, but this wasn’t their strategy in 2000.
http://www.morganstanley.com/about/press/articles/6005.html
Morgan Stanley sold a similar unit called Quilter in the United Kingdom for the same reason, at the end of 2006 to Citigroup. Price closed the 1Q2007.
http://www.morganstanley.com/about/press/articles/4098.html
It seems that MS, on January 2009, changed its strategy again because it formed a joint venture with its former unit of UK. Morgan Stanley and Citi announced they had reached an agreement to combine Morgan Stanley's Global Wealth Management Group and Citi's Smith Barney, Quilter in the UK, and Smith Barney Australia into a new joint venture to be called Morgan Stanley Smith Barney.
http://www.morganstanley.com/about/press/articles/af3e409a-e1b7-11dd-84e6-b390c77322d3.html
The spaniards are such idiots! Hahaha.
A few days after FHFA’s DeMarco categorically refuted the false allegations against Freddie Mac, about bets againsts the homeowners, the OIG has said yesterday it will further look into these investments.
“A federal Inspector General's office confirmed Wednesday it is looking into Freddie Mac investments that act as bets against homeowners being able to refinance.
In addition, U.S. senators are expected to probe Freddie Mac's investment practices at a hearing on Capitol Hill on Thursday.”
http://www.npr.org/2012/02/09/146585726/potential-conflicts-at-freddie-mac-draw-scrutiny
The scheme is quite clear, the OIG and Congress are being used by the Republican Party and Democratic Party to pressure the regulator on the massive refinancings/debt forgiveness programs and also as a tool to implement a discredit campaign against FnF.
FHFA’s DeMarco recent statement: “The OIG itself is growing rapidly to a scale unprecedented for an agency OIG. The OIG’s budget request for FY2012, which Congress has not yet acted on, would provide the OIG with a budget of $48 million and a staffing level of 150. This would give the OIG one staff member for every four at FHFA, to my knowledge an unprecedented ratio. The ratio of our respective budgets would be of similar magnitude. Since both FHFA and OIG are funded by assessments on FHFA’s regulated entities, the growth at FHFA and OIG is adding costs to the conservatorships and to the FHLBanks”
On July 2, 2008, Paulson had a tough stance against lending by the Federal Reserve or any other government support to commercial banks and investment banks.
--“It is imperative that market participants not have the expectation that lending from the Fed, or any other government support, is readily available,'' Paulson said. The Treasury chief also proposed potentially requiring the White House to sign off on using taxpayer funds to aid a financial company. In the case of commercial banks, the use of taxpayer funds in an emergency requires the approval of two-thirds majorities of the FDIC and Federal Reserve boards, and of the Treasury secretary in consultation with the president.--
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aboaHbnfqqds
Basically, he was telling to the financial institutions that government aid would be subject to presidential approval, it was a strong signal. Therefore, nobody should even dare to ask for federal funds. In other words, all the financial institutions “the group” chooses as losers, ought to surrender willingly.
BOTTOM LINE
What he didn’t tell us then, is that at the same time he was giving a sign to the market and the amercan people that no taxpayer’s funds will be provided to any financial institution, the Federal Reserve was ready to use its machine to provide massive secret lending to their crony-banks.
Note that the settlement with the 5 big banks is just $1.5 billion (about 750,000 borrowers who lost their homes to foreclosures will receive about $2,000 each). It’s a tiny settlement because the accusation was tiny (robosigning case relates to speeding up the foreclosure process, but the borrowers had already several monthly payments past due). The 50 AGs should investigate more, this was very easy.
So, the big announcement of $25+ billion relates to foreclosure prevention actions (both loan modifications and refinancings), therefore, the second part of the settlement is just to force the banks to help borrowers, not a cash penalty. Obama's SOTU speech announced that private label underwater borrowers will refinance their mortgage through the FHA, so maybe the settlement includes a cash penalty that will be used to build up a reserve fund for the FHA (or FnF), to cover these higher risk morgages with LTV>100%. We don't know it yet. See comment of Jan. 25.
This is a proof that the government recognizes the foreclosure prevention actions have a cost to the banks.
Fannie Mae and Freddie Mac have completed nearly 2 million foreclosure prevention actions with more than 1 million of permanent loan modifications since the beginning of conservatorship (3Q08) until 3Q 2011. The programs continue plus a incoming new program to help underwater borrowers.
Is the government going to call FnF’s foreclosure prevention actions, a settlement?
No, they are FnF’s programs done of their own free will.
The government owes to FnF’s workers, management, regulator and shareholders, a campaign to clean their image.
http://www.fhfa.gov/webfiles/22827/3Q2011ForePrevFullReport12611.pdf
Do you still think that W. Buffett didn’t take part in the run-up to the takeover of FnF ‘willingly’? 3 years later we’ve also learned it was very lucrative. Comment of November 29, 2011.
CNBC’s interview on Sep. 8, 2008, one day after FnF were placed in conservatorship:
CNBC: You've spoken with the Secretary, with Secretary Paulson about this?
Buffett: Just yesterday he called me. We had a very short conversation. But it was fait-accompli. I had nothing to do with this proposal at all.
http://www.cnbc.com/id/26606876
He appeared on CNBC, after Paulson, the day after Conservatorship to explain the situation to the taxpayers. Another co-Treasury Secretary back then.
This is a proof of the misleading campaign, praising each other in CNBC events and make FnF’s stocks to plummet. They needed to change the american people’s opinion rapidly:
-“I think the Secretary (Paulson) did exactly the right thing. It's a big, big step in the right direction”.
-“Well, the Treasury, in effect, for them to lose anything the preferred and the common have to get wiped out. And that may very well occur. The question of whether the common gets anything is problematical. The common is an option at this point” (the options trade at pennies on a dollar)
Another proof of this campaign. Exclusive WSJ’s interview to W. Buffett on Sep. 12, 2008:
“Mr Buffett, defended the controversial bailout as necessary nonetheless.There has been some speculation about what value, if anything, remains for holders of the companies' common and preferred stock. Mr Buffett, arguably the most successful investor in history, thinks: Not much. "They are probably wiping out the common and the preferred," he said.”
http://online.wsj.com/article/SB122105355044419253.html
The next is a proof when I said that he has the instruction to be always the next U.S. President’s best friend: “He has publicly supported Senator Barack Obama (he also backed Senator Obama's rival, Hillary Clinton), and said again on Tuesday that "I think he's a very very smart guy, I think he would make an excellent president." But he had supportive words for Sarah Palin, the surprise Republican pick for vice-president, saying: "From what I know, she's done a good job as governor of Alaska."
A few months later, Obama granted W. Buffett one of the lucrative PPIFs called FM (Explained on December 3), with the objective to purchase distressed assets from “imprudent investors”, he said in his 2008 letter to Paulson.
All the financial shocks you prompt to transform the financial system, always have to end with a PPIF to enrich the hedge-fund industry (this will be explained wider).
Obviously, Obama and Geithner have been misled by the Hedge-Fund Industry and bankers all this time, and they had no option but to accept the PPIFs (the markets were panicking). I would have set up PIFs, but at the time it was very difficult to take decisions.
Anyway, the 9 PPIFs and 5 FMs ought to be immediately wound down (assets sold in a 5 year period). After almost 3 years, they are now useless.
I remind you that one of the PPIFs is now managed by former FHFA’s director Lockhart, hahaha. Only in America. (Comment Dec.21).
The PPIF program should be renamed: the “Bankers-Politicians linkage is the disease of the world” program. A PPIF is where the bankers-politicians linkage reaches its zenith.
It’s worth reading my post “Outrageous U.S. government benefiting Hedge Funds”, where I denounced the PPIFs program one day after it was launched.
http://open.salon.com/blog/ebano/2009/03/24/outrageous_us_government_benefiting_hedge_funds
Please, join the Association of Shareholders. We just won’t be defeated.
After FnF have completed nearly 2 million foreclosure prevention actions (1 million of loan modifications) during conservatorship until 3Q 2011, not only the programs continue, but a new program for ‘underwater’ mortgages is coming and also recently was announced one program for unemployed.
But it seems that some AGs don’t know it yet.
This is what three politicians dressed up as Attorney Generals had to say before the general elections:
1-California AG, K. Harris: “While this is a tremendous victory—$18 billion for those who are in their circumstance as a result of the conduct by the five biggest banks—the reality is, 62 percent of the mortgages in California are owned by Fannie and Freddie. And that is why, months ago, we sued Fannie and Freddie in California, because this is about making sure that we bring relief to all Californians. And our focus then cannot afford to be myopic and look only at the banks, because the reality is that Fannie and Freddie are right now being run by a fellow named DeMarco, who—I’ve said before, and I say again—should step aside, because the guy can clearly not figure out what his job requires. And in particular, it requires that in California we see principal reductions on those Freddie and Fannie loans. So, part of our focus is also on Freddie and Fannie.”
http://www.democracynow.org/2012/2/10/50_state_25b_mortgage_settlement_relief
2-Massachushetts AG, M. Coakley: “People are recognizing that we’d love to get the same relief we were able to accomplish through the 50-state settlement for these homeowners caught in the middle because Fannie and Freddie are not willing to entertain loan modifications or principal write downs”.
http://www.masslive.com/politics/index.ssf/2012/02/with_foreclosure_abuse_settlem.html
3- Nevada AG, C.Masto. “Masto in 2010 subpoenaed Fannie Mae and Freddie Mac seeking details about their role in the foreclosure crisis. On Friday she said she will continue to investigate both of the mortgage underwriters”.
http://www.lvrj.com/business/housing-settlement-called-just-a-beginning-139146174.html
This is a judicial harassment and threats to Fannie and Freddie and the regulator, with the objective to ultilize more the enterprises as a tool to backdoor stimulus programs, and it will be incorporated in the lawsuit.
These AGs should be ashamed for not having investigated the real cause of the financial crisis by a bunch of conspirators meeting in Dubai and Moscow with the objective to eliminate competitors, transform the financial system and enrich hedge funds with the purchases of distressed assets from ‘imprudent investors’, utilizing the Federal Reserve Hedge-Fund to provide secret loans and also to distribute these distressed assets to the cronies, and instead they’re just trumpeting a tiny accusation of robosigning.
How the financial shocks work will be explained wider.
THE GSEs SCANDAL IS WORST THAN THE WATERGATE SCANDAL.
Please, join the Association of Shareholders.
1-GSE STATUS
FnF own a GSE status granted in a congressional charter.
Upon the enterprises have the GSE status stripped (It’s just another possible scenario), obviously the shareholders will seek a just compensation (it could be reimbursing the taxpayer assistance, not the senior prfd. shares, in a 10 year period at a rate even lower than the one established in their charters -Treasury yields-, therefore 0%). It’s the same provision already written in the Payroll tax-cut law.
The judge will roll on floor laughing after learning that FnF already had Treasury funding contemplated in their GSE charters “at an appropiate rate” (government’s implicit guarantee), and Conservatorship wasn’t necessary. Congress just had to update the $2.25 billion obsolete limit in the credit line of Treasury written in their charters, because it was set 40 years ago by Congress. At the time, Fannie had only about $15 billion in outstanding debt. In 2008, it had total debt of about $800 billion, while Freddie had about $740 billion. Even a school-boy understands this.
Therefore, FnF haven’t been rescued by the government, the government has just abided by its obligations under FnF’s charters.
The judge will explain to the american people how the government’s implicit guarantee works (comment Nov. 27) and that all of them have been misled by their government during these 3 and a half years.
2- MAKING HOME AFFORDABLE PROGRAM -HARP & HAMP-. Huge payments are due:
Congress approved payments under TARP for MHA program: for lenders (or whoever owns the mortgage -FnF-), mortgage servicers and borrowers.
Not only the government hasn’t paid FnF for these programs, but the government owes to FnF the payments to the mortgages servicers and borrowers, according to a report of the Inspector General (comment October 16).
The judge will roll on floor laughing after learning that HARP and HAMP were launched for loans sold to Fannie and Freddie and guaranteed by them, but later the government doesn’t want to disburse the payments approved by Congress, it just wanted to put the name “President’s programs”.
According to the enterprises’ SEC filings, Treasury has said it doesn’t want to pay FnF for these programs, even if it's written in a Law. Astonishing.
But the most funny thing is that, after nearly 2 million foreclosure prevention actions under MHA, the Treasury and close media say continuously that MHA program isn’t working because the disbursements under TARP are just $2.41 billion (as of Feb. 8) out of $29.88 billion committed. But Treasury has disbursed a tiny amount because it owes FnF all the payments, not because it’s not working! hahaha. Astonishing.
http://www.treasury.gov/initiatives/financial-stability/briefing-room/reports/tarp-daily-summary-report/Pages/default.aspx
The judge will explain to the american people their government is intentionally making FnF’s foreclosure prevention actions go unnoticed, to continue its harassment campaign to later use them as a tool to backdoor stimulus programs.
The shareholders will seek a just compensation if FnF are excluded from the payments approved by Congress, because it’s the Law.
Full explanation of the payments under MHA on the comment of October 26.
You see, the trial will be very funny.
Please, join the Association of Shareholders.
The GSEs SCANDAL is worst than the Watergate Scandal and Obama and Geithner still don't know it.
Toxic origination collusion: a group of financial institutions collude to originate toxic mortages and sell to investors worldwide.
You know….. it’s very strange that the banks have accepted a massive debt forgiveness plan in exchange of relief of claims for a tiny accusation of robosigning. Even a school-boy knows that the amount of a penalty is related to the severity of the accusation.
We are talking about a settlement of the 5 big banks with 50 politicians dressed up as Attorney Generals and a populist government reached a few months before the general elections.
Therefore, all of them are desperate to return to their towns trumpeting a program that forgives mortgage debt, and they are capable of granting the banks huge reliefs for future claims.
1st. It’s very suspiciuos the document with the agreement hasn’t been made public yet. In the website it says “coming soon”. We only know the highlights document and a summary with 4 pages.
2nd. It’s very suspicious that in the provision called “Relief of Claims” it says: “broad relief on banks’ conduct related to mortgage loan origination services”.
As far as I'm concerned it's related to the contract underwriting and quality control in the origination of a mortgage, but this has nothing to do with the accusation of robosigning or servicing of a mortgage.
The origination stage ends when the funds are disbursed to the borrower or the application is declined.
Does this mean that a investor can only denounce the security sold with fraudulent information but not the bank that deliberately originated the toxic product? Therefore, a judge can only seek compensation for the losses of the security, but it won't punish the unethical conduct of the bank when originated the mortgage.
This way the big banks will be released for the colluding in the creation (origination) of toxic mortgages to infect the broad international financial system, for example.
What the hell has to do the origination business with the accusation of robosigning? It shouldn't be mentioned in the settlement, therefore the judge should delete the word "origination" in the settlement.
The 50 AGs and the government will be held accoutable if the banks are released for claims related to the collusion in the mortgage origination abuses.
http://www.nationalmortgagesettlement.com/
1 day before the day of the meeting where FnF were told they will be seized by Bernanke, H.Paulson and Lochkard.
Thursday, September 4, 2008, Freddie Mac amended its ByLaws, without consent of the voting-common shareholders, with an amendment that will be very punitive for the common and junior preferred shareholders: it eliminated a restriction that prevented an investor with a stake of 20% or greater from voting without the approval of the other shareholders.
“Section 11.6 — Control Share Acquisitions. A new Bylaw opting out of the Control Share Acquisitions statute under the VSCA. The Control Share Acquisitions statute is triggered by the acquisition of shares having 20% of more of the voting power of the Company by a person or a group acting in concert with that person. The statute, if triggered, provides that the acquiring person or entity will not be permitted to vote unless approval is obtained from the remaining shareholders.”
http://www.freddiemac.com/investors/sec_filings/index.html
It’s obvious that there was a Bylaw Amendment Limitation in that statute, because it’s an anti-takeover measure and its removal would have required special shareholder approval.
The Board of Directors is not empowered to approve this amendment so punitive to the voting-common shareholders without their approval (note that one of the directors was Geoff Boisi, an old colleague from Paulson’s Goldman Sachs days, he wrote in his book).
The government is not empowered to trample property and shareholder rights eliminating this statue in Freddie Mac’s bylaws.
This is another proof of:
1-Because this is a sign that some action was imminent, we can assure that the management was in collusion with H.Paulson and the FHFA to surrender the enterprises, because Freddie Mac was preparing its ByLaws for the takeover of the Treasury 1 day before the meeting of the decision of Conservatorship.
2-If the management was in collusion with the ‘group’ in this stage it’s another proof of the collusion with many financial institutions in the previous stage: the management deliberately swelled FnF’s portfolio with subprime and higher risk mortgages hiding the information to the shareholders and the public. This porfolio just needed a financial shock with the forced-Lehman bankruptcy to explode and it was incorporated in Morgan Stanley’s assessments in the summer, therefore these management’s and FHFA’s actions are another link in the chain of events.
3-Paulson’s book was written to mislead the american people because he stresses the idea that the management knew nothing about the Conservatorship before the meeting, because he says in the book that Lochkard called Freddie CEO on Thursday evening and Fannie CEO on Friday morning, summoning them for a meeting on Friday afternoon. Fannie CEO called Paulson on Friday morning “What’s going on? …What’s this about?” And in the meeting, Paulson stresses the idea that the former management knew nothing, saying “I watched the Fannie Mae delegation. They were furious. Mudd was alternately scowling or sneering. Once he put his head between his hands and shook it”. Also he adds that they were “stunned”.
And about Freddie CEO --he looked like he'd been hoping for this to happen. He was ready to do his duty, like the man handed a revolver and told, "Go ahead and do it for the regiment”--, hahaha., very true, he was told this was the end of his role in the story, but he didn’t know that he will star in a second movie: TOO SHIT TO PREVAIL (coming soon to theatres).
This is another proof of my comment about what really could have happened in that meeting (comment of January 8).
BOTTOM LINE
Under the Agreement with Treasury the enterprises signed, the Treasury purchased a Warrant representing 79.9% of common sh