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Fannie Mae (QB)

Fannie Mae (QB) (FNMAG)

16.50
-0.60
( -3.51% )
Updated: 09:40:05

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blownaccount9 blownaccount9 7 minutes ago
New capital isn’t going to take the risk of this happening again if they see previous shareholders hosed a final time after 16 years. There is going to be significant hesitation anyway. Wouldn’t surprise me to see FnF trade at a 3-5 p/e for awhile because of the government stink. But if they treat current holders fair and shareholders whoop it up a little it would create a far better investing environment and elicit more interest than if we all are screaming this is fing BS.
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RickNagra RickNagra 11 minutes ago
There was a rather large buy order for 1.1 million shares at around 12:20 pm EST.  It showed up as two large green ticks on the tape.  However the price did not go shooting up.  Did anyone else notice ?  Thoughts ?
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JOoa0ky JOoa0ky 16 minutes ago
Howard is about to lose his shirt thinking that commons need to be treated fairly for outside capital to invest... These two parties' interests are literally on opposite sides of the negotiating table.
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jog49 jog49 18 minutes ago
"
Standing for Freedom Center
@freedomcenterlu
The Berlin Wall fell for a reason. It would be foolish to consider trying to rebuild it - and all it represents - today."

Only a couple of people know this.....the Berlin Wall was knocked down but the pieces were not sent to a landfill in Germany. They were sent to the United States and reassembled between Uncle Sam and Fannie Mae and Freddie Mac shareholders.

So . . . . tear down that wall Uncle Sam! To which he has replied numerous times "FU!".
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DCBill DCBill 42 minutes ago
New Tim Howard Blog, today; excellent suggestion and reasoning for the new Administration on reviving the GSEs.
https://howardonmortgagefinance.com/
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Clark6290 Clark6290 53 minutes ago
FMCC PPS at $2.805
FNMA PPS at $.2.83

My internet is up.
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RickNagra RickNagra 57 minutes ago
https://x.com/markcalabria/status/1866138648573591927?s=46&t=xLP2LlWgJrEMUZZ7Fum-nA
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Rodney5 Rodney5 1 hour ago
Donotunderstand Quote: "as F and F had to write down reserves and thus look undercapitalized" End of Quote

Fannie and Freddie did not have to write down reserves, the companies were made to write down Deferred Tax Assets to make them look bad. Paulson did this to make the companies appear bankrupted and forced the Senior Preferred Stock on to the companies which both companies did not need a capital infusion.

The companies did not have a large sum of losses is exactly what the Congressman was pointing out.

Congressman Alan Grayson Discusses Fannie Mae's use of Derivatives with James Lockhart of the FHFA. Hearing on June 3, 2009.

Time 5:00: Mr. Alan Grayson, Quote: “If those losses are only 192 million dollars how could 192-million-dollar loss result in a 100 billion dollar plus loss to the Taxpayer how is that possible?” End of Quote.

IT IS NOT POSSIBLE IT WAS FABRICATED LOSSES!
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Donotunderstand Donotunderstand 1 hour ago
correction

every dime since day one ---- pre during and post NWS is viewed and booked the the GOV as a dividend

so we have the 200B original and then all the added obligation as F and F keep the cash but write a dollar for dollar - penny for penny - IOU to Treasury since the NWS was """"suspended"""'

a ton of obligation that hangs on our head - and why this super profitable company is so speculative (and not an investment)
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Donotunderstand Donotunderstand 1 hour ago
STERN

seems that is our best chance ---- IMO Congress will use up all the money - and FREEDOM will not mean any increase in PPS

at the executive level - who knows but whatever the odds are that the 300B is kicked to the curb - they are higher there as at that level they can do what they want and DJT is not up for re election
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tzebedee tzebedee 1 hour ago
Wtheck are you blabbing nowadays? You are somethin. Careful not to insult honorable people for what exactly?
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stink stack stink stack 2 hours ago
Put some yellow on it Mr. RickNagra. Please not the yellow snow type!
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NeoSunTzu NeoSunTzu 2 hours ago
"Free Money" ... typical hit piece that you had to know was coming. The point to take from this is the other side will continue to employ ideological Whalen types and useful idiot journalists to do their bidding. These tactics will NOT end until they are forced into submission. Trump, Ackman, Elon and team must act forcefully, decisively, and quickly to end this theft, corruption, and mortgage system and shareholder hostage situation not only for his team's economic policies, but for putting an end to all the D.C. and political corruption which hamstrings, or worse, destroys well-functioning markets.
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stockprofitter stockprofitter 2 hours ago
Buying ONE MILLION SHARES #fnma

Mr. Michael, you have some company sir.
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RickNagra RickNagra 2 hours ago
Best write up ever from Howard.  He just nailed it.  This requires a yellow sticky.
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QueenVic QueenVic 2 hours ago
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stockprofitter stockprofitter 2 hours ago
2.73 gal fill then LOADDD UPPP
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Donotunderstand Donotunderstand 2 hours ago
are you calling Navy a shill ?

a D or R noting conservative concerns is still being fiscally conservative

why a shill
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Donotunderstand Donotunderstand 2 hours ago
all the reasons - legit or not - D or R - fiscally ignorant or fiscally conservative (if there is one left)

all part of the DETAIL

freedom might destroy us !!
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Donotunderstand Donotunderstand 2 hours ago
very informative

question - if the Republicans want the top 5% tax cut to continue and to fund it with F and F gain in freeing them ? Is there any money left for us ?

And as one conservative or ? noted ----- without complete sentences - if the GOV has 300B on the books as owed to it and writes it off - in the context of budged deficit reduction - then it starts 300B in the red. (It may come to an interesting CBO score on the $300B ---- allowing it to be zero with no impact on deficit but still where is the 200B or whatever to fund the top 5% tax cut renewal?)

It's possible CBO scores a sale as positive because it removes future bailout risk,” he said. “But I don't see how it could be valued at the amount of revenue a sale would raise, because the government is letting go of revenue.” (So how do we win if GOV sells to third parties ?? - There are ways but it requires attention to detail and worrying about us )
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Stern is Bald Stern is Bald 2 hours ago
You're the best I love on all your posts it is immediately clear you can't spell... The best is when you called (Jim) Cramer "Creamer"....

Stop eating lead paint chips..
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Donotunderstand Donotunderstand 3 hours ago
and FNMA had a PPS of 50-60 on average for several years pre the STEAL

fits

(and those who say F and F took on FORCED paper for poor people before 2008 - should look at profit per share - dividends - and Price per share for the years pre 2008 --- GREAT --- which again shreds this propaganda that Democratic leaning rules beat up F and F -- plain and simple - lots of PR for Dems - and a rounding error at best - a hair on the tail of mighty profitable companies )
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Donotunderstand Donotunderstand 3 hours ago
I thought "we" did a takings case --- very hard - very hard without Real Estate like a building or Land - very hard . That would be a regulatory taking (v seizing your land or house to push through 1-80)

That is its own court - and I recall we went there

Indeed that judge - who ultimately did not help us - was THE SINGLE JUDGE to allow fact finding discovery !!!! but as it wen to the normal circuit court - we lost
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Donotunderstand Donotunderstand 3 hours ago
Sorry but that is dogs to apples -- please read how we are on same team of GOV was wrong - but differ on detail - please read

the realized losses (or unrealized losses) on the BUSINESS was never an issue !!!! Who cares about unpaid interest on the actual FNMA MBS portfolio. Recall FNMA did the best of all those who packaged mortgages !!!! This was not the issue

Separately - on a NON cash basis - like many financial institutions FNMA needed to write down the MARKET value of their reserves just when bond prices were crashing

The problem with FNMA was an APPEARANCE BALANCE SHEET issue . My comment on large write downs - was clearly noted as belong to the reserves ($$ on balance sheet) that were invested in PLMBS (private label - TBTF banks) MBS paper to earn top interest income. F and F were never in financial trouble on an operating basis and I did not say so. F and F were not even in trouble on the Trillions in MBS paper . F and F looked bad - by GAAP requirements - as F and F had to write down reserves and thus look undercapitalized ---- and the GOV (right or wrong ) feared that the Chinese or Russians who owned a ton of REAL F and F created MBS paper would start or contribute to panic by selling and selling. That is 180 degrees different than the post you put up about a measly 200M of operating loss -- who cares when billions and billions of value on the BS evaporated (same happened to banks).
more
Sorry if you do not understand this black and white DIFFERENCE. Now did the GOV need all these laws and restructure and more -- in hind sight - NOPE. The GOV did not need to invest or lend (it is equity) a penny !!! there did not need to be Senior Paper that hangs over us and then huge dividend 10% flows out ----- IMO AS A NON ACCOUNTANT --- THE GOV COULD SIMPLY HAD SAID WE GUARANTEE FNMA MBS PAPER 100% (My sense is that had the GOV done such an FDR type action - that conservatives (maybe very much rightly) would have said this is not in the power of the executive (RR would disagree) and HERA and FHFA were all IMO cover up to make a guarantee that IMO did not need a cash inflow to F and F
You are arguing with the wrong person - FHFA and SP were not needed - but F and F lost a ton of BS or BOOK VALUE on paper that to outsiders might look bad and worse -------- and again the GOV could have simply said WE GUARANTEE it - versus the charade it did (which to me was done by Bush and Paulson as steps to take over and dissolve F and F - a legacy FDR set of programs that worked well)
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navycmdr navycmdr 3 hours ago
On November 30, 2016, President-elect Donald Trump’s choice for Treasury Secretary, Steven Mnuchin, said, “It makes no sense that [Fannie Mae and Freddie Mac] are owned by the government and have been controlled by the government for as long as they…
HOWARD ON MORTGAGE FINANCE Release 2.0

By jtimothyhoward on December 9, 2024







On November 30, 2016, President-elect Donald Trump’s choice for Treasury Secretary, Steven Mnuchin, said, “It makes no sense that [Fannie Mae and Freddie Mac] are owned by the government and have been controlled by the government for as long as they have,” adding, “we gotta get them out of government control….and in our administration it’s right up there in the list of the top ten things we’re going to get done, and we’ll get it done reasonably fast.”

The first Trump administration, of course, never did. Mnuchin has not addressed this issue publicly, but former FHFA Director Mark Calabria does discuss it in his book, Shelter from the Storm, albeit briefly and vaguely, and essentially blaming Mnuchin. He states, “Secretary Mnuchin generally felt that any option had to maintain Treasury’s priority in the capital structure. Treasury could be heavily diluted, and almost certainly would have to be, but it did not want to see that accomplished by losing its standing.” Later Calabria says, “We were ready to conduct a restructuring by late summer 2020” (without specifying how they were planning to deal with Treasury’s senior preferred stock or its liquidation preference in the companies,) and goes on to ask, ”[since] we had well-developed restructuring plans by late summer 2020, why did none of them happen? First, I believed both the Treasury and the White House wanted to push the issue until after the election. Since any change had the potential to create short-run volatility in the mortgage market, I believe the administration did not want to run that risk….[Then], once the election was behind us, Mnuchin’s attention clearly turned to his post-Treasury plans. Any restructuring, to be successful, would have offended somebody. We did not get it done because Mnuchin did not want to upset anyone on his way out the door, including incoming Treasury secretary Janet Yellen.”

This is just Calabria’s side of the story. The more complete version is that he and Mnuchin had different objectives for the restructuring of Fannie and Freddie that they were unable or unwilling to reconcile. More problematically, both of their objectives were based on fictions about the companies, not facts, and the institutional investors whose participation was essential for the recapitalization of Fannie and Freddie knew this. Mnuchin seemingly wanted Treasury to be repaid twice for 2008 “rescues” the companies did not request and did not need, while Calabria was insisting on “hardwiring” the entirely arbitrary 80 percent increase in required capital he had imposed on Fannie and Freddie in December of 2020, creating a severe handicap for their business. The investment community was being asked to bear the cost of both of these non-economic objectives, which was unreasonable to expect it to be willing to do.

During the Biden administration, Treasury Secretary Yellen and FHFA Director Thompson showed no interest in addressing Fannie and Freddie’s conservatorships. Yellen simply was silent on the matter, while Thompson repeatedly said she would defer to Congress to solve the problem through some unspecified type of legislative “reform.” But the companies have been reformed. They no longer are allowed to hold mortgages in portfolio—which had been the main objection to them prior to the conservatorships—and along with primary lenders are subject to the “ability to repay” provision of the 2010 Dodd-Frank Act that prohibits the toxic loan types and lending practices that triggered the 2008 financial crisis. Moreover, Fannie and Freddie’s entity-based business model—in which revenues on good loans from all years, regions and loan types are available to cover losses on any loans that go bad—is already far superior to the senior-subordinated model used in private-label securitizations (PLS). In the PLS model, each pool must stand on its own, and the inability to reach beyond it for revenues, or add capital post-securitization, requires substantial initial subordination, which translates into much higher credit guaranty costs and still leaves the holders of the senior tranches exposed to any losses that exceed the fixed loss-absorbing capacity of the subordinated tranches. Fannie and Freddie’s credit guaranty model is the gold standard.

So now, the second Trump administration is inheriting two companies that together finance 48 percent of the $14.1 trillion of single-family mortgages in America, have been extremely profitable for the last dozen years and need no further reform, yet because of policy choices made during previous administrations remain mired in conservatorships that would take them almost 15 years to emerge from on their own, during which their current degree of overcapitalization would continue to prevent them from providing affordable mortgage financing to the low- moderate- and middle-income families they were chartered to serve.

Are there any reasons to believe that the new Secretary-designate of the Treasury, Scott Bessent, might have better luck in “getting them out of government control” than Steven Mnuchin did? In fact, there are, because of all of the changes in Fannie and Freddie’s circumstances and condition that have occurred over the past eight years.

Perhaps most significantly, at the end of 2016 Treasury still was institutionally committed to “winding down and replacing” Fannie and Freddie legislatively, as it had been since before Secretary Paulson put them into conservatorship. This goal was driving Treasury’s policies toward the companies, as memorialized in a December 12, 2011 Draft Internal Memorandum for Treasury Secretary Geithner, containing “a plan with FHFA to transition the GSEs from their current business model of direct guarantor to a model more aligned with our longer-term vision of housing finance.” Components of this plan included guaranty fee increases that would continue “until pricing reaches levels that are consistent with those charged by private financial institutions with Basel III capital standards” (irrespective of risk), a single securitization platform for Fannie and Freddie (which could be used by their successors or competitors), securitized sharing of credit risk (which the memo said “would likely reduce the earnings capacity of the GSEs”), and “faster retained portfolio wind down.” All of these were done. This same memo also contained a proposal to “Restructure the calculation of Treasury’s dividend payments from a fixed 10 percent annual rate to a variable payment based on available net worth (i.e., establish an income sweep).” That, of course, was done as well, eight months later, and it became known as the net worth sweep.

But after the November 2018 midterms, which moved the House of Representatives under Democratic control, virtually the entire financial community, along with Treasury, gave up on the idea of trying to replace Fannie and Freddie. Numerous efforts—including the first Corker-Warner bill in 2013, Johnson-Crapo in 2014, and what was called “Corker-Warner 2.0” early in 2018—all had flaws that prevented them from generating any momentum, and a divided Congress was the final blow to the aspirational notion that it might be possible to create a viable alternative to Fannie and Freddie legislatively. Removal of the companies from conservatorship would need to be done by administrative action. And here is where the problem arose. As I wrote in a January 2020 post titled How We Got to Where We Are, “the fictions about Fannie and Freddie that were essential elements of the attempt to replace the companies in a legislative process become impediments when the goal is to successfully recapitalize and release them in an administrative process.”

In his book, On the Brink, Secretary Paulson falsely says,“Fannie and Freddie were the most egregious example of flawed policies that inflated the housing bubble and set off the financial crisis.” Throughout the first ten years of the companies’ conservatorships, that was the version of them repeated by the financial media—and Treasury—and the $187 billion in Treasury senior preferred stock Fannie and Freddie had drawn between 2008 and 2011 was universally viewed as the cost to taxpayers of their profligacy. Very few knew the true story, until more than two dozen shareholder suits were filed against the net worth sweep, beginning with Perry Capital v. Treasury and FHFA in July of 2013.

The amicus curiae brief I submitted for Perry Capital in July of 2015 summarized the facts that were coming to light in these cases. I noted that both Fannie and Freddie had been in compliance with their capital requirements when Paulson asked their boards to acquiesce to his conservatorship request, and that more than all of their $187 billion in senior preferred stock (which Treasury had made repayable only with its permission) was the result of over $300 billion in noncash expenses booked by FHFA as conservator that either were temporary, advanced from future periods, or based on estimates. And I pointed out that Treasury and FHFA had imposed the net worth sweep just before the majority of those noncash expenses reversed and came back into income ($158 billion in 18 months), so that the resulting revenues went to Treasury, rather than enabling Fannie and Freddie to rebuild their capital. (For those interested in the full set of facts about the conservatorships and the net worth sweep, I recommend my Supreme Court amicus written for Collins v. Yellen.)  

In July 2017, the judge in another case against the net worth sweep, Fairholme Funds v. The United States, in the Court of Federal Claims, released 33 documents produced in discovery that made clear that Treasury was not being truthful in its public explanation for the sweep, which was that it was done to save the companies from a “death spiral” of borrowing to pay the dividends on their senior preferred. Not only did these documents reveal that Treasury and FHFA were fully aware that Fannie and Freddie were about to enter “golden years of earnings” just as the sweep was being imposed, there also were memos among Treasury staff making blatant admissions such as, “By taking all of their profits going forward, we are making clear that the GSEs will not ever be allowed to return to profitable entities at the center of our housing finance system” [emphasis in original]. Finally, and more recently, in August 2023, a jury hearing a remand of Perry Capital (now Fairholme Funds v. FHFA) in the U. S. District Court for the District of Columbia found that FHFA “wrongly amended” the Senior Preferred Stock Purchase Agreements when it agreed with Treasury to impose the net worth sweep, and awarded plaintiffs damages plus interest totaling $831 million to date (to be paid by the companies, which have accrued their respective portions).

As a hedge fund manager, Treasury Secretary-designate Bessent should be aware of the plaintiffs’ (correct) version of the Fannie and Freddie story, and if he is not there will be people with whom he is close who can tell him. Knowing the facts should make Bessent more likely to concede that Treasury’s $193.4 billion in senior preferred stock in the companies is fully repaid (as it has been), and to agree that it should be cancelled, along with Treasury’s liquidation preference ($341.0 billion at December 31, 2024, and growing each quarter). Yet should he insist that payments made to Treasury under the net worth sweep are not repayments of the senior preferred—and that the companies should pay Treasury again by having its senior preferred converted to common stock—he at least will be cognizant that this stance will make the recapitalization of Fannie and Freddie much more challenging, because their investors will know that they are not being treated fairly.

Deeming Fannie and Freddie’s senior preferred to have been repaid, and cancelling it and the liquidation preference, will put the companies firmly on the path towards release. But to get to that release point more quickly—and to deliver on the Trump campaign’s pledge to reduce the cost of homeownership for ordinary Americans—Treasury and FHFA also must undo the damage to Fannie and Freddie’s credit guaranty business caused by the punitive and unjustified Enterprise Regulatory Capital Framework (ERCF) imposed by former FHFA Director Calabria. New information about Fannie and Freddie’s risk, and the “Calabria capital standard,” also has become available over the past eight years, which should make tackling and resolving this issue easier for Bessent than it proved to have been for Mnuchin.

Most important is Fannie and Freddie’s continued improvement in their annual Dodd-Frank stress tests. In the last test made available before Mnuchin was appointed Secretary, Fannie required initial capital of 79 basis points to survive a stylized 25 percent decline in home prices, while Freddie required 156 basis points. For the test run in 2020, when Calabria put out his ERCF for comment, Fannie required no capital to survive a 28 percent drop in home prices, while Freddie required 31 basis points. Since then, neither company has required any initial capital to survive their Dodd-Frank stress tests in 2021, 2022, or 2023, and the 2023 test subjected them to a 38 percent decline in home prices. (Curiously, FHFA delayed releasing the results of the 2024 stress tests beyond its August 15 deadline, “so that the Enterprises may provide additional supporting information and analysis of the scenarios, that the Director of FHFA may deem necessary,” but since the 36 percent home price drop in the 2024 test was slightly less than in 2023, it’s safe to assume the companies required no initial capital to pass the 2024 test either.) In sharp contrast, the average risk-based capital requirement for Fannie and Freddie of the Calabria standard—purportedly calibrated to a lesser degree of stress than the Dodd-Frank test—was 4.27 percent at September 30, 2024.

Why is the Calabria capital requirement so much higher? Because it’s purely arbitrary, and not based on risk at all. Rather than create a true risk-based capital requirement for Fannie and Freddie and then set a minimum capital requirement that was lower, Calabria did the opposite. He began by setting a “bank-like” minimum capital requirement of 4.0 percent for the companies (despite the fact that they have no business in common with banks), then used three contrivances—not considering guaranty fees in the risk-based capital stress test as absorbing credit losses, artificially increasing capital on all loans though add-ons, buffers and cushions, and subjecting low-risk loans to a minimum risk weight—to engineer a result for the required amount of Fannie and Freddie’s “risk-based” capital that was greater than his arbitrary minimum of 4.0 percent. (A much more comprehensive discussion of this topic can be found in the September 2021 post Capital Fact and Fiction.)

The impact of this gross overcapitalization has been severe. Fannie has been most affected by it, because the ERCF imposes a graduated capital surcharge for financing more than 5 percent of outstanding single-family mortgages (a “stability capital buffer”), and Fannie is larger. Since the ERCF took effect in the first quarter of 2022, its stability capital buffer has averaged 30 basis points more than Freddie’s (at September 30, 2024 it was 111 basis points of Fannie’s total assets).

A comparison of selected financial data for Fannie between the five years before the ERCF took effect (2017-2021) and after is telling. In the five years prior to the ERCF, Fannie’s guaranty fee on new single-family business averaged 46.5 basis points (not including the 10 basis points it has to charge and remit to Treasury); because of the ERCF that average fee has steadily risen to 54.1 basis points in the third quarter of 2024. We saw in the mid-2010s that when Fannie’s average guaranty fee on new business exceeded 50 basis points, the growth in its single-family business stalled out. The same is happening now. After growing by 3.0 percent in 2022, Fannie’s single-family book shrunk slightly (by 0.1 percent) in 2023, and it has continued to shrink in the first three quarters of this year. As a consequence, while Fannie financed 27.8 percent of outstanding single-family mortgages at December 31, 2021, it financed just 26.1 percent as of June 30 this year (the latest date for which totals on outstanding single-family mortgages are available).

The impact of Fannie’s pricing also is evident in securitization shares. During 2017-2021, Fannie issued an average 39 percent of all new single-family MBS; Freddie and Ginnie Mae each issued 29 percent, and the other 3 percent were issues of PLS. But in the third quarter of 2024 Ginnie Mae was the leading issuer of single-family MBS, at 37 percent; Freddie was second at 28 percent, Fannie third at 27 percent, and the PLS share had risen to 8 percent.

Less evident, but more dramatic, has been the sharp drop in Fannie’s credit guarantees to borrowers with less-than-perfect credit (who typically have lower incomes). Here the relevant base of comparison is pre-conservatorship, and the last five years when Fannie had a “normal” profile of new business acquisitions—before underwriting standards were distorted by originations destined for private-label securitization—which was 2000-2004 (also my last five years as Fannie’s CFO). During that period, the average credit score of all single-family loans Fannie purchased or guaranteed was 715, and 36 percent of its business had a credit score under 700. By comparison, during the first nine months of 2024 Fannie’s average credit score on new business was 759, and a mere 10 percent of that business had a credit score under 700. That is a plunge of over 70 percent in what are predominately affordable housing loans. This, too, is the result of pricing, particularly the feature of the ERCF that does not consider guaranty fees to absorb losses. Because of that, the credit “risk weight” of a loan with a 90 percent loan-to value ratio and a credit score of 660 results in required capital of 945 basis points. And when you add in the additional percentages for management and operations risk, and the stress and stability capital buffers, Fannie’s total required capital on a 90 LTV, 660 credit score loan is 11.50 percent, requiring the company to charge a guaranty fee of 125 basis points to earn a return on capital comparable to what it's earned on its average credit guaranty portfolio so far in 2024. That’s preposterous.

None of these trends are going to improve as long as the ERCF remains in effect. And what has been happening with Fannie also is reflected in national housing trends. Earlier this month the Washington Post published an article that reported, “Between July 2023 and June 2024 the share of first-time home buyers in the market was only 24 percent — a historic low.” It also said, “The share of home buyers paying all cash reached 33 percent through August this year, according to data from Redfin — one of the highest rates since the years following the Great Recession,” and added, “As cash purchases have become more common, the median age of home buyers…now stands at 56 years old,” compared with 39 years old in 2008 (when Fannie and Freddie were put into conservatorship). The high all-cash share of homebuyers, and their increased average age, are flip sides of mortgage costs that are unaffordable to younger potential homebuyers with decent but not great credit. This is a real problem, and getting Fannie and Freddie out of conservatorship with capital requirements based on economics rather than ideology would be a real solution, which the second Trump administration could take credit for.

What prevented Treasury Secretary Mnuchin and FHFA Director Calabria from delivering on Mnuchin’s November 2016 pledge to get Fannie and Freddie out of government control was the inability of the former to get comfortable with ending (not just suspending) the net worth sweep and eliminating Treasury’s senior preferred stock and liquidation preference in the companies, and the intransigence of the latter in making the release process much more difficult by insisting on nearly doubling their capital requirements at the same time as their credit risks were falling and their revenues soaring (as reflected in the results of their Dodd-Frank stress tests). The lessons from this failure, plus a fresh face at Treasury, should ensure that these mistakes aren’t repeated in “Release 2.0.”

Something else that won’t happen with Bessent as Treasury Secretary is “privatization” as defined by the Heritage Foundation in Project 2025. For most people, privatization means the return of Fannie and Freddie to shareholder ownership. But the Heritage Foundation’s definition of privatization is stripping Fannie and Freddie of all of the federal attributes in their charters, while leaving their business restrictions intact. The companies would not survive in that state, as the Heritage Foundation implicitly admits with its recommendation that, “Fannie Mae and Freddie Mac (both GSEs) must be wound down in an orderly manner [and] the Common Securitization Platform should be privatized and broadly available.” In other words, run off $7.3 trillion in Fannie and Freddie’s single- and multifamily mortgages and hope they can be re-issued as private-label securities. That is a disastrous prescription by academic theoreticians with no market experience, and Bessent will treat it as such.

More likely, in my view, would be for Bessent to arrive at a strategy for the release of Fannie and Freddie through an analytical process similar to what I outlined in my September 2023 post, An Easy Way Out:

“As Treasury evaluates ending the net worth sweep and allowing Fannie and Freddie to exit conservatorship, it will need to determine which of its claims on them [its senior preferred, liquidation preference, and warrants] have the most value. And that will not be hard. To get value out of its $120.8 billion of senior preferred stock in Fannie and $72.6 billion of senior preferred in Freddie, Treasury will have to convert them into each company’s common stock. Yet the very act of doing so will reinforce investors’ strong views of unfair treatment. They know Fannie and Freddie have repaid their senior preferred, with dividends; it’s just that Treasury has used its non-repayment provision as a reason not to count net worth sweep remittances as repayments. Treasury’s insisting that its senior preferred be converted to common would be requiring the companies to repay their senior preferred twice. If it does, how many investors would choose to buy Fannie or Freddie common stock again—including the stock Treasury would need to sell to get value from converting its senior preferred—and how much would they be willing to pay for it?

Now consider the alternative: making Treasury’s warrants for 79.9 percent of Fannie and Freddie’s existing common stock more valuable by making the companies more valuable. Here, Treasury would work with FHFA and the administration’s senior economic team to negotiate a recapitalization and release agreement that includes retroactive cancellation of the non-repayment provision of the senior preferred and a recasting of the companies’ remittances under the net worth sweep as repayments of the senior preferred stock (which would pay all of it off for both). Fannie and Freddie, in return, would agree to accept utility-like return targets on their credit guaranty business, benefitting homebuyers. Then, for its part, the administration would acknowledge the criticisms made by commenters on FHFA’s request for input on Fannie and Freddie’s capital and pricing, and strongly encourage (or require) FHFA to remove the excess and unwarranted conservatism in the ERCF, to have it more closely reflect the true risks of Fannie and Freddie’s business.”

An Easy Way Out also suggests a “quick fix” to the ERCF that would not require re-issuance of the rule, at least not immediately: “to drop the ‘prescribed leverage buffer’ Calabria added to the 2.5 percent minimum capital requirement FHFA set for the companies in its 2018 capital standard, and then remove enough of the non-risk-based minimums and buffers in the ERCF’s risk-based component to reduce it to below the 2.5 percent minimum, which would become the companies’ binding capital requirement for the foreseeable future.” In conjunction with that, of course, Treasury and FHFA would cancel or replace the January 14, 2021 letter agreement between Mnuchin and Calabria setting 3.0 percent CET1 capital as the threshold for ending the companies’ conservatorships.

Deeming Fannie and Freddie’s senior preferred to have been repaid and canceling the net worth sweep and the liquidation preference, and giving the companies a true risk-based capital standard and a reasonable minimum capital percentage, would be a “win” for all parties. The biggest winners would be millions of low- and moderate-income Americans, who once again would have a large-scale source of low-cost mortgage credit to help them achieve their dream of homeownership. But not far behind would be Treasury, whose stakes in Fannie and Freddie would become a great deal more valuable were the companies to be treated fairly, returned to private management, and structured to succeed.





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HOWARD ON MORTGAGE FINANCE © 2024.





























Automattic, Inc.
60 29th St. #343, San Francisco, CA 94110
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Stern is Bald Stern is Bald 3 hours ago
For AN imbecile....

Did you drop out of 4th grade grammar class? Unga-bunga.
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jog49 jog49 3 hours ago
"Rep. Andy Barr, who is running to lead the House Financial Services Committee next year, is bullish on the idea: “There's more work to do to recapitalize the GSEs before they can be released,” he told our Eleanor Mueller. “But the point is, if you can get the GSEs into better financial shape, then it could be a substantial pay-for for the tax legislation, and it can deliver a more sustainable housing finance system.”

20 Questions Quiz: #1 What's wrong with this STUPID SOB?
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Angelmin Angelmin 3 hours ago
Go away, there is no place for imbecile here.
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skeptic7 skeptic7 3 hours ago
Not sure you're correct on the amount, but here's a little nugget of info; every dime swept since the NWS was implemented in 2012 has been counted as a "dividend" to the conservator. As such, the principal amount remains the same, and any interest paid was that which was paid before the NWS.
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stockprofitter stockprofitter 3 hours ago
Careful they left a little one penny gap at 2 point seven three on purpose
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Stern is Bald Stern is Bald 3 hours ago
Good, if congress can't agree as it hasn't been able to do in 15 years just sets up an administrative release...
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Horseman Country Horseman Country 3 hours ago
It's good to see the shills getting hammered in the comments.
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Brooge warrants cancelled Brooge warrants cancelled 4 hours ago
call elon he can help with your internet
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Guido2 Guido2 4 hours ago
https://x.com/GuidoPerei/status/1866128846405398706
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geofflowe geofflowe 4 hours ago
FNMA
FANNIE MAE (USA) COM NPV
As of 12/09/2024 09:31 AM ET
Refresh day's change, security information and your position
Last Price$2.79
Day's Change+$0.06 +2.20%
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Clark6290 Clark6290 4 hours ago
My internet is down, what does premarket bid and ask look like. Hopefully will go up a penny or two today
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Brooge warrants cancelled Brooge warrants cancelled 4 hours ago
hes a tranny clown
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stink stack stink stack 4 hours ago
Fortune cookie says to expect.....
A wild ride this week.
Boom!
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Red Cloud Red Cloud 4 hours ago
I can tell you exactly when the Calvary will arrive -

1/20/2025
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navycmdr navycmdr 4 hours ago
Read the reply Comments below Catman ...

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stockprofitter stockprofitter 4 hours ago
Nice
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navycmdr navycmdr 4 hours ago
`Free money’: The coming clash over Fannie and Freddie

By KATY O'DONNELL 12/09/2024 08:00 AM EST

https://www.politico.com/newsletters/morning-money

QUICK FIX

Republican lawmakers are raising the possibility of wrapping two top priorities — extending tax cuts and reducing the government’s footprint in the housing market — into one deal as part of next year’s must-pass tax legislation.

The idea — selling off the government’s stake in Fannie Mae and Freddie Mac to help pay for extending tax cuts — is simple in theory. Fannie and Freddie, the government-controlled giants that back roughly half the $16 trillion residential mortgage market, have languished in conservatorship since Treasury bailed them out in 2008. Bipartisan efforts to overhaul the so-called government-sponsored enterprises have repeatedly foundered in Congress over questions about the companies’ future role and the fallout for the mortgage market. The first Donald Trump administration made some headway toward recapitalizing and releasing the GSEs before the pandemic struck, and — depending on whom Trump names to run their regulator, the Federal Housing Finance Agency — the second administration is likely to revive the effort.

That’s where Congress could come in. Republicans are expected to use the reconciliation process to move tax legislation next year. Now, there’s talk of including language to mandate the release of the GSEs in the process as a way to offset revenue losses from extending the expiring tax cuts.

Rep. Andy Barr, who is running to lead the House Financial Services Committee next year, is bullish on the idea: “There's more work to do to recapitalize the GSEs before they can be released,” he told our Eleanor Mueller. “But the point is, if you can get the GSEs into better financial shape, then it could be a substantial pay-for for the tax legislation, and it can deliver a more sustainable housing finance system.”

Barr said he has discussed the GSEs with Scott Bessent, Trump’s nominee to lead the Treasury Department.

Rep. French Hill, another contender for the top spot on Financial Services, left the reconciliation option on the table for Fannie and Freddie and suggested Congress should be involved in any process to release the companies: “Although some changes can be achieved through administrative actions, certain important reforms are only possible through statutory changes,” Hill told MM in an email. “If Congress uses budget reconciliation, that money should be used to fund President Trump’s policy priorities.”

Incoming Senate Banking Chair Tim Scott declined to comment.

Democrats are leery of the idea, assuming an if-it-ain’t-broke-don’t-fix-it attitude toward the housing finance market. They’re also keen to maintain Fannie and Freddie’s affordable housing goals.

“The notion of ‘releasing’ two government-sponsored enterprises that backstop half of a massive, multitrillion-dollar mortgage market, on the strength of an unstated government guarantee, strikes me as irresponsible and reckless,” Rep. Ritchie Torres told MM. “Fannie Mae and Freddie Mac present a systemic risk to the economy and therefore should remain in the grip of conservatorship.”

Torres, a New York Democrat, raises one of the key questions complicating the process: what to do with the government guarantee — the market’s belief that the government would once again bail out Fannie and Freddie.

Another question: “Fannie and Freddie currently have a liquidation preference with Treasury — that is, how much money they owe the department — of over $330 billion. How's that getting resolved?” said former FHFA Director Ed DeMarco, now president of the Housing Policy Council. “In a world where we operate with huge government deficits, writing off $330 billion that's owed just through the liquidation preference, you know, is a pretty big step.”

The future of Fannie and Freddie’s credit risk transfer programs would also have to be sorted out, DeMarco said, adding that he is skeptical of the reconciliation idea given the number of complicated questions policymakers would have to answer to make it happen.

“Fannie and Freddie represent about half of [the residential mortgage market],” DeMarco said. “So I think that taking time to really think through these broader questions about the impact on the mortgage market ought to be primary relative to, you know, whether it raises a modest offset for the tax cut.”

Even if lawmakers manage to sort everything out in the next year, there’s another question hanging over the process — how would the Congressional Budget Office score it? A 2020 CBO report on releasing the companies pointed out that “the net financial cost of an asset sale incorporates the present value of the expected proceeds from the sale, the loss of future revenues from the asset, and changes in future spending that would have occurred if the asset had remained in federal ownership.”

Or, as Structured Finance Association CEO Michael Bright put it, “I can't see how it's free money.”

“It's possible CBO scores a sale as positive because it removes future bailout risk,” he said. “But I don't see how it could be valued at the amount of revenue a sale would raise, because the government is letting go of revenue.”

It’s Monday — Get in touch with me at kodonnell@politico.com. And, as always, you can find Sam at ssutton@politico.com.

Shameless plug — On Tuesday, Sam will be moderating a post-election outlook webinar hosted by Edelman Smithfield. It will include Nationwide Mutual Chief Economist Kathy Bostjancic, Morningstar Chief Investment Officer for the Americas Philip Straehl, and Edelman Managing Director and U.S. Co-Lead for Financial Services Sean Neary. You can register here.

DRIVING THE WEEK

Monday … The Treasury Department kicks off its 2024 Outbound Investment Security Conference … the Council on Foreign Relations holds a discussion on "building economic resilience and advancing economic statecraft” at 12:30 p.m.

Tuesday … The CFTC holds a meeting of the Market Risk Advisory Committee at 9:30 a.m. …Sen. Michael Bennet, Harvard Professor Jason Furman and others speak at an Aspen Economic Strategy Group event, beginning at 9:30 a.m. … The SEC holds a virtual meeting of the Investor Advisory Committee at 10 a.m. …

Wednesday … November CPI data will be released at 8:30 a.m. … IMF Managing Director Kristalina Georgieva, CFTC Commissioner Kristin Johnson and New York Stock Exchange President Lynn Martin speak at a Reuters leadership summit, beginning at 9 a.m. …SEC Commissioner Hester Peirce delivers remarks on "woke capital and ESG,” and Sen. Cynthia Lummis and House Majority Whip Tom Emmer deliver a Hill briefing for the Competitive Enterprise Institute’s summit on "FinancialWeaponization,” beginning at 9 a.m. … CFPB Director Rohit Chopra testifies at a Senate Banking hearing on consumer protection at 9:45 a.m. … the House Budget Committee holds a hearing on the U.S. fiscal crisis at 10 a.m. …

Thursday … The Center on Budget and Policy Priorities holds a discussion on "Rental Assistance at 50: Looking Forward After a High-Stakes Election” at 9 a.m. … The Peterson Institute for International Economics holds a virtual discussion on "U.S.-China Relations and Economic Outlook” at 9 a.m. … the Cato Institute holds a briefing on tax cuts at 12 p.m. … the Treasury Department holds a virtual meeting of the Federal Advisory Committee on Insurance at 1 p.m. Friday … The Commerce Department’s Bureau of Economic Analysis holds a virtual meeting of the Federal Economic Statistics Advisory Committee to discuss statistical methodology at 10 a.m.

Billions in spending. Critical foreign aid. Immigration reform. The final weeks of 2024 could bring major policy changes. Inside Congress provides daily insights into how Congressional leaders are navigating these high-stakes issues. Subscribe today.

TRANSITION OF POWER

Trump says he has no plans to replace Powell — Trump said he has no plans to fire Federal Reserve Chair Jerome Powell, in an interview on NBC’s Meet the Press. Asked if he would try to remove Powell, Trump responded, “No, I don’t think so. I don’t see it,” your host writes.

“I think if I told him to, he would. But if I asked him to, he probably wouldn’t,” Trump added. “But if I told him to, he would.” Powell, whose term expires in 2026, said last month that he would not leave his post if Trump asked him to, telling reporters it’s “not permitted under the law” for presidents to remove members of the independent central bank.

On the Hill

House Republicans to pick Financial Services chair — The House Republican steering committee will vote Thursday afternoon on the next chair of the committee that oversees Wall Street, the Federal Reserve and cryptocurrency, Eleanor reports.

Reps. Andy Barr of Kentucky, French Hill of Arkansas, Bill Huizenga of Michigan and Frank Lucas of Oklahoma are expected to present their pitches in alphabetical order midday Thursday, two people briefed on the plans said Sunday. Steering committee members will then vote by private ballot on their choice to helm the panel.

Though the four share similar policy goals, frontrunner Barr is expected to focus his pitch on melding the GOP's free-market and America First contingents — in line with a booklet he distributed to steering committee members last month. Hill, another top contender, will propose creating new committee roles and highlight his financial policy resume, per his own booklet.

For further reading, check out our POLITICO Pro interviews with Barr in November, July and February; with Hill; with Huizenga; and with Lucas.

Regulatory Corner

CFPB orders supervision of Google pay unit — The CFPB on Friday placed Google Payment Corp. under its supervisory authority, a designation that will subject the tech giant to the level of monitoring that banks face. Google responded by immediately suing the agency in federal court in Washington.

The agency has the power to place non-depository firms it deems to be a risk to consumers under supervision, a process that gives government examiners access to internal records…. The order, CFPB Director Rohit Chopra’s latest swipe at Big Tech, "does not constitute a finding that the entity has engaged in wrongdoing,” the agency said in a statement. “The CFPB’s order does not require the CFPB to conduct a supervisory examination.”

Google fired back: “This is a clear case of government overreach involving Google Pay peer-to-peer payments, which never raised risks and is no longer provided in the U.S., and we are challenging it in court,” Google spokesperson Jose Castaneda said.

Markets

WSJ: Can stocks pull off another year of big gains? — “Wall Street is grappling with whether another year of robust gains is possible for a stock market that is looking precariously expensive,” WSJ’s Krystal Hur reports. “The S&P 500 has surged 28% in 2024 and is on pace for back-to-back annual jumps of more than 20% for the first time since a four-year stretch that ended in 1998.

“Strategists at some of the nation’s biggest banks are projecting more modest returns in 2025. JPMorgan Chase, Morgan Stanley and Goldman Sachs project that the S&P 500 will reach 6500 by the end of next year, a 6.7% increase from Friday’s close of roughly 6090.”

Write your own chapter in the new Washington. From the Lame Duck Congress Series to New Administration insights, POLITICO Pro delivers intelligence across 22+ policy areas to help you anticipate and navigate change. Discover how a Pro subscription empowers you. Learn more today.

Fly Around

Dallas Fed: Nearshoring to Mexico not happening yet — Recent data do not show that large-scale foreign capital is heading into Mexico, according to a study published by the Federal Reserve Bank of Dallas’s new Global Institute.

The Institute “will draw on the Dallas Fed's strong legacy of international research and the Eleventh District’s special location to lead policy-related research on global trade, international capital flows and migration, with a particular focus on the U.S.–Mexico relationship,” the bank said in a press release. “The Global Institute aims to become a resource for the Federal Reserve System and the public to understand the changing and complex global economy and its implications for U.S. monetary policy.”

Jobs report

Amber Beck has joined U.S. Bank as director of public policy within the government relations team. She leaves her post with the Senate Banking Committee, where she was deputy staff director and chief counsel for the incoming chairman, Sen. Tim Scott. Before joining the banking committee, Beck was a senior attorney at the FDIC’s division in charge of supervision, legislation and enforcement.
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Brooge warrants cancelled Brooge warrants cancelled 4 hours ago
https://x.com/MarkCalabria/status/1866107934729551963/photo/1
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Clark6290 Clark6290 5 hours ago
Fantasy land my Amigo
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Clark6290 Clark6290 5 hours ago
As always, spot on Along.
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Mr Michael Mr Michael 5 hours ago
You don't give advice with honor.

Michael 
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Ace Trader Ace Trader 6 hours ago
RE-COIL DAY !!
The Full Socatics line has crossed and the CCI line has shown reversal and heading back to support! We should see continued upswing today and setup for the next leg up and over the next week back over $3 for both Fannie and Freddie.
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Brooge warrants cancelled Brooge warrants cancelled 6 hours ago
go away donkey
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EternalPatience EternalPatience 8 hours ago
I also agree. She will never seen 2 again..  those days are behind us.
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Mr Michael Mr Michael 8 hours ago
You don't give advice with honor.


Michael 
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