Thoughts on FNMA and FMCC

[LC]

I just started reviewing the different preferred shares, but have not finished my analysis. Has anyone done any work on the best one to invest in?

I believe they are all considered pari passu, so would the only differentiating factor be liquidity? FNMAS and FCKMJ are the most liquid I have found, and are priced as such.

[schin]

Most appear to have a $25 par value. But, FNMFM is trading at $8 and change and par is $50.

 

Wouldn't that have the largest upside?

[JRH]

Most appear to have a $25 par value. But, FNMFM is trading at $8 and change and par is $50.

 

Wouldn't that have the largest upside?

 

If they were called or otherwise liquidated at par or some fraction, or converted to common relative to par, then yes.

 

If they someday reinstate the dividend, then they might be priced relative to the coupon.

 

You could estimate the market's weighting of both factors - as well as liquidity - by looking at the relevant features of each.

[BargainValueHunter]

Fairholme's Case Study on Fannie and Freddie (Part 1)

 

http://www.fairholmefunds.com/show_pdf.php?file=http://www.fairholmefunds.com/sites/default/files/130905-GSE-CNBC.pdf#pagemode=bookmarks

[BargainValueHunter]

http://www.nasdaq.com/article/bruce-berkowitz-fannie-mae-drama-continues-with-small-victory-cm281652

 

Fortunately for Berkowitz, on Sept. 18, the court denied the government's motion for a stay, meaning his case can move forward.

 

Berkowitz explained his view of the sweep amendment in a Sept. 17 interview with CNBC:

 

I don't understand the 2012 amendment, the sweep amendment. The 2012 amendment was established as if we were still in 2008. The lawsuit is about protecting our property. For all I know there could be a typo in the third amendment. It makes no sense to me. The government cannot unilaterally change the rules and harm minority shareholders by privatizing losses and socializing gains. That doesn't work in America.

 

But Berkowitz still faces a further challenge: legislation to dissolve the two companies and replace them with a new government entity, the Mortgage Insurance Corporation (FMIC), with co-sponsors Sens. Bob Corker, R-TN, and Mark R. Warner, D-VA. The legislation, known as the the Housing Reform and Taxpayer Protection Act of 2013, would create a new entity tp "provide a federal backstop for investors in certain mortgages, like the GSEs currently do, but that backstop would only be triggered after private investors had already absorbed the first 10 percent of any potential losses," according to Zillow, which interviewed the senators on Sept. 19.

 

The longer the shutdown (perhaps) the longer the delay in any sort of congressional action = more time to accumulate FNMA and FMCC all across the capital structure at a severe discount to par (or intrinsic value).  ;D

 

 

[BargainValueHunter]

Yep...in Washington, D.C. the only party that counts is the Money Party™

 

http://www.businessweek.com/news/2013-10-15/fannie-mae-survival-back-on-table-as-lawmakers-sketch-new-system

 

The consensus in Washington that Fannie Mae (FNMA:US) and Freddie Mac should be dismantled is weakening amid opposition from hedge funds, regional banks and others who could benefit if the companies survive in some form.

 

President Barack Obama and lawmakers from both parties have called for the two mortgage-finance companies to be replaced by a new U.S. housing system. While the official position hasn’t changed, a bipartisan group of U.S. senators writing legislation is grappling with how to ensure that changes to Fannie Mae and Freddie Mac don’t disrupt the recovering housing market.

 

Some Democrats said they are leery of engineering a switch that would liquidate the government-sponsored enterprises, or GSEs, leaving it to private entities to risk their own capital on home loans.

[nkp007]

Yep...in Washington, D.C. the only party that counts is the Money Party™

 

http://www.businessweek.com/news/2013-10-15/fannie-mae-survival-back-on-table-as-lawmakers-sketch-new-system

 

The consensus in Washington that Fannie Mae (FNMA:US) and Freddie Mac should be dismantled is weakening amid opposition from hedge funds, regional banks and others who could benefit if the companies survive in some form.

 

President Barack Obama and lawmakers from both parties have called for the two mortgage-finance companies to be replaced by a new U.S. housing system. While the official position hasn’t changed, a bipartisan group of U.S. senators writing legislation is grappling with how to ensure that changes to Fannie Mae and Freddie Mac don’t disrupt the recovering housing market.

 

Some Democrats said they are leery of engineering a switch that would liquidate the government-sponsored enterprises, or GSEs, leaving it to private entities to risk their own capital on home loans.

 

The most powerful undercurrent is the real estate industry. They'd much rather have no change than risk a new system with unintended consequences. I bet their lobbying outweighs everyone else's.

[brker_guy]

http://www.bloomberg.com/news/2013-10-31/fannie-mae-sues-banks-for-800-million-over-libor-rigging.html

[valuecfa]

http://www.bloomberg.com/news/2013-10-31/fannie-mae-sues-banks-for-800-million-over-libor-rigging.html

 

Finally starting to see a bit up movement in some of the prefs...looking forward to litigation responses.

[BargainValueHunter]

http://www.dailyfinance.com/2013/11/10/another-week-with-fannie-and-freddie/

 

But thanks to a major turnaround, both GSEs are nearing the point of giving the government back 100% of its investment. According to Reuters, Fannie Mae's latest payment will put it within $2.2 billion of this milestone, and Freddie Mac's payment will actually have the government ahead by a small $9 million.