Paulson could be forced to act on Freddie and Fannie

Paulson could be forced to act on Freddie and Fannie

Put in this way to say if those 401K funds managers want to sign up the Feddie and Fannie shares voluntarily as the long-term investment for the “young age” clients, the Federal Reserve backed might work in this way. Sometime people may understand that when we talk a lot about the 2009 McCAIN administration in White House plans to pawning our pure yellow US Gold Bars to market the US-Gold-US-melted “Muslim Gold Dinar” sales in Malaysia’s Muslim Securities Exchange Center at Kuala Lumpur and trade at the Saudi Stock Exchange Center to generate our US dollar revenue. The US Gold Bars pawned to “Muslim Gold Dinar” can always buyback anytime from the external markets once we have higher US dollar. That’s why the 2009 McCAIN administration like to appoint a Conservate JACK KEMP, a Southern California’s Pepperdine University graduate to serve as Secretary of Commerce (or perhaps Secretary of Treasury).

Fannie, Freddie draggin' down regional banks...
:eek:
Trouble for regional banks: analyst
August 25, 2008: Sovereign, Westamerica and Gateway, large investors in Fannie Mae and Freddie Mac, could be hurt if government rescues mortgage giants.

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Some regional banks with substantial holdings in Fannie Mae and Freddie Mac preferred stock could suffer from the uncertainty over the mortgage finance giants' fate and the possibility that the government will rescue them, an analyst said Monday.

A government rescue of Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500) — whose share prices have plunged in recent weeks as they struggle with billions of dollars in losses from bad mortgages — could be costly for scores of investment, banking and insurance companies that hold billions in their preferred shares.

Preferred stock holdings

Regional banks with the largest exposure to Fannie and Freddie preferred stock as a proportion of their capital include Sovereign Bancorp Inc., (SOV, Fortune 500) Westamerica Bancorp (WABC) and Gateway Financial Holdings Inc (GBTS)., Samuel Caldwell, analyst at Keefe, Bruyette & Woods wrote in a research note. Preferred shares usually pay a fixed dividend and have priority over common stock when it comes to dividends and bankruptcy liquidation.

While slightly riskier than bonds, which have the highest priority in times of trouble, companies often invest in preferred shares for certain tax advantages. Still, on Wall Street, Fannie and Freddie’s existing preferred shares are trading like junk bonds, yielding around 17% to 19% instead of around their 6% dividend levels. The higher yield is an inducement to investors to accept the higher level of risk that the dividends won’t be paid.

[url=http://money.cnn.com/2008/08/25/news/companies/regionals_fannie.ap/index.htm:
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False rebound?...
:confused:
New home sales rise, but grim news lurks
August 26, 2008: Sales pace of new homes in July grew 2.4%, due to a large downward revision in sales from the previous month. Unadjusted monthly sales fall to 13-year low.

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The government offered more discouraging news about the housing sector on Tuesday, reporting that new home sales rose slightly in July only after revising the previous month’s number sharply lower. Sales for July came in at a seasonally adjusted annual rate of 515,000, up 2.4% from 503,000 in the previous month, the Census Bureau reported. Last month, Census had put the June figure at 530,000. The change marks the fourth of the past five reports that Census has slashed the previous month’s number. The trend worries economists who say a hoped-for stabilization of the housing market remains elusive.

“It’s concerning because the pattern of revisions from the Census Bureau has been systematically downward instead of random as you’d expect," said David Seiders, chief economist for the National Association of Home Builders. “Chances are we’ll see some downward revision when they put out the August numbers." The July reading on the battered housing market was below the consensus forecast of 525,000, according to economists surveyed by Briefing.com.

“The uptick is still good news, but we’ll see if it holds," said Seiders. “The market could really use a boost." Even though sales for the month unexpectedly rose month to month, sales fell 35.3% from July 2007, when new home sales were on an annual pace of 796,000. The rise in new home sales is also deceptive because of seasonal adjustments. On a non-seasonally adjusted basis, the report showed only 43,000 new homes were sold in July, which marks the lowest level for that measure since December 1994.

[url=http://money.cnn.com/2008/08/26/news/economy/new_home_sales/index.htm:
Price and supply woes continue[/url]

Management overhaul at Fannie Mae...
:cool:
Management shake-up at Fannie Mae
Thursday, 28 August 2008 - A rise in foreclosures has added to uncertainty for US lenders

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US mortgage giant Fannie Mae has announced a shake-up of top executives, in an attempt to restore confidence after a series of losses. Three executives have left, but the board said it remained committed to its chief executive Daniel Mudd. Fannie Mae and Freddie Mac are a key part of the US market, guaranteeing half the mortgages offered.

Stephen Swad, chief financial officer since last year, will be replaced by controller David Hisey. Peter Niculescu, head of capital markets, will replace Robert Levin as chief business officer. Enrico Dallavecchia, the company’s chief risk officer, will also leave.

The changes “signal they are trying to correct some problems," said David Dreman, chair of Dreman Value Management, a Fannie Mae and Freddie Mac shareholder. “When you change risk management people, it has to be viewed as recognising problems, so it is mildly positive."

[url=http://news.bbc.co.uk/2/hi/business/7585415.stm:
Feeling the strain[/url]

Gov’t. bailout of Fannie, Freddie...
:eek:
Feds to Take Over Fannie, Freddie
Saturday, Sep. 06, 2008 (WASHINGTON) — The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monumental move designed to protect the mortgage market from the failure of the two companies, which together hold or guarantee half of the nation’s mortgage debt, a person briefed on the matter said Friday night.

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Some of the details of the intervention, which could cost taxpayers billions, were not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who asked not to be named because the plan was yet to be announced. Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies' chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government’s plan to put the troubled companies into a conservatorship.

The news, first reported on The Wall Street Journal’s Web site, came after stock markets closed. In after-hours trading Fannie Mae’s shares plunged $1.54, or 22 percent, to $5.50. Freddie Mac’s shares fell $1.06, or almost 21 percent, to $4.04. Common stock in the companies will be worth little to nothing after the government’s actions. The news also followed a report Friday by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.

That confirmed what investors saw in Fannie and Freddie’s recent financial results: trouble in the mortgage market has shifted to homeowners who had solid credit but took out exotic loans with little or no proof of their income and assets. Fannie Mae and Freddie Mac lost a combined $3.1 billion between April and June. Half of their credit losses came from these types of risky loans with ballooning monthly payments.

While both companies said they had enough resources to withstand the losses, many investors believe their financial cushions could wither away as defaults and foreclosures mount. Many in Washington and on Wall Street hadn’t expected Paulson to intervene unless the companies had trouble issuing debt to fund their operations.

[url=http://www.time.com/time/nation/article/0,8599,1839294,00.html?xid=feed-rss-netzero:
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See also:

Paulson readies the 'bazooka'
September 6, 2008: Big buyers of Fannie Mae and Freddie Mac debt have been shying away. The Treasury secretary wants to coax them back.

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It took two months, but the bond market called Henry Paulson’s bluff. Now the Treasury Secretary is expected Sunday to announce a plan to take Fannie Mae and Freddie Mac under government control. The mortgage giants are expected to be placed under a “conservatorship” of their new regulator, the Federal Housing Finance Agency. The agency would likely temporarily run Fannie and Freddie and continue to implicitly back any liabilities until the two companies' financial standing was strengthened. A Treasury official confirmed that regulators were working out details of an intervention plan on Saturday.

In July, Paulson attempted to calm financial markets by pledging government support for Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500), which were under siege by investors because of fears about their weak balance sheets. Paulson asked Congress for the right to use taxpayer funds to intervene - but hoped the pledge alone would be sufficient. “If you have a bazooka in your pocket and people know it, you probably won’t have to use it,'' he said at a July 15 Senate Banking Committee hearing.

But now Paulson is readying the bazooka, because the markets didn’t respond as hoped. Shares in the companies bounced back from multiyear lows in recent weeks, but bond markets have not regained confidence in Fannie and Freddie. The amount the companies pay to borrow in the bond market has risen sharply during the past year. Fannie and Freddie rely heavily on their ability to borrow money at good rates, which they use to buy mortgages from lenders - they now own or guarantee some $5 trillion in home loans.

[url=http://money.cnn.com/2008/09/06/news/economy/fannie_freddie_paulson.fortune/index.htm:
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Fannie, Freddie investors gonna lose bigtime
:eek:
Fannie, Freddie: The biggest losers
September 7, 2008: Investors in Fannie Mae and Freddie Mac face massive losses when trading opens Monday.

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Big investors in Fannie Mae and Freddie Mac face a brutal Monday. Shares in the mortgage giants, which have already lost 90% of their value over the past year, are likely to plunge anew in the wake of the government’s announcement Sunday that it is taking control of the companies and ending the payment of common and preferred dividends. Common and preferred shareholders won’t be outright eliminated, as some had feared. But while the shares will continue to trade, it may for investors be a distinction without much of a difference.

Under the “conservatorship” plan announced Sunday by Treasury Secretary Henry Paulson, common shareholders will also be stripped of their rights to govern the companies. Given that both Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500) have posted billions of dollars in losses during the past year, and that billions more are expected while house prices continue their historic decline, it’s not likely that the market will accord much value to shares that give holders no right to select board members or otherwise oversee management.

The list of big losers is long:

Bill Miller, the Legg Mason mutual fund manager, was Freddie Mac’s largest shareholder as of July 31, with 12% of the company’s stock. Others Freddie investors include Capital Research & Management of Los Angeles, with a 10% stake as of June 30, and AllianceBernstein and Pzena Investment Management, both of New York, with 6% and 5%. Holders of Fannie common shares include AllianceBernstein, with 12% of outstanding shares, and Capital Research and Dodge & Cox, of San Francisco, each with 11%, according to data from LionShares.com.

The government said it will recapitalize Fannie and Freddie over time by making purchases of senior preferred stock. The existing preferred shares will continue to trade, the government said, inflicting losses most notably on the regional banks that hold them. Treasury said banks should ask their regulators for help if they believe losses on Fannie-Freddie holdings cause their capital to fall below required levels - an admission that the prices of the existing preferred shares are likely to fall even from their already reduced levels. “The federal banking agencies are assessing the exposures of banks and thrifts to Fannie Mae and Freddie Mac," Paulson said. “The agencies encourage depository institutions to contact their primary federal regulator if they believe that losses...are likely to reduce their regulatory capital below “well capitalized."

[url=http://money.cnn.com/2008/09/07/news/economy/shareholder_wipeout.fortune/index.htm:
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