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ARMOUR Residential REIT, Inc. Message Board

  • a_zitnay a_zitnay Feb 13, 2012 10:29 AM Flag

    DEMISE OF FANNIE AND FREDDIE

    Does anyone know how the winding down of Fannie and Freddie will affect ARR and the other players in the mortgage backed spread field? Any reason to get out?

    thanks in advance.

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    • Fnma and FMCC will go up in 2012; if you have some extra money you should buy some but not on margin quite yet- FNMA should be in $1 range by end of year. Real estate recovery in 2012.

    • yourbestfriendintheworld yourbestfriendintheworld Feb 13, 2012 2:52 PM Flag

      The plans proposed don't address the real problem: given free reign, the banks will create another crisis. Their profit-driven myopia demands they compete with each other to enhance risk and concomitant return, while failing to insure themselves properly against large-scale fluctuations in repayment and default. They will arbitrage stability against their chances of getting away with most of the loot in the case of a meltdown, and find it profitable - for them alone - to create turmoil in many circumstances. And, as always, since a mob of individuals of morals varying from indifference to evil and of a singular professional focus on monetary performance is innately immune to emotional and political feedback, the banking system will only listen to the money and will never, ever, consider the human cost of its failings.

      The proposals are also naive if they think this will somehow decouple the taxpayers from the risk. They have crazily forgotten already that taxpayers spent $700 billion to re-float non-government banks, while Fannie and Freddie have only needed $150 billion to stay afloat.

      Other than that, what will happen is the lending industry will evolve a class of premium MBS similar to the sort currently issued by the Agencies, but, owing to the banks' inability to be as stable as the government of the entire nation, these MBS will naturally be of lower quality overall, and of lower supply at every quality level other than junk, than those currently available from the Agencies.

      It will be harder to find good MBS to invest in, and demand for quality will drive up prices and drive down yield.

      The current Agency mREITs would do best in that situation to "close" their funds. Stop bringing in any new investment capital. Let the existing assets continue collecting profits. Keep disbursing dividends, eventually from a mix of profits and assets when it becomes reasonable not to reinvest repayments.

      The management companies that created these ticker symbols would simply create new ones to operate in the new business model, allowing them to change the rules by which they manage the funds to suit the new risk profile. No more pure Agency mREITs, and no more Hybrid mREITs. Just mREITs.

      They would only get into the lending and securitizing business themselves if they wanted to be characterized as banks. Unlikely, but not inconceivable.

 
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