The story is so obvious, so simple, so overwhelmingly bullish and yet not one article or person is talking about it on this board...
All longs need to know is this. FNMA is a quasi-US government organization, it is not some near bankrupt small beverage company. What does that really mean? Well, consider the fact that the United States is a country with its financial house in extreme disorder, dependent on foreign nations willingness to buy its bonds in order to stay financially solvent. The only reason these nations aren't demanding much higher yields is because of the historical good standing name of our country. Now here is the kicker. Do you people really believe that US government will "wind down" or "dissolve" one of its own institutions without compensating its shareholders? There are $3 billion in common shares outstanding, and FNMA is earning billions. The global shockwave that would hit the financial system should any word get out that the US govt "cheated" shareholders of one of their institutions would create massive panic selling in the US bond market.
My point of saying all of this is to simply remind you that psychology is everything in these matters and there is ZERO chance that US government will risk its good name to wipe out a measly $3 billion dollars in common stock without fully compensating shareholders. Makes sense?
Look at the latest balance sheet (B/S). Or ask someone to explain the B/S to you. Fannie Mae is insolvent with $128 billion negative retained earnings, which is same as bankrupt. It is alive because of the government. We are betting that future income will erase the $128 billion retained earnings. At the rate of 17 billion a year, as of 4/2/2013, That's 6 years. But there is no guarantee we will see FNMA make another $17 billion a year. FNMA shouldn't hit $2 or over until retained earnings are returned to at least negative $10 billion.
Do you know how much money does US government print per day? $128 billions may be a small amount as compared to all the money that has been printed since 2009. Also, $128 billions will be paid off in 7.5 years on the assumption that FNMA will continue to make 17 billions a year. FNMA is here to stay :-)
look at it this way you owe 128 thousand on a mortgage you took out you pay 4% interest your monthly payment minus interest as long as you pay do they foreclose, FNF is paying their bills. They are not bankrupt...
I think the answer is so simple. The US simply could not be responsible for success of a company long term. Right now, FNMA leadership still leads FNMA but under government oversight. If the government wants to try to absorb a private multi-billion dollar corporation and manage it themselves GOOD LUCK! It will sink like a rock! If the US gov really takes this over, then all FNMA employees will leave and will be replaced with TSA type federal workers. Do you think anyone is going to want a body frisk with their mortgage?
I could go on all day with the ridiculous scenarios that would arise from full government control and absorption of FNMA. The company has made some mistakes in the past taking on toxic loans, but that is nothing compared to the $@%$ ups that would occur if the government really had full control over FNMA.
It is not just a story. You can read 10K which says that F&F:
1. Have opened new book of mortgage loans which not only offered high net return at low risk, but also stabilized the housing market. The government obviously asked them to do so.
2. Have pursued banks that sold toxic (worthless loans) at par to F&F to return the funds collected by the banks.
3. Have got the Fed as the largest debt holder and Treasury as the largest stockholder.
4. Have been asked by Congress to not sell its senior preferred stock without Congressional approval.
5. Have been asked by Congress to not be used as the piggy bank of the Administration.
These mean to me that the Congress wants F&F to build their own equity capital, which would raise the value of taxpayer investments in F&F.
you're dreaming dude, you're seeing it the way you want to see it. Of course they would allow common holders to get zero. They will take care of the preferred only. Now that makes sense.
During 1977 the gov. owned the perferred stocks and after while it was given back to FNMA and FMCC. The same could happen again. Gov. will own it for sometime and give the ownership back to FNMA and FMCC, once both goes provide in 2016 or after that year.
Give me one example is US history where the US government behaved the way you are talking about with one of its own institutions that had debt and or common shareholders? I bet you can't do it.
Would be technically suicidle for the US to destroy their golden goose. Since the Sex Pistol we would not have see such a Punk scene that would be the US ... No FNMA No Future because if the banks do the jobs of FNMA then the next downturn i buy your house $20 000 if we're not in the same State of Mayhem like Greece or Cyprus...