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Federal National Mortgage Association Message Board

  • dmesshian dmesshian Jun 19, 2013 9:05 AM Flag

    Street Insiders' Analysts: Reasons for This Serious Rally in FNMA & FMCC??

    Housing Experts Debate GSE Reform Timeline and Junior Securities (FNMA) (FMCC)Print.8:43 AM 6/18/2013 - StreetInsider
    Analysts at Compass Point weighed in on GSE reform after The Bipartisan Policy Center (BPC) held an event on June 17 titled: "Housing Finance Reform: Is Inertia Gaining Momentum?" Participants included a variety housing industry experts such as former FHFA Director James Lockhart, Lew Ranieri, and Mark Calabria. The commentary could have implications for Fannie Mae (OCT: FNMA) and Freddie Mac (OTC: FMCC).

    One important takeaway centered on the all-important junior securities. Former FHFA Director James Lockhart said he doesn't think Capitol Hill will be very sympathetic to hedge funds and the stocks were delisted for good reason.

    Compass Point Takeaways:

    GSE Profitability Hurts Reform Timeline. The purpose of the BPC s event was to to call upon Congress and the administration to reform our nation

    s housing finance system. A noteworthy theme throughout the event was that the return to profitability for the GSEs is reducing the pressure for D.C. to act on GSE reform. Crisis governing is the new normal and,for that reason, strong earnings at the GSEs remove any sense of urgency for meaningful action towards housing finance reform. While it is undeniable that positive signs are emerging (see below), there simply is no political will to meaningfully undertake GSE reform in this Congress.

    Corker-Warner Effort Praised, But Timing Reality Highlighted. The silver lining for GSE reform proponents was the chatter surrounding the still unreleased Corker-Warner reform bill (please see here for our most recent note on the legislative effort). The core of the bill calls for the liquidation of the GSEs over a five-year period and the creation of a new entity which is referred to as the Federal Mortgage Insurance Corporation (FMIC). As with earlier proposals, the effort calls for private investors to be placed in the first-loss position while the FMIC would prov

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    • The system should be working with better controls. Do not reform only because people want to reform. If the reform fails again, then it is a big loss of the credibility and leadership.

    • why would anyone want to invest in re-inventing the wheel when they have the power , under conservatorship to change the way fmcc and fnma operate/perform? BTW, they have been doing just that.

    • Continued:
      Corker-Warner Effort Praised, But Timing Reality Highlighted. The silver lining for GSE reform proponents was the chatter surrounding the still unreleased Corker-Warner reform bill (please see here for our most recent note on the legislative effort). The core of the bill calls for the liquidation of the GSEs over a five-year period and the creation of a new entity which is referred to as the Federal Mortgage Insurance Corporation (FMIC). As with earlier proposals, the effort calls for private investors to be placed in the first-loss position while the FMIC would provide explicit reinsurance on the uncovered portion of the security. The Corker-Warner effort was mentioned numerous times during the event but there was no illusion regarding the difficulty of advancing GSE reform legislation during this Congress. The general sense during the event was that other issues such as immigration reform and the looming debt ceiling debate would overtake the legislative agenda. While the Corker-Warner effort represents the most concrete legislative step towards GSE reform since the entities were placed into conservatorship, we do not believe that there is enough political will to advance legislation in this Congress. Given the current state of the legislative calendar and the 2014 midterm elections, the earliest that we could see GSE reform is 2015.

      GSE Junior Securities Viewed Skeptically by Former FHFA Director. In our view, there is a meaningful disconnect between Washington and Wall Street regarding the potential value in the GSE junior securities. To that end, we continue to track commentary from policymakers regarding how these securities are likely to be treated in the future. During the BPC event, former FHFA Director James Lockhart III addressed the debate. Lockhart has a unique perspective given that he was in charge of the FHFA when the GSEs were put into conservatorship and is now the Vice Chairman of WL Ross & Co. When asked to offer his opinion regarding

 
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