Fannie & Freddie Back-Stopped!

Discussion in 'Wall St. News' started by Landis82, Sep 5, 2008.

  1. m22au

    m22au

    http://www.stockpickr.com/view/answers/55818/

    This might be a Dow Jones article:

    NEW YORK -- The U.S. Treasury, while remaining tightlipped around details on its
    plans for Freddie Mac (FRE) and Fannie Mae (FNM), is
    quietly working behind the scenes to lend a helping hand to the struggling
    mortgage finance giants.

    In recent weeks, Treasury officials have been reaching out to overseas buyers --
    including foreign central banks -- of so-called agency
    securities, or debt sold by the two companies, to reassure them of the
    creditworthiness of these borrowings.

    In one such conversation, at the end of August, the Treasury sought to reassure
    the Bank of Mexico, according to a person familiar with the matter, of the
    soundness of agency securities held by the bank. The discussion with the
    Treasury took place as Mexico's central bank, an investor in agency debt, met
    with Freddie officials to address concerns it had about these investments.

    Treasury officials have also had similar conversations with Japanese investors
    who are buyers and holders of agency debt.

    The moves are an effort to quell concerns of investors amid uncertainty around
    the fate of Freddie and Fannie. They are also aimed at bolstering demand for
    this type of financing by the two companies that is critical to their business.
    Many analysts and investors say that a government bailout is inevitable if
    Freddie and Fannie, which were chartered by the Congress to fuel home ownership,
    are unable to
    tap the debt market for funding.

    The backdoor workings of the Treasury offer a window into how critical Freddie's
    and Fannie's access to the debt market is to their
    functioning. The two government-sponsored enterprises use the funds to finance
    their purchases of home loans from mortgage lenders.

    "We are making progress on our work" with the companies' regulator and
    government officials, said Treasury spokeswoman Jennifer Zuccarelli.

    For the Treasury, the ability of the pair to keep turning over their debt is
    paramount. Last month, Congress gave the Treasury Department the authority to
    lend money to the firms or take an equity stake.

    While Treasury officials have reiterated that they have no imminent plans to
    intervene, a deterioration in the housing sector could force their hand if
    either company can no longer fund itself.

    It is widely expected that such an intervention will likely render worthless the
    holdings of existing shareholders. The government is expected to protect holders
    of the companies' senior debt and the mortgage-backed securities they guarantee
    to avoid a meltdown in financial markets.

    A 'Void' If Foreign Buyers Left

    Continued access to funding is necessary "to generate the revenue to absorb the
    credit losses," said Jim Vogel, an analyst at FTN
    Financial.

    Freddie and Fannie are a dominant source of funding for home loans, owning or
    guaranteeing about $5.2 trillion of mortgages. They have
    suffered combined losses of about $14 billion over the past four quarters as
    they make provisions for the worst wave of defaults in
    decades.

    As of Aug. 21, the two companies together needed to refinance more than $225
    billion, nearly 87% of which is short-term discount notes, by the end of
    September, according to a Wall Street Journal report.In the weeks since, this
    figure has reduced as both companies have
    successfully refinanced debt on numerous occasions.

    Both companies sell discount notes weekly to investors, many of whom reinvest
    money from maturing debt. Risk premiums on this debt have
    been rising moderately, but buyers continue to snap up securities that
    theoretically carry little credit risk.

    Freddie and Fannie spokesmen weren't available to comment. A spokesman for the
    Bank of Mexico declined to comment. Bank of Mexico Gov.
    Guillermo Ortiz, in a chapter contributed to the 2007 book, "Sovereign Wealth
    Management," said the central bank had taken a number of
    measures to lower the cost of holding foreign reserves, including placing a
    "relatively small amount" into mortgage securities.

    "Foreign investors have become significantly more important (and) are
    significant buyers and holders" of Freddie and Fannie securities, said Richard
    Hofmann, an analyst at independent research firm CreditSights.
    "How they respond is very important. If they were to stop buying, it would leave
    a void."

    Investors, particularly in Asia, have shown a healthy appetite for agency
    securities. According to a breakdown of about $484 billion of so-called
    reference notes sold by Freddie in the last 10 years, about one- quarter of
    there were bought by Asian investors, according to a Sept. 3 CreditSights
    report. Slicing the data a different way, central
    banks were the second-largest buyers of these securities behind investment
    managers. Since 2006 through this year so far, central
    banks have increased their investments, buying more than one-third of this type
    of debt.

    Asian investors, who had scaled back their purchases over the summer, have come
    back although they are treading carefully. They bought over one-third of
    Freddie's $3 billion two-year notes sold Wednesday.

    "Both Fannie and Freddie need to come to the debt markets on a regular basis,
    and they need to be able to raise senior debt at attractive
    rates," said Kathleen Shanley, a senior analyst at research firm Gimme Credit.
    They are the "two main pillars supporting the housing market right now."
     
    #21     Sep 5, 2008
  2. Daal

    Daal

    "The plan includes changes to senior management at both companies, according to a person familiar with the plans."

    they are finished. I'm not covering a share. if it blows on my face then I'm going to lose money
     
    #22     Sep 5, 2008
  3. Congrats to all the winners :cool:
     
    #23     Sep 5, 2008
  4. m22au

    m22au

    I'm with you Daal.

    I'm sitting here, watching the train wreck as the stocks approach zero, thinking that I could cover now to take profits.

    But given that I think the stocks will be worth less than $1 on Monday, I don't have much of a reason to cover.


     
    #24     Sep 5, 2008
  5. Daal

    Daal

    down both roughly 20%. pimco's gross was saying that the government would be thinking in terms of preventing moral hazzard in terms of the stockholder but not on the preferred. since they are changing management they are effectively controlling the companies. I will be surprised if the deal helps shareholders
     
    #25     Sep 5, 2008
  6. didn't cramer predict fnm and fre would be nationalized within 300 days??? guess he got something right.


    (sorry it might have been housing bottom but i'm pretty sure his prop on the wall is for this)
     
    #26     Sep 5, 2008
  7. No, it's really about nationalization and conditioning the population to accept a centralized economy.

    You gotta understand, "they" don't give a sh*t about our well being and "they" are not affected by economic meltdowns.
     
    #27     Sep 5, 2008
  8. Daal

    Daal

    "On Friday, a series of high-level meetings were planned between Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, the chief executives of Fannie Mae and Freddie Mac and the companies' new regulator, the Federal Housing Finance Agency."

    bernanke says wipe out shareholders, paulson says the same. its only a matter of what kind of resistence the management gave. cnbc gave me a heart attack as I read the headline 'fnm and fre soar' geezus
     
    #28     Sep 5, 2008
  9. These guys dont have anywhere to go on Fridays huh? What's better than going to a bar and have a beer?

    A meeting!
     
    #29     Sep 5, 2008
  10. kyc30090

    kyc30090

    so, that's the "creative way"? sounds like the bear sterns deal to me?

    anyways, congratulate on the ones that make money. and i'm happy that killing them save the market. possibly lower the dollar and save the energy and material sectors too.
     
    #30     Sep 5, 2008