You Lucky Bastards: FMD

I'm averaging down again, maybe tomorrow, or maybe later, depending on price action and pending news. The BofA news hurt today badly.

The legislation passed in the house today regards federal loans only. I stand and wonder, genuinely, how there will be a situation allowed to linger whereby the necessary private loan making market for student loans goes into limbo. Will many students simply be shut out of the market, capped by the limits under the current federal loans caps.

I know that this stock is now trading well below inherent cash level. What it needs is a catalyst in the form of a new partner to replace BofA, or to be purchased and incorporated into the current wing of a private loan making institution.

As I watch VLO run higher, even though their margins (crack spread) are getting crushed due to raw crude oil prices, and watch FMD run lower, I just shake my head in awe at the short term irrationality of the market. A return to historical norms would be nice, but a catalyst is needed in the beaten down private student loan market.

Is it possible that many students won't find the necessary private loans that are necessary for them to attend college this fall and beyond, and that the government won't craft a solution to this situation?

 

Anything is possible.

 

It's very bad. Which is good, in a perverse way, because it's an election year.

Read this article: It basically states that Congress hasn't done enough, and that if they don't support private loans, the whole system is going to grind to a halt, in an election year.

The government has to step in and shore up private loans. Direct federal lending can't handle the demand, and even Sallie Mae is now losing money on loans it is currently processing.

http://thehill.com/the-executive/reprieve-for-student-lenders-moves-to-senate-2008-04-17.html

The Executive
Reprieve for student lenders moves to Senate
By Jessica Holzer
Posted: 04/17/08 06:29 PM [ET]

The House on Thursday moved to create a temporary safety net for student lenders currently squeezed by the credit crunch, as many fear education loans could dry up for the college-bound this fall.

But lobbyists for lenders and schools worry that the fix could get bogged down in the Senate, failing to help lenders in time to meet the surging demand for loans in the coming months.

“If this goes through a long legislative process, the fact is it’s going to be too little, too late,” said Philip Day, the president of the National Association of Student Financial Aid Administrators (NASFAA).

Alarm is growing on Capitol Hill as lawmakers dread the prospect of students unable to get loans during an election year. Scores of student lenders have yanked back on loans — or fled the business altogether — since Congress and the Bush administration slashed subsidies on federally backed loans last year and tightened credit markets have increased capital costs.

House lawmakers on Thursday overwhelmingly approved legislation that would temporarily allow the Department of Education to buy federally backed loans from providers that are unable to raise capital. The bill would also bolster state agencies’ ability to step in as lenders of last resort in cases where private lenders are unable to satisfy the demand.

And it would increase the limits on unsubsidized Stafford loans so that students wouldn’t have to rely as much on costlier private loans.

Education lobbyists applauded the bill, but remained uncertain about whether it would be enough to ensure demand is met. The legislation is “an excellent step forward,” said Harris Miller, president of the Career College Association . “Is it a total solution? No.”

The senior vice president for government relations at the American Council on Education , Terry Hartle, said that the legislation “can only help” but warned that Congress, “to a certain extent, was shooting in the dark.”

The lender of last resort program is untested, and the state guaranty agencies are not in the business of making loans, lobbyists said. Also, it is not clear whether lenders strapped for capital will readily sell their loans to the Department of Education. Lobbyists for lenders said that it may not be profitable for them to do so, citing a provision of the bill that says the Education secretary can only buy the loans if they are at no extra cost to the government.

Lenders are pushing a different fix they say wouldn’t require congressional action: having the Federal Financing Bank (FFB), which is overseen by the Treasury, advance lenders funds backed by student loans. “It’s an immediate solution,” said Kevin Bruns, the executive director of America’s Student Loan Providers.

The idea got a boost this week when Senate Banking Committee Chairman Chris Dodd (D-Conn.) wrote a letter to Treasury Secretary Henry Paulson urging him to use the FFB to provide liquidity to the student loan market. He also wrote to Federal Reserve Chairman Ben Bernanke, asking him to use his authority to ensure access to loans.

The chairman of the House Financial Services Subcommittee on Capital Markets, Rep. Paul Kanjorksi (D-Pa.), wrote to Paulson and Education Secretary Margaret Spellings in February, asking them to consider several forms of federal financing, including advances from the FFB, to shore up capital to student lenders.

Kanjorski has also introduced a bill that would allow the 12 Federal Home Loan Banks to advance funds to student lenders. Sen. John Kerry (D-Mass.) has introduced companion legislation in the Senate.

The FFB proposal was discussed at a recent meeting between Paulson and Spellings, according to a student lender lobbyist. But the administration officials haven’t yet signaled whether they would go further than that.

A spokeswoman for the Treasury, Jennifer Zuccarelli, declined to comment on the proposal, saying only that the Treasury and the Department of Education “were following the issue closely to ensure that federal student aid, both grants and loans, remains available to all eligible students.”

The Department of Education did not respond to a request for comment by press time.

Lenders say that their situation is worsening. More than 40 have stopped lending under the Federal Family Education Loan (FFEL) Program, which provides government-backed loans to students, according to a tally compiled by NASFAA. Meanwhile, 12 have suspended private student loans altogether, including Bank of America , which said it would stop making such loans.

Student loan giant SLM Corp ., known as Sallie Mae, said on Thursday that it would record a loss in the first quarter. Meanwhile, JP Morgan Chase and Citigroup announced this week that they would stop making loans to some students and schools without giving details.

“We think that’s code for schools with large low-income and minority populations,” said Miller, who says the bulk of his members serve such students.

In a statement of administration policy issued Thursday, the Bush administration signaled support for the House legislation. Sen. Edward Kennedy (D-Mass.), chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee, plans to mark up a very similar bill.

Kennedy this week called on schools to consider switching from the private FFEL lenders to the direct loan program, saying it “provides a stable and efficient way for all students — regardless of the institution they attend — to receive federally guaranteed student loans.”

In a letter to David Ward, the American Council on Education president, Kennedy wrote that he has urged Spellings to make it as easy as possible for institutions to switch to the direct loan program. On Thursday, Kennedy sent a letter to nearly 100 Massachusetts colleges and universities suggesting they register for the direct loan program, even if they don’t intend to offer it to students just yet.

But education lobbyists doubt that the direct loan program, which accounts for 20 percent of student loan volume, could scale up rapidly if private lenders fled the market. It was “simply not realistic” for the Department of Education to quickly ramp up to 50 percent of loan volume, Miller said.

Day, of NASFAA, noted that it was “not exactly easy” to switch to direct lending, in part because the schools most vulnerable to losing access to loans have the least resources to devote to the transition.

 

I've always been a believer in buying bad news and selling good news on individual stocks but this POS just frankly has none.

Falling knives cut deep.

The worst part is the sector and finacials keep rallying but this is just a big black eye.

The dead cat bounces are quick and short lived in this knife catcher.

This company and stock can be completely destroyed like a subprime stock.

Kids will go to college and get their loans with the help of gov't boosting the amount you can borrow federally through bigger lenders and leave these guys out to dry.


It is tempting to "average down" but this company will have to pull a monkey out of their ass at their earnings call.

 

Adjust your ET account settings so that you have more posts per page, this thread is only 6 pages for me.

See, isn't that better now?

 

I think that's a pretty good base strategy. Add these two simple rules and you can avoid most of the pain

a) sell (and don' t buy) if CLOSE(0) < SMA(200)
b) sell (and don' t buy) if SMA(50) < SMA(200)

Doesn't mean you won't have losing trades, but you will usually avoid the big big losers that can damage your entire account.

 

I decided to average out of my position. Still have 300 shares out of the 1,000 in case real good news sends this back to $ 15/sh.

I am going long some stocks that I feel have better potential.

If it hits $ 2/sh, I may buy another 300 shares. Good luck to those still in it but unless they get someone to guarantee their loans, its going bankrupt due to defending lawyer suits and just burn rate.
I own some other stocks like HRP that are able to continue to pay their dividends since they are collecting rents on 92% full government and business clients.

 

Added another 50 May 5 Calls @0.4, in for a penny...

 

Why not go long when the stock is in a clear uptrend? All we know now is that the stock is in a clear downtrend. This, of course, may be a bottom or it might not. Why not wait a bit until its clear that it is a bottom versus trying to predict the bottom? 30 cents down from here means a 10 percent loss...

 

I averaged into FMD today. Can anyone tell me any good news? Do they really suspect it will go up? I feel like I might be holding the bag...