Do some research folks! Some folks made MILLIONS betting against the housing market. However, in true American fashion, the housing market is on the upswing. Gov't is proposing to combine Fannie and Freddie with new management. That's good news on two accounts. 1. They will be around the pay back their government borrowed debt. 2. They will remain government backed entities until then. My expectation is that this stock will soar. At its height, FNMA was trading at $89 a share. Yes, it went down to $ 0.29 cents a share. (That's when I picked up 20,000 shares). I've already made $15,800. Now there were losses today since it dropped to $ 0.80 cents, but I intend to keep buying. In fact, I have already pulled out $4,000 cold hard case and transferred that to my bank account. I have a well-diversified portfolio, but FNMA is certainly a bedrock. The key is to not get nervous as the market fluctuates. For the benefit of the discussion, I am posting the below article that appears on Motly Fool. JLE
A series of recent developments are making housing giants Fannie Mae and Freddie Mac good long term investments.
First, the Federal Housing Finance Agency (FHFA) recently announced that it intends to consolidate the operations of Fannie Mae (NASDAQOTCBB: FNMA.OB) and Freddie Mac (NASDAQOTBB: FMCC.OB).
FHFA is the federal regulator tasked with overseeing Fannie and Freddie. The Agency said it intends to form a new corporation that would consolidate certain operations of the two housing finance giants that each currently performs separately. This is said to be the first step to develop a new securitization platform. Further a new infrastructure could be the cornerstone of a new company being contemplated to eventually replace Fannie Mae and Freddie Mac.
In a related development, combined sources have reported that a bi-partisan coalition of Senate lawmakers recently introduced legislation designed to prevent lawmakers on Capitol Hill from using fees charged by Fannie and Freddie as a slush fund to cover the costs of spending increases and tax cuts. In a maneuver that was overlooked by the media in 2011, lawmakers raided the mortgage firms’ coffers to fund the payroll tax cut. Further, if approved the Senate bill would also stop the Obama Administration from selling off preferred shares in these agencies without prior Congressional approval.
The mortgage companies were placed in a Treasury Department run conservatorship in August2008 shortly before the economy collapsed. This maneuver essentially nationalized the housing market. Some savvy investors sold off their stake in Fannie and Freddie shortly before this giant step was taken. Since then other investors followed en masse and this shriveled each companies market capitalization. Now, the shares of the housing giants are traded as penny stockover the counter.
In sum, these developments could be signposts on the road to the federal governments’ eventual unwinding of Fannie and Freddie. Meanwhile the government takeover has already cost taxpayers upwards of $130 billion. And there will most likely be a turf battle by lawmakers in this game before the companies are unwound and possibly split apart into some new private entity. But with so much cash at their fingertips, Democrats and Republicans are going to turn this affair into a long goodbye.
So, what does this mean for investors? Good question.
Last year was a profitable year for Fannie and Freddie for the first time in about 7 years. But they still owe the feds about $180 billion. At the same time each has revenues of about $100 billion. Some analysts have said that paying bank the government bailout debt will take about five years.
In the meantime, the housing giants have been refinancing this debt by selling bonds at lower interest rates in order to repurchase their higher interest rate offerings. And these refinancings have not gone unnoticed by the market.
In fact, the price per share of each has jumped by more than 50 cents on significantly higher volume this week and soared past the $1.00 at the end of trading on March 20th, closing at $1.08.
This price rise comes on the heels of the recently announced settlement between Fannie and Freddie with Bank of America (NYSE: BAC). The deal calls for the big bank to buy back bad mortgage paper sold to FNMA and FMCC between January 2001 and December 2008. And there are similar settlements in the works as agreements are being hammered out with Wells Fargo (NYSE: WFC) and Citigroup (NYSE: C). So the housing giants are purging their books of poorly performing mortgage loans.
Finally, Freddie Mac reported an $11 billion profit in its 2012 annual report. Meanwhile, Fannie Mae announced it was delaying filing its Annual 10-K because the outfit needs additional time to analyze whether it could recapture a $64 billion valuation allowance for deferred tax assets as of December 31, 2012. This would allow the outfit to drastically lower its dividend expenses.
The bottom line: all of these recent developments are good signs for long term investors of common stock of Fannie and Freddie. It is unclear what the valuation of these outfits will be in the long run. But the fact that they remain in a government conservatorship means they continue to be backed by the federal government.
And until they are eventually replaced by a surviving entity, they are needed to keep the mortgage securitization market afloat. Attention shoppers: FNMA and FMCC are now available in the bargain bin.
Comments
Post a Comment