Freddie (FRE) & Fannie (FNM) 01 (May 08 - Feb 12)

[millionairemind]

Then it will become another Northern Rock, except that the whole world will be paying for the mistake

[ishak]

Fannie, Freddie Preferred Holders Fear for Dividends
By Kate Haywood and Romy Varghese OF DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- Preferred stock of Fannie Mae (FNM) and Freddie Mac (FRE) are trading well below par, as investors worry their dividends may be deferred under any government plan to help the embattled mortgage giants.

As fears grow about what form a Treasury bailout plan would take, preferred shares of Fannie and Freddie have been hammered this week - and the pain continued Thursday.

Fannie's most recently issued preferred share was trading down $0.59 to $10.40, and Freddie's was down $1.05 to $9.29, according to MarketWatch data.

Fannie and Freddie play a key role in the U.S. housing market, which has been very wobbly over the last year, and their debt is held by investors around the world. The fear is that the government would bail out the firms' bondholders, but not the shareholders. Preferred stockholders fear that one of the things first to go would be their dividend.

The U.S. Treasury hasn't said how it would shore up the Fannie and Freddie if they need a capital injection.

Preferred stock pay dividends, which can be suspended for some types of preferreds like those issued by Fannie and Freddie, and rank ahead of common stock and below debt. These securities have been a key vehicle for struggling financial companies in the U.S. to shore up their capital base. Because of their small face value, typically $25, and the fact that they are listed on the New York Stock Exchange, which allows for greater liquidity, they are also popular among retail investors.

Preferred shares of Fannie and Freddie are non-cumulative, meaning investors won't be paid missed dividends at a later date if the dividend is suspended, underscoring worries faced by the holders. One participant said the agencies' preferreds could go as low as 10 cents on the dollar if dividends are deferred on the preferreds.

Total preferred stock for Fannie and Freddie stands at $35.8 billion, according to CreditSights data.

[ishak]

Fate of Fannie, Freddie rests on debt rollover
Federal bail-out on the cards if they fail to refinance US$223b of debt
Business Times - 21 Aug 2008

(WASHINGTON) Fannie Mae and Freddie Mac's success in repaying US$223 billion of bonds due by the end of the quarter may determine whether they can avoid a federal bail-out.

Fannie, based in Washington, has about US$120 billion of debt maturing through Sept 30, while McLean, Virginia-based Freddie has US$103 billion, according to figures provided by the government-chartered companies and data compiled by Bloomberg.

Rising borrowing costs and evidence that demand for their debt was waning last month led Treasury Secretary Henry Paulson to seek the authority to pump unlimited amounts of capital into Fannie and Freddie in an emergency. Their interest costs are again increasing amid concern that credit losses are depleting the capital of the beleaguered mortgage-finance companies.

Rolling over the debt 'is the single most important factor to their ability to remain liquid,' said Moshe Orenbuch, an analyst at Credit Suisse in New York. 'So far, they've been able to do that.'

Investors in Asia, the biggest foreign owner of Fannie's US$3 trillion of bonds, are reducing their share of purchases, potentially increasing the need for Mr Paulson to make good on his pledge to backstop the companies.

The companies, responsible for 42 per cent of the US home loan market, need as much as US$15 billion each in fresh capital to reserve against losses on mortgages and related securities that they either own or guarantee, Paul Miller, an analyst with Friedman Billings Ramsey & Co in Arlington, Virginia, said.

The Treasury will probably be forced to buy as much as US$30 billion of preferred shares in both Fannie and Freddie by the end of next month, according to Bill Gross, who manages the world's biggest bond fund at Pacific Investment Management Co.

'Treasury is monitoring market developments vigilantly. We are focused on encouraging market stability, mortgage availability, and protecting the taxpayers' interests,' Treasury spokeswoman Jennifer Zuccarelli said.

Freddie Mac 'continues to have strong access to the debt markets at attractive spreads,' spokeswoman Sharon McHale said. Fannie spokesman Brian Faith declined to comment.

Investors this week demanded an extra 104 basis points in yield to own Freddie's five-year debt rather than Treasuries of similar maturity, the most since reaching a 10-year high of 114 basis points in March. The gap narrowed to 74 basis points after Mr Paulson's announcement. A basis point is 0.01 of a percentage point.

Fannie spreads approached a 10-year high of 104 basis points on Monday, from 74 basis points on July 28. In the decade before 2008, the spread averaged 43 basis points.

'The fixed-income markets are starting to lose faith,' Mr Miller said.

Fannie's market value has shrunk to US$6.47 billion and Freddie's declined to US$2.7 billion, making it increasingly difficult for the companies to raise equity through public markets, Mr Miller said. The companies have reported a combined US$14.9 billion of net losses for the past four quarters.

[ishak]

Fannie, Freddie shares stabilize
By ALAN ZIBEL, AP Business Writer

Shares of troubled mortgage finance companies Fannie Mae and Freddie Mac stabilized Thursday in late morning trading, reversing three days of double-digit declines.

Shares of the two companies - which together hold or guarantee half the U.S. mortgage debt - had lost more than half their value this week on fears that a government bailout would wipe out common stockholders.

Fannie Mae's stock was up 34 cents, or nearly 8 percent, to $3.74. Shares of Freddie Mac rose 12 cents, or 4 percent to $3.37.

Many observers say Treasury Secretary Henry Paulson is not interested in protecting shareholders, and only in Fannie and Freddie's ability to support the battered mortgage market.

That means a government rescue might not occur until there is evidence the mortgage companies' are unable to sell short-term debt - an indication they would no longer be able to operate normally.

Freddie in particular has investors and analysts fearful. The company earlier this year promised to raise $5.5 billion to shore up its finances but has not yet done so and its sinking share price makes raising that money far less feasible.

Fannie Mae's chief executive has sought to reassure investors that no bailout is imminent and that the company's financial position remains solid.

The Bush administration last month unveiled a plan to provide unlimited government loans to the two mortgage giants and to purchase stock in the two companies if needed for a period covering the next 18 months.

The two government-sponsored companies are the largest source of funding for home mortgages in the U.S. But they have struggled with soaring losses from mortgage defaults. Washington-based Fannie and Freddie, have lost a combined $3.1 billion between April and June, and investors fear the losses will continue to grow.

Stabilised for one day also become news.
FNM $4.85 (Up 10.23%)
FRE $3.16 (Down 2.77%)

[ishak]

Fannie & Freddie Chronology
Reuters, 21 Aug 2008

A U.S. Treasury Department bid to build investor confidence in Fannie Mae and Freddie Mac by offering an unlimited line of credit and a capital infusion, if necessary, appeared to be unraveling by mid-August.

As share prices for the mortgage finance giants tumbled and their losses soared, financial market participants speculated the government would be forced to step in with some type of bailout for the distressed companies.

The only question for many investors was how a bailout will be structured and when it might come. Below is a recap of events since July:

July 7-10 -- A Lehman Brothers research report speculating that Fannie Mae and Freddie Mac may need as much as $75 billion in new capital spooks investors, who begin dumping shares. Assurances by the Office of Federal Housing Enterprise Oversight that it is misleading to say the companies are undercapitalized and need a dramatic capital infusion only briefly stems the share price decline.

July 11 -- The New York Times reports that Treasury Secretary Henry Paulson is committed to not bailing out shareholders in any government rescue of the companies. Reuters reports that the Federal Reserve has offered an assurance of access to Fed money if needed.

July 13 -- After a whirlwind weekend of negotiations, the Treasury and the Federal Reserve announce emergency measures. Fannie Mae and Freddie Mac will get access to credit lines, including direct access to Fed money if necessary, and a provision for the Treasury to take an equity stake in the companies if required. The Securities and Exchange Commission announces measures aimed at stemming the spread of false rumors.

July 15 -- Paulson joins Fed Chairman Ben Bernanke and SEC Chairman Christopher Cox in defending their bailout plan to lawmakers. Cox says the SEC will impose an emergency measure designed to make it more cumbersome to sell short the shares of Fannie Mae, Freddie Mac and 17 other major financial institutions. Fannie Mae and Freddie Mac shareholders still find no overt assurance regarding the fate of common stock in any government bailout. Freddie Mac shares plunge 26 percent and Fannie Mae plummets 27 percent.

July 16-17 -- Equity investors finally sense some relief as the U.S. government gains some key support for the rescue package. Short sellers begin to back off the stocks ahead of the SEC's emergency short-selling rules taking effect. Freddie Mac completes its second successful debt sale of the week, and confidence rises about the fate of the rescue effort moving through Congress. Fannie Mae shares rise more than 18 percent and Freddie Mac adds nearly 22 percent.

July 21 -- Freddie Mac has another successful debt sale, though there is evidence of smaller demand than the previous week's sale. The SEC's short-selling restrictions take effect. Fannie Mae gains more than 5 percent. Freddie Mac falls more than 4 percent.

July 22 -- Congressional negotiators reach agreement on language for a housing rescue package that includes the Fannie-Freddie support measures

July 23 -- The House approves the rescue bill, sending it on to the Senate. The White House drops opposition to other measures in the broad housing bill and pledges to sign it into law. Fannie Mae shares rise almost 12 percent to $15, their highest close since July 9. Freddie closes up more than 11 percent at $10.80, its highest close since July 8.

July 25 -- U.S. Senate approves the rescue bill by a 72-13 vote; it is sent on to the White House to be signed into law.

Aug 6 -- Freddie Mac posts a loss of $821 million, or $1.63 a share, for the second quarter, its fourth straight quarterly loss. Freddie doubles its provisions for losses and sharply cuts its dividend.

Aug 8 -- Fannie Mae posts a second-quarter loss of $2.3 billion before preferred dividend payments, or $2.54 a share. It is the fourth straight quarterly loss, bringing its cumulative loss over the 12 months to $9.44 billion before preferred dividends. Fannie cuts its dividend and says it will raise loss reserves.

Aug 12 -- SEC restrictions on short selling of 19 financial stocks, including Fannie Mae and Freddie Mac, end.

Aug 17 -- Barron's magazine reports the Treasury Department is increasingly likely to recapitalize Fannie Mae and Freddie Mac in coming months, using taxpayer's money.

Aug 18 -- Share prices for the mortgage finance companies drop, with Fannie Mae's price plunging 22 percent to a 16-year low of $6.15 and Freddie Mac's down 25 percent to $4.39. U.S. Treasury says it has no plans to use its new authority to backstop Fannie and Freddie by providing equity capital or new loans.

Aug 20 -- The U.S. Treasury confirms that officials from the department and Freddie Mac met to talk about the company's health and about how it can best weather current economic woes.
Copyright 2008 Reuters. Click for restrictions.

[ishak]

Bailout Vow Does Little To Aid Fannie, Freddie
August 22, 2008

Congress' approval last month of a bailout of Fannie Mae and Freddie Mac was meant to reassure anxious investors. It hasn't worked out that way, however. Investors' confidence in the companies is dwindling and there's still much uncertainty over how a bailout will work.

Interest in the financial sector waned, though, when Moody's Investors Service downgraded the ratings on preferred shares of Fannie Mae (FNM 5.00, +0.15) and Freddie Mac (FRE 2.81, -0.35) to Baa3 from A1. Since those shares are held by many other financial institutions there is concern that a government-led bailout of the pair would result in major write-downs elsewhere.

Famed investor Warren Buffett stated in a CNBC interview that Fannie and Freddie are looking for private investment. Buffett also offered positive comments on the attractive values currently offered by stocks and said that he doesn't have any bets against the dollar, which climbed 0.8% after slipping in the previous session. Fed Chairman Bernanke stated in a separate speech that the trends in the dollar are likely to slow inflation.

[millionairemind]

Fannie and Freddie threat to banks
By Saskia Scholtes in New York and James Politi in Washington
Published: August 22 2008 23:14 | Last updated: August 22 2008 23:14

Small regional US banks could face substantial writedowns if the government has to rescue Fannie Mae and Freddie Mac, the two giant US mortgage financiers.

Regional banks, together with US insurers, hold the majority of Fannie and Freddie’s $36bn of outstanding preferred stock, which could be wiped out in the event of a government rescue.

Few banks have taken any writedowns on the preferred shares, which have lost more than half of their value since June 30.

This could exacerbate the impact of losses on the preferred shares at a time when many small banks are experiencing losses on residential construction loans and home equity portfolios.

Tom Priore, chief executive of Institutional Credit Partners, a boutique investment bank, said: “If the government takes a senior preferred stake, it will crystallise existing losses for the banks and add to them in a way that damages local lenders at a time when they can least afford it.”

Fannie and Freddie’s preferred stock ratings were cut by Moody’s on Friday from A to Baa3. Moody’s said the cut reflected the uncertainty surrounding how these securities would be treated if the US Treasury provided the government-sponsored enterprises (GSEs) with support, and the reduced financial flexibility the two companies would have in that event.

The rating agency said it saw the odds of such an intervention as increasingly likely. Fannie shares rose 3.1 per cent to close at $5 in spite of the speculation, but they were still down 37 per cent on the week. However, Freddie shares lost 11.1 per cent on Friday to close at $2.81, taking their losses for the week to 51 per cent.

“Given the GSEs’ more limited ability to raise capital and grow their portfolio to accomplish their public policy role in a time of mortgage market turmoil, we believe that there’s an increased probability of actual support coming from the US Treasury,” said Brian Harris, a Moody’s analyst.

The Treasury was granted powers last month to extend its credit lines to Fannie and Freddie and invest in their debt and equity, but it has not given any further clarity on the structure a rescue for the companies might take.

Many analysts believe the most likely option is for the government to get preferred shares as part of any rescue, eliminating the value of common shares, and ranking higher than existing preferred shareholders, who will probably see their dividends cut.

Philadelphia-based Sovereign bank said this week it held more than $600m in preferred stock issued by Fannie Mae and Freddie Mac, representing 0.78 per cent of its total assets.

Analysts at CreditSights said a full write-off of Sovereign’s preferred stock in Fannie and Freddie could represent as much as four quarters of earnings.
Copyright The Financial Times Limited 2008

[ishak]

Freddie Debt Sale Eases Fears of Government Takeover
Reuters, 25 Aug 2008 | 10:09 AM ET

Ailing mortgage finance company Freddie Mac easily sold $2 billion of debt on Monday, reassuring investors that it and rival Fannie Mae can fund operations without a government takeover.

Fannie Mae shares rose 4 percent, and Freddie Mac stock gained more than 11 percent in late morning trading in New York, even as broader markets fell.

An analyst said the companies, which own or guarantee nearly half of the mortgages in the United States, were unlikely to be nationalized, which also soothed market jitters.

Investors have been dumping their stock and have pushed the shares down more than 90 since March on fears the housing slump will leave the two insolvent without emergency support from the government.

Freddie Mac on Monday sold $1 billion each in three- and six-month bills, with a measure of bids stronger than its sale earlier this month. Freddie Mac and Fannie Mae must routinely issue debt to refinance maturing issues that fund their combined $1.5 trillion in mortgage investments.

"Agencies continue to fund themselves," Andrew Brenner, co-head of structured products and emerging markets at MF Global in New York, said in an e-mail. (For more commentary on the future of Fannie and Freddie see video below.)

The companies' ability to sell debt relatively cheaply is crucial not only for their existence but because they are the only large providers of money for the depressed housing market as banks and Wall Street investment firms have been sidelined by the credit crunch.

Selling debt under conditions of increased uncertainty over their financial health is seen a statement of the stability of the two government-sponsored enterprises, or GSEs.

Investors have feared that as mortgage defaults pile up and erode the two companies' capital, the U.S. Treasury would intervene, supporting their access to credit markets but leaving shareholders with nothing.

Citigroup analyst Bradley Ball challenged that premise.

"The recent GSE sell-off has been surprising, since the only catalyst was apparently a press report suggesting that federal officials are likely to recapitalize the GSEs soon," Ball wrote. Nationalization is unlikely, he said.

Citing an unnamed source, Barron's last week reported a government recapitalization of Fannie Mae and Freddie Mac was increasingly likely and that losses could go beyond common stock to preferred shares and subordinated debt.

Ball increased his "risk" rating on the two companies to "speculative" from "high," while keeping a "buy" on the shares. Ball slashed his target prices on Fannie Mae and Freddie Mac by more than half to $9 and $6, respectively.

In late morning trade, shares of Freddie Mac were 11 percent higher at $3.13 and Fannie Mae shares were 4 percent higher at $5.20

Ball wrote that companies' options include an equity investment by the Treasury, a loosening of capital surplus requirements by their regulator, a sale of mortgage bonds to free up capital, or nothing until market conditions improve.

Yield spread premiums on the corporate "federal agency" senior debt issued by Fannie Mae and Freddie Mac increased slightly after narrowing sharply last week. Investors believe a government bailout would make the debt more like U.S. Treasury securities, and remove the risk implied by the spread.

Fannie Mae on Monday announced it would tap the debt markets for $2 billion in three- and six-month bills.

[ishak]

Fannie, Freddie Can Absorb Losses This Year: Citigroup
Reuters, 26 Aug 2008

Fannie Mae and Freddie Mac, the two biggest U.S. mortgage finance giants, have enough capital to absorb probable losses through the end of the year, according to Citigroup equity research.

Separately, Fannie and Freddie said their investment portfolios grew in July as they continued to provide support for the slumping U.S. housing market, but Freddie Mac indicated its future growth may slow.

Delinquencies on loans guaranteed by the two government-sponsored enterprises, or GSEs, both reached record levels, increasing the pressure on their capital positions.

The two housing finance companies, which own or guarantee nearly half of all outstanding U.S. mortgages, have reported losses for the past four quarters, but both companies currently meet regulatory capital requirements and are rolling over their debt on schedule.

Shares of Fannie and Freddie rose sharply, continuing a rally from the day before.

The companies have come under intense scrutiny over the past few months on investor speculation that mortgage losses would cause shortfalls in capital, and lead to a bailout by the U.S. Treasury.

Fannie Mae and Freddie Mac shares have tumbled since May with analysts contending a taxpayer-funded rescue could leave shares worthless.

But Citigroup analyst Bradley Ball, in an Aug. 22 report, asserted that shareholder interests would likely be preserved despite increased chances for "extraordinary" actions by the companies and policymakers.

Estimated third and fourth quarter revenue of $7.5 billion for Fannie Mae and $5.5 billion for Freddie Mac would cover likely losses of $1.5 billion and $1.2 billion, Citigroup said in slides for a conference call Tuesday.

The excess capital over minimums in the second half of the year would thus total $20.3 billion for Fannie Mae and $12.7 billion for Freddie Mac, the slide presentation obtained by Reuters shows.

Freddie Mac, the second-largest U.S. home funding company, said its portfolio of investments surged to a record in July.

The portfolio in July rose to $798.2 billion from $791.8 billion in June, the McLean, Virginia-based company said in its July monthly volume summary.

But, its purchase and sales agreements for future months turned around abruptly from the past five months, falling to negative $324 million in the month from $34.7 billion in June.

Fannie Mae, the largest U.S. home funding company, said its mortgage investment portfolio grew 14.4 percent in July.

The portfolio increased to $758.1 billion, the Washington-based company said in its July monthly summary.

Fannie Mae's contracts to purchase mortgages in the future rose to $43.3 billion from $38.3 billion.

Serious delinquencies on loans guaranteed by Fannie Mae jumped to 1.36 percent in June from 1.30 percent in May, while the delinquency rate for all Freddie Mac loans rose above 1 percent for the first time ever, reaching 1.01 percent of its book of business from 0.93 percentage points in May.

After reporting its fourth straight quarterly loss earlier this month, Freddie Mac said it will be more conservative in managing its capital in coming months, including reducing purchases of loans and mortgage bonds for its portfolio.

The portfolio has surged from $712 billion in March.

Fannie Mae earlier this month reported a much larger-than-expected second-quarter loss and slashed its dividend more than 85 percent to preserve capital as home loan defaults accelerated amid the worst U.S. housing market downturn since Great Depression.

[ishak]

Freddie Mac signals end to rapid portfolio growth
BT, 26 Aug 2008

NEW YORK - Freddie Mac, the second-largest provider of funding for US mortgages, on Tuesday said its portfolio of investments surged to a record in July, but signalled future growth may slow.

The portfolio in July rose to US$798.2 billion from US$791.8 billion in June, the McLean, Virginia-based company said in a statement. Its purchase and sales agreements for future months turned abruptly from the past five months, falling to negative US$324 million in the month from US$34.7 billion in June.

It also said the delinquencies that have increased stress on its capital jumped to 1.01 per cent of its book of business in June from 0.93 percentage points in May.

Freddie Mac earlier this month reported its fourth straight quarterly loss and said it will be more conservative in managing its capital in coming months, including reducing purchases of loans and mortgage bonds for its portfolio. The portfolio has surged from US$712 billion in March.