Using Veritas to Construct the "Per…

29-04-2017 Hits:82049 BoomBustBlog Reggie Middleton

Using Veritas to Construct the "Perfect" Digital Investment Portfolio" & How to Value "Hard to Value" tokens, Pt 1

The golden grail of investing is to find that investable asset that provides the greatest reward with the least risk. Alas, despite how commonsensical that precept seems to be, many...

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The Veritas 2017 Token Offering Summary …

15-04-2017 Hits:77699 BoomBustBlog Reggie Middleton

The Veritas 2017 Token Offering Summary Available For Download and Sharing

The Veritas Offering Summary is now available for download, which packs all the information about Veritas in a single page. A step by step guide to purchasing Veritas can be downloaded here.

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What Happens When the Fund Fee Fight Hit…

10-04-2017 Hits:77269 BoomBustBlog Reggie Middleton

What Happens When the Fund Fee Fight Hits the Blockchain

A hedge fund recently made news by securitizing its LP units as Ethereum-based tokens and selling them as tradeable (thereby liquid) assets. This brings technology to the VC industry that...

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Veritaseum: The ICO That's Ushering in t…

07-04-2017 Hits:82016 BoomBustBlog Reggie Middleton

Veritaseum: The ICO That's Ushering in the Era of P2P Capital Markets

Veritaseum is in the process of building peer-to-peer capital markets that enable financial and value market participants to deal directly with each other on a counterparty risk-free basis in lieu...

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This Is Ground Zero for the 2017 Veritas…

03-04-2017 Hits:78603 BoomBustBlog Reggie Middleton

This Is Ground Zero for the 2017 Veritas Offering. Are You Ready to Get Your Key to the P2P Capital Markets?

This is the link to the Veritas Crowdsale landing page. Here is where you will be able to buy the Veritas ICO when it is launched in mid-April. Below, please...

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What is the Value Proposition For Verita…

01-04-2017 Hits:80903 BoomBustBlog Reggie Middleton

What is the Value Proposition For Veritas, Veritaseum's Software Token?

 A YouTube commenter asked a very good question that we will like to take some time to answer. The question was, verbatim: I've watched your video and gone through the slides. The exchange...

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This Real Estate Bubble, Like Some Relat…

28-03-2017 Hits:47782 BoomBustBlog Reggie Middleton

This Real Estate Bubble, Like Some Relationships, Is Complicated...

CNBC reports US home prices rise 5.9 percent to 31-month high in January according to S&P CoreLogic Case-Shiller. This puts the 20 city index close to an all time high, including...

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Bloomberg Chimes In With My Warnings As …

28-03-2017 Hits:79605 BoomBustBlog Reggie Middleton

Bloomberg Chimes In With My Warnings As Landlords Offer First Time Ever Concessions to Retail Renters

Over the last quarter I've been warning about the significant weakness in retailers and the retail real estate that most occupy (links supplied below). Now, Bloomberg reports: Manhattan Landlords Are Offering...

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Our Apple Analysis This Week - This Comp…

27-03-2017 Hits:79135 BoomBustBlog Reggie Middleton

Our Apple Analysis This Week - This Company Is Not What Most Think It IS

We will releasing our Apple forensic analysis and valuation this week for subscribers (click here to subscribe - lowest tier is the same as a Netflix subscription). As can be...

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The Country's First Newly Elected Lame D…

27-03-2017 Hits:79681 BoomBustBlog Reggie Middleton

The Country's First Newly Elected Lame Duck President Will Cause Massive Reversal Of Speculative Gains

Note: Subscribers should reference  the paywall material here for stocks that should give a good risk/reward scenario for bearish trades. The Trump administration's legislative outlook is effectively a political desert, with...

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Sears Finally Throws In The Towel Exactl…

22-03-2017 Hits:84639 BoomBustBlog Reggie Middleton

Sears Finally Throws In The Towel Exactly When I Predicted "has ‘substantial doubt’ about its future"

My prediction of Sears collapsing once interest rates started ticking upwards was absolutely on point.

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The Transformation of Television in Amer…

21-03-2017 Hits:81606 BoomBustBlog Reggie Middleton

The Transformation of Television in America and Worldwide

TV has changed more in the past 10 years than it has since it's inception nearly 100 years ago This change is profound, and the primary benefactors look and act...

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This is the Fannie/Freddie recap, and their addition to the Asset Securitization Crisis. They were taken over just before they had to roll over a $223 billion of debt. Nick of time financing measures...

The Asset Securitization Crisis Analysis road-map to date:

  1. Intro: The great housing bull run - creation of asset bubble, Declining lending standards, lax underwriting activities increased the bubble - A comparison with the same during the S&L crisis
  2. Securitization - dissimilarity between the S&L and the Subprime Mortgage crises, The bursting of housing bubble - declining home prices and rising foreclosure
  3. Counterparty risk analyses - counter-party failure will open up another Pandora's box (must read for anyone who is not a CDS specialist)
  4. The consumer finance sector risk is woefully unrecognized, and the US Federal reserve to the rescue 
  5. Municipal bond market and the securitization crisis - part I
  6. Municipal bond market and the securitization crisis - part 2 (should be read by whoever is not a muni expert - this newsbyte may be worth reading as well)
  7. An overview of my personal Regional Bank short prospects Part I: PNC Bank - risky loans skating on razor thin capital, PNC addendum Posts One and Two
  8. Reggie Middleton says don't believe Paulson: S&L crisis 2.0, bank failure redux
  9. More on the banking backdrop, we've never had so many loans!
  10. As I see it, these 32 banks and thrifts are in deep doo-doo!
  11. A little more on HELOCs, 2nd lien loans and rose colored glasses
  12. Will Countywide cause the next shoe to drop?
  13. Capital, Leverage and Loss in the Banking System
  14. Doo-Doo bank drill down, part 1 - Wells Fargo
  15. Doo-Doo Bank 32 drill down: Part 2 - Popular
  16. Doo-Doo Bank 32 drill down: Part 3 - SunTrust Bank
  17. The Anatomy of a Sick Bank!
  18. Doo Doo Bank 32 Drill Down 1.5: Wells Fargo Bank
  19. GE: The Uber Bank???
  20. Sun Trust Forensic Analysis
  21. Goldman Sachs Snapshot: Risk vs. Reward vs. Reputations on the Street
  22. Goldman Sachs Forensic Analysis
  23. American Express: When the best of the best start with the shenanigans, what does that mean for the rest..
  24. Pt one of three of my opinion of HSBC and the macro factors affecting it
  25. The Big Bank Bust

 

  • Fannie Mae & Freddie Mac - Who will finance their future?

Fannie Mae and Freddie Mac were formed as government agencies to expand home ownership and provide stability and liquidity to the secondary mortgage market. The continued decline in housing prices in the US has resulted in huge write downs in the residential mortgage backed securities market. The S&P Case Shiller home price index has been declining consecutively for the last 23 months; it fell 0.5% in July 2008. The imminent threat to Fannie Mae's and Freddie Mac's combined debt of US$1.59 trillion, and lack of financing options have raised doubts about the viability of mortgage companies.

Their net worth has been eroded significantly due to huge losses. It stood at US$54 billion as of June 30, 2008. The underwritten or owned mortgages by these two entities comprise about 50% of the US mortgage industry (worth US$12 trillion). These two large mortgage giants faced a liquidity crunch, due to large write downs that amounted to US$14.9 billion in the last one year. Fannie Mae has raised more than US$14 billion in capital since November 2007, while Freddie Mac raised US$6 billion in the same period to offset write downs on mortgages it owns or guarantees. Consequently, to avoid a severe mortgage market crisis if they failed, they were taken over by the US government on September 7, 2008. The government has decided to take charge of the beleaguered mortgage companies through Federal Housing Finance Agency (FHFA), a government conservatorship, and rescue them from the current situation. The government would back the debt underwritten by these two companies. FHFA, formed by the merger of Federal Housing Finance Board (FHFB) and the Office of Federal Housing Enterprise Oversight (OFHEO), would supervise the two mortgage giants and have the powers of the Board and management. The Chief Executive Officers for both companies have been replaced. Mr. Herb Allison and Mr. David M. Moffett are the current CEOs of Fannie Mae and Freddie Mac, respectively.

 

Under the government conservatorship, Fannie and Freddie would continue to guarantee mortgage-backed securities without limit, as the government supports the mortgage market. However, there is restriction on the capital raised to refinance securities, which is fixed at US$20 billion per month. Besides, the buyout of the mortgage giants by the government has not offered any support to equity shareholders. Shares of Fannie Mae and Freddie Mac fell 90% and 83%, respectively, on September 8, 2008, the first day of trading after it was taken over by the government. Under FHFA, there would be no dividends issued on either common stocks or preferred shares, thereby saving about $2 billion per year for these firms. Furthermore, the mortgage companies' political lobbying activities would be discontinued and charitable activities are likely to be reviewed. The Treasury, along with FHFA, would buy preferred stock worth US$1 billion each in Fannie and Freddie to provide assurance to the companies' debt holders. This move could strengthen the conforming housing mortgage market (actually, a subset of the actual mortgage market), although it is highly doubtful it will support housing prices which are suffering and extreme inbalance between supply and demand. The US government is expected to have the right to own 79.9% in each company due to the effects of the government conservatorship. The US government is now, in effect, one of the largest financial institutional trading companies in the world!

 

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Source: Bloomberg

Fannie Mae's and Freddie Mac's debt worth US$223 billion (of the total US$1.59 trillion) matures on September 30, 2008. This factor was a prime concern for these companies. The rolling of t debt is an essential phenomenon in the mortgage industry, and with the government backing they would be able to refinance these debts. The 30-year mortgage rate, which stood at 6.35%, is expected to decline as the government would act as a guarantor, and to date has dropped about 60 basis points already. On September 7, 2008, the government's attempt to bailout the mortgage giants received support from all quarters. The Federal Reserve and the US Treasury evaluated the process of bailing out the two companies, and estimated an investment of around US$200 billion for the same.