I was delighted to see the initial headlines yesterday reporting the utter failure of Johnson/Crapo. “Senators Delay Action on Fannie Mae Amid Democrats’ Rift” “Prospects for a bipartisan housing-finance overhaul dimmed as Democrats on the U.S. Senate panel struggled to reach consensus on how to replace” (Bloomberg). I want to commend my sources on accurately reporting that the blue state democrats would not go along with dismantling Fannie and Freddie. As I said in an earlier post, the democrats have everything they want in housing policy with Fannie and Freddie, they truly do not want to see them go. Yesterdays indefinite delay on the Johnson/Crapo bill was a huge but expected victory.The fact that the democrats have everything they want in Fannie and Freddie and Johnson /Crapo would be a huge step backwards in regards to their goals in housing finance. Seven weeks after announcing their bill with supposed bi-partisan support they failed to add even one more vote to their tally. When announced they had 10 co-sponsors,five democrats and five republicans. A closer look reveals that the 5 democratic votes they have are democrats from conservative states; These are states that voted for Mitt Romney in 2012, It is no surprise that they would sign on to a bill to kill Fannie and Freddie. These democrats are more like moderate republicans from the northeast. The fact that Johnson and Crapo failed to bring even one senator from a more liberal leaning state shows the remarkable failure of their bill.The fact that many republicans want the government out of housing altogether further sealed its fate. A vote, yesterday, would have been a complete and catastrophic failure. The simple fact that they “delayed” the vote has left many potential investors on the sidelines with the hopes that a modified bill will pass the committee in the next few weeks. Though everyone knows it will never pass the house and senate they hope to get a discount on the share price none the less. Once it is confirmed that the bill is declared dead, and we begin to move in the inevitable direction of recapitalizing Fannie and Freddie we shall see huge gains, patience.
I have been told that the release of the “stress tests” today was done because the administration was furious about the leaked memos just before the vote. The memo from the FHA to the Senate banking committee had many in the administration furious. Here is an Orwellian quote from Bloomberg on the tests- “Fannie Mae and Freddie Mac (FMCC) could require an additional bailout of as much as $190 billion in a severe economic downturn, according to the results of stress tests released by the regulator for the U.S.-owned companies.”
“The two mortgage-finance giants, who have already taken $187.5 billion in taxpayer aid since 2008, would need more funds to stay afloat if home prices plummeted in a severe downturn, the Federal Housing Finance Agency said in a report today. The stress tests, mandated by the Dodd-Frank Act, use the same assumptions that the Federal Reserve does in gauging the ability of the nation’s largest banks to withstand a recession.” With reporting like this, Bloomberg, is sure to become the National Enquirer of financial journalism. Anyone who is not knowledgeable about Fannie and Freddie would assume that Fannie and Freddie never repaid a cent of the taxpayer aid. Nowhere in the article does it state the money has been paid back. How can they possibly build reserves when the government is taking all their profits. Anyone with knowledge of our situation had to laugh as hard as I did when I saw this feeble attack. I must say that as time goes by their attacks grow more and more bizarre.
It has been confirmed by a few folks who are in the process of increasing their positions that it is getting increasingly hard to buy shares. They are forced to bleed through tiny orders and even then they are taking time to fill. More and more shares are being consolidated in fewer and fewer hands. I had an interesting conversation with someone close to the administration; they are desperate to keep the GSE profits flowing into the Federal coffers due to the tight budgets that have resulted from the federal budget battles.Some of the conversations regarding our profits were quite interesting. More will be revealed,stay tuned. Keep the faith!