The 6am cut - Alphaville by email

Most Popular Posts

  1. Further Reading
  2. Further Reading
  3. The credit crunch, crunched: Authers and Murphy on a screen near you
  4. Further Reading
  5. Pink Picks
  6. Show more...
  7. Show less...
  8.  

Blogs we're reading

Classified Jobs

Divisional Financial Controller
Recruiter: TRL
Corporate Finance Controller / Corporate Finance Analyst
Recruiter: Travelodge
Acquisitions Analyst / Corporate Finance Analyst
Recruiter: Travelodge
Process & Control Development Manager
Recruiter: Norwich Union
Head of Project Finance
Recruiter: Global Investment Bank
Associate Director, Project Finance
Recruiter: Global Investment Bank
Collateral Frameworks and Registries Senior Advisor
Recruiter: FIAS, The World Bank Group
Group Finance Manager
Recruiter: Marks & Spencer

Site Navigation


Principal content

Fannie Mae calls for $6bn

Bernanke speaks…and Fannie Mae holds its hand out.

No sooner had the Fed chairman finished a speech at Colombia Business School, saying the Federal housing agencies needed to raise cash so as to help stricken mortgage holders, than Fannie Mae announced plans to raise $6bn in new shares and preferred stock.

That is in the middle of a very wide band of analysts’ expectations, which had Fannie Mae raising anything between $3bn and $10bn.

The news came with Q1 numbers, which were generally as expected - i.e. gruesome.

The first quarter dividend is being cut to 25 cents, helping to raise almost $400m on top of the $6bn cash call.

Responding to governmental calls to sharpen up its efforts to help the real victims of subprime, Fannie Mae promises a series of new initiatives called “Keys to Recovery,” including:

1)  A new refinancing option for up-to-date but ‘underwater’ borrowers with loans owned by Fannie Mae that will allow for refinancing up to 120 per cent of a property’s current value;

2) A renewal and expansion of the company’s partnership with the state Housing Finance Agencies to provide $10bn in financing for qualified, first-time buyers.

3) In partnership with Self-Help Credit Union, a new initiative that allows families in hard-hit communities to reside in foreclosed properties on a rent-to-own basis.

4) New jumbo-conforming loans will be priced flat to conforming for portfolio asset acquisition through the end of the year.

But, beyond the politics, the real eye-catching in Tuesday’s release is the effect of Fannie Mae implementing fair value accounting for its derivatives holdings. This has caused net assets to shrink from $35.8bn at the end of 2007 to $12.2bn at March 31:

The widening of mortgage-to-debt spreads caused a decline of roughly $8.4bn. In addition, the fair value of guaranty obligations increased by approximately $16bn.

The outlook:

Fannie Mae expects severe weakness in the housing market to continue in 2008. The company believes this housing weakness will lead to increased delinquencies, defaults and foreclosures on mortgage loans, and slower growth in US residential mortgage debt outstanding in 2008.

This entry was posted by Paul Murphy on Tuesday, May 6th, 2008 at 13:09 and is filed under Capital markets. Tagged with . You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

Email this story
Add to Del.icio.us
Share on Facebook
Digg this post
RSS Feed

Comments

  1. May 06   22:17 Posted by hedgehog [report]

    anonymous
    that’s the way I’ve read it since shortly after the Bear incident - so much support has been given and is now expected that it’s difficult to see what could spook these markets now although a long very slow decline could be on the cards.

  2. May 06   18:41 Posted by Anonymous [report]

    Clearly equity investors have taken the too big to fail argument to heart here. That plus the obscene amounts of liquidity that the FED is pumping into the system make anything but a rally well nigh impossible. As far as I can see now, the only event that would give investors pause is if the FED actually allowed something to default. I think we can all guess the odds of that happening in an election year. I was more than a b bit slow on the uptake but the shape of things to come for the rest of the year appears clear.

  3. May 06   15:56 Posted by Kamekon [report]

    The implementation of fair value accounting (to derivatives and various other instruments) has another “eye-catching” effect - in addition to the reduction of net assets (total equity) to approx. USD12bn noted above. As a result of fair value adjustments common stockholders’ equity is now NEGATIVE (a USD2bn fair value deficit; preferred is still positive at USD14bn). See the “Supplemental Non-GAAP Consolidated Fair Value Balance Sheets” on the penultimate page of the Fannie Mae news release and on p. 53 of the 10-Q.

  4. May 06   14:59 Posted by hedgehog [report]

    It was Sept 1981 when Congress passed legislation to sell their loss making mortgages and reinvest in new more profitable loans .

    So securitization really started when the S&L’s got themselves into big trouble and now that securitization has got the whole financial system in a mess the regulators continue to hand out more drugs to the addicts.

    Our own market appears to take all this in it’s stride - are we now immune to bad news - have we reached the bottom for equities?

  5. May 06   14:25 Posted by burnt quant [report]

    Excellent work from the regulator - lower the capital requirements for FNM so that they can purchase loans on depreciating assets.

    The company line is that the “servere” housing weakness is a national 7-9% decline this year (and then presumably that’s it?) Many sensible commentators expect double digits and/or multi-year declines.

    120% mortgages, $10 bio push for FTBs and lower premiums for the new Jumbo loan class - let’s party like it’s 2006!

  6. May 06   13:31 Posted by jmf [report]

    Moin from Germany,

    looks like Phony Mae is getting much more firepower to buy crappy loans….

    Fannie Mae’s federal regulator said on Tuesday it will reduce the company’s capital-surplus requirement to 15% from 20% when Fannie Mae completes a new capital-raising plan

    On top of this Fannie is hinting that another 5 percentage point reduction to 10% will be in place in September 2008….

This post is closed to further comments.