Wednesday, June 5, 2013

What’s a Fannie Worth?


How about Fannie’s stock of late? The low-high for May saw a 660%% swing.  There were several days of +200Mn shares crossing hands. The stock fell off a cliff at $5.40 and 36-hours later it was back down to $1.75. Some guys made a killing, others lost their shirts. I think 99% of what happened to FNMA was due momentum chasers and day traders.

Clearly the market is having a difficult time trying to figure out what Fannie is worth these days. The news services are also struggling. The normal sources have some big discrepancies. Bloomberg measures the market cap of FNMA at $12.9Bn (5.8Mn shares outstanding):



Yahoo Finance agrees with Bloomberg:




CNBC and Reuters have a different number for the market cap. They think that FNMA is only worth about $2.6Bn, about 1/4 of what Bloomberg is saying:




Google has yet a different number. It thinks FNMA is worth about $3.8Bn, based on 1.71Bn shares outstanding:



In the March 2013 10-Q Fannie confirmed that the number of shares outstanding is 1.158Bn.



So the market cap of FNMA (as of the close) is about $2.5BN. Bloomberg, Yahoo and Google have bad data. No wonder traders are so confused.


The deep thinkers in D.C. are also confused about the government’s investment in the mortgage industry. Senator Bob Corker (R-Tn) thinks that Fannie and Freddie should be shut down and a brand new government owned mortgage entity should take over. Corker has a fancy new name for his mortgage lender, Federal Mortgage Insurance Corp.

The problem with Corker’s plan is that the US already has a federally owned mortgage insurer. FHA (separate from Fan and Fred) has been booking new mortgages like crazy the last four years. FHA is under-capitalized, and will probably need a bailout in the not too distant future. Yesterday the FHA leaked an internal review that stressed tested the FHA business plan. That “plan” looks like it could be another disaster for taxpayers:



I think Corker is nuts to consider a new government owned mortgage lender. The government will screw it up just like they have with Fannie, Freddie and FHA. How many times do these guys have to get hit over the head before they realize that mortgage lending is risky stuff?


I don’t know what will happen with Fannie and Freddie. If you believe in the FHFA (the administrator for F/F) then you would have to conclude that F/F have no value at all. The flip side is that if left alone, F/F would be able to pay back all of the money borrowed from the Treasury PLUS a very big return to the taxpayers. This “miracle” could be accomplished in less than 36-months.

GM/Chrysler, AIG and all of the TARP banks have done pretty much what F/F are capable of. They went into the crapper in 2009, the Feds bailed them out and after a few years all the money was paid back with a gain. Given that as a precedent, then a good case could be made to let F/F go down the same road.

If F/F were allowed to payback the taxpayers, and then emerge as new private sector companies, the Preferred stock of the Agencies would be money good, and the common stock would be worth many multiples of the current price.

Most investment opportunities have three possible outcomes. (1) A significant gain, (2) a complete loss , and (3) something in the middle. That’s not the case with F/F. There is no “middle”.  Either the the common/Pref could be a huge home run, or it is going to zero. No wonder the market is having a difficult time trying to figure out how to value the equity.





  1. The difference between Bloomberg’s 5.761B shares out and the float of 1.157B shares is the US Government’s just under 80% stake (4.603B shares). Bloomberg market cap of $10.889B as of today (FNMA px = $1.89) is correct. You will find a similar discrepancy for Freddie Mac (tkr FMCC) where the delta between shares out (3.23B) and float (0.65B) is the government stake.

    • Except the treasury has already indicated it has no intention of converting those warrants, and well they shouldn’t given that $10t in liabilities are then theirs.

      1,158,077,970 it is

  2. “GM/Chrysler, AIG and all of the TARP banks have done pretty much what F/F are capable of. They went into the crapper in 2009, the Feds bailed them out and after a few years all the money was paid back with a gain”

    This is false on all counts. GM, AIG and the GSEs are all big money losers for the US tax payer and that’s with Ben holding rates at zero and buying every possible piece of paper in sight. I’m not sure where you got your facts on this but you should take a closer look at the real numbers.

  3. Is your trade still open?

    • Not Tuz either says:

      Obviously not. But seeing that he once thought the junior preferred dividends were cumulative, it is best that he exited. Understand your investment before investing.

  4. The real estate market, at least for a half century, sky rockets, then drops back. Example: 1300 sqft, Orange County, Calif. 1962 – Value $9,000. 1972 $20,000 1975 $17,000, 1981 $130,000, 1984 $100,000, 1992 $180,000 1994 $155,000, 2006 $550,000 2012 $400,000. Hello!!! 2016 $900,000. Hold on to your house if you can. OK, for some, now it’s worth less than owed. Wait. It WILL go way up again. You dump it just because it isn’t worth enough, you destroy your credit, and in a few years you will never be able to buy a home again, enjoy huge profits, and, you’ll be a renter for the rest of your life, living hand to mouth. Govt solution: For people who can’t pay all their mortgage anymore, change the loan to a 40 or 45 year loan. Homeowner gets reduced payment, FNMA/ FHLMC will still get all their money eventually. Reducing the loan amount encourages people to default. If they lost their job, they can’t pay anything let alone less, and FNMA / FHLMC lose money on the ones that would have kept paying. Not paying because of negative equity is stupid. The house will go way back up in a few years and you will be ‘rich’. Hold on to your house if you can. Reduced payments, thru some method, is the answer. Some people are out of work and can’t pay anyway. People with the 5 year ARM’s, 30 due in 5, adjustables with payments that have gone up, they are the ones that can be saved. People that can’t afford the higher payments.

  5. Bruce, would you address the purpose of the sweep accounts created 8/19/12? It preceded QE3 and the Fed purchase of MBS. Profitability of Fannie and Freddie has skyrocketed since inception of QE3. The profits have been swept to Treasury.

    • Not Tuz either says:

      Bruce hasn’t been paying attention so let me address your query.

      The 8/20/12 sweep was created because the poor MBS investors seeking better than absolute guarantees from the govt (and bear in ond that these people are like us – gamblers) started questioning FnF’s depletion of capital to pay the treasury’s dividend which, because of its largess (10%) and inconsistency with other bail-out agreements, created a situation whereas FnF was borrowing from the treasury to pay the treasury.

      That was resolved by an explicit guarantee and full sweep of profits. Strangely enough though, all of it is still off balance sheet.

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  7. My guess would be that the big swings in Fannie stock are the HFT computers trading with each other. Seems like most of the volume on Wall Street these days is due to these guys; can’t wait to see how they accelerate the big crash when it finally arrives.

  8. The combined GSE losses of US$14.9 billion and market concerns about their ability to raise capital and debt threatened to disrupt the U.S. housing financial market. The Treasury committed to invest as much as US$200 billion in preferred stock and extend credit through 2009 to keep the GSEs solvent and operating. The two GSEs have outstanding more than US$ 5 trillion in mortgage backed securities (MBS) and debt; the debt portion alone is $1.6 trillion.

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  10. Bruce, off topic a bit but as a bond guy you should check this out: