Fannie Cannot File Financials, Shrinks Portfolio
The big news yesterday was that Fannie Mae won't be reporting for the first quarter. "Embattled mortgage company Fannie Mae said Wednesday that it is again missing a regulatory deadline for filing a financial report, this time for the first quarter, because of the reworking of its accounting amid an investigation by federal regulators."
Any other firm would be facing delisting and a ratings cut. The stakes are so high, that's not even being discussed. A couple of months ago this blog highlighted Fannies' statements that many of the mortgages being issued were too risky for the small return, something they reiterated.
"If current credit conditions continue, Fannie Mae expects the prevalence of non-GSE securities issuance to continue along with growth in higher-risk assets backing those securities. 'Given our objective of managing credit risk in a disciplined manner, this would to some degree constrain growth in outstanding MBS,' the company said."
"Fannie Mae said its market share of mortgage-related securities issuance dropped to 29 percent in 2004 and 24 percent in the first quarter of 2005. That compares with 45 percent in 2003 and 41 percent in 2002."
10 Comments:
Then why the heck are the rates still so low?
The Chinese and Koreans are buying any debt we generate.
There may be a bigger scheme going on. FNM is not dropping much. This is getting very frustrating for short sellers.
10:25 Anon,
With 95%+ institutional holders, it hasn't been hard to prop the stock price up. If you look at the charts, it appears that they drew a line under FNM at some point in the 50's.
The reason I hesitate to short anything in this sector is the players have thrown the rule book out the window and look ready to try anything to stave off the inevitable. Just look at the I/O madness. Clearly a gamble of monumental proportions. Good luck!
The reason they are losing market share is because of the shift of borrowers to subprime loans and the maximum loan limit on the Fannie Mae conforming loans.
Ben,
You are right about FNM and their institutional following. It's going to take some time to transfer these shares from strong hands to weak hands. The process is ongoing. I read yesterday that Legg Mason's Bill Miller (famed for his consistently beating the SP500) disposed of his entire tranche of FNM in 2004. So that's one institutional holder who successfully go out of his position.
I can almost guarantee you that there are no institutional players who want to be in FNM any more. But they have too much exposure to simply push the sell button. So they have to move the stock surreptitiously. Sometimes they even buy more at key levels so that the stock doesn't crash. That may sound counterintuitive, but it's how mutual funds work. They buy a bit strategically to prop the price so that they will be able to sell more of their holdings at higher numbers.
Apropos of Fannie Mae, i came across a good fable that translate pretty well as far as how the stock market works:
A city boy, Kenny, moved to the country and bought a donkey from an old farmer for $100.00. The farmer agreed to deliver the donkey the next day.
The next day the farmer drove up and said, "Sorry son, but I have some bad news, the donkey died."
Kenny replied, "Well then, just give me my money back."
The farmer said, "Can't do that. I went and spent it already."
Kenny said, "OK then, just give me the donkey."
The farmer asked, "What ya gonna do with him?"
Kenny said, "I'm going to raffle him off."
" You can't raffle off a dead donkey!" the farmer said.
Kenny said, "Sure I can. I just won't tell anybody he is dead."
A month later the farmer met up with Kenny and asked, "What happened with that dead donkey?"
Kenny told him, "I raffled him off. I sold 500 tickets at two dollars a piece and made a profit of $898.00."
The Farmer asked, "Didn't anyone complain?"
Kenny said, "Just the guy who won. So I gave him his two dollars back."
Kenny grew up and eventually became the chairman of Enron....
Fannie Mae can't produce it's reports for current quarter, (did they ever produce reports for last year?). Makes you wonder what they are trying to hide.
I agree they should be delisted and have their rating cut.
I smell another Enron type scandal.
1:28 kennyboy -- excellent analogy. Thanks.
Fannie Mae can't produce it's reports for current quarter, (did they ever produce reports for last year?). Makes you wonder what they are trying to hide.
They are trying to hide the bad loans.
And the fact that they don't have enough $ to cover the losses, and that they expect to be bailed out by Congress.
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