Fannie Mae and Freddie Mac are extremely profitable businesses, with combined annualized profits of $28.4 Billion (2024Q3). Historical earnings ratios would indicate a combined valuation of approximately $280 Billion. The US Treasury controls 80% of the common equity and has a large senior preferred equity position. Treasury has already made more money through dividends than they invested in the companies, and now stands to make an additional profit of approximately $200 Billion which can be spent on any administration priorities , from border security to starting new cities. However, accessing this capital will require moving quickly to privatize Fannie Mae and Freddie Mac in order to establish market certainty so that valuations can return to normal and Treasuryâs equity position can be liquidated progressively over the course of the entire administration.
This will require the following simple actions that Treasury can take immediately in coordination with FHFA:
Exercise Treasuryâs warrants for 80% of the common equity
Resolve the Senior Preferred Shares (SPS)
Make a deal to convert the Junior Preferred Shares or resume dividends
Raise ~$70B of capital through a secondary offering, OR enter into a letter agreement to allow reasonable dividends to be paid immediately while continuing to build capital
Begin paying dividends on the common stock
Progressively liquidate Treasuryâs common stock position over the course of the administration
These simple steps could be achieved in a matter of months and would result in a steady income to Treasury of ~$50 Billion per year which could be used to advance the administrationâs priorities. Failure to act quickly would leave some or all of this historic opportunity for a future administration to use as they see fit.
I just do not agree with exercising the warrants; for several reasons plus these are bound to expire by the end of the next presidential term and donât see the point since the SPS can be converted to commons for the administration to still benefit (if thatâs their intent).
Although I kind of see your points, thereâs also no need to allow the government to double and triple dip in âthe name of the taxpayersâ which you and I know is a made up BS excuse.
They got already paid when they swept their net worth.
SPS can be converted to commons without needing to triple dip in exercising the warrants as well.
Not trying to kill the messenger or trying to be argumentative but thereâs simply no need for any of that.
To make this as fast as possible, no need for Treasury to address junior prefered shares.
In fact FHFA may announce a general meeting of shareholders and allow the shareholders to vote on election of Board and next steps without involvement of FHFA and Treasury. This would likley mean new board moves to list on NYSE ASAP. The new board will then make whatever business decision needed to deal with JPS, common, and remaining lawsuits. FHFA will need to get funding from congress to continues its part of the lawsuits.
The legal issues with accepting the 3rd amendment ânet worth sweepâ.:
The 3rd amendment has been determined to be a âbad faithâ action by a jury.
The Collins decision in SCOTUS placed FHFA as a clear executive agency with presidential removal power âat willâ as such negotiations between Treasury and FHFA were just executive negotiating with itself and is self-dealing.
3)The NWS was an ultra vires agency action as the âacting directorâ had never been confirmed and was taking action more than 2 years after his appointment which action violates the appointments clause.
With the FHFA needing to get congressional funding for its continuing lawsuits and the Twinns now removed from c-ship and able to advocate on their own and their shareholders behalf I see a quick resolution to all lingering legal issues. Noting that Govt has removed much more cash than was ever injected in the first place.
Big picture here is that government involvement rarely makes anything cheaper or simpler or faster. I read that around 25% of home prices can be attributed to government regulation and compliance costs!
Todayâs conservatorship was a 2008 crisis emergency measureâ not a long term fix.
Well. Hold on just a moment. There are a lot of problems and many people whoâs full time jobs used to revolve around dealing with mortgage lenders, they have some important information and data you may want to incorporate into your arguments in the future. Those people, myself included; Licensed real estate appraisers.
I wrote a detailed post earlier on this issue of the twins. And have included many rich and educational articles which were hand written by very knowledgeable appraisers over the years in this below post. Please if you have a minute take the time to read this.
People say a lot about conservatorship and removing the taxpayer back stop. Would lenders operate with such risk and disregard for consumer protection principals if not for the bail out and bail in guarantees? I got news for you, the governments investment in mortgage backed securities is at historical levels. The fix is already in. Privatizing the twins is not going to do a dang thing in terms of alleviating the risk or forcing a more honest system. Not until the government divests from mbs instruments. Which means a substantial price discovery period and market deflation. Instead weâve got everyone cheer leading artificially low mortgage rates again. This is just going to make the problem of housing affordability crisis that much worse.
Appraisers are the bellwether, the bulwark, the last line of defense of consumer protection principals in mortgage lending. And weâre being sidelined right now. The appraisal industry is poised to lose tens of thousands of licensees soon, and about a hundred thousand never came into existence over the past twenty years due to the long term strategy to remove independent checks and balances from the GSE systems.
Marcos my man, the actual figure appears to be way more than 25%.
But the statement needs clarification. Housing over pricing is attributable to fraud, which is made possible by excessive regulation. There is no honest price discovery anymore. I posted a link in the other comment on this thread with many appraiser hand written articles detailing a side of the industry you wonât hear about on syndicated or corporate media.
What was interesting about the guy whom put forth that data analysis. He is not an appraiser and completely missed the mark, failed to incorporate the removal of the full service real estate appraiser as a catalyst which facilitated all the fraud and housing bubble heâs writing about. He knows a lot about what heâs writing about but does not understand the importance of the independent real estate appraiser in those processes.
However this provides a unique data tie in. At every jump point in the statistical data indicating a rise in fraud, those dates also correlate with GSE and FED policy decisions which incrementally sidelined or diminished the full service appraisers participation in the process.
Basically a group of predatory interests known as appraisal management companies or amcâs, captured the majority share of work upstream of the actual licensed appraisers doing the work. They have raked what appears to be over 12 billion dollars in junk feeâs from mortgage lending consumers, and have sidelined or blacklisted over half of all the industries existing real estate appraisers. More than three out of four currently licensed appraisers today boycott the amc industry outright as a result.
Next time you or any of your family or community gets a mortgage loan. Donât be suprised if an unlicensed third party pdc or property data collector shows up to do your âinspectionâ. Or that you wonât even get an appraisal and your loan will be rubber stamped approved via the recently passed âavm final ruleâ. You wonât know if youâre instantly underwater or over leveraged until such time as you may try or need out of unexpected circumstance to actually list and sell your home at a later date. And youâll have your entire personal spaces of your home LIDAR scanned with advanced mobile tech devices FNMA is requiring appraisers to use with their new forms. That data will be shared with multitudes of third party data brokerage companies around the world. So much for GLB privacy protections. Or as I like to say on the appraisers blogs; Hide your gun and your pipe if anyone comes into your home with that technology. Privacy in mortgage lending? You have none. Courtesy of the GSEâs âappraisal modernizationâ program. Is their AVM systems reliable and honest? You donât get to know, youâll just have to trust them. There is no independent oversight or third party review or validation of the lenders avm black box avm systems. They will simply fill out a few page form every few years verifying the avm systems are unbiased and honest, and thatâs it. Thatâs the substitute for a hundred thousand appraisers around this country providing independent checks and balances in mortgage lending. Weâre gone, the avm is in. Youâll just have to trust them.
The ânondiscrimination quality control factorâ. That means value output will be varied depending on the persons race. Something it would be illegal for a licensed appraiser to do. Itâs institutionalized discrimination via automation. Social credit scoring in mortgage lending and loan handling. Everything DEI from the Bidenâs PAVE task force on âvaluation equityâ. They rushed everything through right before the election and even though Pulte took over FHFA, nothing is being done. The DEI is baked into the lending process now via avm automation.
And you donât get to know how or why or learn anything about the inner workings of avm systems. Lender participation in the program is going to be mandatory. One state tried to get information on these black box avm systems which have replaced most appraisers in the mortgage lending process. They were promptly told by the GSE twins to âdrop deadâ.
Another important piece written by an appraiser, to educate the public on whatâs going on with GSEâs. Is anyone even listening anymore? I really hope that intelligent people on this website will take this data and run it up the ladder. The better half of the entire residential appraiser industry, whatâs left of us anyways, about 70k head count and falling rapidly, weâre all relegated to whistleblower status but nobody is listening.
Our industry if given pro bono or qui tam representation has enough to bring legitimate class action suits. But because the industry is fragmented and the appraisal trade groups co opted and bought out by the amc industry and other stake holders such as lenders and investment and commercial interests, there are no funds to legally correct the system.
The Appraisal Sub Committee is supposed to provide oversight. They donât. The OCC Comptroller, the ASC is supposed to answer to them. There is no oversight, they rubber stamp the yearly reports. The TAF Appraisal Foundation is too busy pandering to represent their own licensee interests. They gave appraiser industry funds money to the same lawyers whom took appraisers to court over fictitious accusations of âracist appraisers.â The entire PAVE task force premise was appraisers canât be trusted because there are too many white people in the industry. That was the justification for the AVM final rule. Brookings and the NFHA, along with the amc executives ran the entire show from behind the scenes and directed the appraisal trade group top peoples. They worked with non profit groups and had âtech equity hackathonsâ specifically designed to develop ways to disproportionately apply valuation to housing in such a manner that it disregarded all market forces such as economy crime and education, what drives the very heart of price and value discovery in real property.
Whatâs the end result for consumers? Glad you asked; Debt traps for everyone. A permanently roiled housing market dominated by corporate and investor interests. Higher housing prices for everyone. Forever. And if anyone pulls too much equity, while treating their home like an atm, the FNMA âWholesale lendingâ program will be there to offer special terms to restructure the entire thing, so you can start your term all over or release the home to an institutional investor whom will buy it upstream of regular consumers at a firesale pricing, which theyâll prefer to hold as a REIT rather than selling back to American citizens.
