Analyst believes Fannie Mae’s stock offering is on hold
One of the steps in the recapitalize and release Fannie Mae and Freddie Mac of the Guardianship must hold stock offerings. However, an analyst who has long criticized the Federal Housing Finance Agency and its director, Mark Calabria, believes those offers have been suspended indefinitely.
Why Fannie Mae’s Freddie Mac stock offerings may be suspended
In a note today, Odeon Capital analyst Dick Bove said the disagreement over the capital rule makes stock offerings by Fannie Mae and Freddie Mac unlikely. The two government sponsored companies sent letters to FHFA explaining why they disagree with the capital rule as proposed by the agency.
Bove pointed out that the GSE’s opposition to the proposed capital rule was the first time they have publicly opposed the FHFA or questioned its actions since its creation in 2008 by the Housing and Economic Recovery Act. . So when they published letters criticizing the capital rule, it was a very serious matter.
Odeon Capital analyst maintains that the “immediate impact” of these letters was “to suspend everything indefinitely. offer from the public stock by “both Fannie Mae and Freddie Mac.
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Problems with the capital rule
The GSEs have questioned the capital rule because they believe it violates the mandates given to them by Congress. Bove said they also believe the capital rule “hampers their ability to operate in a way that could offer investors a reasonable return on their investments in the companies.”
He also said the letters gave the impression that Fannie and Freddie believe the capital rule threatens their future because it implies that they will have to raise the prices of their mortgages. He believes that by raising their prices, they will lose business to the entities he sees as their main competitors, which are the largest banks in the country.
Additionally, he believes the higher prices will only leave Fannie Mae and Freddie Mac with the mortgage the big banks do not want, which are those intended for low-income households. He believes the GSEs made their concerns public because they were unable to convince the FHFA in closed-door negotiations.
He also said the government has given Calabria “dictatorial powers,” which means no one can undo it anywhere in the United States, not even the president, supposedly. The Fifth Circuit Court of Appeals has already said it found his position unconstitutional.
Start of negotiations
Bove said Fannie and Freddie had indeed passed Calabria’s head and appealed directly to the public. He also said their arguments cannot be ignored because they make sense. Philip Swagel of the Congressional Budget Office and former CEO Freddie Mac Donald Layton have expressed similar concerns.
The analyst added that now Fannie Mae and Freddie Mac will have to enter into negotiations with the FHFA, which oversees them, which he says is suspending their share offers. He does not expect the results of the negotiations to be known for months.
He believes the FHFA will back down on some of his demands, although he doesn’t think it will necessarily be positive for the actions of Fannie Mae and Freddie Mac.
After Fannie Mae and Freddie Mac stock offers
Bove believes that even after the release of Fannie Mae and Freddie Mac guardianship and hold their stock offerings, the government will seek to control them. After reading the letters written by GSEs, he thinks the government wants to control all regulations related to their operations, thus controlling the companies themselves.
He believes that policies will be developed at the government level rather than at the company level. As a result, he argues that investors should “understand that they will not put their money into a self-sustaining capitalist enterprise.”
He argues that the government does not intend to let GSEs choose the products they sell or the markets in which they can operate. He thinks the government wants Fannie Mae and Freddie Mac to serve singles only. housing market and “have a limited interface with all derivative financial instruments that could be created from the commodities”.
Bove also argues that the government wants the fee schedules of GSEs to be high, which makes them the high cost producers in their industry. This would increase competition in the sector, supposedly allowing banks to launch at a lower cost to gain market share. He also believes it would mean Fannie and Freddie would be pressured into offering high-cost loans to low-income buyers, as banks will take the best loans for themselves.
Through Michelle jones