Monday, December 28, 2009

Fannie, Freddie Soar 20% on Treasury’s “Blank Cheque” (FNM; FRE)

Update III: "Fannie Mae, Freddie Mac exec pay suggests stock worth nothing (FNM; FRE)"
Update II: "
Credit Suisse: Fannie, Freddie Action Means Large Scale Buyouts of Loans in Their Securities (FNM; FRE)"
This is such a big deal we are still working on the implications. We'll have more later today or tomorrow morning.
Original post:
In premarket trade Fannie's up 20%, Freddie's up 21%.
From Barron's "Stocks to Watch Today" blog:
Shares of mortgage issuers Fannie Mae (FNM) and Freddie Mac (FRE) are surging this morning on the U.S. Treasury Department’s announcement Thursday, after the close of the shortened session, that it will amend its agreements with both firms to allow for, in a sense, unlimited funding of both institutions. The Treasury said it will amend its preferred stock purchase agreement (PSPA) with both, which had been capped at $200 billion, to allow its funding commitment “to increase as necessary to accommodate any cumulative reduction in net wroth over the next three years.”...MORE
From Bloomberg (Christmas Eve):

U.S. Removes Caps on Fannie, Freddie Lifelines for Three Years
The U.S. Treasury Department said today it will remove the caps on assistance to Fannie Mae and Freddie Mac for the next three years to alleviate market concern about the effect of limited government assistance.

The two companies, the largest sources of mortgage financing in the U.S., are currently under government conservatorship and have caps of $200 billion each in backstop capital from the Treasury. Under the new agreement, these caps can rise as needed to cover net losses over the next three years.

Fannie Mae and Freddie Mac now are using a combined $111 billion of the total $400 billion in available assistance. Treasury Department officials said they did not expect the companies to need assistance beyond what is available under the current caps, barring significant deterioration in the economic outlook.

Today’s announcement “should leave no uncertainty about the Treasury’s commitment to support these firms as they continue to play a vital role in the housing market during this current crisis,” the Treasury said in a statement in Washington.

The Treasury also relaxed its timeline for Fannie Mae and Freddie Mac to shrink their portfolio of retained mortgages. Previously, the companies were instructed to shrink their portfolios at a rate of 10 percent a year. Now, they will be required to keep their portfolios below a maximum limit, currently $900 billion, that will fall by 10 percent a year....MORE