Fannie, Freddie Crash After Bill Unwinding GSEs Passes Hurdle

Tyler Durden's picture

David Stockman blasted the GSE-profiteers just last week but the manic run-up in the stocks of Fannie Mae and Freddie Mac has abruptly come to an end as the FT reports, the US Senate banking committee on Tuesday released a highly anticipated plan that would maintain government backing of mortgages but wind down the GSEs. Not a great day for Mr. Ackman - who owned 10% at last filing.

The bill will call for replacing Fannie and Freddie with a new system of federally insured mortgage securities in which private insurers would be required to take initial losses before any government guarantee would be triggered.

 

WSJ has more:

The top Democrat and Republican on the Senate Banking Committee said they had reached agreement on the broad outlines of a bill to overhaul Fannie Mae and Freddie Mac and the nation’s $9.9 trillion mortgage market, drawing a strong statement of support from the White House. The bill will call for replacing Fannie and Freddie with a new system of federally insured mortgage securities in which private insurers would be required to take initial losses before any government guarantee would be triggered.

 

The agreement announced Tuesday between Sens. Tim Johnson (D., S.D.) and Mike Crapo (R., Idaho) follows closely on the work of a proposal released last year by Sens. Bob Corker (R., Tenn.) and Mark Warner (D., Va.).

 

“There is near unanimous agreement that our current housing-finance system is not sustainable in the long term,” Mr. Johnson said in a statement. The current arrangement, in which Fannie and Freddie are backing nearly three in five new loans while under government control, is “unacceptable,” Mr. Crapo said. Their proposal “provides a balance between providing broad access to mortgages while protecting taxpayers from losses.”

As a reminder from Bloomberg:

Activist fund manager Bill Ackman described his investment in mortgage giants Fannie (FNMA) Mae and Freddie Mac as the most interesting since he acquired a stake in General Growth Properties Inc. in 2008.

 

Ackman’s Pershing Square Capital Management LP said on Nov. 15 that it had bought a 9.98 percent stake in the common shares of Fannie Mae that aren’t owned by the government, as well as a 9.77 percent stake in the Freddie Mac shares available to the public. The firm may seek talks with shareholders, management and the government, which owns almost 80 percent of the agencies since bailing them out.

 

“Fannie Freddie is a little more dynamic situation where the opportunity for profit is to make multiples of your money, if you can come up with a solution to a problem that has vexed Congress and the Treasury I think since the crisis,” Ackman said in an interview today with Bloomberg Television’s Stephanie Ruhle. “This is the most interesting investment I’ve seen since my investment in General Growth. (GGP)”

At this rate it may also be the worst investment since Herbalife:

But the tell? Certainly octo(or nona)genarian cartoon analyst Dick Bove telling Fox Biz last week it is going to $18.