Fannie Mae

On The Bright Side...

...it is only 5 hours until noon, when Europe closes and we can resume the rally based on anything that sounds remotely positive.

Frontrunning: November 9

  • LCH.Clearnet lifts margin on Italian debt (FT)
  • Chinese Banks May Issue $102 Billion In New Yuan Loans (China Securities Journal)
  • Greece Extends Suspense on Choice of Premier (WSJ)
  • IMF's Lagarde: Some Asian Countries Can Loosen Money (WSJ)
  • Berlusconi’s Resignation Shifts Focus to Forming Government (Bloomberg)
  • Merkel Advisers See German Growth Slowing (Bloomberg)
  • Fannie Mae taps $7.8 billion from Treasury, loss widens (Reuters)
  • Fed up! McCain predicts rise of third political party (Reuters)

Did Kyle Bass Turn Bullish On Housing, And Does It Mean Substantial Upside For Mortgage Insurers?

For some actually relevant news, instead of market kneejerk reaction comments, we turn to the WSJ, whose Nick Timiraos points out an important inflection point, namely that Kyle Bass, one of the best hedge fund managers of his generations, may have turned moderately bullish on housing. To wit "A closely followed hedge fund manager known for correctly betting on the housing market’s collapse four years ago purchased a small stake in the nation’s largest mortgage insurance company in a bet that the housing market has neared bottom. J. Kyle Bass, portfolio manager at Dallas-based Hayman Capital Management LP, bought the 4.9% stake in MGIC Investment Corp, according to federal filings. He said on Monday the bet reflected his view that the housing market’s losses had largely been absorbed. “You can see that the pig has moved through the python in terms of U.S. housing losses,” he said. Shares of MGIC are about 10.2% higher in Monday afternoon trading, to $2.82." The Heyman Capital filing can be found here.

The First-Loss Insurance Providing EFSF Is A Truly Unique Vehicle

Following this morning's busted issuance, it seems appropriate to take a deeper dive into the first-loss insurance that EFSF issuance may provide. There are still a lot of details to be worked out, but the €250 - €275 billion EFSF first loss insurance facility is starting to take shape. The amount of exposure that the EFSF can take in any form and retain the AAA rating is capped at €452 billion Euro – the amount of guarantees provided by the AAA entities. It looks more and more like the EFSF guarantees will be used in 3 different ways.  A portion will be used to raise money to meet commitments already made to Greece, Ireland, and Portugal.  Another portion will be allocated to provide additional capital to banks.  Finally, a portion will be used to back first-loss insurance and we note that the EFSF First-Loss Insurance Program is like Nothing We Have Ever Seen Before. Why we have wound up at the stage that issuing binary options on sovereign debt is a good solution, I don’t know, but since we are there, it might as well be done as well as possible.

The US Paper Dump Continues: Norway's Sovereign Wealth Fund Sells All Of Its US MBS Exposure

Two days ago we noted that foreigners are selling US paper at a record pace, whether to raise capital in a locked out liquidity environment like French banks, or to make a politicial statement, like China. Today we get the first confirmation to this from Norway's Sovereign Wealth fund, best known for its prediction that it would buy and hold Greek bonds in perpetuity back in September 2010. Just recall: "Norway has taken the view that [Greek bonds] will not [default]. The Greek holdings are particularly interesting because the consensus in the market is that they will at some point restructure or default." Well, about a year later it is now official that the best the Norway SWF can hope for is a 50% recovery. So what does it do? It proceeds to dump US paper. Mortgage Backed Securities first. Because if it announced that a sovereign wealth fund instead of buying into the biggest ponzi ever, we finally defecting from it, then all bets would be of. Bloomberg reports: "Norway’s $570 billion sovereign wealth fund sold all its holdings in U.S. mortgage-backed securities as part of a shift of its fixed-income portfolio.“We’ve reduced our holdings of mortgage-backed securities,” he said. “MBS has been taken out of our internal policy benchmark. This means that we don’t have mortgage-backed securities issued by Freddie Mac and Fannie Mae any longer." The stated reason for the dump: prepayment risk: "The debt was sold primarily because of the refinancing risk, he said. In the U.S., when a borrower refinances a mortgage it can cut short the maturity of the bond backed by the loan and reduce the expected interest over time, so-called prepayment risk." The real reason? Why shoring up capital of course. "The fund held 36 billion kroner ($6.6 billion) in bonds from Fannie Mae at the end of the second quarter and 11.5 billion kroner from Freddie Mac at the start of the year." And with the Fed telling us that almost $100 billion in US bonds and MBS having been sold in the past two months, one can be absolutely certain that i) it is not just MBS and ii) it is not just Norway.

Guest Post: Want a Truly Healthy Housing Market? Here Are the Five Essential Steps

Everyone exposed to losses in the corrupt, speculative apex of malinvestment known as the U.S. housing market doesn't want a truly healthy housing market, they just want a return to the bubble era. Sorry, folks, ain't gonna happen. (And yes, I own property, too, but it is what it is.) Bubbles do not reinflate, even with the Fed chanting its Keynesian Cargo Cult mantras ("zero interest rates forever!") and waving dead chickens over the embers. The conditions which inflated the bubble cannot be called up by incantations; faith in the system has been destroyed, and only the complete socialization of the mortgage market by the forces of Central Planning--the Fed and the Federal government's Socialized Mortgage Makers, Fannie and Freddie-- have staved off the complete collapse of prices which would have wiped out the banks and cleared the market via actual capitalism in practice, i.e. a transparent marketplace which is allowed to discover price. Despite the fact that a truly healthy housing market is anathema to the Status Quo and current property owners sitting on huge mortgages, let's lay out the necessary characteristics of such a housing market. A lot of this will strike many of you as counter-intuitive, but that only highlights the pervasiveness of the speculative propaganda that slowly hollowed out our culture's previous understanding of housing and replaced it with a devilishly magnetic financialization model.

Guest Post: Ten Reasons Not To Bank On (Or With) Bank Of America

There is no shortage of hatred for the biggest banks. Indeed, the Occupy Wall Street movement is leading a national revolution against these byzantine, powerful Goliaths for the economic devastation they have caused. This makes it difficult to choose the worst of the bunch. That said, a strong case can be made that Bank of America deserves the title of the nation's most despised bank. Here are ten reasons to take your money out of Bank of America - and park it at a credit union or community bank near you. (And yes, that may be near impossible if you have a mortgage with them, as refinancing away from any big bank nowadays is a nightmare.)