Thursday, March 12, 2009

Freddie Mac is Back! Back for More of Your Grandkids Money: $30.8 Billion

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Allright new readers, welcome to our Franfredron watch - what's Franfredron? It's when you mix some Fannie Mae, and some Freddie Mac and sprinkle with shades of Enron. Now keep in mind, these 2 companies still trade as public companies (hah!) because they are not nationalized (hah!) - yep, we don't do nationalization in the US. These are fully operating companies that would be just fine without the massive infusions of capital from your grandkids piggy bank (yes folks, its real money we're talking - it has to come from somewhere) - and you can go buy them on the stock exchanges for less than a dollar.

We're keeping a running tab because these have been companies we've been stalking since blog inception in 2007. For specifics (extended version) I will point you to our posts here [Sep 7, 2008: Bailout Nation Continues - Fannie/Freddie Owned by You]...

If you don't want the detailed version let me give you the Cliff Notes
  1. As the housing market worsened, our bright leadership in Washington D.C. decided to think short term (shocker) and to add even more risk on already shaky Fanfredron [Feb 27: OFHEO Increases Allowance for Fannie Mae] [Mar 19: Fannie, Freddie Layered with MORE Risk]
  2. We warned, and warned, [Aug 18: The Heat is On: Fannie Mae (FNM) and Freddie Mac (FRE)]and warned that Freddie and Fannie were black holes, going to zero - but some of the "sharpest" minds disagreed [Aug 13: Bill Miller Continues to Boggle Me - Increasing Stake in Freddie Mac (FRE)]
  3. The companies were "bought by you" [Sep 7: Bailout Nation Continues - Fannie/Freddie Now Owned by You] but certainly don't use the word nationalized. We were told at "worst" it would cost "up to" $200 Billion. We scoffed - and said it's going to be at least $400 - $600 Billion but Hank Paulson wouldn't say that - when you sell snake oil you don't want to say what exactly is in it. But now in the new year government has said.. oops did we say up to $200 Billion; let's make it up to $400 Billion.
  4. So after selling the story to the US taxpayer as a limited cost option - we've come full circle. The politicians are again doing stooopid things to layer even more risk into Fannie/Freddie. [Oct 12, 2008: Fannie, Freddie Turning Into Vacuum Cleaners] [Dec 11, 2008: Fannie, Freddie Considering Waiving Appraisals for Refinancings] [Feb 6, 2009: Americans Will be Refinanced By Any. Means. Necessary]
Do you see the American "leadership" circle of life? (I use the word leadership loosely) Did I mention these were the 2 biggest political donors (both parties!) for years upon years? Circle of life baby....

Here is the dirty secret... our part owners/creditors - the Chinese - were pressuring Hank Paulson this fall as all the dominoes began to fall (AIG, Merrill, Lehman) to guarantee the debts of Fannie and Freddie since they (Chinese) own so much of their debt. (see they own both our government's debt, and our mortgage market debt) And when your #1 creditor says to jump, you jump. All the while Uncle Hank sold it to the American people as something that was independently decided. (cough)

Oh, I'm leaving out part of the story here in this summary - as I search through a year plus of Fannie/Freddie warning posts I get that lurching feeling in my stomach as I re-read them. So I'll digress repeating all the sordid steps, deceptions, and ignorance. Just remember, despite robbing your grandchildren of a generation or two of wealth to throw down the rabbit hole (AIG, Citigroup, Bank of America, Bear, Franfredron, TARP, stimulus 1 by Bush, stimulus 2 by Obama, stimulus 3 that will be coming within a year, all the Federal Reserve "backstops"), this all ends the same way [Apr 15, 2008: Could the US Lost its AAA Rating?] [Nov 12, 2008: CNBC Europe - USA May Lose its AAA Rating]

Enough of history! It does not help us to look back at history (source: Congress people loaded to the gills with Fannie, Freddie lobbyist money) We must look forward! New times, new solutions! (i.e. no executive salary clawbacks for Fanfredron head honchos - who drove the companies into the ground) That would be looking backwards - it won't help.

Let's see the latest tally - as we work towards "up to" $200 Billion, err $400 Billion

Fredron ($79.6 B?)
  1. [Nov 14: Freddie Mac First to the Trough] $13.8B
  2. [Jan 25: Freddie Mac Saddles Up for Another $35B] $35.0B
  3. Today - $30.8B (am I double counting with the Jan 25th request? is this the money they were seeking in January, except "official"?)
And now Franron ($15.2 B)
  1. [Feb 27: Fannie Posts $25 Billion Loss; Comes to US for $15.2 Billion] $15.2B
Hot off the presses! last night
  • Freddie Mac, facing mounting damage from the U.S. housing crisis, said Wednesday it will ask the government for nearly $31 billion in additional aid after posting a gargantuan loss of more than $50 billion last year.
  • The mortgage-finance giant requested $30.8 billion in additional government funds and said it lost $23.9 billion last quarter, or $7.37 per share. The loss was nearly 10 times as high as the year-ago quarter's loss of $2.5 billion, driven by a deterioration in its massive book of mortgage debt.
  • The Treasury Department has pledged up to $400 billion in aid for the duo. (remember, this was SOLD as up to $200 Billion when we first took control) But as losses mount, many analysts see the companies remaining under government control, perhaps indefinitely. (no, that would be nationalization! We don't do nationalization! As long we don't "label" it as such, it's not! No matter what the reality is. And if its only "up to" $200B... err $400B - why would we need to take control indefinitely?? Oh - because it was a lie)
  • The recent loss was driven by $13.2 billion in hedged trades, $7.2 billion in credit losses from the declining housing market conditions and $7.5 billion in writedowns of the value of its mortgage-backed securities. The company also took a charge of $8.3 billion for now-worthless tax credits.
So remember - as the circle of life shows above our political leaders have deemed that Fannie and Freddie now will be offering low rate, no appraisal loans, and with loosening credit requirements. That certaintly can't go bad - I mean it worked like a charm in 2004-2006. The fallout from that era wasn't too bad.... errr... umm....
  • The Obama administration on March 4 said a program using Fannie and Freddie to refinance as many as 5 million loans would have the companies buy mortgages on properties that have less than 20 percent equity without requiring new appraisals or additional mortgage insurance.
And don't forget....
  • The plan also requires the two government-sponsored enterprises, or GSEs, to pay mortgage servicers and borrowers fees to modify troubled loans.
In case you are confused, we take from your pocket to give to Fannie & Freddie to pay mortgage servicers as a bonus to redo mortgages. We could skip the middle man and just take the money from you and hand it to the mortgage servicers but that would be too transparent. And make you mad... which could cause you to pick up pitchforks and torches and stuff. We don't want that. As an aside if you own a mortgage processor, good on you! Jackpot!

Anyhow, not to worry - the 2nd half 2009 recovery is upon us in a mere months - Jul 1, 2009 our problems go away. This is the promise our brightest pundits on financial TV have talked to us about since the last 2nd half recovery (2008) they promised us. When said recovery arrives mid summer, the losses for these 2 should go away and I am probably just shouting off a soap box that will soon collapse upon itself. We'll check back during the next "request for grandchildren's money".

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