re: FNM's/FRE's Assets to Be Unwound at 10%/Yr from 2010 On

I don't know.

The more relevant question is, what were they worth on Sept. 5th, and what would they be worth if they hadn't been placed behind the Treasury's new preferreds, which is what killed the value of the shares. So no, I don't think it's hard to say that they got shafted.

LINK ][LINK]


You don't consider a drop from $14 to $2 to be due to their actions? I mean, it did happen on the day they announced it.

Sorry about the link, one of those javascript charts. I will agree with you on that partially though. The long term deterioration was primarily due to the their well documented financial problems, and is certainly not the fault of the Treasury. I wasn't trying to imply that, only that the very recent downturn directly after the announcement was due to the structure of the bailout, where the preferred's got hosed by being pushed behind the Treasury's shares and having their dividend cut LINK ][LINK]. In my mind, it's not really a question of what is "the right way" to go about something like this, assuming such a thing exists, but merely to point out that the effects of the plan are far reaching (the point of the link to the banks and insurance companies) and will have negative effects on several other companies.

No, they shouldn't have expected it, and they aren't guaranteed it, that is for sure. That's also not the Treasury's call to make, but they did anyways. I guess it is really a moral hazard issue then. Regulators pushed them to buy up these securities, coupled with this longstanding implicit backing, I guess they figured they (the preferreds) fell into the "too big to fail category" as a result of the widespread holdings.

quote:

---

That's also not the Treasury's call to make, but they did anyways.

---

What are you talking about? Why on Earth not? The owner of any corporation gets to decide when to pay out dividends to preferred shareholders. The U.S. Treasury Department is now the owner of the corporation, and thus now has the same power as the old owners. They have decided to temporarily stop paying these dividends, as ordinary corporations have also been known to do in times of financial distress. What's the big deal? I just don't get it.

I think our "argument" got lost in translation. The intent of the initial link was simply to point out that the many banks and other misc. companies that had preferred shares have serious problems now.

ETA: To the Treasury's call to suspend dividends, I meant that it is the company's call, so the Treasury made that decision for them when they placed them in conservatorship(sorry I thought that point was more obvious). Obviously, at that point, Treasury has every right to do so and it was undoubtedly the correct move.

I think you were just looking for a fight. Seriously though, it was really just to point out that (going back to page 1 of this thread) that plenty of institutions hold their preferred shares and are facing problems because of writedowns. I think you think I'm trying to defend the preferreds' right to taxpayer money ala "while the preferreds suffer"-type comment (hosed was the wrong word, you're right) and I'm not; just merely pointing out what the consequences of the actions are.

Don't disagree with that one bit. Even though its been like watching a train wreck in slow motion for a couple of months, WAMU going down is something the likes of which no one has ever seen. LINK ][LINK] for some WAMU-related reference.

No, but I already assumed that such lobbying was going on. Even though mortgage rates are now significantly lower, the mortgage process is still a lot more stringent than it has been in the past few years, so it might make sense to try to provide incentives for people to stay within their mortgage contracts (especially for people who are upside-down on their mortgages) until more new buyers start to offset the rate of foreclosures.

It's not all bad news, though. Like I've said earlier, I think that the August numbers that will continue to come in this month will be horrible, but that's about as bad as things will get. I expect good economic news from mid-October on out.

Did you see last week where Ocwen Financial reported that its subprime deliquency rates were dropping for its mortgages? ( LINK)

quote:

---

Subprime servicing giant Ocwen Financial Corp. (OCN: 7.18 -0.28%) took the unusual step of launching a press offensive Thursday, touting a recent drop in subprime delinquencies among the loans it services. The company’s portfolio covers a significant portion of the subprime market — through its subsidiary, Ocwen Loan Servicing, LLC, the company services approximately 350,000 mortgages, about 85 percent of which are subprime.

Ocwen said that delinquency rates in every category (60, 90 and 90+ days) have either declined or remained flat over the last three months, the “first sign of stability in Ocwen-serviced loans since the inception of the subprime crisis in 2007.”

---

Good stuff. It even showed of on Kudlow's show: LINK.