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Monday, August 31, 2009

Fannie Mae and Freddie Mac are worth zero: report

Home finance lenders Fannie Mae and Freddie Mac have each topped $2 in recent New York Stock Exchange trading. That's the highest they've been since share prices collapsed last September.

"There is no fundamental value remaining in Fannie Mae and Freddie Mac, particularly since the government owns 80% of each company," writes analyst Paul J. Miller Jr. and his colleagues at brokerage Friedman Billings Ramsey. "We expect more government capital injections" on top of the $96 billion already invested. "This capital must be repaid" if Fannie and Freddie are to survive. Otherwise the stocks are dead anyway.

Fannie and Freddie each have less than one-third the capital they need to cover their loan losses. And loan losses are rising. If they were banks they'd probably be shut by regulators.

What will happen? "The Administration is keeping discussion about (these government-sponsoerd enterprises) behind closed doors... The most likely scenario is that the GSEs operations will be split up, and Fannie and Freddie will be spun out of the government as mortgage insurers with small portfolios." The government will "manage" their mortgage portfolios. 

How'll that work? "Obama's team will not (deal with) the issue until after the fiscal year 2011 budget is delivered on Feburary 1, at the earliest."
Posted by Joseph N. DiStefano @ 9:21 AM  Permalink | Post a comment
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About Joseph N. DiStefano
Joseph N. DiStefano writes this blog to feed his PhillyDeals column in the Philadelphia Inquirer. Joe has been a member of Bloomberg LP’s New York Finance Team, wrote the book “Comcasted,” taught writing at St. Joseph’s University, and studied economics and history at Penn. Reach Joe at 215-854-5194 and JoeD@phillynews.com
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