Public Opposition Could Save Fannie Mae, Freddie Mac: Bove

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As is usually the case in politics, there have been two running debates over Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) reform – what should be done and what is most likely to actually happen. Whether the future US mortgage market is regulated by a powerful Federal Mortgage Insurance Corporation, becomes a free market without government regulation (and without 30 year mortgages, most likely), or something in between, it has seemed like a safe bet that Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) won’t be part of the picture.

There are cases winding through the courts that could certainly win compensation for Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) shareholders, but it’s hard to imagine the courts would try to force Congress to keep the GSEs open for business, and no one in Congress is interested in spending political capital defending institutions whose reputations were so damaged during the crisis.

Fannie Mae and Freddie Mac reform could become an election issue

But Rafferty Capital Markets VP of Equity Research Richard Bove, who has been in favor of keeping and reforming Fannie Mae and Freddie Mac for some time now, thinks that shareholders have a real chance of changing the debate by turning Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) reform into an election issue.

“[There are] organizations being created that are targeting legislators who are backing these bills,” he writes. “It is being made clear to them that they will lose financial support when they run for re-election and that their actions in writing these bills will be an election issue. It is quite probable that if the threats being formulated are compelling enough, the Congressional bills may be dramatically changed.”

Investors Unite launches this week to pressure Congress

As a follow-up to the Shareholders Respect round table held in February, CapWealth Advisor CEO Tim Pagliara has formed a new group called Investors Unite that will meet with consumer advocate Ralph Nader and other Fannie Mae and Freddie Mac shareholders in Washington DC later this week. So far the Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) debate hasn’t been able to capture the public’s imagination, but if declining home sales start putting pressure on prices over the next few months, it could force a re-evaluation of US housing policy and focus people’s attention on the details of Johnson-Crapo and other Congressional proposals.

Crapo-Johnson, with fairly high capital requirements and a basis point fee to pay for mortgage re-insurance, would permanently add tens of basis points to home loans, and the government’s withdrawal from the housing market would likely mean the return to balloon mortgages, neither of which seems like it would be popular if they became a bigger part of the upcoming elections.

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