Rafferty Capital’s Dick Bove published a research report today focusing on the fate of the Johnson Crapo bill and the real import of the news regarding Fannie Mae failing the “severe economic downturn” stress test. Bove highlights that the Johnson Crapo bill to wind down Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) appears very unlikely to emerge from the Senate Banking Committee, and that Fannie Mae could pass even the worst case stress test if the government wasn’t siphoning off its profits.
Johnson Crapo not going anywhere
According to Bove, barring a miracle revival, the much-bemoaned Johnson Crapo bill is dead on arrival. “The reality is that the sponsors of the Bill do not have the 16 votes necessary to get the vote out of committee. Plus, key liberal Senators do not support the legislation according to press reports. This means to all intents this Bill is dead. New legislation will have to be drafted in 2015 and it is unclear what that legislation might say.”
Fannie Mae stress test a farce
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Dick Bove pulls no punches as he describes the media’s role in hyping the “negative news” that Fannie Mae had “failed” a stress test. Bove says this is a typical case of media generating bad news for hype purposes. He points out that Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) passed all other scenarios of the Treasury’s stress test as well as all three scenarios considered probable by the FHFA.
Bove also highlights the key point that Fannie Mae could pass even the most dire stress test with flying colors if the Treasury were not constantly siphoning off billions of dollars of the GSE’s profits. “…the government provides more information in its stress test document that shows that if the Treasury stopped taking all of the capital out of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), even in the worst D-FAST scenario the GSEs would not need any further cash from taxpayers. Stated differently, if the Treasury Department let Fannie Mae and Freddie Mac keep their capital they could withstand a Depression and not need any funds from the government.”