Fannie Mae Stress Test A Farce: Bove

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Fannie Mae Stress Test A Farce: Bove

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.

Fannie mae

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.”

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4 COMMENTS

  1. Bove hit the nail on the head. They won’t fail again period if they are recapitalized and originating lenders don’t compromise underwriting standards.

    As a shareholder, I ask why the government is maliciously compromising my company

    As a taxpayer, I ask why I haven’t received a Treasury check for funding this so called bail out.

    So where are Fannie and Freddie’s profits going? Are they being used to fund Obamacare? Are they being used to pay down the deficit? This scam needs to end. Shareholder owned companies can no longer be held hostage for a crisis created by Wall Street banks and elements of our government.

    This isn’t Venezuela or Argentina.

  2. I love the fact that certain shareholders and big time shareholders (meaning the wealthy individuals behind this cause) have taken it upon themselfs to form coalition groups and run TV advertisement, denouncing the federal goverment and certain politicians who are backing legislatoin to dissolve Fannie May and Freddie. Mac. To all of you involved in this campaign, I would like to thank you personally.

    I wish there was a way to get this message across to the greater american public concerning what has been going on with these two GSE. By that I mean, shareholders (who are getting the shaft), the federal goverment and its complete profit sweep, also the crooked politicians (who are in bed with the bankers) trying to dissolve these two entities. This is a uphill battle because unless you are invested in these two publicly owened companies or you are very knowledgeable about current politics most average citizens don’t even know whats going on and how this will effect the overall economy in the future.

    I understand that press is a strong influence on the people of this country, I also understand that BAD press is a strong influence on politicians who are trying to further there politicle careers. I think the TV ads are excellent to inform the public masses of this government scandle (thats what I call it). Now think about this, how do wake up these crooked senators? I suggest we rent a couple large billboard on the DC beltway (driving in and driving out), we post a very clear message naming all the politicians who are trying to wipe out these GSE’s to VOTE THEM OUT OF OFFICE democrats or republicans, this isn’t about any political party, this is about our country as a whole.

    Now I know for sure two things will happen. First this will gain a lot of free national press for the public to see on CNN, MSNBC, and Fox including talk radio, hopefully bringing this issue to more of the publics attention. Second these crooked politicians (yea, I said it again) will have to drive by these giant billboards everyday on there way to and from the capital building sitting in there vehicles asking themselves, “am I really making a smart decision for my political career”.

    Two issues to make this happen money (hint: Perry Capital and Fairholme Capital Management, CEO’s) just saying if your reading this, also a billboard landlord who is behind this cause and would come on board for the betterment of our country.

    I’m just throwing this out there, think about it.
    Thanks for reading this post.

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