by Calculated Risk on 9/07/2008 01:40:00 PM

From the FDIC: The Federal Banking Agencies React to Takeover of Fannie Mae and Freddie Mac

The federal banking agencies have been assessing the exposures of banks and thrifts to Fannie Mae and Freddie Mac. The agencies believe that, while many institutions hold common or preferred shares of these two government-sponsored enterprises, a limited number of smaller institutions have holdings that are significant compared to their capital.

The Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision are prepared to work with these institutions to develop capital-restoration plans pursuant to the capital regulations and the prompt corrective action provisions of the Federal Deposit Insurance Corporation Improvement Act.

All institutions are reminded that investments in preferred stock and common stock with readily determinable fair value should be reported as available-for-sale equity security holdings, and that any net unrealized losses on these securities are deducted from regulatory capital.
emphasis added

Expect more bank failures ...

by Calculated Risk on 9/07/2008 11:08:00 AM

From Treasury: Statement by Secretary Henry M. Paulson, Jr. on Treasury and Federal Housing Finance Agency Action to Protect Financial Markets and Taxpayers

Conservatorship

Preferred Stock Purchase Agreements

Treasury has taken three additional steps to complement FHFA's decision to place both enterprises in conservatorship. First, Treasury and FHFA have established Preferred Stock Purchase Agreements, contractual agreements between the Treasury and the conserved entities. Under these agreements, Treasury will ensure that each company maintains a positive net worth.
...
With this agreement, Treasury receives senior preferred equity shares and warrants that protect taxpayers. Additionally, under the terms of the agreement, common and preferred shareholders bear losses ahead of the new government senior preferred shares.
emphasis added

Important for some FDIC insured institutions:

[C]onservatorship does not eliminate the outstanding preferred stock, but does place preferred shareholders second, after the common shareholders, in absorbing losses. The federal banking agencies are assessing the exposures of banks and thrifts to Fannie Mae and Freddie Mac. The agencies believe that, while many institutions hold common or preferred shares of these two GSEs, only a limited number of smaller institutions have holdings that are significant compared to their capital.

Secured Lending Facility.

The second step Treasury is taking today is the establishment of a new secured lending credit facility which will be available to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.

Treasury to buy GSE MBS

Treasury is initiating a temporary program to purchase GSE MBS.

Fact Sheets from Treasury:

FHFA Director Lockhart Remarks on Housing GSE Actions
Fact Sheet: FHFA Conservatorship
Fact Sheet: Treasury Preferred Stock Purchase Agreement
Fact Sheet: Treasury MBS Purchase Program
Fact Sheet: Treasury GSE Credit Facility

by Calculated Risk on 9/07/2008 10:38:00 AM

From WSJ: Treasury to Outline Fan-Fred Plan

U.S. Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart are expected to release details of the planned conservatorship of Fannie Mae and Freddie Mac at an 11 a.m. press conference in downtown Washington.

by Calculated Risk on 9/07/2008 09:52:00 AM

While we wait for more on Hurricanes Fannie and Freddie, here is an update on Hurricane Ike.

Ike is now a category 4 hurricane on the Saffir-Simpson Scale and has already caused extensive damage in the Turks and Caicos islands.

Right now Ike appears to be headed towards Cuba and then into the GOM (although south Florida isn't in the clear yet).



Here are some excellent sites to track hurricanes:
National Hurricane Center
Weather Underground Note: See Jeff Master's blog.

by Calculated Risk on 9/06/2008 06:35:00 PM

First, several people sent me this article from the NY Times. I'm skeptical of the accusation of accounting issues causing the deal to be rushed. Notice the phrase "not necessarily in violation of accounting rules" - I doubt Freddie violated any accounting rules this time:

From the NY Times: Loan Giant Overstated the Size of Its Capital Base (hat tip Sam & Devang)

The government’s planned takeover of Fannie Mae and Freddie Mac, expected to be announced as early as this weekend, came together hurriedly after advisers poring over the companies’ books for the Treasury Department concluded that Freddie’s accounting methods had overstated its capital cushion, according to regulatory officials briefed on the matter.
...
The company had made decisions that, while not necessarily in violation of accounting rules, had the effect of overstating the companies’s capital resources and financial stability.

And another update from the WSJ: Treasury to Outline Fan-Fred Plan

The U.S. Treasury is expected to announce early Sunday afternoon details of a plan under which regulators will effectively take temporary control over government-sponsored mortgage investors Fannie Mae and Freddie Mac.

The Treasury won't necessarily make a large injection of capital immediately into the ailing companies ...

Dividends on the companies' preferred stock are likely to be suspended, people familiar with the plan say, and those on common shares to be eliminated. Any injection of capital by the Treasury would likely greatly reduce or wipe out the value of common shares currently outstanding.

by Calculated Risk on 9/06/2008 03:01:00 PM

From the WSJ: Frank Confirms Treasury Intervention To Shore Up Fannie Mae, Freddie Mac

Rep. Barney Frank (D., Mass.) [chairman of the House Financial Services Committee] said in a statement Saturday that Mr. Paulson "intends to use the powers that Congress provided it" in a law passed in July to keep Fannie Mae and Freddie Mac stable and functioning. But Mr. Frank said he didn't "know the details of the proposed interventions,"

With all this publicity, the plan will have to be announced Sunday.

by Calculated Risk on 9/06/2008 09:08:00 AM

More details will leak out today, but the plan will probably be announced Sunday afternoon a few hours before the Asian markets open. (like with Bear Stearns). I wonder if the Fed will make some sort of announcement too ...

Stories (some contradictory on the Preferred shares):

Bloomberg: Paulson Plans to Bring Fannie, Freddie Under Government Control

WSJ: U.S. Near Deal on Fannie, Freddie

WaPo: U.S. Nears Rescue Plan For Fannie And Freddie

NY Times: U.S. Rescue Seen at Hand for 2 Mortgage Giants

LA Times: Fannie, Freddie takeover possible

by Calculated Risk on 9/05/2008 09:20:00 PM

Update2: WaPo says preferred protected: Fannie Mae, Freddie Mac to be Put Under Federal Control, Sources Say

Under the plan, the federal government would place the firms in a legal state known as conservatorship, the sources said. The value of the company's common stock would be diluted but not wiped out while the holdings of other securities, including company debt and preferred shares, would be protected by the government.

That makes more sense than the NY Times article.

Update: Here is the NY Times story: U.S. Plans Takeover of Fannie and Freddie

Senior officials from the Bush administration and the Federal Reserve on Friday informed top executives of Fannie Mae and Freddie Mac, the mortgage-finance giants, that the government is preparing a plan to seize the two companies and place them in a conservatorship ...

Under a conservatorship, most if not all of the remaining value of the common and preferred shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee could be paid by taxpayers.

A little thread music:



The WSJ has update their story: U.S. Near Deal on Fannie, Freddie

The Treasury Department is putting the finishing touches to a plan designed to shore up Fannie Mae and Freddie Mac ... a move that would essentially result in a government takeover of the mortgage giants.

The plan is expected to involve putting the two companies into the conservatorship of their regulator, the Federal Housing Finance Agency ...

It is also expected to involve the government injecting capital into Fannie and Freddie. ... Daniel H. Mudd, chief executive of Fannie Mae, and Richard Syron, his counterpart at Freddie Mac, are expected to step down from their posts eventually.

This weekend will be interesting.

by Calculated Risk on 9/05/2008 09:15:00 PM

From the FDIC: Nevada State Bank Acquires the Insured Deposits of Silver State Bank, Henderson, Nevada

Silver State Bank, Henderson, Nevada, was closed today by the Nevada Financial Institutions Division, and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. To protect the depositors, the FDIC entered into a Purchase and Assumption Agreement with Nevada State Bank, Las Vegas, Nevada, to assume the Insured Deposits of Silver State Bank.
...
As of June 30, 2008, Silver State Bank had total assets of $2.0 billion and total deposits of $1.7 billion. Nevada State Bank agreed to purchase the insured deposits for a premium of 1.3 percent. At the time of closing, there were approximately $20 million in uninsured deposits held in approximately 500 accounts that potentially exceeded the insurance limits. This amount is an estimate that is likely to change once the FDIC obtains additional information from these customers.

Silver State Bank also had approximately $700 million in brokered deposits that are not part of today's transaction.
...
The transaction is the least costly resolution option, and the FDIC estimates that the cost to its Deposit Insurance Fund is between $450 and $550 million. Silver State Bank is the second bank to fail in Nevada in 2008. First National Bank of Nevada, Reno failed on July 25, 2008. This year, a total of eleven FDIC-insured institutions have been closed.

Another one bites the dust.

by Calculated Risk on 9/05/2008 06:33:00 PM

Yes, Fannie and Freddie is the big story today (and this weekend). And DSL and BKUNA are interesting too.

But Housing Wire has more on the MBA Foreclosure and Delinquency data released today: MBA: Prime ARMs Set Tone for Troubled Mortgages in Q2

Jay Brinkmann, the MBA’s newly-named chief economist, managed to irk more than a few servicing managers we spoke with by suggesting that the woes in the two most troubled U.S. states throughout the housing mess were masking improvements elsewhere — and then using two states that have seen foreclosures artificially lowered by recent legislation to make his point.

“Massachusetts showed a very large drop in foreclosure starts, perhaps signaling a bottom,” Brinkmann said in the group’s press statement.
...
There’s one big problem with his logic: during Q2, both Massachusetts and Maryland in particular saw highly-publicized changes in notice requirements that significantly extended the borrower default notice period from 30 to 90 days in each state. ...

“Of course foreclosure starts have slowed since [the two states] extended demand letters,” said one servicing manager, who asked not to be identified by name. ...

A senior vice president at a large subprime servicer, who asked not to be named, said that the suggestion of a market bottom in Massachusetts was “just plain ludicrous.”

“We’re already starting to see a sharp increase within the state as the effect of the new notice period wears off,” he said.

Of course the bigger MBA story was the shift towards Prime ARM foreclosures.