Monday Morning Cup of Coffee takes a look at news crossing HousingWire's weekend desk, with more coverage to come on bigger issues.
In what could be a major blow to the investor case against Treasury regarding GSE shareholder rights, U.S. District Judge Amy Jackson on Friday ruled that Fannie Mae shareholders cannot sue the Department of Treasury in a derivative action because the Federal Housing Finance Agency has shareholder's rights.
“The Court finds that this case does not present a conflict of interest sufficient to justify an exception to HERA's command that only Fannie Mae's Conservator may bring suit on Fannie Mae's behalf. Therefore, the Court will grant the Conservator's motion to substitute for plaintiff in this case,” she said in her ruling, which can be read here.
Fairholme Funds is one of several hedge funds with GSE holdings.
Investors in the GSEs want the mortgage giants to pay the shareholder profits it owes, but the GSEs are not doing that as part of the bailout agreement with the federal government.
After Fannie Mae and Freddie Mac were bailed out during the financial crisis and placed into conservatorship, all profits were directed back to the U.S. Treasury.
Now that the government has been paid back, investors want their stake and their rights upheld.
Consumer advocate Ralph Nader, CapWealth Advisor CEO Tim Pagliara, investor Carl Icahn, and dozens of GSE shareholders from 20 states have joined together in this campaign under the banner Investors Unite.
You may be either seething with anger or stepping away from your laptop/mobile so that you can stand and clap, either way don’t miss this op-ed in Forbes on why the idea that the Federal Reserve can properly monitor the mortgage market to prevent instability is akin to believing in unicorns.
The writer looks at the amazing story of contrarian investor John Paulson. Paulson predicted trouble in the mortgage market before the crash, and positioned one of his hedge funds to profit from a decline in the value of mortgages.
Everyone on Wall Street laughed at Paulson – not just “Oh, look at this guy” but actual malicious derision. Paulson laughed all the way to the bank. Gregory Zuckerman writes about it in the aptly titled book, The Greatest Trade Ever.
Last week, it was announced that Fed vice chairman Stanley Fischer “will lead a new internal committee focused on threats to financial stability” and it put the writer in mind of Paulson.
Worth repeating is the blindingly obvious reality touched on above that Fed officials charged with “monitoring” risk wouldn’t have a clue where to look. Again, Paulson’s billions were a function of him having noticed about mortgages what most market participants did not. Some readers properly skeptical of the Fed would likely add that back in the 2000s top Fed officials, including former chairs Alan Greenspan and Ben Bernanke, were very public in their view that the mortgage markets were fine….until they weren’t. So true, but very important here is that while there’s much to criticize Greenspan and Bernanke about, that they didn’t predict trouble in the mortgage space isn’t one of them.
To understand why, we must once again remember why Paulson made so much money way back when. There’s major money to be earned by those who can predict where in the markets trouble will rear its head in the future. Billions. That there is ably explains why the Fed can’t possibly succeed in its self-appointed role of “financial stability” monitor. To presume that such individuals exist at the Fed is to believe that unicorns similarly exist.
More than 3,500 structured finance and securitization professionals set down in Miami Beach, Florida, as ABS East 2014, one of the largest industry conferences focused on the securitization market, begins Sunday afternoon and runs through Tuesday.
Throughout Sunday, Monday and Tuesday, the halls and ballrooms of The Fontainebleau Resort will be filled with industry professionals discussing the past, present and future of securitizations.
HousingWire reporter Ben Lane will be on hand with up-to-the-minute coverage.
“ABS East 2014 will provide comprehensive coverage on the revival and strengthening of the U.S. securitization market, along with what our markets should look like in the future, given the importance of securitization to the real economy,” conference organizer Information Management Network said.
Mark Calabria says maybe it’s a good thing that the Federal Housing Administration and the Department of Justice have been so tough on lenders. That may leave you scratching your head – a laissez-faire Cato Institute scholar and analyst cheering government being heavy-handed? Stay with him through this though.
Many in the banking industry, as expressed to Bloomberg, believe this is because FHA and the U.S. Department of Justice have been too tough on lenders, making them take back soured loans and assessing damages. JP Morgan CEO Jamie Dimon recently asked, because of the legal risk, “should we [JP Morgan] be in the FHA business at all?”
…lenders are still dumping an awful lot of junk onto FHA. The average credit score is around a 680 FICO, meaning about half of FHA’s recent business is subprime. Beyond that, even subprime borrowers typically face down payments of only around 5%, and then there’s the high debt levels witnessed. Lenders should be held responsible for making loans of such poor credit quality.
If DOJ fines on poorly performing FHA loans are chasing banks away from FHA, then I say “great.”
Several housing metrics for August and July will be out this week, starting with existing home sales.
Existing home sales in July advanced 2.4% to an annualized pace of 5.15 million units. June rose a revised 2.4% to a marginally downwardly revised 5.03 million. July sales were down 4.3% on a year-ago basis. July's figure put existing home sales back at the pace last seen in October 2013 before atypically adverse winter weather undercut sales.
Tuesday will see the FHFA purchase-only house price index for July. The FHFA metric improved in June with a rise of 0.4%, compared to 0.2% in May. But the year-ago rate slowed to 5.1% from 5.3% in May. Regionally, nine Census regions showed gains in June; two declined; and one was unchanged. Overall, home prices are sputtering.
Wednesday will see the new home sales for August. The July reading printed at a lower-than-expected 412,000 annual sales rate. But the two prior months were revised higher by a total of 28,000. July's gain was centered entirely in the South, which rose 8.1% in the month.
No banks were reported closed for the week ending Sept. 19, according to the FDIC.