Rumour! Mother of all writedowns! (Fannie Mae)

[Who_ll_take_the_rap]

The story has it that FNMA and its auditor will part company over write downs and that FNMA will shortly take the mother of all write downs.

That is all. nakedcapitalism.com/2008/03/ … downs.html

Since 1968, Fannie Mae has helped more than 55 million families achieve the American Dream of homeownership

[Who_ll_take_the_rap]

A somewhat related item

Margin Call Defaults… And More Rumors
Carlyle Capital just defaulted on margin calls.

From Bloomberg: Carlyle Capital Gets Default Notice on Margin Calls

Carlyle Capital Corp., the publicly traded credit fund backed by private-equity firm Carlyle Group, said it received a notice of default after failing to meet a margin call yesterday.

The Guernsey, U.K.-based fund didn't meet four of seven margin calls totaling more than $37 million received yesterday, it said today in a statement. It expects to receive at least one more notice of default related to yesterday's margin calls, according to the statement.

Since filing its annual report a week ago, Carlyle Capital has received and met margin calls and additional collateral requirements of more than $60 million, it said.
<...>
The fund's portfolio was made up exclusively of AAA-rated mortgage-backed securities issued by Fannie Mae and Freddie Mac as of Feb. 27, it said last week.

Sometimes, the rumors are true. It’s usually easy to figure out which ones are true and which ones aren’t. Watch the market. The margin call rumor is true.

As for the agencies **Fannie Mae and Freddie Mac, the rumor today is that someone(s) has dumped between 40 and 50 billion of agency paper onto the market. **I’m sure Carlyle Capital would have met it’s margin calls if it could. However, if most of what they have is in AAA rated agency paper and there’s been a massive dump of those securities onto the market, then they couldn’t sell and had to default on the margin calls. The Carlyle story somewhat substantiates the rumor of agency paper being dumped. Freddie and Fannie stocks did horribly today as well. If these securities aren’t bought up soon, the agency mortgage system is in danger of collapse. Game over. Insert more coins to continue. The only problem is, we are running out of coins to keep the game going. If the rumor is true, I expect to see the amount of agency paper submitted to the Fed as loan collateral to sky rocket and I’ll be watching the SLOSH report for that data. Also, down the road, a TAF funding increase could be possible in this scenario. Let’s not forget rate cuts as well. I can’t help but think that at some point, a bailout will be tried. It will fail but will be tried.
rangerider.blogspot.com/

[A_Random_Walk]

*TREASURY DENIES RUMOR OF GUARANTEEING FANNIE MAE, FREDDIE MAC
2008-03-06 09:41 (New York)

STORY TO FOLLOW.

There will be trouble ahead… I get the impression the yanks are losing control and don’t know which way they should be pulling.

[Green_Bear]

March 6 (Bloomberg) – Yields on agency mortgage-backed securities rose to a new 22-year high relative to U.S. Treasuries as banks stepped up margin calls and concerns grew that the Federal Reserve may be unable to curb the credit slump.

The difference in yields, or spread, on the Bloomberg index for Fannie Mae’s current-coupon, 30-year fixed-rate mortgage bonds and 10-year government notes widened about 11 basis points, to 227 basis points, the highest since 1986 and 93 basis points higher than Jan. 15. The spread helps determine the interest rate homeowners pay on new prime mortgages of $417,000 or less.

The markets have become utterly unhinged,'' William O'Donnell, a UBS AG government bond strategist in Stamford, Connecticut, wrote in a note to clients today. A lack of liquidity has led to stunning air-pockets in price levels.‘’ >>>>

**Agency Mortgage-Bond Spreads Rise; Markets `Utterly Unhinged’ **
bloomberg.com/apps/news?pid= … refer=home

[yoganmahew]

@A Random Walk

*TREASURY DENIES RUMOR OF GUARANTEEING FANNIE MAE, FREDDIE MAC
2008-03-06 09:41 (New York)

STORY TO FOLLOW.

There will be trouble ahead… I get the impression the yanks are losing control and don’t know which way they should be pulling.

These denials are usually a sign that something bad is coming after the bell. (So has been my limited experience of the last six months of taking an interest in financial matters!)

So, I expect something potentially earth-shattering to be made public tonight, with tomorrow for the markets to blow off a little steam, so that they have forgotten about it by monday and everyone can go back to making money!

[verbatim]

@A Random Walk

*TREASURY DENIES RUMOR OF GUARANTEEING FANNIE MAE, FREDDIE MAC
2008-03-06 09:41 (New York)

STORY TO FOLLOW.

There will be trouble ahead… I get the impression the yanks are losing control and don’t know which way they should be pulling.

This really was a weird one. It was actually more than a rumour, it was a belief. Did the treasury really need to say anything, unless something ugly is in the post? I tend to agree with yoganmahew.

Also, what’s the story with the treasury denouncing bailouts and the Fed cheerleading for a bailout? Shouldn’t that be the other way round?

[yoganmahew]

Could it be the Caryle capital offload of 22 billion of agency mortgages in a firesale? Add to this Citi reducing its MBS load by 45 billion and there could be a flood of MBS at firesale prices. Add to this speculation that Thornburg mortgages (a jumbo mortgage provider) is close to bankruptcy.

With all this going on, the GSEs may not be able to sell on their mortgages. If they can’t do that, they can’t give out loans. If they can’t give out loans, prime loans in the US stop. That wouldn’t do much for house prices if everyone had to pay real cash!

[yoganmahew]

More on the guarantee rumour:
acrossthecurve.com/?p=426

The rumor was reported earlier in a Market News International story that the government would look to explicitly gurantee the debt of Freddie Mac and FNMA. The same fine news organization published a follow up story shortly thereafter which noted how unlikely that this was and properly noted that it would literally require an act of Congress (and I might add a Presidentuial signature) to make this happen.

Might the rumour be related to the write-down rumoured yesterday?

[Green_Bear]

July 7 (Bloomberg) – Freddie Mac and Fannie Mae fell to the lowest in 13 years in New York Stock Exchange composite trading as concerns grew the two largest U.S. mortgage-finance companies may need to raise more capital to overcome writedowns and satisfy new accounting rules.

Freddie Mac fell 18 percent and Fannie Mae dropped 16 percent after Lehman Brothers Holdings Inc. analysts said in a report today that an accounting change may force them to raise a combined $75 billion. Speculation that the companies may take further writedowns also weighed on the stock, said John Tierney, a credit strategist at Deutsche Bank AG in New York.

There's a lot of apprehension about writedowns,'' Tierney said. If they have writedowns, they have to raise capital. How much do they raise and how easily can they do that? Those are the questions that everybody is asking.‘’

Fannie Mae and Freddie Mac have declined more than 60 percent this year, with declines accelerating in the past two weeks, on concern the companies’ capital raisings since December may not be enough to overcome writedowns. Washington-based Fannie Mae so far has raised $6 billion in capital to offset writedowns on mortgages it owns or guarantees. Freddie Mac, based in McLean, Virginia, raised $13.5 billion since December and said last week plans to add $5.5 billion probably won’t be fulfilled until late next month.

**Freddie Mac, Fannie Mae Plunge on Capital Concerns (Update4) **
bloomberg.com/apps/news?pid= … refer=home