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Friday, August 8, 2008

Fanni Mae Loses $2.3

Fannie Mae posted its fourth straight quarterly loss.  It lost $2.3 billion during the last quarter.  The dividend will be cut from 25 cents to 5 cents.  Why are they not cutting the dividend to 0?  Right now, with the explicit backing, tax payers could be paying the dividend.  The explicit guarantee is the worst of both worlds.  Tax payers are taking the risk and share holders (who should have been wiped out) are enjoying the rewards (although excluding the dividend, they are not being rewarded). 

If the GSEs were nationalized, at least the tax payers are responsible for risk and rewards. 

Freddie CEO Richard Syron, 64, this week said the company is waiting for a more ``propitious time'' to sell the $5.5 billion in stock it had agreed to offer in May. Freddie said it will cut its dividend at least 80 percent and may slow purchases of mortgages to shore up capital.

I guess he means waiting for the treasury secratary to provide the capital. Once again, why cut the dividend 80% and not 100%??????

Paulson last month received authority for his plan to buy unlimited equity stakes in the companies and extend them financing if needed to help bolster confidence in the companies.

Once again, the unlimited part just boggles my mind.  Remember, the administration needed the authority in Iraq to "enforce a diplomatic solution."  Now, the congress has given a blank check.  Then when the administration uses this authority, they are going to cry foul. 

Freddie revised its forecast for housing price declines to a drop of as much as 20 percent from a previous estimate of 15 percent and said the number of properties it has in foreclosure rose to 22,000, the most since it was created in 1970 during the Vietnam War.

Slowly they seem to be getting the picture.  But the 20% still does not seem like ennough.  I wonder if their risk management takes into account what happens if home prices decline 30% or more.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aYPqJhQUd2Wg&refer=home


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