Stock Alert for Federal National Mortgage Association (Fannie Mae) (FNMA)
  • Stock Alert for Federal National Mortgage Association (Fannie Mae) (FNMA)
  • Stock Alert for Federal National Mortgage Association (Fannie Mae)(FNMA)
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    Stock Alert for National Mortgage Association (Fannie Mae) (FNMA)

    Federal National Mortgage Association (FNMA), also known as “Fannie Mae,” is a government-sponsored enterprise (GSE) providing liquidity and stability support in the secondary mortgage market in the United States. It securitizes mortgage loans originated by lenders in the primary mortgage market into mortgage-backed securities, which are bought and sold in the secondary mortgage market. The Company operates in three segments: Single-Family Credit Guaranty, Housing and Community Development and Capital Markets. The Single-Family Credit Guaranty segment securitizes single-family mortgage loans into Fannie Mae mortgage-backed securities (MBS) and facilitates the purchase of single-family mortgage loans for the Company’s mortgage portfolio. The Housing and Community Development segment securitizes multifamily mortgage loans into Fannie Mae MBS and facilitates the purchase of multifamily mortgage loans for the Company’s mortgage portfolio. This segment also invests in rental and for-sale housing projects. The Capital Markets segment manages the Company’s investment activity in mortgage loans, mortgage-related securities, debt financing activity, and liquidity and capital positions. The Company’s customers include mortgage banking companies, savings and loan associations, savings banks, commercial banks, credit unions, community banks, insurance companies, and state and local housing finance agencies.

    Fannie Mae was founded in 1938 and is based in Washington, the District of Columbia.

    Share Statistics (12-Nov-10) FY

    2008

    FY

    2009

    %

    Chg

    Q2

    2009

    Q2

    2010

    %

    Chg

    Symbol FNMA Revenue, $Mn 43.1B 39.4B -8.6% 10.0B 39.4B 294.0%
    Current price $0.37 Gross marg. 17.8% 36.3% 103.9% 37.5% 10.7% -71.5%
    52wk Range: $0.02-$1.38 Oper. margin -103.3% -185.5% 79.6% -148.0% -3.4% -97.7%
    Avg Vol (3m): 9,061,960 Net margin -136.1% -247.3% 81.7% -148.0% -3.4% -97.7%
    Market Cap. 415.21M
    Shares Outstanding 1.12B EPS, $ -23.88% -13.11% -45.1% -2.67 -0.55 -79.4%

    Source: Reuters.com, SEC Filings.

    Financial Summary

    FNMA recently reported a net loss of $1.3 billion in the third quarter of 2010, compared to a net loss of $1.2 billion in the second quarter of the year.  The Company’s net loss attributable to common stockholders was $3.5 billion, including $2.1 billion in dividend payments to the U.S. Treasury. To eliminate the Company’s net worth deficit of $2.4 billion as of September 30, 2010, more than 85% of which is the dividend payment to Treasury, the Federal Housing Finance Agency has requested $2.5 billion on the Company’s behalf from Treasury. Upon receiving those funds, the Company’s total obligation to Treasury for its senior preferred stock will be $88.6 billion. The Company has paid a total of $8.1 billion in dividends to Treasury.

    The Company’s net loss attributable to common stockholders was $3.5 billion, or ($0.61) per diluted share, compared with a loss of $3.1 billion, or ($0.55) per diluted share, in the second quarter of 2010. The net worth deficit of $2.4 billion as of September 30, 2010, takes into account the company’s net loss, dividends paid on senior preferred stock held by Treasury, and a reduction in unrealized losses on available-for-sale securities during the third quarter.

    Net revenues were $5.1 billion in the third quarter of 2010, up 13% from $4.5 billion in the second quarter of 2010, due primarily to an increase in net interest income. Net interest income was $4.8 billion, up 14%  from $4.2 billion in the second quarter of 2010. The increase was due primarily to lower debt funding costs and the purchase from MBS trusts of the substantial majority of the single-family loans that are four or more monthly payments delinquent, as the cost of purchasing these delinquent loans and holding them in the Company’s portfolio is less than the cost of advancing delinquent payments to security holders.

    For the third quarter of 2010, interest income that the Company did not recognize for nonaccrual mortgage loans was $1.8 billion, compared with $2.2 billion in the second quarter of 2010.

    Credit-related expenses, which are the total provision for credit losses plus foreclosed property expense, were $5.6 billion, up from $4.9 billion in the second quarter of 2010. The increase was driven in part by valuation adjustments that reduced the value of the Company’s real-estate-owned inventory, as well as higher expenses due to increased acquisitions of foreclosed properties.

    Credit losses, which the company defines generally as net charge-offs plus foreclosed property expense, excluding certain fair-value losses, were $8.2 billion in the third quarter of 2010, compared with $7.0 billion in the second quarter of 2010. The increase was attributable to an increase in defaults, particularly those due to the prolonged period of high unemployment and the decline in home prices.

    Total loss reserves and fair value losses previously recognized on acquired credit-impaired loans were $84.6 billion as of September 30, 2010, or 2.8% of the Company’s book of business, compared with $87.4 billion, or 2.9% of the Company’s guaranty book of business, as of June 30, 2010. The Company considers its $19.8 billion of total fair value losses previously recognized on loans purchased out of MBS trusts an “effective reserve” for credit losses because the mortgage loan balances were reduced by these fair value losses at acquisition. Total nonperforming loans in the Company’s guaranty book of business were $213.3 billion, compared with $218.2 billion as of June 30, 2010.

    Net fair value gains were $525 million in the third quarter, compared with gains of $303 million in the second quarter of 2010. The increase was attributable primarily to gains on the Company’s trading mortgage securities due to rate declines and spread tightening.

    Net other-than-temporary impairment was $326 million in the third quarter, compared with $137 million in the second quarter of 2010. The increase was due primarily to a decline in forecasted home prices for certain geographic regions that resulted in a decrease in projected cash flows on subprime and Alt-A securities.

    BUSINESS SEGMENT RESULTS

    Single-Family guaranty book of business was $2.85 trillion as of September 30, 2010, compared with $2.87 trillion as of June 30, 2010. Single-family guaranty fee income for the third quarter of 2010 was $1.8 billion, the same as the second quarter of 2010. The Single-Family business lost $5.5 billion in the third quarter of 2010 due primarily to credit-related expenses of $5.6 billion, almost all of which were attributable to loans purchased or guaranteed from 2005 through 2008. The Single-Family business lost $5.1 billion in the second quarter of 2010.

    Multifamily guaranty book of business as of September 30, 2010, was $187.4 billion, compared with $186.1 billion as of June 30, 2010. Multifamily recorded credit-related expenses of $2 million in the third quarter of 2010, compared with a net benefit of $20 million in the second quarter of 2010. Multifamily earned $181 million in the third quarter of 2010, compared with $119 million in the second quarter of 2010.

    Capital Markets’ net interest income was $4.1 billion in the third quarter of 2010, compared with $3.5 billion in the second quarter of 2010. Fair value gains were $436 million, compared with $631 million in the second quarter of 2010. Net other-than-temporary impairment was $323 million, compared with $137 million in the second quarter of 2010. The net mortgage investment portfolio balance was $802.9 billion on September 30, 2010, compared with $817.8 billion on June 30, 2010, resulting from purchases of $57.8 billion, liquidations of $47.2 billion, and sales of $25.6 billion during the quarter. Capital Markets earned $4.8 billion in the third quarter of 2010, compared with $4.4 billion in the second quarter of 2010.

    Source: Federal National Mortgage Association

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    Financial Strength (Nov-12-2010) Company Industry Sector S&P 500
    Quick Ratio (MRQ) 0.23 0.31 0.64
    Current Ratio (MRQ) 2.73 3.11 0.95
    LT Debt to Equity (MRQ) 389.53 99.15 119.05
    Total Debt to Equity (MRQ) 414.44 195.39 174.09
    Interest Coverage (TTM) -4.27 0.15 -4.40 18.91

    Source: Reuters.com, SEC Filings.

    Analyst Consensus

    Buy Outperform Hold Underperform Sell No Opinion

    This is the consensus forecast among one polled investment analysts. Against the Federal National Mortgage Association company.

    Analyst Detail Buy Outperform Hold Underperform Sell No Opinion
    Latest 0 0 0 1 0 0
    4 weeks ago 0 0 0 1 0 0
    2 months ago 0 0 0 1 0 0
    3 months ago 0 0 0 1 0 0
    Last year 0 0 0 2 0 1

    Source: markets.ft.com

    Consensus Estimates Analysis


    # of Estimates Mean High Low 1 Year Ago
    EARNINGS (per share)
    Year Ending Dec-10 1 -6.90 -6.90 -6.90 -6.90

    Source: http://www.reuters.com/finance/stocks/financialHighlights?symbol=FNMA.OB


    Investment Highlights

    FNMA continues to focus on building a strong new book of business and returning to profitability (excluding Treasury dividend payments), and its operating results reflect stabilizing credit-related expenses and increasing revenues, the company said in a statement.

    “Our operating results reflect our ongoing efforts to manage the credit-related expenses in our legacy business and build a new, profitable book of business,” said FNMA president and CEO Michael J. Williams. “The loans we have acquired since the beginning of 2009 reflect our commitment to realistic, common-sense lending standards and sustainable home ownership. Their credit profile remains strong, and we expect these loans to be profitable over their lifecycle. We are building this new book of business while we continue to provide liquidity to America’s housing market as it struggles to recover, and to support programs to help families stay in their homes and avoid foreclosure whenever possible.”

    The Company recently reported the following results:

    2005 – 2008 Single-Family Book of Business: From the beginning of 2009 through the third quarter of 2010, the Company has reserved for or realized approximately $110 billion of losses on its single-family loans, the vast majority of which are attributable to loans it purchased or guaranteed from 2005 through 2008. The Company estimates that it has reserved for the substantial majority of the remaining losses on these loans. Single-family loans that the Company purchased or guaranteed from 2005 through 2008 are becoming a smaller percentage of the Company’s guaranty book of business, having decreased to 42% as of September 30, 2010 from 63% as of December 31, 2008. The Company’s single-family serious delinquency rate, which has fallen for seven consecutive months, decreased to 4.56% as of September 30, 2010, from 4.99% as of June 30, 2010, and was the first year-over-year decline in the Company’s serious delinquency rate since 2007. The Company expects serious delinquency rates may be affected in the future by home price changes, changes in other macroeconomic conditions, and the extent to which borrowers with modified loans again become delinquent in their payments.

    Providing Liquidity to the Market: During the first nine months of 2010, the Company purchased or guaranteed an estimated $613 billion in loans, which includes approximately $195 billion in delinquent loans the Company purchased from its single-family mortgage-backed securities trusts. Fannie Mae remained the largest single issuer of mortgage-related securities in the secondary market during the third quarter, with an estimated market share of new single-family mortgage-related securities of 44.5% compared with 39.1% in the second quarter of 2010. Since January 2009, Fannie Mae has provided about $1.4 trillion in liquidity to the market through loan purchases and guarantees, including approximately $230 billion in delinquent loans the Company purchased from its single-family MBS trusts, financing approximately 4,874,000 conventional single-family loans and approximately 571,000 multifamily units.

    Avoiding Foreclosure: During the first nine months of 2010, the Company completed more than 410,000 single-family loan workouts, including more than 350,000 home-retention workouts. In the third quarter of 2010, the Company completed home-retention workouts (including modifications, repayment plans, and forbearances) for more than 113,000 loans with an aggregate unpaid principal balance of $23 billion. On a loan count basis, this represented a 14% decrease over home-retention workouts completed in the second quarter of 2010, which was due primarily to a decrease in loan modifications. Details of the Company’s home-retention workouts, other foreclosure alternatives, and refinances include:

    • Loan modifications, including permanent modifications under the Home Affordable Modification Program, of 106,365, compared with 121,693 in the second quarter of 2010. This figure does not include HAMP modifications in trial periods. Modifications decreased in the third quarter as the company began verifying borrower income prior to completing Fannie Mae modifications for borrowers who were ineligible under HAMP, which reduced the company’s modifications outside the program.
    • Repayment plans/forbearances completed of 6,208, compared with 8,716 in the second quarter of 2010.
    • Pre-foreclosure sales and deeds-in-lieu of foreclosure of 20,918, compared with 21,515 in the second quarter of 2010. The decrease was due primarily to weak market conditions affecting pre-foreclosure sales during the quarter.
    • Fannie Mae acquired or guaranteed approximately 541,000 loans that were refinances during the third quarter of 2010, including approximately 159,000 loans through its Refi PlusTM initiative. On average, borrowers who refinanced during the third quarter of 2010 through Refi Plus reduced their monthly mortgage payments by $141,or $1,692 annually. The Company acquired or guaranteed approximately 354,000 loans that were refinances in the second quarter of 2010, including 126,000 through Refi Plus.

    Homeowner and Borrower Initiatives: The Company continues to develop programs and initiatives that are designed to help keep people in homes, help prospective homeowners, and support the mortgage and housing markets overall. During the third quarter FNMA:

    • Launched KnowYourOptions.com, a Web site designed to give borrowers a one-stop shop to find out how to save their homes or choose other options to avoid foreclosure.
    • Opened Mortgage Help Centers in Atlanta and Chicago. The Company plans to open additional centers in 2010 and 2011.
    • Announced that more than 29,000 owner-occupants purchased homes under its First LookTM program in the past year, with public entities using Neighborhood Stabilization Program funds purchasing an additional 5,000 properties. Under First Look, the company only considers offers from owner occupants and participants in the Neighborhood Stabilization Program during the initial period that its foreclosed properties are on the market, which allows these purchasers to submit offers without competition from investors.

    Source: http://www.fanniemae.com

    A New Overseer

    On Tuesday, the White House said President Barack Obama will nominate North Carolina Commissioner of Banks Joseph A. Smith Jr. to be chief regulator for Fannie Mae and Freddie Mac.  Both mortgage giants were placed in conservatorship at the height of the global financial crisis in 2008.

    In a statement, Obama said “Smith brings to this position both tremendous expertise and a deep commitment to strengthening our housing finance system for the American people.”

    If confirmed by the Senate, he would replace FHFA acting director Edward J. DeMarco, who has overseen the mortgage firms since August 2009.

    Technical Analysis

    Source: http://stockcharts.com

    Wednesday, FNMA closed below its 13-day moving average. This is generally considered to be an indication of a bearish trend.

    FNMA has been relatively stable recently. This is evidenced by the width of its Bollinger Bands which are tighter than normal. Additionally, FNMA is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold.

    FNMA’s MACD is indicating a weak bearish signal. Although the indicator is above the critical level of zero, which implies that the underlying moving averages are bullish, the MACD has crossed below its 9-day moving average or signal line. This suggests that positive momentum has begun to slow.

    Comparative Analysis

    Company Name Ticker Price per Mrkt. Cap. P/E P/S
    Nov12-2010 symbol Share, $ $ Mn 2010 2011 2010 2011
    Freddie Mac FMCC 0.36 233.69M n/a n/a n/a 0.02
    Federal Agricultural Mortgage Corp. AGM 14.82 152.31M n/a n/a 1.50 1.26
    The First Marblehead Corp. FMD 2.35 236.79M n/a n/a n/a 3.76
    Consumer Financial Median 179.12 n/a 5.04 n/a
    Fannie Mae FNMA 0.37 415.21M n/a n/a n/a n/a

    Source: Thomson Financial

    Insider Trading Activity

    NET SHARES PURCHASE ACTIVITY

    Inside Purchases – Last 6 Months

    Shares Transaction
    Purchases n/a 0
    Sales n/a 0
    Net Shares Purchased (Sold) n/a 0
    Total Insider Shares Held 212.07K n/a
    % Net Shares Purchased (Sold) 0% n/a
    Net Institutional Purchases — Prior Qtr to Latest Qtr
    Shares
    Net Shares Purchased (Sold) (72,315,200)
    % Change in Institutional Shares Held (86.15%)

    Source: Yahoo Finance

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