Monday, January 20, 2014

Bove’s argument on Fannie Mae’s survival

qishenhuang  Nov 25, 2013 3:26 PM Flag

Bove’s argument on Fannie Mae’s survival

Bove also highlights the historical reality that politicians say one thing and mean and do another. He argues this is why Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) is almost certain to survive despite President Obama and the Democrats and Republicans lining up to see it wound down.

His argument is that any reasonably open-minded analyst would agree that Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), despite their many flaws and poor management, have served a positive purpose in assisting in the creation of a fair and largely accessible mortgage market for American consumers. Given this historical reality, and the fact that any kind of private sector-only mortgage loan system, no matter how carefully designed, will almost inevitably have a significant short- and medium term negative impact on small banks and the construction industry, Bove suggests closing down Fannie is politically DOA.

Bove also points out that Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) is in better shape than the public realizes. According to his analysis, “…if the company is allowed to grow it will attain a value that exceeds its estimated earnings per share.” The other side of the coin, however, is that if liquidated, shareholders will likely receive nothing.

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This is true of any stock. If the company is liquidated, the common shareholders are the last to get paid. If this risk is unnacceptable to you, then you should not be in the stock market..

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