Morning Report: The government hires and advisor for Fannie and Freddie

Vital Statistics:

Stocks are higher after Chinese markets held up overnight. Bonds and MBS are down.

Construction spending fell 0.2% in November, but was up 5% on a YOY basis. Residential construction was up 1.4% MOM and up 5.8% YOY. Public residential construction was up almost 30% YOY.

Manufacturing performed better than expected in January, with the ISM Manufacturing Index rising to 50.9. This is a sharp rebound from December, which indicates that trade issues are in the rear view mirror.

The government is considering an expansion of the Federal Home Loan Bank’s customer base to include non-bank lenders and mortgage REITs. Federal Home Loan Bank borrowers generally get a sweetheart deal on financing, usually much better than even overnight repo lines. The reason? government subsidies. Note that some mortgage REITs currently do have FHLB lines, but I guess they want more mortgage REITs in the business. The Feds have been frustrated by the large banks, who have shied away from all but the most credit-worthy borrowers.

FHFA has hired an advisor to help recapitalize Fannie Mae and Freddie Mac. Houlihan Lokey won the deal. This will allow Fan and Fred to hire their own advisors for the equity sale. This is part of the government’s plan to decrease its footprint in the mortgage market. The share sale could top $125 billion, which would dwarf the largest IPO ever (Saudi Aramco in December) by a factor of 5. Lots of details remain, but progress is being made.

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical View all posts by Brent Nyitray