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Does The Government Recognize The Validity Of Fairholme / Perry Offer?

The U.S. government might be beginning to recognize the validity of Fairholme and Perry's offer to take over Fannie Mae / Federal National Mortgage Association OTCBB:FNMA and Freddie Mac / Federal Home Loan Mortgage Corp OTCBB:FMCC, points out Rafferty Capital.

Fairholme Capital

Richard X. Bove of Rafferty Capital argues that Jonathan Laing's recent column in Barron's has some omissions.

Fairholme's offer to buy part of Fannie and Freddie

Last month, Bruce Berkowitz-led Fairholme Capital Management had offered to buy the insurance businesses of Fannie Mae / Federal National Mortgage Association OTCBB:FNMA and Freddie Mac / Federal Home Loan Mortgage Corp OTCBB:FMCC by infusing $52 billion of fresh capital in the GSEs. Fairholme indicated it would lead a group of private investors that included Perry Capital.

This week, Jonathan Laing wrote an outraged column in Barron's concerning the offer made by Perry Capital and Fairholme Capital to take over the GSEs by injecting $17 billion into the companies.

Richard X. Bove of Rafferty points out that Jonathan Laing could be echoing the views of the government.

Omissions in Laing's article

Richard argues that Mr. Laing attempted to make it apparent that the government laid out $187 billion to save the GSEs and never got anything back. However, Richard points out that the fact of the matter is that by the first quarter of 2014, the government will have gotten all of this money and more back.

Richard also points out that Mr. Laing failed to note that the maintenance of the GSEs saved the U.S. housing industry, as 90% of the mortgages purchased in the secondary market in the recent years were made by these two giants and the activities of the FHA. He emphasizes that if the GSEs had been put into bankruptcy in September 2008, there would have been no secondary market, no fixed rate mortgages, and no 20 to 30 year terms on mortgages.

Richard X. Bove of Rafferty Capital also points out that the Perry / Fairholme proposal is virtually the same in all major respects as the Corker / Warner Bill.

Richard concludes that it may be that the government is beginning to recognize the validity in some of the Perry / Fairholme thrusts and Jonathan Laing might just be echoing the views of the government.

Interestingly, Holman W. Jenkins Jr. of The Wall Street Journal points out in his recent blog post that super investors such as Fairholme and Perry believe both political parties are blowing smoke when they claim they intend to put Fannie and Freddie out of business.

-By Mani


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