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Thursday, August 24, 2006

Fannie-Mae Supported By Big Brother

Mortgage lender Fannie Mae (FNM) dodged a serious bullet after the US Attorney's office notified the company that after a 2-year investigation the corporation would not be charged criminally over their accounting debacle. The stock is up over 4% at $51.23, but this really shouldn't be a surprise to anyone. If the government would have gone after Fannie Mae in a serious way it is almost like getting a prosecutor to try his or her son.

FNM also agreed to settlements in May with the SEC and the Office of Federal Housing Enterprise Oversight. While it does not appear that all aspects of the fraud investigations from federal agencies are concluded, you can see that it is closer to the end than the beginning.

Will the ex-officers get out of the soup, too? Most likely they will, although other companies will likely treat these ex-officers as though they had the plague. Companies like Fannie Mae (FNM) and Freddie Mac (FRE) are deemed as GSE's, or government sponsored entities.

As Cramer would put it, "We are under a government that is of the corporations, for the corporations, and by the corporations"...or however the exact cadence goes. This proved to be true here, and in retrospect this will end up being one of those situations that the street will wonder why they ever expected any different outcome.

The future status of these companies as GSE's may come up again, and as long as Ginnie Mae is around it is arguable as to if these even need to have a GSE status. If we ever get a "real" housing correction where people start walking away from their homes in droves, then that GSE status will be known as to if it hurts the tax payers or helps the government. This is still arguable, and even though the housing supply is huge there has yet to be a forced liquidation of housing and foreclosures that resemeble the old "RTC" days.

Jon C. Ogg
August 24, 2006
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