Subject:

RE: another question, if you don't mind

From:
"Arlene Busch" abusch@rosemontseneca.com
To:
"Hunter Biden" hbiden@rosemontseneca.com, "Eric Schwerin" eschwerin@rosemontseneca.com, "Michael Muldoon" mmuldoon@rosemontseneca.com
Date:
2010-08-13 11:05

Is it ok to forward the message below to jack or should I try to contact him on the phone?

 

Arlene Busch

202-333-1880

abusch@rosemontseneca.com

 

From: Hunter Biden [mailto:hbiden@rosemontseneca.com]
Sent: Friday, August 13, 2010 10:50 AM
To: abusch@rosemontseneca.com; Eric Schwerin; Michael Muldoon
Subject: Fwd: another question, if you don't mind

 

A- will you ask Jack about this and get back to Nick. Thanks.

R. Hunter Biden

202-333-1880

 


Begin forwarded message:

From: Nick Rohatyn <nick.rohatyn@rohatyngroup.com>
Date: August 13, 2010 4:41:43 PM GMT+02:00
To: "Hunter Biden" <hbiden@rosemontseneca.com>
Subject: another question, if you don't mind

Hunter,

 

We are hearing noise around Fannie and Freddie, along the lines set out below. Have you heard anything along these lines? Just checking for the possibility of any big surprises….

 

FOMC, Fannie, Freddie, mortgages: 

·         Fannie/Freddie + housing - some more talk today about an "Aug Surprise" - recall this talk was first around last week (see the Reuters article below that we sent around last Thurs Aug 5).  The market speculation has a few different flavors but involves two components: 1) FNM/FRE/FHA would automatically refi all the agency/FHA mortgages down to the prevailing market rates (so people who are current w/their mortgages but can't refi for some reason would be able to take advantage of the current low rates); 2) FNM/FRE/FHA would eliminate "negative equity" for those homeowners who have mortgages worth more than their house.  Recall that a bunch of press sources (inc. CNBC, DJ, etc) have downplayed the odds of anything this major happening (its not even clear if such a move would be legal)Keep in mind that there is a big housing conf coming up next week (Aug 17) and some think that the White House/Treasury could launch a refi initiative around this event.  The White House made a very minor announcement on housing today (the Treasury will devote an incremental ~$3B towards providing housing relief for unemployed people) but this is a far cry from what is being talked about around Fannie/Freddie.    

·         Is the Fed move from yesterday foreshadowing a move by Fannie/Freddie?  Given that the reinvestment decision wasn’t well telegraphed by Fed officials, there is some talk that it was done in anticipation of a massive refinance wave coming down the pipe as a result of a Fannie/Freddie “August Surprise”.  A large uptick in refinancings would theoretically shrink the Fed’s balance sheet beyond what has been occurring currently from normal maturities – by making the decision to reinvest maturing MBS, Bernanke will offset the contractive effects of such a shrinkage. 

·         JPMorgan wrote about this Fannie/Freddie spec a couple wks back: https://mm.jpmorgan.com/servlet/UserDocsHelperServlet?action=openpdf&docId=GPS-450965-0    

·         JPMorgan today announced the upcoming release of the new J.P.Morgan agency prepayment model. While the prepayment environment is more uncertain than ever (in light of potential changes in government policy), we are recalibrating our model to be closer to the recent prepayment experience. Specifically, we are flattening the overall refi response (linking it to trailing HPA), shifting prepayments from voluntary to involuntary as we capture a more efficient GSE buyout regime, and changing the mortgage rate propagation to reflect the widening primary/secondary spreads in a rally. The net results is wider OAS and longer duration across the board, with the biggest impact on higher dollar priced bonds (Matthew Jozoff) 

·         The banks are pretty weak today for a few reasons, but in part b/c of the worry that this refi program would harm the value of bank MBS holdings (the narrowing yield curve is also hurting bank sentiment a lot).  Recall back to a Bloomberg article on Aug 3 that talked about how banks added to their MBS holdings at the fastest rate in 18 months (large US commercial banks added $51.4B worth of agency MBS in the two weeks ended Jul 21)

 

 

Many thanks,

 

N

 

 

 

Nicolas S. Rohatyn

The Rohatyn Group

280 Park Avenue, 27th Floor West

New York, NY 10017

212.984.2901

 


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