In the Pink

It's little surprise that Fannie Mae and Freddie Mac are being delisted from the New York Stock Exchange.

What's strange is that it's only happening now — nearly two years after the firms were put in government conservatorship.

The stock prices of both government-sponsored enterprises have traded near $1 — the NYSE's minimum average closing price requirement — most of the time since the start of the financial crisis.

However, the GSEs were long spared from delisting, along with other firms whose stock prices were leveled by the market meltdown, thanks to a temporary suspension of the NYSE's stock-price standard from February through July of 2009.

But on Tuesday, the NYSE formally notified Fannie that it had failed to meet listing requirements, with its average closing stock price falling below $1 for 30 straight trading days, forcing its regulator, the Federal Housing Finance Agency, to take action.

Seeing as how Freddie's stock has been trading close to the $1 mark, FHFA determined it was best to direct both companies to voluntary delist their stocks from the NYSE and trade instead on the over-the-counter market. (Once notified by the NYSE of failing to meet minimum trading requirements, companies are allowed a six-month period to try to become compliant.)

FHFA Acting Director Edward DeMarco stressed in a release that the move "does not constitute any reflection on either enterprise's current performance or future direction, nor does delisting imply any other findings or determination on the part of FHFA as regulator or conservator."

With Fannie and Freddie's future unclear — the financial reform bill in Congress doesn't address it; possible outcomes range from full privatization to nationalization — it's easy to wonder who's even buying their stocks anymore.

Fannie and Freddie's move to the pink sheets will open the door to a whole new class of shareholders, said Robert Bolton, managing director and head of trading at Mendon Capital Advisors Corp., a Rochester, N.Y., investment advisory firm.

Some institutional investors may not even be able to hold the shares anymore, he said, because many prohibit investing in over-the-counter stocks.

Traders aren't buying Fannie and Freddie shares for value, he said. They're in it for "the casino proposition."

"It's a day trader fantasy land," Bolton said. "The new investor class is guys that really 'get' volatility and they're into it for a different reason. They want to own it because they can turn a 40-cent trade into a 60-cent trade."

Trading volume levels of Fannie shares skyrocketed on Wednesday, evidence of the shift in audience.

The six-month moving average trading volume for the stock was about 25 million shares, Bolton said.

Nearly 349 million shares changed hands during regular trading on Wednesday.

SAFE Act Seal

Some nonbank mortgage lenders are trying to make lemonade out of licensing requirements.

Bodhi Kraus, for one, said his company, Priority Lending Mortgage Corp. in Santa Rosa, Calif., plans to highlight the fact that its loan officers are licensed on its business cards and mailings, and may even tout the licensing in its radio advertisements.

"We advertise and make the phones ring," said Kraus, Priority's vice president. "We just don't have the employees to take" the calls.

Under the Secure and Fair Enforcement Licensing Act, part of the Housing and Economic Recovery Act of 2008, loan officers working for state-supervised mortgage firms must now meet minimum standards for licensing and registration, including several hours of education and passing a test.

Nonbanks say this has put them at a disadvantage to depositories, which are exempt from the SAFE Act.

For example, the nonbank lenders claim the process to get licensed under the SAFE Act is time-consuming and costly, and has hampered their efforts to recruit loan officers from big banks.

But Glen Corso, managing director of the Community Mortgage Banking Project, a trade group for independent lenders, said a number of companies he works with plan to use the licensing as a competitive tool, as a way to tell consumers that their loan officers are well qualified.

Corso said a lot of their marketing efforts are directed at real estate agents. The lenders want to give them a good reason to refer their customers to an independent mortgage bank, he said.

"It's so new that I think it's hard to say that it's helped yet," he said. "But there are certainly a number of independent mortgage banks who want to turn that … into a competitive advantage for themselves."

Quotable …

"When I get an adjoining suite with Martha Stewart it will be worse. I never should have used that money in the first place."

Lee Farkas, the former head of Taylor, Bean & Whitaker Mortgage Corp., responding to a Colonial Bank employee's July 2004 e-mail saying "it does not look good" that the mortgage company's tax and insurance accounts were overdrawn. Federal authorities indicted Farkas for fraud Wednesday (see related story).

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