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Why The US Doesn&#39;t Need Fannie Mae And Freddie Mac

Intro Guide to the Vanguard GNMA Investor Fund (VFIIX)

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BlackRock&#39;s iShares Struts Its Low Fee ETF Stuff

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GenMark Sees FY18 Sales $68M to $72M vs $70M Est.

Shareholders arguing for the preservation of Federal National Mortgage Association (OTC: <a class="ticker" href="/stock/fnma#OTC">FNMA</a>) and Federal Home Loan Mortgage Corp (OTC: <a class="ticker" href="/stock/fmcc#OTC">FMCC</a>) say the U.S. housing market needs Fannie Mae and Freddie Mac&rsquo;s services and their roles as government-backed aggregators.
However, in a recent story for <a href="https://www.americanbanker.com/opinion/fannie-freddie-are-irrelevant-to-a-government-backed-mortgage-system">American Banker</a>, Whalen Global Advisors chairman Christopher Whalen says it&rsquo;s not Fannie and Freddie that are important to the U.S. homebuyer &mdash; it&rsquo;s the government&rsquo;s guarantees.
<h3>
	GSE Roles</h3>
Fannie Mae and Freddie Mac are not mortgage originators, but rather mortgage aggregators. These government-sponsored enterprises buy mortgages from originators, such as banks, and free up liquidity on bank balance sheets that can be used to make more loans. In addition, they guarantee these mortgage loans and repackage them to sell to investors on the secondary mortgage market.
Whalen says there are several key aspects of this process that are crucial to preserve when it comes to making sure middle-income Americans have access to affordable housing. Fannie and Freddie are not among those critical aspects.
&ldquo;The implicit government guarantee for securities issued by Fannie and Freddie is important, but the two corporate entities themselves are irrelevant to the future of housing finance,&rdquo; Whalen wrote. While investors may argue that Fannie and Freddie play a vital role in facilitating mortgage bond investment, Whalen said Fannie and Freddie&rsquo;s bonds are AAA-rated only because of the implied government guarantee, not because of anything unique that Fannie and Freddie are doing.
&ldquo;Much of the focus of the GSE reform debate has been on Fannie Mae and Freddie Mac, but a system that maintains but recalibrates the government backstop can be achieved without the two mortgage giants,&rdquo; Whalen said.
He added that mortgage bond investors couldn&rsquo;t care less whether or not Fannie and Freddie are &ldquo;capitalized&rdquo; or even if they exist. All they care about is the government guarantee.
Related Link: <a href="https://www.benzinga.com/general/education/17/04/9330520/the-many-facets-of-mae-and-mac">The Many Facets Of Mae And Mac</a>
<h3>
	Picking Up The Slack</h3>
If Fannie and Freddie are wound down, Whalen says the Federal Housing Administration and cousin Ginnie Mae (iShares GNMA Bond (NASDAQ: <a class="ticker" href="/stock/gnma#NASDAQ">GNMA</a>)) could step up and take over the role of government-backed mortgage aggregators. In fact, he sees a handful of advantages to the Ginnie Mae system.
&ldquo;By paying private investors and financial institutions to take a large portion of the first-loss risk on MBS, an expanded Ginnie Mae could protect the taxpayer while providing a catastrophic backstop against severe economic downturns,&rdquo; he wrote.
Eliminating Fannie and Freddie would also simplify and consolidate the current MBS market, a change Whalen says could encourage investment.
<h3>
	Developing Story</h3>
Last week, a new batch of <a href="https://www.benzinga.com/analyst-ratings/analyst-color/17/07/9840251/fannie-and-freddie-investors-hope-new-unsealed-court-doc">government documents</a> were released related to ongoing Fannie and Freddie shareholder lawsuits. The U.S. Treasury is currently receiving 100 percent of Fannie and Freddie&rsquo;s profits as part of the amended terms of the GSE&rsquo;s financial crisis bailout agreement, leaving common shares of their stock theoretically worthless. A number of shareholder lawsuits have challenged the legality of the Treasury&rsquo;s &ldquo;net worth sweep,&rdquo; but the lawsuits have been unsuccessful up to this point.
_________
Image Credit: Carol M. Highsmith [Public domain], via Wikimedia Commons

Why The US Doesn't Need Fannie Mae And Freddie Mac

Just over three years ago, BlackRock, Inc.&#39;s (NYSE: <a class="ticker" href="/stock/blk#NYSE">BLK</a>) iShares unit, the world&#39;s largest issuer of exchange-traded funds, created the iShares Core Series, then a suite of 10 ETFs aimed at cost-conscious, long-term investors.
Comprised of four new and six existing funds, one of the pillars of the iShares Core Series was and continues to be low fees &ndash; one of the primary reasons so many buy-and-hold investors have ditched high-fee mutual funds for ETFs over the years. Fast-forward 37 months and not only has the iShares Core Series significantly expanded in terms of number of ETFs, but iShares is also taking the fee fight to low-cost leaders such as Vanguard and Charles Schwab Corp (NYSE: <a class="ticker" href="/stock/schw#NYSE">SCHW</a>).
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/analyst-ratings/analyst-color/15/11/5970473/of-rate-hikes-and-small-cap-etfs">Of Rate Hikes And Small-Cap ETFs</a></bzrelatedlink>
<h3>Undergoing Changes</h3>
In an announcement made Tuesday, iShares said it is paring the fees on seven of its core ETFs, bringing some of the annual expense ratios on those funds to as low as 0.03 percent per year. That works out to be a mere $3 for every $10,000 invested.
<h3>A Look At ITOT</h3>
The $2.7 billion iShares Core S&amp;P Total U.S. Stock Market ETF (iShares S&amp;P 1500 Index Fund (ETF) (NYSE: <a class="ticker" href="/stock/itot#NYSE">ITOT</a>)) is charging 0.03 percent per year, down from 0.07 percent. With that new lower fee, ITOT is now slightly less expensive than popular, rival broad market U.S. equity ETFs, such as the Schwab U S Broad Market ETF (NYSE: <a class="ticker" href="/stock/schb#NYSE">SCHB</a>) and the Vanguard Total Stock Market ETF (NYSE: <a class="ticker" href="/stock/vti#NYSE">VTI</a>). Those ETFs charge 0.04 percent and 0.05 percent a year, respectively.
ITOT is also changing indexes. On or around December 18, ITOT will switch benchmarks to the S&amp;P Total Market Index, which will bolster the ETF&#39;s exposure to micro- and small-cap stocks, <a href="http://www.ishares.com/us/products/239724/ITOT?referrer=tickerSearch">according to iShares</a>.
Among other U.S.-focused equity ETFs in the core suite, the iShares Russell 3000 Growth Index (ETF) (NYSE: IUSG) and the iShares Russell 3000 Value Index (ETF) (NYSE: <a class="ticker" href="/stock/iusv#NYSE">IUSV</a>) saw annual fees pared to 0.07 percent from 0.09 percent.
Ishares is also making some changes to the fixed income portion of its core lineup, including reducing the annual expense ratio on the iShares Core Total USD Bond Market ETF (iShares Trust (NYSE: <a class="ticker" href="/stock/iusb#NYSE">IUSB</a>)) to 0.12 percent from 0.15 percent.

	&ldquo;iShares Core International Aggregate Bond ETF (NYSE: IAGG) seeks to track the investment results of an index composed of international investment-grade bonds while seeking to mitigate foreign currency risk. IAGG will become part of the iShares Core at launch on Thursday. The iShares Core GNMA Bond ETF (NYSE: <a class="ticker" href="/stock/gnma#NYSE">GNMA</a>)[sic] (NASDAQ: <a class="ticker" href="/stock/gnma#NASDAQ">GNMA</a>) will no longer be part of the Core line-up and will change its name to the iShares GNMA Bond ETF,&rdquo; said the issuer in a statement. 
Three of the core suite&#39;s international equity offerings are also getting lower fees. For example, the $8.8 billion iShares Core MSCI Emerging Markets ETF (iShares Inc. (NYSE: <a class="ticker" href="/stock/iemg#NYSE">IEMG</a>)) has a new annual fee of 0.12 percent. That makes IEMG less expensive than the Vanguard Emerging Markets Stock Index Fd (NYSE: <a class="ticker" href="/stock/vwo#NYSE">VWO</a>), the <a href="http://www.benzinga.com/trading-ideas/long-ideas/15/11/5956584/as-index-providers-change-views-on-china-emerging-market-etfs">largest emerging markets ETF</a>. VWO charges 0.15 percent per year.

	The iShares Core MSCI Europe ETF (iShares Trust (NYSE: <a class="ticker" href="/stock/ieur#NYSE">IEUR</a>)) and the iShares Core MSCI Pacific ETF (iShares Trust (NYSE: <a class="ticker" href="/stock/ipac#NYSE">IPAC</a>)) are now charging 0.12 percent a year, down from 0.14 percent.
The iShares Core Suite now has 24 ETFs with a combined $62.8 billion in assets under management, <a href="http://www.ishares.com/us/products/product-list#categoryId=10&amp;lvl2=overview">according to iShares</a>.
Image Credit: <a href="https://pixabay.com/en/macbook-laptop-computer-office-924157/">Public Domain</a>

BlackRock's iShares Struts Its Low Fee ETF Stuff

BlackRock's (NYSE: <a class="ticker" href="/stock/blk#NYSE">BLK</a>) iShares unit, the world's largest ETF sponsor, said 275 of its 280 ETFs will not pay capital gains distributions to investors. That works out to 98 percent of the firm's total ETF product lineup.

Distributions are paid to investors from the capital gains of the firm's investment portfolio. For example, when a mutual fund manager turns a profit on a trade and closes the position, the fund's shareholders, not the sponsor, are saddled with the tax liability.

Most ETFs do not distribute capital gains to investors, which makes the asset class typically more tax efficient than mutual funds.

The five iShares ETFs that will distribute capital gains this year are the iShares Barclays GNMA Bond Fund (NYSE: <a class="ticker" href="/stock/gnma#NYSE">GNMA</a>), the iShares Financials Sector Bond Fund (NYSE: <a class="ticker" href="/stock/mony#NYSE">MONY</a>), the iShares Core Total U.S. Bond Market ETF (NYSE: <a class="ticker" href="/stock/agg#NYSE">AGG</a>), the iShares Barclays MBS Bond Fund (NYSE: <a class="ticker" href="/stock/mbs#NYSE">MBS</a>) and the iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSE: <a class="ticker" href="/stock/lqd#NYSE">LQD</a>), <a href="http://us.ishares.com/topics/capital_gains.htm">according to the firm</a>.

AGG's total distribution could be 39 cents to 49 cents per share, making it the largest of the five ETFs mentioned hear. LQD's distribution is expected to be no more than a penny per share.

For more on ETFs, click <a href="http://www.benzinga.com/etfs">here</a>.

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