KBR Says Common Stock of GSEs Worthless

The stock of Fannie Mae and Freddie Mac is worthless and any hope of recapitalizing the two lies with their seller/servicers, according to a new research report from Keefe, Bruyette & Woods. "In our view, in order for Fannie Mae and Freddie Mac to survive going forward, they need to be recapitalized through investments by the banks that benefit from their guarantee," KBR writes. The firm says that seller/servicers should be required to retain 5% of the loan balance on mortgages sold to the GSEs, adding that the "new agencies" would be capitalized at a "solid 5% level of the new expanded balance sheets" under Financial Accounting Standards Board rules 166 and 167. It says that even under a "bad bank" approach to restructuring them the government would be owed $100 billion. The Federal Housing Finance Agency placed the two into a conservatorship 13 months ago. To date, the Treasury has invested $98 billion in capital into them. Both continue to trade on the New York Stock Exchange -- Fannie for $1.25, Freddie at $1.40.