The First Marblehead Corp (FMD)

tenmiles (99.91) Submitted: 1/02/08 6:28 PM

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I believe you are wise to require a margin of safety on this one (I plan to buy around $11, if market provides this opportunity. From my thoughts to another investor:

While you can't legally discharge student loans, historical defaults are highly dependent upon the health of the overall economy as shown below. Short term equity dilution by Goldman, coupled with rating agency downgrades for TERI and sector likely spell further downside. I'm looking to buy in the real world around 10-11 within next year - at that price I believe it would be good value.

National Student Loan Default Rates


National CDR - All Years Cohort Year CDR Total Default Total Repay
2005 4.6% 161,951 3,495,584
2004 5.1% 144,128 2,825,462
2003 4.5% 115,568 2,551,432
2002 5.2% 125,696 2,393,776
2001 5.4% 130,036 2,380,741
2000 5.9% 142,378 2,399,774
1999 5.6% 130,861 2,299,533
1998 6.9% 153,028 2,208,262
1997 8.8% 188,832 2,153,253
1996 9.6% 197,338 2,045,595
1995 10.4% 199,346 1,918,453
1994 10.7% 199,233 1,866,240
1993 11.6% 212,062 1,826,625
1992 15.0% 299,881 1,994,925
1991 17.8% 380,346 2,135,595
1990 22.4% 551,208 2,460,102
1989 21.4% 619,229 2,900,297
1988 17.2% 440,790 2,561,183

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BIGtrading (82.83) Submitted: 1/05/08 10:11 PM

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"Still working on "fundamentals" to figure out if there's a safe entry point with real $$$!!!"

Please do share, if you do determine a safe entry point.

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o2n2y (< 20) Submitted: 1/07/08 8:51 AM

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will do! There have been many TMFs who've done an excellent job of expressing the present price as a good starting point. It is true that if a stock is to double/ triple in value, what's the problem in variations of a few dollars?
While I never look at the macro/ micro stockmarket environment to invest, enrty points for micro/ small & mid cap stocks have to be looked at in both long & short term valuation. The short term is critical, especially if you are new to investing, due to volatility, as we have that instinct to become scared due to limits in our visibility & sell a stock we just bought! The long term is the reason we cheerfully overpay, wait & brood!!

My #1 concern in all these FMD evaluations is this. The gentleman who advised purchasing this stock in Hidden Gems has been very quiet, in terms of the actual business & effects of FMDs inability to securitize loans over MULTIPLE quarters. I'm not accusing, simply stating that if a person of his caliber is taking the time to patiently evaluate, why must I rush? I cannot outgain his knowledge, & a simple Goldman investment, while a good confidence booster, still does not explain how a discount to it's value has been reached! I do know this, since their IPO, FMD knew the face of the business would change, we can see that in some of the acquisitions they've done & the Astrive/ Monticello loans that they're originating now. Now, what % of FMDs business is going to be originating? & If they increase this by 5%, will the banks they're originating/ securitizing for drop business by that % after their contract is over? & so many more questions remain!!!

So, maybe this is one where we need 1 more face to face interview between Mr. Mann & Mr. Kopinsky, before letting Mr. market set a discount to value or shoot it up by 66%, next time, perhaps some sovereign fund invests in a bigger bank or in a student loan originator!!

The face to face interview was a favorite of Philip Fisher, whose ideas made Warren Buffet understand non-accounting goodwill more clearly!! So, here's hoping we get another precise interview!!!!

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FleaBagger (99.66) Submitted: 2/22/08 11:46 AM

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I'm happy to have pitches like yours on the other side of this from me. I'm glad you seem to be right about the price heading lower. I have some that I bought over $50(!) and I've been buying more all the way down, somewhat oblivious to the whole credit crunch thing. If I can get a hefty chunk at $11 or $12 (I don't have much investable capital right now), I will do that. Anyway, I think this one is headed above $50 over the next 3-6 years, because I think the credit crunch will sort itself out eventually (though I don't know when), and student loans are always going to be in demand, and FMD's management are really good... I think. Anyway, thanks for your penetrating analysis.

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o2n2y (< 20) Submitted: 3/06/08 1:35 PM

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Thanx for your words of support. Bill Mann finally spoke after a few weeks of silence on this issue! Look @ the Mar. 2008
company update from Hidden Gems; (http://newsletters.fool.com/04/issues/2008/02/28/company-updates-first-marblehead.aspx). You would be shocked to hear, that, his previous two recommendations cannot be relied upon to accurately describe FMD's business!!! I'm very thankful that he's reached this conclusion. The most recent recommendation, which stated that anything below $37/- would be gift, assumed @ least 1 securitization this previous qtr.

It is very dangerous, as I have previously mentioned, to purchase shares of a company whose primary source of revenue was based on securitizations; at the very moment the credit market was beginning it's implosion. Now, I'm not a macro/ micro economist; but I do know that recovery of the credit market is not possible as quickly as the implosion. Therefore, for those of us interested in purchasing these shares, we must give value to the new business model that FMD has created. Again, please refer to Bill Mann's above mentioned article.

If investable capital is low, then please wait & see how the share price moves below $10/- a share through summer & perhaps begin adding again.

P.S ONE OTHER MAJOR NOTE WORTH FIXATING UPON:
STANFORD UNIVERSITY recently announced free tuition room & board for all undergrads with family earnings of up to $60k/- & room & board payments only ( tuitionfree) for families earning below $100K/-. They're also in the process of reducing tuition costs for families earning <150K/-. Harvard was also turning to something like this, as well. This is perhaps the reality of the future of education in America, partly political, mostly free, and definitely accessible!!! I think we all realize who the prime prospects for borrowing for education are!

I do not believe FMD or SLM will regain the $50/- per share tag they once did. They'll have to spend a lot more money lobbying a Congress that will need to gain support as we head into a recession. Not to mention trying to convince multi-billion dollar endowments that they ought not provide free tuition based on income rather educational qualifications alone! Sorry!!

Also, I wasn't criticizing Mr. Mann, simply stating that sometimes our knowledge gets the best of us & we make assumptions without seeing the environment unfold. I've subscribed to Hidden gems due to his diligence & will renew this year thanks to his hard work & input

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o2n2y (< 20) Submitted: 3/27/08 6:46 PM

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Well, I'll officially end it here, then! I'm looking @ far too many stocks available to purcahse that don't require management's version of earnings. I never found a safe entry point, because their business was changing.

All the best to the FMD diehards. May your fortunes rise & may you prosper!!!!

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Gtrinvestor (99.96) Submitted: 4/08/08 6:41 PM

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o2n2y - great contrarian viewpoints during this whole slide. I was personally invested in this stock at one point, but got out as the credit crunch really set in. I was tempted to get back in w/ the big fall FMD took, especially once Goldman put money into play, but since I was down on a lot of my other investments I (thankfully) never got the chance to reinvest. Keep up the good insights, and try to pick a few more stocks. Your score is so low b/c you only picked 2! I would like to see people like you more involved to help balance out the rest of us Fools.

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equalfuture (55.41) Submitted: 4/12/08 4:57 PM

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i added my rec.
I think we all know what this company is, its a financial services company with credit problems, we also know that it is not a sacred institution, the facts are: A) the cost of education is going up B) many students will need loans C)the options for these students will be more not less. A similar example of change happened in the auto financing industry. Thirty years ago, if you wanted a car loan to purchase a new car, your option was your local bank (savings and loan). Today, you sit down with the auto dealer and its in his best interest to help you. Universities have been doing this forever, and will continue to do this. They help find the most affordable and convenient loans for there students.

A loan has three parts: A investor B bank C student, in a win win situation an investor lends his money could be any amount for any duration, a bank collects and then loans the money, collecting for itself a reasonable fee and also averaging the loan delinquencies for students and adding this to the interest, the student receives the loan. When interest rates are reasonable every one wins, investor/saver is motivated to put there money in a bank, student can borrow at a reasonable usually fixed payments when they graduate, bank collects there fee.

the loan can come from many banks/savers/investors and help univ., trade schools, students etc. In other words there is still room for investors, still room for lenders, and still lots of money for students, unfortunately there is no room for betting on margin with this money, the money is there, the interest for students should be determined just like a home mortgage use to be determined but with diferent criteria, the interest should cover, A delinquent payments, B small service fee C investor return.

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bluedome (< 20) Submitted: 5/15/08 8:27 PM

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I just want to get out some facts I've not seen presented in CAPS. After losing real money
I did some research, that I believe MF could have done months ago (since it was a SA pick) and saved us all a lot of dough.

TERI went bankrupt due to a bank requiring TERI to have more capital to cover high defaults on
FMD securitized tranches. I've seen claims that FMD is innocent and just a victim of the credit crunch.
Untrue! These tranches were securitized before the credit crunch and they have underperformed FMDs predictions, so FMD is at fault.

SEVERAL MONTHS prior to the TERI bankruptcy, the FMD tranches were downgraded by Fitch . The downgrade was material news to FMD and its investors because FMD earns residuals from those tranches if they do well. And obviously, FMD was 100% dependent on TERI guarantees, so it was in FMDs interest to be watching TERI closely.

After the downgrade, FMD management should have written off all or most residuals from these tranches in that quarter, but they did not (may have by now). They were also negligent in not finding an alternative quarantor. More than likely, they had been trying to find one for months and could not. Perhaps it's understandable, but the fact remains that they hid the truth from investors for months.

They are still trying to mislead investors. Case in point, their latest news release about cutting jobs.
If cutting 500 jobs saves 200 million, they are paying an average of 400k each to
those employees. Where do I sign up? I think this amount is for PR value (10 year total?), actual cuts more like 20 million a year if that. And probably due to severance pay it will actually not save much in the short run.

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SoMch2Knw (< 20) Submitted: 7/03/08 8:54 PM

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Here's some Fitch opinions:

NEW YORK, Jun 20, 2008 (BUSINESS WIRE) -- Fitch revises the ratings on the
following National Collegiate Trust transactions, as listed below. The revision
is based upon the performance of the Trusts' underlying assets, current credit
enhancement as well as the financial and legal structures. The transactions also
benefit from a financial guaranty provided by MBIA Insurance Corp. (MBIA).
Initially, classes in the trusts were rated 'AAA' based solely on the financial
guaranty provided by MBIA Insurance Corp. Fitch downgraded MBIA Insurance Corp's
insurer financial strength (IFS) to 'AA'/Outlook Negative on April 4, 2008.

Based upon Fitch's review of the transactions' performance and credit
enhancement absent the MBIA policy, Fitch has determined that a revised rating
of 'AAA' is appropriate for the bonds listed below. Even though this revised
rating does not rely on MBIA's guaranty, MBIA still remains obligated to insure
timely interest and ultimate principal payments to the bondholders.

Consistent with Fitch's policy in other structured finance sectors, in the event
that a trusts' underlying rating is higher than the insurer's current IFS
rating, the Fitch rating will be based on the underlying rating rather than the
insurer's IFS rating.

For more information please refer to 'Fitch Downgrades MBIA's IFS to 'AA';
Outlook Negative', dated April 4, 2008, available on the Fitch Ratings web site
at www.fitchratings.com

As a result of the review, Fitch has revised the rating of the following classes
and removed them from 'Rating Watch Negative':

--National Collegiate Trust 1997-S2, 'AAA';

--National Collegiate Trust 1998 CP-1, 'AAA';

--National Collegiate Trust 1999 CP-1, 'AAA'.

The collateral supporting these National Collegiate Trusts consist entirely of
private credit student loans originated under First Marblehead Corp.'s
Guaranteed Access to Education (GATE) program. The program was created to assist
individuals in financing their undergraduate or graduate education beyond what
the Federal Family Education Loan Program (FFELP) affords. Although they are
credit-tested, these loans are alternative loan products that have a higher risk
of net loss because they are not guaranteed by the federal government. The GATE
loans are backed by reserves from a partial disbursement to the school and cash
contributions from some participating institutions. Credit enhancement consists
of excess spread, over-collateralization, and a reserve account sized to cover
interest shortfalls.

Overall, collateral performance for the trusts has been consistent with or
better than expectations from a net default and delinquency perspective. The
excess spread generated by the trusts has been sufficient to cover any losses
and pay note principal to build credit enhancement.

As a result, trust total asset to liability or parity ratio has increased since
deal inception for all trusts as listed at their current levels below:

--National Collegiate Trust 1997-S2: 126.98%;

--National Collegiate Trust 1998 CP-1: 148.65%;

--National Collegiate Trust 1999 CP-1: 118.39%.

The trusts are 100% serviced by Pennsylvania Higher Education Assistance Agency
(PHEAA), an experienced servicer in the student loan industry.

Fitch's rating definitions and the terms of use of such ratings are available on
the agency's public site, www.fitchratings.com. Published ratings, criteria and
methodologies are available from this site, at all times. Fitch's code of
conduct, confidentiality, conflicts of interest, affiliate firewall, compliance
and other relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

SOURCE: Fitch Ratings



CONTACT: Fitch RatingsGary Santo, 212-908-0172Andrea Murad, 212-908-0896 (New York)Media Relations:Sandro Scenga, 212-908-0278 (New York)

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