FNMA and FMCC preferreds. In search of the elusive 10 bagger.

[waynepolsonAtoZ]

Vanguard made me call them to trade preferreds for a little while, but they gave me the "Internet" rate.

[Luke 532]

something is up.  if you recall during mnuchin's hearing, he said at one point "i havent looked into it" in answer to a detailed question on GSEs.  now, cohn says mnuchin has done alot of work on it.  this is an administration that is all about action

 

Let's remember, Mnuchin said he hadn't looked into the legal issues.  He could easily look at NWS and think "I don't like it, I'm going to end it" without technically looking into the legality of it.

 

Mnuchin: "I have divested my interest in the fund as well already.  My job is to look out for best interest for taxpayer, maintain housing liquidity, whatever the legal issues are I haven't studied that at all."

[doughishere]

something is up.  if you recall during mnuchin's hearing, he said at one point "i havent looked into it" in answer to a detailed question on GSEs.  now, cohn says mnuchin has done alot of work on it.  this is an administration that is all about action

 

Let's remember, Mnuchin said he hadn't looked into the legal issues.  He could easily look at NWS and think "I don't like it, I'm going to end it" without technically looking into the legality of it.

 

Mnuchin: "I have divested my interest in the fund as well already.  My job is to look out for best interest for taxpayer, maintain housing liquidity, whatever the legal issues are I haven't studied that at all."

 

 

http://www.reactiongifs.com/wp-content/uploads/2013/06/iceman.gif

[waynepolsonAtoZ]

"As an aside, has anyone done any analysis on what a possible conversion of prfd to common might look like and how likely a scenario this is? I am currently at 10% of NW with 50/50 common/prfd."

 

Keep in mind that conversion would require 2/3 approval by preferred holders for each series, there are about 39 separate series.

 

Also, the big players in the preferred shares should have enough shares themselves to block a favorable vote.

 

Thus, the only conversion will be at redemption value. Even that is undesirable as getting paid dividends at 6% or higher beats any dividend that the common will pay in the future.

 

Not to mention the risk of massive earnings dilution from the warrants and recap of the GSEs.

[Grenville]

http://pulse.com.gh/bi/finance/trump-is-reportedly-going-to-sign-executive-orders-on-friday-to-repeal-two-huge-wall-street-regulations-id6162623.html

 

"Cohn also told the Journal that the executive order will direct the Treasury department to change Fannie Mae and Freddie Mac, the government-backed mortgage lenders. Additionally, Cohn said that the executive action would not impact the Consumer Financial Protection Bureau, which was created as a part of Dodd-Frank."

 

Trump's calendar shows he plans on signing executive orders today at noon.  Buckle up.

(my emphasis added on "executive order" in quote above)

The text in that article has changed from what you posted above to this:

Cohn also told The Journal that the administration plans to direct the Treasury Department to review the role of Fannie Mae and Freddie Mac, the government-backed mortgage lenders. Additionally, Cohn said that the executive action would not affect the Consumer Financial Protection Bureau, which was created as a part of Dodd-Frank.

 

Anyone have the earlier version of the article?

[SnarkyPuppy]

http://pulse.com.gh/bi/finance/trump-is-reportedly-going-to-sign-executive-orders-on-friday-to-repeal-two-huge-wall-street-regulations-id6162623.html

 

"Cohn also told the Journal that the executive order will direct the Treasury department to change Fannie Mae and Freddie Mac, the government-backed mortgage lenders. Additionally, Cohn said that the executive action would not impact the Consumer Financial Protection Bureau, which was created as a part of Dodd-Frank."

 

Trump's calendar shows he plans on signing executive orders today at noon.  Buckle up.

(my emphasis added on "executive order" in quote above)

The text in that article has changed from what you posted above to this:

Cohn also told The Journal that the administration plans to direct the Treasury Department to review the role of Fannie Mae and Freddie Mac, the government-backed mortgage lenders. Additionally, Cohn said that the executive action would not affect the Consumer Financial Protection Bureau, which was created as a part of Dodd-Frank.

 

Anyone have the earlier version of the article?

 

Interesting.  I simply copied and pasted at the time I posted.

[Grenville]

http://markets.businessinsider.com/news/stocks/trump-executive-order-repeal-dodd-frank-fiduciary-rule-2017-2-1001721502

 

I found another link that has the same text as you posted:

 

Cohn also told the Journal that the executive order will direct the Treasury department to change Fannie Mae and Freddie Mac, the government-backed mortgage lenders. Additionally, Cohn said that the executive action would not impact the Consumer Financial Protection Bureau, which was created as a part of Dodd-Frank.

 

I guess we wait and see what these executive orders have to say.

[waynepolsonAtoZ]

What happens when 10% of your portfolio goes up 27 times and the rest of the portfolio stays the same? Answer: it's was 75% of the portfolio.

 

Of course, I should have raised cash at that point. Still, at up 9 times it was still half of my portfolio.

 

Even though I bought all my shares immediately after delisting, the NWS and Lamberth were both extremely painful. In both cases, down over $600,000 in one day. Is that too much information?

 

Still, I can see an executive order along the lines of ordering recap and possibly ending the NWS. I'm hopeful, but not holding my breath.

 

All in all, I can see the possibility at least of going to 40% of RV by the EOM. Good earnings would help.

 

 

 

 

 

 

[hardincap]

wsj: "Mr. Cohn laid out a road map for how the Trump administration plans to target new financial rules. He said the Treasury Department would lead an effort to overhaul mortgage-finance giants Fannie Mae and Freddie Mac, which were put into government conservatorship after the crisis."

 

says nothing about EO on fnma. i think we'll have to wait until mnuchin gets confirmed.

[SnarkyPuppy]

wsj: "Mr. Cohn laid out a road map for how the Trump administration plans to target new financial rules. He said the Treasury Department would lead an effort to overhaul mortgage-finance giants Fannie Mae and Freddie Mac, which were put into government conservatorship after the crisis."

 

says nothing about EO on fnma. i think we'll have to wait until mnuchin gets confirmed.

 

Fine with me

[no_free_lunch]

Anyone care to discuss which particular preferred issues they find most attractive?  Or maybe everyone is buying so we want to stay quiet.  I am mostly in T series because of the mammoth dividend but have a bit of multiple other series.

[Flynnstone5]

Is Mnuchin still up for a vote today?

[Luke 532]

Anyone care to discuss which particular preferred issues they find most attractive?  Or maybe everyone is buying so we want to stay quiet.  I am mostly in T series because of the mammoth dividend but have a bit of multiple other series.

 

I have FNMAS, FNMAH, and FMCCL, in that order of current dollar amounts.  Of those 3, liquidity is best on FNMAS and discount to par is best on FMCCL.  FNMAH is in the middle on both metrics.

 

I haven't bought any shares in the past 10 months, own too much already.

[Mephistopheles]

Anyone care to discuss which particular preferred issues they find most attractive?  Or maybe everyone is buying so we want to stay quiet.  I am mostly in T series because of the mammoth dividend but have a bit of multiple other series.

 

I used to strictly buy based on discount to par - so used to have only FMCCL and a couple other Freddies. Then decided to sell half of them and buy the cheapest FNMA ones on discount to par. Then I started diversifying a bit in case any one class gets fucked or if they restart dividends and the near 0 variable rates get screwed. Also as other posters have mentioned, each class has to vote if there is a recap to common offer, more reason to be diversified.

 

I still can't get myself to pull the trigger on FNMAS and FNMAT, the most expensive ones which as of now are at 40% of par, and seem to be the most popular among everyone. I have FNMAL, FNMAK, FNMAG, FNMAO, FNMAP, FMCCL, FMCCG, FMCCI, FMCCN, FMCCS, FMCCJ.

[undervalued]

Anyone care to discuss which particular preferred issues they find most attractive?  Or maybe everyone is buying so we want to stay quiet.  I am mostly in T series because of the mammoth dividend but have a bit of multiple other series.

 

I have FNMAS, FNMAH, and FMCCL, in that order of current dollar amounts.  Of those 3, liquidity is best on FNMAS and discount to par is best on FMCCL.  FNMAH is in the middle on both metrics.

 

I haven't bought any shares in the past 10 months, own too much already.

 

I have FMCKJ. This is similar to FNMAS but currently trading less than FNMAS.

[Mephistopheles]

Anyone care to discuss which particular preferred issues they find most attractive?  Or maybe everyone is buying so we want to stay quiet.  I am mostly in T series because of the mammoth dividend but have a bit of multiple other series.

 

I have FNMAS, FNMAH, and FMCCL, in that order of current dollar amounts.  Of those 3, liquidity is best on FNMAS and discount to par is best on FMCCL.  FNMAH is in the middle on both metrics.

 

I haven't bought any shares in the past 10 months, own too much already.

 

I have FMCKJ. This is similar to FNMAS but currently trading less than FNMAS.

 

Did you buy that only because of liquidity or is there another reason as well? Trying to figure out why some are so much more popular than the others (aside from liquidity).

[Flynnstone5]

For prf'd I'm all FNMAS

 

They are more liquid and also can not be called until 2020. If divs were reinstated, they would probably trade at $30.

[SnarkyPuppy]

Anyone care to discuss which particular preferred issues they find most attractive?  Or maybe everyone is buying so we want to stay quiet.  I am mostly in T series because of the mammoth dividend but have a bit of multiple other series.

 

I have FNMAS, FNMAH, and FMCCL, in that order of current dollar amounts.  Of those 3, liquidity is best on FNMAS and discount to par is best on FMCCL.  FNMAH is in the middle on both metrics.

 

I haven't bought any shares in the past 10 months, own too much already.

 

I have FMCKJ. This is similar to FNMAS but currently trading less than FNMAS.

 

Did you buy that only because of liquidity or is there another reason as well? Trying to figure out why some are so much more popular than the others (aside from liquidity).

 

Dividend yields. 

[rros]

What happens when 10% of your portfolio goes up 27 times and the rest of the portfolio stays the same? Answer: it's was 75% of the portfolio.

 

Of course, I should have raised cash at that point. Still, at up 9 times it was still half of my portfolio.

 

Even though I bought all my shares immediately after delisting, the NWS and Lamberth were both extremely painful. In both cases, down over $600,000 in one day. Is that too much information?

 

Still, I can see an executive order along the lines of ordering recap and possibly ending the NWS. I'm hopeful, but not holding my breath.

 

All in all, I can see the possibility at least of going to 40% of RV by the EOM. Good earnings would help.

I was down $2 million that day lol.

[Mephistopheles]

Re: dividend yields. I just can't see them turning on the 7-9% dividends given the lack of capital, and esp in this rate environment. Either the prefs will recap the common or all dividends will be put on hold for like 10 years imo.

[undervalued]

Anyone care to discuss which particular preferred issues they find most attractive?  Or maybe everyone is buying so we want to stay quiet.  I am mostly in T series because of the mammoth dividend but have a bit of multiple other series.

 

I have FNMAS, FNMAH, and FMCCL, in that order of current dollar amounts.  Of those 3, liquidity is best on FNMAS and discount to par is best on FMCCL.  FNMAH is in the middle on both metrics.

 

I haven't bought any shares in the past 10 months, own too much already.

 

I have FMCKJ. This is similar to FNMAS but currently trading less than FNMAS.

 

Did you buy that only because of liquidity or is there another reason as well? Trying to figure out why some are so much more popular than the others (aside from liquidity).

 

Dividend yields.

 

Both. FAIRX owns big chunk of FNMAS and FMCKJ.

[no_free_lunch]

Did you buy that only because of liquidity or is there another reason as well? Trying to figure out why some are so much more popular than the others (aside from liquidity).

 

Factors this novice is aware of :

 

- Yield

- Discount to par

- Liquidity

- Redemption rules

- Alignment with major holders ... This one I don't understand very well.  Perhaps a lawsuit outcome could favor some preferred's over others.

 

I just try to balance yield with discount to par.  There is a chance they all just get converted to common/paid out at par value or some percentage of par and yield might mean nothing.  But then you don't want to own a tiny yielder if they turn dividends on again.  Those low yielders might just never be redeemed.  I see it that if they redeem anything they redeem T series and given par is 3x what I purchased at that seemed like best odds for me.

[Mephistopheles]

http://www.fairholmefundsinc.com/Reports/Funds2016Annual.pdf

 

havent sold a single share and allowed f&f to be ~40% of his fairx portfolio (as of today)

 

Federal Home Loan Mortgage

Corp.

50,025,248 7.875%, Series Z (b)(e) $ 410,207,034

5,750,575 5.570%, Series V (b) 37,666,266

2,726,100 6.550%, Series Y (b) 18,128,565

1,614,250 0.680%, Series M (b)(e) 17,837,463

1,308,929 1.340%, Series B (b)(e) 14,332,772

1,119,600 5.100%, Series H (b) 13,961,412

519,142 1.680%, Series L (b)(e) 5,684,605

450,000 5.900%, Series U (b) 3,123,000

437,340 5.660%, Series W (b) 2,777,109

200,000 5.000%, Series F (b) 2,500,000

 

Does anyone know where the "Series Z, V, etc" designations come from for the Freddie prefs? Unlike for Fannie, I can't find a reference to these letter series names in any of the circulars or 10-k.

[DocSnowball]

Has anyone successfully bought the preferreds through a Fidelity account? My family and I have some accounts there and just tried purchasing preferreds today, and it didn't work. Called up Fidelity and apparently they have blocked ALL FNMA and FMCC preferreds from puchases from ALL clients, regardless of low or high net worth or type of account.... They told me since they don't pay dividends, they are considered too "high risk" and so they won't allow them. Yet they allow the common, and I settled for those. What a stupid policy.

 

FNMAT is available to buy online through Fidelity - I have bought through an IRA and general account both without a problem.

 

A huge thanks to this community and the legal eagles here for your insights. I studied this case for Corporate Law paper as part of my MBA in early 2016 (5th amendment violation), and have greatly appreciated all the insights ever since. Thanks a lot!

[Midas79]

My account got approved!  8)

 

I also have my investment accounts with Fidelity, an individual and an IRA. I only use the phone app for trading and only use the desktop site when I have to.

 

Aside: message like good faith violations, etc, only show up on the desktop site and not in the app. I made a rookie mistake and triggered a 90-day settled-cash-only trade restriction due to multiple good faith violations in short order, but I didn't find out until it was too late because I never logged into the desktop site. No more jumping back and forth between preferred series for a while for me....  :(

 

I tried to buy some FNMAH on the app a few months ago and got a message saying that that symbol wasn't available to buy, limited to closing trades only or some such. After a call to the Fidelity rep I found out why: they don't let anyone (even then-President Obama to quote the rep) buy variable-rate preferreds. So if you're trying to buy FNMAS, FNMAH, FMCKJ, etc. hopefully this explains why you're having trouble.

 

I own some commons but mostly preferreds. I started in the low yielders because they were trading at the biggest discount to par: FNMAL, FNMAG, FNMAN. A few weeks ago I started to migrate to the mid yielders: FMCKL, FMCKO, and last week I added on some FNMAJ. I now have about 20% low yielders, 60% mid, 20% FNMAJ.

 

I downloaded historical price data from NASDAQ's website and ran a linear regression using dividend yield as the explanatory variable and the average percentage of par each series traded at between Feb 20, 2008 and Jun 30, 2008 as the dependent variable. I got

(% of par) = 25.65 + 9.284 * (div yield)

where div yield is in percentage points (i.e. 7.625 for FNMAJ, not 0.07625). The r^2 value was 0.922. According to this, at least as of a few weeks ago, FNMAJ and FMCKL were the best bargains while FNMAL and FNMAT were the worst.

 

I also ran a linear regression using div yield to explain average % of par for Dec 2016 and got r^2 = 0.9240. This tells me that the market seems to mostly assume that dividends will get turned back on rather than entire series of shares being redeemed at par. That's the main reason I started switching out of the low yielders.