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

[Midas79]

correct me if i am wrong but doesnt the treasury credit line stop at 2018?  i never thought this would be a relevant issue so i forget the term of the credit line

 

That would be one hell of a way to force a wind-down: pull all commitments and leave a capital buffer of zero. Nearly guaranteed insolvency at some point.

 

 

What I'm hanging my hat on now is Mnuchin's language about getting the GSEs out of government control safely. To me that takes a wind-down off the table completely. But it's hard to maintain that faith now that the plaintiffs have a much-diminished bargaining position and one path to victory appears to be closed off.

 

On the plus side, the preferred-to-common price ratio actually hasn't changed much so swapping from commons into preferreds isn't much more expensive than it was yesterday. I saw today's ruling as much more harmful to common shareholders.

[morningstar]

correct me if i am wrong but doesnt the treasury credit line stop at 2018?  i never thought this would be a relevant issue so i forget the term of the credit line

 

There's no expiration, although with quarterly volatility in earnings and no ability to retain capital, the GSEs would eventually hit the caps on facility size (sometime well after 2018).

 

 

[Guest cherzeca]

correct me if i am wrong but doesnt the treasury credit line stop at 2018?  i never thought this would be a relevant issue so i forget the term of the credit line

 

There's no expiration, although with quarterly volatility in earnings and no ability to retain capital, the GSEs would eventually hit the caps on facility size (sometime well after 2018).

 

right. the net worth buffer goes to zero in 2018.

[rros]

correct me if i am wrong but doesnt the treasury credit line stop at 2018?  i never thought this would be a relevant issue so i forget the term of the credit line

 

There's no expiration, although with quarterly volatility in earnings and no ability to retain capital, the GSEs would eventually hit the caps on facility size (sometime well after 2018).

Hit the caps? Isn't the commitment for both at around 500 bill from which 187 bill has been drawn? Are you saying we will see another massive catastrophe in real estate in our lifetime? It took more than 70+ years to get to the great recession!

[orthopa]

FWIW 

 

http://seekingalpha.com/news/3244919-frannie-story-bofa

[orthopa]

Thinking about this more and rewatching the Fox tape from November Mnunchins mind has been made up on this for some time, ie 4 months ago.  This optically could hurt those negotiating with him but I doubt the threshold will be lowered much. If I can imagine he has been hard working on the GSE's as Cohn said he was, this will have caused him to divert his attention briefly but the entire housing situation and its future is no different now after this remand then it was yesterday.

[Guest cherzeca]

Thinking about this more and rewatching the Fox tape from November Mnunchins mind has been made up on this for some time, ie 4 months ago.  This optically could hurt those negotiating with him but I doubt the threshold will be lowered much. If I can imagine he has been hard working on the GSE's as Cohn said he was, this will have caused him to divert his attention briefly but the entire housing situation and its future is no different now after this remand then it was yesterday.

 

i think this decision will hasten a settlement.  certainly the Ps are ready to come to table with a more humble ask; Ps dont get much by waiting if mnuchin is ready to talk.

 

but as you say, i think this decision hasnt changed the framework of a resolution that i think mnuchin will pursue. 

 

many have been very critical of treasury's warrant position.  assuming mnuchin wants to maximize the economics of this position, within an acceptable political framework, we should all be very thankful that treasury got these warrants in 2008!

[DocSnowball]

This from pages 68 and 69 re: timing of purchase of shares - how are they viewing shares purchased before and after July 2008? May not matter if political solution goes through

 

We remand this claim, insofar as it seeks damages, for the

district court to evaluate it under the correct legal standard,

namely, whether the Third Amendment violated the reasonable

expectations of the parties at the various times the class

plaintiffs purchased their shares. We note that the class

69

plaintiffs specifically allege that some class members

purchased their shares before the Recovery Act was enacted in

July 2008 and the FHFA was appointed conservator the

following September, while others purchased their shares later,

but the class plaintiffs define their class action to include more

broadly “all persons and entities who held shares . . . and who

were damaged thereby,” J.A. 262-63. The district court may

need to redefine or subdivide the class depending upon what

the various plaintiffs could reasonably have expected when

they purchased their shares. For those who purchased their

shares after the enactment of the Recovery Act and the FHFA’s

appointment as conservator, the analysis should consider, inter

alia, (1) Section 4617(b)(2)(J)(ii) (authorizing the FHFA to act

“in the best interests of the [Companies] or the Agency”), (2)

Provision 5.1 of the Stock Agreements, J.A. 2451, 2465

(permitting the Companies to declare dividends and make other

distributions only with Treasury’s consent), and (3) pertinent

statements by the FHFA, e.g., J.A. 217 ¶ 8, referencing

Statement of FHFA Director James B. Lockhart at News

Conference Announcing Conservatorship of Fannie Mae and

Freddie Mac (Sept. 7, 2008) (The “FHFA has placed Fannie

Mae and Freddie Mac into conservatorship. That is a statutory

process designed to stabilize a troubled institution with the

objective of returning the entities to normal business

operations. FHFA will act as the conservator to operate the

Enterprises until they are stabilized.”).

[investorG]

today's ruling unfortunately lowers the expectations baggie for the rest of 2017 to a potential stop of the sweep. 

 

the warrants aren't going anywhere.

 

the sr preferred can't be touched til 2018 without the courts or congress.

 

congress is log-jammed.

 

offsetting the above negativity are securities that trade at non-demanding valuations.

 

I am mainly disappointed that Ginsburg wouldn't even allow to remand to see the documents.

 

good luck everyone.

[Spekulatius]

I am just wondering, why do folks here think that recapitalizing FNM or FRE means that existing shareholders or preferred shareholders will get anything?

I am also not sure that Mnuchin get's to decide what is going to happen with FNM/FRE. He may just get the guidelines from Trump and if that is the case, and Trump want the best deal to pay for projects, well that could mean that the current shareholders get screwed over.

[orthopa]

Thinking about this more and rewatching the Fox tape from November Mnunchins mind has been made up on this for some time, ie 4 months ago.  This optically could hurt those negotiating with him but I doubt the threshold will be lowered much. If I can imagine he has been hard working on the GSE's as Cohn said he was, this will have caused him to divert his attention briefly but the entire housing situation and its future is no different now after this remand then it was yesterday.

 

i think this decision will hasten a settlement.  certainly the Ps are ready to come to table with a more humble ask; Ps dont get much by waiting if mnuchin is ready to talk.

 

but as you say, i think this decision hasnt changed the framework of a resolution that i think mnuchin will pursue. 

 

many have been very critical of treasury's warrant position.  assuming mnuchin wants to maximize the economics of this position, within an acceptable political framework, we should all be very thankful that treasury got these warrants in 2008!

 

Understand your point. Another point that I would like to make or bring up is that in effect both Mnuchin and the Ps are on the same team. What do I mean by that? We have been conditioned to believe that its Ps vs Treasury and the Gov. That was true for years, but that all changed when Trump won and Mnuchin became treasury secretary. If you remember correctly it was Mnuchin himself that brought up FnF getting out of govt control and restructured back just after the election on Fox. Where did this idea and thinking come from? He feels this strongly all by his lonesome? You cant tell me Mnucnhin thought this up all alone without other heavily incentivized people. If he does even better! Not going as far as saying that Mnuchin was planted for Treasury Secretary....but had anyone heard of him before Trump won?

 

I know I beat this horse before but how much more of a perfect Treasury Secretary for Ps is there? He  took a bank in distress due to bad mortgages and turned it around making millions with Pauslon as a partner. Came out on TV 2 months before being confirmed saying exactly what Ps wanted to hear. Did he really work as Trumps campaign finance manager and never talk to Paulson, Berkowitz, Icahn, Kushner etc about FnF?

 

Just refreshing the memory for what he said unabated on Nov 30th.

 

President-elect Trump’s choice for Treasury Secretary, Steve Mnuchin, said he believes it’s ABSOLUTELY time to privatize mortgage lenders Fannie Mae and Freddie Mac.

 

“It makes no sense that these are owned by the government and have been controlled by the government for as long as they have,”

 

He added, “In many cases this displaces private lending in the mortgage markets and we need these entities that will be safe. So let me just be clear— we’ll make sure that when they’re restructured they’re absolutely safe and they don’t get taken over again. But we gotta get them out of government control.”

 

Mnuchin promised that he’ll execute the separation “reasonably fast”.

 

Watch this....http://www.foxbusiness.com/politics/2016/11/30/steve-mnuchin-time-to-jettison-fannie-mae-freddie-mac.html  Listen to what the freaking man is saying!!!!!!!!!!!!!!!!!!!!!!!!!!!!

 

No mention of this court case, the Sweeney court case, the Delaware court case etc. He doesnt give 2 shits about them in my opinion. The guy just got done dealing with people protesting in front of his house due to fourclosures and lawsuits for robosigning. He is going o stay as far away from this court shit as he can.  These are holdovers from an Obama administration. These court cases only exists because of the previous administrations unwillingness to find a solution.

 

Everyone has said he is working hard on the GSEs. Anyone stop to think who he is working with? Himself? Unilaterally devising a plan to screw the shareholders but then look for private capital?

 

I could go on and on.

 

Like rros said before, don't lose sight of true North.

 

 

 

 

 

[orthopa]

I am just wondering, why do folks here think that recapitalizing FNM or FRE means that existing shareholders or preferred shareholders will get anything?

I am also not sure that Mnuchin get's to decide what is going to happen with FNM/FRE. He may just get the guidelines from Trump and if that is the case, and Trump want the best deal to pay for projects, well that could mean that the current shareholders get screwed over.

 

Mind explaining to me how you get new private money/investors to recapitalize a company and commit hundreds of billions of dollars while taking the first loss in a new entity when previous shareholders were liquidated?

 

Is this something you would invest in and expect other to do also?

[Luke 532]

I could go on and on.

 

Like rros said before, don't lose sight of true North.

 

Orthopa nailed it.  (only quoted a portion to not clog the board)

 

So, one of the major cases was Perry Capital vs. Jack Lew (Secretary of Treasury)

*Jack Lew was knee-deep in the 2012 net worth sweep heist during the Obama Administration.

 

Steve Mnuchin becomes Secretary of Treasury, so the case is now:

Perry Capital vs. Steven Mnuchin (Secretary of Treasury)

*Mnuchin has stated he wants to recapitalize Fannie and Freddie (exactly what I want as a preferred shareholder).  No details on how he wants to do it.

 

Interesting notes:

Mnuchin, prior to becoming Secretary of the Treasury, was on the Board of Sears Holdings (SHLD).  Bruce Berkowitz, the largest single holder of preferred shares in Fannie and Freddie, is also on the Board of Sears Holdings.  Berkowitz publicly endorsed Trump during the campaign.  Think Mnuchin and Berkowitz never even casually mentioned Fannie and Freddie?

 

Mnuchin stated during his Senate confirmation hearings that he believes parties of a contract should honor their obligations.  Preferred shares are essentially a contract between the investor and company.  Berkowitz has also publicly and explicitly stated that he simply wants his contractual rights as a preferred shareholders to be honored.

 

Perry and Berkowitz both have separate lawsuits against the government.  Both are fighting the 2012 net worth sweep.  Both have huge positions in the preferred shares.  Neither (as far as I know) have big positions in the common stock.

 

The Perry vs. Jack Lew case is now pretty much Preferred Shareholders vs. Friends of Preferred Shareholders.

[orthopa]

In trying to destroy an idea like Munger says....

 

In the previous video I posted Mnuchin says FnF need to be privatized and is no good because it displaces private lending. That being said....

 

Anyone know of a good way to get $10-100 Billion plus in private capital into mortgage entities immediately after shareholders holding billions of dollars in private and common shares of a similar entity are liquidated by the incoming Treasury Secretary?

[Guest cherzeca]

"the sr preferred can't be touched til 2018 without the courts or congress"

 

i disagree with this statement.  jumpstart does not prevent treasury from entering into a 4th amendment if it wants to restructure before 2018.  indeed, mnuchin had no business saying that he thought gses could be resolved reasonably fast unless he thought what he wanted to do was independent of courts and congress.

 

now as a political matter it just became more difficult for mnuchin to do the right thing. but legally, he is not without power to accomplish on his own (with watt's concurrence) what would be a shareholder-friendly result.

[Guest cherzeca]

I am just wondering, why do folks here think that recapitalizing FNM or FRE means that existing shareholders or preferred shareholders will get anything?

I am also not sure that Mnuchin get's to decide what is going to happen with FNM/FRE. He may just get the guidelines from Trump and if that is the case, and Trump want the best deal to pay for projects, well that could mean that the current shareholders get screwed over.

 

how is trump going to find new shareholders to put up serious capital if the old shareholders are screwed?

[onyx1]

 

how is trump going to find new shareholders to put up serious capital if the old shareholders are screwed?

 

Brown:  "Conservation is not a synonym for nationalization."

 

With 30 years of distressed banking experience, Mnuchin spent his entire career with a practitioners' understanding of the fundamental difference between a conservator and a receiver.  He has experienced it first-hand.  He's negotiated with the FDIC and valued banks in conservatorship based on the statutory directive to "preserve and conserve". 

 

Will he standby and allow the rule book used for 30 years to be changed by 2 DCC judges?  Not if he can help it. 

 

If this ruling becomes precedent, the idea that the FDIC can recapitalize distressed banks with private capital in the future goes right out the window.  Every distressed bank may as well jump directly to receivership since the market will value banks in conservatorship as nationalized.  The common, preferred shares, and debt securities of even slightly distressed banks will now be harshly punished as market will equate the risk of a conservator with nationalism and an unrecoverable goose egg.

 

Mnuchin’s not a bureaucrat.  He's sees the world through the lens of a distressed bank investor protected by the rule of law.

 

To rehabilitate the GSE’s and maintain a well-functioning banking system, the nationalization risk needs to be eliminated. 

 

I expect Mnuchin to lead the way in proving to the investment community that this is not a risk.

 

[orthopa]

This is worth a read again, mainly the last part of the transcript of Ross and Mnunchin.

 

 

http://www.housingwire.com/articles/38635-trump-treasury-pick-fannie-mae-and-freddie-mac-will-be-privatized

CyhkVztVEAALuox.jpg-large

[Picasso]

I am just wondering, why do folks here think that recapitalizing FNM or FRE means that existing shareholders or preferred shareholders will get anything?

I am also not sure that Mnuchin get's to decide what is going to happen with FNM/FRE. He may just get the guidelines from Trump and if that is the case, and Trump want the best deal to pay for projects, well that could mean that the current shareholders get screwed over.

 

Mind explaining to me how you get new private money/investors to recapitalize a company and commit hundreds of billions of dollars while taking the first loss in a new entity when previous shareholders were liquidated?

 

Is this something you would invest in and expect other to do also?

 

Seems like no one has a problem investing in GM these days.

[ZenaidaMacroura]

 

Anyone know of a good way to get $10-100 Billion plus in private capital into mortgage entities immediately after shareholders holding billions of dollars in private and common shares of a similar entity are liquidated by the incoming Treasury Secretary?

I'm long the preferred (in my PA and through a partnership) but I have this tiny nagging voice that keeps telling me investors have goldfish memory.  I know it's not as direct, and the time scale is way different, but there always seems to be a new crop of investors who rush into the void to buy the sovereign debt of a country like Greece, dismal track record and all.

[Guest cherzeca]

 

Anyone know of a good way to get $10-100 Billion plus in private capital into mortgage entities immediately after shareholders holding billions of dollars in private and common shares of a similar entity are liquidated by the incoming Treasury Secretary?

I'm long the preferred (in my PA and through a partnership) but I have this tiny nagging voice that keeps telling me investors have goldfish memory.  I know it's not as direct, and the time scale is way different, but there always seems to be a new crop of investors who rush into the void to buy the sovereign debt of a country like Greece, dismal track record and all.

 

fair enough.  then we are greece, not a banana republic...

[investorG]

"the sr preferred can't be touched til 2018 without the courts or congress"

 

i disagree with this statement.  jumpstart does not prevent treasury from entering into a 4th amendment if it wants to restructure before 2018.  indeed, mnuchin had no business saying that he thought gses could be resolved reasonably fast unless he thought what he wanted to do was independent of courts and congress.

 

now as a political matter it just became more difficult for mnuchin to do the right thing. but legally, he is not without power to accomplish on his own (with watt's concurrence) what would be a shareholder-friendly result.

 

jumpstart said treasury can't sell, transfer, relinquish, liquidate, divest, or otherwise dispose the sr preferred for 2 years at least (from dec15).  i assumed that changing the terms from NWS to some fixed dividend where excess payments above that dividend rate were paydowns would reduce the current outstanding senior preferred and thus would not be allowed til jan2018.

 

i guess he could say the dividend is not a true NWS but rather a fixed dividend where anything above and beyond lets capital build while at the same time keeping the 187bn constant --- is this what you're thinking?

 

another thing he could do, possibly, is foreshadow that he's going to take material actions in jan18 if congress doesn't act in 2017, which could move the ball forward in congress in 2017 to the utility model.

 

please let me know what you're thinking relative to this response. thank you.

[Gregmal]

It would seem that if nothing else this is/was a good opportunity to put on a some sort of arb/pair trade.

[Guest cherzeca]

@investorG

 

yes, i think the jumpstart language by its terms doesn't prohibit amendments to the senior preferred security.  why it was written the way it was is beyond me.  but as a legal matter i think treasury counsel could easily advise mnuchin that he has amendment power.

[Desert_Rat]

Thinking about this more and rewatching the Fox tape from November Mnunchins mind has been made up on this for some time, ie 4 months ago.  This optically could hurt those negotiating with him but I doubt the threshold will be lowered much. If I can imagine he has been hard working on the GSE's as Cohn said he was, this will have caused him to divert his attention briefly but the entire housing situation and its future is no different now after this remand then it was yesterday.

 

i think this decision will hasten a settlement.  certainly the Ps are ready to come to table with a more humble ask; Ps dont get much by waiting if mnuchin is ready to talk.

 

but as you say, i think this decision hasnt changed the framework of a resolution that i think mnuchin will pursue. 

 

many have been very critical of treasury's warrant position.  assuming mnuchin wants to maximize the economics of this position, within an acceptable political framework, we should all be very thankful that treasury got these warrants in 2008!

 

I wouldn't be humble, it's still theft. And unless Mnuchin is this ridiculous genius, he's still going to need, if not FnF fully intact, something very, very similar to it. And he's also well aware that if 2008 hits again, the govt is bailing out whatever that may be again. And he's also well aware that if he punts FnF to the curb, no one is going to capitalize that new entity - even if FnF - knowing that eventually they're next, not without a hefty cost anyway.

 

And, and..

 

I bought more today.