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

[investorG]

Joshua Rosner will be on Tucker Carlson tonight at 9:40pm to talk GSE's, 11,000 docs, etc.

 

nice job, josh -- very clear and high level explanation in a limited time window

[investorG]

Mnuchin has really clammed up regarding FnF and Trump somehow has gone his whole presidency so far without mentioning them. Strange for a guy like him.

 

typical GS strategy --- plan a ridiculous amount and come out publicly when he has his full arsenal of info.

 

what we saw on nov30 was basically a person giddy with excitement (he had just gotten the job) over-sharing in a major way -- i'm confident he regrets that exchange even though I think it's what he believes.

[Guest cherzeca]

I went through the Pagliara filing dated April 4, 2017 re inspection of books and jurisdiction.

 

Unbelievable.  Fannie submits to the Delaware jurisdiction for adjudication and then argues it is not governed by Delaware law.

 

I think insurance companies are bad, but the cherry on the cake are government defendants.  Here we are dealing with both.

 

 

agreed.

 

i think fhfa is worried that a pagliara win for Ps at trial will be viewed significantly by judge sleet in hindes/jacobs.  they are not exactly on point, but i dont see how fhfa can argue that HERA preempted delaware law relating to issuance of preferred stock if fhfa cant convince either sleet or delaware courts that HERA didnt preempt delaware right to inspect books 

[TwoCitiesCapital]

I just bought more FMCKJ.  I wouldn't worry to much about what the market knows. 

 

@cherzeca re Hindes/Jacobs re interpretation of DGCL s.151.

 

How long after materials are made available to this court in July 2017 does it usually take for summary judgment on an interpretation of law?

 

I've been "adding" too. I have been slowly selling FNMAJ (par $25 trading at $5.50 - $6.30) to purchase FMCCJ (par $50 trading at $8.50 - $9.50). Post conversion, I have ~11% more notional exposure for a 12-15% reduction in capital at risk. I'm pretty happy with this outcome as these are now held in a tax-free account where capital loss is a MAJOR concern given how valuable decades of tax free compounding could be.

 

Heads I win more; tails I lose less.

[beaufort]

I went through the Pagliara filing dated April 4, 2017 re inspection of books and jurisdiction.

 

Unbelievable.  Fannie submits to the Delaware jurisdiction for adjudication and then argues it is not governed by Delaware law.

 

I think insurance companies are bad, but the cherry on the cake are government defendants.  Here we are dealing with both.

 

 

agreed.

 

i think fhfa is worried that a pagliara win for Ps at trial will be viewed significantly by judge sleet in hindes/jacobs.  they are not exactly on point, but i dont see how fhfa can argue that HERA preempted delaware law relating to issuance of preferred stock if fhfa cant convince either sleet or delaware courts that HERA didnt preempt delaware right to inspect books 

 

I think what you say makes sense.  That also explains the poor limitation defence re inspection of books.

[beaufort]

The higher par value prefs are better priced for sure.

[orthopa]

After reading some of Joshua Rosners tweets he seems to think that Corker wants the GSEs business to go to the big banks. I thought the whole purpose of the GSEs was to unload the mortgages to allow the banks to do more lending. How would the TBTF banks take on trillions of dollars like that? Sounds like another crisis in the making and makes them even more of a TBTF risk.

 

Secondly can anyone elaborate on a possible scenario of how shareholders would get screwed if FnF are taken out of govt control/ownership? How does someone else other then current shareholders and the gov own FnF? Anyone have any granular scenarios/thoughts/fears on how that would go down?

 

I think the FnF is trading still heavily on the assumptions shareholders get screwed. How does a preferred shareholder get nothing in my question above?

 

Thanks

[Guest cherzeca]

if you look at some of the alternative reform proposals, they would have tbtf banks participate with various forms of govt backstop, which is why i think they wont proceed.  one has tbtf forming a mutual insurance firm, again backstopped by govt. so essentially you wouldnt sell loans to it for cash, but for interests in the mutual which would still remain at some risk, and so that the loans themselves become a form of capital.  but if mnuchin is correctly expressing a trump preference that the govt exit the backstop business, then i dont see what proposal would do this that involves tbtf as participants

[Flynnstone5]

After reading some of Joshua Rosners tweets he seems to think that Corker wants the GSEs business to go to the big banks. I thought the whole purpose of the GSEs was to unload the mortgages to allow the banks to do more lending. How would the TBTF banks take on trillions of dollars like that? Sounds like another crisis in the making and makes them even more of a TBTF risk.

 

Secondly can anyone elaborate on a possible scenario of how shareholders would get screwed if FnF are taken out of govt control/ownership? How does someone else other then current shareholders and the gov own FnF? Anyone have any granular scenarios/thoughts/fears on how that would go down?

 

I think the FnF is trading still heavily on the assumptions shareholders get screwed. How does a preferred shareholder get nothing in my question above?

 

Thanks

 

Corkers a snake and that's exactly what he would like to see.

 

Why couldn't they just transfer to a new entity with a brand new offering and capital structure leaving existing shareholders with zero? It doesn't make any sense from most angles, i.e. hurts Trump allies, gov. makes no $ on warrants, lawsuits continue, etc., but who thought a few months ago we'd be where we are.

 

Anyone know where the doc saga stands with Sweeney at this point? I think the gov was supposed to respond today?

[Guest cherzeca]

my issue with congress screwing the shareholders is that the stock purchase agt is between treasury and fhfa, both executive branch.  while fhfa is independent, i sense that watt will do what treasury wants to do.  so congress can only pass legislation, it cant make a change to agt like a party can. now, given that congress hasnt passed any legislation re housing in last 5 years (when they were being begged to by obama administration) since nws, and it has a full plate with tax, health (maybe), infrastructure, regulation etc, and it seems rather divided along partisan party line, what this leaves me to believe is that mnuchin is just letting things play out at which point after nothing has come out of congress again, he simply says times up, boys and girls, this isn't that hard and i can do it without you.

[Guest cherzeca]

see https://www.wsj.com/articles/gary-cohn-backs-breaking-up-big-banks-1491491219?mod=djemalertMARKET

 

frankly it looks like tbtf banks may begin to devote more attention defending their turf than advancing it

[muscleman]

http://www.telegraph.co.uk/news/2017/04/06/donald-trump-says-may-package-infrastructure-healthcare-tax/

 

Luke you said he wanted to bundle housing with infrastructure? Seems like he now wants to bundle healthcare with infrastructure?

[Luke 532]

http://www.telegraph.co.uk/news/2017/04/06/donald-trump-says-may-package-infrastructure-healthcare-tax/

 

Luke you said he wanted to bundle housing with infrastructure? Seems like he now wants to bundle healthcare with infrastructure?

 

Ben Carson said bundle housing with infrastructure.  I personally don't know what will be in it, was simply relaying what Carson said: http://www.housingwire.com/articles/39757-ben-carson-housing-will-be-part-of-trump-infrastructure-bill?utm_source=dlvr.it&utm_medium=twitter&utm_campaign=housingwire

 

Seems like Trump is keeping all his options open.

 

For reference, here's where I mentioned Carson...

Carson said housing is involved in the infrastructure bill that they are currently working on.  We know housing accounts for 20%+ of the American economy and any reform to housing, for any realistic person, has to deal with the Fannie and Freddie issue.  It is also going to cost about $1 trillion for the infrastructure plan (partially offset by the gain in warrants that Treasury sells once they appreciate).

[Midas79]

my issue with congress screwing the shareholders is that the stock purchase agt is between treasury and fhfa, both executive branch.  while fhfa is independent, i sense that watt will do what treasury wants to do.  so congress can only pass legislation, it cant make a change to agt like a party can. now, given that congress hasnt passed any legislation re housing in last 5 years (when they were being begged to by obama administration) since nws, and it has a full plate with tax, health (maybe), infrastructure, regulation etc, and it seems rather divided along partisan party line, what this leaves me to believe is that mnuchin is just letting things play out at which point after nothing has come out of congress again, he simply says times up, boys and girls, this isn't that hard and i can do it without you.

 

I've seen you make this point before. I see the logic behind it, but as you said Congress has had almost 5 years since the NWS to pass a bill. Why does Mnuchin personally need to give them even more time? Is there that much of a difference between 5 and 6 years?

 

I don't see much of a difference between Mnuchin waiting until 2018 to take action and say "you asked me to wait but you're not actually getting anything done" and doing it sooner. In fact, sooner has more justification to avoid the companies hitting zero capital in 9 months.

 

Edit: I get the feeling this has been addressed before. I've read the last 400 pages of posts at one time or another but I don't remember all of them. I'm thinking the answer to my question is "politics" and I don't understand that realm very well.

[stevevri]

One big reason is the GSE Jumpstart. Although there may be ways around of it, the legislation prohibits getting rid of the Senior Preferred until after this year.

 

That alone is enough of a reason for a new guy to want to play nice as he is building relationships and getting the lay of the land.

[orthopa]

One big reason is the GSE Jumpstart. Although there may be ways around of it, the legislation prohibits getting rid of the Senior Preferred until after this year.

 

That alone is enough of a reason for a new guy to want to play nice as he is building relationships and getting the lay of the land.

 

That is true as any decision is most likely going to be final and all encompassing in regards to the warrants, senior preferred etc. I  one time move is more palatable then doing it piecemeal and dealing with on going politics, private interests etc.

[TwoCitiesCapital]

my issue with congress screwing the shareholders is that the stock purchase agt is between treasury and fhfa, both executive branch.  while fhfa is independent, i sense that watt will do what treasury wants to do.  so congress can only pass legislation, it cant make a change to agt like a party can. now, given that congress hasnt passed any legislation re housing in last 5 years (when they were being begged to by obama administration) since nws, and it has a full plate with tax, health (maybe), infrastructure, regulation etc, and it seems rather divided along partisan party line, what this leaves me to believe is that mnuchin is just letting things play out at which point after nothing has come out of congress again, he simply says times up, boys and girls, this isn't that hard and i can do it without you.

 

I've seen you make this point before. I see the logic behind it, but as you said Congress has had almost 5 years since the NWS to pass a bill. Why does Mnuchin personally need to give them even more time? Is there that much of a difference between 5 and 6 years?

 

I don't see much of a difference between Mnuchin waiting until 2018 to take action and say "you asked me to wait but you're not actually getting anything done" and doing it sooner. In fact, sooner has more justification to avoid the companies hitting zero capital in 9 months.

 

Edit: I get the feeling this has been addressed before. I've read the last 400 pages of posts at one time or another but I don't remember all of them. I'm thinking the answer to my question is "politics" and I don't understand that realm very well.

 

It could simply be because the gov't has been "paid-off" yet. Mnuchin may not seek to reverse the NWS or the senior preferred. He might simply call it quits after the Senior Preferred with an implied 10% dividend has been paid off. I think we still have one or two more payments to be made before that occurs.

 

At that point, it's pretty easy for him to say, "Well, we've been paid back and Congress has failed at coming up with an alternative, so we're just going to remove the risk from tax payers and allow these companies to recap and operate as private entities."

[waynepolsonAtoZ]

I don't think so. The trad Rs are taking over the Trump Administration. Mnuchin was a toxic private label guy at GS. Hard to imagine he loves FnF.

 

Interesting to see what happens at Sweeney's on the 17th. I think that's almost the only game in town now, which is ok.

[investorG]

I don't think so. The trad Rs are taking over the Trump Administration. Mnuchin was a toxic private label guy at GS. Hard to imagine he loves FnF.

 

Interesting to see what happens at Sweeney's on the 17th. I think that's almost the only game in town now, which is ok.

 

I suggest you read or watch the transcript of mnuchin's confirmation hearing ---- facing a panel of people who would have made it easier on him if he was negative regarding FnF, he instead defended them and also his option to act outside of congress.  he could have been lying but many here are not betting on that.

[maybe4less]

Mnuchin was a toxic private label guy at GS. Hard to imagine he loves FnF.

 

 

What does working on private label deals have anything to do with how someone feels about FnF?

 

Also, Mnuchin had a senior role at GS in mortgages since at least 1994 (when he was name Head of Mortgage Securities), and started in mortgages in 1985. He would have done a lot of work with all type of mortgage securities, including FnF securities, during that time. By your logic, he should love FnF, given the decade plus he spent working with their securities.

[orthopa]

I don't think so. The trad Rs are taking over the Trump Administration. Mnuchin was a toxic private label guy at GS. Hard to imagine he loves FnF.

 

Interesting to see what happens at Sweeney's on the 17th. I think that's almost the only game in town now, which is ok.

 

I suggest you read or watch the transcript of mnuchin's confirmation hearing ---- facing a panel of people who would have made it easier on him if he was negative regarding FnF, he instead defended them and also his option to act outside of congress.  he could have been lying but many here are not betting on that.

 

Exactly

[no_free_lunch]

I think this will just take time.  I don't want to relink it but awhile back I posted an article from Reuters on Mnuchin and fannie.  They were quite clear that his strategy is to try to work with congress to come up with a solution and only if that stalls will he step in.

[investorG]

I think this will just take time.  I don't want to relink it but awhile back I posted an article from Reuters on Mnuchin and fannie.  They were quite clear that his strategy is to try to work with congress to come up with a solution and only if that stalls will he step in.

 

Perhaps it will take some time but there are likely important signs along the way -- for instance the reform principles that Calabria mentioned by this summer and also the inclusion or not of the long term GSE swept profits in the full OMB budget scheduled for May release.   

 

The current price levels, to me, represent low expectations of positive resolutions -- even the GSEs' main antagonist, the large bankers' organization, kept FnF alive among other competition in their recent proposal paper.

 

[HalfMeasure]

I think this will just take time.  I don't want to relink it but awhile back I posted an article from Reuters on Mnuchin and fannie.  They were quite clear that his strategy is to try to work with congress to come up with a solution and only if that stalls will he step in.

 

It seems many on this forum are forgetting how long it takes to get things done in bureaucratic agencies. All the massaging, preempting, and managing of the "message", etc.

[undervalued]

Anyone else has their confidence shaken? I was wondering how you guys kept on holding in the previous roller coaster ride. I guess I am about to find out. waynepolsonAtoZ, you have the biggest percentage of holding compare to whole portfolio right? How're you doing?