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

[SnarkyPuppy]

Very curious if some of you can humor me-

 

If Berkowitz, Paulson (I think he only holds a small position now, saw a recent fund filing and it was 3% of the specific fund), and Ackman were not in this investment, would you still be holding the preferreds?

 

There is no question that it's an input into my decision to hold.

 

Could you please show me the Paulson filings?

 

I don't have it immediately available, but I believe I saw it in Jim Hodges twitter feed.  Can you to dig later if you can't find. 

[Desert_Rat]

Very curious if some of you can humor me-

 

If Berkowitz, Paulson (I think he only holds a small position now, saw a recent fund filing and it was 3% of the specific fund), and Ackman were not in this investment, would you still be holding the preferreds?

 

There is no question that it's an input into my decision to hold.

 

Would make an interesting poll.

 

As far as me, I think I'd be more willing to trade in and out because I'm aware that without their legal help this story could go on for a long time. They're helping to push the envelope.

 

But, to repeat, in the end the govt will get this right. I have full confidence in that. Our rights will be respected.

[muscleman]

Very curious if some of you can humor me-

 

If Berkowitz, Paulson (I think he only holds a small position now, saw a recent fund filing and it was 3% of the specific fund), and Ackman were not in this investment, would you still be holding the preferreds?

 

There is no question that it's an input into my decision to hold.

 

Would make an interesting poll.

 

As far as me, I think I'd be more willing to trade in and out because I'm aware that without their legal help this story could go on for a long time. They're helping to push the envelope.

 

But, to repeat, in the end the govt will get this right. I have full confidence in that. Our rights will be respected.

 

If the election goes the other way, would you still have such confidence?

[Desert_Rat]

I was in for 4 years of Obama so, yes, I would. I do believe this WH will resolve sooner though.

[orthopa]

Very curious if some of you can humor me-

 

If Berkowitz, Paulson (I think he only holds a small position now, saw a recent fund filing and it was 3% of the specific fund), and Ackman were not in this investment, would you still be holding the preferreds?

 

There is no question that it's an input into my decision to hold.

 

I would but my position would be smaller. I was in this when Obama was in office but Paulson lobbying for FnF to be released, Paulson Trump connection etc made me confident enough to increase my position. 

 

The thesis that FnF cannot be wound down is intact as we are where we are 8 years later. Its the shareholder treatment that is in question and Ill align myself like this anyday.

 

At the same time I would have likely decreased my position after the election if someone was put in office my Clinton. The sword in my mind cuts both ways. 

[asterisk]

https://www.bloomberg.com/news/articles/2017-05-09/fed-s-rosengren-warns-gse-reform-could-threaten-property-market

[DocSnowball]

Very curious if some of you can humor me-

 

If Berkowitz, Paulson (I think he only holds a small position now, saw a recent fund filing and it was 3% of the specific fund), and Ackman were not in this investment, would you still be holding the preferreds?

 

There is no question that it's an input into my decision to hold.

 

I'd only have house money if Berkowitz and Paulson were not in this. It's speculative at best even with their involvement - dishonest management with no margin of safety after Perry ruling

 

It could be a solid long term investment after restructuring, so that is the alternative to investing right now. Less upside then but less downside imo. I'm saving half of my position for then in case the current shares stay at equivalent or lower values after restructuring. If they go to 3-5x it's a big position already at 8% of portfolio

[Mephistopheles]

One has to hope that just one of these cases being ruled in our favor will set the gears of freedom into motion.

 

That's true but remember most of the cases are not independent. Like all the district court cases...they seem to be following Washington D.C.'s lead.

[DocSnowball]

I have wondered that if Ackman has been buying preferreds, someone else with a large position has been selling them. Don't know who but given the question above I am curious.

[SnarkyPuppy]

Some parallels to the Zinc saga where Pabrai was involved and had a relationship with management, so everyone assumed that he had some particular insight into what would happen.  Turns out he was totally in the dark, didn't want to sell because of filing requirements, and got wiped out. 

[muscleman]

http://www.breitbart.com/economics/2017/05/09/appeals-courts-aig-decision-doom-fannie-freddie-litigation/

 

What's your opinion on this one? It is written by John Carney so probably with lots of errors and biases.

 

I think the difference is that FnF case is not about the original bailout.

 

But will the ruling that "The Federal Circuit Court of Appeals in Washington said Greenberg's Starr International Co had no legal right to challenge the bailout because that right belonged to AIG, which chose not to sue." have any impact on Sweeney's case?

[Desert_Rat]

This is like asking CNN their views on Comey firing. What they say, believe the opposite.

 

I don't believe anything that comes out of Carney's mouth, and since the preferred market is dead today I'll assume AIG cases have no bearing on us.

 

[muscleman]

This is like asking CNN their views on Comey firing. What they say, believe the opposite.

 

I don't believe anything that comes out of Carney's mouth, and since the preferred market is dead today I'll assume AIG cases have no bearing on us.

 

I agree. I just want to see if anyone here have any thoughts about that case.

 

Tomorrow is Watt's hearing in Senate. I am sure Bob Corker would ask him why he still hasn't wound down the failed FnF, and he would gives answers like, I am watching the situations and would act responsively, which is like saying nothing at all.

 

[rros]

This is like asking CNN their views on Comey firing. What they say, believe the opposite.

 

I don't believe anything that comes out of Carney's mouth, and since the preferred market is dead today I'll assume AIG cases have no bearing on us.

 

I agree. I just want to see if anyone here have any thoughts about that case.

 

Tomorrow is Watt's hearing in Senate. I am sure Bob Corker would ask him why he still hasn't wound down the failed FnF, and he would gives answers like, I am watching the situations and would act responsively, which is like saying nothing at all.

The thing to watch tomorrow is Senators getting a promise from Watt of not stopping dividend payments.

[waynepolsonAtoZ]

While it's true that the thing to watch is whether Watt promises to keep the NWS dividends to Tsy, it's relatively unlikely that he would do so.

 

As Director Watt said a year ago:

 

"The most serious risk and the one that has the most potential for escalating in the future is the Enterprises’ lack of capital.  FHFA suspended statutory capital classifications when the Enterprises were placed in conservatorship, and Fannie Mae and Freddie Mac are currently unable to build capital under the provisions of the PSPAs.  The agreements require each Enterprise to pay out comprehensive income generated from business operations as dividends to the Treasury Department, and the amount of funds each Enterprise is allowed to retain is often referred to as the Enterprises’ “capital buffer.”  This capital buffer is available to absorb potential losses, which reduces the need for the Enterprises to draw additional funding from the Treasury Department.  However, based on the terms of the PSPAs, this capital buffer is reducing each year.  And, we are now over halfway down a five-year path toward eliminating the buffer completely. 

 

Starting January 1, 2018, the Enterprises will have no capital buffer and no ability to weather quarterly losses – such as the non-credit related loss incurred by Freddie Mac in the third quarter of last year – without making a draw against the remaining Treasury commitments under the PSPAs.  There are a number of non-credit related factors that could lead to a loss and result in a draw on those commitments: interest rate volatility; accounting treatment of derivatives, which are used to hedge risk but can also produce significant earnings volatility; reduced income from the Enterprises’ declining retained portfolios; and, the increasing volume of credit risk transfer transactions, which transfer both the risk of future credit losses as well as current revenues away from the Enterprises to the private sector.  A disruption in the housing market or a period of economic distress could also lead to credit-related losses and trigger a draw.   

 

It is, of course, impossible to predict the exact ramifications of future draws of funds from the PSPA commitments.  But let me offer a few observations. 

 

First, and most importantly, future draws that chip away at the backing available by the Treasury Department under the PSPAs could undermine confidence in the housing finance market.  The remaining funds available under the PSPAs provide the market with assurance that the Enterprises can meet their guarantee obligations to investors in mortgage-backed securities even while they are in conservatorship and don’t have the ability to build capital.  In effect, the Treasury Department’s financial commitment to each Enterprise under the PSPAs is a source of capital that supports mortgage market liquidity.  However, under the terms of the PSPAs, these funds can only go down and cannot be replenished.  Future draws would reduce the overall backing available to the Enterprises, and a significant reduction could cause investors to view this backing as insufficient.  It’s unclear where investors would draw that line, but certainly before these funds were drawn down in full.

 

Investor confidence is critical if we are to have, as we do today, a well-functioning and highly liquid housing finance market that makes it possible for families to lock in interest rates, obtain 30-year, fixed-rate mortgages, and prepay a mortgage if they want to refinance or need to move.  If investor confidence in Enterprise securities went down and liquidity declined as a result, this could have real ramifications on the availability and cost of credit for borrowers. 

 

Second, future draws could lead to a legislative response adopted in haste or without the kind of forethought it should be given.  I have been clear that conservatorship is not a desirable end state and that Congress needs to tackle the important work of housing finance reform.  However, because of the intricacies of our housing finance system and the extremely high stakes for the housing finance market and for the economy as a whole if reform is not done right, I continue to hope that Congress can engage in the work of thoughtful housing finance reform before we reach a crisis of investor confidence or a crisis of any other kind.  While it’s not my place to meddle in political discussions, I’m also not hearing much discussion of housing finance reform in any of the presidential campaigns."

 

https://www.fhfa.gov/Media/PublicAffairs/Pages/Prepared-Remarks-Melvin-Watt-at-BPC.aspx

[rros]

While it's true that the thing to watch is whether Watt promises to keep the NWS dividends to Tsy, it's relatively unlikely that he would do so.

 

As Director Watt said a year ago:

 

"The most serious risk and the one that has the most potential for escalating in the future is the Enterprises’ lack of capital.  FHFA suspended statutory capital classifications when the Enterprises were placed in conservatorship, and Fannie Mae and Freddie Mac are currently unable to build capital under the provisions of the PSPAs.  The agreements require each Enterprise to pay out comprehensive income generated from business operations as dividends to the Treasury Department, and the amount of funds each Enterprise is allowed to retain is often referred to as the Enterprises’ “capital buffer.”  This capital buffer is available to absorb potential losses, which reduces the need for the Enterprises to draw additional funding from the Treasury Department.  However, based on the terms of the PSPAs, this capital buffer is reducing each year.  And, we are now over halfway down a five-year path toward eliminating the buffer completely. 

 

Starting January 1, 2018, the Enterprises will have no capital buffer and no ability to weather quarterly losses – such as the non-credit related loss incurred by Freddie Mac in the third quarter of last year – without making a draw against the remaining Treasury commitments under the PSPAs.  There are a number of non-credit related factors that could lead to a loss and result in a draw on those commitments: interest rate volatility; accounting treatment of derivatives, which are used to hedge risk but can also produce significant earnings volatility; reduced income from the Enterprises’ declining retained portfolios; and, the increasing volume of credit risk transfer transactions, which transfer both the risk of future credit losses as well as current revenues away from the Enterprises to the private sector.  A disruption in the housing market or a period of economic distress could also lead to credit-related losses and trigger a draw.   

 

It is, of course, impossible to predict the exact ramifications of future draws of funds from the PSPA commitments.  But let me offer a few observations. 

 

First, and most importantly, future draws that chip away at the backing available by the Treasury Department under the PSPAs could undermine confidence in the housing finance market.  The remaining funds available under the PSPAs provide the market with assurance that the Enterprises can meet their guarantee obligations to investors in mortgage-backed securities even while they are in conservatorship and don’t have the ability to build capital.  In effect, the Treasury Department’s financial commitment to each Enterprise under the PSPAs is a source of capital that supports mortgage market liquidity.  However, under the terms of the PSPAs, these funds can only go down and cannot be replenished.  Future draws would reduce the overall backing available to the Enterprises, and a significant reduction could cause investors to view this backing as insufficient.  It’s unclear where investors would draw that line, but certainly before these funds were drawn down in full.

 

Investor confidence is critical if we are to have, as we do today, a well-functioning and highly liquid housing finance market that makes it possible for families to lock in interest rates, obtain 30-year, fixed-rate mortgages, and prepay a mortgage if they want to refinance or need to move.  If investor confidence in Enterprise securities went down and liquidity declined as a result, this could have real ramifications on the availability and cost of credit for borrowers. 

 

Second, future draws could lead to a legislative response adopted in haste or without the kind of forethought it should be given.  I have been clear that conservatorship is not a desirable end state and that Congress needs to tackle the important work of housing finance reform.  However, because of the intricacies of our housing finance system and the extremely high stakes for the housing finance market and for the economy as a whole if reform is not done right, I continue to hope that Congress can engage in the work of thoughtful housing finance reform before we reach a crisis of investor confidence or a crisis of any other kind.  While it’s not my place to meddle in political discussions, I’m also not hearing much discussion of housing finance reform in any of the presidential campaigns."

 

https://www.fhfa.gov/Media/PublicAffairs/Pages/Prepared-Remarks-Melvin-Watt-at-BPC.aspx

Thank you, Wayne. But you know how it goes with politicos and public servants... The ink may still not be dry yet they flip.

 

While it’s not my place to meddle in political discussions, I’m also not hearing much discussion of housing finance reform in any of the presidential campaigns.

 

And 15 months have passed and a new President and new Treasury Sec. we have and Watt continues not to hear any discussion at all. These are the ones we vote for and pay for their salaries.

 

BTW, Watt is also on record saying he would consider one more draw under his tenure a "dereliction of duty". Reported by none other than Joe Light! ("Watt, a former North Carolina congressman, has told people around him that he’d consider it a dereliction of duty if the companies needed more money on his watch.")

[SnarkyPuppy]

http://mobile.reuters.com/article/idUSKBN18633I

[Desert_Rat]

BREAKING - Mel Watt would retain GSE earnings to prevent another housing rescue not provoke Congress, @FHFA chief to say. at hearing tomorrow, Watt will contemplate such a move: "FHFA’s actions would be taken solely to avoid a draw during conservatorship. mortgage rates wud soar, markets rattle w/ another GSE draw, Watt to say. "we cannot risk the loss of investor confidence

 

https://twitter.com/PatrickMRucker

 

http://www.reuters.com/article/us-usa-fhfa-watt-idUSKBN18633I

 

 

[rros]

http://mobile.reuters.com/article/idUSKBN18633I

wow

 

let me repeat. wow. I am in disbelief. Wait for tomorrow's senators' shit storm. Can't wait for that hearing.

 

Wayne, thank you for that opportune prepared remarks. And I was wrong about the flipping. Maybe he stated this in advance of tomorrow's battle? Let's hope he pushes through his stance.

 

"FHFA's actions would be taken solely to avoid a draw during conservatorship."

 

This statement is, of course, to divorce his actions from whatever happens to share prices at 9.30am.

 

Thank you, snarky.

 

Someone correct me. Isn't this the first valid and official statement in almost 9 years that recapitalization is a real possibility?

[rros]

Sorry. I have to keep posting. It's far from a guarantee and it could simply be a maneuver to push Congress to write a bill. But I am still shitting on my pants.

[Desert_Rat]

Pretty expected if you ask me. Maybe not this soon, but this year.

 

Not a peep:

https://www.google.com/finance?chdnp=0&chdd=1&chds=0&chdv=0&chvs=maximized&chdeh=0&chfdeh=0&chdet=1494462434286&chddm=1173.0000000000002&chls=IntervalBasedLine&cmpto=OTCMKTS:FMCC&cmptdms=0&q=OTCMKTS:FNMA&ntsp=0&ei=3q8TWZG_BdbHswHa7qSwCg

[SnarkyPuppy]

Pretty expected if you ask me. Maybe not this soon, but this year.

 

Not a peep:

https://www.google.com/finance?chdnp=0&chdd=1&chds=0&chdv=0&chvs=maximized&chdeh=0&chfdeh=0&chdet=1494462434286&chddm=1173.0000000000002&chls=IntervalBasedLine&cmpto=OTCMKTS:FMCC&cmptdms=0&q=OTCMKTS:FNMA&ntsp=0&ei=3q8TWZG_BdbHswHa7qSwCg

 

Why did you post the chart?  There's no after hours trading.

[Desert_Rat]

I posted it because usually we see frontrunners. Not on this news though.

[SnarkyPuppy]

I posted it because usually we see frontrunners. Not on this news though.

 

lol.

[hardincap]

watt has finally revealed his trump card (no pun intended). im still unclear how things will work out with housing reform, but the path of least resistance seems to be based on letting f&f rebuild capital first and foremost