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

[rros]

bruce has reduced stake: http://www.fairholmefundsinc.com/Reports/Funds2017SemiAnnual.pdf

I do not know how long have you been holding but myself and others have held since 2010, long before BB got involved and distinctly remember when he opened positions.

 

If I remember correctly, at the time, all shares purchased were around 100 +/- million for all classes having used around $450/500 mill of his funds on 2,5 bill face value. In this last report he is holding:

 

58,317,184

59,908,659

---------------

118,225,843 total shares

 

So before jumping the gun and spreading misinformation do some research. I am too lazy to look up his original purchases but Wayne can probably add a line here.

 

BTW, he is up in terms of dollars. Not counting the money he says he has made trading around the core.

[hardincap]

bruce has reduced stake: http://www.fairholmefundsinc.com/Reports/Funds2017SemiAnnual.pdf

I do not know how long have you been holding but myself and others have held since 2010, long before BB got involved and distinctly remember when he opened positions.

 

If I remember correctly, at the time, all shares purchased were around 100 +/- million for all classes having used around $450/500 mill of his funds on 2,5 bill face value. In this last report he is holding:

 

58,317,184

59,908,659

---------------

118,225,843 total shares

 

So before jumping the gun and spreading misinformation do some research. I am too lazy to look up his original purchases but Wayne can probably add a line here.

 

BTW, he is up in terms of dollars. Not counting the money he says he has made trading around the core.

 

? compare the two reports:

http://www.fairholmefundsinc.com/Reports/Funds2017SemiAnnual.pdf

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

 

[buffetteer1984]

wow according to his letter, berkowitz's cost basis for the sears common position is around $60 and now is sitting at about $9.

[waynepolsonAtoZ]

A lot of FMCKJ sold on Feb. 21 and 22, 2017. Same for FNMAS. Could be Fairholme sold some shares at that time. The volumes would have accommodated sizable sales.

[ValueMaven]

The Fund has lost 89% of its assets from its peak in 2011...of course to meet liquidations BB has had to sell a bit of everything...plus use cash.  Worth keeping in mind. 

[rros]

The Fund has lost 89% of its assets from its peak in 2011...of course to meet liquidations BB has had to sell a bit of everything...plus use cash.  Worth keeping in mind.

The main point here is to use a frame of reference. He did sell 15 mill shares approx. from one year to the next. But only because he increased his positions prior, compared to the original purchase. So saying he "reduced" is technically correct, except that not mentioning the prior increase will lead some people to think he is selling off.

 

I am not sure what the purpose of the poster is. Briefly, to us, very long term holders a position of 118/119 million shares is as large or a bit larger than his original purchase. And whatever happens around the core position is meaningless, as every hedge fund/money manager trades around the core. So if he "reduced" in Feb.'s run up to continue to hold the same ratio in assets he did exactly what a good money manager has to do.

[hardincap]

@rros Im "jumping the gun and spreading misinformation" even though  what I posted was correct?

[Guest cherzeca]

@rros Im "jumping the gun and spreading misinformation" even though  what I posted was correct?

 

bruce had to sell some stock to pay his lawyers.  we should all be grateful

[rros]

@rros Im "jumping the gun and spreading misinformation" even though  what I posted was correct?

I apologize.

 

The general picture though is that his core position is intact.

 

BB admitted to trading and making money. It may not be unusual to buy shares when they collapse to later profit on those after a run. That may explain the increase and decrease around the core.

 

Would have been better to provide the larger picture, not just the trees. For better reference.

[rros]

Here are all the figures:

 

2013

47,531,436

62,521,459

---------------

110,052,895

 

2014

50,824,436

66,058,959

---------------

116,883,395

 

Semiannual 2015

60,584,436

66,058,959

---------------

126,643,395

 

2015

64,151,184

72,773,959

---------------

136,925,143

 

2016

64,151,184

69,773,459

---------------

133,924,643

 

Semiannual 2017

58,317,184

59,908,659

--------------

118,225,843

 

 

He obviously took profits on the shares he bought in 2015. It appears he added twice in 2015. First half 10 mill and second half 10 mill approx. Maybe he bought into the settlement rumors and then averaged down on those when prices collapsed. Core = intact.

[Sunrider]

I guess another way to look at this would be to put it as a proportion of the overall fund (ex. Cash) ... that should give a better view of conviction (albeit the figures will be influenced by price swings). I suspect conviction may have actually gone up, given shrinking fund size?

C.

 

Here are all the figures:

 

2013

47,531,436

62,521,459

---------------

110,052,895

 

2014

50,824,436

66,058,959

---------------

116,883,395

 

Semiannual 2015

60,584,436

66,058,959

---------------

126,643,395

 

2015

64,151,184

72,773,959

---------------

136,925,143

 

2016

64,151,184

69,773,459

---------------

133,924,643

 

Semiannual 2017

58,317,184

59,908,659

--------------

118,225,843

 

 

He obviously took profit on the shares he bought in 2015. It appears he added twice on 2015, first half 10 mill and second half 10 mill approx. Maybe he bought into the settlement rumors and then averaged down on those when prices collapsed. Core = intact.

[rros]

I guess another way to look at this would be to put it as a proportion of the overall fund (ex. Cash) ... that should give a better view of conviction (albeit the figures will be influenced by price swings). I suspect conviction may have actually gone up, given shrinking fund size?

C.

 

Here are all the figures:

 

2013

47,531,436

62,521,459

---------------

110,052,895

 

2014

50,824,436

66,058,959

---------------

116,883,395

 

Semiannual 2015

60,584,436

66,058,959

---------------

126,643,395

 

2015

64,151,184

72,773,959

---------------

136,925,143

 

2016

64,151,184

69,773,459

---------------

133,924,643

 

Semiannual 2017

58,317,184

59,908,659

--------------

118,225,843

 

 

He obviously took profit on the shares he bought in 2015. It appears he added twice on 2015, first half 10 mill and second half 10 mill approx. Maybe he bought into the settlement rumors and then averaged down on those when prices collapsed. Core = intact.

Very good point.

[Guest cherzeca]

What would the Moelis Plan look like after the new stress test results?

 

http://www.fanniemae.com/portal/media/statements/2017/dodd-frank-public-disclosure-080717-6587.html

 

I hear that the numbers are still cooked and they need much less. These stress tests assume sky is falling, so ridiculous.

 

seems to me these stress test loss numbers can serve as the total minimum amount of capital the GSEs should have going forward...and this indicates about 2%, which is way less than most peopl have been pulling out of their most convenient orifice.

[Midas79]

What would the Moelis Plan look like after the new stress test results?

 

http://www.fanniemae.com/portal/media/statements/2017/dodd-frank-public-disclosure-080717-6587.html

 

I hear that the numbers are still cooked and they need much less. These stress tests assume sky is falling, so ridiculous.

 

seems to me these stress test loss numbers can serve as the total minimum amount of capital the GSEs should have going forward...and this indicates about 2%, which is way less than most peopl have been pulling out of their most convenient orifice.

 

Yup, "capital requirements" was the first thing that came to my mind as well. These results present a pretty good argument that $100B is sufficient. This is far less than the "level playing field" proposals.

 

If the scenario where Treasury exercises the warrants at a higher strike price comes to fruition, and if the strike price is high enough, we could get an instant full recap. This would likely be immediately followed by a release from conservatorship. Wishful thinking to be sure, but it's at least kind of plausible?

[Guest cherzeca]

from tim howard

 

"The 2017 Dodd-Frank Severely Adverse Scenario Stress Test Results for Fannie and Freddie were disappointing, not because of anything having to do with the companies—their operating results were extremely impressive—but because FHFA continues to put out misleading and indefensible information about their financial condition.

 

We’ll start with the operating results. Actual stress credit losses for the combined companies were just $19.2 billion, $14.1 billion below their projected pre-provision revenues of $33.3 billion, and just 0.38 percent of their average mortgage balance. At 38 basis points, Fannie and Freddie now can cover their stress credit losses with one year’s worth of guaranty fees—and no capital. That’s a superb result.

 

So where do the negative overall figures come from? FHFA is inventing non-cash expenses to make Fannie and Freddie’s numbers look worse. (It also did this last year, which I discussed in an August 2016 post titled “FHFA Fails the Stress Test.”)

 

FHFA starts with booking a loss provision of $55.9 billion. Why? Stress losses are only $19.2 billion. Why an extra $36.9 billion added to the loss reserve? A stress test is supposed to be a worst case; what’s left to reserve against? You can contrast what FHFA did with Fannie and Freddie with what the Fed did with the banks it stressed. In the 2017 Dodd-Frank stress test for banks (the same as the one to which Fannie and Freddie are subjected), banks had $383.1 billion in projected credit losses, or 5.8 percent of their total loans. Banks’ projected stress loss provision was $420.9 billion, or less than 10 percent more than their projected losses. The Fed didn’t add excessive and unexplained amounts to banks’ loss reserves in their severely adverse stress test; why did FHFA grossly inflate the companies’ loss reserves, when as a percentage of assets their credit losses are one-fifteenth those of the banks?

 

FHFA also subjects Fannie and Freddie to a “global market shock” and “counterparty defaults.” The Fed uses the global market shock on only 6 of the 50 banks it stresses, and those are banks with “large trading and private equity exposures.” Fannie and Freddie have neither, yet FHFA invents and adds a non-cash charge in this category. The Fed’s counterparty default component is used on only 8 of the 50 banks—those with “substantial trading, processing or custodial operations;” Fannie and Freddie don’t fall into any of those categories either, yet FHFA adds still more non-cash losses there.

 

And then there is the deferred tax asset reserve of $64 billion. That would only be booked if there was doubt about the companies’ future profitability. Here there is none—on an operating basis the companies are projected to be profitable during the stress period, and even with FHFA booking the bogus other non-cash losses noted above the companies immediately would return to profitability afterwards. There is ZERO justification for showing this $64 billion charge as a legitimate component of the stress test, but FHFA does it anyway, to inflate the figure for possible draws from Treasury.

 

That’s the disappointing part. FHFA, and Treasury, continue to pretend that Fannie and Freddie are doing much worse than they actually are. This is what I wrote about in the current post: Treasury and FHFA keep saying things about the companies they know not to be true, and that fly in the face of readily available evidence to the contrary. I keep hoping this will change in the current administration, but so far it clearly has not."

[Luke 532]

https://www.insidemortgagefinance.com/imfnews/1_1164/daily/Fairholme-says-Trump-DOJ-Will-See-things-Its-Way-1000042396-1.html?ET=imfpubs:e9671:73599a:&st=email&s=imfnews

 

Fairholme Predicts Trump’s DOJ Will See (GSE) Things Its Way

By Paul Muolo, pmuolo@imfpubs.com

 

Fairholme Capital Management, one of the largest speculators in GSE junior preferred stock, has a message for its investors: the Department of Justice in the Trump administration will see things its way and probably settle the “takings” cases.

 

According to Fairholme’s new mid-year report, the recent release of documents in its GSE case against the government proves the DOJ in the Obama administration knew what its “statutory authorities were” and “willfully exceeded those authorities to steal billions of dollars from investors, and subsequently engaged in a cover-up to hide their wrongdoing.”

 

Fairholme predicts the newly released documents will prod Trump’s DOJ to see that the legal actions taken by the Obama administration “undermine” the government’s case. Roughly five years ago, Treasury changed the quarterly dividend payment paid by the GSEs to a near-total sweep of their profits.

 

As the owner of Fannie/Freddie senior preferred, Treasury receives quarterly payments. The owners of GSE junior preferred shares have received nothing since the government takeover in September 2008.

 

Fairholme said it believes the two GSEs can “safely return” to the market as guarantors with private capital. “There is a proven blueprint to succeed, and we hope to successfully resolve this matter before reaching the Supreme Court of the United States,” the company told investors.

[Flynnstone5]

What would the Moelis Plan look like after the new stress test results?

 

http://www.fanniemae.com/portal/media/statements/2017/dodd-frank-public-disclosure-080717-6587.html

 

I hear that the numbers are still cooked and they need much less. These stress tests assume sky is falling, so ridiculous.

 

seems to me these stress test loss numbers can serve as the total minimum amount of capital the GSEs should have going forward...and this indicates about 2%, which is way less than most peopl have been pulling out of their most convenient orifice.

 

I thought the same.

[Luke 532]

http://investorsunite.org/questions-answers-conservatorship-capital-framework/

[Luke 532]

https://www.insidemortgagefinance.com/imfnews/1_1166/daily/-1000042411-1.html#Login

 

August 10, 2017

FHFA Chief Concerned about GSE Zero Capital Buffer, but Doesn’t Want to Promote ‘Recap and Release’

 

By Paul Muolo, pmuolo@imfpubs.com

 

Although Federal Housing Finance Agency Director Mel Watt is concerned about the GSE capital buffer falling to zero early next year, it appears he’s unlikely to take administration action anytime soon to fix the situation. At least that’s the message conveyed in a new letter Watt penned to National Association of Realtors President William Brown.

 

According to the August 9 correspondence, Watt notes he’s “very concerned” about the issue because it “increases the probability of a draw which could cause an adverse market reaction.”

 

But the regulator adds: “However, I am sensitive to the prospect that whatever steps FHFA could take might be misperceived as either an effort to promote recapitalization and release of the enterprises or as interference with Congress’ important work to advance housing finance [GSE] reform. Consequently, as I continue to urge members of Congress to tackle the difficult and complex issues of housing finance reform, I will continue to look for ways to ensure that the concerns I have expressed are addressed constructively.”

 

In late June, Brown wrote to Watt, suggesting the FHFA establish administratively what NAR called a “mortgage market liquidity fund” where Fannie Mae/Freddie Mac profits could be set aside to cover future short-term losses.

 

Alterations made to the preferred stock purchase agreements governing the conservatorships back in 2012 changed a quarterly GSE dividend payment to a sliding scale near-total profit sweep. The buffer of how much earnings Fannie and Freddie can keep falls to zero in 2018 from $600 million currently.

[Luke 532]

http://www.dsnews.com/headline/08-09-2017/hud-enough-enough

Carson added that by pursuing housing finance reform, the Trump administration seeks to “unwind the federal government’s role in the private mortgage market and ease the stress on rental markets.”

[Midas79]

http://www.dsnews.com/headline/08-09-2017/hud-enough-enough

Carson added that by pursuing housing finance reform, the Trump administration seeks to “unwind the federal government’s role in the private mortgage market and ease the stress on rental markets.”

 

What's yet to be seen is if the Trump administration considers a return to the pre-conservatorship status of the GSEs to be enough of an unwinding of the federal government's role. Even out of conservatorship and with no government guarantee (which has always been the case, as the GSEs filings state numerous times), the market could still price GSE debt as if there was an implicit guarantee, the GSE charters would still be in force, and the GSEs would have to have a regulator.

 

A far worse interpretation means the Trump administration wants the GSEs (and subsequently FHFA) wound down and completely dissolved, and damn the consequences.

[Midas79]

An off-the-wall thought:

 

Could Watt direct the GSEs to use their profits to start retiring/redeeming the junior prefs? Any money used to do that is out the door and is no longer part of net worth, meaning that the GSEs wouldn't have to send any money to Treasury. It could help with a restructuring of the balance sheet and maybe even undercut the lawsuits; perhaps Berkowitz and others would drop their suits if they're paid at par. High-dividend series like FNMAS and FMCKJ are Fairholme's main holdings and also the most prudent to pay off first.

 

Of course, this doesn't address Watt's concern with the lack of capital for short-term fluctuations. But it would help with a post-conservatorship future by not having dividend obligations. Watt might see this as a better use of money than just sending it to Treasury for no consideration.

 

I believe the chances of this happening are very small, but are they non-zero? Or would this violate the PSPAs in some way?

[Luke 532]

perhaps Berkowitz and others would drop their suits if they're paid at par.

 

Just FYI, they would absolutely drop their suits if paid at par.  There's no question about that in my mind.

[waynepolsonAtoZ]

Mnuchin is a friend of FnF, lol.

 

http://www.hollywoodreporter.com/news/conservative-koch-brothers-are-secret-investors-wonder-woman-1027376

[Guest cherzeca]

fwiw, from paulson's 1H 17 letter: 

 

"In Fannie Mae and Freddie Mac, our view is that the net worth sweep will not likely change until there is a broader plan in place to recapitalise the entities. We believe there is considerable upside to our holdings despite potential volatility and a high probability of a resolution before the end of 2017."

 

http://www.valuewalk.com/2017/08/paulson-co/