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

[rros]

right. not directed to you rros.  just saying the missing detail in the draft bill is the treatment of the outstanding senior preferred.  no one who has reported on it has addressed this issue. so any valuation of junior securities such as jr pref and common cant be done unless we know status of senior pref

I know, Chris. Don't worry. I was trying to be funny on a Friday night. Not only his numbers are completely arbitrary, he and many others -as you correctly pointed out- think the Srs. will simply evaporate while the law says just the opposite. We will need a presidential financial pardon before we can move unto the next stage! Happy Holidays everyone!!

[rros]

How many shares does Paulson own? Where may I find this info?

 

http://www.valuewalk.com/2017/12/paulson-mallinckrodt-mnk-fannie-mae/

 

"Treasury Secretary Mnuchin, one of the key decision-makers on the future of the government-sponsored enterprises (GSEs), has said his priorities are taxpayer protection and mortgage market liquidity. Both can be achieved by allowing the GSEs to retain earnings, raise new capital, and build up their capital base. We believe restoring the GSEs is in the interest of US tax payers and the housing market, and anticipate a positive outcome here."

It used to be his merger arbitrage fund. Still is, apparently.

 

http://www.schroders.com/getfunddocument?oid=1.9.2228909

[no_free_lunch]

There was an article on benzinga where some fund manager was discussing possible conversion scenarios.  He was modelling the jr prefs converting at 50%, 75% and 100% of par into shares.  I am not even going to bother referencing the article as there wasnt much too it.  However is there any justification for conversion at less than par.  I was under the impression that the AIG conversion happened at par so thought we would get that here too, assuming things even go that way.

[orthopa]

There was an article on benzinga where some fund manager was discussing possible conversion scenarios.  He was modelling the jr prefs converting at 50%, 75% and 100% of par into shares.  I am not even going to bother referencing the article as there wasnt much too it.  However is there any justification for conversion at less than par.  I was under the impression that the AIG conversion happened at par so thought we would get that here too, assuming things even go that way.

 

That was posted earlier in the thread. I dont know how he/she came up with 15% upside on some of the preferred. Jesus, some of the preferred are trading at 25-30% of par. I would hope this investment offers more return then that in everyone elses eyes.

[no_free_lunch]

The 15% upside assumed a 50% conversion rate and then the commons subsequently falling 30%.  So 35 cents on the dollar.  I am just not sure what they are basing these numbers on.  I don't think the preferred holders would agree to those terms when the companies are profitable.

[Midas79]

The 15% upside assumed a 50% conversion rate and then the commons subsequently falling 30%.  So 35 cents on the dollar.  I am just not sure what they are basing these numbers on.  I don't think the preferred holders would agree to those terms when the companies are profitable.

 

I believe that any conversion to common would have to be voluntary given that a bad offer would be against the interest of shareholders and would need 2/3 agreement as per the circular. Though I didn't find that language in Freddie prefs, only Fannie.

 

Does anyone have reason to believe that an involuntary conversion could be forced through? Even the Perry appeal opinion remanded claims relating to junior pref contractual rights, so I think those are still important.

[rros]

The 15% upside assumed a 50% conversion rate and then the commons subsequently falling 30%.  So 35 cents on the dollar.  I am just not sure what they are basing these numbers on.  I don't think the preferred holders would agree to those terms when the companies are profitable.

 

I believe that any conversion to common would have to be voluntary given that a bad offer would be against the interest of shareholders and would need 2/3 agreement as per the circular. Though I didn't find that language in Freddie prefs, only Fannie.

 

Does anyone have reason to believe that an involuntary conversion could be forced through? Even the Perry appeal opinion remanded claims relating to junior pref contractual rights, so I think those are still important.

Converting can be attractive in that common equity has, potentially, unlimited upside whereas Jrs. have a cap at face value. Simple math says converting at half while common equity post-conversion price doubles you end up at full face value. And you may go north from there with potentially a small dividend. Why force conversion when a good deal can become a great deal? Terms will probably take into account the remaining variables... further dilution by Treasury, secondaries to raise capital, etc.

 

Many things can happen once the companies are free that can make common equity more attractive than Jrs. During this conservatorship schemes were analyzed by which companies could IPO segments of businesses (multi-home, single-home, etc.). They both owned the common securitization platform which they could also monetize 2Q19. I imagine big Jr. holders will try to scoop up a large chunk of any revamped companies by owning large amounts of common.

 

Any and all of these benefits will flow through Treasury's exercised warrants.

[SnarkyPuppy]

Found this interesting (from 2015)- https://www.cato.org/blog/we-decide-keep-fannie-mae-around

 

"1)  Open up the charters to competition.  If we learned anything from the rampant corruption that characterized early 1800s U.S. state banking, it is that legislators shouldn’t give out exclusive charters.  Accordingly, the government should delegate chartering authority to the regulator and allow anyone who can meet the requirements to get a charter."

 

Check.  Skipping ahead:

 

"4)  Break ‘em up.  This might be the most controversial, but simply allowing other institutions to enter the market is unlikely to guarantee sufficient competition.  We broke up Ma Bell.  Under any antitrust standard, Fannie and Freddie are a duopoly.  Unless we are repealing the Sherman Act, the two companies should be broken into at least 6 pieces each and barred from merging.  Existing shareholders would get shares in the off-spring companies."

[Midas79]

The R^2 on the pref series I follow (FNMAG, FNMAI, FNMAJ, FNMAK, FNMAL, FNMAM, FNMAN, FNMAT, FMCKI, FMCKL, FMCKM, FMCKN, FMCKO, FMCCT) has steadily dropped over the last two weeks (since the spike on December 7), sitting at 0.51 now. This is down from 0.88 just a couple weeks ago and has usually hovered around 0.9 throughout 2017.

 

The only reason the correlation is even this strong is that FNMAT is something of an outlier. FNMAI and FNMAJ have a pretty large coupon difference of 0.875% but trade at near parity.

 

FNMAG, FNMAK, FNMAL, FNMAM, FNMAN have coupons ranging from 4.75% to 5.81% but FNMAK and FNMAM (the two highest coupons) are the cheapest.

 

FMCKI has a coupon nearly 1% higher than FMCKM but trades at near parity as well.

 

This appears to be a sign to me that investors are dividing into two camps: those who want high coupons and those who just want a lot of redemption value. Investors who have straddled the fence in the past appear to be picking one side or the other.

 

This is the case for me as well. I have sold nearly all of my high coupon prefs and have moved mostly into FNMAM and FNMAK due to their relative recent cheapness, decent coupons in case it matters, and that they are Fannie as opposed to Freddie (which I believe affords protection against a forced conversion to common).

 

FNMAG is an outlier as well. It has been really strong lately against the other prefs (in both price and volume) but I don't know why that series in particular is so popular.

[rros]

The R^2 on the pref series I follow (FNMAG, FNMAI, FNMAJ, FNMAK, FNMAL, FNMAM, FNMAN, FNMAT, FMCKI, FMCKL, FMCKM, FMCKN, FMCKO, FMCCT) has steadily dropped over the last two weeks (since the spike on December 7), sitting at 0.51 now. This is down from 0.88 just a couple weeks ago and has usually hovered around 0.9 throughout 2017.

 

The only reason the correlation is even this strong is that FNMAT is something of an outlier. FNMAI and FNMAJ have a pretty large coupon difference of 0.875% but trade at near parity.

 

FNMAG, FNMAK, FNMAL, FNMAM, FNMAN have coupons ranging from 4.75% to 5.81% but FNMAK and FNMAM (the two highest coupons) are the cheapest.

 

FMCKI has a coupon nearly 1% higher than FMCKM but trades at near parity as well.

 

This appears to be a sign to me that investors are dividing into two camps: those who want high coupons and those who just want a lot of redemption value. Investors who have straddled the fence in the past appear to be picking one side or the other.

 

This is the case for me as well. I have sold nearly all of my high coupon prefs and have moved mostly into FNMAM and FNMAK due to their relative recent cheapness, decent coupons in case it matters, and that they are Fannie as opposed to Freddie (which I believe affords protection against a forced conversion to common).

 

FNMAG is an outlier as well. It has been really strong lately against the other prefs (in both price and volume) but I don't know why that series in particular is so popular.

Why is FNMAT somewhat of an outlier?

[Midas79]

The R^2 on the pref series I follow (FNMAG, FNMAI, FNMAJ, FNMAK, FNMAL, FNMAM, FNMAN, FNMAT, FMCKI, FMCKL, FMCKM, FMCKN, FMCKO, FMCCT) has steadily dropped over the last two weeks (since the spike on December 7), sitting at 0.51 now. This is down from 0.88 just a couple weeks ago and has usually hovered around 0.9 throughout 2017.

 

The only reason the correlation is even this strong is that FNMAT is something of an outlier. FNMAI and FNMAJ have a pretty large coupon difference of 0.875% but trade at near parity.

 

FNMAG, FNMAK, FNMAL, FNMAM, FNMAN have coupons ranging from 4.75% to 5.81% but FNMAK and FNMAM (the two highest coupons) are the cheapest.

 

FMCKI has a coupon nearly 1% higher than FMCKM but trades at near parity as well.

 

This appears to be a sign to me that investors are dividing into two camps: those who want high coupons and those who just want a lot of redemption value. Investors who have straddled the fence in the past appear to be picking one side or the other.

 

This is the case for me as well. I have sold nearly all of my high coupon prefs and have moved mostly into FNMAM and FNMAK due to their relative recent cheapness, decent coupons in case it matters, and that they are Fannie as opposed to Freddie (which I believe affords protection against a forced conversion to common).

 

FNMAG is an outlier as well. It has been really strong lately against the other prefs (in both price and volume) but I don't know why that series in particular is so popular.

Why is FNMAT somewhat of an outlier?

 

It lies well above the trend line, at least as of this moment. FNMAJ is 0.875% above FNMAI in coupon and is close to parity with it, FNMAT is 0.875% above FNMAJ but trades at a 10% premium to both.

 

Liquidity does explain some of this; FNMAT has a 200k 30-day average volume which is 10x that of FNMAJ (20k), while FNMAI (9k) is much closer to FNMAJ than FNMAJ is to FNMAT.

 

FNMAS volume, of course, is another order of magnitude higher at 1.5M per day. I have been leaving it out of the linear regression to try and eliminate the volume effect, but I don't know enough about the effect of liquidity to know if this is valid. Perhaps a two-dimensional regression using coupon and liquidity to predict share price is in order. In that case I would need one more set of data (other than just prices) to get a unique solution.

 

The trend line has been flattening out recently. The original point of tracking this was to see if the pref prices (as a % of par) could be split into the price based on liquidation preference and that of coupon anticipation. A steeper line would mean that the market places a higher probability on dividends eventually being reinstated. I'm not sure if this premise is correct but I have been tracking it anyway.

[rros]

The R^2 on the pref series I follow (FNMAG, FNMAI, FNMAJ, FNMAK, FNMAL, FNMAM, FNMAN, FNMAT, FMCKI, FMCKL, FMCKM, FMCKN, FMCKO, FMCCT) has steadily dropped over the last two weeks (since the spike on December 7), sitting at 0.51 now. This is down from 0.88 just a couple weeks ago and has usually hovered around 0.9 throughout 2017.

 

The only reason the correlation is even this strong is that FNMAT is something of an outlier. FNMAI and FNMAJ have a pretty large coupon difference of 0.875% but trade at near parity.

 

FNMAG, FNMAK, FNMAL, FNMAM, FNMAN have coupons ranging from 4.75% to 5.81% but FNMAK and FNMAM (the two highest coupons) are the cheapest.

 

FMCKI has a coupon nearly 1% higher than FMCKM but trades at near parity as well.

 

This appears to be a sign to me that investors are dividing into two camps: those who want high coupons and those who just want a lot of redemption value. Investors who have straddled the fence in the past appear to be picking one side or the other.

 

This is the case for me as well. I have sold nearly all of my high coupon prefs and have moved mostly into FNMAM and FNMAK due to their relative recent cheapness, decent coupons in case it matters, and that they are Fannie as opposed to Freddie (which I believe affords protection against a forced conversion to common).

 

FNMAG is an outlier as well. It has been really strong lately against the other prefs (in both price and volume) but I don't know why that series in particular is so popular.

Why is FNMAT somewhat of an outlier?

 

It lies well above the trend line, at least as of this moment. FNMAJ is 0.875% above FNMAI in coupon and is close to parity with it, FNMAT is 0.875% above FNMAJ but trades at a 10% premium to both.

 

Liquidity does explain some of this; FNMAT has a 200k 30-day average volume which is 10x that of FNMAJ (20k), while FNMAI (9k) is much closer to FNMAJ than FNMAJ is to FNMAT.

 

FNMAS volume, of course, is another order of magnitude higher at 1.5M per day. I have been leaving it out of the linear regression to try and eliminate the volume effect, but I don't know enough about the effect of liquidity to know if this is valid. Perhaps a two-dimensional regression using coupon and liquidity to predict share price is in order. In that case I would need one more set of data (other than just prices) to get a unique solution.

 

The trend line has been flattening out recently. The original point of tracking this was to see if the pref prices (as a % of par) could be split into the price based on liquidation preference and that of coupon anticipation. A steeper line would mean that the market places a higher probability on dividends eventually being reinstated. I'm not sure if this premise is correct but I have been tracking it anyway.

Interesting. Thank you!

[investorG]

There was an article on benzinga where some fund manager was discussing possible conversion scenarios.  He was modelling the jr prefs converting at 50%, 75% and 100% of par into shares.  I am not even going to bother referencing the article as there wasnt much too it.  However is there any justification for conversion at less than par.  I was under the impression that the AIG conversion happened at par so thought we would get that here too, assuming things even go that way.

 

while it's possible they could severely cram down common to levels below current values while giving par to preferreds, imo this would fail a test of common decency and fairness.  if it occurs, this restructuring would happen 10 years post crisis, unlike AIG and the others which were heat of the moment deals.  also, the market cap of the outstanding common holders is sub-$5bn, it's not like there's a ton of value to squeeze from them.  imo common has been unfairly penalized relative to preferred in recent days.

 

[no_free_lunch]

Yes thanks Midas. 

 

I am in FNMAJ, seems to have a good balance between discount to par and yield.  FNMAO (amongst others) is very tempting as it will probably just be a conversion to common so might as well get the most upside.  I hold FNMAJ just in case something crazy happens and they turn the divvies on, seems like a good compromise.  Have by no means done extensive research as Midas has, so open to suggestions on this.  I am also at a positions size where liquidity is not an issue.

[HalfMeasure]

There was an article on benzinga where some fund manager was discussing possible conversion scenarios.  He was modelling the jr prefs converting at 50%, 75% and 100% of par into shares.  I am not even going to bother referencing the article as there wasnt much too it.  However is there any justification for conversion at less than par.  I was under the impression that the AIG conversion happened at par so thought we would get that here too, assuming things even go that way.

 

while it's possible they could severely cram down common to levels below current values while giving par to preferreds, imo this would fail a test of common decency and fairness.  if it occurs, this restructuring would happen 10 years post crisis, unlike AIG and the others which were heat of the moment deals.  also, the market cap of the outstanding common holders is sub-$5bn, it's not like there's a ton of value to squeeze from them.  imo common has been unfairly penalized relative to preferred in recent days.

 

Regardless of moral compass around "decency and fairness", isn't it just the priority in claims?

[investorG]

There was an article on benzinga where some fund manager was discussing possible conversion scenarios.  He was modelling the jr prefs converting at 50%, 75% and 100% of par into shares.  I am not even going to bother referencing the article as there wasnt much too it.  However is there any justification for conversion at less than par.  I was under the impression that the AIG conversion happened at par so thought we would get that here too, assuming things even go that way.

 

while it's possible they could severely cram down common to levels below current values while giving par to preferreds, imo this would fail a test of common decency and fairness.  if it occurs, this restructuring would happen 10 years post crisis, unlike AIG and the others which were heat of the moment deals.  also, the market cap of the outstanding common holders is sub-$5bn, it's not like there's a ton of value to squeeze from them.  imo common has been unfairly penalized relative to preferred in recent days.

 

Regardless of moral compass around "decency and fairness", isn't it just the priority in claims?

 

yes, if there's a formal liquidation.  a lot of investors are hoping for something besides this.  but even in the event of a liquidation waterfall, what are the odds there are proceeds to pay jr preferreds @ full par while leaving 0 for common -- possible but not easy to pull off imo.

[rros]

There was an article on benzinga where some fund manager was discussing possible conversion scenarios.  He was modelling the jr prefs converting at 50%, 75% and 100% of par into shares.  I am not even going to bother referencing the article as there wasnt much too it.  However is there any justification for conversion at less than par.  I was under the impression that the AIG conversion happened at par so thought we would get that here too, assuming things even go that way.

 

while it's possible they could severely cram down common to levels below current values while giving par to preferreds, imo this would fail a test of common decency and fairness.  if it occurs, this restructuring would happen 10 years post crisis, unlike AIG and the others which were heat of the moment deals.  also, the market cap of the outstanding common holders is sub-$5bn, it's not like there's a ton of value to squeeze from them.  imo common has been unfairly penalized relative to preferred in recent days.

 

Regardless of moral compass around "decency and fairness", isn't it just the priority in claims?

 

yes, if there's a formal liquidation.  a lot of investors are hoping for something besides this.  but even in the event of a liquidation waterfall, what are the odds there are proceeds to pay jr preferreds @ full par while leaving 0 for common -- possible but not easy to pull off imo.

In WAMUs bankruptcy common got zippo. Preferreds, in comparison, did much better. Actually, we commoners got millions of worthless units of a litigation trust. Maybe one day the units will bitcoin themselves and we will become trillionaries. I have 900k of those. As for the waterfall, it has been looking almost about to reach commons... for the last 9 years. We were considered despicable by J. Dimon.

[investorG]

There was an article on benzinga where some fund manager was discussing possible conversion scenarios.  He was modelling the jr prefs converting at 50%, 75% and 100% of par into shares.  I am not even going to bother referencing the article as there wasnt much too it.  However is there any justification for conversion at less than par.  I was under the impression that the AIG conversion happened at par so thought we would get that here too, assuming things even go that way.

 

while it's possible they could severely cram down common to levels below current values while giving par to preferreds, imo this would fail a test of common decency and fairness.  if it occurs, this restructuring would happen 10 years post crisis, unlike AIG and the others which were heat of the moment deals.  also, the market cap of the outstanding common holders is sub-$5bn, it's not like there's a ton of value to squeeze from them.  imo common has been unfairly penalized relative to preferred in recent days.

 

Regardless of moral compass around "decency and fairness", isn't it just the priority in claims?

 

yes, if there's a formal liquidation.  a lot of investors are hoping for something besides this.  but even in the event of a liquidation waterfall, what are the odds there are proceeds to pay jr preferreds @ full par while leaving 0 for common -- possible but not easy to pull off imo.

In WAMUs bankruptcy common got zippo. Preferreds, in comparison, did much better. Actually, we commoners got millions of worthless units of a litigation trust. Maybe one day the units will bitcoin themselves and we will become trillionaries. I have 900k of those. As for the waterfall, it has been looking almost about to reach commons... for the last 9 years. We were considered despicable by J. Dimon.

 

I guess it just comes down to -- if we get a positive outcome -- do you believe in a moelis - blackstone type plan or the benziga article plan.

[rros]

There was an article on benzinga where some fund manager was discussing possible conversion scenarios.  He was modelling the jr prefs converting at 50%, 75% and 100% of par into shares.  I am not even going to bother referencing the article as there wasnt much too it.  However is there any justification for conversion at less than par.  I was under the impression that the AIG conversion happened at par so thought we would get that here too, assuming things even go that way.

 

while it's possible they could severely cram down common to levels below current values while giving par to preferreds, imo this would fail a test of common decency and fairness.  if it occurs, this restructuring would happen 10 years post crisis, unlike AIG and the others which were heat of the moment deals.  also, the market cap of the outstanding common holders is sub-$5bn, it's not like there's a ton of value to squeeze from them.  imo common has been unfairly penalized relative to preferred in recent days.

 

Regardless of moral compass around "decency and fairness", isn't it just the priority in claims?

 

yes, if there's a formal liquidation.  a lot of investors are hoping for something besides this.  but even in the event of a liquidation waterfall, what are the odds there are proceeds to pay jr preferreds @ full par while leaving 0 for common -- possible but not easy to pull off imo.

In WAMUs bankruptcy common got zippo. Preferreds, in comparison, did much better. Actually, we commoners got millions of worthless units of a litigation trust. Maybe one day the units will bitcoin themselves and we will become trillionaries. I have 900k of those. As for the waterfall, it has been looking almost about to reach commons... for the last 9 years. We were considered despicable by J. Dimon.

 

I guess it just comes down to -- if we get a positive outcome -- do you believe in a moelis - blackstone type plan or the benziga article plan.

Yes, to positive outcome... and the one that makes Trump the most money.

 

I can't get Mnuchin's quote out of my head when in the middle of an interview he said something like ..."oh, he knows how to and he loves making money. Tons of it. Believe me!" referring to Trump.

[Guest cherzeca]

@rros

 

this gets to the whole notion of trump as businessman rather than politician.  trump is not looking to make friends with banks like a politician (cf corker). he just wants to do politics in a way that makes business sense.  if this mindset prevails in GSE reform, then you will see something along the lines of moelis blueprint imo. all fellow traveller proposals were contorted in ways that didnt make business sense (but made sense if you wanted to be a banker's friend)

[rros]

@rros

 

this gets to the whole notion of trump as businessman rather than politician.  trump is not looking to make friends with banks like a politician (cf corker). he just wants to do politics in a way that makes business sense.  if this mindset prevails in GSE reform, then you will see something along the lines of moelis blueprint imo. all fellow traveller proposals were contorted in ways that didnt make business sense (but made sense if you wanted to be a banker's friend)

exactly!

[rros]

So Alex Pollock is basically calling for exercising warrants now, first thing, before anything else making Treasury whole, a SIFI designation, placing a paid-for gov guarantee and retiring the Srs. and rebuilding capital. All, pressumably, within 1 quarter. Or maybe 1 week who knows. Then, reform? What reform?

 

When Fannie and Freddie are making a fair payment for their de facto government guarantee, have become formally designated and regulated as SIFIs, and have reached the 10% Moment, Treasury should agree that its senior preferred stock has been fully retired.

https://www.americanbanker.com/opinion/time-to-reform-fannie-and-freddie-is-now

[Midas79]

So Alex Pollock is basically calling for exercising warrants now, first thing, before anything else making Treasury whole, a SIFI designation, placing a paid-for gov guarantee and retiring the Srs. and rebuilding capital. All, pressumably, within 1 quarter. Or maybe 1 week who knows. Then, reform? What reform?

 

When Fannie and Freddie are making a fair payment for their de facto government guarantee, have become formally designated and regulated as SIFIs, and have reached the 10% Moment, Treasury should agree that its senior preferred stock has been fully retired.

https://www.americanbanker.com/opinion/time-to-reform-fannie-and-freddie-is-now

 

There are many things that have to happen for Fannie and Freddie to get out of government control:

• Decide the fate of the senior preferred stock
  
• Decide the fate of the warrants
  
• Come up with a capital target and a plan for how to get there
  
• Release the companies from conservatorship or create binding criteria for it (e.g. reaching said capital target)
  
• Settle the lawsuits
  
• Optional: offer a conversion from junior preferred to common
  

 

I believe that all of these things need to happen basically simultaneously. Capital will be hard to raise with the uncertainty from the seniors and warrants, and junior pref holders won't accept a conversion offer without all the other details being worked out.

 

None of this requires Congress either.

[onyx1]

I believe that any conversion to common would have to be voluntary given that a bad offer would be against the interest of shareholders and would need 2/3 agreement as per the circular. Though I didn't find that language in Freddie prefs, only Fannie.

 

Midas79, why do you believe this?

 

Here is language from FMCCT/FMCCS and FMCKJ:

 

Amendments

Without the consent of the holders of the Preferred Stock, we will have the right to amend the

Certifcate of Designation to cure any ambiguity, to correct or supplement any term which may be

defective or inconsistent with any other term or to make any other provisions so long as the

amendment does not materially and adversely affect the interests of the holders of the Preferred

Stock. Otherwise, we may amend the Certificate of Designation only with the consent of the holders

of at least two-thirds of the outstanding shares of Preferred Stock. On matters requiring consent,

each holder will be entitled to one vote per share.

 

Am I missing something?

 

 

 

[Midas79]

I believe that any conversion to common would have to be voluntary given that a bad offer would be against the interest of shareholders and would need 2/3 agreement as per the circular. Though I didn't find that language in Freddie prefs, only Fannie.

 

Midas79, why do you believe this?

 

Here is language from FMCCT/FMCCS and FMCKJ:

 

Amendments

Without the consent of the holders of the Preferred Stock, we will have the right to amend the

Certifcate of Designation to cure any ambiguity, to correct or supplement any term which may be

defective or inconsistent with any other term or to make any other provisions so long as the

amendment does not materially and adversely affect the interests of the holders of the Preferred

Stock. Otherwise, we may amend the Certificate of Designation only with the consent of the holders

of at least two-thirds of the outstanding shares of Preferred Stock. On matters requiring consent,

each holder will be entitled to one vote per share.

 

Am I missing something?

 

Thanks for finding that. It must have been a pretty bad oversight on my part, though I thought I had checked the Freddie circulars. I am seeing the same language that you posted. Here is the post I made about this a while back:

 

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/fnma-and-fmcc-preferreds-in-search-of-the-elusive-10-bagger/msg289728/#msg289728

 

I had read the "A" pages at the end of the circulars and not the ones at the beginning. My apologies for not being thorough enough and potentially misleading people.

 

The language thing was only ever a tiebreaker for me and I am glad to see that it is moot. I will more freely switch between Fannie and Freddie series from now on. Fannie might still get a slight preference because if a conversion to common is based on par values, Fannie commons are worth slightly more than Freddie commons, but even that could change in the course of the restructuring.