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

[Luke 532]

Seems stronger support than some believe...

https://twitter.com/ks_lyons/status/954055477352108033

Lylac Realty, LLC @ks_lyons

Craig Phillips "no allergic reaction" to anything Watt suggested, "agree substantially" with his view.

 

This isn't explicitly confirming a punt to 2019. "Not sure" is uncertainty, not an explicit statement...

Tim Howard comments below.

...mortgage reform... Mnuchin saying to Bloomberg on March 8, “I’m not sure that's something we’ll get done this summer before the election.”

 

I appreciate the healthy pessimism but much if it seems to be overstated.

[rros]

A little tweak is what I also envision. Nothing that may get on the way of real legislation down the road. Of course, that little Neil Armstrong moment of a small step for a man will be a giant leap to us.

[Guest cherzeca]

inertia is the greatest force in the universe.  change is harder than no change.  while the only change that seems to me to be doable is some form of rehabilitation of GSEs, it is hard to see what will be the triggering event for that change.

 

there will be no change/reform until there is a court decision, or there is some new political event.  that event could be congressional democratic majorities (more likely in house) or a potus decision to create a GSE common stock sales proceeds kitty. or something else.

 

i know i am an outlier, but i still like the constitutional claims only now being litigated

 

 

[rros]

Yen is at a critical juncture this moth and this quarter. Same juncture it was in 4Q07. Back then yen crossed over its 34/13 monthly averages and remained in state of alert for 2 quarters before a full financial crisis developed and yen skyrocketed. April/May/June may show similar path -plus state of alert for 2 quarters- with a full blown crisis at the start of 2019. Yen is important because Japan is one of the largest creditors with enormous foreign investments. Japan has -roughly- overseas assets of 8 trillion and debt of 5 trillion. Meaning, in a full blown world crisis, Japan might be the only country who has the means to pay its debts. World smelling fishy? Money flies into the yen in droves. Gold picks on the yen alert and starts to rally as well. We are seeing an indecisive prelude to a potentially bigger crisis.

 

On a narrow money basis all points to a bad year for equities. Narrow money, as in strictly household deposits (not M1 or M3), has a superior track record in anticipating GDP globally. It now stands at a substantial decline in GDP in the UK, France and Spain with very bad prospects for China and the US. Germany is in the doldrums. What's more important. This will come as a shock.

 

I may also be the outlier here thinking that by the summer markets will look horrible and Trump will desperately reach into the 100 bill tin jar.

[rros]

I am so confident I just purchased a bunch of fnma for the first time since my investment in preferreds in 2010 (which I still hold half).

 

And don't sell your preferreds. They are great value here.

[Guest cherzeca]

I am so confident I just purchased a bunch of fnma for the first time since my investment in preferreds in 2010 (which I still hold half).

 

And don't sell your preferreds. They are great value here.

 

oh so you are the reason the common is up >10%....

[rros]

I am so confident I just purchased a bunch of fnma for the first time since my investment in preferreds in 2010 (which I still hold half).

 

And don't sell your preferreds. They are great value here.

 

oh so you are the reason the common is up >10%....

lol price may be up 10% but I am only up 3%. I bought at $1.50/1. This is oversold as much as January 20th, 2016. Two years ago! Maybe a technical bounce with machines buying. Who knows.

[Guest cherzeca]

strange machine that would trigger a buy on something as hairy as fnma

[blackcoffee]

 

Thoughts?

[Midas79]

Is this the Fairholme reply that was filed under seal? If so, was it recently unsealed or did I just miss it completely?

 

http://www.gselinks.com/Court_Filings/Fairholme/13-cv-01053-0076.pdf

[Sunrider]

Is this the Fairholme reply that was filed under seal? If so, was it recently unsealed or did I just miss it completely?

 

http://www.gselinks.com/Court_Filings/Fairholme/13-cv-01053-0076.pdf

 

Hmmm .. i defer to the experts but the arguments about inability to amend terms for classes of shares under Delaware law in combination with Treasury/FHA's assertion that it was just that (p. 19) seems new to me and would be yet another angle of attack in a Delaware case?

 

[rros]

 

Thoughts?

Once congressmen get over the bucket of cold water and get used to this, may there be more transfers?

[Guest cherzeca]

Is this the Fairholme reply that was filed under seal? If so, was it recently unsealed or did I just miss it completely?

 

http://www.gselinks.com/Court_Filings/Fairholme/13-cv-01053-0076.pdf

 

Hmmm .. i defer to the experts but the arguments about inability to amend terms for classes of shares under Delaware law in combination with Treasury/FHA's assertion that it was just that (p. 19) seems new to me and would be yet another angle of attack in a Delaware case?

 

yes, this is the crux of fairholme's claim: 

 

" Furthermore, where an amendment to the certificate of incorporation [the NWS] would “affect” a particular subset [junior prefs] of shareholders “adversely,” those shareholders have the right to vote on the amendment

as a class “whether or not entitled to vote thereon by the certificate of incorporation.” DEL.

CODE tit. 8, § 242(b) (emphasis added); see Orban v. Field, 1993 WL 547187, at *8 (Del. Ch. Dec.

30, 1993). The Delaware Legislature’s decision to distinguish between issuing new shares and

amending existing shares makes sense. While Boards of Directors sometimes need to act quickly

to raise capital by issuing new shares at a market price, there is seldom need to swiftly amend the

terms of existing shares. Moreover, amendments to shares the corporation has already issued are

far more likely to involve self-dealing—a fact that this case illustrates."

 

the problem here?  lambreth is a crusty dc fed district court judge who knows jack about delaware corp law.  he should really certifiy certain questions to the delaware supreme court for advisory opinion. 

[Midas79]

Is this the Fairholme reply that was filed under seal? If so, was it recently unsealed or did I just miss it completely?

 

http://www.gselinks.com/Court_Filings/Fairholme/13-cv-01053-0076.pdf

 

Hmmm .. i defer to the experts but the arguments about inability to amend terms for classes of shares under Delaware law in combination with Treasury/FHA's assertion that it was just that (p. 19) seems new to me and would be yet another angle of attack in a Delaware case?

 

yes, this is the crux of fairholme's claim: 

 

" Furthermore, where an amendment to the certificate of incorporation [the NWS] would “affect” a particular subset [junior prefs] of shareholders “adversely,” those shareholders have the right to vote on the amendment

as a class “whether or not entitled to vote thereon by the certificate of incorporation.” DEL.

CODE tit. 8, § 242(b) (emphasis added); see Orban v. Field, 1993 WL 547187, at *8 (Del. Ch. Dec.

30, 1993). The Delaware Legislature’s decision to distinguish between issuing new shares and

amending existing shares makes sense. While Boards of Directors sometimes need to act quickly

to raise capital by issuing new shares at a market price, there is seldom need to swiftly amend the

terms of existing shares. Moreover, amendments to shares the corporation has already issued are

far more likely to involve self-dealing—a fact that this case illustrates."

 

the problem here?  lambreth is a crusty dc fed district court judge who knows jack about delaware corp law.  he should really certifiy certain questions to the delaware supreme court for advisory opinion.

 

How does this argument get past FHFA assuming all rights of shareholders and therefore voting on it as such? Or is this exactly the "self-dealing" they describe, with FHFA (as shareholder) voting to approve FHFA's (as board of directors) decision?

[Guest cherzeca]

@midas

 

one cant predict what lambreth might do. but P's argument is that this is a direct claim, which survives conservatorship, that NWS violates junior prefs' contractual rights under delaware corp law (amendment to senior certif of designation adversely junior pref w/o junior pref vote as required under delaware law).  dc circuit said direct claims survive and that Ps can sue for anticipatory breach....meaning Ps dont have to wait until liquidation to show they have been denied their liquidation rights.

[muscleman]

https://www.wsj.com/articles/trump-to-nominate-justin-muzinich-to-deputy-treasury-secretary-post-1522709551

 

Does anyone know anything about this guy? I googled and found the only thing is that he helped with tax reform.

[SnarkyPuppy]

https://www.wsj.com/articles/trump-to-nominate-justin-muzinich-to-deputy-treasury-secretary-post-1522709551

 

Does anyone know anything about this guy? I googled and found the only thing is that he helped with tax reform.

 

I was googling around this morning and didn't find anything housing related either.  This interview looks interesting though (only skimmed through it for GSE stuff so far) - https://www8.gsb.columbia.edu/valueinvesting/sites/valueinvesting/files/Graham%20%26%20Doddsville%20-%20Issue%2020%20-%20Winter%202014.pdf

[TonyG]

https://www.wsj.com/articles/ackermans-take-fannie-freddie-deal-unlikely-this-year-1522752047

 

anyone with a wsj pro subscription wanna post this article?

[blackcoffee]

Coincidence?

https://howardonmortgagefinance.com/2018/03/21/the-state-of-the-debate/comment-page-1/#comment-6336

[DocSnowball]

The entire post is saddening to read. If the companies are being steadily weakened over time, this turns into a one off gamble rather than a long term investment where they dominate the market after release from conservatorship. Hard to say how much of what he writes is true wrt CRT - maybe someone who has competence in that area can comment. Do Fannie and Freddie make money by selling CRTs? If yes, then aren't they transforming into a platform for secondary mortgage, which is not a bad thing long term if they are derisking themselves and acting more like a marketplace. Or does the risk still stay with them and only the profit margin shrinks?

[blackcoffee]

The entire post is saddening to read. If the companies are being steadily weakened over time, this turns into a one off gamble rather than a long term investment where they dominate the market after release from conservatorship. Hard to say how much of what he writes is true wrt CRT - maybe someone who has competence in that area can comment. Do Fannie and Freddie make money by selling CRTs? If yes, then aren't they transforming into a platform for secondary mortgage, which is not a bad thing long term if they are derisking themselves and acting more like a marketplace. Or does the risk still stay with them and only the profit margin shrinks?

 

Hey it's me - someone who understands how CRTs work - turns out they don't really.

 

They are essentially giving money away to their buyers at risk premiums that do not align with the risk actually being taken, which of course is up for debate on how you model it (by design), but the former CFO of one of the companies now issuing them wouldn't be doing so if he were still in charge because, as he notes, you're giving away too much $ for the amount of risk being mitigated.

 

The problem is that no one can tell because the market has only been going up. As Rosner et al have noted - CRTs are counter-cyclical.

 

Meaning that when the cycle enters a downturn no one who is currently buying them will continue to do so. So then all the risk will flow back to the GSEs and they will have already given away the amount of capital they should have kept in the equity position (the set up pre-conservitorship) but since these guys are all self serving frauds that were put in by all the people trying to cover this up and give the market to the banks, they go along with it because the need to get paid too.

 

And if they're willing to strong arm the BoD in 2008 into essentially a mob loan, what's to stop them from pressuring their current mgmt (who was replaced by the frauds) to do whatever they want. Which will further work to their ends of blaming the GSEs for privatized losses in the future when no one buys the CRTs in a downturn thus giving the gov't (but really the banks) ever more ammo to claim that the GSEs are a failed biz model or whatever horseshit they're going to say. And most people, including the politicians won't know it or won't admit they know it because they're getting paid too.

 

So yeah they're a scam and the people buying it won't say it becuase they know they're getting paid and the people selling it want the GSEs to fail long term so they're pushing it hard.

 

And no one anywhere is scrutinizing it because all the 'research' on it is coming from where? oh right the banks selling them.

 

So la la la the fraud continues.

 

Have a nice day.

 

 

 

[SnarkyPuppy]

Just to be fair - the people you are relying on (Rosner and Howard) stand to benefit monetarily from a recap release/moelis scenario.  That doesn't necessarily discredit any of the above but it's important to understand incentives, conflicts of interest, and human bias.

[SnarkyPuppy]

You sound like Carney.

 

Just to be fair - the people you are relying on (Rosner and Howard) stand to benefit monetarily from a recap release/moelis scenario.  That doesn't necessarily discredit any of the above but it's important to understand incentives, conflicts of interest, and human bias.

 

You sound like the losing team complaining about the ref.

[SnarkyPuppy]

I was digging around to get more information on the RNC proposal from last year.  An article on a separate RNC proposal (https://www.politico.com/story/2017/08/25/rnc-gop-anti-kkk-resolution-hate-groups-charlottesville-242037) states that:

"But the move by the GOP’s official political arm — signed off on by the White House ahead of time — underscores the level of concern within the party over Trump’s comments on the protests and the impact they could have on the party heading into the 2018 midterm election."

Is this standard protocol for RNC Resolutions?  The presumption is that the White House signed off on the GSE Resolution.  Also interestingly, the RNC chair and other key members of the RNC (e.g. Todd Rickets- Finance Chair) were directly appointed by Trump.  I didn't know that (maybe obvious to others).  The GSE Resolution states that the Resolution is owned by the RNC 'Paid for by the "Republican National Committee"'.

 

Has anyone looked into this before I spend more time on it?  I don't see anything at first glance of the RNC rules (https://s3.amazonaws.com/prod-static-ngop-pbl/docs/Rules_of_the_Republican+Party_FINAL_S14090314.pdf)

[Spekulatius]

The entire post is saddening to read. If the companies are being steadily weakened over time, this turns into a one off gamble rather than a long term investment where they dominate the market after release from conservatorship. Hard to say how much of what he writes is true wrt CRT - maybe someone who has competence in that area can comment. Do Fannie and Freddie make money by selling CRTs? If yes, then aren't they transforming into a platform for secondary mortgage, which is not a bad thing long term if they are derisking themselves and acting more like a marketplace. Or does the risk still stay with them and only the profit margin shrinks?

.

 

Hey it's me - someone who understands how CRTs work - turns out they don't really.

 

They are essentially giving money away to their buyers at risk premiums that do not align with the risk actually being taken, which of course is up for debate on how you model it (by design), but the former CFO of one of the companies now issuing them wouldn't be doing so if he were still in charge because, as he notes, you're giving away too much $ for the amount of risk being mitigated.

 

The problem is that no one can tell because the market has only been going up. As Rosner et al have noted - CRTs are counter-cyclical.

 

Meaning that when the cycle enters a downturn no one who is currently buying them will continue to do so. So then all the risk will flow back to the GSEs and they will have already given away the amount of capital they should have kept in the equity position (the set up pre-conservitorship) but since these guys are all self serving frauds that were put in by all the people trying to cover this up and give the market to the banks, they go along with it because the need to get paid too.

 

And if they're willing to strong arm the BoD in 2008 into essentially a mob loan, what's to stop them from pressuring their current mgmt (who was replaced by the frauds) to do whatever they want. Which will further work to their ends of blaming the GSEs for privatized losses in the future when no one buys the CRTs in a downturn thus giving the gov't (but really the banks) ever more ammo to claim that the GSEs are a failed biz model or whatever horseshit they're going to say. And most people, including the politicians won't know it or won't admit they know it because they're getting paid too.

 

So yeah they're a scam and the people buying it won't say it becuase they know they're getting paid and the people selling it want the GSEs to fail long term so they're pushing it hard.

 

And no one anywhere is scrutinizing it because all the 'research' on it is coming from where? oh right the banks selling them.

 

So la la la the fraud continues.

 

Have a nice day.

 

I think the GSE’s work better under conversatorship than as private or private public enterprises. Their capital levels (essentially zero right now) don’t matter and if they make losses in a downturn, they have an infinite credit line from the Fed that they can rely on. So there can’t be a run in the bank. Problem solved. Keep things exactly the way they are, in this case the limbo status is the best case scenario for all stakeholders, except the shareholders of old of course