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

[Luke 532]

Slides from FHFA conference call presentation today... https://www.dropbox.com/sh/mc5q0zj28ng6kv0/AAB0eX_JIQGo3WDqZqUHWsSYa?dl=0

[blackcoffee]

Slides from FHFA conference call presentation today... https://www.dropbox.com/sh/mc5q0zj28ng6kv0/AAB0eX_JIQGo3WDqZqUHWsSYa?dl=0

 

so isn't it kinda weird that they just stopped this call 1/2 way thru?

[Luke 532]

Slides from FHFA conference call presentation today... https://www.dropbox.com/sh/mc5q0zj28ng6kv0/AAB0eX_JIQGo3WDqZqUHWsSYa?dl=0

 

so isn't it kinda weird that they just stopped this call 1/2 way thru?

 

Technical difficulties.

[SnarkyPuppy]

Slides from FHFA conference call presentation today... https://www.dropbox.com/sh/mc5q0zj28ng6kv0/AAB0eX_JIQGo3WDqZqUHWsSYa?dl=0

 

so isn't it kinda weird that they just stopped this call 1/2 way thru?

 

That was the UFOs

[DocSnowball]

Slides from FHFA conference call presentation today... https://www.dropbox.com/sh/mc5q0zj28ng6kv0/AAB0eX_JIQGo3WDqZqUHWsSYa?dl=0

 

so isn't it kinda weird that they just stopped this call 1/2 way thru?

 

Technical difficulties.

 

There was no audio, only slides were showing when I logged in

[blackcoffee]

Slides from FHFA conference call presentation today... https://www.dropbox.com/sh/mc5q0zj28ng6kv0/AAB0eX_JIQGo3WDqZqUHWsSYa?dl=0

 

so isn't it kinda weird that they just stopped this call 1/2 way thru?

 

That was the UFOs

 

that's one way to avoid Q&A

[Luke 532]

There was no audio, only slides were showing when I logged in

 

There was audio for most of the presentation if you called the number e-mailed at time of registration.  But the audio got cut off.

[blackcoffee]

There was no audio, only slides were showing when I logged in

 

There was audio for most of the presentation if you called the number e-mailed at time of registration.  But the audio got cut off.

 

the entire call was just ended. They didn't get thru all the slides and thereby avoided any Q&A... wildly transparent stuff.

[Luke 532]

it will really come down to something as simple as someone in trump administration (crusty ole wilbur ross would be perfect) saying, hey, we have a pro-growth agenda, and in a pro-growth agenda, businesses and investors can do well.

 

For what it's worth, seems like Wilbur Ross likes what Mnuchin is doing quite a bit:

Ross on Mnuchin: “I think that when the history of the Trump administration is finally written, the world will recognize that Steven Mnuchin ranks up there with Alexander Hamilton, with Mellon and with the other icons of American Treasury historically."

[Luke 532]

https://www.politico.com/f/?id=00000164-2324-dbdc-a96d-373e4e2a0000

 

Page 17 (and repeated on page 75 nearly word-for-word)

Transform the way the Federal Government delivers support for the U.S. housing finance system to ensure more transparency and accountability to taxpayers, and to minimize the risk of tax payer-funded bailouts, while maintaining responsible and sustainable support for homeowners.  Proposed changes, which would require broader policy and legislative reforms beyond restructuring Federal agencies and programs, include ending the conservatorship of Fannie Mae and Freddie Mac, reducing their role in the housing market, and providing an explicit, limited Federal backstop that is on-budget and apart from the Federal support for low- and moderate-income homebuyers.

 

Page 75 (this part is in addition to the page 17 repeat)

This proposal would reorganize the way the Federal Government delivers mortgage assistance and go beyond restructuring Federal agencies and programs by transitioning Fannie Mae and Freddie Mac to fully private entities.

 

Looks like the document was created on June 6th of this year if you right click and look at document properties.

 

[rros]

https://www.politico.com/f/?id=00000164-2324-dbdc-a96d-373e4e2a0000

 

Page 17 (and repeated on page 75 nearly word-for-word)

Transform the way the Federal Government delivers support for the U.S. housing finance system to ensure more transparency and accountability to taxpayers, and to minimize the risk of tax payer-funded bailouts, while maintaining responsible and sustainable support for homeowners.  Proposed changes, which would require broader policy and legislative reforms beyond restructuring Federal agencies and programs, include ending the conservatorship of Fannie Mae and Freddie Mac, reducing their role in the housing market, and providing an explicit, limited Federal backstop that is on-budget and apart from the Federal support for low- and moderate-income homebuyers.

 

Page 75 (this part is in addition to the page 17 repeat)

This proposal would reorganize the way the Federal Government delivers mortgage assistance and go beyond restructuring Federal agencies and programs by transitioning Fannie Mae and Freddie Mac to fully private entities.

 

Looks like the document was created on June 6th of this year if you right click and look at document properties.

Is this the reason for the spike? Official stance/support by the WH?

[Luke 532]

Is this the reason for the spike? Official stance/support by the WH?

 

Yes.  Share prices were flat/down a little until this hit.  I doubt many people have seen the document yet.  Buckle up.

[Luke 532]

*REPORT CALLS FOR U.S. ENTITY TO OVERSEE FULLY PRIVATE GSES 13:10:16

*GSE PRIVATIZATION WOULD ENABLE COMPETITORS, WHITE HOUSE SAYS 13:10:18

*REPORT URGES EXPLICIT MBS GUARANTEE FOR GSES AND COMPETITORS 13:10:20

*WHITE HOUSE REORGANIZATION PLAN WOULD REMOVE GSES' U.S. CHARTER

 

13:10:22 *FANNIE-FREDDIE FULL PRIVATIZATION URGED IN WHITE HOUSE REPORT 13:10:24 FMCC,FNMA

[Guest cherzeca]

fnmas up 10%

fnma up 2%

 

both on heavy volume.  any thoughts on disparity?

 

my thought is that the "reduce footprint" reference is scaring common.  has anyone seen what WH means by this term?  if it is just reduce FnF's loan portfolio and become a guarantor only, well hell this has already been largely done (about one trillion dollar reduction already since FC)

[HalfMeasure]

fnmas up 10%

fnma up 2%

 

both on heavy volume.  any thoughts on disparity?

 

my thought is that the "reduce footprint" reference is scaring common.  has anyone seen what WH means by this term?  if it is just reduce FnF's loan portfolio and become a guarantor only, well hell this has already been largely done (about one trillion dollar reduction already since FC)

 

Common value depends more on pro-forma business model and the "out years" - i.e. if the reform materially changes the economics of the business model the equity value could shrink. The preferred however are a prior claim - it's hard to see a scenario where the prefs don't get par or very close to it as long as the conservatorship ends.

[Luke 532]

Mulvaney on his plan...

 

"By the direction of @POTUS, we released a plan to make government more effective, efficient and accountable to better serve the American people."

 

[HalfMeasure]

So who are the most important Government stakeholders in everyone's opinion, in terms of a decision on GSE reform? FHFA, OMB, Treasury, anyone else?

[Guest cherzeca]

fnmas up 10%

fnma up 2%

 

both on heavy volume.  any thoughts on disparity?

 

my thought is that the "reduce footprint" reference is scaring common.  has anyone seen what WH means by this term?  if it is just reduce FnF's loan portfolio and become a guarantor only, well hell this has already been largely done (about one trillion dollar reduction already since FC)

 

Common value depends more on pro-forma business model and the "out years" - i.e. if the reform materially changes the economics of the business model the equity value could shrink. The preferred however are a prior claim - it's hard to see a scenario where the prefs don't get par or very close to it as long as the conservatorship ends.

 

agreed, though until one sees how FnF exit conservatorship and builds up capital, it is hard for me to see how common does not do well given current price of  $1.50 and treasury long it as well

[DRValue]

I was very tempted by the common if there are only 2 guarantors, but more than that will mean a race to the bottom on fees and it will only be a matter of time before the big banks capitalise a guarantor and charge rock bottom fees.

 

I hate the idea of multiple guarantors. They're not necessary and risk won't be priced correctly. Imo the best route is 2 guarantors competing on price and heavily regulated to make sure there's no collusion.  Sad!

[Luke 532]

To free Fannie and Freddie, their regulator may bypass do-nothing Congress

https://www.marketwatch.com/story/to-free-fannie-and-freddie-their-regulator-may-bypass-do-nothing-congress-2018-06-21?mod=mw_share_twitter

[Guest cherzeca]

I was very tempted by the common if there are only 2 guarantors, but more than that will mean a race to the bottom on fees and it will only be a matter of time before the big banks capitalise a guarantor and charge rock bottom fees.

 

I hate the idea of multiple guarantors. They're not necessary and risk won't be priced correctly. Imo the best route is 2 guarantors competing on price and heavily regulated to make sure there's no collusion.  Sad!

 

as a policy matter, ending the duopoly makes sense.  as an investor in FnF you would love for the duopoly to continue.

 

but as a PRACTICAL matter I think the risk is way overblown.

 

first if fhfa is going to require >3% capital for FnF, it will require same for new entrants.  which company is going to have a comparative advantage in raising new capital?

 

FnF will remain full fledged business operations in all 50 states (no reference to breakup or transitioning FnF themselves into multiple guarantors) that has shown it is executing on all cylinders lately. bypass investing in FnF for some new startup?...even a startup that is backed by TBTF banks? and a startup which is not owned 80% by treasury which presumably wants to make as much money as possible on this privatization process?

 

if as an investor I am going to invest in one guarantor (and why would I invest in more than one), which would look better to me?

[beaufort]

I would be worried about instant recap as a common holder.  I don't know if that is possible, but that would be the worry re dilution.

 

Businesses in comfortable oligopolies can do very well.  Canadian banks come to mind. 

[DocSnowball]

I was very tempted by the common if there are only 2 guarantors, but more than that will mean a race to the bottom on fees and it will only be a matter of time before the big banks capitalise a guarantor and charge rock bottom fees.

 

I hate the idea of multiple guarantors. They're not necessary and risk won't be priced correctly. Imo the best route is 2 guarantors competing on price and heavily regulated to make sure there's no collusion.  Sad!

 

as a policy matter, ending the duopoly makes sense.  as an investor in FnF you would love for the duopoly to continue.

 

but as a PRACTICAL matter I think the risk is way overblown.

 

first if fhfa is going to require >3% capital for FnF, it will require same for new entrants.  which company is going to have a comparative advantage in raising new capital?

 

FnF will remain full fledged business operations in all 50 states (no reference to breakup or transitioning FnF themselves into multiple guarantors) that has shown it is executing on all cylinders lately. bypass investing in FnF for some new startup?...even a startup that is backed by TBTF banks? and a startup which is not owned 80% by treasury which presumably wants to make as much money as possible on this privatization process?

 

if as an investor I am going to invest in one guarantor (and why would I invest in more than one), which would look better to me?

 

What about a competitor acting more like a platform company using primarily CRT like transactions? That would need a lot less capital if risk based?

[DRValue]

I was very tempted by the common if there are only 2 guarantors, but more than that will mean a race to the bottom on fees and it will only be a matter of time before the big banks capitalise a guarantor and charge rock bottom fees.

 

I hate the idea of multiple guarantors. They're not necessary and risk won't be priced correctly. Imo the best route is 2 guarantors competing on price and heavily regulated to make sure there's no collusion.  Sad!

 

as a policy matter, ending the duopoly makes sense.  as an investor in FnF you would love for the duopoly to continue.

 

but as a PRACTICAL matter I think the risk is way overblown.

 

first if fhfa is going to require >3% capital for FnF, it will require same for new entrants.  which company is going to have a comparative advantage in raising new capital?

 

FnF will remain full fledged business operations in all 50 states (no reference to breakup or transitioning FnF themselves into multiple guarantors) that has shown it is executing on all cylinders lately. bypass investing in FnF for some new startup?...even a startup that is backed by TBTF banks? and a startup which is not owned 80% by treasury which presumably wants to make as much money as possible on this privatization process?

 

if as an investor I am going to invest in one guarantor (and why would I invest in more than one), which would look better to me?

 

We don't know the full details yet in terms of new guarantors, but I think it was Watt (could be bob) that advocated for hindering Fannie and Freddie with higher fees so new guarantors can enter the space with lower fees.

 

It was Watt that advocated for all guarantors to have a national footprint to avoid concentration risk.

That means many smaller Fannie and Freddies to me which is duplication that will increase overall costs to Fannie and Freddie as their market share goes down.

 

Don't get me started with the explicit guarantee....

 

Feels like this has been captured by wall street and won't be best for America.

 

Hopefully small lenders insistence on 2 guarantors max so they don't have to integrate with more companies will swing things back the other way. That and also the argument that they should be merged and fully nationalised could swing the pendulum back to only 2 gses.

 

For now I'm focusing on the preferred again.

[Luke 532]

District Court has declared CFPB unconstitutional.  Up next, FHFA?

 

Edited to add this link: http://www.nysd.uscourts.gov/cases/show.php?db=special&id=634