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

[allnatural]

Thank you. Seems like a wall would fall under national security. But what about infrastructure?

 

"joshua rosner

‏

Does @POTUS @realDonaldTrump realize he has over $$$100-billion in unexercised value in the #GSEs which could immediately fund both the Wall and changes to high-risk and pre-existing illness pool? #Obamacare #BorderWall @MickMulvaneyOMB, @stevenmnuchin1, @MarkCalabria"

[rros]

Thank you. Seems like a wall would fall under national security. But what about infrastructure?

 

"joshua rosner

‏

Does @POTUS @realDonaldTrump realize he has over $$$100-billion in unexercised value in the #GSEs which could immediately fund both the Wall and changes to high-risk and pre-existing illness pool? #Obamacare #BorderWall @MickMulvaneyOMB, @stevenmnuchin1, @MarkCalabria"

I am of a different view here. The 100 +/- billion/warrants are actually taxpayers' money. Meaning, it is everybody's money. It might be misguided to use this for something that has become so contentious and is not even fully supported by one party, let alone both. Even if it somehow falls within the national security universe... Truth is this is only Trump's idea and it might be a mistake to act as if the money belongs to him. While if he gets funding from Congress he tacitly gets everybody on board.

[rros]

Mnuchin Hints at Fannie-Freddie Changes to End Federal Control

 

“There are changes we will be able to make with a new director at the FHFA,” Mnuchin said.

 

https://www.bloomberg.com/news/articles/2018-12-18/mnuchin-hints-at-fannie-freddie-changes-to-end-federal-control

 

 

Why wait? Have an acting director for as long as you like. DeMarco was there for 4.5 years.

Ah... that was the spark at 3:15pm on all shares.

[no_free_lunch]

I have deja vu.  Not the first time he has hinted.  Probably why the stock and prefs didn't react more.

[Guest cherzeca]

sure seems to take "receivership" out of the equation.  yes, I understand that receivership takes GSEs out of conservatorship as well, but that doesn't seem to be the color he was painting

 

why is confirming Calabria so important?  my guess is that when watt said he wouldn't do anything re recap etc since it was congress' job, he meant it

[Wiggins]

Mnuchin Hints at Fannie-Freddie Changes to End Federal Control

 

“There are changes we will be able to make with a new director at the FHFA,” Mnuchin said.

 

https://www.bloomberg.com/news/articles/2018-12-18/mnuchin-hints-at-fannie-freddie-changes-to-end-federal-control

 

 

Why wait? Have an acting director for as long as you like. DeMarco was there for 4.5 years.

Ah... that was the spark at 3:15pm on all shares.

 

The timbre of Bloomberg seems to have changed a bit. The NWS is an "Obama administration" decision to "hoard" profits. And the prices of the common stock were mentioned. Usually these articles don't even mention that there is stock trading out there. The movement of prices is not rational, down the last few weeks and then up today. They remain woefully depressed given what's coming.

 

[Midas79]

The timbre of Bloomberg seems to have changed a bit. The NWS is an "Obama administration" decision to "hoard" profits. And the prices of the common stock were mentioned. Usually these articles don't even mention that there is stock trading out there. The movement of prices is not rational, down the last few weeks and then up today. They remain woefully depressed given what's coming.

 

Notice that Joe Light didn't write it or contribute.

[Midas79]

“There are changes we will be able to make with a new director at the FHFA,” Mnuchin said.

 

This makes it sound like there were things Mnuchin wanted but Watt stonewalled. I suppose we will soon see what those are, because ostensibly Calabria will be on board with what Mnuchin wants, otherwise Trump would not have picked him.

 

Still, since Calabria has written that the GSEs could survive receivership, then it can be seen to conform to TINA. What is receivership if not a restructuring? One that keeps taxpayers safe because the funding commitment would not transfer to the LLREs.

 

I think the price action has much less to do with what Mnuchin said, because he has said the same thing many times before, and much more about the visibility of Bloomberg.

[rros]

“There are changes we will be able to make with a new director at the FHFA,” Mnuchin said.

 

This makes it sound like there were things Mnuchin wanted but Watt stonewalled. I suppose we will soon see what those are, because ostensibly Calabria will be on board with what Mnuchin wants, otherwise Trump would not have picked him.

 

Still, since Calabria has written that the GSEs could survive receivership, then it can be seen to conform to TINA. What is receivership if not a restructuring? One that keeps taxpayers safe because the funding commitment would not transfer to the LLREs.

 

I think the price action has much less to do with what Mnuchin said, because he has said the same thing many times before, and much more about the visibility of Bloomberg.

Let's not forget Calabria will have 5 full years to work on the companies, through many different Congresses. The immediate needs are capital and taxpayers' protection.

[Guest cherzeca]

@midas

 

"Still, since Calabria has written that the GSEs could survive receivership, then it can be seen to conform to TINA. What is receivership if not a restructuring? One that keeps taxpayers safe because the funding commitment would not transfer to the LLREs."

 

1.  there has never been a liquidation of $5 trillion enterprises before.  do you think Mnuchin wants to have his neck on the line supervising the first?

 

2.  housing market will get the shakes if not convulsions if the liquidation proceeds.  you think trump wants to commit such an unforced error when his cherished scorecard for his performance as potus is the stock market?

 

3.  the liquidation will eliminate tens of billions of dollars of warrant value for the taxpayer.  do you think trump wants to go down in history as the stupidest investor of all time?

 

[Midas79]

1.  there has never been a liquidation of $5 trillion enterprises before.  do you think Mnuchin wants to have his neck on the line supervising the first?

 

2.  housing market will get the shakes if not convulsions if the liquidation proceeds.  you think trump wants to commit such an unforced error when his cherished scorecard for his performance as potus is the stock market?

 

3.  the liquidation will eliminate tens of billions of dollars of warrant value for the taxpayer.  do you think trump wants to go down in history as the stupidest investor of all time?

 

Here is where I got the idea from.

https://www.cato.org/blog/receivership-does-not-end-gses

 

It sounds like there would be little real disruption to the GSEs' business while in receivership, and they could even survive the process if they are reconstituted later. In other words, receivership does not necessarily imply total liquidation. I think this addresses points 1 and 2.

 

As for point 3, FHFA and Treasury could agree to grant Treasury a stake in the reconstituted and released companies in whatever amount they choose. While the existing warrants would die, there's nothing saying that Treasury couldn't get compensation in some other form.

 

What's left is to figure out why they would bother with receivership rather than just recap and release the companies. I believe the answer is in the SPSPA, section 6.2.

https://www.fhfa.gov/Conservatorship/Documents/Senior-Preferred-Stock-Agree/2008-9-26_SPSPA_FannieMae_RestatedAgreement_N508.pdf

 

It says that Treasury's funding commitment, the major source of risk to taxpayers, would not transfer to the LLREs or the companies reconstituted under the charters. This fits with Mnuchin's desire for taxpayer safety.

 

Finally, Mnuchin's desire for "lots of private capital" comes in once the companies are reconstituted under the charters and released from receivership. It ends up being a recap and release, but with a run through receivership put at the beginning. That eliminates all the pesky legacy shareholders.

 

If the Collins case results in a victory, the juniors would get around 50% of par in receivership ($16.2B according to the table at the end of their brief), though it's not evenly split: Fannie prefs would get 37% of par while Freddie prefs would get 65%. If appeals and such drag things out it gets even better: if the companies earn enough money prior to receivership, the juniors could get par and the commons could even get a small recovery.

 

Of course, if the seniors remain outstanding then both the juniors and commons get nothing in receivership.

 

[Guest cherzeca]

"If the Collins case results in a victory, the juniors would get around 50% of par in receivership ($16.2B according to the table at the end of their brief)"

 

the only table I saw at end of collins en banc brief was that dividends have reached the 10% moment.  where do you get a liquidation proceeds figure?

[Midas79]

the only table I saw at end of collins en banc brief was that dividends have reached the 10% moment.  where do you get a liquidation proceeds figure?

 

The dividend calculation appendix, pages 51-54. Fannie's remaining senior liquidation preference after the Q4 2018 payment is -$7.1B, and Freddie's is -$9.1B. I assume that those are the amounts of money due back to the companies if the past NWS payments are recharacterized and the seniors extinguished as the plaintiffs ask for.

 

Fannie's total junior pref par value is $19.1B, so $7.1B represents 37% of that.

Freddie's total junior pref par value is $14.1B, so $9.1B represents 65% of that.

 

If the courts do extinguish the seniors but don't require Treasury to return the overage, we start at zero but gain each quarter.

[Luke 532]

Interesting comments from Tim Howard...

https://howardonmortgagefinance.com/2018/12/03/the-interested-parties-respond/#comment-8603

[Guest cherzeca]

@midas

 

from Calabria's 2012 Cato piece you cited:  "Receivership would not end the GSEs.  The fundamental difference between receivership and the current conservatorship is the ability to impose losses on creditors.  The sole reason that Paulson and crew chose conservatorship was to protect the debt-holders and stick the taxpayer with the tab.  There were options to do otherwise.  "

 

to me this reads as a historical critique looking back at 2008 from 2012.  we can disagree, but this historical hindsight view has no relevance today (since there is no need to impose losses on creditors, and as far as imposing losses on taxpayers, my word the taxpayers have come out covered in glory)

[Guest cherzeca]

the only table I saw at end of collins en banc brief was that dividends have reached the 10% moment.  where do you get a liquidation proceeds figure?

 

The dividend calculation appendix, pages 51-54. Fannie's remaining senior liquidation preference after the Q4 2018 payment is -$7.1B, and Freddie's is -$9.1B. I assume that those are the amounts of money due back to the companies if the past NWS payments are recharacterized and the seniors extinguished as the plaintiffs ask for.

 

Fannie's total junior pref par value is $19.1B, so $7.1B represents 37% of that.

Freddie's total junior pref par value is $14.1B, so $9.1B represents 65% of that.

 

If the courts do extinguish the seniors but don't require Treasury to return the overage, we start at zero but gain each quarter.

 

imo you cant obtain a future liquidation proceeds amount from a current capital amount.  what that liquidation proceeds amount would be is impossible to know since this would be the liquidation to end all liquidations, and wouldn't necessarily tie to a balance sheet capital figure

[Midas79]

to me this reads as a historical critique looking back at 2008 from 2012.  we can disagree, but this historical hindsight view has no relevance today (since there is no need to impose losses on creditors, and as far as imposing losses on taxpayers, my word the taxpayers have come out covered in glory)

 

What concerns me about Calabria's pieces is that if receivership is possible without disrupting the housing finance market (as he seems to believe), he can find a way to do it. He sure does talk about receivership a lot for it being solely a retrospective opinion.

 

I don't think receivership is likely to happen at all, for the record. I just can't shake this feeling that it's still a possibility.

[Guest cherzeca]

to me this reads as a historical critique looking back at 2008 from 2012.  we can disagree, but this historical hindsight view has no relevance today (since there is no need to impose losses on creditors, and as far as imposing losses on taxpayers, my word the taxpayers have come out covered in glory)

 

What concerns me about Calabria's pieces is that if receivership is possible without disrupting the housing finance market (as he seems to believe), he can find a way to do it. He sure does talk about receivership a lot for it being solely a retrospective opinion.

 

I don't think receivership is likely to happen at all, for the record. I just can't shake this feeling that it's still a possibility.

 

I just think receivership in 2019 would be a hard sell to make to Mnuchin

[DRValue]

https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/2019-Scorecard-12192018.pdf

 

2019 scorecard has the gses design access for competitors into the csp.

 

Surely increasing your competitors goes against fiduciary duty. Probably why it's a separate llc. I expect it to be spun off and run independently.

[no_free_lunch]

I dare not have hope on this one but maybe the narrative is starting to change?

 

Newly-amended lawsuits and recently-disclosed documents clearly refute the storyline put out by the authors of a recent op-ed in The Hill.

 

For starters, Ed DeMarco, Douglas Holtz-Eakin, Jim Parrott, Lew Ranieri, Dave Stevens and Mark Zandi state that at the time of their seizures on Sep. 6, 2008, Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) “teetered on the edge of collapse, forcing the Bush and Obama administrations to commit hundreds of billions of taxpayer dollars to keep them operating ...”.

 

Really? If they were in such dire straits, how can the authors explain that just three days prior to the seizures, they had been able to tap the capital markets for $6 billion of unsecured debt in an oversubscribed offering underwritten by a who's who of Wall Street investment banks?

 

Fannie and Freddie were not insolvent at the time of their seizures; to the contrary, they were, under applicable generally accepted accounting principles (GAAP), in full compliance with all capital requirements.

 

https://thehill.com/opinion/finance/421956-fannie-and-freddie-didnt-get-a-bailout-it-was-a-stick-up

[Luke 532]

https://twitter.com/DoNotLose/status/1075548122020044800

Financial Stability Oversight Council 2017:

"Housing finance reform legislation is needed..."

 

Financial Stability Oversight Council 2018:

"Housing finance reform is urgently needed..."

 

"Legislation" is removed.  Reading tea leaves... I know, I know...

 

[Guest cherzeca]

https://twitter.com/DoNotLose/status/1075548122020044800

Financial Stability Oversight Council 2017:

"Housing finance reform legislation is needed..."

 

Financial Stability Oversight Council 2018:

"Housing finance reform is urgently needed..."

 

"Legislation" is removed.  Reading tea leaves... I know, I know...

 

of course Mnuchin and otting are signatories to this fsoc report.  it is an interesting curiosity

[Midas79]

https://twitter.com/DoNotLose/status/1075548122020044800

Financial Stability Oversight Council 2017:

"Housing finance reform legislation is needed..."

 

Financial Stability Oversight Council 2018:

"Housing finance reform is urgently needed..."

 

"Legislation" is removed.  Reading tea leaves... I know, I know...

 

Good find. I still wonder what "reform" they are talking about. A no-frills recap and release doesn't seem like reform to me. I know that the companies have been reformed while in conservatorship, but this language makes me think that Mnuchin and company still believe that they need to make changes, and I can't think of what form those changes could take.

[Guest cherzeca]

https://twitter.com/DoNotLose/status/1075548122020044800

Financial Stability Oversight Council 2017:

"Housing finance reform legislation is needed..."

 

Financial Stability Oversight Council 2018:

"Housing finance reform is urgently needed..."

 

"Legislation" is removed.  Reading tea leaves... I know, I know...

 

Good find. I still wonder what "reform" they are talking about. A no-frills recap and release doesn't seem like reform to me. I know that the companies have been reformed while in conservatorship, but this language makes me think that Mnuchin and company still believe that they need to make changes, and I can't think of what form those changes could take.

 

the 2018 language is “The Enterprises are now into their eleventh year of conservatorship. The Council reaffirms its view that housing finance reform is urgently needed to address the conservatorships, codify existing reforms, and implement a durable and vibrant housing finance system.”

 

the 2017 language was  “Fannie Mae and Freddie Mac are now into their tenth year of conservatorship. The Council acknowledges that, under existing regulatory authorities, federal and state regulators are approaching the limits of their ability to enact regulatory reforms that foster a vibrant, resilient housing finance system. The Council therefore reaffirms its view that housing finance reform legislation is needed to create a more sustainable system.”

 

EDIT:  look again at the 2017 language: “The Council acknowledges that, under existing regulatory authorities, federal and state regulators are approaching the limits of their ability to enact regulatory reforms that foster a vibrant, resilient housing finance system”. in other words, FHFA has done all it can and more is needed…through legislation. 2018 language doesn’t refer to need to go beyond existing regulatory authority, but rather simply “codify” existing reforms already achieved by regulatory authority. codify is a capacious term that certainly includes legislation, but by omitting the word legislation in this context, it would seem to indicate that codify includes fhfa rule making as well.  but what is striking is the retraction of objective...no longer the explicit need to go beyond regulatory authority by means of legislation...that has been incorporated in the 2018 language.

[Luke 532]

Otting it is for Acting FHFA Director... https://publicpool.kinja.com/subject-president-donald-j-trump-announces-intent-to-1831248053/amp?__twitter_impression=true

 

Things are really going to start picking up come early January.