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

[muscleman]

The Russian investigation is wrapped up after two years finally, without this administration's intervention.

Law and order.

If that's the attitude toward the Russian investigations, doesn't this apply to GSE reforms even more? In that case, this administration may be waiting for Collins before they do any real administrative reform?

[allnatural]

Larry McDonald, founder of The Bear Traps Report

 

“It frees him up to focus on infrastructure and housing reform.”

 

https://www.cnbc.com/2019/03/24/heres-a-wrap-of-what-wall-street-investors-think-the-mueller-findings-mean-for-the-stock-market.html

[muscleman]

Larry McDonald, founder of The Bear Traps Report

 

“It frees him up to focus on infrastructure and housing reform.”

 

https://www.cnbc.com/2019/03/24/heres-a-wrap-of-what-wall-street-investors-think-the-mueller-findings-mean-for-the-stock-market.html

 

If the market goes up today, CNBC and WSJ will say, market goes up on Mueller report. If the market goes down today, they will say, markets down on global slowdown concerns.

These articles are beyond junk quality that I don't even use as contrarian indicators.  :)

 

 

 

[rros]

Otting making a big deal of changes coming within 2-4 weeks and then utterly failing to deliver is quite something..

 

mnuchin to date has been weak on housing finance.  however, he's far smarter than me, so in order of likelihood imo:

 

-- otting's comments and leaks were staged to spark congress to act.  this may be working given the document released by crapo and 2 days of hearings upcoming.  mnuchin might really want the paid-for explicit guarantee and perhaps is willing to accept the other stuff like multiple guarantors to try to get it through congress.  the Democrats may just go along if the price is right on their programs.

 

-- otting had his mnuchin nov-2016 moment and the leak blew everything up, back to the drawing board.

 

-- after the collins arguments, mnuchin hit pause to hear the results because the lamberth and sweeney plaintiffs settlement ask requirements might be adjusted / finalized after this specific ruling is announced.

 

-- or something else

 

I'll take something else. 

 

I think mnuchin is the lead dog, Phillips serves to do Mnuchin's housing finance work, and no one other than mnuchin is going to make a decision.  I also think mnuchin has been very busy on tax reform, sanctions, china, federal reserve etc and he simply hasn't had the time...and the GSEs can wait, politically as well as tactically.  no need to rush given that both calabria nomination and collins decision will affect calculus. and if congress ever gets around to where they look like they may agree on something, that's fine as it lowers the temperature for internecine exec/congress squabbling.

 

assuming Calabria is confirmed, collins is something of a positive and congress has hearings that get nowhere, how does this hurt the process if one waits for this to develop?

 

sounds like a lot of excuses.  he has the time for this, or at least to tell phillips what to do/say.  He's not leading for some reason.  Meanwhile, it appears he's sucking up another sweep this quarter which is contrary to his publicly stated priorities.  The longer the wait to start this process, the closer to the election.  It is what it is -- I simply may have misjudged his abilities and/or intentions.

Would you consider the possibility that, just like the REPO market, both Treasury and the Federal Reserve now view the housing finance system as basically nationalized? Not officially, but enough to believe a privatization of Fannie and Freddie is actually a mockery.

[rros]

Prospects For Fannie/Freddie Recapitalization In An Environment Of Political Risk:  An Allegory

 

https://www.dropbox.com/s/3r34frvf1p0hfgp/The%20Set%20Up.docx?dl=0

 

Isn't it amazing that every time there was an admin delay, we say "Now the thesis is back to courts", and every time there was a negative court ruling, we say "Courts don't matter. Now the thesis is back to admin reform"?  ::)

 

With that said, I do think Collins is promising. But we have been wrong all along the way. ::)

Just to add some perspective. My cost basis on the Jrs. is 47 cents or about 2 cents on the dollar. If I were to sell today that would mean 1700% correctness. I would love to be wrong this way only 1 more time in my investing journey.

 

rros, could please you elaborate on how 1700% were achieved? My uncreative mind has been stuck to buy and hold strategy. What made you confident is selling/holding/buying at different periods?

I have never traded this. Only reduced position once when it looked like Hillary Clinton might win. I never rebuilt the position back.

 

There was plenty of online chat on the Jrs. back then, when I bought in 2010. Research indicating there was value here was available. I remember in particular Wayne, who introduced us to the Jrs. with his "Alexander Hamilton" perspective. A blogger from Australia/New Zealand made information available that made sense, fundamentally and mathematically. Banks were unloading massive blocks for nothing, daily. We all thought of a 3 years holding period for a real estate turnaround with the companies cashing in their DTAs and loss provisions. To us, it was naively simple. Maybe that was the red flag we could not see.

 

Sorry to disappoint, no real strategy or trading secrets... luck, maybe. That is, provided this  trade doesn't implode tomorrow... or next month.

 

I don't really have any particular insight to offer. I held through Lamberth while millions disappeared in front of my eyes. And I cried on my son's lap. He was 7 then.

[Guest cherzeca]

nice background rros. 

[orthopa]

https://www.marketwatch.com/story/fannie-freddie-reform-could-rewrite-a-familiar-washington-script-2019-03-25?mod=mw_latestnews

[orthopa]

https://www.banking.senate.gov/hearings/chairmans-housing-reform-outline-part-1

[muscleman]

https://www.banking.senate.gov/hearings/chairmans-housing-reform-outline-part-1

 

Fellow traveller Mark M. Zandi is there to lecture congress.

Is anyone from the pro-GSE side invited?

[SnarkyPuppy]

https://www.marketwatch.com/story/fannie-freddie-reform-could-rewrite-a-familiar-washington-script-2019-03-25

 

"David Dworkin is president and CEO of the National Housing Conference, a nonprofit that advocates for affordable housing. Dworkin sees more nuance in Secretary Mnuchin’s intentions, and is among the very few housing-watchers in Washington who believe GSE reform is going to happen.

 

“We have the first treasury secretary in American history who has professional experience running portions of the mortgage markets,” Dworkin said. “He appreciates their value and is highly committed to not leaving Treasury with the GSEs still in conservatorship.”

 

But Dworkin interpreted the exchange as the introduction of a blueprint for how the administration could work in concert with Congress to get reform done.

 

“They’re really telling us that if Congress doesn’t act, the administration has enormous powers, but that it’s better if they act together,” Dworkin said. “We’re beginning to see, with the nomination of Mark Calabria as FHFA director, and the actions and statements made by acting FHFA Director Otting, the beginning of this process unfolding.”

 

Dworkin envisions reform unfolding in what he calls a “dual-track” approach, with the Administration and Congress goading each other along. And he thinks the outline for what reform looks like is also pretty well established.

 

(The Housing and Economic Recovery Act, which put Fannie and Freddie into conservatorship), “which Calabria helped write, contains 80% of what we need to do to fix Fannie and Freddie,” Dworkin said. “We can make the rest of the changes if we can find agreement that this is the model we need going forward.”

 

Dworkin believes that the next iteration of housing finance is what he calls “HERA-plus.” The “plus” would involve an explicit paid-for government guarantee on mortgage bonds issued by Fannie and Freddie, and stronger powers for the regulator of the two enterprises.

 

Still, as Dworkin put it, “HERA-plus is a good place to be. We don’t really appreciate the changes we made because the crisis evolved so fast. There are some things we missed but we’ve spent 10 years trying to come up with an alternative path to the 30-year fixed-rate mortgage that precludes the GSEs and we have not been able to do it. After 10 years, it’s not unreasonable to say we should go back to first principles, not back to the drawing board.”

 

Having Calabria, someone many Washington-watchers respect for his ability to find common ground on this thorny topic, at the helm of FHFA, could also help ensure this finally gets done, Dworkin thinks.

 

“Sometimes you need a Nixon to go to China and a Paulson to save the banks,” he said. “Calabria could be that person who’s uniquely qualified to find the middle ground on the GSEs.”

 

 

 

https://www.housingwire.com/articles/42307-former-treasury-official-david-dworkin-joins-national-housing-conference-as-ceo

 

The National Housing Conference, a nonprofit fair housing advocate, announced this week it hired David Dworkin to serve as the organization’s new president and CEO.

 

Dworkin comes to NHC from the Department of the Treasury, where he most recently served as a senior housing policy advisor in the Office of Domestic Finance.

 

In this role, Dworkin advised Treasury Secretary Steven Mnuchin’s housing team on “regulatory reform, affordable housing tax credits and modernization of the Community Reinvestment Act.”

 

Dworkin also spent 12 years at Fannie Mae, serving in various roles, including leading community lending partnerships, managing the company’s Hurricane Katrina Task Force and opening and leading the company’s Detroit office.

 

 

https://themreport.com/daily-dose/11-30-2018/looking-for-bipartisan-solutions

 

"Fix What’s Wrong With Our Housing Finance System

 

Leaving Fannie Mae and Freddie Mac in conservatorship is not the answer. The parts of our housing finance system that remain broken can be fixed without creating an entirely new system out of whole cloth that no one will capitalize. “If you build it, they will come,” is not a strategy for repairing nearly one-fifth of the world’s largest economy, it’s a tagline for a movie.

 

Congress will follow if Treasury Secretary Mnuchin leads. America has never had a Treasury Secretary who understands the complexities and opportunities of the housing market as well.  Mnuchin should put together the same kind of nonpartisan and diverse group of housing leaders to consult with and offer a plan for administrative as well as statutory reform that worked well for him with Dodd-Frank Reform"

 

 

https://www.housingwire.com/blogs/1-rewired/post/46096-housing-finance-reform-should-fix-whats-broken

 

During my tenure at the U.S. Treasury Department, I was part of the housing finance reform team under three secretaries and two presidencies. Under the leadership of Dr. Michael Stegman, Antonio Weiss and Craig Phillips, we met with hundreds of experts, read countless papers, and developed three unreleased white papers. We explored the utility model, the Ginnie Plus and half a dozen variations of Corker-Warner and Johnson-Crapo. It was like Policy Wonk Speed Dating: Sit down at the table, have a great conversation, go on a couple of promising dates, learn about some daunting flaws, go back to the table, repeat.

 

The fact is that anyone could redesign our housing finance system on the back of a napkin as long as you don’t care about the long-term, fully-amortizing, pre-payable, fixed-rate mortgage. But if you want a housing finance system that preserves the fundamental element that sets us apart from the rest of the world while providing the only meaningful wealth creation tool available to low- and moderate-income Americans, then it’s going to be an incredibly complex exercise, with enormous transition and counterparty risks and incalculable unintended consequences. Unfortunately, the law of unintended consequences is never repealed.

 

An important first step is allowing Fannie Mae and Freddie Mac to exit conservatorship as private companies with access to a federal guarantee that is paid for rather than implied. We need to finish the work we began in the Housing and Economic Recovery Act of 2008, which made the government rescue of the mortgage market possible. We need to fix what is broken in the current system, not tear it down and hope that if we build a new one it will work for everyone, or at all. Field of Dreams was a great movie, but it is not a viable economic theory; if we build a new system, they won’t come. If they would, investors would be filling the halls of the Capitol insisting on passage of legislation like the Corker-Warner bill that envisions five or more GSEs. It’s not happening.

 

In this market, more competition is not the answer, utility pricing is, and with utility pricing comes rates of return that do not attract capital in a competitive equity market. One alternative would be to have only one GSE, but then you lose the competition over execution that has worked well in the mortgage market. Five years of working at Treasury with some of the smartest people I know has taught me this: Much of what we need in a new system already exists in Fannie Mae and Freddie Mac.

[allnatural]

Great info SnarkyPuppy... Seems like someone who was close to Mnuchin in this admins UST believes they will take action that is in favor of building on the current system and not starting from scratch.

[investorG]

anyone have opinions on today's hearing? it just ended.  I'm guessing the crapo bill will get filled in and pass the committee.  it might even pass the senate.

 

the NAACP man's reaction to Senator Warren's questions suggest that the $5bn raised from the 10bp gfee carveout for affordable housing would likely need to be increased a good bit to get maxine waters' support in the House.

 

imo what the process needs is for mnuchin and calabria (if confirmed) to get out of the dugout and use their big mortgage brains to slice through all the various agendas put forth on twitter, op-eds, and senate panels to move things forward.

 

[allnatural]

Quicker this latest Crapo bill crashes and burns, quicker we can move onto admin taking charge... They won't get any more chances after this.

[investorG]

Quicker this latest Crapo bill crashes and burns, quicker we can move onto admin taking charge... They won't get any more chances after this.

 

one issue though is that if the crapo bill doesn't crash and burn until late this year then with the election a year away does that block out admin reform.  this might be the big bank lobby's strategy.

[allnatural]

It appears he is moving quickly. Outline released and dual hearings all in the last few weeks. Should have final version ready to go in the next 1-2 months i'm guessing.

[Guest cherzeca]

Quicker this latest Crapo bill crashes and burns, quicker we can move onto admin taking charge... They won't get any more chances after this.

 

one issue though is that if the crapo bill doesn't crash and burn until late this year then with the election a year away does that block out admin reform.  this might be the big bank lobby's strategy.

 

@IG, you haven't seen a housing bill make it out of committee and onto the senate floor in years. last committee vote was 13-12 for corker-warner as I recall and it went nowhere. (this is my best recollection, please correct if wrong).  why do you think this two pager gets fleshed into a bill, voted out of committee and then taken to the senate floor for a vote (under circumstances where, unlike before, Ds control house)?

[Guest cherzeca]

It appears he is moving quickly. Outline released and dual hearings all in the last few weeks. Should have final version ready to go in the next 1-2 months i'm guessing.

 

I'll take the other side.  crapo has never been a main proponent of housing legislation even though he chairs committee.  previously corker and Warner, now corker gone and Warner has gone soft...maybe D issues in virgina.  same staff for sure, but I think Crapo's recent action is an intramural showing to administration that he is on the case, then nothing will happen because this is more show than substance....corker was substance

[investorG]

Quicker this latest Crapo bill crashes and burns, quicker we can move onto admin taking charge... They won't get any more chances after this.

 

one issue though is that if the crapo bill doesn't crash and burn until late this year then with the election a year away does that block out admin reform.  this might be the big bank lobby's strategy.

 

@IG, you haven't seen a housing bill make it out of committee and onto the senate floor in years. last committee vote was 13-12 for corker-warner as I recall and it went nowhere. (this is my best recollection, please correct if wrong).  why do you think this two pager gets fleshed into a bill, voted out of committee and then taken to the senate floor for a vote (under circumstances where, unlike before, Ds control house)?

 

I think it will pass committee because the bank lobby is likely telling crapo to do so and - based on watching the hearing - all of the R's will pass it with probably a couple moderate dems like warner and tester.  schatz is fairly smart on the issue and might vote for it too if he gets some things he wants when the outline is filled in.  mendendez, warren, and some others probably won't vote for it. whether it gets a full senate vote, it's more of a guess but once again the bank lobby might pressure mcconnell?

[Midas79]

I think it will pass committee because the bank lobby is likely telling crapo to do so and - based on watching the hearing - all of the R's will pass it with probably a couple moderate dems like warner and tester.  schatz is fairly smart on the issue and might vote for it too if he gets some things he wants when the outline is filled in.  mendendez, warren, and some others probably won't vote for it. whether it gets a full senate vote, it's more of a guess but once again the bank lobby might pressure mcconnell?

 

I hope it never makes it to the Senate floor. Time is of the essence. If the bill barely makes it out of committee with only 1 or 2 Democrat votes, it is dead in the House anyway.

 

Still, I share your fear that if this whole process takes too long, we run into election season and the whole thing gets shelved. Then we have to pray that Trump gets re-elected, and even then he could put it all off until 2023.

[orthopa]

Well....why cant Calabria/Otting stop the sweep and let this reform nonsense die out alongside the recap of capital? As long ago as they were I think this is what Otting maybe have been hinting to in his comments and letter to Maxine Waters.

 

What a pathetic last gasp this is, a show from all of these experts.

[Guest cherzeca]

Well....why cant Calabria/Otting stop the sweep and let this reform nonsense die out alongside the recap of capital? As long ago as they were I think this is what Otting maybe have been hinting to in his comments and letter to Maxine Waters.

 

What a pathetic last gasp this is, a show from all of these experts.

 

I couldn't watch, but prof. levitan addressed this committee in 2011. about explicit guarantee. did they drag him back to make same point 8 years hence?

 

[investorG]

I think it will pass committee because the bank lobby is likely telling crapo to do so and - based on watching the hearing - all of the R's will pass it with probably a couple moderate dems like warner and tester.  schatz is fairly smart on the issue and might vote for it too if he gets some things he wants when the outline is filled in.  mendendez, warren, and some others probably won't vote for it. whether it gets a full senate vote, it's more of a guess but once again the bank lobby might pressure mcconnell?

 

I hope it never makes it to the Senate floor. Time is of the essence. If the bill barely makes it out of committee with only 1 or 2 Democrat votes, it is dead in the House anyway.

 

Still, I share your fear that if this whole process takes too long, we run into election season and the whole thing gets shelved. Then we have to pray that Trump gets re-elected, and even then he could put it all off until 2023.

 

exactly.  each month of delay matters a lot with the election overhang.  my guess is mnuchin is fairly aligned with crapo's outline because he wants to create a lasting and permanent solution that will work through multiple cycles, even if the bill has some warts.  but on the other hand he likely wants to avoid wasting 6 months if the bill's House prospects are dim.  the best solution, then, to me is the dual track of working with congress while building some capital - but the market is saying clearly that the sweep remains intact and so that's that.

[investorG]

Well....why cant Calabria/Otting stop the sweep and let this reform nonsense die out alongside the recap of capital? As long ago as they were I think this is what Otting maybe have been hinting to in his comments and letter to Maxine Waters.

 

What a pathetic last gasp this is, a show from all of these experts.

 

I couldn't watch, but prof. levitan addressed this committee in 2011. about explicit guarantee. did they drag him back to make same point 8 years hence?

 

levitan was solid.  politely warned of the race to the bottom from multiple guarantors and instead proposed merging FnF into a utility with broader credit risk transfers.  however, the republicans, warner, and tester -- easily enough to pass committee -- wanted nothing to do with him and were mostly zandi-demarco.

[Guest cherzeca]

Well....why cant Calabria/Otting stop the sweep and let this reform nonsense die out alongside the recap of capital? As long ago as they were I think this is what Otting maybe have been hinting to in his comments and letter to Maxine Waters.

 

What a pathetic last gasp this is, a show from all of these experts.

 

I couldn't watch, but prof. levitan addressed this committee in 2011. about explicit guarantee. did they drag him back to make same point 8 years hence?

 

 

levitan was solid.  politely warned of the race to the bottom from multiple guarantors and instead proposed merging FnF into a utility with broader credit risk transfers.  however, the republicans, warner, and tester -- easily enough to pass committee -- wanted nothing to do with him and were mostly zandi-demarco.

 

@IG thanks for that color on levitan (a prof I know a bit).  I am not sure the market knows what will happen on 3/31...maybe admin isn't sure yet either

 

EDIT from IMF rag:  "Meanwhile, Georgetown University law professor Adam Levitin basically trashed Crapo’s whole outline, saying a transition to a multi-guarantor model would destroy the current system, which, he argued, is working well.

“I am deeply concerned about the basic direction of the chairman’s housing-finance reform proposal outline,” Levitin said."

 

love it

[orthopa]

Well....why cant Calabria/Otting stop the sweep and let this reform nonsense die out alongside the recap of capital? As long ago as they were I think this is what Otting maybe have been hinting to in his comments and letter to Maxine Waters.

 

What a pathetic last gasp this is, a show from all of these experts.

 

I couldn't watch, but prof. levitan addressed this committee in 2011. about explicit guarantee. did they drag him back to make same point 8 years hence?

 

Dont recall much about explicit guarantee. . He talked mostly about the single guarantor model. If anything all of this chatter by otting seemed to have put congresses' butt in gear.  If sweep is held on 3/31 if anything it would create more urgency and Otting could frame it a step getting FnF out of conservatorship with reform via Congress.