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

[investorG]

I’d fade the Mnuchin leaving trade. It would basically ruin his reputation to leave at such a critical point, not for housing but trade and trump election, and to break his very public commitments. It is very much in his interests to stick it out for another year

 

unfortunately, mnuchin leaving is a real risk imo.  better for his reputation to leave now if his opinion ends up that trump listening to Navarro over him (and many others) will sink the ship.

 

I believe in the value of the FnF securities, that's why I'm here.  However, frequently in situations like this one, if you ever win, the victory comes when you least expect it - and that doesn't feel like now.  so imo it makes sense to not dismiss any risks.

[orthopa]

https://perspectives.agf.com/a-government-in-paralysis/

"Two of the remaining heavyweights in the Cabinet — Mike Pompeo and Stephen Mnuchin — are thinking of leaving this fall. Pompeo knows that ISIS and the Taliban haven’t been defeated, yet the president wants to disengage. Mnuchin is exasperated on trade, and both are grappling with enormous unfilled vacancies."

 

 

Read earlier this morning that there are rumblings that Mnuchin is thinking of leaving this fall because he is "exasperated on trade". This seems like a real risk IMO since it would most likely serve to dramatically elongate the R&R process, especially if the end to NWS has not been negotiated and announced - new TRSY Sec. would have to get up to speed and might have a very different view than Mnuchin.

 

Anyone with a different view?

 

Where'd you hear that? Thanks in advance.

 

Why are we giving so much credibility to this? Sounds like gossip to me.

[muscleman]

https://perspectives.agf.com/a-government-in-paralysis/

"Two of the remaining heavyweights in the Cabinet — Mike Pompeo and Stephen Mnuchin — are thinking of leaving this fall. Pompeo knows that ISIS and the Taliban haven’t been defeated, yet the president wants to disengage. Mnuchin is exasperated on trade, and both are grappling with enormous unfilled vacancies."

 

 

Read earlier this morning that there are rumblings that Mnuchin is thinking of leaving this fall because he is "exasperated on trade". This seems like a real risk IMO since it would most likely serve to dramatically elongate the R&R process, especially if the end to NWS has not been negotiated and announced - new TRSY Sec. would have to get up to speed and might have a very different view than Mnuchin.

 

Anyone with a different view?

 

Where'd you hear that? Thanks in advance.

 

Why are we giving so much credibility to this? Sounds like gossip to me.

 

Since Trump got elected since 2017, I originally was highly suspicious of the rumors between white house officials and Trump being the fake news trying to make up stories. Unfortunately after two years, I realized that all these fake news rumors regarding each official's conflict with Trump and resignation rumors later turned out to be true. Therefore I think there is a high possibility that Mnuchin is indeed considering this.

 

[muscleman]

I’d fade the Mnuchin leaving trade. It would basically ruin his reputation to leave at such a critical point, not for housing but trade and trump election, and to break his very public commitments. It is very much in his interests to stick it out for another year

 

You have to be careful of "buying low sell high" when you see negative news and stock declines. It can keep going on for a long time. The smart guys have been selling since June. I could guess that someone knows Maloni is such a whack job that he's willing to spread any rumors for free to get famous, so they just fed him the Collins rumor, which pumped the stock to 14, and then they started selling day after day since then.

 

[Midas79]

You have to be careful of "buying low sell high" when you see negative news and stock declines. It can keep going on for a long time. The smart guys have been selling since June. I could guess that someone knows Maloni is such a whack job that he's willing to spread any rumors for free to get famous, so they just fed him the Collins rumor, which pumped the stock to 14, and then they started selling day after day since then.

 

Is every decline of this magnitude and duration attributable to big players trying to get out quietly? At what point can you tell that the trend has reversed? I can see this being plausible but not actionable; things could eventually turn around (we have seen declines like this in the past) and I don't see a way to tell in real time when it has happened.

 

If Maloni is perceived to be such a "whack job", why would his rumor, and apparently only his rumor, have been enough to propel FNMAS to $14 in the first place?

[hardincap]

unfortunately, mnuchin leaving is a real risk imo.  better for his reputation to leave now if his opinion ends up that trump listening to Navarro over him (and many others) will sink the ship.

 

Sure it is a risk, and if it happens it happens and I’ll move on from this trade. I think it’d be silly to sell now based on this rumor.

[muscleman]

You have to be careful of "buying low sell high" when you see negative news and stock declines. It can keep going on for a long time. The smart guys have been selling since June. I could guess that someone knows Maloni is such a whack job that he's willing to spread any rumors for free to get famous, so they just fed him the Collins rumor, which pumped the stock to 14, and then they started selling day after day since then.

 

Is every decline of this magnitude and duration attributable to big players trying to get out quietly? At what point can you tell that the trend has reversed? I can see this being plausible but not actionable; things could eventually turn around (we have seen declines like this in the past) and I don't see a way to tell in real time when it has happened.

 

If Maloni is perceived to be such a "whack job", why would his rumor, and apparently only his rumor, have been enough to propel FNMAS to $14 in the first place?

 

Variant perceptions. Maloni is perceived by me to be a whack job but that doesn’t mean everyone thinks his is a whack job. Look at the day when he posted the Collins rumor and stock jumped. Volume was low that day. Not many believers.

 

I don’t see a bottom yet. I base my decisions on the news flow posted here and my feeling of the chart. I’ll let you know when I think a bottom is in. But honestly I don’t have good skills for bottoms. I spent lots of time studying tops, but not much time on bottoms.

[orthopa]

I’d fade the Mnuchin leaving trade. It would basically ruin his reputation to leave at such a critical point, not for housing but trade and trump election, and to break his very public commitments. It is very much in his interests to stick it out for another year

 

You have to be careful of "buying low sell high" when you see negative news and stock declines. It can keep going on for a long time. The smart guys have been selling since June. I could guess that someone knows Maloni is such a whack job that he's willing to spread any rumors for free to get famous, so they just fed him the Collins rumor, which pumped the stock to 14, and then they started selling day after day since then.

 

This isn't meant as an attack but an independent observation. I know you have mentioned before multiple times that you were not a great fundamental investor which is fine and a great admission. But I cant help to think that it was how you rationalized things, made correlations, and or assumptions that may have been part of the issue. I say this only because to invest based on rumors, baseless assumptions, strong thoughts about people buying or selling when there is nothing to support the assumptions, tweets, blog posts, etc etc is honestly one of the craziest things I have ever heard of.  Some here have thanked you for observations and again of course we are all welcome to our opinion but idea that the price of the GSEs are influenced by nearly criminal market manipulation, irrational share disposables in illiquid securities, and shadow market deals is a little disconnected.

 

I think some of what your describing can occur across the market and has occurred over time in other parts of the market as incentives can be bent that way but the hindsight observations your making here, either for longs or shorts are verging on purely entertainment value if that. Again maybe I'm the one with blinders on but a lot of what matters with this security has nothing to do with what your placing value upon. Again Im not insulting you, just my opinion and continue to welcome yours.

[orthopa]

unfortunately, mnuchin leaving is a real risk imo.  better for his reputation to leave now if his opinion ends up that trump listening to Navarro over him (and many others) will sink the ship.

 

Sure it is a risk, and if it happens it happens and I’ll move on from this trade. I think it’d be silly to sell now based on this rumor.

 

Or the other 30-40 rumors that have proceeded this one about everything that could go wrong with the GSEs. If mnuchin leaves there is a good chance we are fucked for the obvious reasons. When/once it happens we will be the last to know and prices will reflect that. Not much sense in worrying about it ahead of time.

[orthopa]

https://www.americanbanker.com/opinion/taxpayers-are-the-gses-true-stockholders

[blackcoffee]

https://www.americanbanker.com/opinion/taxpayers-are-the-gses-true-stockholders

 

lol

[Midas79]

https://www.americanbanker.com/opinion/taxpayers-are-the-gses-true-stockholders

 

Wow. I have seen plenty of hit pieces against FnF, but rarely one aimed squarely at shareholders like this. That said, he manages to make some good points.

 

Lastly, each senior preferred stock purchase agreement provided for a “periodic commitment fee” meant to fully compensate the Treasury for the ongoing support it provided since its December 2009 commitment. To date, not a single penny of such fee has been paid to taxpayers.

...

Second, there should be retroactive payment of the waived past periodic commitment fees — $8 or $9 billion per year for the GSEs combined.

 

I don't remember this being brought up before, but it actually makes sense that if the NWS had never happened, Treasury would have reinstated the commitment fee on the balance of the funding commitment, especially seeing as the seniors would have been increasingly paid down. If Treasury believes that FnF would have been paying this commitment fee on top of the 10% cash dividends had the NWS not happened, they might not be past the 10% moment after all!

 

However, the last part is still at least somewhat farcical: if FnF had paid both a commitment fee and a NWS dividend in the same quarter, Treasury would receive exactly the same amount of money. A 10% moment calculation changes, but the actual amount of cash Treasury received wouldn't.

 

Also, the Treasury and the GSEs simultaneously entered into the Senior Preferred Stock Purchase Agreements, as amended.

These agreements might best be described as unconditional, irrevocable taxpayer-backed lines of credit. It is only this ongoing taxpayer backing that allows the GSEs to continue operating, to sell trillions of dollars in mortgage-backed securities at advantageous rates, and be in a position to make any profits.

 

I find this to be largely correct. MBS would not carry nearly the aura of safety they have without the lines of credit. That is why any exit from conservatorship must be accompanied by FnF having lots of capital on the books, enough to keep MBS ratings unaffected. This number could be much larger than what is economical.

 

At a conservative 16 basis points per year, taxpayers would earn some $7 billion annually after taxes, according to one estimate.

 

The amount of capital that can be raised by selling common stock is limited to what the investors think the companies will be worth in their released state. If $7B is knocked off of earnings every year, only the remaining earnings would contribute to a market cap estimate. For example, if FnF normally earn $22B per year, a P/E ratio of 12 implies a market cap of around $250B. Knocking $7B off of earnings lowers that to $180B; if Calabria tries to raise more than that the investors will demand all of the equity (if they don't just walk away), which makes the current common stock, including Treasury's warrants, nigh worthless.

 

 

 

Of course, Pinto makes some truly terrible arguments as well.

 

Because of this, the original preferred stock holders or their successors, including Fairholme, have hardly “rightly earned” anything. Without the taxpayer’s gratuitous bailout, their investment would have been worthless.

 

Does this mean the government can go confiscate all earnings of any other bailed-out company, using this as an argument against why they should not ever have to pay any damages?

 

Second, the Federal Housing Enterprises Financial Safety and Soundness Act of 1992warned all investors in Freddie securities, including investors in shares of preferred stock, that they “not be construed” in thinking that the GSE’s would “honor, reimburse, or otherwise guarantee any of their obligations or liabilities.”

Because of this, the original preferred stock holders or their successors, including Fairholme, have hardly “rightly earned” anything.

 

By that argument, do any stockholders anywhere have any right to anything at all?

 

First, if the dividend sweep were to be reversed, a minimum 10% dividend should be paid to taxpayers and continue to be paid on the Treasury’s outstanding senior preferred stock.

 

If the dividend sweep is reversed the seniors will be gone. Or, alternatively, they would exist but Treasury would have to send FnF a $120B check first.

 

 

 

 

Naturally this is an opinion piece, so Pinto uses his own definition of what is "rightly earned", which conflicts with that of Berkowitz; this was the entire purpose of the piece to begin with. I don't think there's a risk of Mnuchin taking a hardline stance in regards to extra repayment, though, considering Craig Phillips's comment that Treasury views the seniors as being largely paid back at this point.

[WB_fan82]

I think Pinto is referring to the div sweep halted when he says "reversed", not a 5th circuit invalidation/win.

 

The NWS can halt and the sr. prefs would still remain outstanding.  It's a fair question what the new div rate should be.  4%?  5%?  8%?  Pinto says 10%.

 

BTW, if they are made non-cumulative as part of any amendment halting the NWS, I think that would instantly shift the entire sr. pref balance into the "capital" column. 

 

Since no divs would be paid in c-ship anyway (sorry public prefs!), I don't think the coupon on the sr. pref really matters as long as they are non-cumulative (and are redeemable at par by the GSEs).  GSE could retain earnings over time, and at some point raise a bunch of capital to redeem the prefs.

[Jcmeg35]

He seems to have been directionally right so far...not great to keep hearing that the time period for release keeps getting stretched, but hopefully happens soon.

 

SCOOP: @USTreasury puts final touches on long awaited @FannieMae @FreddieMac reform memo skedded release in Sept-Oct. Addresses "recap/release" from conservatorship; unlikely to address IPO plans. Treas waiting on final word from @WhiteHouse on memo

[Luke 532]

He seems to have been directionally right so far...not great to keep hearing that the time period for release keeps getting stretched, but hopefully happens soon.

 

SCOOP: @USTreasury puts final touches on long awaited @FannieMae @FreddieMac reform memo skedded release in Sept-Oct. Addresses "recap/release" from conservatorship; unlikely to address IPO plans. Treas waiting on final word from @WhiteHouse on memo

 

more on this NOW with @LizClaman as @USTreasury eyes Sept-Oct time frame to release long-awaited memo on reforming GSEs. @WhiteHouse will provide comments in coming days before Treasury finalizes $FNMA $FMCC Treasury had no comment on matter

[Jcmeg35]

Unclear if WSJ is also confirming this, or just going off of Gas' comments...

 

"Trump administration officials are finalizing a plan to return mortgage-finance giants Fannie Mae and Freddie Mac to private ownership — couple be released in the next few weeks."

 

He seems to have been directionally right so far...not great to keep hearing that the time period for release keeps getting stretched, but hopefully happens soon.

 

SCOOP: @USTreasury puts final touches on long awaited @FannieMae @FreddieMac reform memo skedded release in Sept-Oct. Addresses "recap/release" from conservatorship; unlikely to address IPO plans. Treas waiting on final word from @WhiteHouse on memo

 

more on this NOW with @LizClaman as @USTreasury eyes Sept-Oct time frame to release long-awaited memo on reforming GSEs. @WhiteHouse will provide comments in coming days before Treasury finalizes $FNMA $FMCC Treasury had no comment on matter

[Guest cherzeca]

re rumor that Pompeo was itching to leave: 

[orthopa]

Unclear if WSJ is also confirming this, or just going off of Gas' comments...

 

"Trump administration officials are finalizing a plan to return mortgage-finance giants Fannie Mae and Freddie Mac to private ownership — couple be released in the next few weeks."

 

He seems to have been directionally right so far...not great to keep hearing that the time period for release keeps getting stretched, but hopefully happens soon.

 

SCOOP: @USTreasury puts final touches on long awaited @FannieMae @FreddieMac reform memo skedded release in Sept-Oct. Addresses "recap/release" from conservatorship; unlikely to address IPO plans. Treas waiting on final word from @WhiteHouse on memo

 

more on this NOW with @LizClaman as @USTreasury eyes Sept-Oct time frame to release long-awaited memo on reforming GSEs. @WhiteHouse will provide comments in coming days before Treasury finalizes $FNMA $FMCC Treasury had no comment on matter

 

Must be another big player spreading rumors to unload.  :o

[buffetteer1984]

or maybe they were spreading lies to cause price declines to buy in this whole time  8)

 

Unclear if WSJ is also confirming this, or just going off of Gas' comments...

 

"Trump administration officials are finalizing a plan to return mortgage-finance giants Fannie Mae and Freddie Mac to private ownership — couple be released in the next few weeks."

 

He seems to have been directionally right so far...not great to keep hearing that the time period for release keeps getting stretched, but hopefully happens soon.

 

SCOOP: @USTreasury puts final touches on long awaited @FannieMae @FreddieMac reform memo skedded release in Sept-Oct. Addresses "recap/release" from conservatorship; unlikely to address IPO plans. Treas waiting on final word from @WhiteHouse on memo

 

more on this NOW with @LizClaman as @USTreasury eyes Sept-Oct time frame to release long-awaited memo on reforming GSEs. @WhiteHouse will provide comments in coming days before Treasury finalizes $FNMA $FMCC Treasury had no comment on matter

 

Must be another big player spreading rumors to unload.  :o

[orthopa]

If White house is providing a final word, and it then goes back to treasury to finalize what the hell takes another month or two? En Banc decision has to be weighing on this somewhat.

[Guest cherzeca]

it is fair to wonder why a plan written and delivered by Phillips in June has not been acted upon yet.  that wonder is rationally going to depress the stock price,.  god knows, this administration seems disjointed to say the least, but if the plan is approved by POTUS and released, we can all at least read the damn thing. 

 

5th cir released an en banc opinion on sovereign immunity recently that was argued in may.  lots of concurring and dissenting opinions. this may means that collins is next up, or it may mean that some judge(s) are really unwilling to hit submit on his/her keyboard.  choose your theory

[Luke 532]

https://seekingalpha.com/news/3493786-fannie-mae-adds-sheila-bair-board

 

Fannie Mae (OTCQB:FNMA) names Sheila C. Bair, former chair of the Federal Deposit Insurance Corporation, to its board.

 

Bair had also service as assistant secretary for financial institutions at the U.S. Department of Treasury and senior vice president for government relations at the New York Stock Exchange.

 

She will be serving on the board's compensation committee, nominating and corporate governance committee, and the risk policy and capital committee.

[Midas79]

it is fair to wonder why a plan written and delivered by Phillips in June has not been acted upon yet.  that wonder is rationally going to depress the stock price,.  god knows, this administration seems disjointed to say the least, but if the plan is approved by POTUS and released, we can all at least read the damn thing.

 

The way I read it, Treasury finished the report in June but it's the White House that has been reviewing and revising it since then, with their part of the process nearly complete.

 

I haven't yet heard anyone address the fact that the timeline has been pushed back again, from some time in September to September/October.

 

It is perfectly fair to wonder why it is taking so long, especially since it seems that the administration is on a tight timeline.

[orthopa]

it is fair to wonder why a plan written and delivered by Phillips in June has not been acted upon yet.  that wonder is rationally going to depress the stock price,.  god knows, this administration seems disjointed to say the least, but if the plan is approved by POTUS and released, we can all at least read the damn thing.

 

The way I read it, Treasury finished the report in June but it's the White House that has been reviewing and revising it since then, with their part of the process nearly complete.

 

I haven't yet heard anyone address the fact that the timeline has been pushed back again, from some time in September to September/October.

 

It is perfectly fair to wonder why it is taking so long, especially since it seems that the administration is on a tight timeline.

 

Not sure if this makes any sense but are they waiting for just before q3 earnings are released to make a 5th amendment and stop NWS? Q3 results are usually out very early in November and would be paid in early 2020.

 

Maybe trying to release this close to the eventual FHFA capital rule? Once the capital rule is out and the steps to get out of conservatorship are known, all we need is a NWS announcement and IPO can start in motion. Getting that all done by Jan 1st 2020 would be quite a giddy up at this pace.

 

Lastly wasn't the purpose of the memorandum to have Treasury submit a plan to the president not necessarily "work" with them on a plan? Seems like the WH had way more say in the plan then what was initially expected. What was requested was pretty cut and dry wasnt it? Im not insinuating anything good or bad as a result but god damn this has taken a long time.

[orthopa]

Founds this today, sorry if its been reposted. A couple interesting tidbits.  https://fas.org/sgp/crs/misc/R44525.pdf

 

From page 15;

 

Can Fannie Mae and Freddie Mac Leave Conservatorship?

Absent congressional or executive action, Fannie Mae and Freddie Mac could exit their

conservatorships in two ways. First, if one (or both) of the GSEs were unable to become

financially viable—particularly by drawing down all remaining Treasury support—then it could

be placed under receivership, in which all of its assets would be liquidated.

62 The usual priority of

claims on remaining assets applies in receivership. The GSEs’ guaranteed MBS investors would

be repaid first, followed by the GSEs’ debenture holders, followed by the Treasury’s senior

preferred stock, and finally private stockholders. The value of the outstanding MBSs would

depend on the payments of the underlying mortgages, the rules of receivership, and any action the

government might take (or not take) to support the MBSs. Likewise, the value of the debentures

would depend on the cause of the receivership and the details of the liquidation process. For

example, if mortgage defaults and losses were to increase, the assets available for creditors would

decrease. How the mortgage market would function if one or both GSEs were to go into

receivership is unclear.

 

Alternatively, one or both of the GSEs could become financially viable. This outcome, however,

is unlikely to happen because the PSPAs limit the GSEs’ capital buffers to $3 billion each,

preventing them from becoming financially viable to return to stockholder control. The GSEs

currently have less capital than what would have been statutorily required prior to

conservatorship.

63 Furthermore, when the federal government has previously provided significant

financial support to companies, Treasury has auctioned off similar warrants for profit after the

companies’ financial health was restored; the company that issued the warrants to Treasury

typically wins the auction to purchase them.

64 With limited capital reserves, the GSEs would

unlikely be able to purchase their warrants from Treasury. Furthermore, private investors would

be unlikely to purchase the warrants from Treasury as long as the GSEs’ capital reserves are low

enough to make them financially vulnerable to returning to conservatorship.

 

Looks like if I'm reading the dividend chart right on page 14 it looks like Fannie and Freddie met the 10% moment in 2013?