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

[Luke 532]

as to timing, no one knows.  SCOTUS has weekly conferences to consider petitions, and they can decide to take a case or not quickly, or just sort of let the petition sit and fester

 

thanks!

[hardincap]

@cherzeca why shouldnt SCOTUS take this up now on the basis that it is holding up housing reform and needs timely resolution? if they do, a SC ruling seems to be a game over move for both sides. would both parties be cooperative in coming to settlement terms before case is decided?

 

edit: i think cooper & kirk have reached out to try to settle a number of times. im not so sure it makes sense for treasury to settle before SC ruling. that seems to make this very risky for Ps, if SC does take this up.

[Midas79]

When it comes to raising capital, will it be the boards of directors or FHFA that chooses the form of the capital raise? I see a lot of conflicting points about who owes what duties to existing shareholders, etc.

 

I ask because Brickman prioritized speed in hitting capital mileposts, but that might mean more dilution to existing commons compared to taking things slower. Is he allowed to do this?

[Guest cherzeca]

@hard

 

"@cherzeca why shouldnt SCOTUS take this up now on the basis that it is holding up housing reform and needs timely resolution?"

 

because that basis is just an assertion by treasury without the benefit of knowing what the remedy for Willett's opinion will be so it is speculative, which is the precise reason why SCOTUS doesn't grant cert on petitions that are interlocutory and not final orders.

 

SCOTUS has said it reviews orders not opinions.  but who knows what it will do here.

 

edit:  you say " i think cooper & kirk have reached out to try to settle a number of times".  I wouldn't doubt it, but is this based upon anything?

[investorG]

@cherzeca why shouldnt SCOTUS take this up now on the basis that it is holding up housing reform and needs timely resolution? if they do, a SC ruling seems to be a game over move for both sides. would both parties be cooperative in coming to settlement terms before case is decided?

 

edit: i think cooper & kirk have reached out to try to settle a number of times. im not so sure it makes sense for treasury to settle before SC ruling. that seems to make this very risky for Ps, if SC does take this up.

 

Tsy likely rejected settlement talks to date because it makes it easier to write down a $190bn asset if a) the courts tell them to (5th circuit) and b) the SC tells them they won't hear the case within the next 12-24 months (which is still TBD) when they want to get FnF out of conservatorship (mnuchin's recent words). 

 

It would probably be good news imo if the SC rejects the Collins APA appeal.  If it does take it up, which is probable, a settlement before a June SC verdict is possible but would likely depend on the plaintiffs willingness to give up a little (and the lawyers not trying to be heros).

 

[hardincap]

edit:  you say " i think cooper & kirk have reached out to try to settle a number of times".  I wouldn't doubt it, but is this based upon anything?

 

I recall david thompson saying more than once in IU calls that they essentially tried to talk settlement

[orthopa]

Mnuchin has said many times that taxpayers need to be compensated for SPS. That's what all the Treasury legal briefs say including the recent cert brief, and it's what Mnuchin has implied publicly. If Treasury wins in court, then the SPS represent the entire value of the enterprises, and selling that interest would make a capital raise that much easier. Don't you all see that as plausible and if not then why not? He may have his own opinions that the NWS is wrong, but then again he is fiduciary of Government.

 

It is interesting that UST continues to pay its lawyers to fight this in court if there is an imminent settlement coming through a PSPA amendment in the next 2 months. 

 

Does anyone have a stronger rationale as to why they continue to fight in court instead of just signing an amendment eliminating the senior pref balance/settling w/ shareholders?  Other than optics given hedge fund conflicts of interest (Paulson) or strengthening negotiation position? 

 

Strengthening UST negotiating position doesn't hold up IMO, given the plaintiffs are asking for a reasonable remedy which is entirely consistent (and actually helps achieve) the administrations goals of recapitalizing the entities... 

 

So why...?

 

Optics are sufficient rationale, I think.

 

I always took Mnuchin's "compensation" statement to mean payment of a periodic commitment fee commensurate w the explicit "credit line" guarantee + warrants.  In the scenario you describe where the senior prefs are sold in a secondary to the market - would these not naturally have to convert to common first to avoid a top-heavy capital structure and meet the likely capital rule?  And this scenario does not contemplate whether investors would be willing to buy $190bn of securities that will continue to have a contingent liability attached  (junior pref lawsuits).

 

Whoever occupies the UST seat seems to immediately develop Sweeney's described schizophrenia.    You either want to capitalize them and release them (per admin plan and testimony and FHFA strategic goals or you can keep fighting in court).  With that said, I default to thinking this is purely optics for two primary reasons

1) Mnuchin and Calabria absolutely already have a plan for how this resolves itself.  Public contradictions must be optics related bc these men are extremely calculated and probablistically are on the same page

2) Since Mnuchin's initial press release post election, he has been incredibly calculated in any statements on F&F

 

+1

 

This has been extremely calculated since the beginning of the year. Otting said "I signed off, Mark signed off, Steve signed off", etc. Its all been planned out and the optics are there where each side can throw their hands up and say I didnt enrich shareholders.

 

Treasury/Mnuchin will say I did all I could, I increased the liquidation preference for our support and investment and fought all the way to the supreme court. We are out of options and any long term delay that would not recap FnF goes against the presidential memo/treasury Plan.

 

FHFA/Calabria will say I followed the law like I said I would. That was my job and its up to FnF to raise capital so they are the ones that enriched there shareholders. I made sure they were safe and sound.

 

Fannie/Freddie CEO will say we raised capital and decided to do dividend/xyz because we have a fiduciary duty to our shareholders to get this done quickly and get out of conservatorship.

 

In the end who enriched John Paulson? Everyone is pointing at everyone else.

[Guest cherzeca]

so collins 5th C mandate has been issued with respect to the APA claim.  this mandate requires the district court to engage in further proceedings consistent with the Willett opinion.  essentially, determine any facts in dispute, render a judgment and remedy.

 

there is no mandate issued re the constitutional claim, Emily, since there is nothing for district court to do...5th C rendered the judgment and prescribed the remedy.

 

I know there are a lot of armchair lawyers on this thread, but if SCOTUS practice remains consistent, it is unlikely that it grants treasury's APA cert petition at this time...perhaps it will be inclined to do so after district court has rendered a final judgment.

 

if treasury wanted to stop the district court from proceeding on the APA remedy, it would have filed its APA cert petition before there 5th C issued its mandate...and there was clear warning that the mandate would issue 10/29 since that was on the docket.

 

but treasury didn't do so.  I will leave it to the armchair lawyers to speculate as to why

[orthopa]

so collins 5th C mandate has been issued with respect to the APA claim.  this mandate requires the district court to engage in further proceedings consistent with the Willett opinion.  essentially, determine any facts in dispute, render a judgment and remedy.

 

there is no mandate issued re the constitutional claim, Emily, since there is nothing for district court to do...5th C rendered the judgment and prescribed the remedy.

 

I know there are a lot of armchair lawyers on this thread, but if SCOTUS practice remains consistent, it is unlikely that it grants treasury's APA cert petition at this time...perhaps it will be inclined to do so after district court has rendered a final judgment.

 

if treasury wanted to stop the district court from proceeding on the APA remedy, it would have filed its APA cert petition before there 5th C issued its mandate...and there was clear warning that the mandate would issue 10/29 since that was on the docket.

 

but treasury didn't do so.  I will leave it to the armchair lawyers to speculate as to why

 

Im the furthest thing from a lawyer, but your implying that treasury wants the district court to rule/force their hand on remedy?

[DRValue]

That's what this armchair lawyer thought.

[investorG]

so collins 5th C mandate has been issued with respect to the APA claim.  this mandate requires the district court to engage in further proceedings consistent with the Willett opinion.  essentially, determine any facts in dispute, render a judgment and remedy.

 

there is no mandate issued re the constitutional claim, Emily, since there is nothing for district court to do...5th C rendered the judgment and prescribed the remedy.

 

I know there are a lot of armchair lawyers on this thread, but if SCOTUS practice remains consistent, it is unlikely that it grants treasury's APA cert petition at this time...perhaps it will be inclined to do so after district court has rendered a final judgment.

 

if treasury wanted to stop the district court from proceeding on the APA remedy, it would have filed its APA cert petition before there 5th C issued its mandate...and there was clear warning that the mandate would issue 10/29 since that was on the docket.

 

but treasury didn't do so.  I will leave it to the armchair lawyers to speculate as to why

 

wouldn't the SC decide whether to take the APA case before anything material happens in Atlas' court?  and if the SC takes the case then Atlas stops working?  I could see the objective here would be to not slow down Atlas' initial proceedings but that doesn't seem too relevant.  obviously I could be missing something or a lot.

[Guest cherzeca]

@othorpa/dr

 

this is what I think I now:

 

DOJ lawyers are real good. they dont flub up much.

a mandate once issued by 5th C cannot be stayed by a SCOTUS petition. (if SCOTUS grants cert it can stay).

DOJ knew exactly when mandate would issue since it was stated on docket over 3 weeks ago.

mandate issued 12:15pm yesterday, the day that the cert petition was filed.  if filed the day before, it seems to me that DOJ could have prevented the issuance of the mandate if it wanted to.

since I am not an appellate/SCOTUS practicing lawyer, I may be missing something. but this is all a bit strange to me.

 

edit:  @IG. it may well be that Solicitor General didn't think the chances of granting cert were that good (and they aren't) so that the deal the SG made with DOJ was to file cert pet after issuance of mandate...SG needs to keep its relationship with SCOTUS on the up and up, and SG knows that SCOTUS doesnt want interlocutory appeals slowing down district court work

[orthopa]

@othorpa/dr

 

this is what I think I now:

 

DOJ lawyers are real good. they dont flub up much.

a mandate once issued by 5th C cannot be stayed by a SCOTUS petition. (if SCOTUS grants cert it can stay).

DOJ knew exactly when mandate would issue since it was stated on docket over 3 weeks ago.

mandate issued 12:15pm yesterday, the day that the cert petition was filed.  if filed the day before, it seems to me that DOJ could have prevented the issuance of the mandate if it wanted to.

since I am not an appellate/SCOTUS practicing lawyer, I may be missing something. but this is all a bit strange to me.

 

edit:  @IG. it may well be that Solicitor General didn't think the chances of granting cert were that good (and they aren't) so that the deal the SG made with DOJ was to file cert pet after issuance of mandate...SG needs to keep its relationship with SCOTUS on the up and up, and SG knows that SCOTUS doesnt want interlocutory appeals slowing down district court work

 

Interesting. It seems they let the mandate slip though then. Again I know little about legal proceedings so any insight is much appreciated.  If I remember the remand is not a full trial right? The judge can rule on the merits/evidence only? That should be faster then a full trial right?

[Guest cherzeca]

@orthopa

 

what facts are in dispute necessary to decide case given Willett's analysis? that is the question.  and whatever facts are in dispute, Collins Ps have available to them depos and docs from Sweeney etc.  so whatever fact finding that needs to be done should be quick.  there is no dispute as to what the terms of the NWS are and what it did. and what it did appears to be right up the alley that Willett foreclosed.

[orthopa]

@orthopa

 

what facts are in dispute necessary to decide case given Willett's analysis? that is the question.  and whatever facts are in dispute, Collins Ps have available to them depos and docs from Sweeney etc.  so whatever fact finding that needs to be done should be quick.  there is no dispute as to what the terms of the NWS are and what it did. and what it did appears to be right up the alley that Willett foreclosed.

 

Lets hope for a decision that forces the Treasury's hand to settle or relief as requested then!

[allnatural]

If anyone still pays attention to these, here are some interesting CEO quotes from Freddie's earnings call this morning. There appears to be a sense of urgency on timing.

 

“On September 5th, the Treasury Department released its plan for reforming the nation's housing finance system ... without a question, the most important among these for Freddie Mac, the way to the proposal to end conservatorship.”

 

“From our perspective, exiting conservatorship will put Freddie Mac in a position to do a better job of providing liquidity, stability and affordability to the single-family and multi-family housing markets. It will allow us to combine our industry expertise with the competitiveness of a private company to bring down costs for borrowers, create more opportunities for renters, and better serve lenders and investors.”

 

“Earlier this week, the Federal Housing Finance Agency published our 2020 scorecard and strategic plan, which instructs us to work with the agency in developing a road-map with Milestones, to facilitate our exit from conservatorship. Those milestones will include raising capital and further enhancing our overall risk management framework.”

 

“Let me be clear, our top strategic priority will be meeting those milestones. We will remain steadfastly focused on doing so quickly and responsibly. We have already taken an important first step. Late in September, FHFA and Treasury agreed to permit the GSEs to begin building capital beyond their existing $3 billion capital reserves. In Freddie Mac's case, the agreement will allow Freddie Mac to retain capital up to $20 million.”

 

“I won't forecast when we will reach a point where we have sufficient capital to exit conservatorship. But I will tell you, it will be as soon as we responsibly can.Until then, our speed to exit will remain top of mind.  Another important milestone will be the finalization of FHFA's capital rule for Freddie Mac. We look forward to seeing that rule and better understanding the specific capitalization target, we will need to hit to exit conservatorship and start our next chapter.”

 

“I will close by saying that more so than any time in the past of 11 years, we at Freddie Mac, we -- our fate is in our own hands. Director Calabria has made clear that FHFA will set out the milestones, but how fast we achieve them is up to us. Freddie Mac employees are committed to ensuring we achieve them and achieve them quickly, serving our mission demands it.”

[Luke 532]

Not sure who Rob Zimmer is or if this info is valid, but ACG responded so I wanted to post it here...

 

Post World Series chatter, aka back to biz, albeit "we are tired":

 

Dana Wade to be nom to FHA.

 

Risk-based part of GSE cap rule to be re-propped.

 

don't throw the baseball at the messenger

[allnatural]

https://www.americanbanker.com/news/gses-need-to-shape-up-if-they-want-to-leave-conservatorship-calabria?feed=00000158-baad-d32b-adfa-bffde31c0000

 

“Do I know what I’m going to be able to negotiate with Steven Mnuchin? Not yet because I don’t control that part of the timeline,” said Calabria. “[but] I believe that we should be able to make considerable progress by then.”

 

However, he did add that he hopes in the next couple of months "to be able to lift [the $45 billion retained earnings] cap altogether."

[Guest cherzeca]

fnma 2019 3Q 10Q:  https://www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2019/q32019.pdf

 

outstanding results, capital now up to $10.3B

 

edit:  call transcript. https://www.fanniemae.com/portal/media/speeches/2019/q32019-financial-results-media-call-remarks.html

[rros]

fnma 2019 3Q 10Q:  https://www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2019/q32019.pdf

 

outstanding results, capital now up to $10.3B

 

edit:  call transcript. https://www.fanniemae.com/portal/media/speeches/2019/q32019-financial-results-media-call-remarks.html

And... Srs. at?

[Luke 532]

Very interesting Tim Howard comment attached...

[Guest cherzeca]

Very interesting Tim Howard comment attached...

 

yup.  I think treasury understands that scotus will most likely tell it to come back with a final order, and Tim is pointing out that might not be a disappointing result for treasury's plan.

[SnarkyPuppy]

Very interesting Tim Howard comment attached...

 

yup.  I think treasury understands that scotus will most likely tell it to come back with a final order, and Tim is pointing out that might not be a disappointing result for treasury's plan.

 

I think this is the most plausible theory tbh.  The primary reason being that even if Collins loses Supreme Court, there remain multiple other litigation cases outstanding which impede raising capital in a similar way in which Collins impedes raising private capital

[Luke 532]

Consider the source, of course, but found this interesting coming from IMF (a long time adversary to shareholders)...

 

https://www.insidemortgagefinance.com/articles/216273-analysis-maybe-its-time-for-uncle-sam-to-settle-with-the-gse-shareholders?v=preview

If the Treasury Department ultimately decides to place Fannie Mae and Freddie Mac into receivership as a way to re-charter the two mortgage giants and sell a new class of stock, existing shareholders would be wiped out. That’s a given.

 

But that wouldn’t end the three dozen or so outstanding lawsuits filed against the Treasury Department over the net worth sweep and likely would spur additional lawsuits.

 

And with that thought in mind, it’s believed the Treasury Department has an open line of communication with the shareholder plaintiffs and may move eventually to strike a universal (shareholder) legal settlement as a way to clear the decks for an eventual initial public offering of stock.

 

Sounds like a long shot? Not necessarily. For the full analysis, see the new edition of Inside Mortgage Finance, now available online.

[Luke 532]

Prepared Remarks of Dr. Mark A. Calabria at SFA Residential Mortgage Finance Symposium

https://www.fhfa.gov/Media/PublicAffairs/Pages/Prepared-Remarks-of-Dr-Mark-A-Calabria-at-SFA-Residential-Mortgage-Finance-Symposium.aspx

 

 

 

SCOOP: In an exclusive interview w @FoxBusiness @MarkCalabria says it doesnt matter who is president, he will be looking to release GSE's from government control in 2021; says opposition from a Dem like @ewarren would be ignored more at 130 w @TeamCavuto $FMCC $FNMA @FannieMae