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

[Guest cherzeca]

Think another bailout is coming.

 

fat pitch lol.  next pitch is at your earlobe

[investorG]

Think another bailout is coming.

 

anything is possible. Among others, receivership and/or nationalization is not an unreasonable outcome with the courts and/or a Tsy deal dictating our fate as to whether a giant slug of sr pref is above us in the process.  They lazily waited too long for the 4th amendment and the deck we're dealt has changed.

[Guest cherzeca]

"...receivership and/or nationalization is not an unreasonable outcome with the courts..."

 

stupid shit this

[WB_fan82]

If any of the dozen different lawsuits might require a payment of assets out of the GSEs, then it will be difficult to raise outside capital.  Other than r-ship (bad side effects) and global settlement (very hard to pull off, imo), what are the other options? 

 

Treasury indemnification of the GSEs?

 

 

[allnatural]

As far as i'm aware, there are currently no lawsuits that would result in the GSEs themselves having to pay monetary damages to plaintiffs (other than the Sweeney direct claims which was dismissed and pending appeal).

 

Collins and Sweeney derivative claims would require the Treasury to either wipe out the senior pfds or write a $130b+ check for the excess NWS payments above the 10%. Lambert contractual claims would require the Treasury to write a $30-$40b+ check (par + interest) to shareholders directly.

 

If any of the dozen different lawsuits might require a payment of assets out of the GSEs, then it will be difficult to raise outside capital.  Other than r-ship (bad side effects) and global settlement (very hard to pull off, imo), what are the other options? 

 

Treasury indemnification of the GSEs?

[Guest cherzeca]

If any of the dozen different lawsuits might require a payment of assets out of the GSEs, then it will be difficult to raise outside capital.  Other than r-ship (bad side effects) and global settlement (very hard to pull off, imo), what are the other options? 

 

Treasury indemnification of the GSEs?

 

one option would be to read the "dozen" lawsuits and see what Ps are asking for, then put on your thinking hat

[Guest cherzeca]

As far as i'm aware, there are currently no lawsuits that would result in the GSEs themselves having to pay monetary damages to plaintiffs (other than the Sweeney direct claims which was dismissed and pending appeal).

 

Collins and Sweeney derivative claims would require the Treasury to either wipe out the senior pfds or write a $130b+ check for the excess NWS payments above the 10%. Lambert contractual claims would require the Treasury to write a $30-$40b+ check (par + interest) to shareholders directly.

 

If any of the dozen different lawsuits might require a payment of assets out of the GSEs, then it will be difficult to raise outside capital.  Other than r-ship (bad side effects) and global settlement (very hard to pull off, imo), what are the other options? 

 

Treasury indemnification of the GSEs?

 

you are nicer than I am, @allnatural. 

[investorG]

As far as i'm aware, there are currently no lawsuits that would result in the GSEs themselves having to pay monetary damages to plaintiffs (other than the Sweeney direct claims which was dismissed and pending appeal).

 

Collins and Sweeney derivative claims would require the Treasury to either wipe out the senior pfds or write a $130b+ check for the excess NWS payments above the 10%. Lambert contractual claims would require the Treasury to write a $30-$40b+ check (par + interest) to shareholders directly.

 

If any of the dozen different lawsuits might require a payment of assets out of the GSEs, then it will be difficult to raise outside capital.  Other than r-ship (bad side effects) and global settlement (very hard to pull off, imo), what are the other options? 

 

Treasury indemnification of the GSEs?

 

I think lamberth would require the companies to pay unless the Tsy intervened.

[Guest cherzeca]

As far as i'm aware, there are currently no lawsuits that would result in the GSEs themselves having to pay monetary damages to plaintiffs (other than the Sweeney direct claims which was dismissed and pending appeal).

 

Collins and Sweeney derivative claims would require the Treasury to either wipe out the senior pfds or write a $130b+ check for the excess NWS payments above the 10%. Lambert contractual claims would require the Treasury to write a $30-$40b+ check (par + interest) to shareholders directly.

 

If any of the dozen different lawsuits might require a payment of assets out of the GSEs, then it will be difficult to raise outside capital.  Other than r-ship (bad side effects) and global settlement (very hard to pull off, imo), what are the other options? 

 

Treasury indemnification of the GSEs?

 

I think lamberth would require the companies to pay unless the Tsy intervened.

 

the usefulness of the DC Circuit class action claims at this point is to complete discovery of treasury, which can then be most helpful in the Collins APA case back in Federal District court in Houston.  but yes, you are right, the GSEs are co-defendants with Treasury in this case.

[WB_fan82]

And if the GSEs exit c-ship, does Lamberth go away b/c the jr prefs are live again?  That would make make the Lamberth case moot since new investors wouldn't have to worry about it by definition of the GSEs exiting c-ship.  Maybe that's what Calabria intimated when he says the issues go away?  Just musing out loud - I've got my thinking cap on, Cherzeca!

[muscleman]

Is anyone tracking IMH? It has two classes of preferred shares and court ruling makes them differentiated treatment. I don't understand why that could happen.

I wonder if similar things could happen here? Anyone interested in taking a look?

[Guest cherzeca]

And if the GSEs exit c-ship, does Lamberth go away b/c the jr prefs are live again?  That would make make the Lamberth case moot since new investors wouldn't have to worry about it by definition of the GSEs exiting c-ship.  Maybe that's what Calabria intimated when he says the issues go away?  Just musing out loud - I've got my thinking cap on, Cherzeca!

 

there will be a global litigation settlement. no way GSEs can raise serious funds in capital market without releases to the GSEs, fhfa and treasury

[Luke 532]

And if the GSEs exit c-ship, does Lamberth go away b/c the jr prefs are live again?  That would make make the Lamberth case moot since new investors wouldn't have to worry about it by definition of the GSEs exiting c-ship.  Maybe that's what Calabria intimated when he says the issues go away?  Just musing out loud - I've got my thinking cap on, Cherzeca!

 

there will be a global litigation settlement. no way GSEs can raise serious funds in capital market without releases to the GSEs, fhfa and treasury

 

We're getting par* +/- a few percentage points any way you slice it, it's just a matter of when and how much volatility and uncertainty we get between now and then.

 

*or the equivalent of par, like a conversion to common.

[WB_fan82]

Luke, I think you are right.  All the paths of least resistance go that direction.

 

But I'm also trying to not take anything for granted here.  The only way the jr prefs have downside is r-ship (though legal optionality is probably worth at least 10c on the dollar at this point).

 

Many companies file BK to deal with lawsuits, so do the GSEs have the same reasons?  So far it appears the answer is no.  B/c with the exception of Lambert (previously discussed), everything else comes from TSY if there is money owed.

 

And if that's the case, to Cherzeca, why do outside investors have to wait for a global settlement?  The lawsuits are a TSY issue.  Nothing to do with the GSEs.  GSEs have no liability.

 

 

[Wiggins]

Just the Lamberth case by itself is enough to preclude receivership for JPS. He stated definitively that all rights transfer, so it covers all JPS no matter when purchased (e.g., after NWS).

 

 

Luke, I think you are right.  All the paths of least resistance go that direction.

 

But I'm also trying to not take anything for granted here.  The only way the jr prefs have downside is r-ship (though legal optionality is probably worth at least 10c on the dollar at this point).

 

Many companies file BK to deal with lawsuits, so do the GSEs have the same reasons?  So far it appears the answer is no.  B/c with the exception of Lambert (previously discussed), everything else comes from TSY if there is money owed.

 

And if that's the case, to Cherzeca, why do outside investors have to wait for a global settlement?  The lawsuits are a TSY issue.  Nothing to do with the GSEs.  GSEs have no liability.

[WB_fan82]

Agree the rights xfer for the lamberth case.  But because damages would be owed by the GSEs, Rship would limit those damages to the old companies and the claims wouldn't transfer to the new successor entities that hold the charters. 

 

Though now that I think of it... wouldn't those JPS damage claims against the estate be senior to the govt senior preferred in a run-off and therefore the JPS do fine even in r-ship?

 

Sometimes neurons fire as I type, but I never thought of that.

[Luke 532]

Does anybody know if FHFA is *legally* bound to re-propose the capital rule because they have publicly stated they will do so?  If I'm Houlihan Lokey, I'm getting nervous about the markets and want to get the capital rule in place as quickly as possible.

[allnatural]

You're asking if FHFA, which to date has been "legally" allowed to take all of the capital out of the enterprises they are claiming to conserve, is required to "legally" release a capital rule? Until courts definitively step in they are "legally" allowed to do whatever they want and answer to no one.

 

Does anybody know if FHFA is *legally* bound to re-propose the capital rule because they have publicly stated they will do so?  If I'm Houlihan Lokey, I'm getting nervous about the markets and want to get the capital rule in place as quickly as possible.

[Luke 532]

You're asking if FHFA, which to date has been "legally" allowed to take all of the capital out of the enterprises they are claiming to conserve, is required to "legally" release a capital rule? Until courts definitively step in they are "legally" allowed to do whatever they want and answer to no one.

 

Does anybody know if FHFA is *legally* bound to re-propose the capital rule because they have publicly stated they will do so?  If I'm Houlihan Lokey, I'm getting nervous about the markets and want to get the capital rule in place as quickly as possible.

 

Good point  :)

[Guest Covid-19_Survivor]

So, last week was mostly a liquidity event, and our juniors were trounced mostly? because of that.

 

But I'm concerned about how they didn't start to recover as other good bets did latter day Friday, and I've had this thought: Italy suspended mortgage paying, would or could US do the same? If so how would that work?

 

Thanks,

In since '12 having done nothing but add. To the point where JP's are now 30% of my wealth.

[allnatural]

They mostly didnt recover with market Friday bc they are OTC and are not in any index funds, so when you have SPY rallying ~10% friday they don't really participate in that to the same extent. But when there is liquidity event where the whole market is fleeing to cash you will feel pain as you have seen. The GSEs should have a decent enough Q1 bc of record low rates/refis + Jan/Feb data were both record months for home purchasing. But Q2 could start to see spillover effects and into Q3 as well. If this turns into full blown recession there is obviously risk to the administrative recap path.

[Luke 532]

Questions for everyone. Let's assume the data will prove that there is/will be a recession this year:

 

(1) In your opinion, how many months will that delay the capital rule being reproposed?

 

(2) In your opinion, how many months will that delay the capital rule being finalized?

 

(3) In your opinion, how many months will that delay the consent decree from being executed?

 

(4) In your opinion, how many months will that delay the amendment to the PSPA?

 

Note: I am not asking about raising capital via a "re-IPO"/SPO.  I'm specifically asking about delays to the steps before they raise external capital.

 

Thanks.

[Guest cherzeca]

"And if that's the case, to Cherzeca, why do outside investors have to wait for a global settlement?  The lawsuits are a TSY issue.  Nothing to do with the GSEs.  GSEs have no liability."

 

because treasury wont eliminate senior prefs without global settlement. 

 

[allnatural]

Since people are beginning to worry about a recession, I figured FHFA's / Calabrias stress test from late last year will come in helpful to illustrate the impact to the GSEs, which highlights the GSEs are much more resilient businesses today than they were pre-2008.

 

Link: https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/2019_DFAST_Severely-Adverse-Scenario.pdf

 

The stress test assumes a "severe global recession" that lasts for 2 years in which GDP declines by 8%, unemployment spikes to 10%, and housing prices declines by 30%. In this scenario, the GSEs have a combined loss of $18b, which increases to $43b when including the "impact of establishing valuation allowance on deferred tax assets". Keep in mind the GSEs DTA balance has since decreased to $18b, so looking at a total loss of $36b over 2 years.

 

For reference, the GSEs currently have ~$24b of combined capital, projected to increase to ~$28b after Q1, with expectations for a weak Q2 as of now. The big unknown is what does 2H 2020 look like?

[DRValue]

CRT market test!