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

[Guest Covid-19_Survivor]

Agreed, and I'm not really. It's been a painful ride down but thesis remains unchanged.

[Guest cherzeca]

PLS had been making a small comeback...now they will be dead in the water for awhile.  once again, GSEs are the only game in town

[orthopa]

Bloomberg Intelligence report out this morning (see attached).  It basically says if the economy (and housing) gets crushed for a sustained period of time, then the Admin plans will be delayed.  If the economy (and housing) has deep problems but rebound fairly quickly, then the Admin plan is still on track for calendar year 2020.  Nothing surprising with that assessment.

 

Probably worth noting the previous comments on this thread about CRT's and the like and how that will soften much of the blow in a recession.

 

I would assume (yeah I know what assume means) that unless there is a complete melt down and FnF have to draw on the Treasury again the recap plan should continue forward. All the upcoming steps really are not dependent on the economy other then raising capital which is still ~12 months away at the soonest. The capital rule is written. Mnuchin and Calabria have been "negotiating" another PSPA amendment for 7 months and I would be quite sure 2 amendments are on the table based on legal outcome.

 

I would still strongly believe that some hedge will be put in place before the election. I think this has been the plan all along as the election is a toss up. Some believe that even if Trump loses the ~3 months afterwards is enough time to get all the ducks in a row before the democrat is sworn in.

 

Two things which were discussed which I hope gain some traction going forward are 1. Just how punitive the bailout to Fannie was when compared to bailouts being done now. 2. Just how much FnF helped during this crisis and their value to the system. The Fed had to step in, in a big way but imagine the banks being on the hook for all of this? Jesus. What a mess that would be.

[allnatural]

From Bloomberg:

 

*CALABRIA: CRISIS DOESN'T YET AFFECT FANNIE-FREDDIE TIMELINE

*CALABRIA: GSES WILL BE STRESSED IF CRISIS EXCEEDS TWO MONTHS

 

He also mentioned he still expects to get them out by 2021, 2022 (im assuming this means the IPO but was pretty vague this time around).

[orthopa]

From Bloomberg:

 

*CALABRIA: CRISIS DOESN'T YET AFFECT FANNIE-FREDDIE TIMELINE

*CALABRIA: GSES WILL BE STRESSED IF CRISIS EXCEEDS TWO MONTHS

 

He also mentioned he still expects to get them out by 2021, 2022 (im assuming this means the IPO but was pretty vague this time around).

 

Lets hope for a quick recovery then, will probably depend heavily on when economy gets opened back up. Getting them out by 2021, 2022 was always the plan from a 100% out of conservatorship standpoint if the ACG timeline was to be believed. From a preferred stand point as Midas mentioned what really is needed is a PSAP amendment to get rid of the Srs. Even if the economy stresses FnF I think that should still be on the table and the legal story continues as well. Realistically capital cant be raised until early 2021 so out of conservatorship in 2021 maybe even a stretch, but by then Preferred should have been dealt with or their fate should be determined.

[Guest cherzeca]

From Bloomberg:

 

*CALABRIA: CRISIS DOESN'T YET AFFECT FANNIE-FREDDIE TIMELINE

*CALABRIA: GSES WILL BE STRESSED IF CRISIS EXCEEDS TWO MONTHS

 

He also mentioned he still expects to get them out by 2021, 2022 (im assuming this means the IPO but was pretty vague this time around).

 

Lets hope for a quick recovery then, will probably depend heavily on when economy gets opened back up. Getting them out by 2021, 2022 was always the plan from a 100% out of conservatorship standpoint if the ACG timeline was to be believed. From a preferred stand point as Midas mentioned what really is needed is a PSAP amendment to get rid of the Srs. Even if the economy stresses FnF I think that should still be on the table and the legal story continues as well. Realistically capital cant be raised until early 2021 so out of conservatorship in 2021 maybe even a stretch, but by then Preferred should have been dealt with or their fate should be determined.

 

the big issue for GSEs will be CECL accounting adoption.  that will give rise to large credit reserves being established.  anyone know if the bill delays CECL?

[Luke 532]

Sure looks like Calabria wants to drive home the point that we're still going to exit conservatorship. Tweeting himself and all (attached).

[Luke 532]

Whoa.

 

#CARESAct: Lesson learned? Any warrants need to be exercised by January 1, 2021. Want to bet that $FNMA and $FMCC warrants are exercised by January 1, 2021, too?

 

[allnatural]

CECL delay included in bill. see attached.

 

From Bloomberg:

 

*CALABRIA: CRISIS DOESN'T YET AFFECT FANNIE-FREDDIE TIMELINE

*CALABRIA: GSES WILL BE STRESSED IF CRISIS EXCEEDS TWO MONTHS

 

He also mentioned he still expects to get them out by 2021, 2022 (im assuming this means the IPO but was pretty vague this time around).

 

Lets hope for a quick recovery then, will probably depend heavily on when economy gets opened back up. Getting them out by 2021, 2022 was always the plan from a 100% out of conservatorship standpoint if the ACG timeline was to be believed. From a preferred stand point as Midas mentioned what really is needed is a PSAP amendment to get rid of the Srs. Even if the economy stresses FnF I think that should still be on the table and the legal story continues as well. Realistically capital cant be raised until early 2021 so out of conservatorship in 2021 maybe even a stretch, but by then Preferred should have been dealt with or their fate should be determined.

 

the big issue for GSEs will be CECL accounting adoption.  that will give rise to large credit reserves being established.  anyone know if the bill delays CECL?

[Luke 532]

CECL delay included in bill. see attached.

 

Nice find!

[orthopa]

Sure looks like Calabria wants to drive home the point that we're still going to exit conservatorship. Tweeting himself and all (attached).

 

Im done trying to read the tea leaves with this investment but did find it interesting that he retweeted this. Maybe it was a bit of a public service announcement with discussion of forbearance etc.

[Guest cherzeca]

weird situation with forbearance.  potus intimated in briefing that he might lift the crisis declaration in areas that are not badly hit by easter (midwest).  that presumably will allow for only one month of forbearance for most of those affected mortgagors (assuming jobs are still there to go back to).  or would holding crisis open for NY/Cali have effect of keeping crisis open for purposes of forbearance nationwide?

[Luke 532]

weird situation with forbearance.  potus intimated in briefing that he might lift the crisis declaration in areas that are not badly hit by easter (midwest).  that presumably will allow for only one month of forbearance for most of those affected mortgagors (assuming jobs are still there to go back to).  or would holding crisis open for NY/Cali have effect of keeping crisis open for purposes of forbearance nationwide?

 

Part of the bill says experienced hardship during the coronavirus crisis, not as a result of the coronavirus crisis.  And there is zero proof needed to receive forbearance other than a statement saying you need it due to financial hardship.  To me that means anybody from anywhere can ask for (and can't be denied by law) relief.

 

With that said, I don't think many people will use the program. If you have a $3K mortgage and you don't pay for 12 months, you have a $36K lump sum payment in a year. 

[Guest Covid-19_Survivor]

weird situation with forbearance.  potus intimated in briefing that he might lift the crisis declaration in areas that are not badly hit by easter (midwest).  that presumably will allow for only one month of forbearance for most of those affected mortgagors (assuming jobs are still there to go back to).  or would holding crisis open for NY/Cali have effect of keeping crisis open for purposes of forbearance nationwide?

 

Sure, but it's not going away by Easter. As overbllown the issue is for most America's heartland, cases are still doubling everyday. I don't think Potus can lift if we're still on wrong side of curve.

 

I follow everyday:  https://www.mrt.com/news/article/Coronavirus-case-reported-in-Crane-County-15143978.php

[Guest cherzeca]

weird situation with forbearance.  potus intimated in briefing that he might lift the crisis declaration in areas that are not badly hit by easter (midwest).  that presumably will allow for only one month of forbearance for most of those affected mortgagors (assuming jobs are still there to go back to).  or would holding crisis open for NY/Cali have effect of keeping crisis open for purposes of forbearance nationwide?

 

Part of the bill says experienced hardship during the coronavirus crisis, not as a result of the coronavirus crisis.  And there is zero proof needed to receive forbearance other than a statement saying you need it due to financial hardship.  To me that means anybody from anywhere can ask for (and can't be denied by law) relief.

 

With that said, I don't think many people will use the program. If you have a $3K mortgage and you don't pay for 12 months, you have a $36K lump sum payment in a year.

 

does the bill make clear when deferred payments are due? immediately after lifting crisis declaration? or just added to principal?

[Luke 532]

does th4e bill make clear when deferred payments are due? immediately after lifting crisis declaration? or just added to principal?

 

It doesn't spell it out, but it does say forbearance and not modification.  Forbearance = lump sum payment.  Modification = extend the loan by a year (so your 30-year loan would become 31-year loan) or adjust your interest rate or spread the missed payments out over the duration of your loan.  There are certain situations that after the fact you can apply to modify it, but the lenders can say no.  So, the only guarantee for homeowners is that they can avoid paying their mortgage for 12 months.  Odds are the vast majority will have to pay lump sum, but some might qualify for modified terms but that's a huge gamble for the homeowner not knowing if they'd qualify.

 

Edit: With that said, there is an opportunity for savvy investors to skip their mortgage payments, invest the cash, earn some/any return, and have the discipline to pay the lump sum in 12 months.  Most Americans aren't that savvy nor have that level of discipline.  They'd likely blow it on a new luxury car or dining out 4 times a week at nice restaurants with the end result being they lose their home.

[Midas79]

does th4e bill make clear when deferred payments are due? immediately after lifting crisis declaration? or just added to principal?

 

It doesn't spell it out, but it does say forbearance and not modification.  Forbearance = lump sum payment.  Modification = extend the loan by a year (so your 30-year loan would become 31-year loan) or adjust your interest rate or spread the missed payments out over the duration of your loan.  There are certain situations that after the fact you can apply to modify it, but the lenders can say no.  So, the only guarantee for homeowners is that they can avoid paying their mortgage for 12 months.  Odds are the vast majority will have to pay lump sum, but some might qualify for modified terms but that's a huge gamble for the homeowner not knowing if they'd qualify.

 

Edit: With that said, there is an opportunity for savvy investors to skip their mortgage payments, invest the cash, earn some/any return, and have the discipline to pay the lump sum in 12 months.  Most Americans aren't that savvy nor have that level of discipline.  They'd likely blow it on a new luxury car or dining out 4 times a week at nice restaurants with the end result being they lose their home.

 

This could turn out really ugly. Hopefully the wave of delinquencies gets pushed off far enough that Calabria has had enough time to get FnF fully recapped and weather the storm, but what investors would buy in seeing this wave on the horizon?

 

Edit: actually, maybe it would just lead to a deluge of refinancings, not necessarily delinquencies. And FHFA could certainly direct FnF to be lenient on granting those if the alternative is a collapse of the whole system. Credit to seysmont on the Google Groups board for bringing up the refi possibility.

[Guest cherzeca]

it is my understanding that the big hit for GSEs is establishing loan loss reserves, and query how quickly that will be done under this somewhat unique circumstance.  the actual advancing of funds to the mbs pools is basically costless, de minimus interest rate of borrowings.

[Guest cherzeca]

you do realize, Emily, that no one wants to respond to your posts when you set forth quotes that you not attribute as to source

[Wiggins]

The stigma of being bailed out has dropped. The GSE houses may need repair, but the neighborhood has gotten so bad that the GSEs are now relatively speaking among the nicest houses on the block.

[Guest cherzeca]

The stigma of being bailed out has dropped. The GSE houses may need repair, but the neighborhood has gotten so bad that the GSEs are now relatively speaking among the nicest houses on the block.

 

GSEs were libeled as being part of the problem in 2008.  cant happen now. though perhaps not beyond the hubris of certain MBA types to complain that GSEs are not sufficiently capitalized...as if the NWS didn't exist

[Guest Covid-19_Survivor]

The stigma of being bailed out has dropped. The GSE houses may need repair, but the neighborhood has gotten so bad that the GSEs are now relatively speaking among the nicest houses on the block.

 

This is true, but who's going to invest billions in the right hand of treasury? Sure, there are advantages with that, but do you doubt that if the shit hits fan, govt won't blame us as it did before? I don't like it. I either want my $25/$50 or I want out of this backstop crap.

 

Actually, I want both :)

[investorG]

Well, first return the stolen NWS money as a start. Second, stop fighting the wrong in the court.

 

https://www.bloomberg.com/news/articles/2020-03-26/mnuchin-forms-task-force-to-confront-mortgage-firms-liquidity?srnd=premium

 

is it not too late to make FnF the stabilizing force?  Perhaps exercise warrants to bring in MBS / Tsy spread for refinancing.  Govt inject $50bn from Mnuchin fund to pay for those warrants (reinvesting a portion of the $100bn plus profits from sr pref).  Retire Sr pref.  Raise additional Jr pref from private equity.  FnF absorbs some targeted losses, calms mortgage system to a degree.

[orthopa]

"Really? Even Fannie and Freddie repaid . Not only they repaid but govt looted 300 billion more from the two private companies and MBA kept saying that Fannie and Freddie were bailed out. What happened to the propaganda MBA spread for a decade?

 

"Unlike the rescues of the airline and aerospace industries, mortgage executives emphasized this would not be a bailout. The cash advances from the Fed would be repaid when the mortgages are paid off or refinanced"

 

Let’s nationalize WFC JPM as we know what that word ‘although’ really means.

 

"Although the big bank mortgage servicers like JPMorgan Chase (JPM) and Wells Fargo (WFC) could borrow from the Fed's discount window to make the mortgage payments'"

 

Time is now to do the right thing with GSE’s : Return the loot with interest, relist, release and release 11,000 docs.

 

https://www.cnn.com/2020/03/26/business/mortgage-payment-coronavirus-stimulus-federal-reserve/index.html "

 

The Mortgage Bankers Association, the industry's lobby group, said it has held talks with the Fed and the Treasury Department for the past few weeks on this request for help.

 

"They have been very understanding of this issue and the need for liquidity," Robert Broeksmit, CEO of the MBA, told CNN Business.

 

The MBA estimates that if one-quarter of borrowers request forbearance for six months or longer, advancing requirements on mortgage servicers could exceed $75 billion.

 

Wow, dont things come full circle. MBA is willing to belly up for help now too. I wonder if this will stop the intense lobbying against recapping the GSEs. Would love to interview that douche Dave Stevens now!

 

[Luke 532]

Wow, dont things come full circle. MBA is willing to belly up for help now too. I wonder if this will stop the intense lobbying against recapping the GSEs. Would love to interview that douche Dave Stevens now!

 

Ironically, the MBA might even lobby/advocate for the GSE situation to be rectified in a shareholder friendly way, as it is now in their interest for companies in these situations to be treated fairly/legally.  The political risk/optics for Admin to do the right thing is rapidly decreasing, and that's a very, very good thing for GSE shareholders.