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

[Midas79]

Good to ear him say that they'd need Congress or the Fed rather than Treasury.

 

I've made a point to listen for that.  In all 3 interviews/articles in the past 10 days he has said "Congress" or "Fed" and hasn't mentioned "Treasury."  He is making a point by excluding them as even a possibility.

 

I think the honor system is a huge risk. Saying that, it's not a free lunch as it's added to the principal. Some might take advantage to spend the money today though, if they want to, or may use it as a cushion for another rainy day.

 

I think take-up will be high, unfortunately.

 

Same here. I don't see a reason why the take-up rate won't approach 100%. There is no downside for any individual to take the forbearance.

 

FnF have an extra $250B to draw from Treasury if worse comes to worse. The companies will survive. Shareholders are in a much more precarious position, with only $23B worth of capital cushion. We survived the last draw from Treasury in Q1 2018, but that was with Watt in charge. I don't know if Calabria would feel compelled to wipe out shareholders in the event of a draw from Treasury. Some clarity on this is sorely needed. If anyone knows a journalist who could ask him this, please reach out.

 

This is also why I believe Treasury's backstop will survive recap and release, notwithstanding Trump's insistence on an "explicit" and paid-for backstop. I put "explicit" in quotes because it's not the explicit MBS guarantee that the Trump administration wants, but instead it's just for FnF.

[Guest Covid-19_Survivor]

Good to ear him say that they'd need Congress or the Fed rather than Treasury.

 

I've made a point to listen for that.  In all 3 interviews/articles in the past 10 days he has said "Congress" or "Fed" and hasn't mentioned "Treasury."  He is making a point by excluding them as even a possibility.

 

I think the honor system is a huge risk. Saying that, it's not a free lunch as it's added to the principal. Some might take advantage to spend the money today though, if they want to, or may use it as a cushion for another rainy day.

 

I think take-up will be high, unfortunately.

 

I agree that take-up will likely be high, but specifically because it is available as a free lunch.

 

Earlier, you pointed out that the median mortgage is $1100. That's $~13,000 free to anyone who requests it, with no ratings hit, no add interest or points charge, no questions asked. To anyone. The only downside is that your mortgage is bumped up one year, which given the number of secondary or home equity loans, most people don't seem too concerned about. So, given that no one really knows how long this crisis will last, and if they'll even have their job back when it does end, wouldn't it actually be prudent to increase your family's capital cushion until it blows over?

 

Unfortunately, a lot of what the govt has and is doing is based on the assumption that we curb stomp this virus in 2 months. But this country is the freest, most mobile and borderless country in the world. What happens if it decides to hang around for a bit longer, which I'm sure it will?

 

edit:  https://www.flightradar24.com/32.14,-101.81/5

 

[Guest Covid-19_Survivor]

FNMA and FMCC preferreds. In search of the elusive 10 9 8 7 6 5 4 3 2 3 4 5 6 bagger.

 

 

[Wiggins]

Why do you think this is a good thing? I see it the opposite. There is already a funding commitment from Treasury, and we know how that backstop works. If Calabria insists on going to Congress instead then this would entail Congressional legislation. I doubt that within this legislation there would be provisions to make shareholders whole or that it would somehow be neutral to shareholders which would be continued limbo. If Congress passes a bill, I think it likely shareholders are wiped out. In fact, Calabria has already stated that if they were bailed out again then shareholders would be wiped out. It worries me that Calabria doesn't just state the obvious that there is a funding commitment from Treasury already on the books so we're good.

 

 

Good to ear him say that they'd need Congress or the Fed rather than Treasury.

 

I've made a point to listen for that.  In all 3 interviews/articles in the past 10 days he has said "Congress" or "Fed" and hasn't mentioned "Treasury."  He is making a point by excluding them as even a possibility.

[investorG]

Is this really payback for lobbying so hard against FnF?

 

 

I really hope it is, but i doubt it.

 

It's probably not payback.  It's likely either a) they don't like the business model and/or b) they view the GSEs as the appropriate bail-out facility and are using this as some leverage to gain consensus to quickly fix the GSEs so they can play the counter cyclical role they are intended for.

[DRValue]

Why do you think this is a good thing? I see it the opposite. There is already a funding commitment from Treasury, and we know how that backstop works. If Calabria insists on going to Congress instead then this would entail Congressional legislation. I doubt that within this legislation there would be provisions to make shareholders whole or that it would somehow be neutral to shareholders which would be continued limbo. If Congress passes a bill, I think it likely shareholders are wiped out. In fact, Calabria has already stated that if they were bailed out again then shareholders would be wiped out. It worries me that Calabria doesn't just state the obvious that there is a funding commitment from Treasury already on the books so we're good.

 

 

Good to ear him say that they'd need Congress or the Fed rather than Treasury.

 

I've made a point to listen for that.  In all 3 interviews/articles in the past 10 days he has said "Congress" or "Fed" and hasn't mentioned "Treasury."  He is making a point by excluding them as even a possibility.

 

My thinking is that if treasury isn't mentioned, or rather the backstop, then there is no anticipation of a capital draw.

Going to Congress is a wildcard but I expect it to be a further stimulus bill / bailout. What that entails is anyone's guess though.

[Guest Covid-19_Survivor]

Dated article that points out congressional execution errors re: forbearance, and remedy

 

https://www.nationalmortgagenews.com/opinion/financial-tsunami-threatens-housing-sector?utm_content=socialflow&utm_medium=social&utm_campaign=natmortgagenews-tw&utm_source=twitter

[investorG]

Good to ear him say that they'd need Congress or the Fed rather than Treasury.

 

I've made a point to listen for that.  In all 3 interviews/articles in the past 10 days he has said "Congress" or "Fed" and hasn't mentioned "Treasury."  He is making a point by excluding them as even a possibility.

 

I think the honor system is a huge risk. Saying that, it's not a free lunch as it's added to the principal. Some might take advantage to spend the money today though, if they want to, or may use it as a cushion for another rainy day.

 

I think take-up will be high, unfortunately.

 

Same here. I don't see a reason why the take-up rate won't approach 100%. There is no downside for any individual to take the forbearance.

 

FnF have an extra $250B to draw from Treasury if worse comes to worse. The companies will survive. Shareholders are in a much more precarious position, with only $23B worth of capital cushion. We survived the last draw from Treasury in Q1 2018, but that was with Watt in charge. I don't know if Calabria would feel compelled to wipe out shareholders in the event of a draw from Treasury. Some clarity on this is sorely needed. If anyone knows a journalist who could ask him this, please reach out.

 

This is also why I believe Treasury's backstop will survive recap and release, notwithstanding Trump's insistence on an "explicit" and paid-for backstop. I put "explicit" in quotes because it's not the explicit MBS guarantee that the Trump administration wants, but instead it's just for FnF.

 

100%!?

 

what about the people with savings. or still employed with decent wages / salary (ie bank employees, grocery employees, FnF lawyers, teachers, etc).  or those who don't want to deal with a servicer or those that are eager to get out of debt sooner.

 

if it's 100%, which admittedly is possible, the Dow would likely be half its current value.

[Guest cherzeca]

I have no idea what take up % will be, but I will tell you that it has to be done through servicers and, right now, they aren't answering the phone, and some are requiring repayment at end of forbearance period...and the CARES act is silent on when these amounts are repayable, so servicers will be as unaccommodating as possible

[undervalued]

Good to ear him say that they'd need Congress or the Fed rather than Treasury.

 

I've made a point to listen for that.  In all 3 interviews/articles in the past 10 days he has said "Congress" or "Fed" and hasn't mentioned "Treasury."  He is making a point by excluding them as even a possibility.

 

I think the honor system is a huge risk. Saying that, it's not a free lunch as it's added to the principal. Some might take advantage to spend the money today though, if they want to, or may use it as a cushion for another rainy day.

 

I think take-up will be high, unfortunately.

 

Same here. I don't see a reason why the take-up rate won't approach 100%. There is no downside for any individual to take the forbearance.

 

FnF have an extra $250B to draw from Treasury if worse comes to worse. The companies will survive. Shareholders are in a much more precarious position, with only $23B worth of capital cushion. We survived the last draw from Treasury in Q1 2018, but that was with Watt in charge. I don't know if Calabria would feel compelled to wipe out shareholders in the event of a draw from Treasury. Some clarity on this is sorely needed. If anyone knows a journalist who could ask him this, please reach out.

 

This is also why I believe Treasury's backstop will survive recap and release, notwithstanding Trump's insistence on an "explicit" and paid-for backstop. I put "explicit" in quotes because it's not the explicit MBS guarantee that the Trump administration wants, but instead it's just for FnF.

 

If they go to Congress instead of Treasure, isn't that already a big signal that they won't be removing the NWS? If they (Calabria and Treasure) have possible solution on increasing capital, why would they go to Congress first instead of solving the issue themselves? Maybe the plan that Calabria executing is different than what we thought it will be? Just trying to see if we can find a good reason to abandon ship before all of this sinks (opposite of backing the truck).

[Midas79]

If they go to Congress instead of Treasure, isn't that already a big signal that they won't be removing the NWS? If they (Calabria and Treasure) have possible solution on increasing capital, why would they go to Congress first instead of solving the issue themselves? Maybe the plan that Calabria executing is different than what we thought it will be? Just trying to see if we can find a good reason to abandon ship before all of this sinks (opposite of backing the truck).

 

Congress is the ultimate wild card. They can go from wiping all current shareholders with no recourse to forcing Treasury to write off the seniors and give FnF oodles of money. For the record, I don't want them getting involved with FnF at all unless it's only some sort of limited fund to cover the wave of payments due to MBS investors that won't be offset by revenue due to the forbearances allowed by the CARES Act.

 

That said, going to the Congress or the Fed is a last resort, which seems clear to me from what Calabria said. If it does end up becoming necessary then there is downside for current shareholders.

 

I'm not nearly so scared of the Fed acting because I don't think they have the power to wipe shareholders out.

 

I also don't fear receivership at the moment. If FnF were to exhaust all of their capital and require a draw from Treasury (which, as Tim Howard recently pointed out, would be mitigated by the protection afforded by CRTs and FnF's own income), Calabria could probably technically impose receivership. However, that would immediately be challenged per HERA from at least a dozen people/institutions. As long as losses do not exceed $150B, those challengers can argue that if the NWS had not happened, FnF would have $150B of capital right now (though the seniors would still exist) and would have never lost enough money to allow Calabria to legally trigger receivership.

[undervalued]

If they go to Congress instead of Treasure, isn't that already a big signal that they won't be removing the NWS? If they (Calabria and Treasure) have possible solution on increasing capital, why would they go to Congress first instead of solving the issue themselves? Maybe the plan that Calabria executing is different than what we thought it will be? Just trying to see if we can find a good reason to abandon ship before all of this sinks (opposite of backing the truck).

 

Congress is the ultimate wild card. They can go from wiping all current shareholders with no recourse to forcing Treasury to write off the seniors and give FnF oodles of money. For the record, I don't want them getting involved with FnF at all unless it's only some sort of limited fund to cover the wave of payments due to MBS investors that won't be offset by revenue due to the forbearances allowed by the CARES Act.

 

That said, going to the Congress or the Fed is a last resort, which seems clear to me from what Calabria said. If it does end up becoming necessary then there is downside for current shareholders.

 

I'm not nearly so scared of the Fed acting because I don't think they have the power to wipe shareholders out.

 

I also don't fear receivership at the moment. If FnF were to exhaust all of their capital and require a draw from Treasury (which, as Tim Howard recently pointed out, would be mitigated by the protection afforded by CRTs and FnF's own income), Calabria could probably technically impose receivership. However, that would immediately be challenged per HERA from at least a dozen people/institutions. As long as losses do not exceed $150B, those challengers can argue that if the NWS had not happened, FnF would have $150B of capital right now (though the seniors would still exist) and would have never lost enough money to allow Calabria to legally trigger receivership.

 

I am also trying to think if there is a better time to talk to Treasury about discuss about eliminating the SPS and raise capital for FnF. You know this lockdown is probably at least another 2 months as Fauci thinks it's not even half time for the pandemic (https://www.newsweek.com/fauci-coronavirus-u-s-battle-coach-k-1495918). When the wreck comes, it's going to be very swift.

[investorG]

imo nothing good's going to happen with the share price until muscleman decides the risk reward is worth a re-entry.  he was treated so poorly but he called the major top quite well last year.

[Guest cherzeca]

"he was treated so poorly because he called the major top quite well last year"

 

yeah, we owe MM a break...

[undervalued]

"he was treated so poorly because he called the major top quite well last year"

 

yeah, we owe MM a break...

 

For the record, I never treated him poorly and treated him equally as everyone else  :P

[Luke 532]

Crisis = catalyst to recapitalize. Interesting. ACG is well-connected at Treasury and FHFA, I wonder if they're hearing any rumblings.

"They (ACG) also note that Calabria mentioned 'crisis illustrated flaws' as a new 'political motivation.' The coronavirus pandemic has made it even more apparent that Fannie Mae and Freddie Mac must build up capital on their balance sheets."

https://talkmarkets.com/content/stocks--equities/will-fannie-mae-freddie-mac-survive-the-coronavirus-crisis?post=257095&page=2

 

Note: I believe the 'political motivation' quote is coming from ACG.  So it's their words, not Calabria's.  But Calabria did say something along the lines of "this crisis has illustrated flaws..." at 6:30 of the video below two days ago.  ACG is connected at FHFA so perhaps they've spoken with somebody there about this, perhaps not.  Video: https://www.cnbc.com/2020/04/01/chief-regulator-says-mortgage-bailout-is-on-the-honor-system.html

 

 

[orthopa]

Crisis = catalyst to recapitalize. Interesting. ACG is well-connected at Treasury and FHFA, I wonder if they're hearing any rumblings.

"They (ACG) also note that Calabria mentioned 'crisis illustrated flaws' as a new 'political motivation.' The coronavirus pandemic has made it even more apparent that Fannie Mae and Freddie Mac must build up capital on their balance sheets."

https://talkmarkets.com/content/stocks--equities/will-fannie-mae-freddie-mac-survive-the-coronavirus-crisis?post=257095&page=2

 

Note: I believe the 'political motivation' quote is coming from ACG.  So it's their words, not Calabria's.  But Calabria did say something along the lines of "this crisis has illustrated flaws..." at 6:30 of the video below two days ago.  ACG is connected at FHFA so perhaps they've spoken with somebody there about this, perhaps not.  Video: https://www.cnbc.com/2020/04/01/chief-regulator-says-mortgage-bailout-is-on-the-honor-system.html

 

I think a final PSPA agreement was viewed as a summerish to fall activity before all of this hit the fan. FnF may have issues after 2-3 months per Calabria which gets us to mid summer. Maybe if things are looking bleak by then its the catalyst that gets things done a little early. I have always felt treasury would not act unless forced. This previously seemed only possible legally but this certainly is a new fold. Political cover will more then be there as this was a bipartisan bill that forced this and MBA and the assoc cast of characters are howling.

 

I guess taking a step back even from a non shareholder view I would question why would'nt you just do a final amendment and move on?

 

The upside to doing another amendment is becoming the best option for all parties, even those that were adamant opponents before. The rub for treasury would be losing 30B.

[Luke 532]

The upside to doing another amendment is becoming the best option for all parties, even those that were adamant opponents before. The rub for treasury would be losing 30B.

 

Agreed with all you said.  On the $30B... that's a small price to pay to make sure 20%+ of the economy is on solid footing, a potential $200B+ judgment against the Treasury isn't ordered, etc.  All in the shadow of a multi-trillion dollar stimulus package.

[Fat Pitch]

So housing is a large % of the US economy and the Treasury is going to gamble with that market to keep that $30 billion overpayment from the GSEs?

 

Sounds very reckless, but maybe they are looking for that political cover from the MBA lobby and Congress to go ahead. Or on the other hand they may be looking at legal pathways to zero out shareholders once and for all.

 

 

Crisis = catalyst to recapitalize. Interesting. ACG is well-connected at Treasury and FHFA, I wonder if they're hearing any rumblings.

"They (ACG) also note that Calabria mentioned 'crisis illustrated flaws' as a new 'political motivation.' The coronavirus pandemic has made it even more apparent that Fannie Mae and Freddie Mac must build up capital on their balance sheets."

https://talkmarkets.com/content/stocks--equities/will-fannie-mae-freddie-mac-survive-the-coronavirus-crisis?post=257095&page=2

 

Note: I believe the 'political motivation' quote is coming from ACG.  So it's their words, not Calabria's.  But Calabria did say something along the lines of "this crisis has illustrated flaws..." at 6:30 of the video below two days ago.  ACG is connected at FHFA so perhaps they've spoken with somebody there about this, perhaps not.  Video: https://www.cnbc.com/2020/04/01/chief-regulator-says-mortgage-bailout-is-on-the-honor-system.html

 

I think a final PSPA agreement was viewed as a summerish to fall activity before all of this hit the fan. FnF may have issues after 2-3 months per Calabria which gets us to mid summer. Maybe if things are looking bleak by then its the catalyst that gets things done a little early. I have always felt treasury would not act unless forced. This previously seemed only possible legally but this certainly is a new fold. Political cover will more then be there as this was a bipartisan bill that forced this and MBA and the assoc cast of characters are howling.

 

I guess taking a step back even from a non shareholder view I would question why would'nt you just do a final amendment and move on?

 

The upside to doing another amendment is becoming the best option for all parties, even those that were adamant opponents before. The rub for treasury would be losing 30B.

[Luke 532]

So housing is a large % of the US economy and the Treasury is going to gamble with that market to keep that $30 billion overpayment from the GSEs?

 

Agreed, would be reckless.  Just get it done for the betterment of the entire country. 

 

Sounds very reckless, but maybe they are looking for that political cover from the MBA lobby and Congress to go ahead.

 

If recapitalizing helps the MBA lobby, servicers, etc. survive, then I think the opposition would go along with it.

 

Or on the other hand they may be looking at legal pathways to zero out shareholders once and for all.

 

I just don't see this as likely at all. 

(1) Calabria has mentioned "the lawsuits will take care of themselves," almost dismissive of them and I believe he said he doesn't think about them much at all.  If he were to wipe us, that wouldn't cause the lawsuits to take care of themselves... the cries of injustice would only grow louder.

(2) Too many friends of Mnuchin and Trump are involved in this investment.

(3) Warrant value would also evaporate.  Midas mentioned there might be a way to port the warrants to the new equity class so the gov't keeps them, but that sounds like a massive legal under-taking and Trump's base, property rights enthusiasts, would not like that one bit.

(4) I'm sure there are other reasons, but my bride and boys are starting a movie so I'm gonna go sit on the couch. 

 

Just seems like a LOT of trouble for the gov't to go that route and really doesn't make sense for them to do it.  I know you weren't saying it is likely and were just pointing out a possibility, so I appreciate that.

 

[undervalued]

I guess taking a step back even from a non shareholder view I would question why would'nt you just do a final amendment and move on?

 

Yes, if there is a path of less resistance and easy way to solve this, why isn't it happening yet. Why wait when the result could be catastrophic? It seems that we're missing something.

[Luke 532]

Yes, if there is a path of less resistance and easy way to solve this, why isn't it happening yet. Why wait when the result could be catastrophic? It seems that we're missing something.

 

We could be missing something, or it could simply be this crisis is only a few weeks old and Mnuchin had to lead the charge on getting the bill through Congress and is now finishing up the SBA. We may very well be next on the docket. Or not.

[Guest cherzeca]

Yes, if there is a path of less resistance and easy way to solve this, why isn't it happening yet. Why wait when the result could be catastrophic? It seems that we're missing something.

 

We could be missing something, or it could simply be this crisis is only a few weeks old and Mnuchin had to lead the charge on getting the bill through Congress and is now finishing up the SBA. We may very well be next on the docket. Or not.

 

my own view is that nothing GSE will happen during this hot period of the crisis.  nothing will happen without mnuchin, and mnuchin is point man on trillions of dollars of other programs that bear directly on potus reelection.  GSEs have the attraction of being able to putter along without drastic action...the ultimate can kicked down the road.  I am not saying that the "plan" is not in effect and will not be executed in all good time, its just that now through the next 12 weeks is not that good time

[orthopa]

So housing is a large % of the US economy and the Treasury is going to gamble with that market to keep that $30 billion overpayment from the GSEs?

 

Sounds very reckless, but maybe they are looking for that political cover from the MBA lobby and Congress to go ahead. Or on the other hand they may be looking at legal pathways to zero out shareholders once and for all.

 

 

Crisis = catalyst to recapitalize. Interesting. ACG is well-connected at Treasury and FHFA, I wonder if they're hearing any rumblings.

"They (ACG) also note that Calabria mentioned 'crisis illustrated flaws' as a new 'political motivation.' The coronavirus pandemic has made it even more apparent that Fannie Mae and Freddie Mac must build up capital on their balance sheets."

https://talkmarkets.com/content/stocks--equities/will-fannie-mae-freddie-mac-survive-the-coronavirus-crisis?post=257095&page=2

 

Note: I believe the 'political motivation' quote is coming from ACG.  So it's their words, not Calabria's.  But Calabria did say something along the lines of "this crisis has illustrated flaws..." at 6:30 of the video below two days ago.  ACG is connected at FHFA so perhaps they've spoken with somebody there about this, perhaps not.  Video: https://www.cnbc.com/2020/04/01/chief-regulator-says-mortgage-bailout-is-on-the-honor-system.html

 

I think a final PSPA agreement was viewed as a summerish to fall activity before all of this hit the fan. FnF may have issues after 2-3 months per Calabria which gets us to mid summer. Maybe if things are looking bleak by then its the catalyst that gets things done a little early. I have always felt treasury would not act unless forced. This previously seemed only possible legally but this certainly is a new fold. Political cover will more then be there as this was a bipartisan bill that forced this and MBA and the assoc cast of characters are howling.

 

I guess taking a step back even from a non shareholder view I would question why would'nt you just do a final amendment and move on?

 

The upside to doing another amendment is becoming the best option for all parties, even those that were adamant opponents before. The rub for treasury would be losing 30B.

 

Zeroing out shareholders after all that has been done over the past year with the treasury plan, FHFA capital rule, hiring houlihan lokey, etc seems a little counter productive, and to then go back out and stick your hand out to recap. That would be pretty rich. It will be a couple months before we see any issues and as cherzeca said that likely get us out of this virus hot period also.

[orthopa]

FnF still has a commitment from treasury for funding via the PSPA. It would be horrible optics but would needing more support trigger receivership? FnF were given a small cushion before year end a couple years ago due to accounting changes so maybe so?