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

[Jurgis]

The WSJ must really like Fannie and Freddie. What "fair and balanced" reporting.

 

WSJ article is a piece of crap.

 

However, somehow this thread never complains about crappy pro-hedgie articles like the NYT piece.

 

The definition of "fair and balanced" reporting is the reporting that supports your stock positions. I knew that.

[Luke 532]

Another article by Pulitzer Prize winner Gretchen Morgenson... her 2nd piece this week!

Fannie and Freddie’s Government Rescue Has Come With Claws

http://mobile.nytimes.com/2015/12/13/business/fannie-and-freddies-government-rescue-has-come-with-claws.html?referer=https://www.google.com&_r=0

 

My favorite part of this article:

Joseph “Woody” Woodruff is a longtime Fannie Mae shareholder who was elected to the state circuit court in Tennessee last year after practicing law for decades.

 

“The federal government entered into a legal arrangement with the G.S.E.s that contained certain undertakings and fiduciary obligations,” Mr. Woodruff said, stressing that he was speaking as an investor, not as a judge.

 

“Then it unilaterally rewrote the terms of the relationship and began in a very lawless manner sweeping the profits and transferring them to the Treasury,” he added. “What’s up with that?”

[Luke 532]

Whitney Tilson long Fannie.  I'm not a fan of his, but here it is: http://www.valuewalk.com/2015/12/tilson-fannie-the-big-short/

[jlaw277]

From Yves Smith at Naked Capitalism, FWIW:

 

http://www.nakedcapitalism.com/2015/12/the-continuing-fight-over-fannie-and-freddie-and-the-real-problem-of-us-mortgages.html

[Luke 532]

Another Fairholme e-mail sent earlier this evening...

Dear Shareholder,

We encourage you to read the following articles, which were published in the last week in the New York Times.

 

“Fannie and Freddie’s Government Rescue Has Come With Claws”

By Gretchen Morgenson

The New York Times

December 12, 2015

http://www.nytimes.com/2015/12/13/business/fannie-and-freddies-government-rescue-has-come-with-claws.html

 

“A Revolving Door Helps Big Banks’ Quiet Campaign to Muscle Out Fannie and Freddie”

By Gretchen Morgenson

The New York Times

December 7, 2015

http://www.nytimes.com/2015/12/07/business/a-revolving-door-helps-big-banks-quiet-campaign-to-muscle-out-fannie-and-freddie.html

 

Kind regards,

 

Investor Relations

                     

Fairholme Funds, Inc.

4400 Biscayne Blvd.

9th Floor

Miami, FL 33137

[doughishere]

Fixing Fannie and Freddie for Good

http://www.nytimes.com/2015/12/15/opinion/fixing-fannie-and-freddie-for-good.html?_r=0

 

 

I feel like its one thing to wishfully think that if we get rid of fannie and freddie it opens the door to "healthy competition"...and the economist(one of the guys is a economist at moodys) point of view is that "healthy competition" is the way to enlightenment....but in a way theres a market failure (not in the traditional economist sense, remember economists would call electric companies market failures because they have a monopoly and a monopoly is the most basic kind of market failure..right its the furthest thing from "healthy competition", which is why they always tout "healthy competition"..if im a businessman i want a monopoly..and to keep that monopoly.....go read peter thiels newest book for why i say this. Competition is for losers. google that.) in that no one wants to be in "healthy competition" when the business of making giant $300,000+ loans(or even say $100,000 loans) to the public. Its tough work to determine if a person is worthy of $300,000 dollars. 

 

So what im getting at is you just like the utility companies you have to have a regulated or semi regulated housing loan company so that even the disadvantaged poor gets to participate in getting loans, and owning pieces of american land that not many, under "healthy competition" would normally get. Its funny how we quickly replace the last most scarring event and completely wonder why they exist in the first place(i wish these two guys put that in their op-ed).....that the market fails in a sense that we need fannie and freddie to do things that the markets normally wouldn't do.

 

One of the problem with economists(my professors always tell me this) is they always say if you dont know how to look at the problem then make the problem look like something you know how to do....that works until it doesn't. Buffett says better to be almost right than completely wrong. I dont know...I find such rigidity silly.

 

Reform is one thing. But does anyone notice how no one addresses the legal issues? I have not heard one other proponent other than what we get from the DOJ on the legality. I thought we were a nation of laws.

 

These economists answer to that would be..."well im not a lawyer".

 

 

Back to the original point. Its strange...at a mirco level not one of us would loan our friend money to buy a $9,000 car....yet we think that that the banks will do it when its a $300,000 house with a promise to pay over 30 years...im willing to bet bankers and even some economist wouldnt loan that kind of money to others, im not willing to loan a my own cousin that kind of money...but maybe that makes me a bad cousin, Would you?..So someone has to step in and create that space..if its the end goal that we want......i dont know is this analogy off? Maybe theres some Economics Noble Prize winning paper on that simple thought.

 

[doughishere]

And another side note....I dont get it...These two guys are Obama's guys..."the social progressive guys"....Fannie and Freddie are FDRs Babies and he was arguable the most Liberal president since Lincoln....and Obama is suposed to be the most socially progressive president since FDR........ so to me its fascinating how they want to erase that. You'd think the more conservative hedge funds would be the ones wanting to get rid of Fannie and Freddie.......

 

Please people...I talk a lot of trash and I know it...but there has to be some critiques on what I have to say.

[Luke 532]

This might prove to be interesting.  Tuesday the 22nd.  "Duty to Serve" webinar by FHFA.

https://www.eventbrite.com/e/fhfa-duty-to-serve-webinar-tickets-19731809373

[doughishere]

Pershing on F&F:

 

Fannie Mae (FNMA) / Freddie Mac (FMCC)  The GSEs’ continue to show healthy underlying trends in their core guarantee business, which have been obscured by non-cash, accounting-based derivative losses in the GSEs’ non-core investment portfolio.  Changes in the value of the derivatives create enormous volatility in the GSEs’ GAAP quarterly earnings, even though they do not have an impact on economic earnings or intrinsic value.  Because the net worth sweep does not allow the GSEs to retain capital, it is likely that future accounting-based derivative losses could cause the GSEs to borrow additional funds from Treasury despite having no economic need to do so. This is yet another example of why the Net Worth Sweep is problematic.  Since our last call, there has been a growing belief among highly regarded and politically influential groups and thought leaders that the GSEs must retain capital and exit conservatorship.  Substantial questions have been raised about the government’s legal justification for the Net Worth Sweep.  We encourage you to read Gretchen Morgenson’s December 13th New York Times article on the GSEs entitled:  “Fannie and Freddie’s Government Rescue Has Come With Claws,” which can be found here:  http://www.nytimes.com/2015/12/13/business/fannie-and-freddies-government-rescue-has-come-with-claws.html?ref=todayspaper&_r=0.

13 Recently, the Community Home Lenders Association and Community Mortgage Lenders of America, two organizations representing the politically powerful community banks, wrote a letter to the White House arguing for capital retention and an end to conservatorship for the GSEs.  There have also been reports that the White House is considering various alternatives for recapitalizing the GSEs.  Although government officials have denied these reports, we find it interesting that these reports have surfaced amid a growing consensus that a recapitalization of the GSEs is needed. At the end of October, a shareholder of both Fannie and Freddie’s common stock filed suit against the Net Worth Sweep in Kentucky.  This case provides another avenue for pressing the case against the Net Worth Sweep in addition to the cases in the DC District Court of Appeals and the Federal Court of Claims.  The GSEs underlying guarantee business is in healthy shape, the momentum for capital retention and an exit for conservatorship are growing, and the legal avenues for fighting the Net Worth Sweep have increased.

[Luke 532]

Pershing on F&F:

 

Fannie Mae (FNMA) / Freddie Mac (FMCC)  The GSEs’ continue to show healthy underlying trends in their core guarantee business, which have been obscured by non-cash, accounting-based derivative losses in the GSEs’ non-core investment portfolio.  Changes in the value of the derivatives create enormous volatility in the GSEs’ GAAP quarterly earnings, even though they do not have an impact on economic earnings or intrinsic value.  Because the net worth sweep does not allow the GSEs to retain capital, it is likely that future accounting-based derivative losses could cause the GSEs to borrow additional funds from Treasury despite having no economic need to do so. This is yet another example of why the Net Worth Sweep is problematic.  Since our last call, there has been a growing belief among highly regarded and politically influential groups and thought leaders that the GSEs must retain capital and exit conservatorship.  Substantial questions have been raised about the government’s legal justification for the Net Worth Sweep.  We encourage you to read Gretchen Morgenson’s December 13th New York Times article on the GSEs entitled:  “Fannie and Freddie’s Government Rescue Has Come With Claws,” which can be found here:  http://www.nytimes.com/2015/12/13/business/fannie-and-freddies-government-rescue-has-come-with-claws.html?ref=todayspaper&_r=0.

13 Recently, the Community Home Lenders Association and Community Mortgage Lenders of America, two organizations representing the politically powerful community banks, wrote a letter to the White House arguing for capital retention and an end to conservatorship for the GSEs.  There have also been reports that the White House is considering various alternatives for recapitalizing the GSEs.  Although government officials have denied these reports, we find it interesting that these reports have surfaced amid a growing consensus that a recapitalization of the GSEs is needed. At the end of October, a shareholder of both Fannie and Freddie’s common stock filed suit against the Net Worth Sweep in Kentucky.  This case provides another avenue for pressing the case against the Net Worth Sweep in addition to the cases in the DC District Court of Appeals and the Federal Court of Claims.  The GSEs underlying guarantee business is in healthy shape, the momentum for capital retention and an exit for conservatorship are growing, and the legal avenues for fighting the Net Worth Sweep have increased.

 

^^^ link: http://assets.pershingsquareholdings.com/2014/09/Pershing-Square-Holdings-Ltd.-Q3-Investor-Letter1.pdf

[Luke 532]

https://davidhstevensblog.wordpress.com/2015/12/15/reform-before-recapitalization/

 

Reform Before Recapitalization

Posted on December 15, 2015 by DavidHStevens

 

In response to last week’s New York Times article on the GSEs, a number of housing finance experts have come forward to point out the many problems with the Times’ false narrative.

 

The Times column and other similar pieces contain a number of inaccuracies, regarding both the history and the future of the GSEs.  We speculate this narrative is being driven by those who stand to gain windfall profits from recapitalizing and releasing Fannie and Freddie from conservatorship.

 

A recent Wall Street Journal editorial sheds light on possible motives behind the false narrative: “The hedge funds claim they are committed to a long-term fight to see the companies recapitalized and set free, and have filed lawsuits to that effect. But they undoubtedly have also earned millions from the gyrations in Fannie and Freddie’s thinly traded shares as the penny-stock enthusiasts pile in.”

 

The Wall Street Journal editorial is a must-read.

 

MBA has long advocated for thoughtful GSE reform that will truly protect taxpayers and benefit small lenders and consumers. Simply put – recap and release without reform could re-open the door once again to preferred pricing and special deals for the largest lenders and leave the smallest lenders with a competitive disadvantage. So, let’s first focus on the reforms that will keep the playing field level before addressing the needs of the investors.

 

The New York Times published a subsequent op-ed this week from Mark Zandi and Jim Parrott further detailing the need to first engage in fundamental reform to prevent repeating mistakes of the past.

 

Effective GSE reform that protects taxpayers and the stability of the financial system would require several changes from the current state of GSE conservatorship. First, reduce the risk to the taxpayer by having the explicit guarantee back only the mortgage securities and not corporate entities. Second, encourage private capital in the secondary mortgage market which would take up front, first loss, risk in transactions, but demand that this be accessible to lenders regardless of size and transparent to all participants in the market. To ensure a robust supply of affordable rental housing, maintain the GSEs’ multifamily programs. Finally, the industry and consumer advocates should work together to develop clear policies regarding how the GSEs should meet affordable housing needs in a more efficient manner.

 

A rush to recap and release the GSEs without any meaningful reform does nothing to improve the stability of the housing finance system.

[doughishere]

When you say reform before recapitalization its almost as if you acknowledge the money that should be on the balnace sheets of fannie and freddie are being held hostage....and that some how this time its permissible to hold assets hostage.

[doughishere]

Seems everyone is putting in their 2 cents these days.......I was wrong Luke more and more people are starting to get into it.....I can admit when I am wrong.

 

http://www.nakedcapitalism.com/2015/12/the-continuing-fight-over-fannie-and-freddie-and-the-real-problem-of-us-mortgages.html

 

Because I love to editorialize: Its always amazing when one side of the argument essentially says I'm right and this is just the way it is.....something like "similar pieces contain a number of inaccuracies, regarding both the history and the future of the GSEs." but then never states those inaccuracies or tries to correct them. Then when others make arguments they use facts...and footnotes and studies and a whole sort of other mechanisms to...dare I say....support their conclusions or bold statements.

[Luke 532]

Forbes article this morning by Epstein...

Fannie and Freddie in the Dock Will Shareholders Find Relief Under State or Federal Law?

http://www.forbes.com/sites/richardepstein/2015/12/16/fannie-and-freddie-in-the-dock-will-shareholders-find-relief-under-state-or-federal-law/?utm_campaign=yahootix&partner=yahootix

[Luke 532]

i recommend this article by rule of law guy as required reading

 

http://seekingalpha.com/article/3723466-why-hindes-jacobs-plaintiffs-will-prevail-in-the-fannie-mae-and-freddie-mac-delaware-litigation

 

Another one posted by Rule of Law Guy.  This one from this morning...

http://seekingalpha.com/article/3759176-why-hindes-jacobs-plaintiffs-will-prevail-in-the-fannie-mae-and-freddie-mac-delaware-litigation-part-ii

[morningstar]

FNMAS back to below the Lamberth ruling lows ... Personally a bit surprised Corker got his provision into the omnibus, after none of the previous attempts to GSE-related legislation moved an inch.

[Luke 532]

FNMAS back to below the Lamberth ruling lows ...

 

Pretty shocking given the amount of progress that has taken place in the courts and in the media since Lamberth's ruling.  Then again, that's Wall Street's nature and discrepancies in value vs. price is why we get paid so much as value investors.

 

And anytime the daily volume is less than $1,000,000 at mid-day, well, it makes me even less concerned about price action (and that's saying something since I don't care about price action in the first place).

[doughishere]

The key provision on which the government relies is 12 U.S.C.§4617(f), which provides: “(f) Limitation on court action “no court may take any action to restrain or affect the exercise of powers or functions of the Agency as a conservator or a receiver.” As the government reads this provision, there is no effective judicial oversight over FHFA ever, which should be treated as a conservator even when its actions are utterly inconsistent with its explicit fiduciary duties. To be sure, this provision makes good sense making sure that shareholders could not “second guess” each and every business decision of FHFA in dealing with third-parties.

 

Unfortunately, that is not what is at stake here: namely stripped assets instead of managing them. As stated in Kellmer v. Raines, the correct rule reads as follows: “absent a manifest conflict of interest by the conservator not at issue here, the statutory language bars shareholder derivative actions” (emphasis added). But in this case, there is a manifest conflict of interest in the self-dealing between FHFA and Treasury. Nor are the shareholders in question bringing a derivative action on behalf of the corporation against any third party. They are suing as direct beneficiaries for breach of fiduciary duty that HERA imposes on FHFA as conservator of Fannie and Freddie.

 

The same approach was taken in Hindes v. FDIC under 12 U.S.C. § 1821 (j), the parallel provision in FDIC on which 12 U.S.C.§4617(f) is model. There the court wrote:

 

 

“Our interpretation of section 1821(j) only denies appellants the declaratory and injunctive relief they now seek, but does not deny them judicial review for their constitutional claims. Courts uniformly have held that the preclusion of section 1821(j) does not affect a damages claim.”

 

And further, “Courts, however, have recognized a limited exception to a statute’s specific withdrawal of jurisdiction where the plaintiff claims that the agency acted in a blatantly lawless manner or contrary to a clear statutory prohibition.”

 

The above exceptions 12 U.S.C.§4617(f) (found in the very cases cited by the government) make perfectly good sense. The Jacobs plaintiffs are not trying to upset FHFA’s decisions on whether to hold or sell specific assets for the benefit of the shareholders. They are seeking to reverse a blatant set of constitutional violations brought on by the sweep, which was an egregious case of self-dealing. It is indefensible to insist that corporate looting by government falls outside the scope of judicial review.  To back up its aggressive claim, the government insists that under 12 U.S.C. §4617(b)(2)(J)(ii) FHFA may “take action that it determines is in the “best interests of the regulated entity or the Agency,” without bothering to mention that this phrase is tucked into an obscure section that only gives “incidental powers” to the Agency.  No such ancillary provision can negate FHFA’s bedrock obligations as conservator. The government claim for total immunity is wrong as a matter of statutory interpretation, and wrong as a matter of constitutional law.

[Luke 532]

Todd Sullivan commentary on Corker's bill: http://www.valueplays.net/2015/12/16/corker-slips-jump-start-act-in-omnibus-bill-its-irrelevant/

[Luke 532]

Investor Unite's commentary on Corker's bill: http://investorsunite.org/investors-unite-jumpstart-does-not-prevent-settlement-with-shareholders/

[fareastwarriors]

Why Fannie Mae Revival Hopes Are Withering on Capitol Hill

 

Shares of Fannie and Freddie are in trouble thanks to a provision in Capitol Hill’s omnibus spending deal

 

http://www.wsj.com/articles/why-fannie-mae-revival-hopes-are-withering-on-capitol-hill-1450384375

[TonyG]

Another article by Carney that doesn't report facts. I really cannot stand this guy.

and cherzeca, great comment on it.

[Luke 532]

Timothy Mayopoulos (Fannie CEO) on CNBC late this afternoon:

http://video.cnbc.com/gallery/?video=3000467303

[TonyG]

http://www.c-span.org/video/?402252-1/us-senate-morning-business&start=17851

 

Corker pounding his chest on his Jumpstart provision. I really can't believe he believes half of what he says

[TwoCitiesCapital]

I think another question that we need to start discussing is what happens if there are losses and FNMA and FHLMC have to take on more loans from the gov't to support themselves? What if GAAP losses, instead of cash losses, force the gov't to infuse an even greater amount of money that subsequently can't be repaid?

 

I can understand that if the takings moves in our favor that there will be some sort of calculation as to what is owed and there are some that believe that the profits currently swept will be considered repayment of the senior preferred shares and their dividend, but what happens if we have to start drawing again. It's not immediately clear to me how that would be handled and considered by the court - because it would be the inevitable result of government action, but I don't think the court is in the business if saying "if not for the sweep, the firms would have been sufficiently capitalized" after saying that the sweep was used to repay the preferred.

 

Is anyone considering how that may change the calculation of the residual economic value or have any thoughts on that?