onyx1

There are some very specific and relevant recommendations in there. What we need to ask is: how much of what Phillips is saying is just his view compared to what Treasury is actually thinking? Phillips: "I also believe that there is not only consensus but complete cooperation between all the relevant parties, particularly Secretary Mnuchin and Director Calabria. I am very supportive of the recommendations in the Treasury report and believe they are possible to achieve." Sounds like they are all harmonizing Kumbaya.

Todays WSJ: "FNMA & FMCC federal regulator kicked off a process for the mortgage-finance companies to raise enough capital for them to return to private ownership.The Tuesday announcement by the Federal Housing Finance Agency is a sign it thinks the companies likely need more than $180 billion in capital previously envisioned by the agency in 2018. "Anyone know of any specific basis for this "sign"? Or is the author hallucinating?

I don't see the capital rule slowing anything. The critical path is the time to accumulate retained earnings that will take us to the end of 2020. Also, UST is taking the lead in the settlement talks so I don't see how FHFA could have specific intention on timing.

We are actually at a buying point. Similar to Nov 2017 and 3 more instances. Possibly but likely will take a lot more shareholder turnover before any confidence in a bottom. There are plenty of hedge fund holders who probably aren't interested in waiting on the new timeline and/or courts. In reality, it's all a moving target. Been that for as long as I can remember and things can change in a dime. They did with Obama. They will with Trump. With Watt and Calabria and with Geithner and Mnuchin, same thing. Don't despair. Could be a double by March/April next year. I've owned continuously since 2011 and my observation is GSE investors overreact to all government developments, good and bad.

FWIW Tim Howard called this weeks ago. And for those who may have missed it, at a speech Calabria made on Monday at a conference put on by the Structured Finance Association he said he would “soon be announcing whether the capital rule will be re-proposed and under what terms.” If FHFA weren’t intending to re-prepose at least part of the rule, there would have been no reason for Calabria to have mentioned terms. -- Nov 6 2019

As long as efforts to settle the shareholder litigation are happening concurrently, I don't see re-proposing the capital rule as a source of meaningful delay.

@cherz @snark Thanks for the thoughtful replies. It appears this is playing out to be an investment in a higher quality guarantor with substantially more capital than history has shown was ever needed, but with some legally unresolved government overreach risk that may affect share valuation. Especially in times of housing stress. Best, Onyx

one more consideration: the NWS was a creature of the HERA conservatorship. once the GSEs go from "in conservatorship" to "consent decree" phase, the conservator no longer has the power to try another NWS (never had the power to do it in first place as collins points out). that is why this "consent decree" phase that fhfha has recently confirmed is so important...to answer the very question of new investors that you just articulated That's a reasonable argument, and I believe it will satisfy investors for the near future and hopefully through the public offering. But once free of the consent decree shareholders don't have any protection against a scenario down the road where: (1) housing downturn, leads to (2) fear of losses, triggers (3) over reserving "to be safe", and panicked regulators (4) impose another conservatorship & money grab to "protect the taxpayers" and the new government backstop. Yes, this is a hypothetical scenario. But the government operators have a terrible track record in their treatment of shareholders. The NWS was bad enough, but add the egregious sale of Jr. preferred in the summer of 2009. Regulators gave investors assurances that the GSEs were "adequately capitalized" only to throw them in conservatorship a few weeks later. With the risk of government abuse, it's hard for me to put the common into the category of a long-term holding. I am hoping for comfort, and recognize maybe it's a pipe dream.

I recognize I’m leap frogging ahead, but assuming we face a future decision to convert Jrs to common, nothing will cut my interest in owning a converted-to-common position faster than a threat of the NWS monster returning during the next housing downturn. I expect investors in a future public offering will also demand protection from government overreach, and I don’t think verbal assurances like “sorry, won’t happen again” from the FHFA will cut it. Calabria expects the lawsuits will “go away” with a new PSPA amendment/Sr. liquidation write down. If Rosner is right on timing, the lawsuits will be “moot” sometime in Q1 2020. Without a definitive legal decision declaring the illegality of the NWS, where and in what form will shareholders get comfort? An act of Congress clarifying the HERA language? If part of a settlement agreement with plaintiffs, will it be enforceable?

this was not said in so many words. David would never say there is going to be a settlement. I do believe David believes there will be a settlement. he mentioned that Calabria is on a 15 month shot clock since a new potus can remove him (or so he expects scotus to affirm whether in this case or another), and the APA holding is very strong and unlikely to be reversed by scotus Thompson thinks the government has a lot of reasons to settle soon due to significant litigation risk. (1) FHFA removal threat sets up a “15 month shot clock” plus (2) Fairholme case with a claim for breach of implied covenant of good faith which is a liability that is owed by the GSE’s (not the government). Thompson believes that raising capital for the GSE’s would be “basically impossible” with potential for lawsuit damages that could cost new investors “tens of billions”. If he is right, I see the Jr. preferred gaining more from this scenario than the common.

FMCCI is a LIBOR+1% based floating rate coupon with a 9% cap. The coupon would currently be set at a relatively low rate of 2.25%. Similar low coupon floaters are FMCCJ, FMCCL, FMCCM, FMCCG. These are cheaper to par, IMO, because of the possibility the Jr. Pref coupon rates come into play in refi/convert negotiations. Maybe they will. Or maybe all Jrs get taken out at par. It's impossible to say at the moment. I've been adding Jrs. with fixed coupons in the 5%-7% range at slightly higher prices than the low coupon floaters, and avoiding the higher priced liquid high coupons for this reason. Examples: FREJP, FMCCH, FMCKK, FMCCO, FMCCK FMCCP. In the end, I believe all are good. It's like entering a room with change all over the floor having to choose which coins to pick up first.

Agree. Extending gratitude to Bruce Berkowitz and all the other hedge funds. For seven years, we've enjoyed world class legal representation at no cost. I'm very grateful.

@SnarkyPuppy Thanks for sharing your extensive work the above post. Very informational!

Updated Moelis Blueprint http://gsesafetyandsoundness.com/2018/11/09/oneyearlater/

A 90lb woman has been dragged, head-first, into the back seat of a car by two strange men. With her legs still outside the car, she is struggling and screaming for her life. Despite the chaos she is able to make a very nuanced observation: "My husband's best friend about 15 feet ahead hears me first, stops dead in his tracks and starts bolting towards me." Red flag.

20+ years at a Chase for a checking account (I have no need for any type of debt, credit or private banking services) and I will likely never change. First, I have details for hundreds of payees for online bill payments in the system. Massive headache to change to another bank. Second, I live in a town where parking is hard to find. My branch allows me to park in their lot and run errands around town. Very convenient! Third, Chase app works well, zelle works well, and my brokerage account has all my bank details for wire transfer withdraws. It's all set up and working. I have an incentive to change as I am a long time shareholder of BAC and WFC, but Chase simply has me locked in.

Well done Joel, thanks for sharing. Dimon this morning offers further support to the golden age of banking thesis, and where the US stands in the credit cycle. https://cnb.cx/2BNtNqu

Draft of infrastructure plan leaked. https://www.axios.com/draft-white-house-infrastructure-plan-1516644555-0d43f417-6ccd-43f7-9eae-3ccbe711314d.html

Midas79, why do you believe this? Here is language from FMCCT/FMCCS and FMCKJ: Amendments Without the consent of the holders of the Preferred Stock, we will have the right to amend the Certifcate of Designation to cure any ambiguity, to correct or supplement any term which may be defective or inconsistent with any other term or to make any other provisions so long as the amendment does not materially and adversely affect the interests of the holders of the Preferred Stock. Otherwise, we may amend the Certificate of Designation only with the consent of the holders of at least two-thirds of the outstanding shares of Preferred Stock. On matters requiring consent, each holder will be entitled to one vote per share. Am I missing something?

Thrilled to see this! I 1-clicked, and I intend to submit my first ever customer review after reading. Hope they do insurance next.

I continue to think that monetizing the warrants will be one of the ways that they pay for the infrastructure plan. This is the first thing that came to my mind when I read the headline.

I doubt it. Reducing the headline corporate tax rate is the R's signature tax reform objective; delaying it for a year for such a relatively trivial reason (to most Senators) would make it harder to get the R votes needed. At one point Corker had tried to taunt Watt into taking a draw for no reason at all. One would think Corker would try to increase the probability of a draw and have it be sooner rather than later. I'm speculating that its not trivial to Corker, and with such a thin majority, Corker may be in a position successfully demand 2019 or he votes no. But if the FnF DTA issue was the only reason he wants the delay he could just try to insert special language just for the GSEs. Something like keeping their tax rate at 35% while in conservatorship. I don't think that would trigger a write-down because FnF don't know when the conservatorship will end and thus wouldn't know how much to write down? It could also be seen as a show of good faith towards Mnuchin, even though it certainly wouldn't be one in reality. The one-year delay also might be enough of a dealbreaker to some Senate Rs that Corker would end up cutting off his own nose to spite his face. If the tax reform bill goes down because of him he might get a ton of blame from Rs (especially Trump) and might lose some political capital for his last year in office. From the (admittedly little) reading I've done, there is a Senate rule that allows them to pass the tax reform with a simple 51-vote majority as long as it is not projected to increase the deficit by more than $1.5T over 10 years, and that the one-year delay in cutting the corporate tax rate is designed to "save" money that will be used for other tax cuts. That seems more plausible to me than a one-man crusade on Corker's part. You're right that Corker holds a lot of power even though he has but one vote due to the R's slim majority in the Senate. Good points, you may be right. It's very hard to tell sitting here in the cheap seats.

I doubt it. Reducing the headline corporate tax rate is the R's signature tax reform objective; delaying it for a year for such a relatively trivial reason (to most Senators) would make it harder to get the R votes needed. At one point Corker had tried to taunt Watt into taking a draw for no reason at all. One would think Corker would try to increase the probability of a draw and have it be sooner rather than later. I'm speculating that its not trivial to Corker, and with such a thin majority, Corker may be in a position successfully demand 2019 or he votes no.

Anyone else suspect that Corker is behind the 2019 corporate tax cut start date? The one-year delay would avoid a DTA-triggered draw and an FHFA excuse to tinker with the NWS. All to give Corker time to work out a legislative "solution".