Luke 532

Thanks for posting. CNBC's take, FWIW: https://www.cnbc.com/2020/03/03/supreme-court-looks-to-weaken-consumer-financial-protection-bureau.html

I know he didn't say "internal" and I was trying to be careful in my post to make that point, and that is merely what I think he was referencing. Perhaps I'm reading into his comments too much, but I still find his talks this week encouraging.

Calabria revealed A LOT this week, but not many people noticed because the market was/is in a freefall. On Monday, Calabria said "go to the market" and "an external capital raise" which makes sense given what he was discussing, but then on Tuesday he says "when we raise capital" in the same sentence as the "heavily diluted" comment. What's the difference between Monday and Tuesday, if any? Well, I see two separate things he's discussing. External capital raise/go to market (Monday quotes) and internal capital raise (Tuesday quote)... and I think that's what he was referencing on Tuesday, the internal raise. It makes sense that an internal raise would correspond with heavy dilution. In other words, I fully expect junior preferred shares to be converted into common, warrants exercised to skyrocket the share count, etc. Additionally, when discussing on Tuesday what I believe is the internal capital raise, he says "will be heavily diluted when we raise capital"... it wasn't "might be" heavily diluted or "if" we raise (internal) capital. It was very matter of fact, and if you watch the interview you'd likely get that impression as well. It almost seemed like the internal capital raise is a done deal. And to me, a junior preferred shareholder, the timing of the external raise is inconsequential. The only thing that matters to me is when the internal raise takes place. Yes, I realize that in certain circumstances the planned timing of an external capital raise can impact the urgency, or lack thereof, of an internal capital raise. I find Calabria's comments this week very encouraging. Monday: “FHFA’s capital rule will be a critical mile marker. It must be in place before Fannie and Freddie can go to the market to raise capital. I expect we will have re-proposed the capital rule very soon. Our goal is to publish the final rule by the end of 2020.” Director Calabria “Based on this timeline, 2021 is the most likely target for an external capital raise by the Enterprises. However, let me emphasize that this effort will continue to be process dependent, not calendar dependent.” Tuesday: "the shareholders will be heavily diluted when we raise capital... so at the end of the day I am not focused on whether there’s a windfall, because I don’t think there’s really going to be that big of a windfall"

Posted with permission from Todd Sullivan: http://www.valueplays.net/2020/02/28/subs-fhfa-is-looking-for-lawyers/ FHFA is looking for a law firm. The backstory that I am hearing is that they are not satisfied with the current pace of negotiations with shareholders. As we’ve said many times before, with the litigation outstanding, there is no way the GSE’s can emerge from conservatirship. Here is the solicitation: https://valueplays.net/wp-content/uploads/RFP-FHF-20-R-0029.pdf Scope of work: https://valueplays.net/wp-content/uploads/Attachment-A-Statement-of-Work.pdf

Fair enough. I'm genuinely curious what percentage chance you would place on them being nationalized? I know it's impossible to quantify odds with something like that, but what's your best guess? Thanks.

+1

Maybe because markets down big last two days?

Last year... https://www.valuewalk.com/2019/01/john-paulsons-freddie-and-fannie-trump/ 54:10 of following interview w/ John Paulson last year: "... meanwhile former preferred holders, and we are former preferred holders... they have not received a dividend in ten years..." Today... .@FHFA @MarkCalabria @BloombergTV: "important to remember that the shareholders haven't had a dividend in over a decade" [the John Paulson defense] $FNMA $FMCC Credit to Holden Walker.

Pretty much zero reason to hold common shares at this point (in the future after recap is done, then that might be a different story).

"the shareholders will be heavily diluted when we raise capital... so at the end of the day I am not focused on whether there’s a windfall, because I don’t think there’s really going to be that big of a windfall" $FNMA $FMCC "important to remember that the shareholders haven't had a dividend in over a decade" [the John Paulson defense] $FNMA $FMCC "Treasury ultimately needs to determine the value of their investment... has senior preferred and warrants... how much Treasury want to sell or forgive is up to Sec. Mnuchin" $FNMA $FMCC "see if we need to do [capital raise] in multiple tranches... with $AIG it wasn't just one equity raise... we have a financial adviser..." to discuss one raise or multiple $FNMA $FMCC

Follow this account, lot of stuff coming out right now:

@markCalabria has ambitious goal to move @FreddieMac and @FannieMae out of conservatorship. I hope he can do it. Sounds easy, five easy steps. 1/ He spoke to them and @MortgageLaurie listed them in slide shown here: (attached) Skeptical too about “easy” reform is @DrFrankNothaft with ability to get capital rules & housing goals policy in place quickly. Outstanding warrants held by Treasury would complicate IPO. Fed legislation hard to do so no charter changes anytime soon. #Competition #gsereform powerpoint_slide_GSE.jfif

Because the PSPA amendment will be in conjunction with a legal settlement.

“FHFA’s capital rule will be a critical mile marker. It must be in place before Fannie and Freddie can go to the market to raise capital. I expect we will have re-proposed the capital rule very soon. Our goal is to publish the final rule by the end of 2020.” Director Calabria “We will also continue to build on the changes Secretary Mnuchin and I made last September to the Preferred Stock Purchase Agreement. My goal is to put ourselves in position to complete our work on amending the PSPAs by the end of the year.” “Based on this timeline, 2021 is the most likely target for an external capital raise by the Enterprises. However, let me emphasize that this effort will continue to be process dependent, not calendar dependent.”

Freddie Mac adds Mark Grier to its Board of Directors https://www.housingwire.com/articles/freddie-mac-adds-mark-grier-to-its-board-of-directors/ In late 2011, Grier led the $3 billion initial public offering of Prudential Financial, which was one of the largest IPOs in history at the time.

How much detail of their intentions were you guys expecting them to give Congress? I didn't even bother to make a note of "response to Mark Warner & Co." in my list of upcoming events.

Thanks for posting!

https://www.bloomberg.com/amp/news/articles/2020-02-20/fannie-freddie-may-be-freed-with-treasury-backstop-mnuchin-says?__twitter_impression=true Fannie-Freddie May Be Freed With Treasury Backstop, Mnuchin Says

Bloomberg as President would push to merge Fannie and Freddie... https://www.marketwatch.com/story/bloomberg-to-push-for-financial-transactions-tax-and-fannie-freddie-merger-2020-02-18?mod=mw_share_twitter

In a structural revamp, FHFA’s Division of Conservatorship will be renamed the Division of Resolutions, and will continue to prepare the GSEs for exit from conservatorship. But it will also work on developing post-conservatorship structures and tools. https://www.insidemortgagefinance.com/articles/217075-fhfa-adds-three-new-divisions?v=preview Emphasis added in bold is mine.

Q4 2019 earnings for Fannie and Freddie accelerate #GSE reform timeline. #ACGAResearch Timeline attached... ACG_Timeline_2-14-2020.jfif

$FMCC CEO on conference call ”Our top strategic priority...is to exit conservatorship responsibly...We hope to actively begin a search for our own financial advisor (for capital raise) in the coming weeks and hope to report on progress on that in the near future” Focusing on exiting conservatorship, good. Begin a search, as in haven't begun already, yuck. Maybe they were waiting for FHFA to pick theirs to, shall we say, guide their decision.

Fed Chair Jay Powell on GSE reform: "I think in the long run it’s very important that GSE reform happen… it’s not really ideal to have the entire financial system riding on the federal government in the long run."

Metzner (ACG)... Calabria speaks at Harvard. Capital Rule published by the end of March. #GSEs #housingfinance

:)