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Luke 532

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

    in General Discussion

    Posted

    later than we would like.  my nose tells me that treasury/fhfa has gotten good informal advice from bankers...leading to the consent decree idea as being necessary, and also having a sufficient capital cushion before the first offering such that the first offering gets the GSEs close (if not to) the capital rule requirement.  just makes sense.  hence the retained earnings/capital build up period.

     

    Thank you.  I always appreciate your input.

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

    in General Discussion

    Posted

    Fannie, Freddie Permitted to Boost Capital Cushions by Billions

    https://www.bloomberg.com/news/articles/2019-09-30/fannie-freddie-permitted-to-boost-capital-cushions-by-billions

     

        -Fannie allowed to hold $25 bln, and Freddie can retain $20 bln

        -Treasury, FHFA announcement part of effort to end U.S. control

     

    For those that want a link to FHFA's press release:

    https://www.fhfa.gov/Media/PublicAffairs/Pages/Statement-from-FHFA-Director-Mark-Calabria-on-Letter-Agreement-with-Treasury-to-Increase-Fannie-Freddie-Capital-Retention.aspx

    “The Enterprises are leveraged nearly 1,000-to-one, ensuring they would fail during an economic downturn – exposing taxpayers once again. This letter agreement between Treasury and FHFA, which allows the Enterprises to retain capital of up to $45 billion combined, is an important milestone on the path to reform,” said FHFA Director Mark Calabria. “FHFA commits to working with Treasury in the coming months to amend the share agreements and further advance broader housing finance reform. These reform goals include limiting the government’s role in housing finance, increasing marketplace competition, focusing on affordable housing, and sustainable homeownership. The status quo is not an option. Now is the time to act.”

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

    in General Discussion

    Posted

    @luke ortphopa and other uber bulls, what would you say is a prudent margin of safety for the prefs, to protect against unknown unknowns? 10%? 20%? Then adding time value of money, what price range do you consider the prefs still a buy?

     

    It just depends on what is in the letter agreement, if there is one.  Then it depends on capital levels, amendment to SPSA, etc.  My desired exit price will adjust based on what happens with those events if/when they occur. 

     

    I think a 25% discount for unknown unknowns is steep.  Perhaps it made sense before we had all the major players tell us what they're going to do, getting their desires in writing, favorable court ruling, etc., but now I think adding that much of a discount is being far too conservative.  I don't know what the discount should be, probably whatever number allows the investor to sleep at night.

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