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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

     

    By Andrew Ackerman

    Sept. 22, 2019 9:00 am ET

    INDIANAPOLIS—Mortgage-finance companies Fannie Mae FNMA 1.03% and Freddie Mac FMCC 0.82% are expected to start keeping their earnings as early as this week, pausing a yearslong arrangement in which they handed nearly all of their profits to the Treasury Department.

     

    The move, in an expected agreement between the Trump administration and their federal regulator, would be an initial major step in allowing the companies to build up capital so they can operate as private companies again.

     

    Under the forthcoming agreement, the companies would be allowed to retain about a year’s worth of profits, or about $20 billion, Mark Calabria, the Federal Housing Finance Agency chief, said in an interview after touring a senior center financed in part by the Federal Home Loan Bank of Indianapolis. FHFA oversees Fannie, Freddie and the Federal Home Loan Bank system.

     

    “We’re still in the middle of negotiations with Treasury, but I think we’re close,” Mr. Calabria said. “I hope to have it done by the end of the month.”

     

    Fannie and Freddie are central players in the housing market, buying about half of all U.S. mortgages from lenders and packaging them for issuance as securities. The government effectively nationalized them during the 2008 crisis in a bid to stabilize the housing market as mortgage defaults mounted. How the government addresses the companies’ future could resolve the last major problem from the financial crisis.

     

    At present, the companies hold just $3 billion each in capital, and the agreement under consideration would substantially increase that figure. The move would be significant because it would start a process of the companies raising a combined $100 billion-plus that they will likely need to hold before they can return to private hands.

     

    “If you’re leveraged 1,000-to-1, you could have Superman as your regulator and Wonder Woman as your CEO, and you’re still going to fail at some point,” Mr. Calabria said.

    The timing of the agreement and the precise amount of earnings the companies would be allowed to retain hasn’t been completed. The overall deal could slip to the end of the year, he said.

     

    Every quarter Fannie and Freddie send nearly all of their profits, minus the $3 billion they are currently permitted to retain as capital, to the Treasury Department as payment for their ongoing support from the department. Under the terms of the 2008 conservatorship, the firms have access to more than $250 billion in support, though they have been generally profitable in recent years and have drawn on that support only once since 2012. Should the companies report a loss going forward, they could continue to draw on their support from the government. They just wouldn’t send their profits to Treasury until they had retained more than about $20 billion in profits.

     

    The upcoming change comes after a federal appellate court in New Orleans criticized the profit sweep in a Sept. 6 ruling. The decision, in litigation brought by investors in the companies, gave new life to court challenges over the handling of Fannie and Freddie’s profits. The administration is deciding whether to appeal.

     

    The Trump administration wants to recapitalize the companies through a mix of retained earnings and raising tens of billions of dollars from investors, a process likely to take years. It is a priority for the administration, which outlined a path to return the firms to private ownership earlier this month.

     

    “They’ve been in conservatorship for too long, and we want to make sure they’re not in conservatorship on a permanent basis,” Treasury Secretary Steven Mnuchin said in a Sept. 9 interview on Fox Business Network.

     

    Any move now to pause the profit sweep would give Treasury and the FHFA time to negotiate bigger changes to the terms of the companies’ existing support agreement with Treasury, Mr. Calabria said. That includes the creation of a fee the companies’ would be required to pay in exchange for ongoing support from Treasury, which is necessary for their business model. The broader changes could also encompass new restrictions on the companies’ activities, as envisioned by the recent Treasury report, which urged FHFA to scrutinize the firms’ purchases of cash-out refinancings and loans for investment and vacation properties.

     

    Meanwhile, Mr. Calabria said, taxpayers would receive additional shares in the companies—the equivalent of new stakes in a firm preparing to launch an initial public offering—in exchange for allowing the companies to retain earnings now.

     

    Through June, the companies have paid about $300 billion in dividends to the Treasury, while taking some $190 billion from taxpayers in the years after the 2008 financial crisis. The companies have paid an average $18.2 billion annually over the past three years to the Treasury.

     

    Reducing those payments would add to a widening U.S. budget deficit that is on track to exceed $1 trillion a year.

     

    The government seized the companies during the George W. Bush administration, and agreed to inject money to support some $5 trillion in debt securities issued by the companies.

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

    in General Discussion

    Posted

    "The settlement will allow..." Typo? Freudian slip?

     

    https://www.insidemortgagefinance.com/articles/215848-fhfa-the-end-of-the-net-worth-profit-sweep-is-imminent

     

    The Federal Housing Finance Agency and the Treasury Department are close to signing a letter agreement that will eliminate the net worth sweep by the end of September, FHFA Director Mark Calabria told Inside Mortgage Finance this week.

     

    The settlement will allow Fannie Mae and Freddie Mac to retain most of their earnings beginning with the third quarter.

     

    The letter agreement is not a complete replacement of the preferred stock purchase agreement, Calabria said. It’s a temporary expedient to end the sweep as quickly as possible.

     

    The FHFA director pointed to the December 2017 agreement between his predecessor, Mel Watt, and Treasury Secretary Steven Mnuchin, which created the GSEs’ modest capital buffers. “There were no broader policy changes,” he said. “It was just, ‘Okay, you get to have a $3 billion capital buffer.’” For more details, see the new edition of Inside Mortgage Finance, now available online.

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

    in General Discussion

    Posted

    You probably don't do this unless you like where this situation is headed and you know your preferred shares are going through the roof... OR you're scared that your investment will tank if Trump isn't re-elected.

    https://pagesix.com/2019/09/17/hedge-funder-john-paulson-to-hold-2800-per-ticket-trump-fundraiser/?utm_source=twitter_sitebuttons&utm_medium=site%20buttons&utm_campaign=site%20buttons

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

    in General Discussion

    Posted

    Calabria live now: https://www.bloomberg.com/live/us

     

    "4th Q 2020 for IPO, lot has to happen before we do that..."

     

    Asked about settlement due to recent court ruling: "Looking to rebuild capital and once NWS ends which is part of our plan then a lot of these suits go away."  Didn't say no to settlement, didn't say yes to settlement.

     

    Interview done, was very short.

     

    Here's the interview: https://www.bloomberg.com/news/videos/2019-09-16/fannie-mae-and-freddie-mac-won-t-go-to-market-until-end-of-2020-fhfa-director-says-video

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

    in General Discussion

    Posted

    Just pointing out peculiar word choice and phrasing from Mnuchin...

     

    I found this word choice interesting as well, using "amendment"... could the amendment be done this month instead of simply replacing sweep with commitment fee?  Could things on the amendment be done prior to December?  Very interesting if so, but probably he wasn't choosing his words carefully and he just meant NWS replaced by commitment fee...

    https://www.reuters.com/article/us-usa-treasury-housing/u-s-treasury-eyes-action-on-fannie-mae-freddie-mac-by-months-end-mnuchin-idUSKCN1VX1NM

    “That’s something that the FHFA (Federal Housing Finance Agency) and we are working on. We are actively negotiating an amendment, and I think our objective is to try to get it done by the end of the month,” Mnuchin told CNBC in an interview.

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

    in General Discussion

    Posted

    I'd have to verify this when the transcript or recorded call is posted.  Might be the case where he left the word "if" off the front of the quote or something like that.

     

    https://twitter.com/HoldenWalker99/status/1171856144828178432

    .@_InvestorsUnite CC w/ @timpagliara & Collins Ps attorney David Thompson, Q&A: "there's going to be a settlement... we want to do something consistent with the Treasury plan," better to do it now than in a year $FNMA $FMCC

     

    Quote was right, but I may have inadvertently omitted "if" leading up to it.

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

    in General Discussion

    Posted

    I'd have to verify this when the transcript or recorded call is posted.  Might be the case where he left the word "if" off the front of the quote or something like that.

     

    https://twitter.com/HoldenWalker99/status/1171856144828178432

    .@_InvestorsUnite CC w/ @timpagliara & Collins Ps attorney David Thompson, Q&A: "there's going to be a settlement... we want to do something consistent with the Treasury plan," better to do it now than in a year $FNMA $FMCC

     

    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

     

    Yeah, I didn't think so.  Thanks for responding.

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

    in General Discussion

    Posted

    I'd have to verify this when the transcript or recorded call is posted.  Might be the case where he left the word "if" off the front of the quote or something like that.

     

    https://twitter.com/HoldenWalker99/status/1171856144828178432

    .@_InvestorsUnite CC w/ @timpagliara & Collins Ps attorney David Thompson, Q&A: "there's going to be a settlement... we want to do something consistent with the Treasury plan," better to do it now than in a year $FNMA $FMCC

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