Luke 532

Maybe they anticipated the NWS ending announcement to be in earnings this morning? I think that's foolish because that announcement will come from Treasury, FHFA, White House, etc. and not from the two GSE companies themselves.

https://www.americanbanker.com/news/a-gse-plan-before-the-election-has-risks-but-so-does-doing-nothing

Just added the twitter link...forgot to post the source initially.

Apparently Kyle Bass' highest conviction, as of today, is the prefs being worth par. Interesting.

I know we're aware of this tweet, and this comment was made before he was part of the Admin, but as a reminder of where he might stand:

2:40 mark of the video... https://finance.yahoo.com/amphtml/video/fhfa-calabria-wants-massive-public-193717583.html

They are phenomenal companies. Will be nice once this fiasco is over to go back and reassess their prospects going forward.

Really weird price action on the $50's today. Most Fannie's are up, and Freddie's are down (FMCCL, FMCCI).

Good point.

These are highly profitable companies so they might fit the bill of being a very rare reorg. It would take a long time, but they could retain earnings and build capital themselves. With that said, I agree it makes more sense to flatten out the cap structure. Could convert prefs, end NWS, deem SPS repaid... that makes it just common stock. Gives Admin a lot more possibilities going forward to do an offering. Trump is all about having options.

I certainly could see #3 playing out. If the primary goal of Admin is to have a multi-year capital build via retained earnings, what would be the first step? Ending NWS. Anything other than that? That action alone, if announced in the plan and implemented immediately, would be a very logical starting point to getting bankers more comfortable eventually investing, would end the lawsuits, and would start building capital which everybody on the Admin has said is a priority. If NWS is ended in September, I can't help but wonder how the share prices would react. Thanks to those that have posted predictions previously of 60%-75% and higher depending on the rest of the plan. Once NWS is ended and we're at a certain percentage of par, calculating a fair discount to par given the time horizon and the other details in the plan would be an interesting exercise.

I'm throwing this out there, not that I necessarily believe it or not: Unless the Administration is looking for legal cover. If en banc forces their hand, then they won't receive any negative PR for ending the sweep. If anybody were to receive blame it would be those that implemented the sweep. If Admin ended the sweep now before the en banc came out, would that really be any different than Admin ending the sweep after en banc says the status quo is fine? After all, many courts so far have said the status quo is fine so what's the difference between Admin ending the sweep after, say, 5 courts say sweep is fine vs. after 6 courts say it's fine? It has been said (by cherzeca I believe) that the changes in recent weeks by Calabria were embarrassing from a lawyer's perspective. He and his legal team are very likely aware of this. However, they get to go on record for officially keeping the status quo for the reasons I stated in the paragraph above. It does cause a potential delay in the ruling but that might also buy plaintiffs and defendants more time to try to reach a settlement (I don't think Hume's article is published unless there have been some serious discussions about settlement).

I'd agree to that (although my vote would be irrelevant) and more importantly I think the plaintiffs would, too.

Honoring the par value. I think plaintiffs would agree in a heartbeat to par and nothing more. But if they win en banc they'd likely require more than par.

I can't get his letter out of my head. I think you nailed the most likely reason he wrote it. As a pref holder I'd obviously be happy if those settlement negotiations are taking place. Lawyers...is it unusual for an attorney to write a public piece concerning a current case in which they are involved? I would imagine so.

Thanks, I appreciate that compliment!

Which is why I think prefs either convert to common in a small IPO fairly soon, or there is an agreement that they will convert at par at some point in the future, or the dividends are turned back on. I don't see any of the litigants going away unless one of those 3 options (and possibly other options) are agreed to.

I agree with your comment. "Real repairs" could very well be ending the NWS, among other actions... and Calabria says the time is now. https://business.financialpost.com/pmn/business-pmn/u-s-reform-plan-for-fannie-freddie-seen-by-sept-housing-regulator While Calabria sketched a potential five-year time horizon for removing Fannie and Freddie from conservatorship, he added that the government did not have forever to overhaul them and needs to progress while the housing market remains stable. “The market looks pretty strong now, so that to me is the time when we want to make real repairs, he said.

perhaps he got wind of a long capital build with no jr pref conversion and wants the jr pref dividends turned on? on the one hand, it makes no sense to pay out $2-2.5bn of annual dividends during a big capital build (33bn x 7%). on the other hand, it could possibly help resolve other areas. Reads to me like Hume is advocating for the common shareholders to not get unfair treatment, so perhaps he already thinks prefs are going to get preferential treatment (example: dividend turned back on but nothing done for common until 2024).

settle lawsuits? It would be a pretty cheap way to do it... $2B-$2.5B/yr or so instead of paying them all off at par right now. If plaintiffs think this gets the prefs trading near par then why not? Would give the plaintiffs the choice of selling the prefs when they're near par, or keep them while enjoying the dividend.

CALABRIA SAYS HE WILL RECOMMEND TO CONGRESS THAT THE GOVERNMENT GUARANTEES ONLY FANNIE, FREDDIE MORTGAGE-BACKED SECURITIES, NOT THE COMPANIES @Reuters @michelleprice36 @peteschroeder

Meaning Hume's concerned that would be unfavorably good treatment for prefs over common? "The contractual and legal rights of all shareholders should be left in place and respected equally. Anything else will be seen as playing favorites to Wall Street hedge funds that have invested disproportionately in the junior preferred stock. The contractual rights of those shares should be respected, but not favored over those of common shareholders." https://www.americanbanker.com/opinion/recap-of-fannie-and-freddie-must-protect-shareholder-rights

Page 24 of Moelis' updated blueprint created November 2018 estimated exiting conservatorship in 2021 with considerable action in 2018 Q4 (turn off NWS, adjust Senior Pref balance). Given that the plan is released August/September, and no considerable action like turning off NWS or adjust Senior Pref balance takes place before then, that's pretty much 1 year behind the timeline in the updated Moelis version... so if it is something similar to Moelis we'd be looking at year 2022 for exit from conservatorship. If that's the plan, Calabria might as well say exit by or near the end of his term in April 2024. Updated Moelis for your reference: https://gsesafetyandsoundness.com/2018/11/09/oneyearlater/

https://www.reuters.com/article/us-fannie-freddie-reform-libor/fannie-freddie-to-eventually-end-buying-libor-mortgages-fhfas-calabria-idUSKCN1UC2PO Fannie, Freddie to eventually end buying LIBOR mortgages: FHFA's Calabria NEW YORK (Reuters) - Fannie Mae and Freddie Mac will eventually halt purchases of U.S. home loans linked to the London interbank offered rate as that index is set to be phased out after 2021, Mark Calabria, the head of the Federal Housing Finance Agency, told Reuters on Wednesday. LIBOR is referenced against $200 trillion worth of U.S. financial products, primarily in interest rate derivatives. There are roughly $1 trillion in adjustable-rate mortgages (ARMs), or about 6.5% of all U.S. home loans outstanding, which are reset against it.

U.S. HOUSING FINANCE REGULATOR SAYS U.S. GOVERNMENT REPORT ON HOUSING FINANCE REFORM IS "ESSENTIALLY DONE," EXPECTS RELEASE IN LATE AUGUST, SEPTEMBER - INTERVIEW @Reuters @michelleprice36 @peteschroeder https://mobile.reuters.com/article/amp/idUSKCN1UC2OE?__twitter_impression=true 2024....sounds like a sloooow capital build. Thoughts?