Luke 532

It's not manipulation, it's just how the stock market works. If your thesis hasn't changed but the stock price causes stress, then you need to reconsider your conviction in your thesis.

In recent months, we purchased preferred stock of both companies. Our preferred stock represents approximately 21% of our total investment in Fannie and Freddie, or about 1% of net assets. While the substantial majority of our investment historically has been in Fannie/Freddie common stock, we acquired preferred stock recently because (1) we believe that the timing of a favorable outcome for the two companies is more proximate (timing is an important consideration for the preferred shares as they are noncumulative and perpetual), (2) it hedges our risk of a restructuring that disproportionately benefits the preferred versus the common shares, and (3) we found the trading prices of the preferred securities attractive at current levels. We still prefer our investment in the common shares because the government and taxpayers’ interests, as owners of 79.9% of the common stock of both companies, are aligned with the interests of common shareholders. If housing reform is successful, we believe that both FNMA and FMCC common and preferred stock will likely be worth multiples of their current share prices.

https://www.insidemortgagefinance.com/imfnews/1_1310/daily/federal-reserve-worries-about-nonbank-mortgage-firms-1000045140-1.html?ET=imfpubs:e10636:73599a:&st=email&s=imfnews With GSE reform looking deader than a $31,000 conference room table ordered (and then cancelled) by HUD, weve come up with a simple plan that might be amenable to all the different warring factions who waste their time slamming each other on Twitter. Here is a rough outline: Let Fannie and Freddie live but as government utilities with three classes of stock (senior preferred, junior preferred and subordinated juniors). Each class of stock pays a quarterly dividend based on profits, with the seniors earning the most. Only Treasury can own the seniors and all profits would go into the general fund and would be used exclusively to pay down the nations debt. The other two classes of stock would be given to current shareholders with their existing holdings retired. (Investment bankers, after completing a course in business ethics, can work out the ratios.) This would be done in exchange for dropping all legal claims. The federal guarantee on MBS would remain implicit (yes, implicit) for federal budget purposes and loan limits would be reduced and kept flat for a 10-year period while the private sector explores whether it can really make (enough) money as guarantors. And one last thing: never ever give Fannie and Freddie the right to lobby Congress or the states. This is just a basic outline. Congress can fill in the details or maybe Craig Phillips and Mel Watt

Interesting comment from Mnuchin...

That was my take-away as well.

Was just about to post this myself :-) Petrou was described by the American Banker in 2012 as the “sharpest mind analyzing banking policy today -- maybe ever.” Wonder if there's any truth behind her hinting that GSEs will be utilities. Petrou to me on Twitter... This is key section. A required ROE makes a regulated company a utility – think power companies. Even biggest banks pick their own ROEs despite all the rules mandating higher capital, limited activities, etc... (1/2) W/an ROE requirement, GSEs cannot discount to compete and must maximize profit under FHFA controls to dividend back to Treasury. (2/2) Howard says... Ms. Petrou most likely is referring to a discussion in the 10K about FHFA’s “Conservatorship Capital Framework,” which are new capital standards the company said FHFA directed it to implement in 2017 that include “specific requirements relating to risk on our book of business and modeled returns on our new acquisitions.” In two places in the 2017 10K Fannie says, “In December 2017 and February 2018, FHFA, in its capacity as conservator, provided guidance relating to our guaranty fee pricing for new single-family acquisitions. FHFA’s guidance requires that we meet a specified minimum return on equity target based on the conservator capital framework. We must implement this target in the first quarter of 2018.” Then, when discussing guaranty fees on page 79, it adds this sentence: “We may be required to increase guaranty fees charged on some loans in order to meet this requirement.” That’s not “utility regulation,” though. Utility regulation implies a maximum return on equity, which keeps guaranty fees down. Here FHFA is insisting on a minimum return on (notional) equity, which Fannie says may push some 2018 guaranty fees up.

Was just about to post this myself :-) Petrou was described by the American Banker in 2012 as the “sharpest mind analyzing banking policy today -- maybe ever.” Wonder if there's any truth behind her hinting that GSEs will be utilities.

$439M = Increase in g-fees?

Hmmm... (hat tip to Peter Chapman for finding this interesting entry) Proceeds, GSE Equity Related Transactions... 2017 actual: $25.349B 2018 estimated: $6.147B 2019 estimated: $18.297B Proceeds, GSE Equity Related Transactions: Legislative proposal, not subject to PAYGO... 2019 estimated: $439M Page 962: https://www.whitehouse.gov/wp-content/uploads/2018/02/tre-fy2019.pdf

$5,065,000,000 draw (payment to GSE's) anticipated by Treasury. See "Payment to GSEs pursuant to PSPAs" on page 932 of this document: https://www.whitehouse.gov/wp-content/uploads/2018/02/tre-fy2019.pdf

https://www.treasury.gov/about/budget-performance/strategic-plan/Documents/2018-2022_Treasury_Strategic_Plan_web.pdf Page 16 and 17 discusses Fannie/Freddie.

Emily, no, he is not saying to sell everything. If that brings you relief then there is a problem. Your investment decisions should not be influenced that much by what total strangers say on a message board, or your neighbor, or anybody else. Your investment decisions should be based on your thesis and whether or not changes, if any, to the fundamentals impact your thesis. That's it. That's where your focus should be. I suggest picking up a copy of The Little Book of Behavioral Investing by James Montier. It's a great read. I'll mail you a free copy (no strings attached) if you'd like. Just private message me where to send it.

I suggest not using data from small-dollar gambling websites.

luke, what is this from please? thank you. I've removed it. Saw it on Twitter and posted before I verified if it was accurate or not. I couldn't verify so I have removed it. My mistake.

I would take anything David Stevens has to say with a giant grain of salt. He has been on a crusade against hedge funds being able to profit on GSE shares. Yes, agreed. Everybody that has been following the situation should know to take what he says with a huge grain of salt.

https://www.insidemortgagefinance.com/imfnews/1_1280/daily/mba-says-gse-reform-will-do-no-harm-to-fannie-and-freddie-1000044545-1.html January 25, 2018 MBA’s Prediction on GSE Reform: the Legislation will do ‘No Harm’ to Fannie and Freddie By Paul Muolo pmuolo@imfpubs.com The Senate Banking, Housing and Urban Affairs Committee this week continued to work on housing-finance reform legislation, with the hope that a bipartisan bill can still be cobbled together in a dysfunctional Congress. As for passage this year, that’s a different matter. In a statement issued to Inside Mortgage Finance, Sen. Mark Warner, D-VA – a key player in the process – said he is still interested in the topic, noting the panel wants a “viable simplified approach that protects the taxpayer, preserves the 30-year fixed-rate mortgage, and includes robust access and affordability provisions.” The lawmaker provided no details, but stakeholders involved in the process contend the committee is working on a draft bill that has the backing of Treasury Department and the Federal Housing Finance Agency. Most of the work is being done by the staffs of Warner and Sen. Bob Corker, R-TN, with the blessing of committee Chairman Mike Crapo, R-ID. Dave Stevens, president of the Mortgage Bankers Association, said he anticipates that the bill that finally emerges “will do no harm to Fannie [Mae] and Freddie [Mac].” For full details, see the new edition of Inside Mortgage Finance.

+1

Great point.

Wadden Golf Academy @bwadden Hey everyone, Joe Light is right here. I was there yesterday. The audio clip cuts off the last few questions. The final one was mine! I asked CP if we get to the August recess and no legislation is forthcoming, will you undertake administrative action. He said No! We will wait.

If a Jumpstart (or Jumpstart-like) bill was gaining steam (either as a stand-alone bill or attached to something bigger), couldn't Mnuchin/Watt simply make a deal before any Jumpstart gets signed into law? I'm sure they are watching any and all legislative bills to see if something like that is trying to be sneaked in. I wouldn't be surprised if Mnuchin/Watt already have an agreement written that merely needs to be signed in case this scenario arises.

https://www.insidemortgagefinance.com/imfnews/1_1276/daily/-1000044481-1.html#Login If you thought that GSE reform had a good chance of passing this year, think again. Friday morning, industry lobbyists were perplexed about new reports that Senate Republicans were leaning toward a reform plan that entailed placing Fannie Mae and Freddie Mac into receivership as a transition to a new housing-finance system, one with multiple guarantors. The belief is that the GSEs would be killed outright. As one trade group official noted: “There is no vote count for receivership. There is not a single Democrat who will vote for this…”

This quote makes a lot more sense given proper context (imagine that!). Audio at around 13:30 contains the quote above and the conversation surrounding it: https://app.voicebase.com/autonotes/private_detail/58549613/hash=bpyaZG1rZ2uWaZmWxmGWnZ2PnG2XlGZsaWqYkZqWlJRmyMmSl25na5psmJSU

Audio of Craig Phillips' talk yesterday... https://app.voicebase.com/autonotes/private_detail/58549613/hash=bpyaZG1rZ2uWaZmWxmGWnZ2PnG2XlGZsaWqYkZqWlJRmyMmSl25na5psmJSU

https://www.americanbanker.com/news/cheat-sheet-how-the-senate-is-going-its-own-way-on-housing-finance-reform?utm_content=socialflow&utm_campaign=amerbanker-tw&utm_source=twitter&utm_medium=social Senate goes own way on housing finance reform

Huh??? Joe Light‏Verified account @joelight Phillips: "There actually aren't shareholders so there's no longer a fiduciary relationship between stakeholders in the traditional way. We sort of see ourselves as the stakeholder at the Treasury" but not represented by the board and employees because of the shares' nature Calabria said yesterday... “We do want to see our state-owned enterprises move towards liberalization.” https://www.marketwatch.com/amp/story/guid/3F8481DA-FBCD-11E7-8AB6-ABAEF652B326?__twitter_impression=true