Luke 532

thx, cherzeca.

Excellent, thank you. Not sure how I missed that. That alleviates one of my concerns.

One concern of mine has been that people would take 12 months of not paying their mortgage even if economy opens back up in 2 months. However, Rosner's piece says that the forbearance assistance is only "during the covered period." Can anybody confirm that the "covered period" officially ends when Trump declares we're no longer in a national emergency? Does "national emergency" = "covered period"? Logic would say it does, but I want to be 100% sure. Thanks. Another way to put it, is there a chance "covered period" could mean the 180 days + 180 days and NOT be tied to the status of whether we're in a national emergency or not?

Latest from Josh Rosner... Please see GF&Co's report on #mortgage #Servicers #FHA #FHFA #GSEs & the #CaresAct:

Don't be surprised if the political opposition to recapitalize the GSE's is virtually gone as a result. Both sides of the aisle very likely see the need for a well-capitalized Fannie and Freddie. Stevens might still object, but nobody with half a brain will.

Thank you.

How do you mean, exactly? In terms of potential settlement negotiations or A&P's approach to the litigation as a whole?

Moelis weren't selected were they? They're working with UST (selected last week) on something non-GSE related (I think the airlines), and they produced the Blueprint. But this job/RFP was looking for a law firm.

FWIW, probably not much, but Moelis and Milbank seem to know each other pretty well. Not a bad thing to have a previous working relationship between legal counsel (Milbank) and preferred-friendly plan architects (Moelis). Attached... Moelis-Milbank_1.jfif Moelis-Milbank_2.jfif

$FNMA $FMCC $FNMAS @FHFA hired their legal advisor on Thursday April 2nd. This law firm will provide legal support to developing and implementing the Roadmap to responsibly end the conservatorships. https://t.co/ZgU8VOpiBh Milbank LLP (attached)

We could be missing something, or it could simply be this crisis is only a few weeks old and Mnuchin had to lead the charge on getting the bill through Congress and is now finishing up the SBA. We may very well be next on the docket. Or not.

Agreed, would be reckless. Just get it done for the betterment of the entire country. If recapitalizing helps the MBA lobby, servicers, etc. survive, then I think the opposition would go along with it. I just don't see this as likely at all. (1) Calabria has mentioned "the lawsuits will take care of themselves," almost dismissive of them and I believe he said he doesn't think about them much at all. If he were to wipe us, that wouldn't cause the lawsuits to take care of themselves... the cries of injustice would only grow louder. (2) Too many friends of Mnuchin and Trump are involved in this investment. (3) Warrant value would also evaporate. Midas mentioned there might be a way to port the warrants to the new equity class so the gov't keeps them, but that sounds like a massive legal under-taking and Trump's base, property rights enthusiasts, would not like that one bit. (4) I'm sure there are other reasons, but my bride and boys are starting a movie so I'm gonna go sit on the couch. Just seems like a LOT of trouble for the gov't to go that route and really doesn't make sense for them to do it. I know you weren't saying it is likely and were just pointing out a possibility, so I appreciate that.

Agreed with all you said. On the $30B... that's a small price to pay to make sure 20%+ of the economy is on solid footing, a potential $200B+ judgment against the Treasury isn't ordered, etc. All in the shadow of a multi-trillion dollar stimulus package.

Crisis = catalyst to recapitalize. Interesting. ACG is well-connected at Treasury and FHFA, I wonder if they're hearing any rumblings. "They (ACG) also note that Calabria mentioned 'crisis illustrated flaws' as a new 'political motivation.' The coronavirus pandemic has made it even more apparent that Fannie Mae and Freddie Mac must build up capital on their balance sheets." https://talkmarkets.com/content/stocks--equities/will-fannie-mae-freddie-mac-survive-the-coronavirus-crisis?post=257095&page=2 Note: I believe the 'political motivation' quote is coming from ACG. So it's their words, not Calabria's. But Calabria did say something along the lines of "this crisis has illustrated flaws..." at 6:30 of the video below two days ago. ACG is connected at FHFA so perhaps they've spoken with somebody there about this, perhaps not. Video: https://www.cnbc.com/2020/04/01/chief-regulator-says-mortgage-bailout-is-on-the-honor-system.html

Agreed. I think he is underestimating the take up rate... however it is reassuring that take up of 20-25% and should be fine. If it gets above that I think we'll have Fed/Congress do something... Calabria honestly didn't seem too worried about all of this, which ironically, has me more worried that he doesn't seem to be too worried :-)

I've made a point to listen for that. In all 3 interviews/articles in the past 10 days he has said "Congress" or "Fed" and hasn't mentioned "Treasury." He is making a point by excluding them as even a possibility.

I really hope it is, but i doubt it. It's possible. Wall Streeters have very long memories. For example, Dick Fuld in the 1990's wasn't too kind during the Asian crisis. Then in 2008, guess who wasn't bailed out while many others were, Dick Fuld's Lehman.

We'd be fine in that scenario as we have the capital to cover it. My caution, and my worry in this whole situation, is the line I bolded above: (1) what "default" entails in this situation...same as "take-up" (those taking advantage of forbearance) or something different, and (2) if it's up in the 20-25% range instead of 5%, then it's a different story. With that said, Calabria said if the "take-up rate" is 20-25% we'd be fine... that's at the 2:20 mark of this video: https://www.cnbc.com/2020/04/01/chief-regulator-says-mortgage-bailout-is-on-the-honor-system.html

Regulator says US mortgage guarantors have sufficient resources for about 12 weeks Fannie Mae and Freddie Mac, the government-controlled companies that guarantee nearly half of US mortgages, could require their second bailout in just over a decade if the US economy remains in a lockdown for several months, their regulator has warned. The two groups, which collectively underpin the $10tn US housing market, have sufficient resources to last through a lockdown of about 12 weeks, but would then need funds from Congress or the Federal Reserve, said Mark Calabria, director of the Federal Housing Finance Agency. “If we start to go more than two or three months, then there is going to be real stress in the mortgage market, we’re talking in terms of what happened during the great recession,” he told the Financial Times. “If we are talking about a drawn-out period where people are not in a position to pay their mortgages, if we are talking about 25 per cent of people having to ask for forbearance, the system doesn’t have that kind of liquidity. That would require Congress to step in, or the Fed.” Mr Calabria’s warning underlines the potential consequences for the US economy if the current coronavirus-related shutdowns persist beyond summer, as many health experts warn. Donald Trump, the US president, has said national social distancing guidelines would remain in place until the end of April. But many epidemiologists say they will have to be extended. Almost 10m Americans have claimed unemployment benefits in the past two weeks, and Congress passed a bill allowing homeowners to forego mortgage payments for up to a year. About 300,000 borrowers had asked for forbearance on loans backed by Fannie and Freddie as of April 1, Mr Calabria said. Since the agencies make up more than 40 per cent of the mortgage market, he said that implied a total of perhaps 700,000 homeowners seeking forbearance. He said that number was likely to rise: “A lot of people got paid for half of March, so a lot of people who were able to make their payments in March won’t be able to make their May payment.” Those seeking help did not tend to be those who had struggled to make payments in the past. “So far, forbearance is going to borrowers who have always paid on time,” he said. “This is someone who has hit a short-term hardship but has an intention to stay in that house.” Homeowners do not have to prove that they have lost income before being granted a mortgage holiday. That provision would speed up assistance, Mr Calabria said, but could lead to fraudulent claims. “We are operating on an honour system here,” he said. One focus of concern in the industry and in Washington is the mortgage servicers, often banks and non-bank mortgage lenders, responsible for collecting payments from borrowers and passing them on to investors. They are still required to make the payments when borrowers take advantage of forbearance, and are not compensated by Fannie and Freddie for six months, potentially leaving many facing a liquidity crunch. Mr Calabria said that while various solutions were under discussion, additional funds for the servicers would not be coming from Fannie and Freddie, which were placed in a government “conservatorship” during the financial crisis of 2008. “I’m not the Fed,” he said. “Fannie and Freddie are still in conservatorship and levered 240 to 1. We need all the capital we can muster for ourselves.”

More Whalen attached... Convert the prefs to common equity, then sweep goes away and 87% of earnings goes to @USTreasury An improvement from a #fanniegate perspective. This was in response to... Falling on deaf ears until you explicitly state you think the GSE Net Worth Sweep should be terminated. Trust me, that's what will catch the ear of Mnuchin and Calabria.

GSE bailout article... https://www.ft.com/content/575e818e-c35a-462b-8daa-ab784163f604 “I’m not the Fed,” Calabria said. “Fannie and Freddie are still in conservatorship and levered 240 to 1. We need all the capital we can muster for ourselves.”

Whalen on junior prefs (attached)...

For those interested in what David Stevens has to say about current events, he is speaking at 12pm Eastern today... https://www.facebook.com/events/674966446573153/ -Stevens just said something along the lines of we're getting tremendous pushback from the Admin. -And something about needing to apply pressure to the Trump Admin. -Stevens: "right now it's just time to put pressure on them. Mnuchin comes from this industry at One West for God's sake..." -the more he talks, the more he seems panicked -Barry Habib: "margin call issue is fixed, the Fed heard what we were saying."

First or second week of May if we believe Dr. Birx 2-week peak death rate and use the 1918 situation of 7 weeks return to work after start of work from home (mid-March).

https://www.forbes.com/sites/ikebrannon/2020/04/01/gse-reform-remains-important/#64ebab7e49ca "Given that the legislation President Trump signed into law last week allows the Administration to demand warrants from businesses who receive government assistance, recapitalizing the GSES would help the Administration argue—truthfully—that the cost of this bailout may end up to be significantly less than $2 trillion allocated via the CARES Act."