Luke 532
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Posts posted by Luke 532
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Well, the Treasury just hired all three. Moelis, PJT, and Weinberg.
"Each firm is likely to advise on aid to one of three subsectors: commercial airlines, cargo carriers and firms critical to national security..."
Fannie and Freddie for the financial security of the nation, or at least the 20% housing market?
SCOOP: @FHFA soon to select adviser on massive @FannieMae @FreddieMac
stock offering list narrorwed to several investment banks, including Perella Weinberg Partners, possibly PJT Partrners; Govt signaled decision after Thanksgiving to oversee massive IPO more now @FoxBusiness
either firm would be an excellent choice. fhfa needs advisory work, not capital raising work which is where the bigger money will be, and those firms (JPM, Goldman etc) will do the underwritings. PJT is a spin off from Blackstone, one of whose funds is partly behind the moelis blueprint.
I went to the moelis blueprint to confirm that Paulson and a Blackstone fund paid for the moelis blueprint, but their identities which I remember from the 2017 version seem to be absent from the 2018 update. but I did reread the summary and recommendations again:
"The first step must be to begin rebuilding capital by suspending dividends paid to Treasury. The second step is to recognize the government’s profits by acknowledging that Treasury’s senior preferred stock has been repaid with interest. While the senior preferred remains outstanding, it will be impossible for the GSEs to raise equity from the private markets. The third step is for FHFA to direct Fannie and Freddie to submit capital restoration plans, as authorized by HERA. Taking these three steps immediately starts on the path towards restoring safety and soundness to protect American taxpayers."
seems like the moelis blueprint is off to a good start
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That said, people should be crowding into FnF P's now. I mean, even with so many "great" deals out there in REIT land, who wouldn't instead pay up for some legit mafia protected preferreds instead?
But what if the mafia boss, or if not the boss at least he's a made man, Calabria decides to wipe out junior pref holders (per posts by Midas)?
The opportunity for cheaper shares before ultimately becoming whole should be a godsend to anyone who believes in the ultimate resolution
OK, but that still doesn't answer the question.
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That said, people should be crowding into FnF P's now. I mean, even with so many "great" deals out there in REIT land, who wouldn't instead pay up for some legit mafia protected preferreds instead?
But what if the mafia boss, or if not the boss at least he's a made man, Calabria decides to wipe out junior pref holders (per posts by Midas)?
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can handle 2-3 months if people start going back to work after a few months, if lasts 6+ months and people stillunemployed and 25-30% take rate it will see stress the system.
Thanks for the notes, InvestorG. This is great to hear.
At yesterday's press conference, Dr. Birx reiterated Trump's comments from two days prior that peak death is in two weeks, so around mid-April. In 1918, most workers returned after 7 weeks start to finish. 15-day thing started mid-March so 7 weeks brings us to first or second week of May. That seems plausible given peak death mid-April, gives 3 weeks for things to calm down/make sure things are improving, then start getting back to work. So, Calabria saying we'll be fine if this lasts 2-3 months would give us a "deadline" of June 1 or July 1... and if we're returning early May then that's good.
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Tim P. seems to think preferred conversion adds 26 to 28 billion in capital. This appears to be the same mistake acg made, and Tim H. says conversion is capital neutral, which I agree with. Has Tim P. missed something? Seems pretty clear cut if preferred are classified as equity.
Note: I'm not saying I think any of the below will come to pass, just posting what Pagliara thinks...
Here is Pagliara's response...
Clarify- you don’t create $25 billion of new capital- you create additional capital by the ratio of Preferred (not viewed as 100%) to 100% equity once it is converted. $25 approximates the amount on the books after conversion. Key is litigation settlement.
Money needs to go to work. Institutions are looking for ways to put it to work. These are two of the most profitable companies in the world. They have unique earning power. Yes, we can raise money by Q-4 2020- Q1 2021. It can be done in phases.
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Calabria video: https://finance.yahoo.com/video/landlords-tenants-face-financial-strain-180139659.html
Paraphrased, not direct quotes:
-"This goes on for 2-3 months the system is OK"
That's slightly longer than the "2 months we're OK" he said last week.
-"This goes on for 6+ months that's a lot of stress on lenders, Fannie, Freddie"
He didn't say anything about the gap between 3-6 months, just 2-3 and 6+.
-"At that point might go to Congress or others step in for support"
Again does not mention Treasury, which is great. Previously he mentioned Congress or Fed, perhaps "others" means Fed or the private market.
-"We want to make sure that we're not having to rescue Fannie, Freddie, or the lenders."
-"6 months... potentially face rescues, bailouts in mortgage market."
For what it's worth, his demeanor seemed more calm than it was last week.
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but it should be lost on no one that the MBA-represented mortgage servicers are squealing while the GSEs are doing business as usual.
From "seysmont" https://groups.google.com/forum/#!topic/fannie-and-freddie-preferreds/ePKPF6x8uCc
All I know is servicers did something that makes FHFA shun them and the FED shun them. They are not getting any help now and the only people talking about help and how it will happen is them. So they pissed off the FED and FHFA. That 3 months they are talking about forbearance is just them, the bill provides 12 months rolling into another 12 months. They did something that caused this treatment. Their funding is not in the bill with all the lobbying. I don't know what they did, but they did something unacceptable for the feds to provide timely help when everyone is getting help.
It's not an accident the bill provides for servicers to support 12-24 months forbearance with no funding. That was a decision that was made, and it was made for political reasons.
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Word is American Airlines applying for 12B in aid with warrants. Pretty soon our situation will look ridiculous and will hopefully be rectified.
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read the few sentences prior to that reference in the bill. I believe it references allowing funds to be used in 2021+ to exercise options on warrant deals agreed to in 2020. likely not applicable.
I didn't see that, thanks. Admittedly I got the screenshot second-hand so I didn't have proper context.
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Whoa.
#CARESAct: Lesson learned? Any warrants need to be exercised by January 1, 2021. Want to bet that $FNMA and $FMCC warrants are exercised by January 1, 2021, too?
Am I wrong thinking the following on this? This is gold. Any new warrants the gov't issues will be exercised in calendar year 2020, guaranteed. This does not explicitly include GSE's, but it would be very, very odd for the gov't to make profits by exercising warrants in other companies and not the GSE's. Might as well exercise all warrants the gov't holds, make money for the taxpayers, and use that in the month or two leading up to the election to get re-elected. Leads me to believe this is going to happen this year, and probably in the Summer at the latest. See attached for screenshot from the CARESAct.
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Latest from Tim Pagliara:
Some notes from the Pagliara call. Grant (don't know last name) was also on call. He works with Tim and interestingly worked at Fairholme for >9 years and was intimately involved in litigation between Treasury and Fairholme, as well as working on the GSE purchase proposal that Fairholme and others offered back in 2013-2014.
-All can be done very quickly and provides Fed additional relief.
-Could be done in 60-90 days or less, just make the calls and put in place with the help of Houlihan Lokey
-I know the BOD's at F&F are chomping at the bit to get back to work
-We've had decisions in place for awhile, just this is the threshold moment that forces those actions.
-We can respond to the issue because the plans and work for many years has been done, so not panic to try to plan it, work has already been done. Just hit the button.
-Election impact the urgency "no," basically enough incentive to get this done for both political parties
-We have all the info we need to get this done now.
-Virus impact: beyond 90 days, beyond 180 days, what it does to all aspects of economy... book of biz will offset losses they'll have to help refinance homes. They are in good positions, but need capital from the private sector.
-Longer the virus crisis goes the more and more important GSE's become. (my thought: so maybe odds of getting this done quickly increase the longer the virus economic crisis continues).
-I think it could happen very quickly. Biggest challenge in this situation is inertia.
-This is a glass more than half full situation, not glass half empty.
-We and dozens of other stakeholders ready to provide capital and support.
-The solution is more impactful and helpful now than ever before.
-At 12:15 of video, Tim also mentioned everybody taking a haircut. Prefs 10-15% haircut from stated value (par), so that's 85%-90% of par.
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Latest from Tim Pagliara:
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CECL delay included in bill. see attached.
For banks only? Read this thread. Thoughts?
I just found Tim Howard's response. He thinks FHFA will do it: https://howardonmortgagefinance.com/2020/01/16/how-we-got-to-where-we-are/#comment-14815
The Federal Reserve, FDIC and Comptroller of the Currency issued a joint press release today that among other things said, “Banking organizations that are required under U.S. accounting standards to adopt CECL this year can mitigate the estimated cumulative regulatory capital effects for up to two years.” I’m assuming that FHFA will grant similar flexibility to Fannie and Freddie, although to my knowledge it has not yet done so.
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CECL delay included in bill. see attached.
For banks only? Read this thread. Thoughts?
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Wow, dont things come full circle. MBA is willing to belly up for help now too. I wonder if this will stop the intense lobbying against recapping the GSEs. Would love to interview that douche Dave Stevens now!
Ironically, the MBA might even lobby/advocate for the GSE situation to be rectified in a shareholder friendly way, as it is now in their interest for companies in these situations to be treated fairly/legally. The political risk/optics for Admin to do the right thing is rapidly decreasing, and that's a very, very good thing for GSE shareholders.
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does th4e bill make clear when deferred payments are due? immediately after lifting crisis declaration? or just added to principal?
It doesn't spell it out, but it does say forbearance and not modification. Forbearance = lump sum payment. Modification = extend the loan by a year (so your 30-year loan would become 31-year loan) or adjust your interest rate or spread the missed payments out over the duration of your loan. There are certain situations that after the fact you can apply to modify it, but the lenders can say no. So, the only guarantee for homeowners is that they can avoid paying their mortgage for 12 months. Odds are the vast majority will have to pay lump sum, but some might qualify for modified terms but that's a huge gamble for the homeowner not knowing if they'd qualify.
Edit: With that said, there is an opportunity for savvy investors to skip their mortgage payments, invest the cash, earn some/any return, and have the discipline to pay the lump sum in 12 months. Most Americans aren't that savvy nor have that level of discipline. They'd likely blow it on a new luxury car or dining out 4 times a week at nice restaurants with the end result being they lose their home.
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weird situation with forbearance. potus intimated in briefing that he might lift the crisis declaration in areas that are not badly hit by easter (midwest). that presumably will allow for only one month of forbearance for most of those affected mortgagors (assuming jobs are still there to go back to). or would holding crisis open for NY/Cali have effect of keeping crisis open for purposes of forbearance nationwide?
Part of the bill says experienced hardship during the coronavirus crisis, not as a result of the coronavirus crisis. And there is zero proof needed to receive forbearance other than a statement saying you need it due to financial hardship. To me that means anybody from anywhere can ask for (and can't be denied by law) relief.
With that said, I don't think many people will use the program. If you have a $3K mortgage and you don't pay for 12 months, you have a $36K lump sum payment in a year.
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CECL delay included in bill. see attached.
Nice find!
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Whoa.
#CARESAct: Lesson learned? Any warrants need to be exercised by January 1, 2021. Want to bet that $FNMA and $FMCC warrants are exercised by January 1, 2021, too?
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Sure looks like Calabria wants to drive home the point that we're still going to exit conservatorship. Tweeting himself and all (attached).
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Have your answer yet?
Depressing how poorly these things are doing today. No deferment of mortgages in stimulus bill; these things should be screaming higher. Money's pouring into MREIT's (and everything else) first though, I guess.
I wouldn't sweat the daily price action.
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Mr. Josh Rosner is on a roll. Thank you.
If the #government expects any #corporations to trust them today they must show goodwill by recognizing #GSEs repayments & writing down the #GSE debt immediately. @USTreasury @FHFA @realDonaldTrump @larry_kudlow @WhiteHouse
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Bloomberg Intelligence report out this morning (see attached). It basically says if the economy (and housing) gets crushed for a sustained period of time, then the Admin plans will be delayed. If the economy (and housing) has deep problems but rebound fairly quickly, then the Admin plan is still on track for calendar year 2020. Nothing surprising with that assessment.
Probably worth noting the previous comments on this thread about CRT's and the like and how that will soften much of the blow in a recession.
FNMA and FMCC preferreds. In search of the elusive 10 bagger.
in General Discussion
Posted
Yes, but the Fed has not set up a lending facility yet. If they do for the servicers then a lot of worry goes away.
Edit: I do fully expect the Fed to step in. Too much damage if they don't, but it hasn't happened, yet. Perhaps they are making sure the small business loan stuff is done first and then they'll tackle the servicer problem.