Jcmeg35

The last letter agreement reduced the incentive for the government profiting, but since liquidation preference was and is still in place, one can make the argument they profit, but at a later date. I, personally, am dubious of the idea that the NWS being ended suddenly creates some kind of urgency for a Yellen Admin to settle. There is clear incentive for JPS to settle (and I now think Par is a best-case scenario), but I just don't see it on the Treasury side. If UST was willing to roll the dice on SCOTUS hearing the case, they are not gonna get religion now and settle before ruling. Seems like only thing that could do the trick would be a major adverse ruling from SCOTUS, as others have echoed. So much analysis here was based on the assumption that Mnuchin wanted to end the conservatorship in a manner equitable to legacy shareholders but that was never the case so all this analysis has been faulty. Mnuchin on the way out the door still talks of legislation aimed at restructuring the GSEs while his policies have firmly worked to destroy the interests of legacy shareholders. Mnuchin teed this up for Yellen nicely. She doesn't have to do anything and this is on cruise control until SCOTUS. Yellen has already stated that the GSEs need to be "restructured" and in her opinion the best option is for legislation. But she must wait for the SCOTUS decision before this can be done. (Note, she may or may not do that because the status quo may be preferred for Treasury). Our hope is that SCOTUS (or remand) unwinds the NWS, and a forced settlement occurs with JPS. That's it. Otherwise, in the event of a loss there are any number of options where JPS get nothing: selling core assets to private firms while leaving a worthless shell behind, legislation for new entrants to have an explicit backing, or, status quo. I'm staying in and betting on a SCOTUS win. +1

The last letter agreement reduced the incentive for the government profiting, but since liquidation preference was and is still in place, one can make the argument they profit, but at a later date. I, personally, am dubious of the idea that the NWS being ended suddenly creates some kind of urgency for a Yellen Admin to settle. There is clear incentive for JPS to settle (and I now think Par is a best-case scenario), but I just don't see it on the Treasury side. If UST was willing to roll the dice on SCOTUS hearing the case, they are not gonna get religion now and settle before ruling. Seems like only thing that could do the trick would be a major adverse ruling from SCOTUS, as others have echoed.

The disparity in the commons vs. preferred has been around a while, but the common have really outperformed Preferred since the start of the year. My guess is that it is a result of both liquidity and where fast money was positioned on the expectation that this announcement would be more positive.

+1

Other than the fact that there has not yet been a PSPA and the value of the securities has sold off, what has transpired over the last few weeks to indicate that Mnuchin won’t sign a PSPA or some other agreement that alters the current state?

Agree. One of the purposes of this is to listen to different opinions. Otherwise it's just an echo chamber... Agree as well. I think it is important to constantly challenge one's thesis. While I think it is clear that the market is now saying it doesn't expect any action from Mnuchin, based on current prices, I think the risk/reward is relatively favorable. The market has priced in no PSPA, but there is still time before 1/20 for MC to do what he has said he was going to do. There have also been whispers that Biden Admin would not continue R&R, but we have not yet heard anything from Yellen on the topic. While I won't hold my breath for an upside surprise, I think, again the Market has priced in her not being faborable to R&R, though it is possible she is open to workig with Calabria. Lastly, the legal cases still hang in the background as options that provide additional upside.

At this stage, the market appears to be agreeing with the view that nothing is going to happen or any action Mnuchin takes will be very underwhelming... Yeah, but those were OUR dates, based on assumptions that sometimes turned out wrong. The question is whether Mnuchin ever had a "date" other than last minute. We may never know, but while time is running out, the last minute has not yet arrived. What makes you believe something will happen at the last minute? That’s another one of OUR dates? These papers are like call option that on January 20, imo. At least the executive action part of the value will expire. I am not sure what the lawsuit part is worth. Even if executive action were to occur, there is a strong likelihood that it will just be reversed.

I don't disagree, but the reality is, if he is planning something they want to get the market ready so it doesn't come as a "shock". This is why, I think, there has been so much media coverage to get everyone ready to expect some action (hopefully PSPA + Consent) as a forgone conclusion.

I think it pertains to US Gov fiscal year which begins in October.

I agree that the scenario TBH seems a little far fetched. However, with a lack of explanation for the resignation, and given the timing, it seems hard to think it somehow is not related to either the finalized capital rule or PSPA (or lack of an expected PSPA). Yeah, he is reading a lot into it considering that no reason for the resignation was given.

Hopefully, this is completely unrelated to the prospects of a PSPA over the next few weeks: https://www.housingwire.com/articles/david-brickman-to-step-down-from-freddie-mac/

I think he is referring to Tim Howard. I don't know who MTH is, but he/she is counting on SCOTUS a lot more than I am. I would much rather have a decent settlement now than shoot for the moon with SCOTUS and risk coming away with nothing.

In some non-election related news: "Fannie Mae Names Sheila C. Bair as New Chair of the Board of Directors" https://www.prnewswire.com/news-releases/fannie-mae-names-sheila-c-bair-as-new-chair-of-the-board-of-directors-301166697.html

Thanks, thought that was probably the case. no I wouldn't say that. 6th C doesn't want to have to hear this appeal. trying to head it off by requiring an attempt at mediation...which won't go anywhere. this is court administration. no tea leaves here

@cherzeca given that this was initiated by the sixth circuit do you think it is misplaced to read into this as being the beginnings of settlement talks involving the bigger cases? http://www.glenbradford.com/2020/11/fnma-fanniegate-997/

You are right, my mistake! Thanks for pointing out.

Looks like FHFA finalized strategic plan for 21'-24' today. At least another step behind us now, admittedly a less important one. https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Strategic-Plan-for-FY-2021-2024-Finalized.aspx

Not sure I quite get the quoted part of this tweet. Ready for what? If released under consent decree the terms would have been determined already. I wonder if the mile markers will be released with or as part of the capital rule? I watched the discussion, and if memory serves me, the "need to be ready" was around the change to capacity as regulator. He discussed quite a bit building up this capacity within the agency - having own analytic capability compared to relying on GSE's, hiring economist, etc.

+1

For those that have a Real Vision subscription, today @2PM: https://www.realvision.com/shows/live/videos/the-ultimate-election-trade-fannie-and-freddie-live-with-gabriella-heffesse/

Just PSPA around Thanksgiving. Got it, thanks a lot!

From somebody that has connections with high-level officials at UST and FHFA. Thanks for sharing! Did you get any additional color if this would include a consent decree or just PSPA?

Where did you hear this? Feel like there have been a lot of rumors over the years that haven’t materialized.

There has been some discussion during the summer around the idea that if Trump were to lose, Calabria and Mnuchin will reverse the NWS, make a deal to settle litigation, and do a consent decree to ensure the work doesn't get undone with a change in administration. With the prospect of a contested election and no clear winner for 1 month+, I would think that this situation would put such a "big bang" event in some level of jeaporday. Curious to hear others thoughts on these risks.

Looks like FHFA is delaying the 0.5% refi surcharge: https://www.wsj.com/articles/fannie-freddie-to-delay-mortgage-refinance-surcharge-until-dec-1-11598385617