orthopa

Ackman holds preferred too. I dont have the reference or quote handy but he has said he holds preferred to hedge his common position. Not sure when its reportable but he may have bought some preferred since the election? Holding common assumes some forgiveness in so much as the govt giving up a portion of their share. Worth a flier for a very small speculative position but if Jrs are money good at these prices common have to be 6-7 a share for equal return. Is it worth the risk to lose a ton to make a little more? At this point many of the tired preferred holders would say no way and Im one of them.

https://www.multihousingnews.com/whats-ahead-for-the-gses-under-the-new-administration/

I think the uncertainly and debate regarding commons outcome is enough for me to stay only in preferred. Even at todays prices it 2.5 times here to par. Is it worth being lowest in the capital stack and getting diluted to oblivion to get 3 or 4 times your money instead? Not worth the risk to me and 2.5 times todays common price is $8.57. Not worth the risk vs return IMO. If converted I believe preferred will participate in commons upside after conversion either via favorable conversion terms or eventual reinstatement of dividend. That being said I think some "fairness" will be bestowed upon common ie not 99% dilution but I think the likely hood of outside returns compared to others in the capital stack is low. The preferred have contract rights, years of missed dividends etc and I think will demand a return superior to the common. Why wouldn't they? I still think the gov could get creative with their stake and sell the warrants like the did with the banks. I very highly doubt the SPS get erased and its because the courts have given them cover to not forgive them. That being said I think both the Sr preferred and warrants are on the table. The liquidation preference gets "exchanged" for a yearly fee for commitment or gov guarantee. Implied vs explicit is where congress could get involved. Like I said before this investment at this point is like religion. Either you believe there is a reason that Paulson's "exotic investments" prevent him from being nominated, think there is no reason Kudlow wants an interest in treasury etc. The FHFA head will be telling but in turn that person serves at the pleasure of the president after the supreme court case so its a de facto extension of Trump and his advisors. Trumps cabinet appointments have leaned heavily on loyalty and no one has been more loyal through the 2 presidential winning campaigns then Paulson. This time I'm almost certain we all get paid for his loyalty.

Trump Team Plans Fannie/Freddie Privatizing Push in First Months of Administration; Elizabeth Warren Becomes Ranking Dem on Senate Banking Committee; Biden Administration Shields Agency Rulemaking from Repeal Under Trump. Officials within the Trump transition team are considering a plan to initiate privatization of Fannie Mae (FNMA) and Freddie Mac (FMCC), the mortgage finance giants, within the first months of the administration with a blockbuster public offering before the end of 2025, said sources familiar with the discussions. Members of Trump’s economic and housing policy team believe they need to move quickly to break years of inertia on how to reform the companies that were effectively seized by the government when the 2008 housing crisis hit. “This is the last unresolved issue of the Financial Crisis, and we have a chance to fix this the right way,” said one source familiar with the internal deliberations. In one scenario being considered, president elect Trump, or a new Treasury Secretary would state the administration’s intention to privatize Fannie and Freddie and End Conservatorship in 100 Days”—referring to the current regulatory structure that has Fannie and Freddie in government hands. The Trump transition team did not immediately respond to a request for comment on Thursday. When the government took control of Fannie and Freddie, it offered enough capital to keep the companies afloat but virtually wiped-out common shareholders. The government has a right to about 80% of common stock if the companies are put back on the market. The government’s stake in the enterprises could be worth $150 billion, according to boosters of the plan. The first Trump administration and Biden administration both considered releasing Fannie and Freddie—known as government-sponsored enterprises (GSEs)—but the plans faltered. Policymakers were concerned that privatizing the companies could rattle mortgage bond investors who are accustomed to Washington bolstering the companies. If investors fear the government’s backing could vanish, they might shun mortgage bonds and ultimately push housing costs higher. Supporters of privatization envision Fannie and Freddie paying a surcharge for ongoing government protection against a financial calamity and they believe that investors will accept that implicit government backing as ironclad. Some housing market experts are skeptical. Congress would have to initiate or at least ratify Fannie and Freddie privatization to send a full-throated message to the market that the government is giving its steadfast backing, they said. Only Congress can fix the inherent flaws in the GSE model and provide taxpayers, homebuyers, lenders, and global investors with certainty regarding the government’s role in a post-conservatorship secondary mortgage market,” said Edward DeMarco, President of the Housing Policy Council which represents a variety of stakeholders in the housing market. Lawmakers in Congress have initiated and ultimately abandoned several plans to reform Fannie and Freddie since the Financial Crisis. Representative French Hill (R-AR), a leading contender to become Chairman of the House Financial Services Committee, said he expects lawmakers will want a voice in any reform of Fannie and Freddie. “Congress is ready to work with the incoming Trump Administration to make the best decision as to the resolution of the conservatorship of Fannie Mae and Freddie Mac,” he told The Capitol Forum. “I look forward to collaborating with President Trump and his team as a continuation of my decade of advocacy of reform, accountability and sound management of the Government Sponsored Enterprises (GSEs).” Some housing industry leaders have said they believe a privatization of the GSEs is workable—particularly if the companies are heavily regulated and investors treat the companies’ stock as they would shares in a public utility. “The nature of utility stocks, which promise a steady dividend and no rapid stock price appreciation, reinforces the companies as safe and sound U.S. market stabilizers,” said Rob Zimmer of the Community Home Lenders of America which represents small mortgage lenders.

I dont have the latest Moelis paper. There have been a couple released with a 2 I believe coming out around 2016ish I believe. From what I understand the latest one has been trading via PMs on twitter with others I follow who have been in the Fannie trade for years. Tim Pagliara has been sharing it with them I guess. I have been unsuccessful in obtaining a copy but from what others have shared with me in one scenario Preferred get converted at ~82% of par. The other scenario is the preferred have the dividend turned back on at some point. From what I have gathered from others way more connected then me is that just turning the div back on is seen as a more palatable option within the admin as it takes away the angle of "unjustly enriching preferred shareholders". The preferred shares have contract rights and restarting the divs honor those rights. Conversion is an option for preferred but then you open up the dynamic of sharing the pie and who takes from who in relation to Gov vs common etc. As you mention there are multiple different options. The WSJ article from late summer says recap options that limit lawsuits and essentially in fighting are being pursued. I think the Govs liquidation preference since the last amendment gets waived in exchange for a commitment fee of some sort. Then you have the govt position of the Sr preferred and the warrants. The gov has a million options of how to deal with that. The gov could convert the Sr preferred and sell the warrants like they did with BAC, C, JPM etc. That optically looks better then crushing the common on their own. They could convert the Sr and Jr preferred on a 1 for 1 basis with an equal haircut for both into common then sell new preferred. They could get them out on consent decree and hold divs on the Jr Preferred until capital hits target levels a let the companies continue to build capital and forego an IPO. Im currently only in preferred and would never argue strongly against someone's common position who think the return maybe similar or better because I know no more then anyone else. I do know though that the preferred are higher in the capital stack, have 2/3 vote hurdles for conversion etc and thus some built in protections against getting crushed like common can. I sleep better at night knowing that Paulson only owns preferred too.

Is this self dealing for Paulson? I would say so no? COMPLEX FINANCIAL HOLDINGS preventing him from holding office. Wonder what those are? Come on John, come out and say it! So Pauslon turned down being a treasury secretary so he can hope and pray on little to no chance that FnF get released. Not because he holds what is believed to be 4B+ in face value of preferreds bought a pennies on the dollar. Really???? Paulson must know enough about what may happen to FnF to turn down one of the most powerful financial jobs in the world. Im going to follow his lead for now.

I disagree, that's receivership and if any admin was going to do it, it was Obamas, didnt happen then, wont happen now. Treasury hold all the cards now with a functioning mortgage market that no one has been able to come up with an alternative too. Receivership would tank the mortgage market and for what reason. Inaction is a risk receivership is not. Doing whatever you want goes both ways. If the laws allow treasury and FHFA to do whatever they want then release could certainly happen within the law. Why release? Treasury doesn't touch any of the money it gets now in liquidation preference. It can eventually according to the last agreement when the NWS turns back on but Treasury can also get money now or soon. Time value of money. Take it for what it worth from a bag holder but since opinions count here Trump owes Paulson and I bet( I have bet very highly and foolishly for some time) get paid this time. Trump doesn't have to get reelected. FnF will have 150B+ of capital, FHFA director works at pleasure of president. Bessent just announced front runner for Treasury. He believes in reprivatizing the American economy per reports. What does that mean who knows. I never believed Paulson would be Treasury Secretary. David Faber this morning on squawk box reported he has 4-5B par value of preferreds. Why would he sell that to take Treasury position andthen take FnF out of conservatorship? Makes no sense and looks like self dealing. I bet he keeps his distance and is an advisor in this admin like Craig Phillips. His holdings are private and not disclosed for a reason and will stay private. FWIW there is a Moelis paper circulating out there that is hard to get your hands on. Says preferred have 2 options. Turn divs back on (yes please!) or convert at 80-90% I believe based on series. Not gospel but interesting for sure. There is also an outstanding lawsuit in favor of plaintiffs on appeal with 612 million in damages that is accruing interest. Not a ton of extra cash but (I think but haven't done the math in a while) 40-50 cent award for some series if finalized. If your cost basis on shares is $2-3 a share like mine thats a nice ROI. This investment is like religion. Either you believe or not. Is that smart? Depends on your reasoning and how you connect the dots. Will be a fun ride.

remember fannie mae and freddie mac...........? I bet Trump et al gets it done this time. Senate control makes FHFA head approval a breeze. FHFA director serves at pleasure of the president. Treasury Secretary could be Paulson. Wall street Journal article said admin has already talked to Wall Street and looking at recap options. Ive been long foolishly since 2016. Vindication may finally be here.

Finally, god damn it....finally.

Hard to say ofcourse. Who knows who that is and what the motive is. At current odds that person is better off buying freddie preferreds at 20% of par and getting a higher return on their money then betting on trump on poly market. My take on Trumps increased odds are his polling numbers in swing states being equal to or better then Harris knowing he seems to always poll lower then the actual vote shows. Early voting also has been very strong for Repubs in VA, NC, and GA compared to 2020 and equally soft historically for Dems. My current take on common/preferred is this. Someone smart once said if common is worth a penny preferred is worth par. Par will likely take a symbolic haircut to get the deal done but with preferred trading at ~20% of par for most series that means common would need to trade over $7.00 share to get a better return. Not knowing the structure of the deal that seems on the unlikely side as there is the risk of conversion of the preferred to common, conversion of senior preferred to common and outstanding warrants. All speculation at this time but going into a deal the capital structure needs to be fixed which means Senior Preferred are restructured/converted and Jr Preferred are either converted or Divs turned back on. When 10 year treasury was at 1% that was unlikely. With it near 4% div yields in the 5-8% range on some of the preferred not as unrealistic now so a chance divs are restarted.....maybe. Either way if one or both of the Jr and Sr preferred are converted INTO common Im not sure how common is set up for a superior return. IMO at 20% of par I think FnF pref are fairly priced. Trump still has yet to win and this still has to go through the scrutiny of making every group happy in a restructuring. There is still alot of work to be done and the resistance to get this done will be STRONG from the DC lobby groups who don't want FnF private and the Treasury lawyers who were unwilling to forgive the Sr. Preferred in late 2019 with Mnuchin and Calabria. If Trump wins I think 40-50% of par is a fair price until a restructuring is figured out. Ive been in this trade in parts, pieces and different portfolio sizes since 2015. Its never as simple/clear/easy as it seems.

Older news but WSJ put out a piece a couple weeks ago that Trump administration working on plans to release FNF if Trump wins. Still remains to be seen but if Trump wins I bet Paulson doesn't F around this time. Freddie and Fannie combined may have near 160-175B of combined net worth by end of 2025. No need for Trump to worry about getting re elected. FHFA head serves at the pleasure of the president, etc. Trumps odd have surged in the betting markets as of late....3 weeks to go but this investments fortunes maybe turning finally.

A Harris administration would never release the GSEs unless left no alternative. Even if your a democrat you sell if she wins.

agree.

Berkowitz's main thesis was the legal route which was crushed with the Supreme court verdict. Im surprised it took him this long to get out. I have unfortunately been a long time holder of the preferred. I held after Trump lost in 2020 with prospects at another bite at the apple with the SC verdict. My holdings have been in purgatory since. With the race looking a lot closer then before Biden dropped out I have to come to a decision with what to do with the shares before the election. I have a decent amount of holdings in illiquid preferred shares I will take a loss in and move to FNMAS or FMCKJ. This is because if Trump loses you can expect the day after to be a blood bath. Being in the most liquid at least gives you a chance out the door. That being said if Trump loses I'm going to leave the trade completely. As much as I believe Trump will get them released in a second term via Paulson I still think that chance is below 100%(maybe 90%?) . The chance of that happening under Kamala is near if not 0%. In the 4 years of a Harris presidency I believe you will be able to buy shares in the preferred at literal pennies on the dollar. Shares traded to $1.50 after the SC ruling under $1 would be expected in this scenario IMO. Fannie and Freddie will continue to build capital and I believe around 2032?(correct me if Im wrong) they will meet minimum requirements but then the NWS turns back on. Sure Paulson et al could court the new republican candidate in 4 years but Id rather watch that unfold on the sidelines then hold 4 more years and pray. That being said its rumored Paulson still holds Billions in face value of preferred shares. If true that guy has balls/unbelievable conviction assuming he accumulated the shares prior/during Trumps '16 run. Ackman FWIW still has non insignificant position first purchased in 2013 at around $2.75 a share in common. Its been 11 years and he's down 50%. Im not sure if he is insane or in the end brilliant. Anyone else have thoughts on how to handle this trade as a trapped long up to the election? Is selling out ahead of time crazy and buying back the preferred 25% higher the day after the election? There is still upside over 4 years in that scenario. If trump loses the exit door gets real crowded and its 4 more years of purgatory.

I still hold a large fannie position. All preferred. I would stay away from common. As much as this investment has been based on the kindness of others to work out in the end alot more kindness needs to be given to common then preferred. Govt Senior Preferred Shares and Warrants will dilute common. 99.9 of new common will likely be gov's but ultimately priced by market. In Calabria's recent book he discussed treasury was ok with their SPS shares and Junior preferred converting to common in new co at same haircut if any. Any "haircut" will be priced by market with new equity on convertion. Preferred being redeemed at Par not unrealistic. Small hair cut possible. That gives FNMAS 6x is here. No way common is worth $8+ a share after dilution behind SPS, warrants (not to mention liquidation preference that continues to build but most likely a give back of gov. Run the numbers, stay away from common.