orthopa

According to inside mortgage finance multiple sources put Calhoun as the next FHFA chief with an announcement this week. Apparently CRL has accepted funds from "controversial sources, including John Paulson." Here we go again

If confirmed certainly bullish for shares. Will need to repurpose the capital rule again and of course amend the PSPA. His paper lays out a pretty good explanation of why the GSEs should be released and what the give back for the gov stake should be and why it should happen. The PSPA will of course be all important and he will need to navigate all the lobbyists looking to secure their piece of the pie. Of all the possible candidates that have been mentioned Calhoun is certainly the best for shareholders. A stumbling block to the release has always been the "political cover". Setting up a housing fund with the gov stake is pretty good cover. Who is going to argue against help for housing for those that cant afford it? The risks of that are a different discussion. With a utility model the capital requirements will be lower but still how much dilution in this scenario for common still unknown. I still like the preferred here vs common even with a faster recap. With the common trading just below some preferred I think the common getting to $25 is a bit of a stretch and I still like being higher in the capital structure after getting slammed.

I havent finished listening but the flip side to this was the SCOTUS seemed like things were going to go very well based on the arguments and how harsh the justices were there and not one justice sided with us so there is that too. Whats more disheartening more then anything was that it took over 18 months from the time of sweenys ruling to oral argument on appeal. Its at least 3 years before we get anywhere near a final ruling in that court. Lamberth closer and we know for a fact that the evidence there will finally be presented.

Ed Demarco is coming around finally https://www.washingtonpost.com/opinions/letters-to-the-editor/free-fannie--and-freddie-too/2021/07/16/2651cf58-e4d9-11eb-88c5-4fd6382c47cb_story.html

preferred as I do not see a scenario where common get more then $25 a share by the the time this is all done and over with. The market is essentially pricing the two the same implying in the end the value of both is very close by assuming the companies only recap by means of retained earnings and there is little common share dilution. I disagree with this although I wouldn't call someone who believed otherwise foolish. Also the way things have been going I continue to like a higher place in the capital structure. My assumption is divs are never turned back on and preferred is converted to common.

I don't know if I agree with that. How can the govt take without compensation? The NWS took property without any additional investment in the GSEs. Gov could have rightly taken the NWS if say more support was given in exchange. Nothing was given. The reason then given was a lie which the court cases will show. Reading lamberths last opinion gives a good look into what areas and questions the plantiffs raise regarding fair dealing, contract right etc. Im not a lawyer and will defer from a strong opinion due to holding the position but Im not sure how an impartial person can look though the evidence and not find the gov lied and blatantly expressed the desire to wind down and get rid of FnF. Does it matter? It remains to be seen. Assuming the court cases go no where the gov still has to either wind them down or has the option to maintain the status quo until either a housing market/stock market crash or the companies recap themselves over time. Anyones guess as to what happens. There is nearly a 1 year quiet period until lamberth trial, no apparent rush to nominate a new FHFA director and the Biden admin has been mum on any comment regarding FnF...thus we are at $.06 on the dollar. That being said since I was not in the trade when these prices were last seen I have been nibbling. At some point in the next couple of years I think the shares are up at a multiple of $.06. This is surely max pessimism since I have been in the trade and it was always the wrong time to buy during max optimism. Question is, is this time different?

Im no lawyer so Im happy to have other opinions but the most recent SCOTUS was a statutory ruling. They plainly interpreted HERA. Lamberth agreed already that the APA avenue was a no go but other claims are proceeding. Can SCOTUS rule HERA says FHFA can do what is best for itself but not honor a contract? Can FHFA do what it wants but still have to pay for property taken? I guess we will see if we get that far.

I agree that is a similar worst case scenario. The money is not going directly to treasury via cash but do they or anyone else care? They will have to ultimately to get over the inertia. Although not 0 certainly why market pricing in close to it at $.06 on the dollar as well as uncertainty regarding new director. FWIW when pessimism on this investment has been highest the returns have been the highest too. Every time things became very promising was the wrong time to buy.

Couple things on this. 1. How can that be the only deal available? I thought there were 2 independent agencies who were conducting an arm length transaction? Maybe your referring to the emails where they say they will salt the earth with the GSEs and make sure they never go "pretend private again". That sounds like no option to me. Maybe that will come up in court huh? Or maybe FHFA never even fought back. Look at lockharts statement:" The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 as amended by the Housing and Economic Recovery Act of 2008, authorizes FHFA as conservator to "take such action as may be: (i) necessary to put the regulated entity in a sound and solvent condition; and (ii) appropriate to carry on the business of the regulated entity and preserve and conserve the assets and property of the regulated entity." 2. How has FHFA benefited from the NWS? The cash flows to treasury. Treasury does not equal FHFA. There are separate government agencies. In a receivership, recap/release, utility model FHFA benefits the same in all 3 which is "nothing". It still regulates and carries out its duties. 3. Lamberth already threw out the APA claim but upheld fair dealing and contract claims. After reading the preferred FNF offering was an investor to expect the NWS occuring while being "conserved" by the FHFA?

There are multiple bites at the apple for GSE investors, more so for preferred then common. What is the worst case scenario for investors? All court cases go against you and GSEs go into receivership, 3-6 years from now. That of course assumes Congress passes legislation to replace the GSEs. Therefore the inertia is on both sides. The climate is also significantly different towards the GSEs then after the bailouts. The GSEs were wound down to 3B each of capital with 4-5T of assets, with the NWS in place and they were not replaced. Why? the 30 year mortgage and MBS. Until somebody out of 350 million people can come up with a better alternative and liquidate the GSEs in 3-6 years who at that point may have combined 100-150B of capital (that makes a lot of sense) then we are stuck with them. How an Obama/parrot/zandi/demarco/lew combo doesn't get rid of the GSEs while people are protesting on wall street but do now is beyond me. I'm open to ideas guys. Hit me with them. Without even knowing who the next FHFA head is how can anyone make a reasonable assessment of where things are going? There is no rational reason why a SCOTUS loss means a lamberth or takings loss. There is also no reason to assume that since Bush, Obama, etc didnt do anything so Biden wont either. As much as anyone investing in this maybe subject to confirmation bias what do you call watching the price of an investment get cheaper and say its no good and it wont work out? Those suffering from recency bias calling out confirmation bias. How rich. What I find most troubling is the investment on this forum has over time weeded out a lot of posters who had a lot to contribute and knew enough about the investment or brought an angle or background that was useful to bounce off or argue against. The investment has chewed them up.

Did FnF get nationalized and their assets liquidated and no one told me? The success and failure of this investment never depended on the SCOTUS and was in all intents and purposes the weakest case of them all. For those who have followed more then casually for 4 weeks should know similar judgemental disappointment occured after the en banc. The lamberth case and takings case are of the most beneficial to preferred holders. The NWS could/can as it is and the preferred could still end up with more then par. All the cases could go against shareholders and the preferred could get par or a modest haircut in a restructuring. Anyone here cook up a GSE alternative that finally puts the GSEs out of business and into receivership?

This surely has been a brutal couple of days and a positive SCOTUS ruling would have been a much different situation then now but excuse my ignorance but I don't remember any thinking along the line of this SCOTUS ruling was the end all be all. Lamberth already ruled that the APA was not violated. SCOTUS affirmed this and although no where near ideal in the next court case it changes nothing. I hate the position shareholders are in but it is what is. From a preferred standpoint the takings claims are more beneficial then as interest is added back. I am no means hanging my hat on this outcome but it is what it is. My belief for the outcome for par was a restructuring in which preferred was converted. This of course assumes that the will is there to restructure them at some point. Sure they could stay in conservatorship for ever being undercapitalized for years. Logic could get you to the point where you would believe that the next housing crisis comes before retained earnings reach a high enough point. So what the end game? Just limp these along under capitalized knowing there will be problem? Maybe. Until we get a new director and a handle on their views its a toss up. Watchter and Calhoun seem reasonable and want a utility model. I think any director who wants anything for the GSEs out of conservatorship will work out reasonably for the preferred as that implies capital is raised and placed in front of gov. Outside of the most left and right in congress I don't think anyone wants to get rid of the GSEs. In fact it was tried but they were unable to. The legislation went no where and capital was supposed to wind down to $0 and then $3B and they couldn't kill them then. I have no idea if Biden will act but if they do they surely should go after affordable housing during his tenure as that is clearly what the dems want. What's stopping them outside of inertia? If there was one time that raiding the piggy bank might be welcomed its maybe now. The political climate is much different now when the wind downs and bailouts were everywhere. G fees will be lower and GSE return will be lower but legacy preferred shares in that situation are worth way more then 8 cents on the dollar. Reading the white papers from Watcher and Calhoun do set your mind a little more at ease. Who knows what happens to shareholders in a restructuring under either as a FHFA head but a utility model can only happen if they are released. Zandi has been floated as a nominee but fears with him will be winding them down. Many in the housing community believe the GSEs have been reformed and are rebuilding capital. Do you wind them down again for a second time? That takes some will power and wouldn't a utility model with lots of affordable housing initiatives make for a much sounder housing system then winding them down? The notion of a quick settlement has been thwarted for sure. Next on my radar is the new FHFA head and their confirmation testimony. Next then lamberth for those who feel strongly about the legal cases. Hamish Hume plans to vigorously defend the case so god bless him. No way Berkowitz is out now as he is bringing that and the sweeney case. As for selling now in how many situations are the preferred worth 8-9 cents on the dollar? They are worth 0 on a pure nationalization (not liquidation preference) scenario but is that really an option in DC now vs 10 years ago? The preferred traded up to 50% of par leading up to the lamberth trial decision with the NWS and wind down to 0 capital in place. Undoubtedly we will fluctuate heavily going forward. That should give some opportunity to take some off the table if one chooses vs adding now and digging in more.

http://delawarebayllc.com/images/Time_for_a_fresh_look_2.pdf The ruling today jogged my memory of this Hindes letter from earlier this year. FWIW he didnt seem to give two shits about the SCOTUS. The market obviously thinks otherwise. At ~10% of par does a disgusted long time shareholder add here? Starting a new position here maybe, DCA down, ugh....

Do you have readily accesible links to that lamberth stuff? Is it just in the court filings? Not sure I read that before.

Great question. It appears there is a minimum of 3 options. 1. Keep the status quo forever and just keep building the liquidation preference and hope there is enough capital one day to sustain a down turn. This puts gov at risk but do they care? 2. Write down the governments stake, recap FnF and move on. Doing this we are right back to last summer and political cover and all that bullshit. 3. They do a new amendment and try to wind down FnF. This obviously is the least desirable option and I believe least likely. Winding down was tried once and reversed but do it again would take some pretty strong will. I think the most likely option for the near to medium term future is 1. Number 2. would be nice and it seems it would be a utility model but you need a new FHFA director confirmed, new capital rule, etc. I think even if number 2 happens it isnt for before 12-18 at a minimum looking at Calabrias time line of what he did. Something positive will likely come at max pessimism. I cant imagine we are that far from that other then a Lamberth loss to add.

Apparently per Twitter Calabria has resigned effective today. New Director should be nominated at some point or atleast interm.

The damages matter much more to common and for absolute best case scenario for preferred. If the gov wants to recap FnF the preferred need to be dealt with. The size of the govts stake also makes a recap very hard and the latest amendment does not let the gov actually touch the cash at FnF ever. Their liquidation preference is a paper gain at this point as the cash has stopped flowing to treasury. If gov wants to monetize they need to restructure the capital stack. The likely hood of a hair cut to par seems much more likely now for preferred holders absent a favorable ruling from lamberth or the takings court. Treasury has already "committed" to restructuring the Sr Preferred and realizes it has to make changes to its ownership to raise 3rd party capital. Its in the last Amendment, last section. But until it happens at this point call me a doubter. https://home.treasury.gov/system/files/136/Executed-Letter-Agreement-for-Fannie-Mae.pdf

Anchor bias certainly has played a role, especially for anyone holding for a long time. One would think the due diligence was done on an investors end before even investing but sure. Once your involved and moneys at stake its easy to believe. I think there has been a lot of people who have relied on "common sense" such as TINA, the US has property rights, the emails show that the assets were never meant to be conserved, the govt didnt want to show documents, the accounting didnt add up, on and on. Lamberths court and the takings case may allow some more of the common sense aspect of the investment come to light as the actual process of the conservatorship and the documents the govt come to light. Im no where near a legal expert enough to know if this case matters to any large extent in those realms.

True its not all a total lost cause but the time horizon certainly became foreseeable longer for shareholders. There may have been many reasons why Mnuchin didnt act but after he didnt I couldnt but help wonder if the shareholders winning cert for the SCOTUS and the enbanc delayed and made what he and Calabria were going to try to do nearly impossible esp from a time stand point. If this decision comes down in summer of 2020 or isnt even argued is the conservatorship over by now. Apart of me would want plantiffs to just cry uncle, drop the litigation and try to move to an agreement with the gov on a path out of conservatorship. This is unlikely because without the leverage of the lawsuits the plantiffs could get railroaded and there are probably angry shareholders that will never let this rest.

Throw in enough words and you can make it whatever round and round reasoning that you want. I just thank god Im not on trial for a criminal offense watching this and its only money at stake. Any judge/jury can come to any reasoning they want and decide that even though your innocent you should be punished and vice versa. Mind blowing.

FWIW why have so many people been wrong not just on this case but the investment in general? No need to list them individually but the list is a wide swatch from billionaires, government and non government people, private and public people, lawyers, en banc judges, independent regulators and even SCOTUS justices. Outside of purposeful contrarian opinions how are all of those people so wrong, and wrong for so long about the legality of what happened and what is right vs wrong? John Carney was right all along. Mind blowing.

Was Watchner announced as the new candidate?

Now that Calabria is on the way out if there is any positive from that a new FHFA director would of course be one to work with Yellen. He/she could work with Yellen for 3.5 years and get no where so who cares right? A year ago FHFA was hiring financial advisors for a public offering and today the preferred trade at 8% of pa. WTF huh? I still cant get pass the ruling and how this meshes with new capital if the gov wants to do that. Paulson and Berkowitz even as billionaires must be smashing their heads on 100k dollar fine future tables asking WTF happened too. Remember Moelis lol? What a mess...but for the stubborn or new to the investment what a better time then now to buy lol!

Im as shell shocked as anyone. How much more can a shareholder in these companies take? First the disappointment in January and now this. Damn. Gregmal is absolutely right. What has become clear is dont ever, ever fuck with the govt. It wont end well and if it does by the time its done you will be broke or ready to blow your brains out. There are so many questions and as clear as this ever had become at any point its even less clear now. Rule of law guy has a good point. How do they raise capital with this ruling? What happens in a housing market down turn in the future? Maybe there is a hidden silver lining to this? I doubt it. If there was/is anything to read from what mnuchin said back in December. "Mnuchin also alluded to a case heard by the Supreme Court on Wednesday in which legacy shareholders of Fannie and Freddie are suing in an attempt to reclaim profits they say the government illegally directed to the Treasury. Mnuchin said that case and other issues must be resolved before Fannie and Freddie could raise capital in private markets, which they would need to endure losses outside of government control. “If they rule in Treasury’s favor it simplifies things,” he said. “If they rule against, it’s still going to end up in litigation.” This maybe simplifies things for the gov. And in the 4th letter agreement: IX Commitment to develop Proposal to resolve conservatorships Treasury is supposed to deliver a proposal to congress on how to resolve the treasury stake and raise third party capital by 9/30/21. But dont hold your fucking breath that these scumbags wont push this off.

Good question. Volume has been on the low side so maybe just some people who don't want to miss out early in the expected SCOTUS window. The market of course has the uncanny ability of pricing things in so maybe the SCOTUS will be good. The price was so low though that even a mildly positive decision would have bumped the price from where it was. The latest in the rumor mill was David Thompson was doing some calls. Not sure about what means specifically but maybe some action from that.