orthopa

https://www.bnnbloomberg.ca/gop-s-toomey-seeks-democratic-support-to-free-fannie-and-freddie-1.1577201.amp.html?__twitter_impression=true&s=09

My impression is the Lamberth Trial was not going to start until the end of 2022 but if hindes is correct will be sooner. Getting summary judgement seems the quickest/best way to go.

Sounds great guys/girls thanks!

Im looking to move some stuff to Interactive Brokers. I called and they said that the preferred are not listed as a ticker/security that they trade or have access to. Does anyone hold an account at IBKR and have the preferred with them? They have some pretty weird OTC stock rules it seems. TIA.

With Calabrias fate decided or expect to be negatively decided we can expect to hear zero out of him going forward for the next couple of months. What else is there left for him to say? He was left at the altar. Fingers can be pointed all around as to what happened and why but it seems nearly all the work he put in over the last 2 years was a big waste of time. I wonder if any of his work sticks around. The capital rule will likely be tweaked again but do they go through the process of getting new FAs again?

What is the impetus to make the gov act post SCOTUS if the ruling is favorable? If it seems the gov will end up paying no matter what why wont they just drag things along? Best case is a SJ as cherzeca has said. The is the language at the end of the last agreement to address treasury's stake but at this point Im not sure thats anything more then a deadline that will come and go.

I think you are misunderstanding how the SPS dividend works. The SPS don't get a dividend until FnF hit their full with-buffers capital level of 4% of adjusted total assets, even if a future FHFA director makes a new capital rule due to Section 5.15, unless Yellen and the new FHFA director amend that out. Once full capitalization is reached ("Capital Reserve End Date") the SPS get the lesser of any net worth increase from the previous quarter and 10% of the SPS liquidation preference. But dividends to other classes of shareholders subtract from net worth just as earnings add to it. So once dividends are paid out to other preferred and common shareholders, the SPS gets the rest of what FnF earned in that quarter. What that means, paradoxically, is that the SPS are at the back of the line in terms of dividends once full capitalization is achieved, and the SPS get no dividends at all before that. It remains to be seen how easy or possible it will be to sell new common shares who have zero liquidation preference ever but will get normal utility-like dividends. Without a settlement to the lawsuits and private capital raises the SPS will get no money from FnF for decades. Not even a commitment fee, unless a future FHFA director and UST Secretary reinstate it. Altogether this agreement actually gives Treasury an incentive to move quickly on raising private capital: slow accumulation of retained earnings provides less taxpayer protection (in terms of how much capital stands in front of UST's LOC) compared to fast and large capital raises, and those raises accelerate UST's timeline to getting payments on its SPS. The SPS dividend also answers a question I had, which was "what would FnF do with all their earnings once they hit full capitalization?" I couldn't imagine the government would be okay with private shareholders getting enormous dividends, and FnF would have no reason to save any money past full capitalization anyway. Now we know: UST gets all the extra money. Something else to consider is that 4% of adjusted total assets, the threshold at which the SPS divs turn on, was $265B as of last June and grows with FnF's asset base. I use 2.5% per year as a ballpark. FnF's combined core capital, though, was negative $167B at that time. That's a $432B gap! FnF make around $20B in earnings per year, but the 4% target grows at $6.6B per year right now and faster in the future as the 2.5% increases compound. Carrying out the math, that means not only will FnF not be fully capitalized through retained earnings by 2028, it will never happen at all! The smallest the gap between FnF's core capital and the requirement gets is $72B in 2065, then the compounding of the 2.5% becomes greater than $20B per year and the gap starts to widen again. Now, assuming flat earnings of $20B per year is probably unrealistic. If they also grow at 2.5% per year, which I think is reasonable because FnF's earnings are also roughly proportional to the size of their asset base, the $432B gap closes in a finite amount of time, but not until 2044. Note: only the SPS balance on the balance sheets count (negatively) towards core capital, a total of $193B for FnF combined. Increases to the liquidation preference due to the letter agreements, including the one from Thursday, are not reflected on the balance sheet and thus don't affect core capital at all. Very nice analysis Midas. So on paper in the end, it is the private gain/public losses that could occur. Calabria has stated time and time again the time to fix the roof is when its shining. With NWS ended as Midas points out Treasury is never in line for an endless stream of dividends but with FnF still leveraged where they are first in line to have to bailout the GSEs again. Im not sure what the excuse would be framed as if the Gov had to bailout FnF again but with a capital rule in place, an eager (for now) FHFA director, FA advisors, etc my assumption would be a stubborn Treasury would be at fault. In the aftermath this may note even matter but it is what it is. A couple points that come to mind as I continue to think this through. 1. The litigation must have either really bothered Mnuchin or he wanted it to be an impetus to something happening. When looking at the conditions for raising capital and leaving conservatorship there are blocks set up. 2 for selling stock. Treasury exercising warrants AND litigation settled. Treasury already had the upper hand in that they have to exercise the warrants. They have till 2028 to do that so could stall all they want but they want the litigation gone too. Same with leaving conservatorship. Have to meet cap levels but with the SPS in place that is a big impediment to raising capital, esp common stock, while in conservatorship. But again Tsy wants the litigation gone too. My read is that Tsy had blocks on both both explicitly with the warrants and implicitly with selling common in conservatorship without adding anything else. The litigation no matter how much it seems to us does not matter, must inside Tsy. They want it gone. 2. The more I think about what options Mnuchin had writing down the Sr Preferred from his seat would have been very tough. Calabria with his objectives its a no brainer. If optics matter much easier to have SCOTUS throw down the hammer then cave. Does treasury in the end feel like they will have to retire SPS either now or in April after consultation with the DOJ? The answer in believe is in their requests in the letter agreement. I also think the decision to discuss restructuring of the SPS in the late summer/fall time frame per the LA will be quite obvious if SCOTUS rules for plaintiffs and there is a 120B decision coming. 3. Not sure how much to actually take from the Treasury blueprint or end of the LA but it does make you feel warm and fuzzy. Not sure how binding this is at all and if not ignore this but Treasury admits in the end the SPS have to go away, third party capital will be raised, and that distributions will be made as appropriate. I could be wrong but if both FHFA and Tsy signed the LA they cant just pick and choose what parts are agreed upon and enforceable. If its in the text that the LA is tied to Calabrias Capital rule can either just ignore that? The word endeavor here isnt great. 4. In regards to investorGs pointing out Mnuchins flip flop on CD I never for one believed that Treasury was ever up for negotiations. Is the Tsy who do they negotiate with????? There have been a couple rumors of this with Berkowitz a while back in an annual letter and others but Treasuries request in the LA has me thinking otherwise. Since when does Tsy ask for lawsuits to go away? SCOTUS surely is a gamble for plaintiffs but if negotiations did truly take place at some level they told Mnuchin to go kick rocks. All speculation of course and probably worthless to think about but whatever. 5.This LA no doubt is complex but as Midas points out Tsy really has nothing to gain now by waiting. No commitment fee, an escrow account of liquidation preference they may never get their hands on, requests for ending exposure to material lawsuits at the SCOTUS, and exposure as the largest shareholders of severely undercapitalized entities that underpin the US housing market. 6. Bidens team has been reported as not in a rush to do anything on housing but if Yellen really was looped in on this (she is not my new savior by any means) and the new Tsy understands where the incentives are hopefully someone lets the Biden team know what the GSEs really represent now to Tsy. If SCOTUS goes for plantiffs 3 months from now they could hold an escrow account with an up to 120B liability attached to it and be responsible as the unreimbursed back stop if the economy takes a shit. What gets them out is making $$$ via warrants and getting paid for what they are doing now anyway in a commitment fee.

Im still unpacking everything and thinking this through but Ill state the obvious in that this wasn't optimal. Alot of this has already been posted but just easier for me to put it on paper. 1. The plan no doubt incentivizes raising capital ASAP and the 70B cap no doubt put heavy pressure on this. If not met early with the increasing preference it becomes near impossible especially for Fannie to get out @3%. The door is open only early and and the legal criteria puts plaintiffs in a bind no doubt. Win SCOTUS and the door opens up, you lose and your waiting for Lamberth and the increased preference bones out of ever getting out on your own with the treasury secretary. What a bastard Mnuchin is. Its clear and I find this interesting that Treasury structures the deal in a way that its easier to exit faster then slower. I thought many things about mnuchin but the closer we got to SCOTUS never that he wanted to settle. 2. Apparently Yellen signed off on this too. If we thought we could trust Mnuchin I dont know I could trust Yellen any more then I could throw all 5 feet of her. She doesnt have a track record of any ill to GSEs. 3. Incentives will drive this for both sides. Plantifs now have a big incentive to try to get this all over ASAP with the clock ticking and think long and hard about the SCOTUS gamble. Yellen has to contemplate an adverse SCOTUS ruling and sending "billions to greedy hedge funds" if they lose on their watch. Maxine Waters thought this agreement was bad, sheesh, that may damn near kill her. 4. Id like everyone's opinion on how binding this is. Lost in these documents after you get shredded is that Treasury will work to restructure their stake in the GSEs. Im done hoping and wishing but does a Yellen treasury even have to do this? This maybe just a carrot but an obvious admission that its current state is unworkable. Again if Yellen is truly on board big win but I not holding my breath thinking about it. 5. Question for cherzeca and excuse me if this is obvious but a gov win on the constitutional claim keeps Calabria in his job right? Or is that only if found for acting director? Im not clear on that. What decision keeps Calabria in his job? What the likely hood that happens and we win the APA claim? slim to none? 6. At least the gov isnt getting the cash immediately with the increased liquidation preference but its just more of a loan that Treasury admits they may have to restructure anyway in the end so that does give them some incentive to get the warrant money. Biden is already spending like a drunken sailor so that warrant money will be attractive at some point one would think. US could just borrow more $$$ so maybe not. 7. Still very surprised at the legal angle of this agreement. This obviously was a huge stumbling block for Mnuchin and in the end maybe the en banc and SCOTUS taking up the case was the final road block on his end as he thought his hands were tied. Not believing his thinking was going to be benevolent otherwise but he was waiting for this to all play out too in a 4 year term. 8. Calabria needs a dance partner but he maybe the sacrificial lamb if Yellen want to gamble. What's worse losing a 120B adverse judgement but getting rid of Calabria or saving face before that happens but having to work with a guy you didn't choose from a Trump administration whos goals are opposite your bosses? Maybe I'm over estimating how much Treasury cares about an adverse judgement but there seems to be a real incentive on their part to at least come to the table. An April judgement is nice and soon and Im sure Mnuchin/Yellen/Calabria are aware of this. 9. Leaving this to legislation when the Dems control the entire gov is a nightmare. In 22 months maybe that flips and in 4 years we re-elect someone but I'm tired of thinking of this in years. F that. Parrot et al are ready to walk in soon. Serious consideration needs to be given to what those assholes can do with access again. Have to think on this more but its what we have and it seems at a minimum the agreement incentives action sooner then later and recognizes both parties and "stuff" at stake.

https://home.treasury.gov/news/press-releases/sm1236

Sources maybe on thing but the reporting, headlines included have been very anti-GSE their entire career so some skepticism should be warranted. Ackerman has been quiet for a month so no one is talking to him either at the moment.

+1 Listen to this. This guy is supposedly our best source and he says "I don't know" 18 times in a matter of 3 minutes. He's in the woods like everyone else. He goes off mortgage industry sources (take your guess on that) who were briefed but have no idea what is going to happen. Unbelievable. His best guess he is "doesnt think" the PSPA will be written down. His source blows. This was supposed to come after the bell according to his source. https://video.foxbusiness.com/v/video-embed.html?video_id=6222969337001&ref=twitter.com Just a bunch of word salad convoluting ownership, percentages, court cases, what conservatorship means, what it means to get out, money going here money going there. This guy is shot and he, Joe Light, and Ackerman are moving the market with their reporting. FWIW when the Treasury plan was under embargo in 2019 he tweeted based on his read the plan was bad for common shareholder which actually meant nothing so this guy is useless too.

+1 and if there is a pathway out of conservatorship how on earth SPdfs are not dealt? I think we are just getting nuked with pieces of misinformation. My best gin waiting in the fridge in case we have a happy ending LOL I suppose Mnuchin's pathway is to simply raise the retained earnings cap by another letter agreement. all hat no cattle for that putz. three or so months to wait for SCOTUS. I think we get good news on APA claim (and maybe const claim, though justices were squirming around on that). APA claim would go to summary judgment motion hopefully by summer, but god knows when decided by fed d ct cherzeca how does mnuchins comments that if SCOTUS rules for gov it would be easier to raise 3rd party capital? Rules for gov outright? NWS illegal but no damages? Whats your read on that? ending litigation, in his warped mind, makes it easier to raise money. he assumes that trashing existing shareholders is no impediment to finding new shareholders That part I guess I get but I guess my thought or point is regardless of what the SCOTUS decides if FnF are not in a position to raise capital a ruling does not make anything easier or harder. Assumed as Sr not written down or dealt with and not on CD (in conservatorship) what does it even matter what the SCOTUS rules? Rule against gov and doesnt matter as SCOTUS cannot take the companies out of conservatorship. Mnuchins comment I believe implies that even if you screw old shareholders, they have to be in a position to even court new shareholders. This coming amendment has to make a SCOTUS ruling matter.

+1 and if there is a pathway out of conservatorship how on earth SPdfs are not dealt? I think we are just getting nuked with pieces of misinformation. My best gin waiting in the fridge in case we have a happy ending LOL I suppose Mnuchin's pathway is to simply raise the retained earnings cap by another letter agreement. all hat no cattle for that putz. three or so months to wait for SCOTUS. I think we get good news on APA claim (and maybe const claim, though justices were squirming around on that). APA claim would go to summary judgment motion hopefully by summer, but god knows when decided by fed d ct cherzeca how does mnuchins comments that if SCOTUS rules for gov it would be easier to raise 3rd party capital? Rules for gov outright? NWS illegal but no damages? Whats your read on that?

Gasparinos tweet also if word for word from source says "its unclear if it will write down what shareholders owe to treasury". Well thats the key part dummy! Since when do shareholders owe treasury, and "more"!!! on top of what the Treasury has sweeped already WITH an increased liquidation preference from the 2019 LA? My dear god. Thats unbelievable. Even more so in the specter that they would then get paid a back up fee if released.

I suspect this is a bit of an overly optimistic take and the most honest/appropriate assessment of the current situation given the reporting is that there will be a PSPA amendment, but it will ultimately only achieve a similar outcome as the Sept 2019 letter agreement. There are good reasons why this may be wrong, but I unfortunately this has to be your base case at this point. Haven't sold any shares since, to your point, nothing specifically concrete has been reported. But at this point you have to consider this as a very real possibility. No question and I think the market has priced this in at these prices. Im not sure what the purpose of this would be though outside of kicking the can. They should have just made the 2019 LA with bigger caps if this was the plan in the end and I dont know it meshes with gasparinos path out of conservatorship and Mnuchins raising 3rd party capital. Both a path out and raising 3rd party capital have to deal with the Sr Preferred in some fashion. You cant have either without. A thought I had was a 1:1 paydown of Sr preferred with capital raised, essentially an exchange once in a subordinate fashion I guess which fits with what WB_82 has said. Granted we have multiple sources with differing agendas and different terms but you are correct a LA is base case. What a waste of time this was for all involved. Would Calabria even sign on to that tho? Is he following the law if he does that? I guess kind of.

Gasparino mentions the heavy bond lobby but wouldn't their minds be eased with MORE capital in front of the gov and a paid for guarantee? Not sure why they would be against that after they leave conservatorship. The bond lobby could have lobbied for them to not leave conservatorship until more capitalized.

Looks like after close is the time per Gasparino. 2 weeks ago we were told there wouldn't be a PSPA agreement and not enough time to get anything done before Biden gets in. Now we are told there is a plan (surprise!) but its a pathway out of conservatorship that will not benefit common/preferred shareholders whatever that means. As of yesterday treatment of the Sr Preferred up for debate at the WH but per Gasparino to not expect much. Honestly sounds like no one knows anything concrete but we will all find out soon enough.

+1. And again no source names, every thing is "fluid", "not set in stone", still "under consideration", we wont know till we know.

I think its 100% a coincidence that Cuomo wants to open up now a week before Biden is inaugurated. 6 weeks ago there were signs flashing all over the I-90 to be smart and not get together with family because of an apocalypse that would ensue. 6 weeks later......Time to open up. Makes perfect sense if you think about it really, really, really hard lol.

Good points. However, with the size of his investment it is doubtful there was enough volume to keep trading it. Also, Paulson per his prior investments (housing) is not afraid to stick it out. Good luck to all There is $16mm in ADV across the 2 most liquid preferreds (FNMAS and FMCKJ) before accounting for any of the other series. Over the course of 4 years, wouldn't be too difficult to make some $. Again - I have no idea and certainly not trying to accuse. I'm just starting to do a post-mortem on alternative explanations so I can at least learn something here. Ex-ante I think a lot of the "Mnuchin won't act" were surface level opinions that may prove to be correct, but never thought through specific incentives like the one I mentioned above. Right for the wrong reasons. But all that matters in this game is the result. For what it’s worth for your post mortem I think SM was probably on track to sign the amendment until the riots. But that’s just opinion. Why would this be more palatable without the riots? If Trump does this he enriches hedge funds, paulson et al. He is already going down as the worst president in history and has pardoned all of his cronies manafort, kushners dad, flynn, etc. The riot made this too much? Interesting.

\ Looking at a decision tree if the answer is no, and one would have to assume Mnuchin would know what Trump thinks by now, why pass the question up to Trump? Mnuchin already looks like a bad guy by saying no. Do we really need 2 "no's" at this point? Secondly its the eve before this goes down and a decision still has not been made on this? How the hell do you have a framework, blueprint all that BS but you havent made a decision on the "thorniest issue"? Really? We are in Trumps hands here, he finishes it but you wait till the end to say no? Just say no right away, or why isnt mnuchins "no" not good enough. I dont get it. I thought this was an agreement between Treasury and FHFA? Why get Trump involved?

*salutes* These seems to undoubtedly be the right move at these prices. Just to review as its easy to let the market guide you not serve you on slow news days. A quick review of recent history reported regarding Mnuchin. https://www.wsj.com/articles/fannie-freddie-overseer-seeks-to-end-federal-control-before-trump-leaves-11605873600?mod=article_inline "The Treasury secretary must agree to any move to alter the terms of either the companies’ bailout agreement or the government’s stakes. One person familiar with the effort said Mr. Mnuchin is supportive of locking in a path to private ownership but mindful of steps that could disrupt the housing-finance market." "Mr. Calabria has met twice recently with Mr. Mnuchin to discuss an expedited exit of the companies from government control, most recently the week of Nov. 9, according to people familiar with the meetings, which also involved Larry Kudlow, the director of the White House’s National Economic Council. Mr. Mnuchin was noncommittal about the push, the people said." https://www.bloomberg.com/news/articles/2020-12-10/mnuchin-says-he-s-likely-to-back-changes-to-fannie-and-freddie Speaking to reporters on Wednesday, Mnuchin said he supports amending the companies’ bailout agreements “to set them on the right direction.” Revamping the accords, established after the government took control of Fannie and Freddie at the height of the 2008 financial crisis, is crucial to releasing them from U.S. control. Federal Housing Finance Agency Director Mark Calabria, Fannie and Freddie’s regulator, has recently pushed for a sweeping amendment that would set them on an irreversible path to leave conservatorship, according to people familiar with the matter. “We’re going to create a blueprint,” said Mnuchin, adding that he had spoken to both Republicans and Democrats in the past few weeks. At a minimum we have weak hands leaving with the recent rumors of Mnuchin leaving and I believe the market pricing in a "lite" 4th PSPA that does not eliminate the Sr Preferred but only raises the retained earnings cap. This certainly would hamstring Calabria and certainly does not set them on a path anymore then they are now. Those who have followed along know the unlikelihood of locking in a path to private ownership as Mnuchin says with the Sr. Preferred still in place. So we wait. Only 9 business days left for the crystallization event to occur. From the best we can gather a decision is coming soon up for debate good or bad for shareholders. Piecing together what we have heard from Mnuchin (paraphrased) along with other quotes, what does this mean to everyone? 1. If treasury wins, easier, if plantiffs win more litigation. 2. The key is getting them to raise third party capital, how do we do that. 3. Plan will be broad and plantiffs will not get everything they are asking for. 4. We are going to create a blueprint. 5. Supportive of locking in a path to private ownership 6. "Will set them in the right direction" 7. Mindful of the steps that disrupt the housing market. I dont know you get to 2. and 5. without dealing with the Sr preferred either written down or into a subordinate position and a consent decree. There have been some ideas here but certainly not the most straightforward and seems to complicate things, vs just writing down the Sr. preferred as Phillips suggests. I think 4. are recommendations for the government for an explicit paid for guarantee and changes only congress can make via the Treasury plan for actions taken by congress or legislative. What are plantiffs not going to get in 3.? They could still get a Sr Preferred right down and give up other requests in Collins correct? I think 7. is covered by an explicit paid for guaranteed fee until congress legislates. This is essentially how FnF are operating now and more capital can only make MBS for safe. Just wanted to see how everyone here meshes all this together in an action that hits everything he has hinted or talked about.

Regarding this if it was PSPA "lite" no reason to have bankers involved. Bankers were not involved for other letter agreements. What is going to happen if both Bankers and DOJ maybe signing off? Something much more that needs to be legally parsed. Regarding "not everything" plantiffs wanted end of NWS PLUS overpayments since NWS is legal. Mnuchin could write down Srs and punt to SCOTUS to decide on any damages or whether NWS was illegal and what that implies. This correlates nicely with his "easier if SCOTUS rules for Gov, more litigation if not." If SCOTUS decides for GOV case is done over and if FnF on Consent Decree and Sr Preferred not blocking a path to 3rd party capital then you can go to market. Mnuchins comment regarding "easier if SCOTUS rules for Gov, more litigation if not." implies FnF are ready to raise 3rd party capital at the ruling by SCOTUS. How can they raise 3rd party capital if SCOTUS rules for gov but FnF not on CD and Srs treated in a way not a road block to 3rd Party capital. I believe FnF can raise capital even if NWS deemed legal by SCOTUS at the right price very cheap) but no way if Srs in place and not out of convservatorship on CD. I wonder if an AIG type ruling where the gov was found wrong but no monetary damages are possible. Who knows at this point.

We have ten days left. I do not accept your hypothetical that an "optimistic PSPA amendment unwinding the senior preferred... consent decree" will appear before January 20. The key is that both Treasury and FHFA must officially reach an agreement, which has not occurred yet. On the 20th a new Secretary will be installed. So, in that case, no agreement at least for a while. Then the alternatives are (1) They remain in conservatorship, etc., forever; (2) A new agreement between FHFA and Treasury will be reached; or (3) Congress settles this with a new law. Waters will have a lot to do with (3) and perhaps (2). If your hypothesis is correct (fat chance on reaching an official agreement after the 20th), then they will probably exit conservatorship, and Waters would ideally only be able to hold hearings. Even in that increasingly unlikely instance, however, remember what the greatest philosopher of the 20th century said: "It's not over 'til it's all over." I predict that you and Orthopa will be feasting on crow after the Inauguration. However, I remain never in doubt and often wrong. I am rooting for you both to be enjoying a better meal at that time. It's about money, and not about winning an argument. In direct reference to his reasonable question you could have saved everyones time reading if you just typed "nothing".

I have posted this before but helpful again to just reacquaint ourselves with the previous amendment since we maybe close to the end here. https://home.treasury.gov/system/files/136/9-27-19%20_FNMA%20Capital%20Agreement_0.pdf The Enterprise and Treasury agree to negotiate and execute an additional amendment to the Agreement that further enhances taxpayer protections by adopting covenants broadly consistent with recommendations for administrative reform contained in Treasury's September 2019 Housing Reform Plan, in further consideration for the amendment contained in Part I of this agreement. I post this because I believe what we will see in a 4th amendment was decided long ago. If we remember correctly SM and MC were actively negotiating an amendment not long after the Sept 2019 letter agreement. They have been negotiating for 14 months if you can believe its truly will come down to the wire and things are not decided already. What i ponder now looking at the language is what does "broadly consistent" mean? Why not "consistent"? The language to me suggest the liquidation preference will stay in a 4th amendment due to the last sentence correct? Any thoughts on this.