orthopa

This looks like an admission that administrative reform is coming and a voluntary action to throw their hat in the ring. Just like the "warning" from Stevens et al. you dont write a paper like this unless you feel compelled to give the opposing view.

23.5% 2018 -7.7%. 2019 Being long tobacco this year hurt overall returns big time but will be able to reinvest dividends and much lower prices now. Still have 14% of portfolio in GSE preferred which will hopefully really juice returns this year (fingers crossed). Otherwise has been a drag or essentially like holding cash as price hasnt moved much in years.

Is this the only lever? I'm aware of the Jr. Preferred dilultion via Moelis but again govt interest/value still aligned with common. If Calabria wants higher capital reserves it seems like common is where it comes from. The market is saying there has to some way for treasury to disconnect itself from dilution to raise capital due to common stock price. A straight forward dilution does not correlate with current price and receivership is a no go IMO. Again I have to go over the TARP bailout of C, AIG, BAC etc bc Gov diluted common very heavily, capital was raised in the market easily and gov was paid back in full. Ofcourse net worth sweep and Sr. Preferred dividend is in play here. I do agree that Calabria will be inclined to want more capital than necessary. that fhfa has already put out a proposed rule that is same % as what moelis assumed and gone through one round of comments might make this difficult for him, unless he just says there is a new sheriff in town and ignores pushback. as to common valuation, if you believe that collins en banc will be a P victory then you would believe common is undervalued imo. Thats true, I was disregarding the FHFA proposed rule. Thanks

Is this the only lever? I'm aware of the Jr. Preferred dilultion via Moelis but again govt interest/value still aligned with common. If Calabria wants higher capital reserves it seems like common is where it comes from. The market is saying there has to some way for treasury to disconnect itself from dilution to raise capital due to common stock price. A straight forward dilution does not correlate with current price and receivership is a no go IMO. Again I have to go over the TARP bailout of C, AIG, BAC etc bc Gov diluted common very heavily, capital was raised in the market easily and gov was paid back in full. Ofcourse net worth sweep and Sr. Preferred dividend is in play here.

I agree here. I think this makes it less likely that Calabria is just going to be a yes-man for Trump, and instead that Trump actually supports Calabria's views and appointed him in order for them to be carried out. I see your point about affordable housing: Calabria argues that having lower home prices while keeping incomes unchanged makes housing more affordable, but if you can't get a loan even with a better loan value-to-income ratio, it doesn't necessarily make housing more available. Or, more accurately, home ownership. I do agree with Calabria that increasing the housing supply is the best way to promote home ownership. I don't share your optimism about the commons, though, for many reasons. Calabria wants very, very high capital standards, arguing for at least 5% in some places and as high as 8% in others. FHFA's proposal, by contrast, calls for 3.25%. The amount of dilution needed to get to Calabria's standards while Trump is still in office is staggering. Calabria and Treasury both want the GSEs to have a smaller footprint, meaning less in earnings power. Predictions based on current income levels, as Moelis includes, are likely to be overly optimistic. You can get the best of both worlds if the junior preferreds are offered a conversion, because it would have to be voluntary and thus at a premium to what you could get in the market. Many see par as the ceiling for the juniors, but the plaintiffs will be starting their negotiations at par plus back dividends, interest, etc. so they might be able to get more, especially in a conversion scenario. Every time I think about selling some of my juniors to buy commons I hesitate, and end up being glad that I did. I do think the commons have a higher upside in the best-case scenario, but there is real and substantial downside risk there if enough new shares get issued for a recap. That has been my hesitation with owning common too but I dont seem to have a good rebuttal when someone says that a common shareholders interest is aligned with govt warrants so in turn high capital levels would dilute gov stake, unless they somehow get out first. If Sr Preferred declared paid how else does gov extract their pound of flesh besides maximizing warrant value? Apparently as I go over this in my head Im obtuse and cant sequence this myself. Anyone mind providing a hypothetical example? that being that the common is heavily diluted first and gov retains relative value via warrants?

I agree here. I think this makes it less likely that Calabria is just going to be a yes-man for Trump, and instead that Trump actually supports Calabria's views and appointed him in order for them to be carried out. I see your point about affordable housing: Calabria argues that having lower home prices while keeping incomes unchanged makes housing more affordable, but if you can't get a loan even with a better loan value-to-income ratio, it doesn't necessarily make housing more available. Or, more accurately, home ownership. I do agree with Calabria that increasing the housing supply is the best way to promote home ownership. I don't share your optimism about the commons, though, for many reasons. Calabria wants very, very high capital standards, arguing for at least 5% in some places and as high as 8% in others. FHFA's proposal, by contrast, calls for 3.25%. The amount of dilution needed to get to Calabria's standards while Trump is still in office is staggering. Calabria and Treasury both want the GSEs to have a smaller footprint, meaning less in earnings power. Predictions based on current income levels, as Moelis includes, are likely to be overly optimistic. You can get the best of both worlds if the junior preferreds are offered a conversion, because it would have to be voluntary and thus at a premium to what you could get in the market. Many see par as the ceiling for the juniors, but the plaintiffs will be starting their negotiations at par plus back dividends, interest, etc. so they might be able to get more, especially in a conversion scenario. Every time I think about selling some of my juniors to buy commons I hesitate, and end up being glad that I did. I do think the commons have a higher upside in the best-case scenario, but there is real and substantial downside risk there if enough new shares get issued for a recap. That has been my hesitation with owning common too but I dont seem to have a good rebuttal when someone says that a common shareholders interest is aligned with govt warrants so in turn high capital levels would dilute gov stake, unless they somehow get out first. If Sr Preferred declared paid how else does gov extract their pound of flesh besides maximizing warrant value? So along the same lines are the TARP programs? I have to look at AIG bailout mechanics again but Treasury took 92% of company then sold holdings over ~3 year period afterwards. At a minimum if heavy dilution immediately doesn't crush value alone the overhang of shares outstanding will cap value for years as it did for AIG. I was an AIG warrant holder after TARP and the govt share overhang capped common value until entirely sold.

I agree here. I think this makes it less likely that Calabria is just going to be a yes-man for Trump, and instead that Trump actually supports Calabria's views and appointed him in order for them to be carried out. I see your point about affordable housing: Calabria argues that having lower home prices while keeping incomes unchanged makes housing more affordable, but if you can't get a loan even with a better loan value-to-income ratio, it doesn't necessarily make housing more available. Or, more accurately, home ownership. I do agree with Calabria that increasing the housing supply is the best way to promote home ownership. I don't share your optimism about the commons, though, for many reasons. Calabria wants very, very high capital standards, arguing for at least 5% in some places and as high as 8% in others. FHFA's proposal, by contrast, calls for 3.25%. The amount of dilution needed to get to Calabria's standards while Trump is still in office is staggering. Calabria and Treasury both want the GSEs to have a smaller footprint, meaning less in earnings power. Predictions based on current income levels, as Moelis includes, are likely to be overly optimistic. You can get the best of both worlds if the junior preferreds are offered a conversion, because it would have to be voluntary and thus at a premium to what you could get in the market. Many see par as the ceiling for the juniors, but the plaintiffs will be starting their negotiations at par plus back dividends, interest, etc. so they might be able to get more, especially in a conversion scenario. Every time I think about selling some of my juniors to buy commons I hesitate, and end up being glad that I did. I do think the commons have a higher upside in the best-case scenario, but there is real and substantial downside risk there if enough new shares get issued for a recap. That has been my hesitation with owning common too but I dont seem to have a good rebuttal when someone says that a common shareholders interest is aligned with govt warrants so in turn high capital levels would dilute gov stake, unless they somehow get out first. If Sr Preferred declared paid how else does gov extract their pound of flesh besides maximizing warrant value?

Secondly if we are aware of what Calabria has written, sure as shit others in congress/ Trump administration are also. How is this guy nominated with pro shareholder views on paper if he isnt going to execute those views...which coincidentally match word for for what Mnuchin has said? Why would Trump administration make it difficult? Just nominate someone else if you had a different agenda. He had a conference call with Investors Unite in 2015 for christ sakes. NO ONE else in the trump administration outside of Mulvaney has been as proshare holder as Calabria. True he has had some conflicting views on housing policy but to my knowledge not shareholder treatment. They could have picked anyone else.

All of the "enemys" of FnF, Warner, Dave Stevens are unhappy with nomination. I think its easy to see why. In a twitter reply before Calabria was announced Dave Stevens said the narrative shouldn't be about shareholders it should be about reform first. He sees it. Does anyone at this point legitimately not see Calabria/Mnuchin taking FnF out of conservatorship, stopping NWS, starting recapitalization? If you don't believe that this will happen in light of everything that has happened to date then why are you still holding shares? Is it just too good for some to believe? We are the closest we have ever been. Are you/we being modest in case of a huge let down? What gives Over time we went from salting the earth with Fannie and Freddie to a FHFA nominee that wants to build capital, stop the conservatorship, has been pro shareholder on paper and yet some still don't think this may actually happen? :o

Obviously as a shareholder Im biased but I think its becoming more and more clear there is a very high likely hood this happens with some debate on what the actual recap and release is. “We think it is possible the administration does not wait for Congress to act (on ending the GSE conservatorship) and instead decides to act on its own to end the conservatorship by recapitalizing and releasing the GSEs,” the KBW analysts write. “The fact that Dr. Calabria has said that amending the conservatorship was illegal suggests that he would end the profit sweep and allow the GSEs to start rebuilding capital. We think this view has support within the administration.” I know that for the sake of discussion others have brought up other scenarios but has there been any evidence thus far to say the above doesnt happen? Its seems like maybe as a result of speculation fatigue or recency bias the scenario is being totally discounted by many as too good to be true and un realistic when in fact its likely just the opposite.

This certainly gives some legitimacy to Moelis as these guys are obviously worried this maybe in the works or the best plan. Their outrage and warnings seems to have dissipated in reading the text. Seems like they are getting tired of fighting too.

Section 1367 of HERA actually gives the FHFA director several ways to impose receivership. Once capital standards are actually put in force, (K) will almost certainly apply immediately, as will (J)(i), (J)(iii) and (J)(iv): with the NWS in place, how can the companies build capital and what possible capital restoration plan could they submit? Ironically, (H) could be twisted around to describe the NWS as an "unsafe or unsound practice or condition" that results in a "substantial dissipation of assets or earnings" and "weaken(s) the condition of the regulated entity". Calabria could also try to strongarm the boards into consent and invoke (I), though I think it's unlikely that tactic will work again. I'm afraid that receivership would be not only possible but rather easy for Calabria to unilaterally impose. thanks, Midas. a blueprint for receivership + some value for the minority shareholders likely already exists, it was probably embedded in corker's plan from a year ago. I believe the Moelis-or-bust supporters are underestimating the deal and reputation risk with raising many tens of billions of dollars, especially with the fact that potential investors will likely need certainty from legislative action first before committing $$$. In fact, I'd bet Paulson and Schwarzman and Moelis view their plan mostly as a negotiating tool to get a better deal in what is now becoming more clearly (but not for sure) some sort of restructuring. separating the GSEs in receivership into two companies -- legacy (wind-down) and operating -- accomplishes many objectives -- (hopefully) providing a fair outcome for minority shareholders in some creative fashion, limiting the $ amount needed to re-IPO the companies, make it easier for competitors to enter the market, and force the congress to act. all that said, it's not for sure that the Moelis plan isn't happening -- but to me, that would require a material up move in the common shares (and jr pref to some degree) ASAP which suggested the price action in recent months was due mainly to forced selling from closing hedge funds / tax loss selling and a lack of investor demand due to a tight-lipped Tsy secretary team mostly holding the cards. I dont think you can reference the stock price as a guide as mentioned before. The prices have been wrong before for nearly every decision/announcement over the past 5-6 years. It was not a predictor of Lamberth, Trump presidency, Mnuchin comments on Fox, etc, etc. It wasn't a guide then and isn't a guide now. Shares for both are in total wait and see mode. Nothing more, nothing less.

:D ;) :D

Looks like a two thirds vote to change terms of the certificates, so it'll come down to institutional ownership. Any way to find which hedge funds own what? I don't want to end up holding preferred that don't get a juicy conversion offer. According to this iHub post https://investorshub.advfn.com/boards/read_msg.aspx?message_id=144033836 big money holds the high yielders like FNMAS, FMCKJ, FNMAT, as well as the $50-par series. That last group includes FNMAG, FNMAK, FNMAL, FNMAM, FNMAN, FMCKP, FMCCK, FMCCO, FMCCP. I would imagine that the conversion offer will take either or both of two things into account: the dividend yield and the then-current price ratio vs commons. I believe there is a reason the high-divs continue to trade at a premium to the low-divs. There certainly is some inefficency here as FNMAS trades at a ~35% premium to some other floating rate or lower div preferred. Granted liquidity has a price too but div alone wont make up for holding FNMAS in a conversion it seems.

Per Calabria's white paper The predictability, fairness, and acceptance of this model led Congress to adopt it as the basis for authorizing the FHFA with conservatorship powers over Fannie Mae and Freddie Mac in HERA. Instead of following this precedent, however, FHFA and Treasury have radically departed from HERA and the principles underlying all other U.S. insolvency frameworks and sound international standards through a 2012 re-negotiation of the original conservatorship agreement. Known as the “net worth sweep” or “Third Amendment,” this decision ignored HERA and decades of established practice, undermined public trust in the government role in insolvencies, and undercut the vital role that fair treatment in insolvencies plays in a market economy. Im totally OK with him being HERA director. I also think that we continue to find connections that are not as coincidental as we go along as we try to make them out to be. Its happening before our very eyes. Step by step the pieces are falling in line. We doubt it bc the share price isn't validating it. Its happening slow but sure.

I think its common investor knowledge that an inverted yield curve seems to almost always precede a recession. Time to recession from what I gather can be 5-18 months on average. Yet another sign that we are late to very late cycle. Anyone preparing or shifting the portfolio around at all? Of course market timing is impossible but it maybe prudent to start to accumulate some cash going forward or sell some high flying stuff. Something as simple as lightening up 5-10% a month would get you into a high cash position. Ofcourse one would have to account for taxes/investment period etc but in a retirement or tax advantaged account this maybe a strategy. Fear would be missing out on some gains but it seem like we are much closer to the top then the bottom at his time. I was too young wasn't investing as actively when yield curve inverted last time but sure would have like to have a higher percentage of cash in the 12-18 months following 2007.

He says "some things to lead on the issue before reform." My sense is Moelis can occur/start along side or before reform correct? Whatever if anything is ever decided. Administration obviously has a plan then and is going to implement it sooner then later. Announcement with a new FHFA director would be convenient. Not sure how much Corker can let out of the bag but I would have to imagine he isn't the least informed congressman in DC, especially with his work on the GSEs. So the biggest opponent of the GSEs has resigned to the fact that admin reform is coming. One could easily argue that release from conservatorship and stopping the NWS are those leading reforms and the first to be instituted. Then you have two Trump economic advisors who are preferred shareholders/stakeholders who teamed up with Moelis on a plan that needs the exact admin reforms instituted to get going. Idk why I am not all in at this point.

Depending how wonky you want to get the preferred are nearly all in a big bull flag/pennant that resolves by May of 2019. As wonky as it is it may not be a coincidence. The market always seems to know. ;)

Anyone aware of the politico tweet regarding White house addressing housing finance in near future?

I tried to find it back in this thread but it has become so long. Where do we stand now in Sweeney's court? Haven't heard much out of that court in a while.

I know this could have been said before but it looks like we are getting closer and closer to action. I think its pretty clear admin action will be what gets the ball rolling and I bet its the new FHFA director that does it soon after he/she is announced. As I said before I think the admin likes to float ideas to see reaction and there really has been no big push back other then MBA and but their stance has soften significantly. That being said prices have moved very little so I am adding some more preferred today. Anyone have any prognostication on conversion. I know Luke asked this before and Im not looking for an prediction on exact conversion ratio but how it may be proceed. My thought it that is has to based off of par and as cherzeca says par is the goal and IMO non negotiable since the push behind Moelis are big preferred owners. Maybe a conversion based on eps taking into account warrants monetizing but that takes years. And then you have to take into account dividend as if par is expected dividend come into play due to/with that. Just trying to handicapped possibly moving to some common as market once known will price it instantly. Probably not worth wasting time on with too many unknown at this point.

As hokey as it seems I wonder if the admin/those in charge float/leak these little tidbits from time to time to gauge outrage/satisfaction of all of those involved. Im still planning for end of 2020 to temper my own expectations. Anything sooner is a win that way. :D

Those Moelis numbers cannot necessarily be counted on. Phillips said that Mnuchin wants the companies out of conservatorship by the end of this presidential term, and I take that to mean the companies will be recapped first. Moelis ran its numbers from mid-2017 to the end of 2020, but starting at the end of 2018 means you have less retained earnings to recap with. That means more equity needs to be raised, which means more dilution. Also, Moelis was going to offer a 3:1 conversion rate (3 commons per $25 of par value) because the JPS holders have to agree to any conversion. But the FNMAS:FNMA ratio then was around 2.5:1. Now it's 4.4:1, and a bit higer for FMCKJ:FMCC. That probably means a 5:1 conversion rate instead, so more dilution again. I'm starting to think that $5 is actually a stretch for the commons, and if Treasury tries to cram through a really really fast recap then common holders could actually lose money from here. I'm staying away from them. Thanks for your insights. My oversight was not considering the 2020 deadline and time past since Moelis. With conversion to common no need to consider dividends right? Wonder why market still respecting div yields for many of the preferred still.

It sounds like from the look of it the commons are not going to be wiped, just dilution which was a big fear of mine and why i avoided them. If all of this reporting is true then there looks to be much more upside to the common at 9.62-13.15. I hold all preferred but they conceivably could be converted to common either way but this reporting looks like just a straight return back to privatization. 6.7-9.2 times on the common at these prices....

Am I wrong in saying this is the first time Phillips has confirmed or said these things? Again market not buying it or ignoring it. Maybe market thinking time to implementation makes the securities still unattractive at these prices? Not sure what else needs to be said here besides when and how much. Market saying still no more then 25% of par at this point.