investorG

Capital is building nicely. Barring a significant economic shock, FNMA should be close to a 2% leverage ratio in 2 years. Assuming a revised ~3% leverage ratio target, an IPO is a possibility in the 2024-2026 time frame.

There's a reasonable chance that the dilution is quite modest if they are released in 2024 after building capital for 3 more years combined with a new more utility-like capital rule -- FnF could be selling the re-IPO at many many multiples of current prices.

The market is likely mispricing FnF securities - both common and preferred - by a large margin. Included in the $3.5trn House build back better plan is $327 billion for affordable housing; broken down, $90bn for rental assistance, $80bn for public housing preservation, and the rest spread out over various smaller programs. The 3.5trn headline number will likely shrink to ~ 2.0trn. The housing bucket will likely be cut significantly if not completely because it's lower in the priorities than healthcare, paid leave, child care, and climate. The final amount should be known within 2 months. This will likely leave a $100 - 250bn hole in the housing program bucket, which could be either be ignored or more likely partially filled in by getting going on monetizing the government's FnF stake.

The eventual FHFA selection is less important than in prior instances because the head of the agency now reports to the President. Our opponents might convince the White House to select Sandra but the likely fact that Calhoun and his utility paper were at least close to being selected indicates some sliver of potential from this administration over the next 3 years.

Sandra Thompson just proposed a 25% chop the leverage ratio capital requirement from 4% to roughly 3%. Overall a $74bn reduction in leverage ratio requirement, which now makes it far less relevant in comparison to the risk based capital requirement which was left unchanged today.

Even though the liquidation preference rises, each quarter of positive earnings is important in that it moves the companies further from the receivership outcome.

The prices appear excessively pessimistic. Put yourself in the Democrats' shoes -- with the SCOTUS ruling, we are perhaps 3.5 years away from a Republican president putting Bob Corker in at Tsy and French Hill at FHFA who could effectively partially wind down the GSEs for 4 years through various pricing and business selection initiatives. OR, the Democrats could work for 3 years on a solution that gets them out of conservatorship via Congress (preferably) or admin (backup) and more entrenches FnF's future. In regards to timeline, I would expect this to play out over a few years -- but that's no guarantee that the prices will remain in the cellar in the mean time.

The current market cap of Fannie Mae's total jr preferred debt is around $1.5bn or about 5 weeks of after tax company profits. Lots of ways to win from here.

Yes, I do. As explained in prior posts. It's a 3 year process but at such a depressed level the shares can possibly re-rate first to a more reasonable level and then flat-line for a good bit of time while we wait for concrete actions to develop over those 3 years.

"for sure"? I don't think much is for sure. I do believe however that "if" FnF are ever public companies again and paying a common dividend then we are looking at 15x return from current levels. And the downside is capped at 1x.

For those who have been on this board longer than a couple weeks, the posts currently remind me of the 'should we go all in at 50% of par' but in reverse. We are actually at a moment for the first time in 8+ years where the name of this board actually applies - in search of a 10 bagger. The court cases are the court cases - your guess is as good as mine. On one hand I have read the max return in the Lamberth case is well above par with interest but on the other hand we could easily lose and the courts would take years. But what do we expect when Yellen is asked about her FnF plan in a Congressional hearing: "we plan to restart the NWS to fund affordable housing giveaways", or, "we would like to work with Congress in the coming years to find a permanent solution for FnF that helps all Americans especially those at lower income levels"? If the former, well then that's no good and so back to the courts or 3.5 years for a potential new admin. If the latter, should the shares trade here? Many investors held on post January waiting for the SC. They are exiting at any cost, and offer some series currently at 6% of par. The companies have $50bn of capital and rising. I think the market and media are missing that it's not a sure thing that the Biden administration follows exactly what Obama did even though many of the same people are involved. The situation is different and the BlackRock and Pimco group appears to want the federal guarantee which only comes through Congress.

Just because something hasn't worked out so far doesn't mean it was a bad bet. We have certainly lost the battle the last 6 months. Yet we had many chances for things to go our way with decently high probabilities but sometimes things like erratic / uninformed judges, weak administrations, coronaviruses, and Capitol riots etc come up. And, unless we sell, there's still decent odds in front of us from these levels if we step back from this week's disappointment. The 2012 NWS was done in an environment of much less scrutiny and goodwill towards the GSEs -- things are different than a decade ago. Better court cases remain, capital is building (reducing not eliminating odds of receivership), and a legislative solution in 22-24 isn't unimaginable.

I was impressed with the decisiveness of replacing Calabria, it was refreshing. The Biden admin has 3.5 years to implement a plan, likely with Congress. They probably have a motivation for a permanent solution in 2022-2024 rather than just run FnF loose for 3.5 years and risk a new administration reversing everything. Some chance the filibuster goes away in 2023 if Democrats win next year, which would smooth the way for a party line reform vote in 23-24. And if not a bipartisan deal isn't impossible, Toomey could actually push for a deal in 2022 as his pre-retirement finale. At 15 up to par and 1 down to 0, I disagree with the market and its pessimism at current levels.

Hello everyone, long time. I'm not sure if I'm more surprised by today's APA ruling or the share price reaction. For the conservative justices (at a minimum) to hide behind a non-precedent setting anti injunction call on FHFA's powers to allow blatant stealing from shareholders (initially to bypass Congress and fund Obamacare extras) is outrageous at best and very likely many worse descriptions. Yet trading the jr pref down to 8% of par with Lamberth, takings, and potential Congressional 2023-24 action still on the plate also seems extreme to me. Unless someone was expecting a miracle on the constitutional claim, this event was not a 21-22 resolution after Mnuchin punted even if we received a remand on the APA. What a mess this turned into. Good luck to you all.

The Doj's letter to the SC from Thursday isn't a great sign. One, it grossly misleads by suggesting the Jan letter agreement addresses the dividend sweep prospectively (final sentence of last paragraph). And secondly, if the SC is even asking this question - did the Jan letter agreement moot the case - then it shows this complicated case is above their ability to fully comprehend, raising the odds for some non-reasoned opinion.

Is Tim Howard correct or not when he says the Lamberth case is derivative? ps: 1000 posts....what a mess this has been.

The common dilution could be far less than expected if a) we win Collins in 1-2 years b) the housing market doesn't crumble c) the Biden admin takes a 4 year view to craft their solution / release and/or d) the capital buffers are reduced in a transition to utility. A lot of "ifs" in the above but the dilution could in theory end with the 80% warrants and slightly also from jr pref conversion (perhaps at a far higher price reducing the new shares issued).

Regarding Tsy's compensation for their ongoing line of credit in the January letter agreement, capital builds faster at the GSEs through the selection of increasing the liquidation preference vs. the alternative of an earnings-reducing graduated commitment fee. Yet another double down on the Sr pref partial / full write down through legal or eventual settlement; but if it occurs, the GSEs will have tens of billions further in capital at that point than if liq pref wasn't increased in letter agreement and instead a commitment fee was installed.

Wondering if it makes sense to add some common to complement the jr pref in case biden takes his full term to to turn them into a utility with lower cap requirements.

Wow. This is good. Thank you. Regarding your conclusions, we'll have to see. I would guess we'll see a curve ball good (perhaps a large majority win on APA) or bad (perhaps they say wait for the takings cases (breyer's comment)) and a ruling in June.

After the shares turnover to a new investor base in days / weeks, the pref will likely drift higher until the Collins ruling imo. With the letter agreement the Tsy is incentivized to move forward because they won't receive cash for decades and they are potentially also on the hook for $125bn / $50bn in Sweeney / Lamberth, even if Collins APA is a loser. Tsy has time to formulate their favored end-state for FnF during 2021 and then execute that plan over the following 1-3 years, economy willing.

2 would be a logistical disaster, doubt they go this route. agree on 1 and 3. most people assume 3 but I wonder if 1 isn't rising in odds (despite the oral arguments) after the SC sees the election / letter agreement. I asked this before but what are you rooting for, 1 or 3, as it relates to our prospects?

Apart from lawsuits, converting the whole sr pref to common is a circular disaster, not really workable due to low current mkt caps of jr pref and public common to squeeze value from combined with the relative ownership demands from fresh money investors potentially putting in well over $100bn. edit: Doubt the 30bn gets returned in any scenario. Govt can keep the $190bn sr pref and just send back the $125bn. Investors don't want this and so if we won Collins we'd negotiate to write down the sr pref instead and would have to give up something. edit 2: The odds of Calabria working out a deal pre-collins are low. why are they going to give up the house in april when they can wait 3 months and get most of what they want with a new fhfa head.

I agree there is a branding problem. That's why a potential write-down needs to be accompanied in conjunction with a large capital raise. Yellen can truthfully say we couldn't have gotten this equity that you see right now in the door without a write down. And this equity can provide a) taxpayer protection, b) actual cash (via warrant monetization and/or some partial sr pref conversion) rather than mark to market gains that Midas says could take 20 years to tap, and c) no material lawsuit liability. The Trump admin was too lazy to move in this manner. So they bunted us to first base rather than hit the home run.

I wouldn't count on this. What Tsy scty is going to drop the equity capital requirement below 3%. This letter agreement took the capital rules out of FHFA head's sole hands.