investorG

data as of april 1. the law was signed on mar27. we'll see where it ends up.

10mm people just lost their job, tens of millions more likely to come. many of these jobs aren't coming back. it should be red alert time rather than let's stick it to the servicers on technicalities. citizens are going to need help with their mortgages which means $$. getting capital into the professional GSEs is likely a more efficient way to deliver this help to Americans than blunt UBI checks. So far the take up rate has been manageable. That is the data point to focus in on. Not numbers of unemployment many of whom don’t owe mortgages The take up rate will likely either end up very large or be restricted by servicers fumbling the ball. While I don't believe the 100% numbers it could be 10-50%. Plus there are renters who won't be able to pay and the GSEs could work better with capital on the multi family side as well. In addition there's a reasonable chance Calabria isn't around in 9 months. I think he's saying the right things publicly fwiw. I'm just thinking a balanced plan B is hopefully being worked on aggressively behind the scenes. Now that Calabria has stood his ground on conserving, it's mnuchin's choice and I believe non-pspa capital into the Gse's is likely better than the Fed accepting MSRs.

10mm people just lost their job, tens of millions more likely to come. many of these jobs aren't coming back. it should be red alert time rather than let's stick it to the servicers on technicalities. citizens are going to need help with their mortgages which means $$. getting capital into the professional GSEs is likely a more efficient way to deliver this help to Americans than blunt UBI checks.

Calabria's public attitude about this crisis is likely too relaxed. Hopefully there's preparation of plan B behind the scenes. The GSEs likely need capital asap to help out the mortgage system. Conveniently Mnuchin has a $500bn fund. While Calabria is wise to do his job as conservator, the MBA'rs are also correct imo, they should inject $ into them, cancel the sr pref, exercise the warrants and let the GSEs serve as intended. It was their fault they waited 3.5 years now they should rectify their mistake.

Yes, if there is a path of less resistance and easy way to solve this, why isn't it happening yet. Why wait when the result could be catastrophic? It seems that we're missing something. I agree. The joke appears on us. Mnuchin could have easily highlighted the FnF $100bn+ net govt payday when being plastered on his $500bn fund but he stayed silent. Add this to the list of the Trump team punting for 3.5 years, Ginsburg 2017, Atlas recent silence, SC refusing to take the case this term, Lamberth and Sweeney 2023+ after appeals, Calabria muzzled over NWS illegality post FHFA installation, etc -- and voila jr pref @ 17pct of par and common price below 2016 election date.

imo nothing good's going to happen with the share price until muscleman decides the risk reward is worth a re-entry. he was treated so poorly but he called the major top quite well last year.

I've made a point to listen for that. In all 3 interviews/articles in the past 10 days he has said "Congress" or "Fed" and hasn't mentioned "Treasury." He is making a point by excluding them as even a possibility. I think the honor system is a huge risk. Saying that, it's not a free lunch as it's added to the principal. Some might take advantage to spend the money today though, if they want to, or may use it as a cushion for another rainy day. I think take-up will be high, unfortunately. Same here. I don't see a reason why the take-up rate won't approach 100%. There is no downside for any individual to take the forbearance. FnF have an extra $250B to draw from Treasury if worse comes to worse. The companies will survive. Shareholders are in a much more precarious position, with only $23B worth of capital cushion. We survived the last draw from Treasury in Q1 2018, but that was with Watt in charge. I don't know if Calabria would feel compelled to wipe out shareholders in the event of a draw from Treasury. Some clarity on this is sorely needed. If anyone knows a journalist who could ask him this, please reach out. This is also why I believe Treasury's backstop will survive recap and release, notwithstanding Trump's insistence on an "explicit" and paid-for backstop. I put "explicit" in quotes because it's not the explicit MBS guarantee that the Trump administration wants, but instead it's just for FnF. 100%!? what about the people with savings. or still employed with decent wages / salary (ie bank employees, grocery employees, FnF lawyers, teachers, etc). or those who don't want to deal with a servicer or those that are eager to get out of debt sooner. if it's 100%, which admittedly is possible, the Dow would likely be half its current value.

I really hope it is, but i doubt it. It's probably not payback. It's likely either a) they don't like the business model and/or b) they view the GSEs as the appropriate bail-out facility and are using this as some leverage to gain consensus to quickly fix the GSEs so they can play the counter cyclical role they are intended for.

thanks. fairly large disconnect between current price and that interview imo.

5% seems low. I am guessing he realizes this and is preparing a thorough plan B with Houlihan during this 2-3 month period. The first injection should come from Mnuchin's fund. A second one should come from private equity at a later point when there is more visibility for a consent decree / re-IPO. If the SC was paying attention they should deny Mnuchin's Collins appeal asap to get Atlas court going. Or follow Rule of Law's reasoning in Seila with clear and direct implications to Collins. There might be legal restrictions on Mnuchin proactively deeming the sr pref paid off without court cover.

I have been thinking about GSE loss reserve creation over the next couple of Qs. first, a big benefit is CECL "mitigation" (an overused term) for 2 years. big plus for B/S optics. second, how much of the "forbearance" amounts are reserved against? ie do the GSEs simply assume that the forbearance amount will be paid and the deferral is simply a restructuring of the mortgage terms, so no loss reserve creation? rolg asked Tim Howard this and his reply was essentially a question of conservatism/judgment. there is a big difference imo between nonpayment due to by a federally mandated forbearance, and an obligor's default in payment. while GSEs do have to make payments to mbs pools in place of mortgagor payments, these are borrowed at extremely low interest rate cost, so not a big delta arising from that The FhFa hasn't yet delayed cecl for the GSEs, unless I missed something. Also are you sure about your last sentence? Do the GSEs have to pay before they are delinquent? Aren't the mortgage servicers at risk here, and why they are asking for the [100?]bn facility? CECL will be deferred by fhfa given that it is deferred for basically all other financial institutions. should get clarity of this when GSEs report 1q. GSEs absolutely have to pay to mbs pools forbearance amounts. but this is a separate credit question to loss reserve creation. I suppose GSEs could just be conservative and assume that anyone seeking forbearance is a credit risk. but omitting a payment on one's own (default) is a lot different from a credit viewpoint than taking advantage of a statutory right to defer payment Ok. I assume then the full amount of the forebearance cash flow does not flow through the P&L / retained earnings? the asset is written up on the b/s by the amount of the cash outlay since they will (in theory) receive those $ at later point, it's just a timing mismatch?

I have been thinking about GSE loss reserve creation over the next couple of Qs. first, a big benefit is CECL "mitigation" (an overused term) for 2 years. big plus for B/S optics. second, how much of the "forbearance" amounts are reserved against? ie do the GSEs simply assume that the forbearance amount will be paid and the deferral is simply a restructuring of the mortgage terms, so no loss reserve creation? rolg asked Tim Howard this and his reply was essentially a question of conservatism/judgment. there is a big difference imo between nonpayment due to by a federally mandated forbearance, and an obligor's default in payment. while GSEs do have to make payments to mbs pools in place of mortgagor payments, these are borrowed at extremely low interest rate cost, so not a big delta arising from that The FhFa hasn't yet delayed cecl for the GSEs, unless I missed something. Also are you sure about your last sentence? Do the GSEs have to pay before they are delinquent? Aren't the mortgage servicers at risk here, and why they are asking for the [100?]bn facility?

If the forbearance period is 12 months then the GSEs would likely have that time to prepare for the onslaught of delinquencies / foreclosures / credit losses that would come in 2021+? If so, this is likely why Calabria randomly postponed the capital rule until 'late may'. At that point, as he said, they would be better positioned to determine if this was a short term problem -- where they could let the original plans (think ACG timeline) play out -- or, more likely, it's a major serious situation and a Plan B is needed. For me, Plan B should entail outside private capital raise (from govt and possibly also private equity) in conjunction with elimination of Sr pref (and perhaps warrants depending on the situation) in addition to dropping all near term re-IPO plans. Under Plan B, profit motivation for the govt should be out and making FnF a fortress ready to take on losses should be in.

Am I wrong thinking the following on this? This is gold. Any new warrants the gov't issues will be exercised in calendar year 2020, guaranteed. This does not explicitly include GSE's, but it would be very, very odd for the gov't to make profits by exercising warrants in other companies and not the GSE's. Might as well exercise all warrants the gov't holds, make money for the taxpayers, and use that in the month or two leading up to the election to get re-elected. Leads me to believe this is going to happen this year, and probably in the Summer at the latest. See attached for screenshot from the CARESAct. read the few sentences prior to that reference in the bill. I believe it references allowing funds to be used in 2021+ to exercise options on warrant deals agreed to in 2020. likely not applicable.

This is great analysis, as usual. but unless things get back to normal soon -- highly unlikely -- this analysis is likely not applicable for the current landscape with tens of millions of Americans losing their jobs. I'd recommend our sponsors push for more workable immediate solutions that benefit all parties' current goals.

IMO release from conservatorship, consent decrees, capital rules, IPOs, jr pref conversions are probably unrealistic for at least 2020 and perhaps longer. Just like Calabria says. These exercises could interfere with other more pressing matters. To accomplish the government's objectives, it would have helped if FnF was in a strong position. Since they are not, what's the best they could do right now: exercise warrants. inject some of mnuchin's $$$ pot. retire sr pref which would settle lawsuits and remove distractions / wasted DOJ efforts. raise incremental pref later this year. what would this do a) calm nerves b) tighten MBS - Tsy spreads and c) allow FnF to take on losses to help out borrowers and/or other market participants.

is it not too late to make FnF the stabilizing force? Perhaps exercise warrants to bring in MBS / Tsy spread for refinancing. Govt inject $50bn from Mnuchin fund to pay for those warrants (reinvesting a portion of the $100bn plus profits from sr pref). Retire Sr pref. Raise additional Jr pref from private equity. FnF absorbs some targeted losses, calms mortgage system to a degree. @IG "Govt inject $50bn from Mnuchin fund to pay for those warrants (reinvesting a portion of the $100bn plus profits from sr pref)" what your theory here? exercise price os warrants are $100 Either reset the prior agreement to include a warrant exercise price of ~$6 (~$50bn) or wind down the old deal -- where the govt made > $100bn profits -- and start a new deal in the $500bn mnuchin fund where a chunk of $ goes in for warrants (with a long term profit motive as well). We have been beaten down over many years but Emily's general view of the situation isn't wrong, the comprehensive treatment of FnF and its minority shareholders for 12 years has been a national travesty. The offset is, though, going forward, a FnF flush with capital would need to help the system and be willing to eat into some of that capital in doing so. Midas, I don't want to argue because this is just a suggestion rather than a likely scenario but imo it's time to move quickly in something that is reasonable and can help all interested parties rather than insist on something pure.

is it not too late to make FnF the stabilizing force? Perhaps exercise warrants to bring in MBS / Tsy spread for refinancing. Govt inject $50bn from Mnuchin fund to pay for those warrants (reinvesting a portion of the $100bn plus profits from sr pref). Retire Sr pref. Raise additional Jr pref from private equity. FnF absorbs some targeted losses, calms mortgage system to a degree.

Mr. Josh Rosner is on a roll. Thank you.

If the Senate bill passes, a good public policy move imo would be to immediately inject ~ $50bn into FnF in common equity while exercising the options and retiring the sr pref. Keep them in conservatorship, no wasted time on conversions, IPOs, capital rules, legal settlements; let Calabria burn the $75bn in capital on an aggressive 1-year relief plan for small and medium sized mortgages. It effectively sets a ~ $6 exercise price for the warrants, which seems fair when viewed in conjunction with the 100bn+ net sr pref profits to date.

More than interesting, no? Seems important. why is this relevant? the senate bill likely doesn't create a FHFA with unlimited powers. and we don't know the format of the investments, it could be mostly loans. it seems apples / oranges to HERA / FHFA / NWS.

There is some chance of this imo due to the crisis / capital levels and a lot of DC is against the hybrid structure. The compensation side could be decided by the courts or also some negotiated deal. Does anyone know when Sweeney (if it occurs in 2021) and Lamberth (scheduled for 2021 trial) would reach final stage after appeals? 2022,2023,2024?

-warrants exercised -junior prefs go close to par -plaintiffs sell their juniors at close to par -plaintiffs drop lawsuits because they've sold near par Plaintiffs do this because they see everything is depressed in price and they want to take advantage and buy some companies on the cheap rather than wait around for the courts/settlement/Admin/etc. That's surely what I would do if warrants are exercised. Result: companies have many billions more capital, lawsuits are dropped, plaintiffs are happy, housing market stabilized by GSE's, etc. :) how would this raise capital? the dems and media are going to watch the corporate bailout side like a hawk. It'd be a large political risk to act in a manner that surges the jr pref before November.

it is my view that if scotus decides seila the way I expect, then the NWS is toasty if not toast. I believe Ps should not give any credence to the seniors in a settlement negotiation unless the seila outcome is bad If things start to unravel or the treasury sees a window to settle and/or return some money over the 10% do you see them doing so before selia is decided? The could suddenly be operating from a position of weakness if the MBS market takes a shit right? I'd be guessing but I think their first priority is and should be helping Americans by using FnF rather than worrying about legacy shareholders, for now.

I didn't read Whalen's piece but exercising the warrants brings in about $100 in fresh capital I think I agree with your conclusion that it's unlikely to happen given other priorities but exercising the warrants -- which aren't subject to court challenges (unlike sr pref) -- could be more of an attempt to bring in the gapped-out spread between mbs - tsy (to allow for refinancing) rather than inject capital.