investorG

swapping the sr pref for common would involve some arbitrary exchange ratio whereas the warrants were set in place 12 years ago and thus less random and more clean.

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 given current circumstances, it's not likely they will cancel an OID that would indirectly cost the federal govt $180bn when another simple option (forward looking relief) exists.

Thanks. That makes sense. Help out America now and worry about the other things at a later point.

That's good news but probably stale. The base case imo is we'll likely need more capital from Fed / Congress (per calabria). If so, I guess we'll hope that at that time they treat the prior sr pref as paid off and the forward looking dilution comes from a) existing warrants and b) the incremental capital takedown (25-50bn?).

dont know but I like it. maybe he sees the senior prefs as something that is so yesterday... that's one way to look at it. I hope so. another way would be that the 6-8 weeks comment lines up with the (perhaps arbitrary) late may capital rule new timing -- suggesting they could re-evaluate all of their plans at that point and perhaps go in a fresh direction. if the stress test outcomes play out over the next 6-24 months, raising external capital in size is unlikely in addition to the lack of retained earnings build.

Why would Calabria mention going to congress today for help given the sr pref capacity still exists?

Very low odds, for all of the obvious / well known reasons. He won't even release a capital rule proposal. This crisis gives them cover to avoid what we know is a time-intensive and difficult process (admin reform). I wouldn't expect anything meaningful (positive) until November if then. And in the meantime the market will have to ponder how badly this crisis will impact FnF's earnings in addition to the postponement of any potential material administrative action. Like others here, I wish it wasn't so but it's how things are playing out at the moment.

'forget it and do nothing' is the leader, perhaps by far. that gives more time to see how things play out economically in the coming quarters as they tend to other more pressing matters. odds favor it actually going the other way from release where they use FnF as public policy tools.

This could go a few ways. Most likely they stall and worry about it later. Another option is move towards nationalization / receivership, he's repeatedly and recently said he would do this if conditions warranted. Courts could decide sr pref fate. A good option would be a) 4th amendment which eliminates the warrants + sr pref (the govt has made plenty) and institutes a fair commitment fee b) settle collins + lamberth c) convert jr pref to common @ some meaningful discount to par and d) inject ~50bn of private equity money at a low common equity price in conjunction with re-listing/consent/exit/etc...

I think lamberth would require the companies to pay unless the Tsy intervened.

anything is possible. Among others, receivership and/or nationalization is not an unreasonable outcome with the courts and/or a Tsy deal dictating our fate as to whether a giant slug of sr pref is above us in the process. They lazily waited too long for the 4th amendment and the deck we're dealt has changed.

the House democrats are unlikely to give the president any material fiscal boost this year unless they absolutely have to. Objectively, it's too bad they sat on their hands rather than move the train and put themselves in position to monetize the warrants $50bn+ for some sort of payments to those most affected by the slowdown / recession. I suspect it is but wonder if it's too late to move quickly and sell the warrants for ~$5-6 per common share + a fresh preferred issue to private equity in conjunction with a 4th amendment / consent decree in the next few months.

perhaps lower potential dividend rate vs the other ones. also libor is declining rapidly and so securities with potential dividends tied to that index should in theory underperform.

off topic but the court system is quite random in terms of the judges you receive in conjunction with limited opportunities for en banc + SC checks.

imo low odds of a) FHFA is constitutionally structured b) punt c) invalidate the whole law what they should do (objectively speaking): Rule of Law's analysis: unconstitutional and backward relief for those who timely requested it. what they will likely do: the Kavanaugh and 5th circuit's solution of unconstitutional + change to removable by president at will. I agree with what they will do but I also think that after Lucia SCOTUS will grant backward relief as well in Seila...not inconsistent with severance after thinking some more, the kavanaugh / 5th circuit solution seems lethargic at best. similar to the 'may/shall' debates in our case. if the SC wanted to do the right thing, they'd go for unconstitutional, backward relief to timely requests, and call upon congress to fix the unconstitutional aspects (perhaps funding angle also). I agree with this but the 4 judges who likely will vote constitutional (losing 5-4) will vote for severance, and we can expect Kavanaugh to vote for severance because that was what he did in PHH. I just dont see why anyone would think that because of this there also wont be backward relief in Seila, it is not a case of either/or, and Lucia says that Ps should be awarded backward relief to incentivize Ps to make constitutional challenges. Ok on Kavanaugh but Roberts could step in and say he would side with liberals on consitutional if Kav insists on his way on the other issue. The quotes from warren should carry some serious weight, imo the law should be re-written to have 2 or 3 year terms with president removal powers.

imo low odds of a) FHFA is constitutionally structured b) punt c) invalidate the whole law what they should do (objectively speaking): Rule of Law's analysis: unconstitutional and backward relief for those who timely requested it. what they will likely do: the Kavanaugh and 5th circuit's solution of unconstitutional + change to removable by president at will. I agree with what they will do but I also think that after Lucia SCOTUS will grant backward relief as well in Seila...not inconsistent with severance after thinking some more, the kavanaugh / 5th circuit solution seems lethargic at best. similar to the 'may/shall' debates in our case. if the SC wanted to do the right thing, they'd go for unconstitutional, backward relief to timely requests, and call upon congress to fix the unconstitutional aspects (perhaps funding angle also).

imo low odds of a) FHFA is constitutionally structured b) punt c) invalidate the whole law what they should do (objectively speaking): Rule of Law's analysis: unconstitutional and backward relief for those who timely requested it. what they will likely do: the Kavanaugh and 5th circuit's solution of unconstitutional + change to removable by president at will.

Thanks for posting. CNBC's take, FWIW: https://www.cnbc.com/2020/03/03/supreme-court-looks-to-weaken-consumer-financial-protection-bureau.html thanks. if Roberts sympathizes with liberals regarding cfpb but doesn't like the solution kavanaugh advocates, should we root for a punt (and take up collins) or deeming cfpb/fhfa constitutional (lose our case but calabria theoretically more entrenched)?

ok. today's the day. if the SC follows the WSJ recommendation and dismantles the whole CFPB (FHFA?) agency, what logistically would that mean for our situation? on the other end of the spectrum, would it be net beneficial for us if they deemed agency constitutional as is? Lose the Collins constitutional argument but less theoretical political risk from a presidential transition regarding calabria? I think some suggested to pass on this case and go to Collins, I could see that playing out in addition to the other 2 base case alternatives of unconstitutional with prospective or backward looking relief.

If they do as you suggest, grant backward looking instead of forward looking relief, what's to stop every party going forward who gets targeted by cfpb/fhfa to make a timely legal claim against the agency? would ruling as you suggest effectively strip the agency of all powers going forward? thank you.

your last sentence is key and to date I haven't heard a conclusive rationale as to why any potential consent order executed during the lame duck is permanent when a new FHFA head takes over in 2021 (if Dem wins). I wonder if a moderate bank friendly Dem president would keep Calabria. Doubtful Bernie would. Ok. But if new FHFA head halted progress towards release from conservatorship and they stayed as wards of the state for many years with no dividends, thats not good. Or ran them through receivership because they deemed 40bn was still under-capitalized given a weakening economy. IMO by waiting the admin has put the process under unnecessary risk. The share prices reflect that.

your last sentence is key and to date I haven't heard a conclusive rationale as to why any potential consent order executed during the lame duck is permanent when a new FHFA head takes over in 2021 (if Dem wins). I wonder if a moderate bank friendly Dem president would keep Calabria. Doubtful Bernie would.

Fair enough. I'm genuinely curious what percentage chance you would place on them being nationalized? I know it's impossible to quantify odds with something like that, but what's your best guess? Thanks. If a Democrat wins the election --- whatever odds you place on that -- nationalization now appears to be the base case to me. I'd welcome other views but $45bn (if they get to that) doesn't seem like enough escape velocity even if there's a 4th amendment in the lame duck given the Dems preference for nationalization (and of course many R's dislike current structure). Maybe $75-100bn would be enough (?) but that would require a large private equity infusion in 2020 that I advocate but don't now expect. There's a roster of think tankers that are likely ready to take on this task in 2021 if assigned. The combined current market cap of jr pref + public common is not enormous, ~$18bn at the moment, and so your guess is as good as mine what value - if any - would flow to shareholders from the legal system or political settlement in a potential nationalization. Of course I believe a fair outcome allows shareholders to participate in the financial upside that the govt has achieved since 2012 (in addition to the indirect systemic benefits FnF provided in 2008-2012). Nationalization is not only risky but is not necessary for the Dems to accomplish their housing goals, IMO. Biden, Warren, and Sanders all reference utilizing the GSEs to advance their housing plans: fund the Housing Trust Fund and reduce foreclosures. This can be done with private, regulated GSEs just like before 2008. Bloomberg wants to nationalize them, but his chances of being elected are around zero. Imagine Trump putting out an ad and playing the verified recording of Bloomberg saying that the bankers are "his peeps" and they're responsible for creating all the jobs in this country! LOL https://www.independent.co.uk/news/world/americas/us-politics/michael-bloomberg-goldman-sachs-bank-wall-street-leaked-audio-a9356721.html FWIW, Cowen agrees: https://news.bloomberglaw.com/banking-law/fannie-freddie-oversight-can-end-even-under-sanders-cowen-says I don't have access to that article and I admit I don't know all the details but Congress would have a material say here. Waters, Brown, many others have mentioned their admiration of the status quo (ie quasi-nationalized). Not to mention the new FHFA head who has tremendous power and the army of anti-private-GSE DC swampers (esp if Biden wins).

unfortunately it's not unrealistic imo that there are no wins on constitutional, APA, nor a 'permanent' consent decree over the next 11-15 months. the economic landscape could also look a lot different over that time period in the scenario that Trump loses.

Fair enough. I'm genuinely curious what percentage chance you would place on them being nationalized? I know it's impossible to quantify odds with something like that, but what's your best guess? Thanks. If a Democrat wins the election --- whatever odds you place on that -- nationalization now appears to be the base case to me. I'd welcome other views but $45bn (if they get to that) doesn't seem like enough escape velocity even if there's a 4th amendment in the lame duck given the Dems preference for nationalization (and of course many R's dislike current structure). Maybe $75-100bn would be enough (?) but that would require a large private equity infusion in 2020 that I advocate but don't now expect. There's a roster of think tankers that are likely ready to take on this task in 2021 if assigned. The combined current market cap of jr pref + public common is not enormous, ~$18bn at the moment, and so your guess is as good as mine what value - if any - would flow to shareholders from the legal system or political settlement in a potential nationalization. Of course I believe a fair outcome allows shareholders to participate in the financial upside that the govt has achieved since 2012 (in addition to the indirect systemic benefits FnF provided in 2008-2012).