investorG

I agree Doc, we could be misaligned with the litigants. Unless we win constitutional at the SC, which is unlikely, I wonder if Berkowitz holds out for the Lamberth trial (perhaps ~ $40 potential) or if he'd go ahead and settle in 2h 2021 for either a decent deal (if we get APA remand) or any deal (if we lose collins outright). I suspect it will leak out at some point the reason for the prior admin's crunch time collapse.

I am aligned with him position-wise but despite his knowledge his predictions are rarely reliable. This instance should be no different. I see low odds of an equity raise in 2021 because most or all of this year will be filled with debate over the preferred GSE structure going forward. Surely Yellen will give Sherrod and Toomey a chance first. Likely going to be a long year with no visible potential catalysts until June-Sep.

I don't think I said that. I did say that the few preferreds that have low floating rate coupons (some of which would actually be 0% right now) are bad bets. I think everything with a fixed coupon of 4.5-6.0% is where the best values are. It is possible, but I don't think certain, that the even higher coupon issues will get better terms down the line, but you have to pay up for it, which I choose not to do. The interesting question now is should we actually have a preference for Freddie preferreds over Fannie? Based on the $70 billion capital raise limit before SPS paydown is required, Fannie is constrained from exiting conservatorship a lot longer than Freddie. But if the preferreds get exchanged as part of a settlement at the same time, then it may not matter that much as to the actual end date of the conservatorship. Mr. Market didn't make any distinction between the two on Friday, but that was just one day. Does anyone think there will be some price separation favoring Freddie in the near term? Yes this is possible. But Freddie doesn't even have a permanent CEO currently. Given the last bullet in the Treasury Department Blueprint, there is some real chance that the Biden admin's tentative plans are a merged utility and Yellen asked the prior admin to give that concept an initial nudge. edit: Mel Watt formally pushed utility in Jan 2018.

+1 was just going to post this. Michael is smart guy and like most of his thoughts on JPS. I don't see anything happening until after the Collins SC ruling. The Sep30 date aligns with this view.

I don't know how to reconcile the dozens of signs we received for 4+ years including up to the Dec 1-2 congressional testimony with Thursday's letter agreement except to believe that during negotiations in the first 2 weeks of December there was too large of a bid - ask between mnuchin/DOJ and plaintiffs on how much sr pref to forgive without the SC verdict cover. I can easily imagine Berkowitz demanding a full deal given his wealth and patience and that was perhaps a bridge too far for the govt. Bye Mnuchin. You failed and your inaction likely cost Trump re-election bc a partially capitalized and free-wheeling FnF would have likely boosted the economy enough to deliver the 40k total votes Trump needed in the swing states. But it could have been worse, at least you raised the caps to $280bn instead of $80bn, so thank you for that. Yellen speaks @ 10am tmrw.

wouldn't Tsy have the option to send $125bn and keep the sr pref? This was in original PSPAs before 3rd amend NWS. I do think though they would rather cancel the SPS than send the $125bn and then hopefully your statement would be accurate.

The current warrants are 'magic' and so they already needed to be exercised before any capital raise -- nothing new here.

of course. wasn't responding to you. don't remember many all-in posts at high levels from you. good luck. maybe the shares will halve again to 10% of par during the next few months quiet period and you'll be back again.

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. "unless Yellen and the new FHFA director amend that out" Absent SCOTUS - this whole thing is moot due to the possibility of future amendments This stuff cracks me up. Let's go all in at 50% of par while message board sentiment is drunkenly high but at 20% of par let's focus on all the negatives. As you know the 2012 NWS happened when the pref shares were sub $1 with little attention being paid outside of a handful of vulture investors. Now we're featured in major media outlets with many high profile (and stubborn) investors involved -- its going to be very hard for a new FHFA head to pull a 2012 repeat that caters strictly to Tsy. That said, yes if we lose major pending court cases, we become price takers in a potential negotiation.

This is likely not happening unless calabria is entrenched til 2024. They can simply wait for their pick in July and give up less. Mnuchin really screwed calabria by not settling Collins. who knows though maybe calabria wanted out or maybe there's still 4 days left for settlement.

Assumptions: 1. No settlements because they don't need to. 2. No obligations to shareholders by anybody leaving only judicial remedy. 3. No exercising of warrants. Expiry in 2028. New litigation: can shareholders get remedy if UST doesn't exercise warrants. I don't know, but we are relatively confident that much litigation will be pursued to that end, which makes exit impossible for yet another roadblock that Mnuchin put in. 1. Expropriation. Shareholders will not have been expropriated completely. In 2028, FnF are recapped through retained earnings and/or Collins APA win. GSEs pays out dividends to Treasury according to cap structure and the new deal: 10% of SPS liquidation preference at time of dividend payment, which will have been increasing 8 years straight. FnF won't make enough money to ever pay much to JPS holders. Common are 0. Low yielding JPS are basically a 0. But neither JPS or common holders are not expropriated completely. They just have really crappy economic interests. Nobody promised us a good deal and no remedy for crappy economic interests. I have had problems with expropriation claim for some time in assessing damages, even though I think they are likely there. If the facts are that FnF were in trouble at time relevant time, arguably the original position was already low, so low damages. If the facts are that they were valuable at relevant time and have not been expropriated by the crafty new letter agreement, up to SCOTUS for review, and then back down. 2. APA claim. Assumption shareholders will win with SPS writedown. The new letter agreement requires all earning to raise the liquidation preference again - NWS by another name - more litigation - starting from scratch, because of the new cause of action. Success means FnF only have their retained earnings to pay out on in 2028. This still leaves little money to pay out to shareholders. 45B now in net worth. 20B a year moving forward x 8 = 160 plus 45B now 205. 10% on that is 20B. How much is left for shareholders? Assumption shareholders will win lawsuit and remand to lower court. More litigation for many years down the road until remedy. But we still come back to the 10% dividend in a number of years. 3. Constitutional claim. Even with win, same problem as #2 - arising from the new letter agreement. Any increase in GSE net worth increases liquidation preference of SPS and further raises their dividend entitlements. 4. Lamberth claims. Direct. Fact driven. Possible win - toss up, with good upside given remand to lower court. But, will be appealed all the way to SCOTUS. Years before shareholders see any money. 5. Hindes litigation. UST learned. Clearly everybody will in fact be cut out of capital structure except SPS, but this has now been decided. Res judicata. In addition, defendants have better facts now. There will potentially be something left for other classes of shareholders, just not much. The original deal was a bad deal and here we are. MOS for shareholders from lawsuits: Other than Lamberth, there isn't one. In its current form, I can't get an approximation of the odds for Lamberth claims. At current 20% of par, too rich for me. Tsy doesn't have $125bn laying around. If they lose (or think they will lose) APA Collins or Schwartz, then they're going to want to deal. Sending back $125bn in 2023 and hoping to receive cash 10 years later is remote odds, maybe 10%. that leaves 90% odds for a new PSPA, new deal, in this scenario. Also yellen isn't a jerk. Finally this is America as TwoCities wrote and at some point the right thing gets done - after all the current market cap of all public common + pref is currently 6 months of FnF earnings -- there are ways to pay us off if all else fails.

Ok. I outlined above on this page why I disagree and am more worried about losing Collins or the econ rolling over than a decade of Tsy inaction -- but it's a subjective view and you and Snarky may be correct. Good luck to you and come back with your solid posts if you change your mind at a later date.

+1 regrettably. But I am less optimistic. The newest letter agreement destroys the margin of safety from the lawsuits, including rendering the Collins case moot, but from a different angle. Even if the accounting adjustment entry is done and UST sends back the money, FnF still can't get out because of the warrants until 2028. In addition, the letter agreement drafters learned from the ongoing litigation. They are using the Hindes precedent as a method to get all of the money by cutting out the other classes out of the capital structure and sending the money to UST eventually, but not completely, at least on paper. After FnF retain 3% of assets and a commitment fee is negotiated, 10% goes to UST or lift in net worth for the quarter. That leaves almost nothing for preferred shareholders. Commons are a 0. The APA claim moving forward is done. Calabria will now be conserving and preserving assets - for FnF benefit. The fact that the shareholders don't get anything doesn't matter. Calabria will be doing his job. After FnF are capitalized, in 10 years, UST gets all of the money because of the agreement that Calabria signed, which he can do. That leaves the expropriation claim. Maybe. The problem is UST/FHFA are now creating the necessary facts to defeat that lawsuit by not completing cutting out shareholders, but almost. I acknowledge the various points re potential admin action moving forward, but I can't handicap that, and I have demonstrated that with Mnuchin. We were sold out. The beneficiaries are, amongst others, buyers of MBS. They will have a mountain of money in front of them, and the LOC. They will be taking no risk for their investment, printing risk free money. Treasury also gets to keep this money making machine to itself moving forward, or until special interests manage to buy it for a song later. This letter agreement is deviously brilliant. This was a chess game and we lost. I didn't even realize the adversary was Blackrock, Pimco etc until Thursday. My thesis changed on Thursday night. My margin of safety was eviscerated by this new letter agreement. There may very well be new lawsuits arising from this letter agreement - but I have no way of handicapping this. I was wrong on Admin action. I therefore sold out of my positions yesterday. As InvestorG is fond of saying, good luck everybody. I've read your post multiple times and still don't fully get it. I assume you think Tsy will want to never do anything and will simply take the sweep in 10-15 years. If that's correct then yes we should all sell out unless you want to wait years for lamberth.

wb82 what should we be rooting for in terms of calabria getting replaced? if he stays then we have someone who believes in privatization and we could avoid a timing delay while a new director gets their feet wet. but he might not see eye to eye with Biden Tsy and a stalemate could ensue, plus his capital rule is tough.

We are guessing at Tsy's intentions and the risk you point out is real. It's all about probabilities though. -- Biden and the housing advocates probably could use the hard cash during this 4 years rather than wait for a decade-plus. -- If they chose the wait 10-15 years route for the NWS to restart, what's to stop a new admin who believes in privatization from changing its mind in 4 or 8 years from now - current Tsy officials can't be sure a plan hatched now to wait would fully endure. -- Tsy has a track record of selling investments from prior bailouts rather than holding. This is a unique situation but generally holding pref in publicly traded companies for 25 years (12 already plus 10-15 more) isn't their bag. IMO there's some chance Mnuchin would have acted differently if the SC hearing went south. He was 'contemplating' consent order on Dec 2 hearing and by Dec 15 he chose no. After hearing Breyer talk nationalization Dec9 he perhaps thought he could still achieve his objective -- delayed by a year -- by hatching this plan that is rough on both us and Tsy while avoiding the spotlight of writing down a large govt asset. And so he screwed us but also chose to increase the caps by way more than expected to motivate Tsy to act in 2h2021+.

The deal was rough for Tsy bc it lifted the caps to a level that blocks cash payments to govt for 10+ years without settlement. The rising liq pref sucks for us but it caps the common stock price which makes it easier to sell new stock. If we lose Collins, common gets plugged, jr pref is mostly a price taker during negotiations, and Tsy eventually monetizes most of its ~ $250bn liq pref. If we get a Collins remand, it could take 2+ years after appeals to finalize. 'If' the Tsy wants to see cash any time soon, they need to get going on a restructuring. For visible catalysts, 2021 should be defined by a) collins verdict b) Sep30 congress report and c) broad debate on housing finance reform with new FHFA head shaping the path forward. If the economy holds, 2022 could be implementation, equity raises, etc.

cherzeca's 50% chances of winning on constitutional are likely v inflated. more like 10%. so most likely is unconstitutional with forward remedy only. the points you raise are exactly why the SC likely won't give backward relief - I think they even mentioned this during oral arguments.

Finally, someone here to ask: Why buy a preferred with a 0% coupon? I know it's slightly cheaper, but you are betting really heavily on the assumption that it will be treated the same as the rest of the preferreds in an exchange/dividend resumption. Are you not concerned that it will be left outstanding at only trade at 50-60% of par while everyone else has cashed out at 100%? So you think FNMAP going from $8 to $30 is just as good as a fixed rate preferred going from $8.50 to $50? Your calculator might be broken. your assumptions may be off. Also ideally rather than waiting for par we might want to convert sooner -- if that option is available -- for less than par. The point is there are ZERO scenarios in which the outcome for a 0% preferred is better than one of the fixed rate preferred. However, there are MULTIPLE scenarios in which the outcome is worse - and when it is worse, it may be far worse. So it doesn't seem to me that a $0.50 discount in price is sufficient for that extra risk. you may be right. I have avoided those as well. but 50cents is 12% which isn't insignificant.

The last letter agreement reduced the incentive for the government profiting, but since liquidation preference was and is still in place, one can make the argument they profit, but at a later date. I, personally, am dubious of the idea that the NWS being ended suddenly creates some kind of urgency for a Yellen Admin to settle. There is clear incentive for JPS to settle (and I now think Par is a best-case scenario), but I just don't see it on the Treasury side. If UST was willing to roll the dice on SCOTUS hearing the case, they are not gonna get religion now and settle before ruling. Seems like only thing that could do the trick would be a major adverse ruling from SCOTUS, as others have echoed. If Tsy wins Collins they will have even more leverage to cram down / monetize the full amt of the sr pref. granted we'd have less leverage and less upside but that's different than the impetus to act by Tsy. And it takes a while from settlement until Tsy sees the actual cash (rather than an accounting entry). I think the mkt is underestimating tsy's incentives to move and instead leaning on (valid) frustration + a couple headlines that Biden's team will sit still. also ron klain who is to biden as mnuchin was to trump, I think tim howard said he's a fan of FnF, used to lobby for them.

Finally, someone here to ask: Why buy a preferred with a 0% coupon? I know it's slightly cheaper, but you are betting really heavily on the assumption that it will be treated the same as the rest of the preferreds in an exchange/dividend resumption. Are you not concerned that it will be left outstanding at only trade at 50-60% of par while everyone else has cashed out at 100%? So you think FNMAP going from $8 to $30 is just as good as a fixed rate preferred going from $8.50 to $50? Your calculator might be broken. your assumptions may be off. Also ideally rather than waiting for par we might want to convert sooner -- if that option is available -- for less than par.

I don't buy that they couldn't. Mnuchin just did some stuff proving he could do stuff - He just didn't do the stuff WE wanted. We can all guess to the reasons why. Maybe it was more important to him to incentivize quick action on the release to avoid Demz screwing it up than it was to ensure rule of law and shareholders' claims were upheld? I don't pretend to know. It's amazing that we're here though - the case seemed so obvious to me even before I invested. It was clear to me there was a wrong that needed to be rectified, and would be, because this is AMERICA and that was my thesis back in 2012. It's amazing to me after 8-9 years, we've made very little progress on that front and have had multiple cases go against us... No idea yet on what I'm going to do. Would love to think I could 7x my money from here in preferred going to par in the next 2 years, but I've been telling myself "it'll be the next 2 years" for the last 8 years. At some point, I just need to throw in the towel. Patience hasn't been a virtue here. Same thesis. But started a little later. Thought Ginsburg would be the honorable hero. That flopped. Then Mnuchin. Wrong. Who's next to disappoint? Anyway I guess current fair value is around 8-9 for this dog (25 par) and thus I'm invested to maximum (un)comfort.

The disparity in the commons vs. preferred has been around a while, but the common have really outperformed Preferred since the start of the year. My guess is that it is a result of both liquidity and where fast money was positioned on the expectation that this announcement would be more positive. big $$ readers of this board won't get comfortable unless muscleman returns with a buy signal. his calls on this stock, however he makes them, are legendary.

gasparino on monday reported that since the letter agreements don't address what the shareholders wanted, that preferred shareholders were asking for a "negotiated settlement as part of their lawsuit." do we still have a chance for 5 days of that settlement or did that ship sail between jan 11 and jan 14? edit: guessing out loud here but we could settle lamberth for an immediate swap of jr pref to common at a discount to par. or we could settle various cases if Tsy sends over 20bn of cash to FnF (in return for more sr pref) which is used to buy out Jr pref @ 60pct of par. capital neutral overall and positive to common equity levels bc retained earnings would go up by the 40% of value of par that was surrendered.

Nov 20: wsj article saying calabria pushing for consent order Dec 2: Hearing where mnuchin says tsy 'contemplating' consent order Dec 9: Supreme court hearing Dec 15: WSJ saying no to consent decree, but Light at bberg says some chance sr pref written down. Jan 14: Letter agreement anyone have guesses on if the SC hearing impacted mnuchin's decision to not go for consent order during the first 2 weeks of dec? Given how hostile the deal is and the important role played by lawsuit settlement in letter agreement I also wonder if settlement negotiations went on during mid-dec to yday that pissed off mnuchin (i.e. our plaintiffs shot for the moon).

it's not a slam dunk and many will exit but the reasons would be a) the low price b) potential court victories and their impact on stock price even if still in conservatorship and c) Tsy might want to move the ball forward at some point for progress / collect their billions for pet projects. I have no intentions to exit my position. While Yellen/Biden were briefed on the LA, what's to say they don't decide to make another agreement? Yes this is possible, assuming the new fhfa head goes along. So yellen's intentions matter and we don't know them.