investorG

I respectfully disagree with Tim Rood's comments on twitter today about no legislative path with Max Waters. If the admin gets in a libertarian / right wing FHFA head then it's likely she'll be eager for a deal to protect her pet projects even if it means giving up some things she's not eager to go along with. I expect a real negotiation next year. In the mean time mnuchin and watt need to stop the sweep after Congress goes home in December -- in addition to being the fair / reasonable thing to do, this will get emotions going and can be the impetus for real action.

although examining a potential nominee's historical views are relevant, it shouldn't be viewed as literally what is likely to happen due to others' outsized influence and also changing priorities over time and roles. one thing they might consider is a receivership with some sort of amendment that future cash flows from the legacy operations (old co) are divided up in some pre-determined ratio between sr pref, jr pref, and common rather than the standard waterfall. likely this would drop many lawsuits and allow for the govt to win some more. obviously i'm just guessing but things like the above seem more likely than straight moelis with common @ $1.16. wish i was wrong but cant ignore the market for month after month when we're now in the oppty zone. also, there's a large gap between the liquid and nonliquid preferred, which tells me the person / people buying jr pref are traders more than convinced investors.

how would that be justified exactly? They keep making money so we have to kill them? Nonsensical. I'm guessing there's a legal, political, or lack-of-guts roadblock to canceling the sr pref as repaid. Perhaps they'd dump the whole existing capital structure into receivership, transfer the operational assets out into companies that look quite similar for a fresh start, and let the courts decide what (if anything) the prior shareholders should get for compensation. the warrant potential would go away but the govt would likely receive plenty more value from the sr pref seniority in the wind-down, unless the supreme court ended up striking down the NWS in a few years. the share prices (low, with common underperforming) are speaking that the courts are the play. if it was april, i gave it a pass that it's not ripe due to mnuchin / phillips comments about nothing getting done in 2018. but now the opportunity window is close / open and the common is near $1 - which leads me to believe moelis is not happening.

the share prices - with both languishing and the common underperforming - are signaling receivership. it's hard to believe this is possible as the appropriate solution, but at this point the market is telling us what's on the menu.

mnuchin on the hot seat, per the WSJ. since he cant change the fed pick and the Chinese likely don't take him too seriously, hopefully he feels motivated to accomplish something significant, soon, and fair on housing.

Given what we know about Carney, and the rest of the horribly biased article (which I regret reading, as with all of his stuff), he's using this line to warn Congress and those in the administration that are not pro-Moelis. Given Carney's obvious biases, I'm not sure we can even trust this line that you quoted. Agreed. Was just throwing the article out there so we're aware of it, for what it's worth. definitely a call to arms. but does anyone still read Breitbart? Exactly. The idea that this article will have any influence on anything is laughable. This is Robert Mercer's work and at this stage of the game Trump has proven that he will throw anyone under the bus. I'd say if Trump/Mnuchin want to go the Moelis route -which we don't know- there will not be any compromise and it is 'fait accompli'. regarding moelis, it's hard to raise many tens of billions of dollars from investors without having some sort of legislative stamp of approval. what we need, imo, is a spark to get congress to compromise and get a deal done -- and that spark is the NWS stoppage next month.

wow, what an unpleasant man. the moelis plan is not likely imminent. perhaps hopefully more like a backup plan if legislative fails. the common stock would simply not be where it was if the moelis plan was gaining any sort of momentum. EDIT: this article (and more possibly to come) is likely why par isnt a realistic outcome imo for the jr pref. 60-80pct is a hopeful resolution to me. there has to be some shared sacrifice optics even if many believe it's not fair. The shared sacrifice would be ALLOWING conversion of the junior preferred into equity instead of demanding the cash principal in which we're legally entitled. there are many judges out there who think differently about what's legally entitled. rather than accept a reasonable compromise, do the plaintiffs really want to roll the dice that Sweeney / lamberth will right the wrong when so many others have failed?

wow, what an unpleasant man. the moelis plan is not likely imminent. perhaps hopefully more like a backup plan if legislative fails. the common stock would simply not be where it was if the moelis plan was gaining any sort of momentum. EDIT: this article (and more possibly to come) is likely why par isnt a realistic outcome imo for the jr pref. 60-80pct is a hopeful resolution to me. there has to be some shared sacrifice optics even if many believe it's not fair.

a fairly wide differential has opened up between the liquid and less liquid preferreds, fwiw.

low odds but worth a try. attention lawyers: please dumb it down for the judges and explain if they side with the plaintiffs (the little guys), the US govt / taxpayer still receives all their investment back, plus roughly $100bn of interest profits and potentially another $100bn of warrant value.

Mnuchin is on record saying any serious talk of reform requires companies to have capital first. But this was in the early days, before radio silence. ok, thanks. Mnuchin has accomplished very little in the first two years (most give tax reform credit to Brady, cohn, mcconnell, trump, etc.) and so hopefully his pencil is sharpened for this. obviously he's a smart man and few know more than him on this matter. there's also a chance they need to try to keep the housing market in decent shape, rather than bank-pleasing tinkering, to offset headwinds elsewhere.

Specifically, I'm curious about FMCCL, FNMAH, and FNMAS. I know it depends on dividend rate, when the dividend might be re-instated, etc. but (1) what are your thoughts on where these three securities would trade if NOT converted? (2) Would yield even matter for conversion terms, settlement terms, etc.? Thanks in advance for your input! these are good questions with no easy answers. (obviously much of this is premature at this point). it likely depends on if there are guidelines set out in any plan as to if / when dividends would be restored. if they want a healthy conversion rate of pref to common in the Moelis plan, then they might make dividend re-instatement murky to prevent people from holding out. the jr pref securities would likely trade below par, with some differential between them (as is now) based on yield. there's also some chance they could target only select series for conversion. in terms of yield mattering for conversion terms, i'd guess that it's a tradeoff between simplicity (treat them all equal) and precision (modestly better terms for higher yielders).

the Mba cohort is pushing for legislative reform to occur before recapitalization. does this view hold water? or is it better to get going on the recap in December as a catalyst / spark for legislative reform (my view)? in theory, the potential for action would open after the congress recesses for the year in December. mnuchin appears conservative on the matter to date. but the moelis / paulson / schwarzman group is quite close to trump.

very interesting --- professional analysis with some attractive share price targets. hopefully it's weekend reading for mnuchin and phillips. we are all indebted to Paulson and the other non-litigating junior preferred holders. the blueprint was ripe for updating and now is a great time to reintroduce it into the public debate...indeed, its merits have only improved compared to one year earlier. but this update wouldn't have happened without the junior pref holders writing the check. indeed - thank you Mr. Paulson. I liked how it incorporated some preferences from mnuchin as options. I guess what we're hoping for is a different tune from mnuchin and phillips regarding charter repeal, multiple guarantors, etc, with the cover that it's now hard to pull off with the Democratic House.

very interesting --- professional analysis with some attractive share price targets. hopefully it's weekend reading for mnuchin and phillips.

Mnuchin has said he prefers a legislative option and that it will need to be bipartisan. multiple times. imo nothing from yesterday changes that. I watched an interview from 2 days ago where Max said a top priority is housing reform if she's in charge. She likely wants explicit affordable housing mandates. Mnuchin wants some things, like a federal gtee and more competition, and they will likely negotiative legislatively in 2019 along with Pat Toomey. Then, if that fails, then maybe we'll see administrative reform. In the mean time, please stop the sweep! it is a fair policy choice, can spark action, and rules out nothing legislatively.

the document says it clearly -- the gov't wont settle (at least under the Sessions regime) and the timeline for this case is 2+ years.

my overview, FWIW: Ben Carson's comments yesterday on Bloomberg TV complement Phillips' from last week (and Mnuchin's prior) when he says HUD (FHA + Ginnie Mae) needs to be a large player in GSE reform with $3trn in assets. It's clear to me that the MBA Plan is Mnuchin's plan, broadly speaking. He has said he wants more competition, private capital, and a guarantee on MBS not the guarantor. IMO we should re-read the MBA 6-page plan from last year. IMO there will be no recap and release, admin action, etc, like many on the Twitter and message boards pine for. He is not 'primarily' thinking about warrants but rather the long term stability of the US housing system, especially in cyclical downturns (hence the MBS gtee's importance). I also re-read Landon Parson's op-ed from Sep-27. He barely mentions the Moelis plan. He simply asks for 2 things: stop the sweep and cancel the Sr pref, while mentioning the warrant value. Importantly, he says these 2 steps do NOT preclude legislative action. I believe the Democrats will go along with the plan. They will likely look at the affordable housing subsidies embedded in the current system (there are studies) and then simply ask for a larger amount in the future system, likely explicitly paid for out of the G-fees. The ask will obviously be larger if Maxine Waters has the gavel. Besides an unexpected court win or settlement, the best we can hope for imo over the near term is a 4th amendment between Mnuchin and Watt whereby the sweep stops and is replaced by the long-dormant periodic committment fee. A cancellation of the sr pref would be gravy. This capital-building action would be a jolt for the GSE reform legislation potential in 2019. At this point, I'd need material new information or a Democratic sweep (senate too) to change my view, which are both possible. I could also be wrong. I understand not all here share this view. Good luck everyone!

Do we know how accurate this is, or how credible the source is? Unless Mnuchin has said this very recently, I missed it. Or is it just being extrapolated from the privatization comments? not very credible imo unless the story appears in multiple outlets. (or hardincap is impressed). seems to me the only outlets that care about this are Bloomberg and specialized housing finance and securitization rags. and WSJ...after it happens a big if, but if something materially good is coming after the elections or new year via administrative action, it's likely to be leaked often in advance to limit the actual price move on the day of official announcement when most of the news stories are written, given the HF and berkowitz narrative. so far there's 1. would need multiple more to have credibility imo. Both the marginal investor and the marginal journalist are not impressed yet... it's tough to know. the demand pool is somewhat limited and there's likely a lot of forced supply from fairholme and other liquidating hedge funds like highfields. but I do believe we'll see multiple more stories coming out if the asset backed alert story has any validity. Speaking of stories of dubious validity - care to share the sources you have on all these hedge funds liquidating their holdings? Also I never heard back from my prior response! :( I generally try to limit posts about 2008 and subjective views such as loan loss reserve sufficiency. it doesn't seem too relevant at this point, and it's hard or impossible to prove. regarding highfields (a plaintiff), they publicly announced that the fund is closing. and educated guessing on fairholme -- they had large redemptions before, their relative performance has worsened, and so generally in this industry redemptions continue.

Do we know how accurate this is, or how credible the source is? Unless Mnuchin has said this very recently, I missed it. Or is it just being extrapolated from the privatization comments? not very credible imo unless the story appears in multiple outlets. (or hardincap is impressed). seems to me the only outlets that care about this are Bloomberg and specialized housing finance and securitization rags. and WSJ...after it happens a big if, but if something materially good is coming after the elections or new year via administrative action, it's likely to be leaked often in advance to limit the actual price move on the day of official announcement when most of the news stories are written, given the HF and berkowitz narrative. so far there's 1. would need multiple more to have credibility imo. Both the marginal investor and the marginal journalist are not impressed yet... it's tough to know. the demand pool is somewhat limited and there's likely a lot of forced supply from fairholme and other liquidating hedge funds like highfields. but I do believe we'll see multiple more stories coming out if the asset backed alert story has any validity.

Do we know how accurate this is, or how credible the source is? Unless Mnuchin has said this very recently, I missed it. Or is it just being extrapolated from the privatization comments? not very credible imo unless the story appears in multiple outlets. (or hardincap is impressed). seems to me the only outlets that care about this are Bloomberg and specialized housing finance and securitization rags. and WSJ...after it happens a big if, but if something materially good is coming after the elections or new year via administrative action, it's likely to be leaked often in advance to limit the actual price move on the day of official announcement when most of the news stories are written, given the HF and berkowitz narrative. so far there's 1. would need multiple more to have credibility imo.

Do we know how accurate this is, or how credible the source is? Unless Mnuchin has said this very recently, I missed it. Or is it just being extrapolated from the privatization comments? not very credible imo unless the story appears in multiple outlets. (or hardincap is impressed).

ok, one more...since questions were raised. i agree it's complicated. but mnuchin was hired for 2 reasons imo: loyalty to trump and to do this. regarding CRTs, i believe you and Tim howard that they are not productive. they were used mainly by the companies and Mel Watt to stand in front of congress and pretend to say that they were doing stuff that reduced taxpayer risk. in fact, mnuchin doesnt appear to like CRTs -- when asked in a congressional hearing, he chose not to endorse them. on other things, tim howard is biased imo as a legacy FnF homer. for instance, I cringe when I read things (from others and maybe also tim - i'm not sure) like 'on a cash basis, FnF didnt need a bailout' and there were accounting issues that caused the 2008 takedown. I disagree. the way accounting works for financials is when things are bad you take loan loss provisions in advance of the actual losses coming through. things were worse than bad then, who knew how large the eventual losses would be. I also think the implicit guarantee structure was / is bad. in addition, the securities, with the explicit govt backstop, could have lower yields than MBS pre-crisis when the govt gty was implicit, which rarely gets mentioned and is a potential negative for the big banks. I think mel watt's utility concept is best but apparently mnuchin doesnt.

The commentary is not as weak as the odds of legislation happening. It's been a decade and nothing. Polarization is at an all time high. I wouldn't say impossible but it's damn close. Additionally, do we know how current beneficiaries of the GSE charters are reacting politically to the admin threatening their entire lines of business? I know for a fact that these businesses are valued at hundreds of millions of dollars. Do we think the people with pull at that level are going to go quietly? Not bloodly likely. they might not have a choice. It seems like the Tsy / OMB wants to go with the MBA plan, and likely so do the 2019 Republicans in Congress. What's left is carving out some $ for affordable housing to get the Dems on board. And where does that plan leave legacy shareholders? the current market cap of all common and jr preferred shareholders is maybe around $10bn? that is very small relative to the role the minority shareholders have played the last 10 years, the current earnings profile and future valuation of the 2 companies. all we need is a true American leader, a politician or judge, who has the power to do the right thing. I am not sure how to interpret this. But I can't think of aligning with MBA is going to make "shareholders great again". one thing I fall back on is the quickest way to get hired in or mentioned by the Trump administration seems to have been either direct or indirect advocacy against an indefinite conservatorship / NWS / FHFA structure. Mnuchin, Mulvaney, kudlow, Kavanaugh, Janice rogers brown, ken Blackwell, others i'm forgetting. it's not impossible to both a) treat minority shareholders with respect and b) create a new system ok, I know that's a lot of posts lately - i'll try to hold back!

thanks for this allnatural. I quit twitter awhile ago. I don't think josh is part of the conversation, but at least he is closer to it than we are. seems to me that if polls are prescient (ha!), Rs will keep senate and Ds will retake house. does everyone agree with me that this is a recipe for no GSE legislation passage? does anyone think any legislation will pass with this political profile? legislation is quite doable. 2 of the 3 parties are aligned. throw 5-10bn of annual affordable housing (a slice of the g-fees) and Dems could be good to go too. pat Toomey, if in charge of the senate committee, is a highly capable man (crapo less so). beyond the question of affordable housing - does anyone really want to give banks this market? Other than the banks? what we think doesn't really matter. it appears mnuchin wants a) the govt guarantee to ensure the mkt works through the cycle and b) less GSE market share. he and phillips have said this multiple times. mnuchin directly said in congress a govt guarantee should be tied to the securities (ie not to the companies), behind other layers of loss protection, and explicitly paid for.