investorG

besides government greed, what's the downside of stopping the sweep and turning on the currently-dormant periodic commitment fee as a replacement compensation for the capital backstop? unless I am mistaken, mnuchin and watt - who have authority at the moment on this issue - have both said they don't want the GSEs to be shut down.

I re-read the appointments section, hoping to become more optimistic. fortunately, we found a thoughtful and apparently sympathetic judge. the constitutional angle, though, is a huge reach, it seems the very definition of 'legislating from the bench'. I think the most likely outcome is a loss but with some language in there that encourages appeals to a higher level court that has more authority to possibly side with us. and even in the small chance that we won in this judge's court, i'd guess an appeal is almost certain; whereas if we won in some other cases, maybe more of a settlement.

it doesn't appear that watt is the center of our issues. he wrote a shareholder owned utility proposal after all, which might been what stopped the corker bill.

judge is worried about giving broad remedies. the separation of powers argument would entail nullifying all fhfa action. as judge put it to P counsel, you want me to invalidate NWS, and go back to the second amendment which also would be nullified, except you are not asking for that relief. judge seemed much more comfortable with appointments clause claim, where if judge uses Ps bright line 2 year cutoff for acting directors (borrowed from the 2 years allowed for recess appointments), then only NWS would be invalidated. judge also seemed to countenance the nondelegation claim which as he mentions hasnt seen much judicial support for about 100 years. on the negative, judge seemed to countenance defendants claim that res judicata bars this suit since this could have been brought in perry. i strongly disagree with this, apparently as does judge's law clerk. judge is smart and engaged. if he works as hard on this as i expect he will, Ps have a puncher's chance. thanks. it sounded like he thought the perry decision was improper but then said you have given me little to work with in this constitutional area to help you (plaintiffs) out. the 2-year appointments area was perhaps the best area for success, but still there in terms of remedy, he said it would be quite a lot for a judge on his level to set this precedent. I doubt we win even though he was kind of searching for a way to help us. Is the Collins appeal the exact same kind of case or does it have other areas? although I am mistaken, I was hoping the Bhatti case had BOTH the constitutional side and the same arguments as perry. this would theoretically allow the judge to believe in our cause, decide the constitutional side remedy was a bridge too far, but then just side with the brown view and overturn the NWS in that component of the suit. collins had "perry" arguments and PHH separation of powers. bhatti had PHH and appointments clause. schlitz started into perry because bhatti also raised nondelegation argument, which is obscure but basically says congress cant tell an agency to do what it wants...which is what perry seemed to say thanks, I wonder why Bhatti and rop didn't throw in both the constitutional arguments and perry arguments.

judge is worried about giving broad remedies. the separation of powers argument would entail nullifying all fhfa action. as judge put it to P counsel, you want me to invalidate NWS, and go back to the second amendment which also would be nullified, except you are not asking for that relief. judge seemed much more comfortable with appointments clause claim, where if judge uses Ps bright line 2 year cutoff for acting directors (borrowed from the 2 years allowed for recess appointments), then only NWS would be invalidated. judge also seemed to countenance the nondelegation claim which as he mentions hasnt seen much judicial support for about 100 years. on the negative, judge seemed to countenance defendants claim that res judicata bars this suit since this could have been brought in perry. i strongly disagree with this, apparently as does judge's law clerk. judge is smart and engaged. if he works as hard on this as i expect he will, Ps have a puncher's chance. thanks. it sounded like he thought the perry decision was improper but then said you have given me little to work with in this constitutional area to help you (plaintiffs) out. the 2-year appointments area was perhaps the best area for success, but still there in terms of remedy, he said it would be quite a lot for a judge on his level to set this precedent. I doubt we win even though he was kind of searching for a way to help us. Is the Collins appeal the exact same kind of case or does it have other areas? although I am mistaken, I was hoping the Bhatti case had BOTH the constitutional side and the same arguments as perry. this would theoretically allow the judge to believe in our cause, decide the constitutional side remedy was a bridge too far, but then just side with the brown view and overturn the NWS in that component of the suit.

after reading the first 2/3 of the Bhatti oral arguments, it feels like the judge is sympathetic to our view but doesn't seem to have a mechanism to fix it.

I often wonder if the lawyers for FHFA and the government, who are no doubt smart people and aware of the situation of how the NWS went down, feel proud of themselves for waking up every day with a mission to shaft tens of thousands of Americans based on a technicality of how HERA was written?

in House testimony earlier this year, I believe he said explicit guaranty on the securities was his preference. and you are right on his delays. it has been quite disappointing to me relative to my incorrect (to date) expectations of him. my best guess is this turned into more of a political football than he could handle and he needs an easier playing field with a new congress and/or a court loss to get what he wants done.

I expect nothing to happen, everything remains as it is. as I mentioned before, I don’t see a pressing problem. Kicking the can down the road, is common in politics , even more so, if there is no issue with the can. The chances of a lawsuit driving a change are already very slim after 10 years and so many losses. ok, fair enough. it's certainly a possibility. on the other side, the boss in this situation (if you believe that trump doesn't care much about it) has said on multiple occasions he does not want the status quo conservatorship to continue indefinitely and also that he has, apparently, the power to make that happen administratively if necessary. once again, i dont want to assume he's lying. certainly he's not shy about avoiding commentary when it suits his preferences, so i rely on attempting to interpret his actions and words to the best of my ability.

removal of implicit guarantee. addition of a paid-for explicit guarantee (mnuchin's stated preference in front of congress). competition in some form. HUD-FHA adjustments. other things i'm not thinking of. quite the laundry list, which is why he wants to wait for 2019 legislatively. I believe mnuchin and phillips when they say they will wait for 2019. In the mean time, we drift and hope for a brave and moral judge to stand strong and/or some modest 4th amendment which stops or slows the sweep and buys time. there was some talk about a paid for implicit guarantee...yes, i know this sounds absurd, but a fee for the status of FnF as duopolies subject to utility type regulation. whenever there is talk of an explicit guarantee, you never hear how much (all mbs? only going forward mbs?), how it would blow debt ceiling etc I'm not saying your idea is better or worse than mnuchin's. but he said in a House hearing earlier this year he prefers an explicit guaranty on the securities, and i'm thinking he's likely thought through the issues you bring up. in general, he's a direct / blunt guy. and according to his wife, he's stubborn. i'm not going to assume he wants something different than what he says on this matter.

removal of implicit guarantee. addition of a paid-for explicit guarantee (mnuchin's stated preference in front of congress). competition in some form. HUD-FHA adjustments. other things i'm not thinking of. quite the laundry list, which is why he wants to wait for 2019 legislatively. I believe mnuchin and phillips when they say they will wait for 2019. In the mean time, we drift and hope for a brave and moral judge to stand strong and/or some modest 4th amendment which stops or slows the sweep and buys time.

What is not simple about this? Goal: create a secondary liquid market for mortgages to stimulate housing. 1. borrow at the lowest possible low rate (from Fed). 2. buy quality mortgages (95%+ of which are single home risk-weighted at 50%). 3. pool them to securitize. 5. issue securities (mbs) backed by the pool. 6. guarantee payments of principal and interest on the mbs in exchange for a fee. 7. sell the securities to institutional investors. 8. hedge interest rate. 9. make coin. risks: interest rates (hedged), bad mortgages (qualified). If the fee does not cover borrowing costs CFO needs 3rd grade math tutoring. The not so simple part is who owns this? The government think that they own this and you own toilet paper. Thes speculators who buy the “toilet paper” think otherwise. So far it looks, smells and feels like toilet paper for the last 10 years and especially since the government is on the other side of the table, I think chances are fairly high that this in fact is toilet paper. That’s my simple way of looking at this. so what specifically do you think will happen for the next 5 years -- status quo in conservatorship? if not, what do you specifically envision happening in a restructuring that torpedo's the minority shareholders from these levels?

close to 0% odds

to satisfy the universal demand of DC to bring more private capital into the mortgage market, would you rather keep FnF intact but give away 10pct(?) of revenues in the form of flawed CRTs or would you rather wind them down?

phillips said he wasn't allergic to watt's proposal, something like that. it wasn't a full-hearted endorsement. mnuchin does have administrative options, I just believe it's a 2019 potential not 2018 -- based on his statements, rather than my guesses. democrats are ~65pct favorites for the house per betting sites. the one area where I think I might be off is if he does an amendment with watt that a) ends sweep and b) adds in an explicit payment for the backstop until capital is raised. this could signal that FnF are here to stay and he still wants to work with congress in 2019 to imprint the new housing finance system (as admin action is less permanent). last week would have been a good chance to do that, but it didnt happen. another chance could be after the congress passes the dodd frank reform.

while they don't care about us, they do like FnF much more than the Republican cartel - even below the surface of corker and henserling. i'd recommend watching all of the hearings. especially the House ones. it's not a coincidence that mr. liberal mel watt wants a shareholder-owned utility while all the congressional committee proposals to date - led by republicans - would shaft the minority shareholders. tom cotton might be one of the few exceptions, maybe.

Where did you hear this? I only remember them saying that they won't immediately act once it is clear that legislative reform by the current Congress is dead. And I might be in the minority here, but I am more than willing to wait another year or two if it means actually getting par. I thought I remembered Phillips saying that Mnuchin will resolve the situation before the end of this presidential term, though I can't recall where exactly I heard that. Midas, phillips said it during a presentation at a law firm in february. he basically said they would wait and try again in 2019 if the legislative action failed this year. it was disappointing to hear that, but i thought maybe it was posturing. but then mnuchin confirmed it, i believe, in a fox interview when he brought up on his own in response to an open-ended question that he's working on gse reform but he's not sure if it will get done before the midterm elections. in addition, he said in front of congress that he specifically wanted an explicit guarantee on the mbs - which can only be accomplished legislatively. the best we can root for this year, imo, is some potential victory in the courts, a democratic win in november, and no potential inflammatory commentary against us minority shareholders. the common and preferred shares price in quite pessimistic outcomes, in my view, but there's of course a real potential i'm missing something relevant that justifies their low levels.

"The timing around housing finance reform is worth considering because Corker, who has been a driver behind efforts to overhaul the GSEs for years, is set to retire at the end of 2018. And without legislative action in the near term, the odds go up that the Trump administration could act unilaterally to make changes to the mortgage market through the Federal Housing Finance Agency." Luke, many people are hanging on to hope for an administrative solution. however, mnuchin and phillips have explicitly both said they are waiting until 2019 to try again legislatively first. why think they are lying or posturing? imo the sooner the community can get past 2018 admin reform, the better.

for big things, watt very likely simply does what he's told to do. he was emphatic about no draw on his watch last year in front of congress. and look what's scheduled to happen today. that's why I valued his utility report a good bit earlier this year - I'm hoping it was mnuchin's defense mechanism to try to indirectly ward off the corker warner 2.0 bill. but with these security prices, now I wonder.

Yeah CRTs appear to me very close to being pure financial obfuscation to drain the GSEs of what would otherwise be equity capital buffers and also are counter-cyclical and therefore will be terrible in a recession as pointed out by both Tim Howard https://howardonmortgagefinance.com/2017/03/20/risk-transfers-in-the-real-world/ & Landon Parsons (Moelis) https://www.americanbanker.com/opinion/risk-transfer-alone-is-not-a-viable-solution-for-gses & Josh Rosner (via Twitter and I'm sure elsewhere) The real question is, if the FHFA knows this, and they should - what is their motivation to continue these programs - why not just keep the capital since it's not properly priced given how, when you dig in, you can see that the payment periods are much shorter than the life of the bond it's supposedly protecting against - the Mezz tranche typically has a principal window that is projected to start in 36 months. So it is very, very obvious what is going to happen there. (and I'm not sure, but I'm willing to bet that most defaults don't happen within the first 36 months). So unless you know what you're looking at, you'd never know that they're doing this... so the question is why? IF the FHFA is supposedly operating with the shareholders (taxpayers or orig equity holder(EG everyone on this board probably)) and the market experts are telling them they are structurally flawed yet they continue down the same path? Well... that seems suspicious to me. I'm no structured finance expert (...), but that tells me there are motives for issuing these products that aren't immediately apparent and are not as advertised. even if flawed, I think the CRTs are likely helpful to our cause because they help satisfy those who want, a) more private capital involved and b) to help the big banks, without fully dismantling the GSEs. Perhaps people like Ed Royce spend at least some of their time pumping up CRTs rather than talking about wind-down. I understand why purists like Tim Howard point out the flaws, but some proponents of CRTs like Watt likely look at it from a strategic 30000 foot level view. Interestingly, though, when Mnuchin was asked about CRTs in a Congressional setting recently, he was tight-lipped which might infer he is not as supportive -- it would have been easy for him to say his line of more private capital is good, but he did not.

As of December 31, Fairholme had 27 % of assets in cash, 26 % in FnF prefs, and 31% in common stocks and 16% in bonds. Berkowitz might be selling a large amount of prefs but it would not likely be due to redemption pressure < 3 months after the annual report (see below). He is also involved in serious litigation (regarding FnF), the termination of which has not been reported. He would likely sell FnF before selling JOE, which I infer from an interview last year. He could of course sell a small amount of prefs as part of a selling program to manage redemptions or to raise more cash. I would be surprised and disappointed if he were voluntarily giving up on FnF prefs. That might mean that the Fairholme Fund was starting to liquidate. Always possible but again unlikely, given that over the entirety of last year, which was as bad as it realistically can be, net redemption was around 25% of the Fund shares. If Fairholme were under massive redemption pressure, he could optionally redeem directly from holdings rather than in cash. The recipients might then sell and drive the price down; such an action by the shareholders in this hypothetical situation would not be a surprise. perry and ackman are likely selling too. hopefully for business reasons, but unfortunately maybe for other ones too. and then add in those who can't wait another year = here we are.

from many angles: no.

exactly. if required, a new deal can be struck overnight between fhfa and tsy for a fresh backstop that is explicitly paid for. mnuchin appears to be waiting until someone makes his job easier for him -- either a court outcome or a new makeup in congress. meanwhile, long time holders get kicked out because they can't wait forever for justice -- even though he as all the power to either act (or more plausible speak strongly) on the matter. not good for anyone involved, although I must admit it's only my fault for misjudging his competence and strength.

Tim Howard comments below. Imo accurately calling out mnuchin's lack of strength on the matter to date. some of you may not want to hear this, and are waiting for 2020 for the court of claims, but at least Emily might agree. I haven’t seen anything in Mnuchin’s tenure as Treasury Secretary so far that would lead me to label him a “change agent.” To the contrary, since his pledge on Fox Business on November 30, 2016 to “get [Fannie and Freddie] out of government control…reasonably fast,” he’s repeatedly walked that pledge back. Some (including me at one point) thought he might act after it became clear mortgage reform wouldn’t be enacted in this Congress, but now that legislative reform is generally viewed as being as dead as Jimmy Hoffa, Mnuchin has pushed his timetable out again, saying to Bloomberg on March 8, “I’m not sure that’s something we’ll get done this summer before the election.”

i am watching congress dysfunction over the dodd frank amendment bill. bipartisanship agt to mostly to help small banks is fragile and may not survive a reconciliation process. if congress cant pass this modest bill then forget about housing finance regarding the dodd frank bill, imo it will get done. there were 67 votes in the senate, not 60, creating a little wiggle room. hensarling is likely posturing, he'll throw in a few large bank goodies and perhaps lose a few D senators and call it a day. on the kudlow news, not even a little bounce? my best guess is that potential institutional buyers are aware that ackman / berk / perry are selling and they think they'll get better prices in the near future. as stated in the post, it's a guess. my main suspicion is ackman selling, dragging down the whole complex (as investors rotate between the two). he has punted other legacy dead end positions recently and fired staff; he's likely under investor pressure to tighten his ship. when corker's plan was either released (perceived as not good for common) or failed, and phillips made his downbeat comments several weeks ago - combined with our terrible court record - he perhaps lost any visible catalyst to justify near term success. i could be way off. but if i'm right, things will stay stuck, at best, until a huge clean up block trade happens in the common shares.