investorG

I suspect the views' of corker and the message board consensus on the meaning of 'fair' aren't similar. since the bankers are desperate (crapo led off the whole FSOC meeting talking about GSE reform!), there is some chance the shareholders are bribed to try to pass a bill. but in that scenario, the bribe wouldn't likely be inserted until later in the process. i do agree that it's nice for a Senator to recognize shareholders, thank you Senator Corker for that hopefully fresh start on finding a balanced solution for all parties.

yes, lots of potential reasons. that's why we're @ 25pct of par. this is not an under-researched investment, especially relative to its market cap.

I would take anything David Stevens has to say with a giant grain of salt. He has been on a crusade against hedge funds being able to profit on GSE shares. Yes, agreed. Everybody that has been following the situation should know to take what he says with a huge grain of salt. I didn't mean to imply that you didn't know that. I should have elaborated more: Stevens's anti-hedge fund rhetoric in the past means that he could say that while Fannie and Freddie wouldn't be harmed, the same may not be true for shareholders. On second thought I don't see how that is possible, unless we see massive dilution to commons and dividends stay turned off for a long time. Rechartering to a private mutualized model comes to mind. Does nobody else see this as the only realistic downside scenario at this point? it's a risk, yes. the House Republicans might even put out a bill featuring it. on the other hand it's not what the banks seemingly prefer and not what FHFA is focusing on. we'll have to see what mnuchin says. there are other risks, too, given all of the variables.

the rumored senate bill and FHFA/moelis aren't completely different, imo. in the end, almost certainly attached to any potential reform is the end of the duopoly (i.e. more competition) and the removal of the implied guarantee model. it's also likely, but not certain, that an explicit guarantee will come on the securities. whether the guarantors are utilities or the # of competitors or transition details, etc. are likely overcome-able differences. I now believe the corker bill has a greater chance of passing than most. the bankers are acting desperate. hopefully they'll retire the sr pref. if that happens, the jr pref and common should get some proceeds, in that order, either in the form of shares in the new companies or over time in a legacy portfolio rundown receivership scenario. in the mean time, i'm guessing the pref are dealing with the unwind of hf positions who were hoping for admin reform and/or perhaps using the warrants for infrastructure. You bring up a good point: the parts on which all the different proposals agree will almost certainly be part of the new system going forward. The implicit guarantee is gone, explicit catastrophic backstop is likely, and at least 1-2 more competitors is a strong possibility. The part I bolded seems contradictory. Aren't Corker and the TBTF banks on the same side here? I believe that the names Fannie Mae and Freddie Mac are not long for this world. I love the way that renaming the companies is called a "ritual sacrifice" to appease Rs. Very fitting. Those same Rs probably would not be the wiser if two basically identical companies take their place, operating the way Fannie and Freddie do right now (as opposed to in the past, which is the phantom that these Rs fight so hard against). I can't say the recent price movement hasn't been disappointing, but I don't see any reason to sell at this point. the bankers are acting desperate in that they are flooding the media with articles and often stating outrageous claims in them. they likely see august as perhaps the last time they'll deal with a republican house. it's now or bust for them. and hopefully to get some of their goals, they'll have to be flexible on others.

the rumored senate bill and FHFA/moelis aren't completely different, imo. in the end, almost certainly attached to any potential reform is the end of the duopoly (i.e. more competition) and the removal of the implied guarantee model. it's also likely, but not certain, that an explicit guarantee will come on the securities. whether the guarantors are utilities or the # of competitors or transition details, etc. are likely overcome-able differences. I now believe the corker bill has a greater chance of passing than most. the bankers are acting desperate. hopefully they'll retire the sr pref. if that happens, the jr pref and common should get some proceeds, in that order, either in the form of shares in the new companies or over time in a legacy portfolio rundown receivership scenario. in the mean time, i'm guessing the pref are dealing with the unwind of hf positions who were hoping for admin reform and/or perhaps using the warrants for infrastructure.

4-minute corker interview on front page of cnbc.com. no direct mention of GSEs. any thoughts on the last 30 seconds though?

I wish the more vocal members of our team wouldn't publicly disparage the decision makers, as if they are more likely to help us the more dirt thrown at them.

3bn capital buffer: check no re-jumpstart: check mnuchin says does not want to get rid of FnF: check FHFA on the record in support of a utility: check wondering who's the sucker, me or the other investor who's selling jr pref @24pct of par?

the house bill, if introduced, will likely look a lot different than the Senate one. it likely wont include any payouts to existing shareholders. imo the RNC memo means nothing, 0 people in power have mentioned it. that said, i believe the securities represent strong value at current levels. earlier on, I expected more from mnuchin. but it's hard for one person to rip up a 180bn+ sr pref holding of the US Tsy that courts have said to date is legit. in the end, i expect either a) the courts to say HERA isnt consititutional or (more likely) the NWS was out of bounds OR b) Congress to count the sr pref as paid back in an attempt to set the stage for the next iteration of housing reform where capital needs to be raised and new investors will likely want to make sure old investors werent 100pct violated. time will tell. we're in a rocky situation at the moment, yet again...good luck everyone!

hardincap, nice to hear from you. unfortunately we're likely headed down for now after phillips doused any hope of admin reform and his comments on shareholders. the corker news may or may not be true, and it's old info. and any house bill, if one is introduced, certainly won't be friendly.

at this point I am not expecting any administrative action until mid to late 2019, if then. phillips just said so (based on confirmed accounts of the end of his speech). the expected gain from warrants of ~100bn seems inflated (would require ~$15 stock prices and likely monetized only over multiple years). also they likely want to do comprehensive reform with charter changes (away from implied company guarantee model), which requires congress. finally, mnuchin has given himself until 2020 to fix this. the bull case for common for 2018, as I now think about it, rests in a) a court victory b) ironically, corker's bill passing that gives the common a decent shot of recovery in receivership (sr pref would need to be cancelled) and/or c) a democratic sweep in November.

here's the issue, though -- we only know bits of what's been released. we don't know all the details. of course corker knows he needs 9 democrats, or 8 if warner's on board. can he bribe 8 senators in some fashion? perhaps crapo attaches this to the bipartisan dodd frank overhaul which is about to go through? if mnuchin is on the side of FnF, as I have hoped, then could he just tell the D senators to wait for 2019. but maybe mnuchin wants to leave in 2019 and wants this to be his legacy along with the tax cut. on the other side, joe light could have been given misinformation for some to scoop up cheap common. more questions than answers, i'm trying to remain flexible to multiple outcomes. I believe FnF are good for this country, but understand that's up for debate based on one's political leanings. At a minimum, however, shareholders have been absolutely violated with the NWS and should participate in some fashion in FnF's recent resurgence, even if the politicians go a different route for the future of housing finance.

phillips' speech did not sound favorable for common, imo. but since you asked, 1) if the warrants are ever in play, common might be a better risk reward. the pref most own are more like 2:1 or 2.5:1 than 3.5x or 4x. 2) if it's delayed til 2019+, then common might have less downside in the mean time than preferred since the pref has risen a lot the last 2 months. 3) if they go through receivership, there's some chance common in the end gets a windfall relative to it's 2bn current market cap.

there's obviously a lot to think about from this week. I was disappointed with phillips' comments about lack of shareholders. yes, it might be explained away by governance issues, but he said it so casually (and laughed at one point) which suggests to me some caution, particularly lower in the capital structure. It also sounds like they want to do something comprehensive which argues against administrative actions and warrant maximization, as this would be a more narrow change. so i'm guessing either they will sneak through the senate bill (with bribes) or just close up shop and retry in with congress in 2019, perhaps under different leadership. the court cases may be more important than expected in 2018. my hopes have been down on the courts but maybe someone out there sees how wrong the NWS was.

watt is the man. without his 7 page paper, it would be much easier to convince moderate dems like Heidi heitkamp to go along with corker. who knows if she will in the end but people like her explicitly looked to watt for guidance in 2017. trump and corker are working on an iran deal. i'm not sure what mnuchin thinks of corker's GSE plan; but if he doesn't like it, like many believe to be true, it's best to let others derail it than him, at least visibly, to keep the iran plan in place.

there are ways to reward shareholders in a bob corker bill that involves wind-down. especially relative to the current market valuation of the commoners ($2bn) and jr pref ($6bn). obviously they'd have to cancel the sr pref for this to happen. but FNMA has a lot of future earnings baked in, barring a housing collapse, with their current book of business. imo these legacy book cash flows, in theory, can be partially sprinkled out to the public shareholders, even as most of their operations move into a new-co. I don't believe the banks care about whether shareholders make $. they just want the business. so if they have to bribe shareholders, they'll try.

ok, the battle is now officially on. corker needs 9 democratic senators, or maybe even more if it's a standalone bill and if trump/mnuchin don't like it (veto). I guess he'll try his hardest to add it on to another bill that D's are more supportive of. time will tell.

Their writedowns are going to be much bigger than $3B, roughly $12.4B and $5.9B. https://www.housingwire.com/articles/41727-republican-tax-plan-will-trigger-another-fannie-freddie-bailout Precisely what doesn't make any sense to me. They entered into an agreement to hold $3bn. It was very obvious at the time that $3bn would not be enough to prevent a draw. What gives? The retained capital agreement wasn't intended to prevent a Treasury draw, it was really just political theater. Here's what they said: "While it is apparent that a draw will be necessary for each enterprise if tax legislation results in a reduction to the corporate tax rate, FHFA considers the $3 billion capital reserve sufficient to cover other fluctuations in income in the normal course of each Enterprise’s business.” Correct. And why do you think they are playing political theater? Just for fun? I'm growing increasingly confident that there is a coordinated PR attempt to incrementally transition to an inevitable and agreed upon win-win-win legislative outcome. The optics and resulting psychological difference between incrementally releasing independent tidbits of the end result vs. having one massive release with shares soaring 300% in a day is important. Imagine 1 year ago we learned all of the following on the same day (in addition to Mnuchin's initial comments after nomination): a) RNC proposed a resolution to respect shareholders rights b) Ben Carson hinted on TV that he has been talking to Blackstone and is not opposed to shareholders "getting their money back" c) the FHFA director coming out w/ a Berkowitz/Millstein proposal & the treasury responding the next day by not in any way, shape, or form criticizing it d) $3bn capital buffer buildup e) ackman supportive of a plan about to be released by corker f) mnuchin stating that he will not consider getting rid of fannie/freddie g) mnuchin saying that it is "absolutely true" that obama used profits from fannie/freddie to fund other parts of the government Berkowitz has been silent. Ackman has been bullish. Paulson continues to write about the high-probability of a favorable outcome after being personally invited to Mnuchin's wedding. Oh and by the way- it is the rational and simplest end to conservatorship along with $120bn of financial incentives tagged along. I've tried to play devils advocate in this thread for the sake of questioning the thesis. But COME ON. This is day 1 corporate politics/PR and anyone who has seen it before can recognize this. your scenario is why we're all here. and I wish it good fortune. but it's a delicate dance -- trump doesn't need any new republican enemies, especially in the senate where he potentially faces an impeachment trial at some point. it's strange that the warrants have been off limits in congressional hearings and administrative q&a. for instance, today, it seems reasonable that phillips would have been asked this question.

Their writedowns are going to be much bigger than $3B, roughly $12.4B and $5.9B. https://www.housingwire.com/articles/41727-republican-tax-plan-will-trigger-another-fannie-freddie-bailout Precisely what doesn't make any sense to me. They entered into an agreement to hold $3bn. It was very obvious at the time that $3bn would not be enough to prevent a draw. What gives? that was likely done to help block jumpstart 2.0 --- the buffer was announced the day after tax reform and it negated re-jumpstart's proposal to withhold funding for a program that conservatives didn't like if the Tsy didn't take in the full amount of sweep each q.

wtf? :o Watt said that the SMEs should be shareholder-owned companies. Does Phillips (and Mnuchin) think that current shareholders have no rights at all and will just be washed away? Or just that current shareholders are that only in name because they have no voting rights or ability to participate in company earnings? Common shares took a small hit just now but not nearly to the extent I would have expected. This news seems to drastically increase the uncertainty behind both commons and juniors, though it is much harder to wipe out (or heavily dilute) the juniors. Joe Light also tweeted this: https://twitter.com/joelight/status/954066284362240000 So if Congress gets nothing done at all Mnuchin will eventually act, but it could take up to 3 more years. imo mnuchin will likely go through the motions in 2018. odds favor nothing will get done, the divide with the House R's is probably too deep. and the deadline is 7 months away. phillips just bought time. in 2019, maxine waters enters the scene replacing hensearling, if the D's win the house as predicted. i'd guess watt gets renominated to see this through. and in the senate, it's likely either crapo (or someone else if he takes the finance committee chairmanship post-hatch) OR sherrod brown. in this base case scenario, things become easier for mnuchin. in addition, housing reform can stimulate the economy. we just had taxes. trump's possibly running for re-election in 34 months. they might want any economic benefit to come later in his first term.

imo timing. and the fact that they've had a great move of late. watt and phillips just mentioned importance of working through congress. this could slip to 2019 when some bad actors are gone. and if it doesn't slip to 2019, the bill has to go thru hensarling. crapo might try to tack this on to the dodd frank re-do which would increase the odds of something passing the house and getting into law.

We now have supportive quotes from David Stevens and Mark Zandi. The former wants FnF neutered and the latter wants them dead. Each are assuredly biased, but they both like Watt's proposal, leading me to believe they see FnF as being severely weakened by it. It's getting increasingly difficult to kill the thesis of the preferred shares. could get railroaded in about an hour's time. tim howard said there should be prepared remarks released. if he's going to say something material, it would be improper not to release something concurrently.

ha! if only it was so easy -- watt is a big player on dividends. not so much on turning them into shareholder owned utilities. still, I am grateful to him for this bold and fair move, at least what was reported in the Bloomberg article, if it's true.

predictions from the big brains here on this board? i'm guessing at this point he's got to mention more than the standard 'protect taxpayer and 30yr mortgage' line. but I doubt he goes into deep specifics. so I expect somewhere in the middle where he touts or refutes some specific concepts like: explicit govt guarantee, multiple guarantors (i.e. competition), utility model, ginnie mae wrap role, and possibly how the transition to the new system works. he'll likely reiterate their desire to go through congress. I don't think he'll mention warrants in a positive light; at a minimum it's optically best to put proper policy above warrants as the driver of reform. this is a very small potatoes venue and event to make a big beef announcement possible. or it could be done in conjunction with a ft opinion article. craig phillips has had a year to work on this, and it's a subject he knows like the back of his hand. with tax reform over, they are overdue to spill some beans. this could well be a material week one way or the other.

question: a big if, but if they move on something legislatively or administratively in 2018, is it viable that the govt wouldn't have to settle lawsuits such as the one above in conjunction with such a move? or theoretically the govt could just act with a legal overhang? i would answer this way: 1) mnuchin is a banker who is used to seeing hair (litigation risk) on transactions...and what you do when you are an experienced banker is remove the hair as/when you do the deal; 2) congress folks are less experienced with large transactions and will not have a clue as to the need to eliminate the hair when they want to do the deal...in fact, congress isnt even aware that GSE reform is a deal, not just a bill. ok, thanks. if i'm a congressperson, like tom cotton questioned, i'd like to have some conclusion on any large legal compensation overhang before signing off on a deal. it's wild the courts take so long.