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if you read the blog post link from schwab's post above and you read the executive summary of the joint congressional investigative report into the source of funding for the aca's cost sharing reduction program (the link is in the blog post) which talks about an investigation of treasury and HHS where the Obama admin did not cooperate then can anyone say for sure that FnF sweeps didn't pay for aca cost over-runs?

3 guesses: mortgage standards are tight -- average fico is quite high. he'd like to loosen these up and get the homeownership rate back up to help the economy. in addition he likely wants competition in some form, which of course is bad for the GSEs earnings stream. and he's a smart capitalist and realizes what's going on to the shareholders, many of which are his peers, is unjust.

if this story has legs then it's huge because it ties something no one understands --- fannie and Freddie and profit sweep --- with something many people are incredibly interested in --- potential accounting issues with Obamacare. https://medium.com/@ckc12_rb/the-incredible-timing-of-the-affordable-care-act-and-the-gse-net-worth-sweep-b9c81737192c#.kc1sxhl9n http://ritholtz.com/2016/05/former-white-house-officials-involved-in-gse-scandal/ http://www.nakedcapitalism.com/2016/05/unsealed-documents-reveal-former-white-house-officials-violated-fanniefreddie-conservatorship-rules-apparently-to-advance-bank-enriching-reforms.html I didn't see anything new and I'm not sure what part is supposed to be exclusive, unless I missed something. Josh Rosner and Susan Webber were on this within a 24 hrs and a week (18 months ago). Which will probably bring us to the 2013 debt ceiling crisis: https://en.wikipedia.org/wiki/United_States_debt-ceiling_crisis_of_2013 Disclosure: I'm long FOIA requests. Well we're on the topic, NakedCapitalism is an awesome blog and anything Josh Rosner writes is usually great. I highly recommend both! with all due respect to those guys, did they have many hundreds of comments in the first few hours of the story posting? I obviously have no idea on the validity of this story but someone's likely going to dig -- Obamacare polling has improved a lot of late and its opponents likely desire something to knock it down as they attempt to replace it.

if this story has legs then it's huge because it ties something no one understands --- fannie and Freddie and profit sweep --- with something many people are incredibly interested in --- potential accounting issues with Obamacare.

buffett is the largest shareholder of bofa and wells fargo. of course he wants the explicit guarantee by govt rather than an implicit guarantee via GSEs so the banks gain market share and don't give up economics in the mortgage fee share. buffett is asking the govt to a) give up dozens of billions of warrant value and b) have the govt explicitly guarantee an additional 5+trn of debt --- possible of course but not likely when compared to the utility + additional competition base case model.

if you believe the administration is out for the last $, then it's likely not a good investment considering the court disappointments. if, like me, you look at the roster --- ken Blackwell (2014 commentary), ichan (former shareholder), Wilbur ross (originally brought up the GSEs in nov30 fox interview), ben carson (neutral GSE commentary despite libertarian streak), mulvaney (sponsored a congressional bill to release), Paulson + berkowitz (positions), mnuchin (nov30 commentary was over-sharing but likely represents his core views), and either trump or his admin (2016 Republican convention language softening on GSEs) --- and take a leap of faith that they are not hostile to the GSEs or their shareholders. there are plenty risks out there but last week 2 major ones got on with it --- mnuchin timing disappointment and perry loss. starting last tuesday the shareholder base is turning over from the fast money to longer term guys, this can take time and hold things back, but for me, the risk reward has improved vs two weeks ago and my main focus is their ability to execute a balanced plan, timing, and if/when they are willing to use the admin tools if/when bipartisan efforts stall. I do believe mnuchin favors both keeping the GSEs and introducing competition in some form.

I don't think you're wrong. The constant delays with this case are nothing short of incredible and does put the timeline way out there. Love to hear what the legal guys here make of Sessions - he would certainly be aware of this case and variables by now simply through his relationship with Cooper, no? the only possible positive i can see from this is that now the plaintiffs believe a political solution is their best chance for success. and since the real debate on that is pushed out til later this year or 1h 2018 --- when mnuchin has leverage in terms of retiring the senior preferred on his own ---- that they want to keep the court cases alive as long as possible to have some additional leverage rather than risk having them all dismissed this year.

hopefully someone will point out that i'm wrong but the filing in the sweeney court today suggests both that a) sessions led DOJ is still resisting releasing the 11k documents and b) the timing outline in sum suggests 1-2 years at least before a final ruling?

This is possible with Jrs. taking a cut and the government offering a decent strike price that leaves room for the final count of common shares to still run. Only way to get some money back to the taxpayer. imo there is room for the taxpayer to make out well and not have the juniors take a cut. after all the dilution analysis is circular such that if we are fortunate to have a plan come together, the shares could rally and the new equity raised would add fewer shares than currently feared. i personally doubt the admin wants to squeeze every last dollar out for the taxpayer while overly-penalizing shareholders who they respect --- in a land of 20trn debt, 500bn deficits, and 70bn of cumulative GSE taxpayer net profits --- would the admin rather squeeze out 100bn of incremental profits vs 80bn and fairly sharing some with the shareholders?

FNMA would need at least 75bn of equity on a 3trn balance sheet. they would start from 0 (or actually negative on a tangible equity ratio which doesnt include the DTA). so sending capital out (preferred dividends) would be bad and raising common equity faster (preferred conversion) would be good. i don't think they can force a conversion but if they said no dividends on preferreds for many years, then the voluntary portion might become popular quickly. the one risk to my view is that they would recap with preferred rather than common, which i doubt, but in that case the preferred divs would need to be turned on (rather than any exchange) and/or the legacy preferred called in when appropriate @ par.

because they need to raise 75-100bn of equity and preferred only gets 20bn = big hole. therefore, it's essential to clarify the terms which is the likely scenario. the lack of respect for mnuchin and cohn's deal expertise is surprising to me -- these guys are animals to have climbed to the top at GS. Quite the opposite. Their expertise and ability to creatively arrive at a solution that I am not capable of thinking of that a) benefits taxpayers b) helps his buddies c) screws me is exactly why I'm considering selling. right --- if you think his goal is to screw common, then getting out makes sense. I just strongly disagree that's his motive. when there is combined 150bn+ of equity value and currently the combined common and preferred shares are worth $5bn and $10bn respectively, I am betting there is excellent room for both of those #'s to move higher and STILL give the taxpayer and new equity entrants a piece as well = balance in a highly scrutinized transaction. if the share prices were higher then my view is more dangerous. but the valuations are so low.

because they need to raise 75-100bn of equity and preferred only gets 20bn = big hole. therefore, it's essential to clarify the terms which is the likely scenario. the lack of respect for mnuchin and cohn's deal expertise is surprising to me -- these guys are animals to have climbed to the top at GS.

if we are lucky to get that far, this would be one of the most scrutinized negotiations of all time because the value is so high. court cases and the 12k documents are wild cards --- as many here including me have learned the hard way -- but it's far higher odds than not that there would be 'balance' in the negotiations when dividing up equity value between govt, preferreds, and common, once again, IF we are lucky to get that far and sr preferred gets retired. in fact, with this president's temperament, greed could cause him to flip against a side. good luck everyone!

it's nice to not hit refresh 20+ times every Tuesday and Friday morning.

ok roark you may be right. mnuchin said twice yesterday that 'hopefully' a bipartisan solution can be found. but what if it isn't despite mnuchin's best efforts? in jan 2018 he + mel watt can do some or all of the following on their own: stop the sweep, retire the sr preferred, adjust the warrants, and eventually after capital is raised, remove them from conservatorship ---- would the stock price be above $3 in that scenario? one risk to my above statement is if congress passed a veto-proof bill specifically preventing this -- which among other things would likely require a plunge in trump's popularity by republican voters.

once again, while technically possible, it is far more likely that before any recapitalization starts, asking people for tens and tens of billions of dollars of new capital, the warrants issue would be resolved in terms of setting a fixed amount of shares / exercise price. the extra capital likely won't be raised all at once, so the first buyers of the extra shares will want some certainty and not have the threat of a rapidly escalating warrant shares potential staring them in the face. i could be wrong but people like mnuchin, cohn, and mulvaney are incredibly talented at deal dynamics and execution, now we'll see how politically astute they are.

while not provable, it's far greater odds that common + warrants are pari passu than they are not. in addition the post suggests a conversion ratio of jr preferred to common of something like 10:1, where the jr preferred gets 20pct of the new company and common 'residual'. once again, while anything is possible -- and a good reason to hold a balance of the two securities --- highly unlikely unless the preferred wins a ruling with big time real (not fake) winnings that the common doesn't get and the 2 securities diverge a ton in the meantime.

dta is 34bn. corp rate likely gets cut from 35pct to 25-27pct. that's 30pct reduction which means a writeoff of ~10bn. how convenient, they have a 5bn pending draw plus two more quarters of -- depending on some things --- of over 5bn of income. a fine reason to stop the sweep, and one that the opponents should not protest. or if they keep sweeping, they could do a quick 4th amendment later this year? or just have a draw -- if they are going to kill the sr preferred in 2018 by the admin or whenever by congress, does it matter if it's 187bn or 200bn?

what's the remedy if breach of contract on liquidation preference does win? thank you

at the margin, the shareholder base needs to turn over after this week's news, imo. these can get messy at times. before you had people in for a) courts and b) nov30 commentary -- both of which pointed towards 1h 2017 catalyst profits. most of these people are hedge funds and are likely concentrated on the high dividend liquid preferreds. currently those catalysts appear diminished or pushed out. at the same time we have lower prices and a step forward to a long term solution, which should attract long only value investors (those that don't mind owning a pink sheet stock below 5). imo these new investors will take a more balanced view of the menu of security options. the good news is at some point --- if progress continues --- the selling finishes and the long term value investors are still there as better partners with reduced volatility. and then the momentum investors can be there in the wings as potential demand to give some price action if things ever go positive.

Actually it would be a loss at today's prices. You nuts ;D, only way a 2:1 is accepted on the $25's is if common is at $12.50. I agree with your convergence thoughts. I've always bought on that principle. well if the offer is to convert at 2:1 or keep preferred with no dividends for years, you might just accept after all. if the court cases turn around from looking weak now, then I might agree more with you.

if you are anti-GSE what did you hear that excites you besides nothing is imminent? not trying to be difficult, just curious. thank you I am not anti-GSE. I own the common. Basically the usual can't go on like this....need housing reform...bipartisan...etc. You can read that a lot of ways. He gave no specifics. He said nothing directly to give the current shareholders support. No mention of ending the NWS. Everyone is trying to squeeze meaning out of the very vague comments he made. Just trying to be realistic. A bit disappointed with what he said today. I don't feel any better or worse about the position after the interview. ok, thanks. he's got the strategic long term view in mind imo. very GS-like. if he came out hot and aggressive, it puts more at risk. although I wish he would have mentioned how great the companies are. and I apologize, I should have said 'one' instead of 'you' regarding the anti-gse, ie if someone was anti-gse what did they hear.....sorry that's all well and good but not the impression shared before the ruling. I'm disappointed today because I can't help adding housing reform to ACA, tax reform, the wall, pretty much everything that's been promised as a super high priority. It's almost as if those goals exist but support for them doesn't so this administration is just filling a new swamp with different gators. I'll repeat, for anything to get done by this administration it will take damn near 100% GOP support. Dem's won't approve anything. nov 30 was a mistake, I'm sure he regrets not holding back. he learned his lesson. yet I think what he said is indeed his core view. I believe his housing plan announcement can come out this spring. he didn't say tax reform needed to be completed before housing plan announced, if I heard correctly. plus we have the 0 capital issue at year end to deal with which suggests don't wait too long. imo he was just telling all the GSE supporters to back off a little, he's not going to be a quick hero post-Tuesday. and from the shareholder side, he's our main avenue for justice.

Could you please expand on why you think the preferred lost relative advantage and why you think the preferreds negotiating leverage diminished? sure. i'll try. the court cases weakened a lot with the ruling. these cases are sponsored by the preferreds. their confidence in a positive court outcome (and timing) goes down so they are willing to accept less in any future negotiation. moreover bc the senior preferred will likely need to be extinguished via congress or a 4th amendment in 2018 (rather than more purely in the courts), it increases the likelihood of exercising the warrants in some form to generate tax $ for political purposes. this suggests in dividing up the equity pie between common, jr preferred, and new equity, the common gets an advantage bc trump and the taxpayer is on that team. but all that said, I think if mnuchin can pull off his plan, a 2:1 exchange into common would be quite nice for preferred. I just believe all high end price targets needed to be reduced after the news, for both securities. good luck! edit: I also guess preferred dividends won't be turned on (except if court cases turn around), suggesting convergence between the higher and lower dividend preferreds.

if you are anti-GSE what did you hear that excites you besides nothing is imminent? not trying to be difficult, just curious. thank you I am not anti-GSE. I own the common. Basically the usual can't go on like this....need housing reform...bipartisan...etc. You can read that a lot of ways. He gave no specifics. He said nothing directly to give the current shareholders support. No mention of ending the NWS. Everyone is trying to squeeze meaning out of the very vague comments he made. Just trying to be realistic. A bit disappointed with what he said today. I don't feel any better or worse about the position after the interview. ok, thanks. he's got the strategic long term view in mind imo. very GS-like. if he came out hot and aggressive, it puts more at risk. although I wish he would have mentioned how great the companies are. and I apologize, I should have said 'one' instead of 'you' regarding the anti-gse, ie if someone was anti-gse what did they hear.....sorry

fwiw it's not that he said anything bullish or new today. for me, it's that he presented himself with competence and confidence (I did not feel this during the confirmation hearing) which is offset by the timing disappointment. which leads back to the value, which outlined earlier, is there to me.