investorG

I'm not a former CFO and am somewhat guessing but i'd be shocked if there was no reserve build. At a minimum they should stop releasing reserves which would lower earnings from before.

I'm wondering if in light of circumstances John Roberts sides with the liberals to either wiggle into the view that CFPB is constitutional or punt the case until a direct challenge comes from a President wanting to fire the agency head. A don't rock the boat mentality when an independent CFPB might come in handy over the next couple years. Congress likely wouldn't have created the agency if the head was a Prez appointee (per Warren) and doing retroactive relief without a forward remedy could muddy the waters on many other actions from the agency.

'at this time' the pressure will likely continue to build. Tim howard says IPO less likely. It's a good proposition to use freshly capitalized GSEs for American and political purposes but Calabria is right they don't have the capital to do so currently. A potential creative solution is out there that does not involve the over-stretched Fed nor PSPA capital.

Hard for him to write a consent decree later in 2020 when 15-25pct+ of the loans are in forbearance. Hard to re-IPO in 2021 when cure rates and initial performance results coming off that base are still inconclusive. As Calabria said 1 month ago, if the forbearance rates start accelerating from his benign initial assessment he'll adjust his mentality (which at the time was just a couple months delay in the re-IPO). Balloon catchup payments (from wsj article this AM) will start to become a dirty word and once that happens and the bottlenecks subside, the numbers will likely keep rising, especially in the final weeks of the program (either end of 2020 or hopefully sooner when Prez pre-announces the end to the emergency period). A 12 month Forbearance is too generous of a plan to pass up for many struggling Americans.

Take 20 minutes and enjoy :-) This is from earlier today... https://thenationalrealestatepost.com/breaking-news-david-stevens-fhfa-is-creating-a-crisis/ Few quotes from David Stevens and the interviewer, Brian Stevens: "I don't know if it's intentional obstruction or sabotage." "(Calabria) thinks these are private companies." "They are willingly and knowingly creating a crisis because we've explained all of this to them." "Chris whalen called for (Calabria) to be fired" "Calabria is not only thumbing his nose, he's screwing all of us in the business." "This is a time for war." Wow. Well no question there is some friction between Calabria/MBA,Stevens crowd. My intuition leads me to believe Calabria is a stickler and doing what HERA says he has to do but seeing Ginnies actions the realist in me sees that this is a bit of a middle finger to the same group. It seems that Calabria is very determined to get FnF out of conservatorship and this is another example of this. At some point in the video Stevens says that Treasury has access to 240B of capital and although I think he confuses liquidity and capital it seems that Calabria is HEAVILY against anything that would affect the deleveraging of FnF. Although things have been delayed to our dissatisfaction it feels that there is a time table being followed as capital build and capital preservation is of very high priority to meet levels before a consent decree. Although disappointing I think Calabria's comment that this may only delay offering by a couple months also shows a semi rigid plan that will be adhered to. He could have easily said all projections are offerings are off the table due to uncertainty. Instead his comments showed determination. With the way these mortgages in forbearance are going to be treated in the MBS pool are we even going to see loss reserves built up at FnF in the coming months? It seems to me the treatment preserves the capital build and pushes the effects into a time period (12 months from now) after capital build has met minimal levels and a consent decree has been enacted. This eliminates a hurdle caused by this crisis. Thoughts? Yes. A material reserve build is likely this year and earnings will drop, perhaps by a tremendous amount. Same with other financial institutions. It would have been far worse near term without the forbearance language in CARES act, a Tsy draw would have likely been certain instead of possible.

I strongly disagree. Calabria isn't alone on an island in this, Powell and Mnuchin are standing right beside him. Ok we will see. But as I see it here's whats happening at the moment: MBA chairman calls Kudlow and explains (correctly) how Calabria's actions are tightening the mortgage market and hurting the economy. Kudlow tells Trump. Trump asks (perhaps not politely) Mnuchin wtf and then Mnuchin addresses the situation. Or, hopefully, Mnuchin is 1 step ahead and his plan was to build pressure and then address this in a fair way. nope. housing finance is small potatoes when you are doling out a trillion in a month to small businesses. and not so small businesses. if you were right investorG, you wouldn't have had Stevens and Whalen squealing like stuck pigs for the past month, and the servicers would have had a fed facility from the get go. you are an MBA-er in drag, right investorG? nope. not even close. where I differ from consensus here is: a) while admirable I think Calabria (publicly) is doing solid work in the trees while missing the forest, b) I think the macro situation leans toward Layton and a much later potential re-IPO time line and c) I'm paying attention to Seila and won't put my head in sand over Calabria's potential short tenure. If we don't strike a good decent deal right now the great deal many hope for may never come.

I strongly disagree. Calabria isn't alone on an island in this, Powell and Mnuchin are standing right beside him. Ok we will see. But as I see it here's whats happening at the moment: MBA chairman calls Kudlow and explains (correctly) how Calabria's actions are tightening the mortgage market and hurting the economy. Kudlow tells Trump. Trump asks (perhaps not politely) Mnuchin wtf and then Mnuchin addresses the situation. Or, hopefully, Mnuchin is 1 step ahead and his plan was to build pressure and then address this in a fair way.

It's very nice that Calabria is standing up for FnF. However there's almost no chance he is going to be able to withstand the pressure aimed at him. Tightening the mortgage market is not good for a) middle class Americans and b) Trump's prospects. Mnuchin surely knows this. At this point, we should be hoping that the solution involves injecting fair non-PSPA capital into the GSEs alongside a Collins settlement and warrant exercise. It's the right thing for all parties, and involves probably a couple days of collaborative work. Layton is likely right, a potential re-IPO is delayed materially from Plan A. Calabria tried to get himself to late May but the situation is evolving faster than that. The May 1 forbearance numbers are likely to explode with plenty more after that. He canceled Tomorrow's webinar for good reason, the pressure is no doubt intense. He likely would get fired if he stands still from here which I don't expect.

can FnF pref trade negative? asking for a friend. kidding (i think)...good luck everyone.

Now Treasury gets 90% instead of 80% for the warrants? Why don't they just send $125B to moot all the lawsuits and get 99.5% of the commons instead? Saying that Treasury's interests are aligned with existing commons' only applies if the warrants stay at 80%. If Treasury gets to start upping that percentage then the reverse becomes true: Treasury gets the most money by leaving behind as little as possible for the existing commons. If recapping FnF is such a priority, wouldn't Calabria try to do the re-IPO ASAP? Or are you saying that there won't be enough appetite in the capital markets to provide the money Calabria will want? Tsy shouldn't be about max profits, just significant profits. An AIG style conversion eats into a lot of their profits due to the massive amount of shares issued to jr pref. There's a reason imo the ratio has hovered around 3 jr pref / common for the past year -- it's what Moelis 2 suggested. And yes, given the complexity, size, and economic / forbearance resolution uncertainty -- I do not believe a re-IPO is feasible in 2020 or probably also 2021.

Likely a good decision, it's best for American citizens and secondarily probably best for our cause in the long run.

So Treasury is just going to write FnF a huge check with no strings attached? Consider me highly skeptical on this front. How much were you thinking, and why would Treasury just give this money up for free rather than do something like increase the seniors' liquidation preference by that amount? Prefs' placement in the capital structure vis a vis the commons does not only work in liquidation. If that were true then pref series like FNMAO (that have a near-zero div rate right now) would be worth almost nothing, right? Instead we see the opposite, that the liquidation preference part of the prefs' value (as opposed to the dividend value) is substantial. The prefs' combined market value right now is somewhere around $7B while for the commons it's around $3.5B. If neither is getting a dividend for the foreseeable future and liquidation preference doesn't matter, why aren't those numbers closer together? Also, the juniors won't be redeemed (either at full par or at a discount) because that depletes capital at a time FnF need to be building it. The only way to get the juniors to accept a haircut is in conjunction with a voluntary exchange for commons, and you can be sure that they will only take a deal that works to their advantage. This would necessarily be to the existing commons' disadvantage in relative terms. The juniors might not have as much leverage as I think, but one thing I am certain of is that the commons have no leverage whatsoever in comparison. Treasury writing off the seniors and sending FnF $25B, even if it's a tax credit, should moot all cases other than direct claims in Sweeney's court, and those plaintiffs can be settled with individually at a low cost relative to the size of the recap. What is the treatment of the seniors in your slow capital build scenario? If they still exist then both the juniors and prefs will trade at around today's prices at best because there would be no real end in sight; at what point would they go away, and why would Treasury not just convert them into a whole mess of commons like they did with AIG? To edit 1: Calabria said "It has always been my view that an exit from conservatorship is going to require a large capital raise by Fannie and Freddie." That means he won't be releasing them before the re-IPO; alongside it looks more likely. To edit 2: I agree. It's just that there is no way to a recapped FnF that doesn't involve heavy dilution of the commons (either Collins 1 with warrants + re-IPO or Collins 2 with senior conversion) or Treasury just gifting FnF a ton of money. send in 50bn for an extra 10pct warrants. or something more creative. common aligned with tsy warrants, they have some leverage. i dont envision a release any time before 2022 barring a v shaped recovery; they should stay in conservatorship so that Calabria can run the show but restructured and well more capitalized than current.

Why take the risk that it ends happily when the signs are mixed at best. They should fix the situation in the next 5 weeks by getting fresh non-pspa capital in there, helping the servicers via FnF, and settling collins. They should have promptly moved to a 4th amendment last september after the ruling. Now is the 2nd best time imo.

Barring a rapid V shaped recovery, there's low odds for the Re-IPO in 2020 or 2021. Best to get capital into them ASAP, Plan B. Public (non-pspa) first, private equity, second if needed. The talk of jr pref conversions, AIG plan, modest discounts to par are likely fairy tales. The Fed is facing heavy backlash, they are probably reluctant to add on new areas. A freshly capitalized FnF (post-Collins settlement and Sr pref writedown) can - among many other benefits - help save select servicers, winning MBA's support for the plan. How do you propose FnF get capitalized without the re-IPO? Where is that much money going to come from? A senior pref writedown, with a concomitant return of $25-30B from Treasury to FnF, doesn't fully capitalize them; they would be around $75B short. This is also unlikely to happen fast enough to save the servicers, if that is even the purpose of the exercise. Anything more than a modest discount to par for the prefs means the commons go to near-zero. Placement in the capital structure matters. From Mnuchin's $400-500bn fund from Cares Act. The common near zero comment only works in an actual liquidation, or 'in the end'. In the meantime, or reality, I could easily give you a scenario where jr prefs trade at well below par but common trades well above current levels: an organic capital rebuild over 5 years with jr pref dividends remaining off. This is why jr pref has less leverage than many claim. edit: also, since they won't likely be re-ipo'ing for years, it's not essential they are fully capitalized per calabria's standards. they just need a lot more than 25bn currently. maybe 50bn more. edit 2: we need the sr pref gone. MBA needs servicer line. Govt / taxpayer / America needs a capitalized FnF asap to efficiently and proactively help the people behind troubled mortgages. A deal makes good sense and is why I believe Calabria punted the capital rule til 'late may' (random) so he could see how things were shaping up and go a different direction if (likely) needed.

Barring a rapid V shaped recovery, there's low odds for the Re-IPO in 2020 or 2021. Best to get capital into them ASAP, Plan B. Public (non-pspa) first, private equity, second if needed. The talk of jr pref conversions, AIG plan, modest discounts to par are likely fairy tales. The Fed is facing heavy backlash, they are probably reluctant to add on new areas. A freshly capitalized FnF (post-Collins settlement and Sr pref writedown) can - among many other benefits - help save select servicers, winning MBA's support for the plan.

The main problem with Fhfa's and Tsy's lackadaisical approach to date is they are putting all of their eggs into a basket of a 2021-2022 capital raise which is wildly risky due to personnel and economic uncertainty. We could have Tsy scty Warren, FHFA head Waters, and/or an economic collapse in 2021. In addition this servicer drama is harming many Americans who need a real break not a non bank company making citizens' lives unnecessarily difficult out of fear of the servicers' own demise. The GSEs need capital asap. Private is preferable but in the absence of that a fair public infusion is necessary. Calabria bought himself time until mid to late May which is reasonable. Imo the country needs him and Mnuchin to get Plan B done.

Good points but this post won't be popular among the dreamers. It's important that Mnuchin gets capital into FnF asap given the magnitude of this crisis but one thing he'll surely avoid is a stock windfall before the election. That balance can be achieved imo in prior thoughts I've posted.

A $125bn check is unlikely but a $[50b]n infusion along with sr pref repaid + warrant exercise (essentially creating a strike price of ~$6) + lawsuit removal + shelve release plans until crisis passes is a solid idea. that would give them $75bn plus some potential 2020 retained earnings = ~$100bn capital to address the crisis head on and help Americans (including servicers). it's effectively reinvesting half of their sr pref profits into common equity with the potential for additional proceeds from secondary sales in out years.

yes. but instead of 'dream case hypothetical' it should be 'base case essential'. Help Americans and right wrongs at the same time.

data as of april 1. the law was signed on mar27. we'll see where it ends up. It would be nice if this # stayed in the single digits but I don't believe it will. The number late in the month (right before the payment) is more relevant and also there will likely be homeowners who choose to start their 12 month forbearance period later this year due to a) reduced servicer bottleneck and b) dashed initial hopes of avoiding forbearance as the job situation deteriorates further.

The serious risk to the housing market is a result of doing nothing and not having private capital in front of the taxpayer. The risk we are hearing about now relates to mortgage servicers and is manageable and frankly on them/Fed. The majority of what is being discussed relates to capital at FnF and the path to raising it. It does not involve housing policy or the housing market. Your conflating the two. I think the big turnaround will come when the consensus becomes that recap and release for FnF is less risky than not doing it. according to the doctors we have a multi-year issue on our hands. So much for calabria's 6 to 8 weeks. release is likely not on the agenda for a long while. (Fair) Recapitalization should be. The President imo is costing himself lots of votes by not injecting non-pspa $ into the GSEs who could then soothe the mortgage system with refinance, forbearance, modifications.

thanks for posting and thanks to ACG for the call. If they are to be believed as even probably correct, the shares should double (at least) Monday; which they won't, suggesting to me their view is likely overly optimistic on either the magnitude of the situation (Gabby gave herself an out if the crisis continues past 8 weeks) or the intentions of FHFA / Trump / Treasury. For instance the govt (fed) is buying junk bonds for private equity yet they ignore the servicer situation which is very likely reducing the companies' aggressiveness in helping middle class americans with reasonable forbearance opportunities. And at the same time fight us in court month after month even after the 5th circuit ruled; their actions show their priorities.

Fantastic article. An IPO, capital rules, conversions, etc, is distracting and premature given what we're facing. Settle the Collins lawsuit, 4th amendment, retire sr pref, exercise warrants, and inject (return) $[50]bn from the Mnuchin fund to let FnF help Americans while also righting a prior wrong at the same time.

You're the one that brought up a single data point, not me. You're also the one that calls your system TA, which generally implies a high (if not 100%) level of mechanism. I don't understand why your system works or why it should work. If you have had sustainable success with your system, good for you. But a value investing forum is not the place to be gloating about a result of a system that is, from a value investor's perspective, indistinguishable from guesswork. Oh really? When did I say "this is a single data point"? I thought you are smarter than putting words into my mouth to make your arguments look strong. I came to this thread with the genuine intention to help, but look at the hostility you gave back in return. I am putting you on my ignore list, so no need to respond to this post anymore. muscleman your call from 2019 was epic. no one can deny that. going forward please contribute additional calls with any color on your TA work for FnF and don't look back. There's a good chance your return in that capacity would be appreciated by most or all here.

Hopefully Calabria is working on Plan B behind the scenes. He could accomplish 2 objectives with one stone by ditching his 4 year template plan and negotiating with Trump/Mnuchin to invest some non-PSPA $$ into the companies asap in conjunction with a Collins settlement and a 4th amendment that deems the sr pref appropriately paid off. The litigants should forget the 30bn overpayment as their contribution. FnF would then be in position for real forbearance, refinance (tighter spreads), and modification relief for knocked down citizens. On the current path the pressure he's putting on the servicers will likely lead them in many instances to drag their feet on modifications or use unhelpful tricks like upfront lump sum payments when the forbearance period ends. Trump is possibly losing marginal votes relative to the alternative of an active FnF providing widespread relief to Americans. In addition, Calabria's not making many friends right now and is likely out in 9 months if a Dem wins.