Midas79

This is important for any future common share valuations, including scenarios where the juniors get offered a conversion. What I thought was more important is one of Ackerman's tweets that Alec Mazo caught, that the administration will likely "put additional restrictions on the companies' business in exchange for continued Treasury support for the firms". Mazo, correctly in my opinion, pointed out the importance of the continued government backing. https://mobile.twitter.com/Alec_Mazo/status/1166348489015447552 Ackerman thinks this is essential for FnF's business model, and I (among others, I'm sure) think that this backing is required to keep the MBS market stable. After all, as cherzeca correctly told Christopher Whalen, if the MBS market is fine right now when FnF have very little capital and a line of credit from Treasury, it should be at least as stable with FnF recapitalized and the same line of credit in place. The first sentence is certainly not confirmation bias, it is just the truth. We are at a complete 180 from four years ago, and have come a long way even in the last two. I don't know how much of it is attributable to Mnuchin, but it has happened nonetheless. Hensarling and Corker retiring certainly helped this trend along.

Maybe. The joke is just as funny (as in, not really funny at all), albeit to the other large segment of the population, when the words "liberals" and "conservatives" are switched and Mr. Trudeau is replaced by Mr. Trump. There has to be a joke here somewhere about the liberal kittens having only their left eye open and the conservatives only their right, but I can't seem to make it work.

Great stuff, thank you for your efforts and reporting. I agree that this is particularly good news about Mnuchin. It seems that instead of being too busy to get around to reading, finalizing, and approving the plan, he instead had already done all that and was attending to other duties while HUD did their part. It also fits with Phillips's departure; he really had done his part by that point and might now be trying to work the deal from the Wall Street side. Does this mean that Treasury and FHFA have possibly been working together since June and might be farther along in SPSPA/capital raise negotiations than otherwise might be implied by the plan being delayed this long?

The way I read it, Treasury finished the report in June but it's the White House that has been reviewing and revising it since then, with their part of the process nearly complete. I haven't yet heard anyone address the fact that the timeline has been pushed back again, from some time in September to September/October. It is perfectly fair to wonder why it is taking so long, especially since it seems that the administration is on a tight timeline.

Wow. I have seen plenty of hit pieces against FnF, but rarely one aimed squarely at shareholders like this. That said, he manages to make some good points. I don't remember this being brought up before, but it actually makes sense that if the NWS had never happened, Treasury would have reinstated the commitment fee on the balance of the funding commitment, especially seeing as the seniors would have been increasingly paid down. If Treasury believes that FnF would have been paying this commitment fee on top of the 10% cash dividends had the NWS not happened, they might not be past the 10% moment after all! However, the last part is still at least somewhat farcical: if FnF had paid both a commitment fee and a NWS dividend in the same quarter, Treasury would receive exactly the same amount of money. A 10% moment calculation changes, but the actual amount of cash Treasury received wouldn't. I find this to be largely correct. MBS would not carry nearly the aura of safety they have without the lines of credit. That is why any exit from conservatorship must be accompanied by FnF having lots of capital on the books, enough to keep MBS ratings unaffected. This number could be much larger than what is economical. The amount of capital that can be raised by selling common stock is limited to what the investors think the companies will be worth in their released state. If $7B is knocked off of earnings every year, only the remaining earnings would contribute to a market cap estimate. For example, if FnF normally earn $22B per year, a P/E ratio of 12 implies a market cap of around $250B. Knocking $7B off of earnings lowers that to $180B; if Calabria tries to raise more than that the investors will demand all of the equity (if they don't just walk away), which makes the current common stock, including Treasury's warrants, nigh worthless. Of course, Pinto makes some truly terrible arguments as well. Does this mean the government can go confiscate all earnings of any other bailed-out company, using this as an argument against why they should not ever have to pay any damages? By that argument, do any stockholders anywhere have any right to anything at all? If the dividend sweep is reversed the seniors will be gone. Or, alternatively, they would exist but Treasury would have to send FnF a $120B check first. Naturally this is an opinion piece, so Pinto uses his own definition of what is "rightly earned", which conflicts with that of Berkowitz; this was the entire purpose of the piece to begin with. I don't think there's a risk of Mnuchin taking a hardline stance in regards to extra repayment, though, considering Craig Phillips's comment that Treasury views the seniors as being largely paid back at this point.

Is every decline of this magnitude and duration attributable to big players trying to get out quietly? At what point can you tell that the trend has reversed? I can see this being plausible but not actionable; things could eventually turn around (we have seen declines like this in the past) and I don't see a way to tell in real time when it has happened. If Maloni is perceived to be such a "whack job", why would his rumor, and apparently only his rumor, have been enough to propel FNMAS to $14 in the first place?

The Mnuchin leaving thing might be overblown, there's this quote from 4 weeks ago. https://www.broadwayworld.com/bwwtv/article/CNBC-Transcript-Treasury-Secretary-Steven-Mnuchin-Speaks-with-CNBCs-SQUAWK-BOX-Today-20190724 Naturally Mnuchin cannot guarantee a second Trump term, but he would be abandoning the possibility of continuing as Treasury secretary into that term if he left before next November. Today's comments are more recent, we're not completely out of the woods here.

If Mnuchin goes, that is borderline catastrophic in my opinion. It would be nearly impossible to get a new Treasury secretary up to speed, even if he or she is on board with recap and release. The longer this takes the harder it is with election season coming up. The timeline is already tight. I am strongly considering selling 20% of my position right now, and I likely will if the rumor is corroborated. Edit: I can only hope that, if Mnuchin indeed does want out, he gets as much of the recap and release process done as he can before leaving. Ending the NWS, settling the lawsuits, doing something with the seniors if the Fifth Circuit doesn't cancel them, etc.

What were the dates of those events (Maloni's comment, etc), and how did the price and volume react after those? I'm not sure it's so easy to tease out that signal from all the noise. While your argument sounds plausible, that doesn't make it probable. Saying "if a big player wants out, then they pay someone to rumormonger in order to drive up the price" is not at all the same as saying "if we hear positive rumors, then a big player must want out". Do you have any examples of what you claim clearly happening in the past? Also, what does SHSP have to do with this? The chart alone doesn't support your argument, you would need to show examples of people coming out with speculation and such that directly and immediately affected the price. To the first question, I think there are plenty of reasons for them to say this other than your theory that they are being paid to do so in order for a big holder to get out at a good price: Some organizations like to get the scoop more than the money they would make. If their clients had already built their desired positions, why sit on the information? Some like to speculate ahead of time in order to claim later that they got it right, even without being paid by anyone to do so. To the second, if they tried to hide stuff behind a paywall it would come out anyway. Just look at the Asset-Backed Alert and Bloomberg Intelligence bits that end up here and on other message boards.

In the past I have said that I believe FHFA has been violating HERA by refusing to issue capital standards while FnF are in conservatorship. I found the part of the CFR that is supposed to authorize this. https://www.law.cornell.edu/cfr/text/12/1237.3 I'm still not 100% convinced of this because trying to read 1364(e)(1) of the Safety and Soundness Act leads me in a circle without finding what I'm looking for. Does anyone have a way to find what I'm missing?

Because they will have more capital than that by then!!! ;) But in all seriousness that is a good catch. What I just said was not really facetious, just optimistic.

Followup to my last post. A friend pointed me to the comment, I had just neglected to click "Older Comments" before searching. Oops! https://howardonmortgagefinance.com/2019/02/07/a-three-year-retrospective/comment-page-1/#comment-9463 It appears that FHFA was technically violating HERA here. Category (1) in the definition is quite clear. If Calabria, as he has said, really is going to follow the letter of HERA every time he makes a decision, I don't know if he can come to any conclusion other than setting the minimum capital requirement at $139.5B (2.5% of all on-balance sheet assets), if not higher as is his prerogative.

Came out today: https://www.fhfa.gov/mobile/Pages/public-affairs-detail.aspx?PageName=FHFA-Announces-Results-of-Fannie-and-Freddie-Dodd-Frank-Act-Stress-Tests-8-2019.aspx Possibly lower capital requirements than previously thought. Very interesting. I don't know if there's a direct relationship between these results and capital requirements. That's especially true of minimum capital requirements, which are defined as I asked Tim Howard about this in the past and he said that FnF's minimum capital requirements were rather low before conservatorship because most of the MBS were off-balance sheet (classified as trusts, I think) and thus only had the 0.45% multiplier. Watt's proposed rule had two minimum capital alternatives, and the higher ($139.5B combined) was based on 2.5% of all on-balance sheet assets. However, I don't see how Calabria can get around category (1) because in 2010 FnF added all the MBS to the balance sheets. Now that all the MBS are on the official balance sheets, is it even possible to set the minimum capital requirement lower than $139.5B? Watt must have thought so because he had an alternative lower number of $103.5B, but I'm not seeing how to square that with the statute. I wish I could find that post by Tim but I think he deleted it. It ended with "there's no mystery if you know the history" and searching that phrase, or even just the term "0.45%", in all comments on his posts did not yield the comment I'm referring to. If FnF really have to get to $139.5B in core capital it will take a massive equity raise because only retained earnings, common equity, and non-cumulative preferred equity count towards that. No mitigation from CRTs and such. It would be pretty hard to issue a metric ton of non-cumulative preferred shares because they each jeopardize the dividends of the others, and they would be limited in price appreciation if sold at par. I would expect, then, that there will be a crazy number of commons being issued if Calabria and Mnuchin really want to finish recap and release before the end of 2020.

Thanks for posting this. I don't like them putting FnF's undrawn funding commitment in terms of percentages of Watt's proposed capital levels. One, it seems to conflate credit with capital (something Calabria at least knows the difference between). Two, Watt's standards might not be applicable, though I expect Calabria's to be in the same ballpark. I do like them taking Treasury's line of credit into account when setting the ratings. That means that if the MBS are rated AAA now with FnF having $6B in capital and $250B in credit from Treasury, then they should maintain that rating if they are recapitalized to the tune of $100-200B while keeping that same line of credit. Maintaining that line, with an appropriate fee, checks many of the boxes from the presidential memo and more importantly does not require Congressional approval or action.

Treasury responded to the Perry plaintiffs' motion to compel today. Is it right to call them the Perry plaintiffs when it's Fairholme's and Arrowood's names on the motion? In either case, we're talking about the case that is (back) in Lamberth's court. https://gselinks.com/wp-content/uploads/2019/08/13-cv-01053-106.pdf Basically, they claim to not be subject to the discovery process because they have been dropped as a defendant. Big deal, little deal, or no deal?

Not weird, just pure unadulterated bullshit. I have read this guy's posts, he is just an attention seeker off for the next thrill. Tons of bold predictions, never answers specific questions about his numbers, makes plenty of unverifiable claims that (put mildly) stretch credulity. For some reason he developed a cult following but it was never deserved.

Watched a calabria talk at ginnie Mae, given on 23 July. He said he hoped to see the treasury plan released by the end of the month. So with the budget passed, plan could be any day now. Unfortunately, it was just the video that was posted on July 23. The conference itself was June 13-14, and they were kind enough to print that on the podium. The Treasury plan has been significantly delayed and we can only guess as to why. I don't think it was just the debt ceiling because that didn't really become an issue/crisis until recently.

Does anyone here know whether, how many of, and when the discovery documents in Lamberth's court will be released, like the ones in Sweeney's court? I'm spitballing an idea that the delay was mutually agreed upon due to settlement talks, with the aim of those documents never seeing the light of day. Of course, this conflicts with the trial date being moved up by a month, so I'm not sure what's going on. I know that Treasury was dragging its feet on producing documents, but if the plaintiffs really wanted to move things along they would have done something like accused Treasury of contempt, rather than doing the opposite and agreeing to a long extension.

One theory I read is that someone knows that the Fifth Circuit is going to affirm the panel decision and that the price movement is similar to that before the initial Lamberth decision in 2014 that sent the shares tumbling. I wasn't following FnF at that point, but the chart does bear out the similarity.

Maybe they anticipated the NWS ending announcement to be in earnings this morning? I think that's foolish because that announcement will come from Treasury, FHFA, White House, etc. and not from the two GSE companies themselves. My guess is that it's the 4-month delay in Lamberth's court. But the trial date is set for October 19, 2020, while the original order I saw had the date one month later. So while there is a delay in discovery, there doesn't appear to be one for the trial. https://twitter.com/DoNotLose/status/1156474247889510400 http://www.glenbradford.com/2019/05/fnma-fanniegate-856/

I have a Fannie and Freddie bias due to my concentration in those names, but I think their moats are some of the safest around. This is why the wind-down crew has never made any inroads: FnF do what they do very well and competing with them (or replacing them) is somewhere between extremely difficult and impossible. Those moats were tested by PLS issuers with catastrophic effects, including to those FnF shareholders who held their shares through 2007 and 2008. The conservatorships are certainly an example of regulation crushing the shareholders.

My comments actually had nothing to do with TA or your style of investing at all. They were solely focused on the "slapdown" comments, which were much more personally directed than your characterization above. It is one thing to say that in general Mr. Market will slap people down (certainly true), but quite another to relish in the idea of it happening to specific people that said mean things in the past. I didn't know if you were referring to me or not, which is why I asked. I do feel like I have made too big a deal out of this so I will stop here. The comments levied against you, i.e. the ones that led to your posts, were also over the line in my opinion. Apologies if it seems that I am picking on you here, this post is more for clarification of my position. As for the larger FA versus TA debate, I agree with whoever said that neither really applies to FnF; the name of the poster escapes me and I don't know exactly what to search for. The main return on the prefs will depend on when and if FnF ever get recapped and released, but the fundamentals of the companies themselves are some of the best in the world. This is a speculative play that is an unholy amalgamation of politics, court cases, the economy, and politics again. The potential impact of news events dwarfs attempts to use either FA or TA. I can't blame anyone for putting this on the "too hard" (or at least "too complicated to predict") pile, though I'm glad for that because it meant a cheaper entry point for me.

No, I just want to know exactly who it is that you're hoping that Mr. Market will slap down and why. That's the part of your post (and your previous one) that I mainly take exception to. The hostility is unnecessary. Also, this "great trader" of yours was talking only to you. He didn't need to name names. My reaction to this recent downturn isn't nearly as severe as yours. To me it's only a blip, and not even a big one. I barely blinked when the original Perry appeal came down, even though I lost 40% on paper in one day, because the overall thesis hadn't changed: There Is No Alternative. I am in this for the long haul. It has only been about 3 years for me so far, small change compared to many, but even if it takes another 5-7 I will still make a good return overall. I trade around small pieces if I see price discrepancies, and while this has been a decent money-maker for a couple of years, it is not the core of my position and doesn't affect my thesis. I know you have expressed incredulity at some posters' lack of an exit plan, but I am in the illiquid prefs because they offer the best return to par and I don't really care about liquidity. If the thesis is severely challenged then I will think about exiting, and my trading gains should offset the losses I would take due to my position being illiquid. But I bought in mid-2016 when Obama was still actively hostile to FnF and it looked like Hillary would take the White House and continue carrying that torch. It would take a change in events to a state worse than that to get me to reconsider the overall thesis. The political and legal climate are far more favorable now than then. My existing process is hold on to what I have bought. The only possible change to that process is to sell some. That involves either trying to time the market or being better at interpreting news than others in the short term. I don't have a reason to believe that I have an edge in either of these things, they are outside my circle of competence as it were.

Enough with the passive-agressive comments. Name names. Which posters are guilty of which shortcomings, and what evidence do you have to support your claims? What specific posters are you referring to in the last part? Please be very specific. Again with the schadenfruede. Mr. Market doesn't seek out individuals for punishment. You seem to want an impersonal force to do personal harm, all for the imagined slight of not agreeing with you. You even said this in a previous post. Your most recent post, and your earlier one wishing that Mr. Market will slap down those who (in your imagination) slighted you, starkly disagree with this.

The budget deal should be good news. That's one huge item off of Mnuchin's plate.