DocSnowball

thanks onyx! someone from maxine Walter's district should send her a copy and give her office a call. (my experience is that house staff respect district-based constituent inquiries only) great idea!

case is seeking class action certification @ cherzeca Thank you!

Novice question to legal eagles on this forum: if the case goes further, is this a situation for preferred holders like us who are individuals to join the case via class action? What is the deterrent to greenmail here? Govt not wanting to settle could mean the entire range of possibilities from re-IPO to getting this to zero to hard negotiation, who knows.

Do we know how accurate this is, or how credible the source is? Unless Mnuchin has said this very recently, I missed it. Or is it just being extrapolated from the privatization comments? not very credible imo unless the story appears in multiple outlets. (or hardincap is impressed). seems to me the only outlets that care about this are Bloomberg and specialized housing finance and securitization rags. and WSJ...after it happens a big if, but if something materially good is coming after the elections or new year via administrative action, it's likely to be leaked often in advance to limit the actual price move on the day of official announcement when most of the news stories are written, given the HF and berkowitz narrative. so far there's 1. would need multiple more to have credibility imo. Both the marginal investor and the marginal journalist are not impressed yet...

This is not from HERA, but from the FHFA website - quoted from the Conservatorship announcement FAQs - it states FHFA director holds the authority [ftp=ftp://www.fhfa.gov/Media/PublicAffairs/Pages/Conservatorship-of-Fannie-Mae-and-Freddie-Mac.aspx]https://www.fhfa.gov/Media/PublicAffairs/Pages/Conservatorship-of-Fannie-Mae-and-Freddie-Mac.aspx[/ftp] [ftp=ftp://www.treasury.gov/press-center/press-releases/Documents/fhfa_consrv_faq_090708hp1128.pdf]https://www.treasury.gov/press-center/press-releases/Documents/fhfa_consrv_faq_090708hp1128.pdf[/ftp] "Q: When will the conservatorship period end? A: Upon the Director’s determination that the Conservator’s plan to restore the Company to a safe and solvent condition has been completed successfully, the Director will issue an order terminating the conservatorship. At present, there is no exact time frame that can be given as to when this conservatorship may end"

IMHO the reference links show the writer has done his homework, whatever his pedigree Any thoughts or models of commons valuation if recap with full dilution occurs, beyond what's out there by Moelis? *** Preferreds are easier, I revalued FNMAT (8.25% dividends) today after reading the BI article to compare it with other opportunities Discount rate = Risk free rate + Implied Equity risk premium at current level of index*Beta = 3.17%+ (5.38%*1) = 8.55% NPV whenever dividends turned on (example today) = 2.06/0.0855% = 24.09 FOR FNMAT NPV if dividends are turned on after capital raise completed 12/31/2021 as per Moelis blueprint (3 years from 1/1/2019) 24.09 discounted back at 8.55% = 18.83 for FNMAT (or even lower if rates rise further) Multiply this by your own judgment of probability of success and you get your expected value

@allnatural I re-viewed the Craig Phillips video on twitter after reading your comments to avoid bias from all the interpretations - "The administration advocates ending the conservatorship of Fannie Mae and Freddie Mac and returning them to private ownership. Their charters should be removed from statute and their operations should be overseen by the primary regulator who has the authority to approve additional guarantors to introduce competition into the secondary mortgage market" This would count as progress not activity - 1) it is very consistent with the OMB document, 2) with the additional words "returning them to private ownership". [ftp=ftp://www.performance.gov/GovReform/Reform-and-Reorg-Plan-Final.pdf]https://www.performance.gov/GovReform/Reform-and-Reorg-Plan-Final.pdf[/ftp] Excerpts from Page 75-76 "WHAT WE’RE PROPOSING AND WHY IT’S THE RIGHT THING TO DO Under the current system, Fannie Mae and Freddie Mac, two privately-owned GSEs, buy and guarantee mortgages from lenders and sell them to investors as MBS. Although they are private companies, they are congressionally chartered, a unique status that has been viewed as conveying an implicit Federal backstop that has in turn lowered their cost of capital relative to similarly-sized institutions. In 2008, Fannie Mae and Freddie Mac were taken into conservatorship and received (and continue to receive) an explicit but limited backing from the Treasury under a Preferred Stock Purchase Agreement (PSPA), which gives access to capital funding that covers any loss the enterprises may incur. In their Federal charters and by action of their primary regulator, the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac have goals of providing a certain amount of financing to low- and moderate-income borrowers. However, these a ffordable housing activities are not clearly accounted for on the Federal balance sheet. In addition to the GSEs, other Federal programs provide mortgage support, contributing to a large Federal footprint in the housing market. The Department of Housing and Urban Development (HUD) Federal Housing Administration (FHA) provides mortgage insurance intended to aid borrowers traditionally underserved by the conventional mortgage market, including lower-wealth households, minorities, and first-time homebuyers. The Departments of Veterans A ffairs (VA) and Agriculture (USDA) also administer mortgage insurance programs targeted to veterans and lower-income rural households, respectively. The loans guaranteed by FHA, VA, and USDA are in turn packaged into MBS that are guaranteed by Ginnie Mae, a Federal entity operated by HUD. Together, loans backed by the GSEs and Ginnie Mae comprised about 70 percent of mortgages originated in 2017. All these entities, taken as a whole, form a complex and overlapping network of cross-subsidization, without clear accountability as to who is paying for, and who is receiving, housing subsidies. Although the Federal role in the housing market has helped to facilitate the availability of the 30-year fixed-rate mortgage, the current system has structural flaws that have also created distortions in home pricing that may actually hinder the goal of homeownership. This reorganization proposal, which includes broad policy and legislative reforms beyond restructuring Federal agencies and programs, would: • Increase competition. The proposal would remove the Federal charter from statute and fully privatize the GSEs. A Federal entity with secondary mortgage market experience would be charged with regulatory oversight of the fully privatized GSEs, have the authority to approve guarantors, and develop a regulatory environment that is conducive to developing competition amongst new private guarantors and the incumbent GSEs, ensuring they would all be adequately capitalized and competing on a level playing field. If the GSEs lost some of the benefits that have led them to dominate the market, this would enable other private companies to begin competing in this space. The regulator would also ensure fair access to the secondary market for all market participants, including community financial institutions and small lenders...."

https://www.wsj.com/articles/fannie-maes-comeback-captain-reflects-on-his-tenure-1539403201?emailToken=bc619e7a2f6b0b34cd287779374a2f5ap3TaK6/u+bg0eHMjfaBeeN8L+agktGTgWeqObmrJRmkiKfMUjMTnGrCHbX0x86N6VjmyKm5sj3ZBC9cwj9bxEwUEIPi5MV660D8ne88Fzzo%3D&reflink=article_copyURL_share WSJ: If the Trea­sury sec­re­tary comes to you and says, “Tim, what do we do with Fan­nie and Fred­die,” what ad­vice would you give him? Mr. May­opou­los: What I’d say is that we should sep­a­rate what kind of hous­ing fi­nance sys­tem you would want to cre­ate from the two en­ti­ties that are cur­rently Fan­nie and Fred­die. The po­lit­i­cal as­pect of just talk­ing about Fan­nie and Fred­die com­pli­cates the de­bate. One of the things that we col­lec­tively as a coun­try un­der­ap-pre­ci­ate is how suc­cess­ful our hous­ing-fi­nance sys­tem re­ally is. The sys­tem we have very ef­fi­ciently at­tracts cap­i­tal to the United States and de­ploys it in a way that is re­ally the envy of a lot of other coun­tries. The other thing I would say to the Trea­sury sec­re­tary is that while hous­ing-fi­nance re­form is im­por­tant, the real cri­sis of hous­ing isn’t hous­ing-fi­nance re­form—it’s re­ally af­ford­able hous­ing. There’s re­ally just not enough sup­ply of de­cent, af­ford­able hous­ing avail­able to most Amer­i­cans.

It is an interim appointment, take it for what you will. I’m trying to correlate this development (and my investment thesis) with all the key stakeholders esp Treasury, FHFA being tight lipped about the future. It is possible that a more permanent solution means either a permanent CEO will be appointed by Treasury after current FHFA director’s term ends, or it is eventually unnecessary because of proposed restructuring into new companies. Why would Mnuchin be concerned about administrative solutions moving markets if the move was positive? The concerns are likely that the proposed solution can affect debt markets negatively, pointing to Treasury favoring restructuring rather than recap and release. Whether they can do this in a bipartisan way remains to be seen. I also still think investors close to Mnuchin not selling, and Moelis’ team involvement in the conversation, along with Lamberth and Sweeney cases remain indications that preferreds are unlikely to go to zero.

I have to say kudos to Bruce Berkowitz for pursuing the cases to this extent. Not too many other value investors or activist investors have shown the stomach for this fight

Interesting read ... would be grateful for the legal insights on this. There are comments on timing - the Judge writes that shareholder rights are being duly transferred when they are sold further; also "reasonable expectations" are set at the origin of the contract and then "reset" when there is a change in the law or amendment of the contract. As I understand, he writes that the last line in the sand would be HERA where reasonable expectations were reset, and then the Third Amendment breached the covenant of good faith and fair dealing of these expectations. As a layperson who read the prospectus and James Lockhardt's statement about conservatorship on the FHFA webpage prior to purchasing, I can relate to the breach of implied covenant of good faith and fair dealing. The judge seems to be saying that breach of fiduciary duty is preempted by HERA which the Court cannot change, but the shareholders had no reasonable idea that FHFA would enter into this Third Amendment with Treasury. The wrinkle seems to be that this is proceeding to hearings rather than any true action - qualifying more as "activity" rather than "progress"? Also what stops the Judge from finally ruling that only those who purchased prior to the Third Amendment have reasonable expectations, and those who purchased after the Third Amendment cannot say they had any reasonable expectations even though the rights of the prior shareholders transferred to them?

My personal journey is about 2-3 years long in active investing. Peter Lynch was a good starting point for me as well, then moving onto other famous authors - our Value Investing professor used his own book titled Book of Value https://www.amazon.com/Book-Value-Investing-Columbia-Publishing/dp/0231175426 which I also liked as a simple starting point. I think the next step, which is taking its sweet time, is moving on from stock or business selection to good portfolio construction. I like this lecture from David Swenson as a starting point. Other suggestions would be great. https://oyc.yale.edu/economics/econ-252-11/lecture-6 Also, in personal finance the two starters that helped me a lot were The Ernst and Young personal financial guide, and The Richest Man in Babylon https://en.wikipedia.org/wiki/The_Richest_Man_in_Babylon_(book)

Thelads - appreciate your reply and the granular details. I am approaching this from an asset allocation point of view, and not finding good alternative investments in my circle of competence areas of US biotech for the last few months. Mismatching of debt to current and future earnings, possibly made worse by rising interest rates and falling currencies, leading to the possibility of a near-term liquidity crisis is certainly an area of concern. Being a medical person, I also feel the the risks of "fever (pandemic), famine, and war" also have to be considered in EM. And may I add risk of nationalization of assets given our FnF experience from the financial crisis in the US. Grantham may have gotten the current and future earnings part right, question is whether they have attributed a risk discount appropriately. I may not be smart enough to time the market, but I will look to slowly dollar cost average once the potential returns from dividends and earnings growth match the risk of temporary decline in valuation. Will try to keep looking for key metrics or areas that may help make these decisions.

The article is a very interesting read, although the graphs where they show expected dividend and capital returns are difficult to understand (so I can't accept them at face value). Re: your comments: What is the probability you are considering for the middle paragraph scenario? Can you help me, a novice who is starting at 0% non-US equity allocation and desiring to build a 20-30% EM asset allocation over the next year or two, understand this in terms of key metrics to follow? Is there a metric that measures corporate debt ratio to national GDP or some other metric in say India or China that can help understand and quantify this risk better? Thanks for your efforts and comments Edit: Starting to read this... Lessons Unlearned? Corporate Debt in Emerging Markets https://www.hbs.edu/faculty/Publication%20Files/17-097_723806cb-9ad0-4d42-b57c-90040627b89b.pdf

didn't listen to hearing but dems would be less solicitous of tbtf banks than repubs in connection ion with any GSE reform https://financialservices.house.gov/uploadedfiles/hhrg-115-ba00-wstate-edemarco-20180906.pdf This is Ed DeMarco's testimony text, read from a non expert's viewpoint: There is comparison of the various legislative proposals at the end, none of which calls for recap and release and all of which run Fannie and Freddie through receiverships with different endings to the story. I'm not clear what happens to shareholders in any receivership, they don't talk about it at all - I'm certainly not touching the commons, but even the preferred I hold are dependent on the kindness of strangers in all of these scenarios. Sticking to the facts, is this investment now not dependent on Sweeney/the angle that Paulson et al may know something and are holding on for that.

So one of the options is nationalization, a status quo from today and the shortest and easiest path. All they need to do is cancel our shares and voila. Fully federal option places maximum risk to taxpayer. Hybrid public private market, or fully private market are coming out best after 5 years on the principle of not putting the taxpayer at risk. Hybrid would also maintain liquidity in the mortgage market well and be less disruptive.

If they say ‘to be honest’ it’s a tell they are not always honest

Only curiosity and have been wondering the same, no competence to answer. This is a nice timeline from PBS of the prior crisis if it helps you to study it. https://www.pbs.org/wgbh/pages/frontline/shows/crash/etc/cron.html I find most Em Markets still overvalued on a PE basis with all these clouds looming, so waiting.

Entrepreneurial Thought Leaders from Stanford if you’re interested in startups https://ecorner.stanford.edu/series/etl/

Agree. This is why Gawande is a good choice to lead the new initiative - the "bottleneck" or key in solving the cost and quality puzzle is understanding what all drives the decisions that healthcare providers and nurses make. Financial incentives, loss aversion, waste, emphasis on individual productivity rather than outcomes for the patient are all part of the root causes. Burnout of providers is happening like the "frog slowly being boiled in the pond" as Munger states - if so many good providers are cutting back/ moving to other fields, the problem is being compounded further every day.

Cadillac care here would be getting the correct advice that is backed by evidence and relevant for your scenario. A decision that can be made by the primary care physician, and if they are unable to then they can contact their system's infectious diseases expert - if they were not being killed by productivity metrics it would be a straightforward phone call at the most. Gawande is right when he says that the most expensive device in Medicine is the physician's pen. Someone who doesn't know the evidence or cannot make a decision based on it or communicate it to you then takes you along many wasteful and harmful paths. I have found that medical providers without the right training or expertise or communication skills or intent cost less to employ but a lot more to the system overall. Also, why is a 200 mg one time only dose of Doxycycline costing you $150? Doesn't sound right.

as a policy matter, ending the duopoly makes sense. as an investor in FnF you would love for the duopoly to continue. but as a PRACTICAL matter I think the risk is way overblown. first if fhfa is going to require >3% capital for FnF, it will require same for new entrants. which company is going to have a comparative advantage in raising new capital? FnF will remain full fledged business operations in all 50 states (no reference to breakup or transitioning FnF themselves into multiple guarantors) that has shown it is executing on all cylinders lately. bypass investing in FnF for some new startup?...even a startup that is backed by TBTF banks? and a startup which is not owned 80% by treasury which presumably wants to make as much money as possible on this privatization process? if as an investor I am going to invest in one guarantor (and why would I invest in more than one), which would look better to me? What about a competitor acting more like a platform company using primarily CRT like transactions? That would need a lot less capital if risk based?

so isn't it kinda weird that they just stopped this call 1/2 way thru? Technical difficulties. There was no audio, only slides were showing when I logged in

Page 3 of executive summary: " - Proposed risk-based capital requirements: FHFA estimates a combined risk-based capital requirement of $180.9 billion, 3.24 percent of the Enterprises’ total assets and off-balance sheet guarantees. See Table 1. - Proposedminimumleveragecapitalrequirements:SeeTable3  Under the 2.5 percent alternative (Alternative 1): FHFA estimates a combined minimum leverage capital requirement for both Enterprises of $139.5 billion.  Under the bifurcated alternative (Alternative 2): FHFA estimates a combined minimum leverage capital requirement for both Enterprises of $103.5 billion." https://www.fhfa.gov/Media/PublicAffairs/PublicAffairsDocuments/Proposed-Rule-Enterprise-Capital-Fact-Sheet.pdf

versus going in the wrong direction - the argument against receivership - pages 24 and 25 of the Moelis blueprint "More importantly, our Blueprint does not require a winding down of the existing GSEs, or use of market- destabilizing legal constructs like receivership, as envisioned by the MBA. The MBA proposal contemplates leaving behind substantial portions of the GSEs’ portfolios and winding these portfolios down over time (for example, in MBA’s operating subsidiary model). This approach fails to protect taxpayers as private capital is only raised at the “new guarantors,” leaving the “old GSEs” effectively nationalized, with any and all risk associated with the existing books of business fully borne by taxpayers for decades to come. Any steps towards receivership would present massive complications to a proper resolution, including raising market concerns about the future performance of GSE MBS and agency debt obligations.xii Receivership would also eliminate the value associated with Treasury’s warrants, thereby costing taxpayers substantial realizable value. The use of receivership also compromises existing GSE assets, at best creating the need for new legislation to allow these assets to be transferred or reinstated, and at worst permanently destroying substantial value for both the government and private shareholders. The creation of new enterprises in receivership to operate the GSEs’ businesses will substantially slow the process of building capital, leaving taxpayers exclusively on the hook in the near-to-medium term. Further, a wind down of the existing GSEs, coupled with substantial value transfer to newly chartered guarantors, fails to resolve existing shareholder litigation and would likely lead to new legal claims (e.g. preference issues, fraudulent conveyance, takings claims) that increase the prospect of a court- imposed solution rather than a policy-led solution. xii. While this risk might theoretically be managed through careful transaction structuring and robust disclosure, receivership introduces unnecessary risk of confusion and disruption into the mortgage capital markets. Undoubtedly, holders of GSE MBS and debt would immediately file notices of claim (in fear of having their legal claims waived if they do not), initiating a costly and administratively complex decade-long process of claims adjudication in front of FHFA."