Cox022

Good point, and at multiple times during the interview too.

Calabria on the Cato Institute Daily podcast. https://www.cato.org/multimedia/cato-daily-podcast/mortgage-markets-covid-19?utm_source=dlvr.it&utm_medium=twitter Nothing groundbreaking but a solid 6-7 minutes of Calabria talking about the GSE's, starting at 19:30. some rough notes, part quote, part paraphrase: -2021/2022 they may do some sort of public offering -How GSE's raise capital is up to them, I just set the rules and mileposts -They can either build earnings, sell off assets, or raise public or private capital -they've hired advisors, it's early, everything is on the table -we are talking hundreds of billions of dollars at the end of the day that need to be reaised by retained earnings, public or private offerings -potentially largest public offerings in history and certainly not something done in a short amount of time -I'm an independent regulator, my term runs to 2024, I have every intention of serving that term -I hope my successor, because I think I am just carrying out the laws as congress decided it, I'd like to think my successor will take the same perspective -in my 15 months here the dialogue around this has really changed [to follow the law instead of sticking to conservatorship limbo], and quickly, it's heartening, and I hope that sticks -I'll add a caveat that it will be very, very difficult to raise capital if we see housing market have a big decline or the equity markets have a big decline

Can someone correct me if I've got this wrong? (1) Currently, FHFA is constitutional and FHFA director cannot be fired at will. (2) If Seila rules CFPB unconstitutional, then FHFA unconstitutional as well, and CFPB/FHFA directors can be fired at will. If (2) occurs and Trump loses, Calabria is out in Q1 2021. If (2) doesn't occur and Trump loses, Calabria remains FHFA director until his term ends in 2024. If Trump wins, Calabria remains FHFA director regardless. Intelligent legal analysis suggests SCOTUS will *very likely* rule CFPB unconstitutional sometime this summer. There are reasons to be hopeful, but it's still *very uncertain*, that SCOTUS grants relief we want in Seila. [thanks to rolg's past work, which can be reviewed here: https://tinyurl.com/y9odyjka . May be worthwhile since Seila ruling expected soon (i think)]

Jamie Dimon yesterday on forbearance: ○ 1/3 of people who ask for it, never actually use it ○ I suspect a lot of people who did use it are doing so as a safety precaution ○ My hope would be, as we see first people coming off forbearance, that the people who start repaying is higher than people think, not lower § This by the way gives them a chance to do a re-fi, which could be really smart for them in certain cases ○ We will start to see the first cohort of people coming off of forbearance in June ○ In the old days, it was a danger that once you stopped paying your mortgage, you never started again § But remember last time around, home prices were down 40%, there was a good reason not to pay, you weren't going to lose any equity value in your home, whereas today, it’s the opposite, there are very few people underwater in their homes today

A little more:

small snippet from FNMA 10-q:

marketwatch: Fannie Mae, Freddie Mac to roll out new mortgage-payment deferral option for homeowners facing financial trouble https://www.marketwatch.com/story/fannie-mae-freddie-mac-to-roll-out-new-mortgage-payment-deferral-option-for-homeowners-facing-financial-trouble-2020-03-27?siteid=yhoof2&yptr=yahoo Sorry for all the text but I thought it was good, clear info.

Thanks for the bloomberg screenshot. I cant help but notice it reads that the GSE's 'might have to operate under consent decrees.' If that is in fact a quote, I wonder under what circumstances would the GSE's 'have' to operate under consent decrees. My first reaction is that this indicates Calabria is in a hurry, but I'm not 100% sure if I'm thinking about that correctly yet. The wording of the ACG analytics tweet is different by suggesting they 'could' be released with a consent decree. I'm reading too much into it but I guess I'm just antsy for useful information!

Thanks for the comments, Wiggins. Seems like poor form, at a minimum, for VW to be so vague. Separately, I've read that Calabria, Mnuchin, and Carson are expected to testify in front of the House Financial Services Committee towards the end of this month. I don't think that's been nailed down quite yet so keep an eye out for that.

https://www.valuewalk.com/2019/10/fannie-mae-freddie-mac-preferred-shares/ I suppose it was a Bove note that came out 3ish days ago that may explain the price drops. I dont have the actual report. I think the risk of a footprint reduction is minimized because I don't think Calabria or anyone else in DC has the guts to do anything to make it harder for Americans to buy a home. As it relates to delays, any long term GSE investor knows that a slower than expected timeline is a risk. Bove does a good job embodying a short term investor; by the time the skies clear and he reacts by recommending the securities again (which he already admits are really attractive over the long term...go figure) they will be less attractively priced than they are today.

Referring to the Fannie Mae letter agreement text in above link... Does part III refer to a future amendment to the PSPA?...The big one we are all looking forward to? If so, I wonder why this language was put into this letter agreement; any thoughts on that?

Every once in a while someone (snarky maybe) asks: what could go wrong, what is the downside? I'd love to hear your answers...For argument's sake: if we knew 2 years from now we would be really disappointed, what would you say is the most likely cause? My top answer, as most likely, is Treasury for whatever reason never gets around to making the big changes to the PSPA and status quo continues. This seems more likely to me than the actual recapitalization being disappointing. Hence, I'm quite bullish but constantly worried if I'm missing something.

Thanks Luke. I missed it, can someone post a link when available?

I found this word choice interesting as well, using "amendment"... could the amendment be done this month instead of simply replacing sweep with commitment fee? Could things on the amendment be done prior to December? Very interesting if so, but probably he wasn't choosing his words carefully and he just meant NWS replaced by commitment fee... https://www.reuters.com/article/us-usa-treasury-housing/u-s-treasury-eyes-action-on-fannie-mae-freddie-mac-by-months-end-mnuchin-idUSKCN1VX1NM “That’s something that the FHFA (Federal Housing Finance Agency) and we are working on. We are actively negotiating an amendment, and I think our objective is to try to get it done by the end of the month,” Mnuchin told CNBC in an interview. https://www.wsj.com/articles/trump-appointed-official-promises-full-push-to-overhaul-plumbing-of-mortgage-market-11555938001 This was from April, just FYI. Not sure what to conclude, if anything.

Just pointing out peculiar word choice and phrasing from Mnuchin on CNBC today at 12:00. https://www.cnbc.com/2019/09/12/treasury-secretary-mnuchin-says-trump-has-approved-reform-plan-for-fannie-mae-and-freddie-mac.html?__source=sharebar|twitter&par=sharebar The simplest explanation is that he just meant 'compensation for deferred or forgone dividends' but I thought I'd point that out in case anyone else saw a different meaning.

Building off what WBfan said earlier... Is it logical to think the 80% ownership threshold will prevent Treasury from converting its Senior Preferred into common stock since they already have warrants for 79.9%? Can we evaluate the future based on these 2 near-certainties? 1) The senior pref cannot remain in its current place, and 2) the government will not go over 80% ownership Where does that leave us...an increased likelihood the Senior Pref gets cancelled? [Midas, does this line of thinking change your thinking from what you said earlier today?]

My thought is, the value of a business is the sum of its earnings it can produce for its shareholders over its lifetime. In just a matter of days, according to the press, the government will state that the GSE's shareholders' interest in these profits will go from zero to $10-$15B. How that pie gets sliced remains to be seen. In a theoretical sense, the expected value of the securities should increase, imo, meaningfully but I wouldn't presume to know how the market reacts in the short term-that consistently surprises me. If the market prices today are 'fair', then theoretically they would move up after the announcement if it doesnt contain something out of left field. But again, I have no evidence to think I have skill predicting short term movements, I'm just riffing here.

I'm speculating, but with so many journalists and others seemingly aware of the plan, it seems like it would just be a matter of days until details of the plan surface to the mainstream. The circumstance where so many are away of the plan and its movement yet don't know its detailed contents can't last long. I know this isnt useful and doesn't imply anything favorable/unfavorable to us as investors, but just a thought I had. Maybe this kind of development shows up in the 'TA' before the mainstream news flow, idk. Maybe MuscleMan is about to have his day in the sun! Edit: i spoke too soon, this is already happening it seems. See WSJ Ackerman article. There is still room for more details to be reported. We will see.

Would someone mind posting a link to a list of Fannie and Freddie preferreds that trade on the market,including par values? I'm running into roadblocks doing this on my own. For instance, Fairholme reported owning Freddie Mac Series Z in their 2018 annual report but I can't find the offering/similar documents on the Z series. Thanks!

Calabria, one month ago in prepared remarks: link:https://www.fhfa.gov/Media/PublicAffairs/Pages/Prepared-Remarks-of-Dr-Mark-A-Calabria-Director-of-FHFA-at-Mortgage-Bankers-Association-National-Secondary-Market-Conference-Expo-2019.aspx Calabria, yesterday, in prepared remarks:

thanks for posting this cox. today you have an interesting case of variant perception: the Bloomberg article to which the street is reacting to, and the asset back alert that is read mostly by the securitization industry as opposed to the general stock investing public. what makes a market, and perhaps some money Sure, thanks to you others that commented on the publication. Yes a good example of the noise vs signal we will have to parse out until this all gets settled. Mnuchin says he prefers an explicit guarantee and a big institution like Bloomberg declares "Mnuchin Dashes Investor Dreams of Quick Fannie Freddie Windfall." For me this was an, "Am I taking crazy pills?" moment. It is an uncomfortable position to maintain the courage to stick to your beliefs while also having the courage to change them. It's amazing to me that we sit just weeks away from the unveiling of this big plan, yet all the people from WSJ, NYT, BBerg, all the other people who make a killing being paid to know this kind of information before everyone else....yet they all appear to know nothing. One mistake is thinking you know better than everyone else, but it is also a mistake to assume these other people know more.

https://www.abalert.com/search.pl?ARTICLE=183913 I know nothing about this website and maybe its b.s., just sharing a link i came across on twitter. This article reports that a shareholder 'spoke' with Calabria last week. The article uses pretty strong, high-confidence language that an IPO will happen. Obviously this can't be verified so I don't know how to judge how meaningful this is.

I think the reporting we will see on this imminent plan from Tsy will likely conflate Administrative action and legislative recommendations. At first read, the WSJ article's mention of 'substantial changes to the business models of the companies, including steps to reduce their footprint over time' worried me, but the article elsewhere also says:

Don Layton, CEO of Freddie. This was damned informative. You can infer what is happening behind the scenes. I'm still digesting so I dont have anything immediate to say. If you are short on time start at 35:55 and watch until the end (9 minutes). edit: one thing i will say is that anyone reporting on his comments today that says he is skeptical about release from conservatorship is totally wrong, imo.

Thanks for the great discussion lately-great content. The mounting info and evidence seems to be tipping the scales in the right direction. Sorry my question has been covered but I am rusty on the points. What are the main reasons we generally assume the senior preferred will be treated as repaid/reduced as opposed to the senior preferred being converted to common equity? Berkowitz thought reasonable action by the government would mean AIG would be 80% diluted, instead it turned out to be 90%+. This matters because the value of X assuming 80% dilution drops to 50% of X when dilution turns out to be 90% instead. This seemed like a point worth revisiting in case others are rusty on the topic as well. Thanks