blackcoffee

I did listen to the QTR podcast and Howard's book seems me to have guided ASPIT and not the other way around but that is neither here nor there. I was a little disappointed by the podcast actually but that is on Chris more than ASPIT. Don't get me wrong it was fine, it just wasn't good enough. Some people say that the HP's heads hitting the floor move on the GSEs is what sparked the entire crisis in the first place. As their regulator at the time said, the GSEs would have had enough capital to weather any storm and their exposures at the time were limited. However if you have a Goldman led consortium move in that controls the treasury... well they don't really care how many bodies they create - they want it all.. and to your point about small banks getting crushed because of their GSE pref holdings... well that's all the better for them now isn't it? And yes it doesn't seem to matter what's best or right anymore - the courts have been an absolute disgrace in this regard. It really hammers home the fact that the US has fallen deeper and deeper into a financial corporatocracy wherein the banks are the ones really pulling all the strings, the corporations are simply herded in the right direction and if they get out of line... well guess who can pull their funding? You'd have to be asleep to believe it.

ok, one more...since questions were raised. i agree it's complicated. but mnuchin was hired for 2 reasons imo: loyalty to trump and to do this. regarding CRTs, i believe you and Tim howard that they are not productive. they were used mainly by the companies and Mel Watt to stand in front of congress and pretend to say that they were doing stuff that reduced taxpayer risk. in fact, mnuchin doesnt appear to like CRTs -- when asked in a congressional hearing, he chose not to endorse them. on other things, tim howard is biased imo as a legacy FnF homer. for instance, I cringe when I read things (from others and maybe also tim - i'm not sure) like 'on a cash basis, FnF didnt need a bailout' and there were accounting issues that caused the 2008 takedown. I disagree. the way accounting works for financials is when things are bad you take loan loss provisions in advance of the actual losses coming through. things were worse than bad then, who knew how large the eventual losses would be. I also think the implicit guarantee structure was / is bad. in addition, the securities, with the explicit govt backstop, could have lower yields than MBS pre-crisis when the govt gty was implicit, which rarely gets mentioned and is a potential negative for the big banks. I think mel watt's utility concept is best but apparently mnuchin doesnt. Oh you disagree? Interesting. So I know how the accounting works for MBS and I know how impairment works and I know how impairment testing by auditors works. I know how modeling MBS works and CMBS as well. Also corporate CLOs if you want to go there but I don't. I've always been more focused in real estate. I know accountants like to think no one could possibly understand this. I can. I also know how to make those losses look better or worse depending on the desired outcome using modeling software - take your pick but there is Intex, Bloomberg or Trepp. Have you read this? https://www.housingwire.com/blogs/1-rewired/post/34280-the-three-card-monte-accounting-of-fannie-freddie-conservatorship It's pure financial obfuscation. Sure maybe some big MMs have phds doing econometric gymnastics into their models but at the end of the day, you're still trying to predict the future and whatever assumptions go into the model will sway the results. Cut out all the noise and the only thing that matters is cap rates. Cap rate composition is the risk free rate and a spread. When the risk free rate is sustained at 0 for a long time then you will eventually see capitulation and cap rates will drop - and when you have systemic depress of rates for a long time the thirst for yield will drive cap rates ever lower, meaning the risk premium shrinks and puts ever more downward pressure on cap rates and upward pressure on property prices. Couple that with global ZIRP and undoubtedly, you're going to see rampant asset price appreciation - if you look to Moody's/REAL CPPI you'll have seen that post 08 basically unabated. All that is to say - that the losses projected on the MBS holdings at the GSEs in 2008 were so severe to cause such huge impairment that it didn't come to fruition or ever have come close in the entire history of lending on real estate, so you like accounting so what does that tell you? It tells me that whomever implemented those loss assumptions knew that they'd have to pressure their auditors to accept such an amazing outside of the norm assumption on the fair value of those positions. And did you know that the same audit firm in this case recently settled shareholder lawsuits over this very issue? Meaning that they knew they were going to lose and lose face on what they signed off on. Yay accountants! nailed it. Now to be fair, the reason those losses didn't materialize is mostly because of the massive intervention by the FED, but that is beside the point. All of those projected losses was subsequently reversed, is not something that you seem to be contemplating in your disagreement. Further they were used as the justification to force HERA down the throats of Congress and the unrepayable loans onto the books of the GSEs. So feel free to disagree all you want. I would say you're dead wrong. I don't understand the hubris of thinking that you would know better than the former CFO of these companies. Read his book - he's not lying. Also the banks don't give a flying f about the yields on the bonds, they want the market to generate the fees on the originations to then put the risk of said originated collateral to the gov't. Meaning when their crap loans default the taxpayers would then again be on the hook. So I think I might have this pegged closer to truth here but feel free to refute points above. @blackcoffee how do you see a cat fed guarantee on GSE (and other guarantor) mbs securities working? I have done private label pool securitizations where there are support classes and the super senior is most creditworthy, but I am not aware that the GSEs guarantee tranched securities in this fashion (if they do then I guess feds would guarantee all or portion of super seniors). or would the feds simply say hey you can put the mbs to us but get 3 cents on the dollar? so the guarantee is triggered by an absence of alternative buyers in the presence of a cat event the GSEs already issue deals with entity level guarantees backing the entire pool, however the structures of the pool cuts off at the Super senior level as you envisioned. The Freddie K program is one example of this - the GSEs sell the guaranteed tranches and non- guaranteed tranches below the supers, typically BBB rated if rated at all. The difference here is that the GSEs can kick out bad loans and more importantly set the standard of the collateral that goes into said pools. So they still control the 'quality' of the product. The point of my screed above is that what the banks want, again referencing Howard's superfecta, is a pool by pool level (as opposed to entity level (read Fannie or Freddie)) guarantee. So every time they make a loan they know if they can get it into ANY pool Private label included (which is critical) that will open them up to go even more aggressive because part of the superfecta is the way that they'd be required to reserve against holding those positions. How it works today, is that banks can't afford to hold the riskiest portion because of the untenable reserves so they find 3rd party buyers to do it. In this new scenario they would gladly hold the riskiest portions because it would all be backed by the taxpayer anyways - more structural moral hazard for them, more taxpayers lose, and it's all done in such a confusing way that no one really understands it. Hooray. To your question about the mechanics of the cat guarantee in a downside scenario, what will matter more is how the structure is set up up front. There are a lot of unanswered problematic questions about how that would work. However the points about pooled vs CRT risk reserve structures are applicable here - the pooled is in every way better for a myriad of reasons not least of which is that you have to convince private investors to buy CRTs and because they're counter cyclical - no one will buy them when the music stops. If the pool level guarantee only covers 3 cents on the dollar then the market will price it as such and no one will believe that it's actually a backstop.

ok, one more...since questions were raised. i agree it's complicated. but mnuchin was hired for 2 reasons imo: loyalty to trump and to do this. regarding CRTs, i believe you and Tim howard that they are not productive. they were used mainly by the companies and Mel Watt to stand in front of congress and pretend to say that they were doing stuff that reduced taxpayer risk. in fact, mnuchin doesnt appear to like CRTs -- when asked in a congressional hearing, he chose not to endorse them. on other things, tim howard is biased imo as a legacy FnF homer. for instance, I cringe when I read things (from others and maybe also tim - i'm not sure) like 'on a cash basis, FnF didnt need a bailout' and there were accounting issues that caused the 2008 takedown. I disagree. the way accounting works for financials is when things are bad you take loan loss provisions in advance of the actual losses coming through. things were worse than bad then, who knew how large the eventual losses would be. I also think the implicit guarantee structure was / is bad. in addition, the securities, with the explicit govt backstop, could have lower yields than MBS pre-crisis when the govt gty was implicit, which rarely gets mentioned and is a potential negative for the big banks. I think mel watt's utility concept is best but apparently mnuchin doesnt. Oh you disagree? Interesting. So I know how the accounting works for MBS and I know how impairment works and I know how impairment testing by auditors works. I know how modeling MBS works and CMBS as well. Also corporate CLOs if you want to go there but I don't. I've always been more focused in real estate. I know accountants like to think no one could possibly understand this. I can. I also know how to make those losses look better or worse depending on the desired outcome using modeling software - take your pick but there is Intex, Bloomberg or Trepp. Have you read this? https://www.housingwire.com/blogs/1-rewired/post/34280-the-three-card-monte-accounting-of-fannie-freddie-conservatorship It's pure financial obfuscation. Sure maybe some big MMs have phds doing econometric gymnastics into their models but at the end of the day, you're still trying to predict the future and whatever assumptions go into the model will sway the results. Cut out all the noise and the only thing that matters is cap rates. Cap rate composition is the risk free rate and a spread. When the risk free rate is sustained at 0 for a long time then you will eventually see capitulation and cap rates will drop - and when you have systemic depress of rates for a long time the thirst for yield will drive cap rates ever lower, meaning the risk premium shrinks and puts ever more downward pressure on cap rates and upward pressure on property prices. Couple that with global ZIRP and undoubtedly, you're going to see rampant asset price appreciation - if you look to Moody's/REAL CPPI you'll have seen that post 08 basically unabated. All that is to say - that the losses projected on the MBS holdings at the GSEs in 2008 were so severe to cause such huge impairment that it didn't come to fruition or ever have come close in the entire history of lending on real estate, so you like accounting so what does that tell you? It tells me that whomever implemented those loss assumptions knew that they'd have to pressure their auditors to accept such an amazing outside of the norm assumption on the fair value of those positions. And did you know that the same audit firm in this case recently settled shareholder lawsuits over this very issue? Meaning that they knew they were going to lose and lose face on what they signed off on. Yay accountants! nailed it. Now to be fair, the reason those losses didn't materialize is mostly because of the massive intervention by the FED, but that is beside the point. All of those projected losses was subsequently reversed, is not something that you seem to be contemplating in your disagreement. Further they were used as the justification to force HERA down the throats of Congress and the unrepayable loans onto the books of the GSEs. So feel free to disagree all you want. I would say you're dead wrong. I don't understand the hubris of thinking that you would know better than the former CFO of these companies. Read his book - he's not lying. Also the banks don't give a flying f about the yields on the bonds, they want the market to generate the fees on the originations to then put the risk of said originated collateral to the gov't. Meaning when their crap loans default the taxpayers would then again be on the hook. So I think I might have this pegged closer to truth here but feel free to refute points above.

thanks for this allnatural. I quit twitter awhile ago. I don't think josh is part of the conversation, but at least he is closer to it than we are. seems to me that if polls are prescient (ha!), Rs will keep senate and Ds will retake house. does everyone agree with me that this is a recipe for no GSE legislation passage? does anyone think any legislation will pass with this political profile? legislation is quite doable. 2 of the 3 parties are aligned. throw 5-10bn of annual affordable housing (a slice of the g-fees) and Dems could be good to go too. pat Toomey, if in charge of the senate committee, is a highly capable man (crapo less so). beyond the question of affordable housing - does anyone really want to give banks this market? Other than the banks? what we think doesn't really matter. it appears mnuchin wants a) the govt guarantee to ensure the mkt works through the cycle and b) less GSE market share. he and phillips have said this multiple times. mnuchin directly said in congress a govt guarantee should be tied to the securities (ie not to the companies), behind other layers of loss protection, and explicitly paid for. right because that gives the banks the superfecta referenced previously - they not only want moral hazard on the entity level, which they already have and no one seems to notice, they want it on the securities they create so they can get beneficial treatment for holding those debt instruments and also race to the bottom on the collateral quality in those vehicles because after all it's just another put to the gov't for them so who cares right? While I understand you're attempting to be level headed about what's happening, you shouldn't discount the idea that this breaks something that is working to move the entire industry into an untested alternative. Currently the beneficiaries of the charters will likely not want to be primed and have a decently sized lobby themselves. I would also add that it doesn't make sense to put the guarantee on the individual pools, because similar to CRTs, that takes away the ability to spread the risk premiums from an enterprise level and moves it to a security level, which means it will be too lumpy to be efficient and will serve to raise mortgage costs for every borrower. So while your lamentations about what we want or whatever are noted, there are real structural issues that have yet to be addressed by the MBA proposals, because they don't really care about the details, they just want to kill the roadblocks and those are the GSEs. Read and understand Howard on CRTs. If you have good for you, if you haven't please do. Doing so makes clear that these are 1/2 baked ideas with 1 overarching goal - to get the market. I would also suggest reading Howard's book for background, it is pretty wild even if it's pretty wonkish.

thanks for this allnatural. I quit twitter awhile ago. I don't think josh is part of the conversation, but at least he is closer to it than we are. seems to me that if polls are prescient (ha!), Rs will keep senate and Ds will retake house. does everyone agree with me that this is a recipe for no GSE legislation passage? does anyone think any legislation will pass with this political profile? legislation is quite doable. 2 of the 3 parties are aligned. throw 5-10bn of annual affordable housing (a slice of the g-fees) and Dems could be good to go too. pat Toomey, if in charge of the senate committee, is a highly capable man (crapo less so). beyond the question of affordable housing - does anyone really want to give banks this market? Other than the banks?

there is a lot of money from Treasury's current warrant value (or other areas) that can be carved out for explicit affordable housing mandates that might appeal to the Democrats even more than the status quo. this is likely why Mnuchin keeps saying that housing reform needs to be comprehensive and involve HUD also. the system will need someone like Fnma and Fmcc. There's no guarantee they will be the final major players but it's like running a 100yd dash and they get to start halfway there. it appears the security level MBS govt backstop is the key that mnuchin wants. this ensures consistent global financing, even in bad times. so he's going to have to wiggle to make other players in this process happy. Ahh yes - Howard's Superfecta for the banks. Goldmans gonna goldman right?

The commentary is not as weak as the odds of legislation happening. It's been a decade and nothing. Polarization is at an all time high. I wouldn't say impossible but it's damn close. Additionally, do we know how current beneficiaries of the GSE charters are reacting politically to the admin threatening their entire lines of business? I know for a fact that these businesses are valued at hundreds of millions of dollars. Do we think the people with pull at that level are going to go quietly? Not bloodly likely. they might not have a choice. It seems like the Tsy / OMB wants to go with the MBA plan, and likely so do the 2019 Republicans in Congress. What's left is carving out some $ for affordable housing to get the Dems on board. assuming they have a majority.. which they may not.

The commentary is not as weak as the odds of legislation happening. It's been a decade and nothing. Polarization is at an all time high. I wouldn't say impossible but it's damn close. Additionally, do we know how current beneficiaries of the GSE charters are reacting politically to the admin threatening their entire lines of business? I know for a fact that these businesses are valued at hundreds of millions of dollars. Do we think the people with pull at that level are going to go quietly? Not bloodly likely.

What crimes do you think she is trying to get you to commit - well her or anyone else? Or just get outted as a pro shareholder? oooo I think it's funny that people still think they're at all anon online anywhere. Quick status check, you're not. So stop pretending like you are.

I'm not actually coffee.

wait you actually hope that they loot these companies more AND use the proceeds to fund the dumbest immigration idea ever? Hilarious. Also the 10% moment is also some BS made up thing that shouldn't even exist. (yes I know what it is, I still don't care). Just all sorts insanity.

Gasparino is really smart.

http://www.delawarebayllc.com/images/10_Years_After_Henry_Paulson_s_Colossal_Blunder.pdf

because it's made up of fallible humans like any other institution.

It appears this court already answered their own question and wants counsel to arrive to the same conclusion. So this, Jacobs, would be a negative chink. So the courts want to fully remove themselves from ever having to enforce anything against the FHFA for any reason? See their backward logic to get to the conclusion that the gov't gets to keep the money, now makes the FHFA the most powerful entity in all the land... ultimate impunity.

Good point. If I understand (relevant part of) the SCOTUS Lucia case correctly, plaintiffs have the right to expect some sort of remedy on top of the courts just fixing the agency's structure to make it consitutional. If All American's desires are taken into account, hopefully Collins's wish for the NWS to be unwound is as well. https://howardonmortgagefinance.com/2018/07/10/some-pre-comment-comments/#comment-7492 why do we care about the gov't getting paid back on a deal that they negotiated between itself and itself based on lies to everyone? I have a hard time caring.

The news certainly is concerning. On one hand I love the thesis and the odds of administrative reform into a utility/Moelis/etc. seem to get stronger as time goes on and news is released. On the other hand one of the largest players who is in on a major lawsuit has reduced his position. Perhaps it's redemptions (but he didn't reduce St. Joe's and he has bought other new stuff). Perhaps he thinks the time it takes to win is going to still be a few years (and he thinks St. Joe's and other new investments will appreciate in a shorter time period). Perhaps he has lost faith in his thesis. Perhaps he knows something from his lawyers that will be detrimental to his case. Berkowitz doesn't hold very many large positions, but he still does have a large position in the GSE's. Clearly St. Joe's is his favorite holding at the moment. Time will tell, but him selling this much is concerning. Probably redemptions Very obviously not due to redemptions. Berkowitz selling is a bad data point - I wouldn't try to rationalize this away Did his AUM stay the same?

The news certainly is concerning. On one hand I love the thesis and the odds of administrative reform into a utility/Moelis/etc. seem to get stronger as time goes on and news is released. On the other hand one of the largest players who is in on a major lawsuit has reduced his position. Perhaps it's redemptions (but he didn't reduce St. Joe's and he has bought other new stuff). Perhaps he thinks the time it takes to win is going to still be a few years (and he thinks St. Joe's and other new investments will appreciate in a shorter time period). Perhaps he has lost faith in his thesis. Perhaps he knows something from his lawyers that will be detrimental to his case. Berkowitz doesn't hold very many large positions, but he still does have a large position in the GSE's. Clearly St. Joe's is his favorite holding at the moment. Time will tell, but him selling this much is concerning. Probably redemptions

Please define substantially and share source? Fairholme website - letter posted last night. Substantially can be defined as "a lot" - I'm on my phone so I just eyeballed in period over period. I see. Typically when finance people ask for definitions they want %s but you're snarky so it was a good joke. BUT anyway. Sounds like people are losing faith in this very trustworthy and sane administration to do the right thing for shareholders (other than WFC)

Please define substantially and share source?

haven't you figured it out yet? Lawyers and judges literally making $hit up as they go along.

the purported reason they're waiting isn't to get a better set up - it is to maintain power for the ensuing 2 years and then use it. if the enact reform prior to the midterms, they'll ruffle lots of feathers... so waiting post mid-terms allows them runway. Or in other words -the investment thesis here is „Hope springs eternal“ umm - it's a highly politically charged trade and you have to understand how the timing in DC works? It may not make an ounce of difference but emily was asking why they would wait. Well I gave one reason that may be why. It doesn't really have much to do with hope.

the purported reason they're waiting isn't to get a better set up - it is to maintain power for the ensuing 2 years and then use it. if the enact reform prior to the midterms, they'll ruffle lots of feathers... so waiting post mid-terms allows them runway.

the purported reason they're waiting isn't to get a better set up - it is to maintain power for the ensuing 2 years and then use it.

When you don't punish criminals for crimes - you get the worst. What might serve in a Banana Republic will not do in a constitutional one. <-- That is a quote from a freaking judge that dissented in the Perry appeal. What is going on here? Look at Howard's comments on the relationship between Ginsberg and certain fellow travelers - do you think we have a justice system? I have my freaking doubts.