DRValue

https://www.google.com/amp/s/www.housingwire.com/articles/fhfa-director-mark-calabria-must-go/amp/ Dave Stevens says calabria must go cos he wants the companies to hold too much capital and the govt guarantee is good.

That's what I assumed and why it seemed obvious the legal case would prevail. If it is the case it's pretty scary and I'd expect should limit investors appetite in the US. I'm all for paying what's owed, but here apparently that will not be allowed to happen. Ever.

I'd hope restructuring is still on the table. But there's no evidence the govt will do this, after all they could've done under Mnuchin and calabria but chose not to. The opportunity to take all profits in perpetuity is too much to give up, I fear. How anyone could rule the govt can make a law that can't be reviewed is beyond me, but I'm no lawyer...

So, this is done then and the only way that anything changes is if govt wants it to. So, they sit and collect the money as long as they can and then when the next housing crisis comes along, just put them in receivership and run the programme through the govt.? That's it, right?

So not only does the govt get to take whatever it wants, and it can't be challenged in court cos they made a law saying so, now they can remove supposedly pro private capital calabria and put in their guy to keep taking the money!

If capital requirement increases by an equal amount of earnings, what does this mean for the value of the stock, dividends, capital raising, and the capital rule? Something gotta give?

Good point on incentives. Depending on what treasury does, Biden could be good for common if the amount of capital is set to more realistic levels.

They need all the money they can get with 27T of debt...

Personally very nervous now Biden confirmed.

This is getting really interesting! Hoping and speculating we will see something concrete after all. Setting up a scapegoat before there's even a problem on their (or Trump's...) watch.

I suggest everybody take the time to watch this. It is almost 5 hours long but it will give you an entirely different perspective, based on some very interesting and verifiable data, than what the polls are showing. It drastically changed my opinion on the odds of who I think will win. Super interesting. The only way trump loses is if it's stolen.

My assumption is that they raise as much low cost preferred as they can which I would expect to be at least the same amount as they currently have. They obviously have the ability to 'carry' that amount.

So we buy the inevitable dips right?

Is it easier for SCOTUS to do nothing this term and see if a settlement takes place?

Swap out CFPB with fhfa and that's what we'll get. A now constitutional thief.

Calabria can talk tough now but in reality -- and we'll know in the next 1 month and 5 months -- Zandi might very have more official impact on FnF's future than Calabria. I wonder why most politicians and reporters avoid the elephant in the room regarding Calabria's likely shortened tenure. It doesn't take a lot creativity to see how this will likely go. If Calabria tenure is shortened measures will be taken to make sure that what is done is irreversable. One other tidbit I thought about was we look to inauguration as a deadline if Trump is not re elected but its likely the March, April time frame if not longer that a new FHFA director is sworn in. The point he made about banks making jumbo mortgages and holding way more capital and their ability to still make money was worth listening to also. I think he will bend some on the capital rule but I don't see him breaking. He better bend cos a banks nim is about 4x higher than the g-fee.

Wow that is delicious! I take back everything, well most, of what i said about him! I'll enjoy watching that replay :-)

While I've given up predicting anything FHFA may do re the capital rule. I can't help but think that there is a possibility that Calabria can lower required capital by saying that the G-Fees would need to be so high to hold that level of capital, that it would hurt home buyers. I'd expect Democrats would accept that but I'm sure they'll find some way of objecting. $135b with some tweaks to the rule and paid for backstop seems fair. I'd like to know what the terms of payback would be on the backstop but I'm sure that would come out. Fingers crossed, but not confident.

The ownership of the prefs by the 'big boys' is particularly important. Im only aware of fnmas and fmckj having a large following. The other series may not convert. Re capital rule 240b with the buffers is too much imo but like midas said the price of commons is still north of here. I have similar numbers there and think they will be given leniency to pay dividends once they hit 135b and phase the buffers in. I think 135b is about right and fair.

Calabria is attempting to fully disconnect FnF from govt and its support. If this initiative is cancelled so is incoming capital, as trust that once existed has been curbstomped for a decade+. Would you buy this shit with govt backstopping it, begging for an '08 repeat? I wouldn't. Also, I don't give a rat's ass if we only wind up owning 1% of FnF. I just want my principle returned. All of it. He's still wrong.

"We need 8pct capital, work back from there." Starting to think he's unfit. #CancelCalabria

Thanks Midas. I would imagine the juniors would insist on a good deal relative to new common as they wouldn't want to convert and then be diluted. A sufficient discount to common price on conversion would help.

Thoughts of the board on a couple of things, please. Wisdom of crowds and all that... [*]As a Percentage, how much of the business do you expect new common to end up owning? 25%, 40%, 50%? [*]As a Percentage, how much of the business do you expect existing Junior Preferred to end up owning? 25%, 40%, 50%? [*]At what price will the Junior Preferred convert to Common and will it be the same as the SPO offering price?

The $19B of junior par value is already included in the $14B. That is, everything else that contributes to the $14B adds up to a combined negative $5B. Also, the refund from Treasury could come in the form of a tax credit. In that case, I believe that Fannie (and Freddie too, of course) would only add their tax savings to capital as they occur. It could very well take 5-6 years to earn all of that refund. The upshot is that if a capital raise is needed to hit a particular number then the full amount of the refund won't count, only the taxes they would have paid. At best I can see Fannie getting $2.5B of it back per year, and that would be on earnings of around $13B. Also, I think Fannie will make more than $6B this year ($10B imo) but for now I'll use your number. If the capital raise happens a year from now, adjusting your numbers for these things leaves a gap of $56B: your $27B plus the $19B of prefs and $10B of unearned tax credits. Another thing to keep in mind is that $81B is Fannie's risk-based capital requirement. For some reason I can't explain, Calabria decided on a minimum capital standard (he calls it the Leverage Capital Requirement) that's higher than the risk-based one: $89B. Now the gap is $64B if that's the milestone. Similar calculations give a gap of $42B between Freddie's current core capital (once the seniors are dealt with) and their minimum capital requirement of $63B: Freddie has $9B of current equity, $7B of earnings between now and the capital raise, and $5B of earned tax credits. Cheers midas. Double counted that 19b real quick! Mustn't skim read. Close to taking my slim profits on the commons and moving them to prefs on the dip. Pspa amendment and the cap raise terms are the wildcard but that perfect world seems far away now.

So rough math for Fannie Mae (it's all I can do...) Total capital requirement 81b Current equity 14b Treasury 'refund' 15b Junior preferred par value 19b One years 'covid' earnings 6b Leaves a gap to total capital of 27b. Right to assume that 27b may be the target common / preferred raise? I know junior preferred could be converted etc.. As this is a new capital paradigm and there are hints of flexibility, retained earnings low dividends and opportunistic capital raises, including debt for the buffers?