allnatural

Tim P. said within 48H

Can't wait to be #4 of 17

We already know what Watt's response once, he continuously reiterated that its up to CONGRESS to complete housing finance reform, not FHFA. Otting's commentary is complete 180 if you want to compare the two.

+1 That's how I read it. It seems he is clearly stating who is in charge and who is essentially along for the ride.

Not only that but it would also require the GSEs to somehow raise an additional $180b to account for the sr prefs... the current task of $150-$200b is already large enough as is. Good luck getting investors to pony up capital w. the senior pfds outstanding. O so the government received $300b, + they will earn $100b on the common, + they want another $200b for their sr prefs. So they will get $600b on this total? Good luck You may have information I may not or you may hear things I don't. But from where I sit only the political side is not easy. The technical one is simple to solve. Politicians ultimately will not shoot themselves in their feet. At some point, all will come to the understanding that the Srs. in place are a major roadblock to move forward, on any plan. I can't find one reason why anybody will risk their money with that sword over their head.

Mnuchin 2016 2.0

It never ceases to amazes me how offbase these "experts" are. Do you really believe the only way an entity can exit conservatorship is via liquidation?... She is confusing receivership with conservatorship.

For what it's worth, congratulations on a successfull trade! At 20-25% of par you were paying for extremely cheap optionality that over the last month got rerated. No one ever lost money taking profits!

I'm pretty sure I've read that document before (when it was first released) and its possibly in the Sweeney complaint as well.

That unsealed document is old (from 2017).. or am i missing something. I remember reading it months ago

I have to believe that Mnuchin is sophisticated enough to understand the snr pfds can simply not exist in any recap plan for this to work. The 6b to 150b # Otting mentioned would balloon to $340b. Additionally, what sane investor would ever touch these entities with those over hanging seniors out there. Not to mention the ongoing litigation overhang that one day any recap investor may be on the hook for a $125-180b liability. The simplest solution is to simply declare it paid off in full (par+interst), and monetize the warrants. Thats a total income of ~$400b for the taxpayers. Thats more than enough to celebrate if im in the admin.

I expect the jr pfds to trade well over 50% on the NWS being removed (either via the courts or admin). Then like any other transaction, the investment/arb community will have to weigh the timing/execution/etc risks. If its a 2 year recap process, what discount to par would investors be willing to take to account for those risks (this assumes par or close to par equivalent via conversion is the stated treatment for jr pfds)? I think if the recap is scheduled to be completed by 2020 then 80-85c seems appropriate as it accrues to par. Good luck to everyone! We are getting close but at the same time we must be mindful of what may (shall?) go wrong in various scenarios.

But if we can't trust random guys on a message board on the internet, who can we trust?

Tail-risk downside we must all be aware of even if low probability: 1) Market and housing market take a serious u-turn / recession. If capital markets dry up, there would be no appetite for this IPO. All the more reason they need to act while the window of opportunity is still there. 2) Trump wakes up on wrong side of the bed and fires Mnuchin- short term this would be hairy and im not sure they can replace him quick enough to act ahead of election cycle and with someone who shares his views. The bull thesis remains stronger than ever today across the board when you evaluate the players in charge, their commentary to date, the recent court developments (dc circuit and fifth circuit + court of federal claims T'ed up finally). As Howard always says. TINA + WARRANTS. Get it done

How can the market spin this as negative... 8)

I would agree with you, but the key word for me is "non-accrual", meaning the profits /divs that don't get paid during the suspension- don't eventually flow to the senior prefs. "The Treasury Department (Treasury) and the FHFA should amend the Preferred Stock Purchase Agreements (PSPAs) to suspend dividend payments to Treasury on a non-accrual basis during the suspension period." Either way, in what world can suspending the current NWS agreement not be read as an equity positive event for jr prefs? I am sorry. I think you are fooling yourself. Stegman is, has been and will always be enemy #1. Or #2. Read more carefully: Taxpayers claims are the Sr. preferred shares. This is why they speak of a period of suspension for the dividends. The essential purpose of this is to block any cascading to the Jrs. Not even being cleverly disguised. As said, they are trying to hijack administrative reform and block shareholders from benefiting in any possible way.

Very interesting they are calling for the GSEs to end the NWS today and begin retaining capital regardless of how legislative reform plays out. It appears even they are conceding that the GSEs will emerge as recapitalized private companies in any event, which is great for jr pref holders, regardless if GSEs are weakened or not.

Not possible according to "experts" chiming in like Rosner- and if there was a way it would mean prefs are worth par so not end of world :) This covert hit piece trying to spread hatred against hedge funds, written in haste in the middle of the night, may just be a little too late. Calabria and Otting nominations/designations are strong indicators that a plan has been carved out. Perhaps not completely, but a clear roadmap. And the addition of Mulvaney as chief of staff only solidifies that sentiment. While we -neither Bloomberg, still do not know what will happen or if there is any light at the end of the tunnel the latest moves by the administration show clear intent. One the one hand we have Calabria and on the other side $125B profit, is there a way for Gov to get $125B and recievership?

https://www.bloomberg.com/news/articles/2018-12-21/for-hedge-funds-2019-offers-risks-and-rewards-on-fannie-freddie Moelis tick tock tick tock

Thank you. Seems like a wall would fall under national security. But what about infrastructure? "joshua rosner ‏ Does @POTUS @realDonaldTrump realize he has over $$$100-billion in unexercised value in the #GSEs which could immediately fund both the Wall and changes to high-risk and pre-existing illness pool? #Obamacare #BorderWall @MickMulvaneyOMB, @stevenmnuchin1, @MarkCalabria"

Didn't a judge rule last year that obamacare ILLEGALLY funded itself without getting appropriated funds from congress (with GSE profits as admitted by Mnuchin)... Maybe Trump wants to avoid doing something illegal like Obama did. "It’s illegal for the executive branch to spend money that Congress has not appropriated." Enough to build the friggin wall see "We have other ways that we can get to that $5 billion that we'll work with Congress," White House press secretary Sarah Huckabee Sanders told Fox News on Tuesday morning. She added that the Trump administration could support $1.6 billion in border security funding proposed by Senate Democrats, as long as it can "couple that with other funding resources" to get to $5 billion. we have all read that the trump administration has been chaotic, but I hadn't thought that it is stupid. do you believe that trump just realized that the GSE sweep dividends this month's end can finance the wall? This is not a comment on policy but rather execution. what do those guys in White House do all day?

I don't believe its impossible for government to maximize warrant value without screwing commons over w/ dilution. It's all about sequencing. Government can easily arrange it so their 80% comes into play post the dilution/capital raise. So they retain full 80% value w/o any dilution. I agree here. I think this makes it less likely that Calabria is just going to be a yes-man for Trump, and instead that Trump actually supports Calabria's views and appointed him in order for them to be carried out. I see your point about affordable housing: Calabria argues that having lower home prices while keeping incomes unchanged makes housing more affordable, but if you can't get a loan even with a better loan value-to-income ratio, it doesn't necessarily make housing more available. Or, more accurately, home ownership. I do agree with Calabria that increasing the housing supply is the best way to promote home ownership. I don't share your optimism about the commons, though, for many reasons. Calabria wants very, very high capital standards, arguing for at least 5% in some places and as high as 8% in others. FHFA's proposal, by contrast, calls for 3.25%. The amount of dilution needed to get to Calabria's standards while Trump is still in office is staggering. Calabria and Treasury both want the GSEs to have a smaller footprint, meaning less in earnings power. Predictions based on current income levels, as Moelis includes, are likely to be overly optimistic. You can get the best of both worlds if the junior preferreds are offered a conversion, because it would have to be voluntary and thus at a premium to what you could get in the market. Many see par as the ceiling for the juniors, but the plaintiffs will be starting their negotiations at par plus back dividends, interest, etc. so they might be able to get more, especially in a conversion scenario. Every time I think about selling some of my juniors to buy commons I hesitate, and end up being glad that I did. I do think the commons have a higher upside in the best-case scenario, but there is real and substantial downside risk there if enough new shares get issued for a recap. That has been my hesitation with owning common too but I dont seem to have a good rebuttal when someone says that a common shareholders interest is aligned with govt warrants so in turn high capital levels would dilute gov stake, unless they somehow get out first. If Sr Preferred declared paid how else does gov extract their pound of flesh besides maximizing warrant value?

I wonder if Otting for interim is still on the table while confirmation process takes place.

I believe Calabria's most recent public appearance where he spoke at a housing conference last year (nov 2017) is helpful to reference ( ). He touches on GSEs but here are a few comments I was able to takeaway: - #1 Objective of housing finance reform is to reduce the risk to the taxpayer - Highlighted that the GSEs have no capital, thus taxpayers are on the hook for any modest decline and are more exposed to the mortgage market today than in 2008 or ever - Wants a housing market less dependant on federal support (+private capital) - Wants to make sure conservatorship isn't handed over to next admin - Just began looking at a path out of conservatorship (since then the whitehouse has publicly stated said they want to re-privatize the GSEs) - Wants a glide path to get them out of conservatorship (interesting choice of language, doesn't say unwind or get rid of but get out of) - Says hes a rule of law / due process guy (we already know his take on how FHFA is conducting the conservatorship) - No commentary about getting rid of gses, getting rid of 30 year mortgage, etc. I also want to comment that I have seen some comments thrown around that he is pro receivership... I think this is taken out of context. He has discussed in past that after 2008 when the government took control of the GSEs, FHFA should have placed them into receivership rather than conservatorship at the time... But that receivership ship has sailed since then and I don't believe he thinks that's a valid option today.

More notably, Otting is known for being the restructuring guy during his time at OneWest... Wonder what the GSEs are about to go through?