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allnatural

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    FNMA and FMCC preferreds. In search of the elusive 10 bagger.

    in General Discussion

    Posted

    +1

     

    That's how I read it.

     

    Otting's letter looks like he is outlining all the authority FHFA has and he has as director.  No mention of congress.  At the end, he merely said, paraphrasing, 'I intend to accomplish the FHFA's mission.  As we develop a framework to end conservatorship, I welcome your insight and perspective.'

     

     

    I dont like reading too much into things, so those are just merely observations.

     

    It seems he is clearly stating who is in charge and who is essentially along for the ride.

    FNMA and FMCC preferreds. In search of the elusive 10 bagger.

    in General Discussion

    Posted

    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

     

     

    imo it's not as easy (if it's possible at all) as people casually write about for the Tsy scty to simply 'cancel' a nearly $200bn asset (sr pref) of the federal government.  if we ever win a court case, that can change.  but without that, Mnuchin likely needs Congress to fully retire the sr pref.  in the absence of a court win or congress, then we're possibly looking at some negotiated bargain between Tsy, berkowitz (and peers) and Ackman on a restructured company whereby the Tsy has the leverage and converts Sr pref to common in addition to the warrants - which would very likely lead to reduced investor share price targets vs. current expectations for both common and jr preferred.

     

    long story short: a Moelis-type plan (and accompanying price targets) likely needs either a court win or out of nowhere a comprehensive and balanced legislative deal.

    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.

    FNMA and FMCC preferreds. In search of the elusive 10 bagger.

    in General Discussion

    Posted

    Mnuchin 2016 2.0

     

    It would not be surprising for someone like otting to be candid (and truthful) in what he thought was a private setting, and for a potus spokesperson to be optically correct (and vague) in making an announcement to the press (that was clearly intended to be read by congress).

     

    which leaves us to still wonder what the admin plan will look like. we should find out soon, but I suspect the admin plan is some combination of GSE recapitalization along the lines of the moelis blueprint coupled with items requiring congressional legislation (mbs guarantee and additional charters for competitors), should congress wish to implement them. I also think that it will address emerging issues not necessarily on the front burner, such as Ginnie Mae guarantees of federal mortgages that are increasingly generated by nonbank lenders.

     

    if so, then one would hope treasury/fhfa would proceed to do what they can do on their own and not wait for congress. but I think the admin doesnt want to crater calabria’s confirmation, so seeking some bi-partisan congressional support for what the admin can do on its own with FHFA is likely….which will likely extend the timeline that otting seemed to have bee intimating, a reality of DC that otting, as more a business man and less a politician, may still be adjusting to.

    FNMA and FMCC preferreds. In search of the elusive 10 bagger.

    in General Discussion

    Posted

    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.

     

     

    https://www.marketwatch.com/story/as-fannie-freddie-reform-gets-underway-here-are-the-three-big-questions-for-the-housing-market-2019-01-29?siteid=yhoof2&yptr=yahoo

     

    The 2008 law that put Fannie and Freddie into conservatorship in the first place specifies that the two companies must technically be liquidated if they are to exit government control, according to Karen Shaw Petrou, who runs financial services advisory Federal Financial Analytics. But as to what happens next, and whether the housing finance system is still underpinned by the powerful twins, is the biggest question facing the market right now.

    FNMA and FMCC preferreds. In search of the elusive 10 bagger.

    in General Discussion

    Posted

    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 am completely sold out. As I said in another thread, after all these years' of ups and downs, i no longer believe in value investing. I am reading some concerns through my technical analysis in the last few trading days, so I unloaded. This is extremely puzzling because if I rely 100% on fundamentals, I should have been buying hand over fist right here. Let's see what happens next. Maybe I am missing a large chunk of profits here.  ::)

    FNMA and FMCC preferreds. In search of the elusive 10 bagger.

    in General Discussion

    Posted

    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.

    FNMA and FMCC preferreds. In search of the elusive 10 bagger.

    in General Discussion

    Posted

    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.

    FNMA and FMCC preferreds. In search of the elusive 10 bagger.

    in General Discussion

    Posted

    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

     

    FNMA and FMCC preferreds. In search of the elusive 10 bagger.

    in General Discussion

    Posted

    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?

     

    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.

    I am sorry. I think you are fooling yourself. Stegman is, has been and will always be enemy #1. Or #2. Read more carefully:

    Additionally, such amendments should allow each GSE to retain capital on their balance sheets above the current applicable limit of $3 billion, provided that doing so (i) is not a prelude to releasing the GSEs from conservatorship absent legislation to resolve serious charter flaws, and (ii) would not represent a compromise of taxpayer claims.

    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.

    FNMA and FMCC preferreds. In search of the elusive 10 bagger.

    in General Discussion

    Posted

    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?

     

    “It is difficult to imagine that Mark would take this job to recreate the very system he’s spent an entire career criticizing relentlessly," said Parrott, a former housing official in the Obama administration. “If indeed he winds up comfortable with some version of a privatized Fannie and Freddie, it would likely look dramatically different."

    FNMA and FMCC preferreds. In search of the elusive 10 bagger.

    in General Discussion

    Posted

    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."

     

    "We expect to pay Treasury a fourth quarter 2018 dividend of $4.0 billion by December 31, 2018. "

     

    Thoughts on whether the dividend gets paid this quarter? Given Watt is in, I would assume so. Calabria/Otting to stop the NWS in Q1?

     

    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?

    FNMA and FMCC preferreds. In search of the elusive 10 bagger.

    in General Discussion

    Posted

    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.

     

    He is consistent and it's crystal clear what he believes.

     

    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.

     

    As an aside I would just make a couple of observations: his point that housing prices would fall under his policies is correct, but his implication that housing would be more affordable is not (actually he doesn't make this point so much, more that there will be less risk, which likely IS correct); because prospective buyers would have less incentives/subsidies to buy a home..so they would be able to AFFORD less. So really this just moves prices; it doesn't necessarily make housing more affordable. And the other observation about Calabria's views (#2) is that since they will take a lot of time, they become subjected to the vagaries of political winds and changing administrations over time, which softens their impact. Thus, in my view the recap is coming, and there's no guarantee the GSEs WON'T remain dominant in housing for years to come. Commons could do quite well.

     

    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?

    FNMA and FMCC preferreds. In search of the elusive 10 bagger.

    in General Discussion

    Posted

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

     

    It could well be that Collins en banc decision comes out before Calabria is confirmed. Oral arg is 1/23 and the en banc court has two opinions from the merits panel both pro P (of course one was a dissent, the majority didn’t bother to write an opinion on the APA claim, the othering re constitutional claim  needs to go further and provide relief to Ps). So the groundwork for an en banc opinion has been laid. As for senate confirmation the senate banking committee needs to hold a hearing and dems are likely to stall it until cloture is reached through lapse of time.

    FNMA and FMCC preferreds. In search of the elusive 10 bagger.

    in General Discussion

    Posted

    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.

     

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