allnatural
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Posts posted by allnatural
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The market is signaling status quo IMO. Once it becomes clear that the admin is walking down the path of privatization we should see a nice re-rating.
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I don't think this outcome is worst thing that can happen (admin can choose to do nothing with jr prefs and turn on dividend in 2-3 years from now once fully recapped) but admin would need jr pref shareholders on board. Remember that unless you settle with jr pref shareholders in litigation it will be difficult to raise new outside private capital with the prospect of a $100b+ ruling on the horizon. I think for this to work and with least headache possible admin must start with clean slate which involves resolving all litigation and removing current jr pref series. Either convert jr prefs to new common or new prefs while removing any legacy litigation risk.
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For those paying attention, Lambert already ruled on this issue last month and made it clear that shareholder rights/claims travel. So it doesn't matter if you owned shares pre or post NWS.
This is all about NWS. Can they just pay who bought prior to NWS? That would be simple, palatable, non-controversial, non-political and cannot be challenged in court either as we have lost all of the court cases anyways. Speculators out of the door. Could this explain why both commons and preferreds have lost so much value in last few weeks?
Would be terribly difficult as their is already legal precedent for those rights transferring with the securities in a sale.
While it seems simplest, it flies in the face of precedent AND would cast into doubt how to handle such cases in the future as we'd now have legal precedent for both the rights transferring and the rights not transferring calling into question what exactly you're biting each time you buy an equity security.
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Can you link the hearing? I didn't realize Corker was speaking yday.
Chris, did you see the 2 questions addressed to counsel on Collins? One is specifically on the NWS. That has to be good news, no?
Also, did anybody hear Corker today at the hearing? He said something like 'the wh will take some actions and then leave other things to congress' or similar. Looks like he has accepted the fact there will be administrative reform. He then insisted on the GSEs being SIFIs. Probably, thinking the only way to contain them once out c-ship is by over-regulation/overseeing. He seems to be anticipating, perhaps correctly, this is going the way of Treasury/FHFA.
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Plaintiffs are asking to vacate the 3rd amendment to the PSPAs, not to invalidate the PSPAs themselves. The PSPAs should continue to exist as if they did pre-NWS and the financing commitment would remain.
Thank you. Is invalidating the same as an injunction in the legal universe?I ask because the PSPAs have that clause that says an injunction by any court will render the agreement null. In which case, the financial commitment is withdrawn.
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Did you miss when the same judge who originally ruled against shareholders reversed his ruling and ruled in favor of shareholders by throwing out the governments motion to dismiss? This was the same claim that was REMANDED back to the lower court in the same Feb 2017 ruling you reference.
I tried to find it back in this thread but it has become so long. Where do we stand now in Sweeney's court? Haven't heard much out of that court in a while.
Honest question - after the ruling from Feb 2017 - do we really expect the courts to do the right thing in this case ever? I've personally lost a lot of faith that there is a path to justice in the justice system.
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I tried to find it back in this thread but it has become so long. Where do we stand now in Sweeney's court? Haven't heard much out of that court in a while.
Briefing will be completed in January I believe. Assuming there is oral arguments, Sweeney should decide by summer 2019.
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I believe the midterms were a net positive for the GSEs. If (big if) legislative path is on the table (I think this remains very low probability, many hurdles to overcome), Maxine Waters and more importantly PAT TOOMEY are important allies. More probable, I believe midterms were positive because it puts congress in a gridlock and gives admin the green light and cover to go ahead and administratively execute a recap release more swiftly than if it was an all GOP congress.
The market seems to agree today.
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Thank you! So just to clarify... It plaintiffs win on summary judgement, there is NO trial and that's that. But if the judge cant agree on summary judgement, we go to trial shortly after?
@Cherzca
Can you explain how in the Lamberth timetable, there is a trial scheduled AFTER summary judgment? Am I missing something.
I'm not Cherzca, but summary judgement always comes before a trial. If the motion for summary judgement is accepted, the judge can make a ruling, avoiding a trial.
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@Cherzca
Can you explain how in the Lamberth timetable, there is a trial scheduled AFTER summary judgment? Am I missing something.
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If you're the government/admin- until you are ready to embark on a re-privatization/recap+release, why would you be willing to entertain settlement discussions? There is no reason for the admin to show their hand now until they are ready to execute. As of now we are still in preliminary reform discussions. Hopefully once the path becomes clear, there is higher probability government is willing to entertain settlement as part of a larger reform agenda.
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Thanks for thoughts. Just to add- if treasury warrants are worth a penny or more (ownership of 80% of the common stock), jr prefs should be money good as they are senior to warrants/equity on the capital structure. Can't dance around us
The MBA plan of multiple guarantors includes this:Thanks for your view. One key piece you miss and that continues to be reiterated by all parties: the white house plan, Mnuchins recent comments, and Phillips recent comments is- get the GSEs OUT of conservatorship (not unwind / replace), and RE-PRIVATIZE them. How do they achieve those 2 goals while not recap/releasing them is my question? I think a weaker pair of GSEs open to private competition but recapped and released is not inconsistent with MBA's plan.
Also is the admin willing to roll the dice with a potential $130b reversal in litigation (in light of recent Lamberth ruling + potential for court of federal claims to play out favorably to shareholders) vs. they stand to make $75-$100b+ while not returning a penny to shareholders? That's potential for ~$200b PnL swing. I hope they want to start with clean slate and get rid of the "pesky" shareholders.
my overview, FWIW:
Ben Carson's comments yesterday on Bloomberg TV complement Phillips' from last week (and Mnuchin's prior) when he says HUD (FHA + Ginnie Mae) needs to be a large player in GSE reform with $3trn in assets.
It's clear to me that the MBA Plan is Mnuchin's plan, broadly speaking. He has said he wants more competition, private capital, and a guarantee on MBS not the guarantor. IMO we should re-read the MBA 6-page plan from last year. IMO there will be no recap and release, admin action, etc, like many on the Twitter and message boards pine for. He is not 'primarily' thinking about warrants but rather the long term stability of the US housing system, especially in cyclical downturns (hence the MBS gtee's importance).
I also re-read Landon Parson's op-ed from Sep-27. He barely mentions the Moelis plan. He simply asks for 2 things: stop the sweep and cancel the Sr pref, while mentioning the warrant value. Importantly, he says these 2 steps do NOT preclude legislative action.
I believe the Democrats will go along with the plan. They will likely look at the affordable housing subsidies embedded in the current system (there are studies) and then simply ask for a larger amount in the future system, likely explicitly paid for out of the G-fees. The ask will obviously be larger if Maxine Waters has the gavel.
Besides an unexpected court win or settlement, the best we can hope for imo over the near term is a 4th amendment between Mnuchin and Watt whereby the sweep stops and is replaced by the long-dormant periodic committment fee. A cancellation of the sr pref would be gravy. This capital-building action would be a jolt for the GSE reform legislation potential in 2019.
At this point, I'd need material new information or a Democratic sweep (senate too) to change my view, which are both possible. I could also be wrong. I understand not all here share this view. Good luck everyone!
* Preserve where possible the existing infraestructure -for example, a rechartered Fannie Mae and Freddie Mac could be the first two guarantors.
In their detailed plan, where the first initial action is legislation, they actually make room for something similar to Landon Parson's wish list. There is this:
Congress should direct Treasury and FHFA to amend the PSPAs to ensure that they provide an appropriate MBS-level backstop for the GSE's existing MBS. As discussed below, GSE reform legislation could direct that the PSPAs be amended to permit the guarantors to build capital by retaining earnings after they begin operations and before Treasury sells its equity interests in themSo Parson's request is not incompatible. However, the MBA plan requires a bridge bank that would buy GSEs assets and liabilities to the extent that liabilities do not surpass assets. So Srs. may need to be cancelled for Jrs. and commons to also transition to the bridge bank. Who decides this in MBA's plan? Congress. Unless Parson gets his wish.
If he does, MBA plan will still have a backstop set at $258 billion with perhaps... a commitment fee, instead?
Adding..
The MBA plan fully contemplates Treasury's divestiture. So no question Treasury will make tens of billions out of the warrants. The plan, in the transition and implementation stage, keeps Treasury's interests alive. However, this doesn't guarantee a place for legacy shareholders. The plan doesn't specify if Treasury's stake that transitions to the bridge bank are the warrants or the exercised stock.
Ideally, it should be common stock. This will guarantee our survival in the transition. If not, commons may not survive and Jrs. may survive in part or in full as a receivership may trigger our liquidation preference issue.
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Thanks for your view. One key piece you miss and that continues to be reiterated by all parties: the white house plan, Mnuchins recent comments, and Phillips recent comments is- get the GSEs OUT of conservatorship (not unwind / replace), and RE-PRIVATIZE them. How do they achieve those 2 goals while not recap/releasing them is my question? I think a weaker pair of GSEs open to private competition but recapped and released is not inconsistent with MBA's plan.
Also is the admin willing to roll the dice with a potential $130b reversal in litigation (in light of recent Lamberth ruling + potential for court of federal claims to play out favorably to shareholders) vs. they stand to make $75-$100b+ while not returning a penny to shareholders? That's potential for ~$200b PnL swing. I hope they want to start with clean slate and get rid of the "pesky" shareholders.
my overview, FWIW:
Ben Carson's comments yesterday on Bloomberg TV complement Phillips' from last week (and Mnuchin's prior) when he says HUD (FHA + Ginnie Mae) needs to be a large player in GSE reform with $3trn in assets.
It's clear to me that the MBA Plan is Mnuchin's plan, broadly speaking. He has said he wants more competition, private capital, and a guarantee on MBS not the guarantor. IMO we should re-read the MBA 6-page plan from last year. IMO there will be no recap and release, admin action, etc, like many on the Twitter and message boards pine for. He is not 'primarily' thinking about warrants but rather the long term stability of the US housing system, especially in cyclical downturns (hence the MBS gtee's importance).
I also re-read Landon Parson's op-ed from Sep-27. He barely mentions the Moelis plan. He simply asks for 2 things: stop the sweep and cancel the Sr pref, while mentioning the warrant value. Importantly, he says these 2 steps do NOT preclude legislative action.
I believe the Democrats will go along with the plan. They will likely look at the affordable housing subsidies embedded in the current system (there are studies) and then simply ask for a larger amount in the future system, likely explicitly paid for out of the G-fees. The ask will obviously be larger if Maxine Waters has the gavel.
Besides an unexpected court win or settlement, the best we can hope for imo over the near term is a 4th amendment between Mnuchin and Watt whereby the sweep stops and is replaced by the long-dormant periodic committment fee. A cancellation of the sr pref would be gravy. This capital-building action would be a jolt for the GSE reform legislation potential in 2019.
At this point, I'd need material new information or a Democratic sweep (senate too) to change my view, which are both possible. I could also be wrong. I understand not all here share this view. Good luck everyone!
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Can anyone point me to the exact language in HERA that allows FHFA/Treasury (admin) to end the conservatorship unilaterally and bypass any legislation?
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No clue how credible the source is. I know they are a respectable publication (~$5k/yr subscription) but I don't recall them publishing on the GSEs before.
I believe they are saying he said this in private discussions. Mnuchin has never commented publicly on the government's stake and what they will do with it to my knowledge. Interesting take for sure if true.
Mnuchin supports selling the governments stake.
Do we know how accurate this is, or how credible the source is?
But such a move would require the unwinding of the preferred shares the Treasury holds in Fannie and Freddie. Mnuchin has said he supported such an undertaking.Unless Mnuchin has said this very recently, I missed it. Or is it just being extrapolated from the privatization comments?
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Mnuchin supports selling the governments stake.
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+1 for Pat Toomey, lets hope he gets the seat.
Josh Rosners take on Phillips comments (FWIW):
@JoshRosner
People are reading too much into @CraigPhillipsDC's comment. They aligned w/ OMB's statements re legislative goals. He didn't suggest they would sit on their hands pending legislation. I expect administrative reform is a separate track & UST may begin work with a post Watt @FHFA.
@JoshRosner
Watt has not proactive & was willing to sit & wait for legislation for which there are no votes. I suspect they decided, given it is so close to the end of his term, it would be easier to coordinate policy goals when they have a counterparty who shares their staging & priorities.
@JoshRosner
Until recently, GSE & mortgage market reform were not near the top of the priority list. Given it has now moved up the list there isn’t much need to rush rather than wait until after Jan 6th. I believe they are engaged in planning but I don’t think they see a reason rush today.
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).
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How delusional are some people in this forum?
https://www.treasury.gov/about/organizational-structure/Pages/craig_phillips.aspx
You think this guy is going around pretending to be part of the admin and organizations are just blindly inviting him to speak?
Josh got it right. Craig's official position isn't even listed on organizational structure and i do not think he is part of admin. If they did what he said, there would not be no reason for Fannie and Freddie to exist.
Josh Rosners take on Phillips comments (FWIW):
@JoshRosner
People are reading too much into @CraigPhillipsDC's comment. They aligned w/ OMB's statements re legislative goals. He didn't suggest they would sit on their hands pending legislation. I expect administrative reform is a separate track & UST may begin work with a post Watt @FHFA.
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I agree legislative reform will be difficult to pass / low probability event regardless of the makeup of congress (all gop, half gop/dems, all dems). The bigger question is what happens if they fail down this path that OMB/Whitehouse/Phillips discussed? Will they turn to administrative options or not?
Regarding the current proposal. The GSEs will be probably weakened (difficult to handicap to what extent without more details), but will still retain value (even if you assume they lose 50% of their market share overnight which is a large leap of faith they will still generate over $10b+ in net profits combined). So as long as they are generating profitable earnings, the preferred shares should still be money good in that event and if legislative reform actually passes, its not the worse thing in the world for pref holders imo. One consistent point of discussion is they want the GSEs re-privatized and out of conservatorship (read, not liquidated/removed from existence). This is also the only way the admin can monetize their warrants.
Josh Rosners take on Phillips comments (FWIW):
@JoshRosner
People are reading too much into @CraigPhillipsDC's comment. They aligned w/ OMB's statements re legislative goals. He didn't suggest they would sit on their hands pending legislation. I expect administrative reform is a separate track & UST may begin work with a post Watt @FHFA.
@JoshRosner
Watt has not proactive & was willing to sit & wait for legislation for which there are no votes. I suspect they decided, given it is so close to the end of his term, it would be easier to coordinate policy goals when they have a counterparty who shares their staging & priorities.
@JoshRosner
Until recently, GSE & mortgage market reform were not near the top of the priority list. Given it has now moved up the list there isn’t much need to rush rather than wait until after Jan 6th. I believe they are engaged in planning but I don’t think they see a reason rush today.
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?
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Josh Rosners take on Phillips comments (FWIW):
@JoshRosner
People are reading too much into @CraigPhillipsDC's comment. They aligned w/ OMB's statements re legislative goals. He didn't suggest they would sit on their hands pending legislation. I expect administrative reform is a separate track & UST may begin work with a post Watt @FHFA.
@JoshRosner
Watt has not proactive & was willing to sit & wait for legislation for which there are no votes. I suspect they decided, given it is so close to the end of his term, it would be easier to coordinate policy goals when they have a counterparty who shares their staging & priorities.
@JoshRosner
Until recently, GSE & mortgage market reform were not near the top of the priority list. Given it has now moved up the list there isn’t much need to rush rather than wait until after Jan 6th. I believe they are engaged in planning but I don’t think they see a reason rush today.
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That's definitely one way of looking at it. But keep in mind the moderator simply asked him whats next on his agenda for the upcoming year and he brought up the GSEs voluntarily on his own and did his little 1 minute blurb about it. Combine last weeks interview with Phillips saying a week prior that housing reform is next up on Mnuchins docket. Who knows if we are being honest but it does seem they are sticking their neck out to reiterate housing reform is a priority when they really dont need to.
Mnuchin literally just renewed his push for GSE reform post midterms 2 weeks ago. He reiterated that he wants to get them out of government control (not get rid of them) and he wants to get taxpayers off the hook of the current system. He tends to comment on the GSEs every Q or so and the message has been pretty consistent.
Later this month Treasury releases its semiannual currency report. We will see if Mnuchin has changed his stance re China as currency manipulator. Not too long ago he was squarely in the moderate camp looking for an amicable solution. He now appears to be aligning himself with the more radical side at the WH. Is he being pressured to get in line with the 'war on China'? Point being, relying on Mnuchin's original view on Fannie and Freddie may have become quicksand.With the recent market turmoil and rates rising as they have been I think Mnuchin maybe forced to act sooner then he may have wanted as I think/bet housing is going to start to get hit. Home prices are starting to fall already on the coasts and homes are not moving nearly as fast as they used to otherwise as prices have not come down yet. It isnt simply that linear but rates going forward to have found a bottom and prices, ie the wealth effect will take a hit. Im not calling a top in the economy or recession necessarily but valuations of every asset are going to start heading down.
For time sake I hope this is addressed before Mnuchin has to worry about a housing related crash but 6-12-18 months from now housing prices are going to start coming down. Hopefully will provide a push in the right direction.
'renewed his push' ? more like 'dribbled out his stale rhetoric'.
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Mnuchin literally just renewed his push for GSE reform post midterms 2 weeks ago. He reiterated that he wants to get them out of government control (not get rid of them) and he wants to get taxpayers off the hook of the current system. He tends to comment on the GSEs every Q or so and the message has been pretty consistent.
Later this month Treasury releases its semiannual currency report. We will see if Mnuchin has changed his stance re China as currency manipulator. Not too long ago he was squarely in the moderate camp looking for an amicable solution. He now appears to be aligning himself with the more radical side at the WH. Is he being pressured to get in line with the 'war on China'? Point being, relying on Mnuchin's original view on Fannie and Freddie may have become quicksand.With the recent market turmoil and rates rising as they have been I think Mnuchin maybe forced to act sooner then he may have wanted as I think/bet housing is going to start to get hit. Home prices are starting to fall already on the coasts and homes are not moving nearly as fast as they used to otherwise as prices have not come down yet. It isnt simply that linear but rates going forward to have found a bottom and prices, ie the wealth effect will take a hit. Im not calling a top in the economy or recession necessarily but valuations of every asset are going to start heading down.
For time sake I hope this is addressed before Mnuchin has to worry about a housing related crash but 6-12-18 months from now housing prices are going to start coming down. Hopefully will provide a push in the right direction.
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Muscleman just one thoery but how would you feel as a Judge if it turned out defendants you peviously ruled for actually lied to your face and the court about the rationale for the NWS. I could see why he flipped to our side when it comes to the facts now that he has the benefits of evidence (thanks to the Sweeney case which we received 2 years after his initial ruling).
Defendants tried to pull a fast one and they got caught red handed.
FNMA and FMCC preferreds. In search of the elusive 10 bagger.
in General Discussion
Posted
I think you are overrating hedgefunds and their abilities (have you seen their returns lately).
FWIW- I work closely with hedge funds and most either throw this in the too difficult / do not touch pile or have been involved in this name for so long that its already tainted and are close to throwing in the towel if they havent already.
I believe the mispricing today is simply a fear of status quo continuing indefinitely. This is now a "show-me" story. Until the Admin takes concrete definitive action one way or another, market won't bite.