allnatural

Looking to make the GSEs more profitable in order to for them to be attractive to potential investors is a very important statement from Calabria as it is a 180 change from his previous views. Twice in the past 1-2 months when he was asked about how the GSEs will attract investors while simultaneously making them less attractive via reducing their footprints, Calabria said that's not his problem, but for Fannie and Freddie to figure out. All of a sudden the FHFA itself is looking at how to make the GSEs more profitable specifically so they will be attractive to potential investors... Seems like someone told him it IS his problem to figure out.

He can start by discontinuing to issue value destructive CRTs

FHFA is reviewing a host of options to make Fannie and Freddie more profitable because the companies have to be attractive to potential investors in order to have successful share offerings, Calabria says FHFA hopes to have hired a financial adviser to offer expertise on Fannie and Freddie by the end of November, if not sooner, he says

I think the better question instead of whose selling, is who is buying today? Most investors are full and/or fatigued at this point and until we get definitive terms (seniors nuked w/ pspa amendment / legal settlement / ipo terms locked in), there aren't many INCREMENTAL investors willing to touch this for better or worse. Hence the opportunity @ 50% of par. But i'm confident once we get clarity on those action items it is off to the races (although there's not much to complain about YTD returns).

Wow there's so much wrong with this... Please do some more research on the subject matter. Re: news today I find this hopeful as a) we should have banker announced by Nov/Dec as deadline for submission is Oct 15 and b) i still see an all encompassing PSPA amendment (+settlement) happening in the short term (3-6months) as no capital raise can proceed without this being decided way in advance. PSPA amendment is one of the first steps listed in the FHFA statement of work today. "Phase I: Development of the Roadmap ... 3. Advise FHFA with regard to potential revisions to the PSPAs."

18 months sets them up for q4 2020 / q1 2021 ipo as calabria discussed. PSPA amendment must be completed way before then / before any roadshow begins.

In terms of timeline, last tidbit of info we have to go off of is that Calabria still aims to complete the PSPA amendment by the end of the year... I don't think this can happen until the FHFA capital rule is finalized which i think is on schedule for Q4 as well. Notice the letter agreement makes reference to a singular additional amendment, not plural amendment(s). I still believe we are on track for a Q4-Q1 all encompassing PSPA amendment which should finalize the treatment / terms for JPS.

Fannie Mae Sweep Fixed, Treasury Works Toward Settlement: React Contributing Analysts Elliott Z Stein (Litigation) (Bloomberg Intelligence) -- RECENT EVENT REACTION: The Trump administration's timeliness in allowing Fannie Mae to retain $25 billion in capital over time, offset against a higher valuation of Treasury's shares, bodes well for a final capital rule by year-end. We think it paves the way for a robust deal settling shareholder litigation and eliminating Treasury's senior preferred stake, possibly in 2020.

Close to zero? This is most likely a year end event, possibly slips into Q1. What does everybody think the odds are of this getting done in the month of October? Thanks in advance for replies.

That's exactly what it's referring to.. a PSPA amendment coming soon. Referring to the Fannie Mae letter agreement text in above link... Does part III refer to a future amendment to the PSPA?...The big one we are all looking forward to? If so, I wonder why this language was put into this letter agreement; any thoughts on that?

Some interesting tidbits from the press releases: Calabria on urgency:"The status quo is not an option. Now is the time to act.” Mnuchin on an additional PSPA amendment + RECAP: Treasury and each of Fannie Mae and Freddie Mac also agreed to negotiate an additional amendment to the PSPAs that would further enhance taxpayer protections by adopting covenants that are broadly consistent with the recommendations for administrative reforms contained in the Plan. The Plan also recommended that Treasury and FHFA develop recapitalization plans for Fannie Mae and Freddie Mac after identifying and assessing the full range of strategic options. Subsequent amendments to the PSPAs may be appropriate to facilitate the implementation of any eventual recapitalization plans. I think Ben Elliot @ bloomberg intelligence nailed it, "We think it paves the way for a robust deal settling shareholder litigation and eliminating Treasury's senior preferred stake" The incoming PSPA amendment should formally kills the NWS, deal with the senior pfds, finalize the commitment line / fee, and settle w/ shareholders.

Thank you Midas. While circumstances surrounding the GSEs are different due to litigation and the amount of funds the taxpayers have already received, this is a helpful resource that the treasury might model their conversion after.

Lucky for us we don't have to speculate what the periodic committement fee would have been. We found out in the unsealed docs from the Sweeney case and on the eve of the sweep internal government docs showed it would have been $400m annual for Freddie (25bps on the commitment line). So safe to assume around $1b/yr for both companies. Pollack's anti gse bias is very clear. Source: https://fanniefreddiesecrets.org/freddie-mac-pcf-presentation-redacted/ - page 27 quote author=SnarkyPuppy " data-ipsquote-contentapp="forums" data-ipsquote-contenttype="forums" data-ipsquote-contentid="3656" data-ipsquote-contentclass="forums_Topic" 382509#msg382509 data-ipsquote-timestamp=1568938856] Alex Pollock - https://www.realclearmarkets.com/articles/2019/09/20/have_fannie_and_freddie_paid_the_taxpayers_back_yet__103920.html Didn't this same clown write about the 10% moment?

Sweeney liability would fall to the government, we are literally sueing the government for TAKING our private property (the GSEs private shares). the lawyer mentioned the lamberth case legal $ liability fell to the companies. he did not clarify on the sweeney cases. perhaps the liability to those are to the Tsy/govt?

You're taking that investors unite call comment out of context. Specifically the Lamberth contracts case would require the damages to be paid by the GSEs themselves to the shareholders. But if the NWS were ever reversed (APA claim + constitutional remedy claim), the government (not the companies) would be on the hook. Also as per the original PSPA terms, the government is not allowed to get new securities of the GSEs past 2009 other than the warrants and the original senior pfds they already own so I doubt they are even allowed to swap out for debt bc that would be a new security.

If there is settlement, we go to a world where the NWS never existed and therefore the liquidation preference never increased. Settlement / remedy won't recognize the increase in liq. pref. so non issue and clever workaround/interim step to retain significant capital immediately. Shareholders hold great leverage after Collins and both Mnuchin and Calabria have made comments regarding lawsuits in the last week in favor of shareholders. Mnuchin said he won't let litigation stand in way of pursuing recap/release (only way that's possible is settlement) and Calabria said he isn't worried about the lawsuits bc they will take care of themselves once they do the PSPA amendment (only way that happens is if they address senior pfds). Admin is pursuing a recap release and as junior pfd holder we are sitting pretty. I expect a settlement in conjunction with the PSPA amendment in the next 3-6 months. Don't overthink it at this stage :) You'd think. Yet the preferreds fall every day. Just rotation to commons? Im honestly perplexed to a degree also. Preferreds aren't much higher then back just before the Lamberth decision yet look how far we have come and where we are. Maybe it takes the NWS being off permanently or release of capital plan to see much closer to par. Either way seems like price will be up substantially overnight like after the 5th circuit ruling. Personally I was disappointed that even if NWS ends, the capital retained will simply be added to the senior liquidation preference. In essence, all 100% still flows to the Treasury likely for the next couple of years. This combined with the capital raise plans being deferred to after the election is disappointing. I had loaded up my position to 20% of portfolio after Calabria's statements in the early summer about capital building and shareholders getting some conversion, but after this information have cut it down to 5% again. Surprised no one else is bothered about continued usurping of profits despite the court ruling.

Not necessarily. The AIG case essentially ruled that even though the government violated shareholder rights, they weren't entitled to damages because without the governments bailout, shareholders would have been zeroed out. In this case, shareholders are arguing that the bailout was improper and shareholders had plenty of value without the governments involvement. That said, I think any case challenging the original bailout terms is a 1% chance at best. I don’t think the recap can settle that, but I don’t think that one has any foot to stand on. The AIG case pretty much makes this impossible.

I just finished the dissenting opinion on APA claim and feel a lot more comfortable about our odds in SCOTUS if this gets there. The dissent was extremely lazy (only 5 pages, mostly saying they agree with the sister circuits) and unpersuasive as it didn't address any of the majority's carefully thought out points as to why the NWS violates HERA. If SCOTUS judges had to choose between these two opinions written today, shareholders should do fine.

@cherzeca, thank you for all your insight. I just finished the APA section (count 1) that ruled in plaintiffs favor. My quick take is that its a very powerful and poetically written ruling by Willet (not surprising considering his dissent). As I understand, the majority ultimately agreed that the NWS violated HERA and no different set of facts can change that, based off this quote, "Transferring substantially all capital to Treasury, without limitation, exceeds FHFA's power to put the GSEs in a "sound an solvent condition," "carry on their business," and "preserve and conserve their assets and property." We ground this holding in statutory interpretation, not business judgment." The majority does go on to say there are factual discrepancies between the parties so its up to the lower circuit to decide if they want to get the facts straight for the record or just rule a summary judgement (presumably against the government), "the district court may decide if the fact issues require trial or if summary judgement should be granted." But the point the majority makes very clear to me is no set of facts can justify the NWS, and that you need not look further than the statue to determine this. Very positive on that point that should be driven home to all observers IMO. So it appears this remand for potential fact checks is more procedural than anything, and ultimately the district court should fall in line with the Majority judges ruling that facts aren't necessarily relevant to the analysis of whether the NWS violated HERA and can just issue a summary judgment. Either way you slice it, the government is in a loss/loss scenario on this APA opinion, and plaintiffs surviving the motion to dismiss is a nightmare scenario for them. I wonder if the judges held off on summary judgment here in order to give the government an opportunity to save face and settle this ahead of time (after all Trump did nominate many of these judges). Regardless, shareholders now have a substantial amount of leverage at the negotiating table as that pending decision is now a ticking time bomb for the government. Curious what you think of my view @cherzeca. Thanks. Great day for all shareholders. Congrats to everyone. “We are delighted that the court has made clear that the net worth sweep will not be allowed to stand,” the shareholders’ lawyer, David Thompson, said of Friday’s ruling.

I think in the last week alone ACG has proven to be a reliable and credible source (first to break the GSE plan to be released on Thursday after the close w/ Embargo + only source i'm aware of who called for the interim step to be announced ahead of the formal PSPA amendment which i think was a surprising piece of the plan). Additionally, based off the real vision interview with the head of ACG, it seems the head of ACG has a very close connection w/ Mick Mulvaney... Maybe ACG is hinting that the sweep could be stopped this month w/ that recommended interim step which should be implemented "as promptly as practicable." That would gives the GSEs ~15b+ of retained earnings in 2019 (Q2, Q3, Q4) + ~6b on the books = ~$20b of retained capital heading into 2020 to accelerate any recap. Tuesday should be interesting.

You can't margin OTC securities like the PFDs.

They are currently ~60% of the single-family market, so even if you assume 30-40% they are still earning $10-15b a year, enough for the common to retain value and pfds to be made whole. But I think the probability of them losing that much market share overnight is close to zero. It would require new entrants to want to compete w/ the GSEs, which would probably require Congress to pass legislation to expand the charters (0-2% probability?). As Layton recently explained, who actually wants to invest capital to compete w/ a duopoly? Here is his full quote: "At 50,000 feet I agree it would be better to have more competition but let me ask two questions. Number one: Who’s going to enter? Who’s going to raise capital with the following investment thesis, I’m gonna start from scratch and to make it work and deliver into the single security I need a nationwide footprint because otherwise it won’t be accepted as fungible with the others so that’s a market requirement and so I have to go big fast and I’m going to compete with two massively entrenched competitors. Who have scale advantages and 100% market share against me. So what private equity firm is going to go, I like that story. So we’ve sat there and go who actually is going to enter. I understand the theory it would be good if people enter but when you actually go and ask possible entrants they go it’s just not a good deal. So I’m not talking theory I’m talking will someone show up.” I believe there is a piece of new information in this article: "Privately they have said they would like to reduce Fannie and Freddie’s loan footprint to between 30% and 40% of the market, according to people familiar with their discussions." Additionally, quite amazing if you take a step back 1-2 years and see how drastically the narrative has changed. Could argue that Mnuchin has done a great job at "boiling the frog" in terms of creating sentiment shift (rather than doing everything at once), but that could be confirmation bias. If Fannie and Freddie are 30-40^% o the market, profitability will be markedly lower than recent years.

Mnuchin leaving will always be a tail risk for this trade. Mick Mulvaney would be the only person in the admin i can think of who would do a good job as replacement on progressing the recap/reform/release agenda given his past views being pro recap/release, anti-NWS, and believing the governments been fully paid back.

There is an order granting oral argument on 7/3, but no date set it appears. See attached 18-00281-0036.pdf

Cherzeca- are oral arguments in the court of federal claims scheduled to begin shortly? Is there a date set? Thank you