allnatural

More positive commentary from Calabria re: FHFA authority to end the conservatorship and moving forward w/o Congress if they fail to act. https://www.politico.com/story/2019/05/14/fannie-mae-freddie-mac-mark-calarbria-1438457 “I really would like to see Congress act,” he said. “Keep in mind, I’ve got two entities, I’ve got the current business model — I’m stuck with that. I can get them out of conservatorship, I can try to make sure they’re better capitalized, better regulated, but essentially, the model is the model.

Positive all around. Good commentary on capital, timing, ending the NWS, and making the lawsuits go away. Pinch me. Fannie, Freddie need strong capital position to exit conservatorship: FHFA chief By Hannah Lang Published May 14 2019, 4:01pm EDT — In his first public policy discussion as director of the Federal Housing Finance Agency, Mark Calabria stressed that a strong capital position will determine the future for Fannie Mae and Freddie Mac, eventually helping to lead them out of conservatorship. The lack of capital at Fannie and Freddie spurred the government to seize control of the government-sponsored enterprises more than a decade ago, so the two will have to build a sufficient amount in order to release themselves, Calabria said Tuesday at a National Association of Realtors legislative conference. “All large, systemically important financial institutions should be well capitalized,” he said, speaking at a regulatory forum with Vanity Fair’s Bethany McLean. “That should seem non-debatable at this point. I think if your objective is not to put the taxpayer at risk, if the taxpayer is at risk, the system is at risk.” “If you don’t have a lot of capital, you can’t take a lot of risk, and that’s a very basic notion that I think is a responsible way to run two companies," said FHFA Director Mark Calabria.Bloomberg News Calabria reiterated his timeline for the first steps toward their release this year, which he said would be negotiating changes to the preferred stock purchase agreements with the Treasury Department in the fall, after Treasury and the Department of Housing and Urban Development put out reports on administrative and legislative reform in response to a recent presidential directive. Treasury has consulted with the FHFA on its response, said Calabria, and after those reports are finalized, he plans to work toward ending the “net worth sweep.” In 2012, the FHFA and Treasury altered the senior agreements to require Fannie and Freddie to deliver nearly all of their profits to the Treasury Department in an effort to repay taxpayers, leaving the GSEs with an incredibly small capital cushion of $3 billion each. “I will engage with Treasury on an equal basis to where we can make changes to the share agreement that would create a path to get out of conservatorship, and that would absolutely require an end to the sweep,” he said. “My hope is we can have this wrapped up where we set a road map … out of conservatorship somewhere later in the year.” But simply allowing the GSEs to retain earnings wouldn’t provide enough capital to safely release Fannie and Freddie from conservatorship, and FHFA will begin to look over data related to a public offering later this year, though the timeline is “not calendar dependent,” said Calabria. “The best thing that can be done for the markets is to create a transparent system where the financials are understandable, they actually translate what the business model is and profitability is, and then investors can decide for themselves whether they want to invest in it,” he said. The GSEs can raise capital without increasing guarantee fees or mortgage pricing, Calabria said. “How do we level the playing field to where all large financial institutions have similar capital so that the GSEs have a successful business model because they have good management, because they have good execution, not because they have lower standards than everybody else?” he said. Stronger capital will also counteract the GSEs’ procyclical tendencies that were present in the run-up to the financial crisis, said Calabria. “Not having enough capital will mean that Fannie and Freddie will pull back,” he said. “If they have sufficient capital, they will keep lending throughout the crisis and we will have mortgage availability through a downturn, which is when we need it most.” Before Fannie and Freddie are released from conservatorship, they will also need to have a strong supervisory framework in place, he said. “I have an agency where almost the entire existence of the agency Fannie and Freddie have been in conservatorship,” he said. “If you really think about it you’re going to be carrying a lot of the weight, moving it from the conservator to the supervision team. I haven’t seen anything to raise any questions in my mind, but for me, a prerequisite to leave conservatorship is I’ve got 100% confidence that the supervisory framework is there.” Meanwhile, Fannie and Freddie will likely curtail risk while they maintain a limited capital buffer in conservatorship, said Calabria. “If you’ve got more capital, you can take more risk,” he said. “If you don’t have a lot of capital, you can’t take a lot of risk, and that’s a very basic notion that I think is a responsible way to run two companies.” The combinations of risk factors in a loan, he said, will have to be “looked at holistically.” “What we can do is dial this back a little bit, hardly noticeable at all in the marketplace," Calabria said. "The vast majority of loans will stay where they are, but we can dial back the riskiest part of it and again reduce a lot of the risk that way." However, Calabria echoed his testimony at a Senate Banking Committee nomination hearing in February, reiterating that loan limits, affordable housing goals and the “duty-to-serve” provisions will stay in place. McLean also asked Calabria about continuing shareholder litigation, which he brushed off. “I think if we can chart a path out of conservatorship … that that makes a lot of those issues go away,” he said.

As Otting said (speaking on behalf of FHFA at the time), admin already has a plan determined and everyone is on board. I believe Calabrias recent media appearances were purposefully done, as another commentor mentioned, to start getting the market comfortable with the plan and reduce shock and awe when formally announced.

During AB interview he said sept/oct to amend spsa (stop nws), then in fox interview he reiterated that would be completed by the fall. there is nothing inconsistent with those comments. His first half of 2020 comment was regarding an IPO which makes sense timeline wise. I know reading comprehension is hard but this is basic stuff

Shortly after he said 3 to 4 to 5%... and during his senate testimony he was ok w/ FHFA's 3.25%. So honestly I don't even think he knows.

It seems Calabria/Admin have the path laid out regardless of Collins outcome. But a negative Collins ruling will prob cause some short-term pain / pullback in pfds. But not as bad as in 2017 when there was no admin plan being discussed.

How are people not more bulled up on this comment from yesterday, "He brushed off concerns about the legality of Treasury’s net-worth sweep, which is the focus of legal challenges. “I think that if we can get them out of conservatorship and then we can set a path, I think a lot of those issues will go away,” he said."" This is the first time anyone is directly acknowledging the lawsuits, and Calabira is all but admitting that the shareholders will naturally receive their desired remedy (treat senior pfds as paid off + no more NWS) if admin has their way (recap, reform, release). I just have more questions as calabria speaks. even hazarding a timeline for an IPO would seem to imply that an investment banker has been retained and its views as to market conditions and timing has been given. which is great, except calabria may think he is so smart that he can give this kind of guidance on his own, not having participated in an IPO before. which just worries me more...

"Great news for shareholders. There is no IPO without settling w/ current shareholders first (which Calabria hinted at yesterday). So.... settlement to come by Q4 '19 or Q1 '20." Sounds good to me 8)

From a colleague: "Regarding giving Congress "sufficient" time. The journalist confirmed that Calabria's interview should be interpreted that Admin / FHFA will take the first steps towards ending the conservatorship, and Congress will be free to chime in along the way / at the end. Not that the Admin will do nothing / sit on their hands until 2020+ as some are mistakenly misreading the article to be." This is consistent with Calabrias comment from his American Banker article last week where he says he hopes that the admin moving forward alone will put pressure on congress to act (but not required).

Maybe im misunderstanding you but how is amending the senior pfds to 5% and paying all that down going forward quicker than immediately writing it to down zero as part of settlement? And how does that solve any capital raise requirement to get the companies to 2.5% - 3% buffer if they have to pay off $189b at 5% first? Unless you are thinking they are going to retroactively amend the original 10% agreement back to 5%...? my best guess is that if there were a 4th amendment that recharacterized prior "excess of 10% dividends" into pref reductions then the pref balance will be reduced to zero. no hit. what that does to prior years' accounting I know not So looks like I'm in the minority. My thinking is shaped by the "let the gse's pay us back act" bill that was proposed where the interest rate was amended to 5pct. It didn't go anywhere but tells me it's possible. It'd be quicker and give investors more confidence. I can't help but think a capital raise is going to take a long time.

Amended retroactively? All that amounts to is Treasury sending a giant check to the companies. I can't see this happening at all. In fact, I think a highly plausible way to settle the Collins case is to extinguish the seniors and end the NWS, but not give FnF the tax credit that the plaintiffs ask for. Instead Treasury would just keep that overage. Treasury would also net more money by not sending this giant check and having its warrants be worth somewhat less due to dilution from the capital raise. In my opinion any projected course of action that involves Treasury voluntarily sending money out, instead of receiving it, is DOA. Agreed. Government will not pay a penny to anyone (shareholders or back to the companies).

Does anyone know how the senior pfd balance works on the governments balance sheet? If they decide to settle with shareholders will there be a ~$189b writedown for the government and will it hurt the budget (such as giving up access to the GSEs earnings through the NWS will?). I know this can be offset with the warrant monetization and commitment fee going forward but wondering if they will need to take a $189b hit upfront. Thank you.

This is the final brief due in this case. Hallelujah.

Ackman is the only other notable "hedge fund" that publicly discloses its holdings. mostly fnma/fmcc common with some fnmas and fmckj.

What's taking so long for Collin En Banc panel to simply copy/paste the Willet dissent! I guess the merit panel majority will actually have to defend their position on why the NWS isnt a violation of HERA (and make some counter-points against Willet instead of ignoring him) instead of just saying in 1 paragraph b/c the other courts already said so.

Dividend has been paid - https://www.fhfa.gov/datatools/downloads/documents/market-data/table_2.pdf

this has been my concern since otting's 2-4 wk timeline failed to materialize. the likely timeline: otting's comments leak. congress tells wh privately they will go fast. wh says publicly they want to work with congress. crapo outline released. mnuchin writes brief support statement. 2 days of productive Senate hearings. today's hearing went better imo. Calhoun was strong. lots of utility talk, less Demarco agenda. barring something crazy, the committee will likely pass a bill, perhaps with more cushion than standard 13-12 party line votes. that raises the odds of it passing the Senate this summer, and then they could see where waters stands at that point. so things changed vs january. mnuchin is likely giving congress 1 last shot. crapo likely knows time is of the essence, and things will likely move quickly. this timing also allows for the FHFA to hopefully finalize capital ratio targets and perhaps the 5th circuit outcome. + Begin retaining capital in the interim once Calabria is in his seat which shouldn't disrupt any reform efforts.

According to the report this is not a starting point, but as reported, ""The move would be the culmination of months of meetings among administration officials on what to do about Fannie and Freddie." This contradicts Howards point of starting from scratch to vet out reform.

It appears he is moving quickly. Outline released and dual hearings all in the last few weeks. Should have final version ready to go in the next 1-2 months i'm guessing.

Quicker this latest Crapo bill crashes and burns, quicker we can move onto admin taking charge... They won't get any more chances after this.

Great info SnarkyPuppy... Seems like someone who was close to Mnuchin in this admins UST believes they will take action that is in favor of building on the current system and not starting from scratch.

Larry McDonald, founder of The Bear Traps Report “It frees him up to focus on infrastructure and housing reform.” https://www.cnbc.com/2019/03/24/heres-a-wrap-of-what-wall-street-investors-think-the-mueller-findings-mean-for-the-stock-market.html

Senate is off this week.

+1 Well done. Hilarious and informative.

I have final briefs due 5/6.. followed by potential oral arguments and then a decision hopefully by year end or q1 2020.