COBFInfinity

I disagree that the NWS has been ended. I know, even Calabria has claimed that. But as long as the Sr Pfd balance increases right along with retained earnings, the GSEs are only building fictional capital. The NWS is not really ended as long as this continues.

I don't think I said that. I did say that the few preferreds that have low floating rate coupons (some of which would actually be 0% right now) are bad bets. I think everything with a fixed coupon of 4.5-6.0% is where the best values are. It is possible, but I don't think certain, that the even higher coupon issues will get better terms down the line, but you have to pay up for it, which I choose not to do. The interesting question now is should we actually have a preference for Freddie preferreds over Fannie? Based on the $70 billion capital raise limit before SPS paydown is required, Fannie is constrained from exiting conservatorship a lot longer than Freddie. But if the preferreds get exchanged as part of a settlement at the same time, then it may not matter that much as to the actual end date of the conservatorship. Mr. Market didn't make any distinction between the two on Friday, but that was just one day. Does anyone think there will be some price separation favoring Freddie in the near term?

I thought "you need only one", too. So when preferred price started to soften a week or so after that, I bought more preferred for the first time since early 2015. Those shares are down about 60% right now. My plan with this investment has always been "par or bust", so I plan to ride this out even if it's another decade. But I will never again get involved in an investment dependent on litigation.

I never thought that. I have always and only owned preferreds based on the assumption that as long as receivership is avoided, you can't dilute the par value. I never had a clue what might happen to common or assumed it would be treated fairly. I did, however, buy into the assumption that Mnuchin wanted to end the conservatorship, because, you know, he told us that over and over for 4 years. Why he punted, I have no clue. He could have created this blueprint, but not have been so punitive.

you may be right. I have avoided those as well. but 50cents is 12% which isn't insignificant. 6%, actually.

Finally, someone here to ask: Why buy a preferred with a 0% coupon? I know it's slightly cheaper, but you are betting really heavily on the assumption that it will be treated the same as the rest of the preferreds in an exchange/dividend resumption. Are you not concerned that it will be left outstanding at only trade at 50-60% of par while everyone else has cashed out at 100%? So you think FNMAP going from $8 to $30 is just as good as a fixed rate preferred going from $8.50 to $50? Your calculator might be broken. your assumptions may be off. Also ideally rather than waiting for par we might want to convert sooner -- if that option is available -- for less than par. The point is there are ZERO scenarios in which the outcome for a 0% preferred is better than one of the fixed rate preferred. However, there are MULTIPLE scenarios in which the outcome is worse - and when it is worse, it may be far worse. So it doesn't seem to me that a $0.50 discount in price is sufficient for that extra risk.

Finally, someone here to ask: Why buy a preferred with a 0% coupon? I know it's slightly cheaper, but you are betting really heavily on the assumption that it will be treated the same as the rest of the preferreds in an exchange/dividend resumption. Are you not concerned that it will be left outstanding at only trade at 50-60% of par while everyone else has cashed out at 100%? So you think FNMAP going from $8 to $30 is just as good as a fixed rate preferred going from $8.50 to $50? Your calculator might be broken.

Finally, someone here to ask: Why buy a preferred with a 0% coupon? I know it's slightly cheaper, but you are betting really heavily on the assumption that it will be treated the same as the rest of the preferreds in an exchange/dividend resumption. Are you not concerned that it will be left outstanding at only trade at 50-60% of par while everyone else has cashed out at 100%?

Unreal. Pre-market bid/ask imply that commons will be down slightly while preferreds get hammered again. A lot of people must have read a different agreement than I did last night.

Exactly why plaintiffs should look to settle before SCOTUS ruling, because if Calabria is shown the door, we may get screwed.

Do you really have confidence that any lawsuit will deliver a big win? I was as gung ho as anyone back in 2014, thinking that Lamberth's first decision was such an obvious mistake. But even the likes of Sweeney, who seemed to be sympathetic for a few years, ultimately implied that she was on Lamberth's side, even after much more evidence of the dirty dealing was revealed. So while there might be temptation to hit it big, my confidence is pretty low that it will ever happen. And preferred is already priced for 400% upside - if you can get that fast, it seems like you should take it. I obviously have no clue what plaintiffs will do or when, but I expect must of them will take a solid victory in share price and sacrifice potential damages in the courts.

That's awfully optimistic given Senior Prefs remain and liquidation pref keeps increasing. I think it would be a pleasant surprise if we're not red. The only thing I know for sure is that there will be massive volume and volatility in both the common and preferred. And while I have close to 0% success predicting security price movements, I actually wouldn't be surprised if the preferred does even better than +30%. Because here is what Mnuchin's punitive blueprint provides for options right now*: Fast Recap or No Recap. So given those two choices, Fast Recap is the one that preferred investor plaintiffs and the companies will choose. I think a settlement occurs before SCOTUS ruling and then capital raise begins. *Based on the assumption that SCOTUS ruling is uncertain. Some, of course, think it's a lock, but we've been disappointed too many times for me to take that view. I dont like negotiating from a position of weakness resulting from the agreement (as opposed to the litigation merits, which I think is a position of strength). I hope Ps agree. See my post right after yours and also consider that, compared to Tsy, plaintiffs will now always be in a position of weakness because a) we want a recap way more than Janet Yellen does and b) playing out the case for several more years will cost a lot in increased liquidation preference and dividends. If your upside is limited to par value and the value of the lawsuit will not accrue to you anyway, why would you keep fighting?

That's awfully optimistic given Senior Prefs remain and liquidation pref keeps increasing. I think it would be a pleasant surprise if we're not red. The only thing I know for sure is that there will be massive volume and volatility in both the common and preferred. And while I have close to 0% success predicting security price movements, I actually wouldn't be surprised if the preferred does even better than +30%. Because here is what Mnuchin's punitive blueprint provides for options right now*: Fast Recap or No Recap. So given those two choices, Fast Recap is the one that preferred investor plaintiffs and the companies will choose. I think a settlement occurs before SCOTUS ruling and then capital raise begins. *Based on the assumption that SCOTUS ruling is uncertain. Some, of course, think it's a lock, but we've been disappointed too many times for me to take that view. You'd have to assume Yellen is eager to get on with this process to take this view imo (or be super confident on collins constitutional which i'm not). bc she could stall for years if she wanted, although the bankers would likely be pushing for her to settle so they can raise big $$ and collect fees. I did a simple balance sheet analysis a few weeks back that no one commented on, but it broke me out of my inertial thinking that started in 2014, which was: "We have to win the lawsuits and get paid the overage." But when it became clear that Mnuchin was not going to settle, I had to rethink what may happen. And when I did, I understood the dynamic clearly for the first time that since writing down the Sr Pfd mostly accrues to the Tsy-owned warrants anyway, what matters much more to preferred shareholders is that the NWS ends and that there is a method to pay down Sr Pfd. Any writedown of the Sr Pfd is cake, of course, but much of the benefit moves from one pocket of Tsy to the other pocket. Common shareholders are hurt badly without a writedown of Sr Pfd, but that's the reason most of us here are only or mostly in preferred. So if you are a big preferred holder plaintiff like Berkowitz, who has been in the trade for 6-7 years with little to show for it, are you willing to sacrifice a potential big legal win that is years away and only changes the timing of your upside to par, but not the magnitude, in order to get a recap done ASAP? I think Berko says, "Hell, yeah!"

That's awfully optimistic given Senior Prefs remain and liquidation pref keeps increasing. I think it would be a pleasant surprise if we're not red. The only thing I know for sure is that there will be massive volume and volatility in both the common and preferred. And while I have close to 0% success predicting security price movements, I actually wouldn't be surprised if the preferred does even better than +30%. Because here is what Mnuchin's punitive blueprint provides for options right now*: Fast Recap or No Recap. So given those two choices, Fast Recap is the one that preferred investor plaintiffs and the companies will choose. I think a settlement occurs before SCOTUS ruling and then capital raise begins. *Based on the assumption that SCOTUS ruling is uncertain. Some, of course, think it's a lock, but we've been disappointed too many times for me to take that view.

A few thoughts before dinner. A shout out to the chartist heroes who came out of the woodwork over the past two weeks with the viewpoint that if the share price was dropping, it meant Mnuchin was going to do nothing. Great help you all were! I bought preferred at the end of 2014 based on the legal angle, but I couldn't help but be convinced by ACG Capital's supposed "D.C. insider" info the last couple years about admin reform. They had been confident that not only would Sr Pfd be written down, but the excess earned by NWS over 10% dividend would be added as a tax credit. I thought the latter part was pie-in-the-sky, but hey, they supposedly had the inside track. So much for that. Did Mnuchin ever have that view? Perhaps, but it obviously wasn't firmly held. One reason Mnuchin waited til the last minute was to develop a plan that Yellen would give the stamp of approval. Good move. Completely meaningless predictions for tomorrow: Common -25%, Preferred +30%.

This is good. If anyone was somehow underweight preferreds, you might want to buy a few at the open tomorrow.

So, Sr. preferred remain in place, but payments are suspended until GSEs retain capital upto previously stated levels. Every dollar of retained earnings increases liquidation preference, and there is still no mechanism to reduce it, and NWS payments have been amended to the lesser of increase in book value or 10% of liquidation preference. New capital can only be raised once lawsuits are ruled on, or settled. Let me see if I can read in between the lines: Common shares are screwed. Retained earnings are financed @ 10%, non-compounded, because they add to liquidation preference which gets priority payment after recap. Only other way to recap more cheaply is to offer shares quickly. Shares can only be offered quickly if there is a settlement. So, 1) Common gets screwed by dilution of Treasury's 80% AND new offerings coming in the near term with less emphasis on retained earnings And 2) we can expect those new offerings soon as companies and govt now have incentive to settle this quickly (companies to avoid 10% financing of retained earnings for liquidation preference that can never be reduced and govt to unlock the value of its 80% stake to fund new stimulus packages). Does that seem right to everyone else? Yes, as I guessed earlier today, preferred plaintiffs will be highly incentivized to drop the lawsuits (or settle for pennies). Keeping a 10% dividend and increasing liquidation preference is highly punitive. My view: modestly bullish for preferred, very bearish for common. It's going to take at least a few years to build up the 3% capital target, but at 20% of par there's a big IRR built in. Assumes, of course, that Biden/Yellen will play ball. If they can settle the lawsuits for pennies, I think they might.

+1 and if there is a pathway out of conservatorship how on earth SPdfs are not dealt? I think we are just getting nuked with pieces of misinformation. My best gin waiting in the fridge in case we have a happy ending LOL I suppose Mnuchin's pathway is to simply raise the retained earnings cap by another letter agreement. all hat no cattle for that putz. three or so months to wait for SCOTUS. I think we get good news on APA claim (and maybe const claim, though justices were squirming around on that). APA claim would go to summary judgment motion hopefully by summer, but god knows when decided by fed d ct cherzeca how does mnuchins comments that if SCOTUS rules for gov it would be easier to raise 3rd party capital? Rules for gov outright? NWS illegal but no damages? Whats your read on that? He merely said it simplifies things. As in, he expects all plaintiffs will throw in the towel on all lawsuits. no, why we would we trade in lamberth? It's $40 potential. Ideally we'd settle that at some point in future for some value. Like an earlier conversion to common or even better some ratio of paydowns as capital is built -- half sr pref half jr pref. Because plaintiffs have the weak hand. The upcoming Treasury is never going to settle on fair terms, preferring to just let the lawsuits play out over many more years. Depending on what the PSPA amendment consists of (i.e., whether it would allow for a capital raise if not for the lawsuits), I actually think there's a possibility that preferred shareholder plaintiffs will be incentivized to drop all lawsuits quickly in order to allow for a recap to occur. That would be bad for common shareholders, but preferreds likely get paid off much faster in that scenario. But again, it will all depend on the details in the agreement...

+1 and if there is a pathway out of conservatorship how on earth SPdfs are not dealt? I think we are just getting nuked with pieces of misinformation. My best gin waiting in the fridge in case we have a happy ending LOL I suppose Mnuchin's pathway is to simply raise the retained earnings cap by another letter agreement. all hat no cattle for that putz. three or so months to wait for SCOTUS. I think we get good news on APA claim (and maybe const claim, though justices were squirming around on that). APA claim would go to summary judgment motion hopefully by summer, but god knows when decided by fed d ct cherzeca how does mnuchins comments that if SCOTUS rules for gov it would be easier to raise 3rd party capital? Rules for gov outright? NWS illegal but no damages? Whats your read on that? He merely said it simplifies things. As in, he expects all plaintiffs will throw in the towel on all lawsuits.

You're just making stuff up here. Trump is still POTUS. If he wants to pardon people, you think the WH lawyers are going to refuse? Highly unlikely. But again, what does that have to do with Mnuchin, who can sign off on PSPA amendment on his own? Anyway, I'm done with the back and forth. Time to just wait and see what Mnuchin does, or doesn't do.

Lol, I just opened the Bloomberg.com page. The bold headline is "Trump is Planning to Stage a Defiant Last Week". Seems consistent to what I just wrote above. His entire existence revolves around amplifying his base, not appeasing to his detractors.

You keep implying that Trump is all of a sudden going to be a respectful, honorable guy in the last 10 days. Not going to happen. When has he ever cared about what his detractors think? You really think he's not going to pardon anyone now because some people won't like it? Lol, I expect a pardon Pez dispenser in the coming days. If anything, Trump's history implies he is willing to be even more aggressive in offending his opponents right now. I don't think the GSE's is going to rile up anyone, though. And, believe it or not, the WH has continued to put out executive actions since the 6th (see https://www.whitehouse.gov/presidential-actions/). I don't know if there's any controversy with these, but your assumption that everyone has just stopped working appears to be false.

Side note: performance attribution analysis of FAIRX implies that Berkowitz still had a substantial position in GSE preferreds last week. He has a large position, so even if he did change his mind based on last week's events we wouldn't be able to tell how he was reacting. But it's pretty clear that he did not throw in the towel late in 2020 when many others said it was already too late.

Just so everyone doesn’t think I’m a hater, this seems like a reasonable counter argument at first glance although again I haven’t done any work on the stock. I just think people saying that the chance is still greater than 50/50 because SM said he would do it before the coup happened aren’t updating their beliefs correctly. Lots of people are saying/implying this, but can someone clarify WHY they think Mnuchin would choose not to sign a PSPA agreement based on what Trump did this week? I accept that there might be a reason, but I'm not sure what it would be. Mnuchin's job ends in 11 days, he's fabulously wealthy, and it's unclear if he has any interest in running for any office in the future, so I honestly see ZERO concern that he would have if a few Democrats don't like what he does - they were never going to like it anyway. A large number of Americans including many republicans consider that coup just occurred incited by president Trump. Trump has lost legitimacy as president even by many in his own party as evidenced by the many resignations. While I agree it doesn’t really effect SM monetarily, passing controversial legislation at this point in time persona non grata for the foreseeable future. If you don’t buy that, consider what the repercussions for Trump and the GOP. Trump incites the coup. When it’s contained instead of doing nothing, which is the best he can do, he passes this controversial legislation which is counter to Biden’s agenda. You know how many people on both the left and the right would pummel the republicans and Trump for having no shame and continuing to undermine the Biden administration even after trying to stage a coup? Is it possible, yeah. Is it likely after what happened this week, probably not. Edits (additional thoughts): Also priority number 1 (as well as 2,3,4...) is to ensure a smooth transition to Biden’s presidency. I would imagine this falls down on the list of priorities, considering how far behind they are in transitioning, given the new additional spotlight on making sure this is smooth. Thanks for the thoughts, although I disagree. Here's why. Most Republicans are sticking with Trump (even though they shouldn't), particularly those in Congress who, with very few exceptions, are not asking for Trump to be removed. This may change the day he leaves, but for now it has changed less than you imply. His approval rating among Republicans outside of D.C. has fallen, but is still pretty high (see https://morningconsult.com/2021/01/08/trump-approval-rating-capitol-riot-poll/). Next up is the fact that the Republicans in housing oversight already approved of ending the conservatorships. I can't imagine they will be outraged if it happens. And as I said, the Democrats already opposed it, so what else is new? Next up, you are calling this legislation. It is not legislation. Trump will not be directly involved. The 3rd Amendment in 2012 was not a hot topic in D.C. at all. I don't think another amendment will be either, particularly with impeachment dominating the news for weeks to come. As others have implied, if Mnuchin was waiting until the last minute because of potential blowback, this is actually the best possible scenario because it will get 2 minutes of coverage and then be gone from the news. Now, if Mnuchin has to actually ask Trump one last time whether he should sign off, I have only 2 possible thoughts. 1) Trump absolutely doesn't care or 2) ending the conservatorships has been the plan all along to thank John Paulson and possibly other donors for their support. If it's the latter, then Trump says "yes" because he will want to keep his rich friends on his side, if possible. The one real concern I have is that it has been reported that Mnuchin discussed the 25th Amendment and I have to assume Trump has seen that reporting. I would imagine Mnuchin would just say "fake news" or "yeah, someone brought it up, but I disagreed with it" and he's been loyal to Trump for many years now. If Trump believes that Mnuchin is trying to undermine him, though, he would fire Mnuchin. But as of now, Mnuchin is still on the job and has said he will stay to the end. And he will reportedly meet with MBS before returning the U.S., which most likely includes some discussion that will personally benefit Trump, so it looks like Mnuchin is safe for the moment. Then again, Trump can no longer fire people on Twitter, so who knows?! I don't think an amendment impacts the transition to Biden's team materially. Treasury is just an investor here. FHFA provides oversight to the GSE's and there should not be any continuity issues as Calabria isn't going anywhere. As for last minute executive actions - guess what? Trump has already been pushing through a bunch in the past 2 months that Biden won't like. You know who else did that before his term ended? Yup, Obama. Of course the other side doesn't like it, but that's just how the game is played. So my take on your views is that you think certain things should matter, but I'm not sure any of them actually do matter.

P.S. If anyone was going to back out of a PSPA amendment, I would think it is Calabria, not Mnuchin. He's the one who could plausibly hurt his career by doing it. But as with Mnuchin, none of us here know whether Calabria has had any reason to change his mind.