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

[Midas79]

Am I wrong in saying this is the first time Phillips has confirmed or said these things? Again market not buying it or ignoring it. Maybe market thinking time to implementation makes the securities still unattractive at these prices? Not sure what else needs to be said here besides when and how much. Market saying still no more then 25% of par at this point.

 

Phillips' comments seem good.  hopefully they are 'all in' to get this done in 2019 rather than just talking points.  His bullets appear to confirm the Mulvaney OMB plan from a few months ago and don't seem aligned with the House republicans' ginnie mae lovefest.

 

muted reaction could possibly be a) disappointed people who were still clinging to near term administrative action and b) supply overhang from hedge funds like highfields (gse owner) closing and possibly forced redemptions from owners like fairholme (see their performance).

 

hopefully they go hard in 2019 on this.  assuming they throw in some affordable housing $, it is not impossible for Congress to get this done next year with base case Pat Toomey and Maxine Waters leading and getting a lot but not all of what they want.

 

I take it we should be rooting for the Democrats to take the House then.

 

I just don't see Phillips's comments as being all that special, other than a reiteration and crystallization of Treasury's stance. The charter repeal and explicit guarantee are Congress-only items. It is starting to look like the administration won't act alone after all, except for perhaps a panic move in mid-2020 if they fail to get anything going in Congress up to that point.

 

What would happen if a shareholder-friendly court decision happens before then? I always thought Treasury had incentive to act on its own and quickly, but unless getting their own FHFA director installed is extremely important for that, they are otherwise just dragging their feet.

 

Speaking of the new FHFA director, why hasn't Trump nominated anyone yet? He doesn't (and shouldn't) have to wait until January, and given how long the Democrats are dragging confirmations out, Trump should have had his pick in months ago. Does anyone really want another "acting FHFA director" saga?

[investorG]

Am I wrong in saying this is the first time Phillips has confirmed or said these things? Again market not buying it or ignoring it. Maybe market thinking time to implementation makes the securities still unattractive at these prices? Not sure what else needs to be said here besides when and how much. Market saying still no more then 25% of par at this point.

 

Phillips' comments seem good.  hopefully they are 'all in' to get this done in 2019 rather than just talking points.  His bullets appear to confirm the Mulvaney OMB plan from a few months ago and don't seem aligned with the House republicans' ginnie mae lovefest.

 

muted reaction could possibly be a) disappointed people who were still clinging to near term administrative action and b) supply overhang from hedge funds like highfields (gse owner) closing and possibly forced redemptions from owners like fairholme (see their performance).

 

hopefully they go hard in 2019 on this.  assuming they throw in some affordable housing $, it is not impossible for Congress to get this done next year with base case Pat Toomey and Maxine Waters leading and getting a lot but not all of what they want.

 

I take it we should be rooting for the Democrats to take the House then.

 

I just don't see Phillips's comments as being all that special, other than a reiteration and crystallization of Treasury's stance. The charter repeal and explicit guarantee are Congress-only items. It is starting to look like the administration won't act alone after all, except for perhaps a panic move in mid-2020 if they fail to get anything going in Congress up to that point.

 

What would happen if a shareholder-friendly court decision happens before then? I always thought Treasury had incentive to act on its own and quickly, but unless getting their own FHFA director installed is extremely important for that, they are otherwise just dragging their feet.

 

Speaking of the new FHFA director, why hasn't Trump nominated anyone yet? He doesn't (and shouldn't) have to wait until January, and given how long the Democrats are dragging confirmations out, Trump should have had his pick in months ago. Does anyone really want another "acting FHFA director" saga?

 

it seems big to me, the most specific Tsy (power player) has been about getting these two companies back into private hands.

 

I believe we're one large buyer (and volume to clean up the overhang) from a material move higher. 

 

guessing, I'd expect a FHFA announcement soon after the elections. 

 

[Guest cherzeca]

my take on Phillips comments is that the administration is trying to build a consensus starting out, which is smart.  re-privatize GSEs, but introduce concepts also acceptable to the MBA lobby.  but guess what? those accommodating MBA concepts require congressional action (no competing mbs guarantor will be able to compete without a fed catastrophic backstop).  what is the fallback provision if the MBA lobby cant get congress to OK the total package?  GSE re-privatization...and $100B in treasury's trump wish list coffers.

[SnarkyPuppy]

Not sure why anything publicly said so far would be inconsistent with the mutualization model.  Member banks provide capital and returns are regulated.  Banks can appy to join as members under reg approval

[SnarkyPuppy]

All signs pointing to explicit MBS guarantee as one of the principles that will be released. 

 

This is entirely misleading. If first dollar guarantee then has to go as federal debt towards ceiling. If there is private capital to absorb losses then how subordinated is federal guarantee?  Mnuchin principles contra federal payouts again. I think this is just all MBA smokescreen for now.

 

Still misleading?

[Guest cherzeca]

Not sure why anything publicly said so far would be inconsistent with the mutualization model.  Member banks provide capital and returns are regulated.  Banks can appy to join as members under reg approval

 

mutuals are not privately owned enterprises.  no one owns a mutual.

[Midas79]

Now the government wants the one count Lamberth declined to dismiss to also be dismissed.

 

http://gselinks.com/wp-content/uploads/2018/10/13-mc-01288-0089-Motion-for-Reconsideration-10-16-18.pdf

 

How much merit does this argument have? Can Lamberth change his mind at this point?

[Luke 532]

Now the government wants the one count Lamberth declined to dismiss to also be dismissed.

 

http://gselinks.com/wp-content/uploads/2018/10/13-mc-01288-0089-Motion-for-Reconsideration-10-16-18.pdf

 

How much merit does this argument have? Can Lamberth change his mind at this point?

 

They basically argue the following...

"Judge Lamberth, we know we lied to your face in your original ruling.  So sorry about that.  But please consider your lack of legal logic (i.e. you're an idiot) as grounds for changing your mind.  Thanks!"

[Midas79]

Now the government wants the one count Lamberth declined to dismiss to also be dismissed.

 

http://gselinks.com/wp-content/uploads/2018/10/13-mc-01288-0089-Motion-for-Reconsideration-10-16-18.pdf

 

How much merit does this argument have? Can Lamberth change his mind at this point?

 

They basically argue the following...

"Judge Lamberth, we know we lied to your face in your original ruling.  So sorry about that.  But please consider your lack of legal logic (i.e. you're an idiot) as grounds for changing your mind.  Thanks!"

 

Except that Lamberth already upheld the dismissal for everything else even after finding out about the Fairholme discovery documents. If he really took so much umbrage to the defendants' prior behavior, wouldn't he have found more than just one count to allow to proceed?

[Luke 532]

Now the government wants the one count Lamberth declined to dismiss to also be dismissed.

 

http://gselinks.com/wp-content/uploads/2018/10/13-mc-01288-0089-Motion-for-Reconsideration-10-16-18.pdf

 

How much merit does this argument have? Can Lamberth change his mind at this point?

 

They basically argue the following...

"Judge Lamberth, we know we lied to your face in your original ruling.  So sorry about that.  But please consider your lack of legal logic (i.e. you're an idiot) as grounds for changing your mind.  Thanks!"

 

Except that Lamberth already upheld the dismissal for everything else even after finding out about the Fairholme discovery documents. If he really took so much umbrage to the defendants' prior behavior, wouldn't he have found more than just one count to allow to proceed?

 

Perhaps.

[investorG]

recent commentary in the FnF Twitter/blog universe is fairly weak.  it's like they think the guys in charge are lying with some secret alternative strategy.

 

it seems quite clear that mnuchin wants to do this legislatively.  It's not impossible to get done, it's permanent, and the backstop MBS-level govt guarantee is important to consistently have access to the global capital markets (as a replacement for the implied guarantee on the 2 entities, which everyone wants gone).

 

imo people should just accept this is the primary plan and focus their writing energy on more relevant things like stopping the NWS immediately or creating a new $15bn buffer instead of $3bn.

 

[blackcoffee]

recent commentary in the FnF Twitter/blog universe is fairly weak.  it's like they think the guys in charge are lying with some secret alternative strategy.

 

it seems quite clear that mnuchin wants to do this legislatively.  It's not impossible to get done, it's permanent, and the backstop MBS-level govt guarantee is important to consistently have access to the global capital markets (as a replacement for the implied guarantee on the 2 entities, which everyone wants gone).

 

imo people should just accept this is the primary plan and focus their writing energy on more relevant things like stopping the NWS immediately or creating a new $15bn buffer instead of $3bn.

 

The commentary is not as weak as the odds of legislation happening. It's been a decade and nothing. Polarization is at an all time high. I wouldn't say impossible but it's damn close.

 

Additionally, do we know how current beneficiaries of the GSE charters are reacting politically to the admin threatening their entire lines of business? I know for a fact that these businesses are valued at hundreds of millions of dollars. Do we think the people with pull at that level are going to go quietly? Not bloodly likely.

[Guest cherzeca]

by involving congress there will be a controversy regarding duty to serve underserved neighborhoods/low income housing.  you eliminate GSE charters and make all guarantors simple business entities without a public purpose and democrats will scream bloody murder (as well as some republicans).  this will not be a simple piece of legislation by any means, and given the animosity between the parties I am doubtful that this can be passed on a bi-partisan basis...especially when I expect all of the nonGSE future guarantors will balk at low income housing mandates

[rros]

recent commentary in the FnF Twitter/blog universe is fairly weak.  it's like they think the guys in charge are lying with some secret alternative strategy.

 

it seems quite clear that mnuchin wants to do this legislatively.  It's not impossible to get done, it's permanent, and the backstop MBS-level govt guarantee is important to consistently have access to the global capital markets (as a replacement for the implied guarantee on the 2 entities, which everyone wants gone).

 

imo people should just accept this is the primary plan and focus their writing energy on more relevant things like stopping the NWS immediately or creating a new $15bn buffer instead of $3bn.

Increasing the buffer to 15 bn will only solidify the status quo. The larger the buffer, the lower the urgency for a comprehensive fix. The way to push legislation and reach a final solution is to remove the sweep and recapitalize. Odds are both lobby groups and legislators will move fast to contain what they will hate the most: a release.

[investorG]

No one is buying it. The legislative solution is dead. It has been 10 years. This admin had control over both houses, lots of apperances on TV and all turned out fake promises. They keep fighting in court with lies and continue to loot private property. No one believes anything will change as repealing the charter and explicit guarantee requires congress and it is next to impossible with varying ideology on affordable housing. Admin solution is the only way:  stop NWS, cancel SPSA, relist on exchange, start paying dividends again and so on. Simple baby steps.

 

 

recent commentary in the FnF Twitter/blog universe is fairly weak.  it's like they think the guys in charge are lying with some secret alternative strategy.

 

it seems quite clear that mnuchin wants to do this legislatively.  It's not impossible to get done, it's permanent, and the backstop MBS-level govt guarantee is important to consistently have access to the global capital markets (as a replacement for the implied guarantee on the 2 entities, which everyone wants gone).

 

imo people should just accept this is the primary plan and focus their writing energy on more relevant things like stopping the NWS immediately or creating a new $15bn buffer instead of $3bn.

 

 

I disagree.  Actually, no (serious) one is buying the administrative solution given where the shares are trading.

 

Reform has failed for 10 years in Congress because during 8 of them there was no Treasury leadership for action, and the remaining 2 there was too wide of a gap between the House Republican idealogues and Democratic senators needed (60 votes).  going forward, those 2 dynamics are likely to change in 2019. 

 

the reality is it appears like it's going legislative for at least a year, even if everyone here wished otherwise.

 

[investorG]

recent commentary in the FnF Twitter/blog universe is fairly weak.  it's like they think the guys in charge are lying with some secret alternative strategy.

 

it seems quite clear that mnuchin wants to do this legislatively.  It's not impossible to get done, it's permanent, and the backstop MBS-level govt guarantee is important to consistently have access to the global capital markets (as a replacement for the implied guarantee on the 2 entities, which everyone wants gone).

 

imo people should just accept this is the primary plan and focus their writing energy on more relevant things like stopping the NWS immediately or creating a new $15bn buffer instead of $3bn.

 

The commentary is not as weak as the odds of legislation happening. It's been a decade and nothing. Polarization is at an all time high. I wouldn't say impossible but it's damn close.

 

Additionally, do we know how current beneficiaries of the GSE charters are reacting politically to the admin threatening their entire lines of business? I know for a fact that these businesses are valued at hundreds of millions of dollars. Do we think the people with pull at that level are going to go quietly? Not bloodly likely.

 

 

they might not have a choice.  It seems like the Tsy / OMB wants to go with the MBA plan, and likely so do the 2019 Republicans in Congress.  What's left is carving out some $ for affordable housing to get the Dems on board.

[investorG]

by involving congress there will be a controversy regarding duty to serve underserved neighborhoods/low income housing.  you eliminate GSE charters and make all guarantors simple business entities without a public purpose and democrats will scream bloody murder (as well as some republicans).  this will not be a simple piece of legislation by any means, and given the animosity between the parties I am doubtful that this can be passed on a bi-partisan basis...especially when I expect all of the nonGSE future guarantors will balk at low income housing mandates

 

 

there is a lot of money from Treasury's current warrant value (or other areas) that can be carved out for explicit affordable housing mandates that might appeal to the Democrats even more than the status quo.  this is likely why Mnuchin keeps saying that housing reform needs to be comprehensive and involve HUD also.

 

[blackcoffee]

recent commentary in the FnF Twitter/blog universe is fairly weak.  it's like they think the guys in charge are lying with some secret alternative strategy.

 

it seems quite clear that mnuchin wants to do this legislatively.  It's not impossible to get done, it's permanent, and the backstop MBS-level govt guarantee is important to consistently have access to the global capital markets (as a replacement for the implied guarantee on the 2 entities, which everyone wants gone).

 

imo people should just accept this is the primary plan and focus their writing energy on more relevant things like stopping the NWS immediately or creating a new $15bn buffer instead of $3bn.

 

The commentary is not as weak as the odds of legislation happening. It's been a decade and nothing. Polarization is at an all time high. I wouldn't say impossible but it's damn close.

 

Additionally, do we know how current beneficiaries of the GSE charters are reacting politically to the admin threatening their entire lines of business? I know for a fact that these businesses are valued at hundreds of millions of dollars. Do we think the people with pull at that level are going to go quietly? Not bloodly likely.

 

 

they might not have a choice.  It seems like the Tsy / OMB wants to go with the MBA plan, and likely so do the 2019 Republicans in Congress.  What's left is carving out some $ for affordable housing to get the Dems on board.

 

assuming they have a majority.. which they may not.

[investorG]

Why would you need Fannie and Freddie when you want to repeal their charters and ask them to pay for insurance?  Fannie Mae and Freddie Mac will be no different than JPM, Wells Fargo and other banks. The mortgage rates will skyrocket. 

 

It is rhetoric by MBA and large banks to get all of the mortgage market and then raise interest rates on people like me so high that no one can afford and finally stick it to the government.  We have been through this discussion for a decade and saw what banks did in 2008.

 

 

 

by involving congress there will be a controversy regarding duty to serve underserved neighborhoods/low income housing.  you eliminate GSE charters and make all guarantors simple business entities without a public purpose and democrats will scream bloody murder (as well as some republicans).  this will not be a simple piece of legislation by any means, and given the animosity between the parties I am doubtful that this can be passed on a bi-partisan basis...especially when I expect all of the nonGSE future guarantors will balk at low income housing mandates

 

 

there is a lot of money from Treasury's current warrant value (or other areas) that can be carved out for explicit affordable housing mandates that might appeal to the Democrats even more than the status quo.  this is likely why Mnuchin keeps saying that housing reform needs to be comprehensive and involve HUD also.

 

the system will need someone like Fnma and Fmcc.  There's no guarantee they will be the final major players but it's like running a 100yd dash and they get to start halfway there.

 

it appears the security level MBS govt backstop is the key that mnuchin wants.  this ensures consistent global financing, even in bad times.  so he's going to have to wiggle to make other players in this process happy.

 

[blackcoffee]

Why would you need Fannie and Freddie when you want to repeal their charters and ask them to pay for insurance?  Fannie Mae and Freddie Mac will be no different than JPM, Wells Fargo and other banks. The mortgage rates will skyrocket. 

 

It is rhetoric by MBA and large banks to get all of the mortgage market and then raise interest rates on people like me so high that no one can afford and finally stick it to the government.  We have been through this discussion for a decade and saw what banks did in 2008.

 

 

 

by involving congress there will be a controversy regarding duty to serve underserved neighborhoods/low income housing.  you eliminate GSE charters and make all guarantors simple business entities without a public purpose and democrats will scream bloody murder (as well as some republicans).  this will not be a simple piece of legislation by any means, and given the animosity between the parties I am doubtful that this can be passed on a bi-partisan basis...especially when I expect all of the nonGSE future guarantors will balk at low income housing mandates

 

 

there is a lot of money from Treasury's current warrant value (or other areas) that can be carved out for explicit affordable housing mandates that might appeal to the Democrats even more than the status quo.  this is likely why Mnuchin keeps saying that housing reform needs to be comprehensive and involve HUD also.

 

the system will need someone like Fnma and Fmcc.  There's no guarantee they will be the final major players but it's like running a 100yd dash and they get to start halfway there.

 

it appears the security level MBS govt backstop is the key that mnuchin wants.  this ensures consistent global financing, even in bad times.  so he's going to have to wiggle to make other players in this process happy.

 

Ahh yes - Howard's Superfecta for the banks. Goldmans gonna goldman right?

[investorG]

 

Ahh yes - Howard's Superfecta for the banks. Goldmans gonna goldman right?

 

rather than commenting on what i'm hoping for or think is best (mel watt's utility proposal), i'm attempting to observe what seems to be actually happening in the most practical manner possible.  of course i could be mis-reading it all. 

 

[rros]

recent commentary in the FnF Twitter/blog universe is fairly weak.  it's like they think the guys in charge are lying with some secret alternative strategy.

 

it seems quite clear that mnuchin wants to do this legislatively.  It's not impossible to get done, it's permanent, and the backstop MBS-level govt guarantee is important to consistently have access to the global capital markets (as a replacement for the implied guarantee on the 2 entities, which everyone wants gone).

 

imo people should just accept this is the primary plan and focus their writing energy on more relevant things like stopping the NWS immediately or creating a new $15bn buffer instead of $3bn.

 

The commentary is not as weak as the odds of legislation happening. It's been a decade and nothing. Polarization is at an all time high. I wouldn't say impossible but it's damn close.

 

Additionally, do we know how current beneficiaries of the GSE charters are reacting politically to the admin threatening their entire lines of business? I know for a fact that these businesses are valued at hundreds of millions of dollars. Do we think the people with pull at that level are going to go quietly? Not bloodly likely.

 

 

they might not have a choice.  It seems like the Tsy / OMB wants to go with the MBA plan, and likely so do the 2019 Republicans in Congress.  What's left is carving out some $ for affordable housing to get the Dems on board.

And where does that plan leave legacy shareholders?

[investorG]

recent commentary in the FnF Twitter/blog universe is fairly weak.  it's like they think the guys in charge are lying with some secret alternative strategy.

 

it seems quite clear that mnuchin wants to do this legislatively.  It's not impossible to get done, it's permanent, and the backstop MBS-level govt guarantee is important to consistently have access to the global capital markets (as a replacement for the implied guarantee on the 2 entities, which everyone wants gone).

 

imo people should just accept this is the primary plan and focus their writing energy on more relevant things like stopping the NWS immediately or creating a new $15bn buffer instead of $3bn.

 

The commentary is not as weak as the odds of legislation happening. It's been a decade and nothing. Polarization is at an all time high. I wouldn't say impossible but it's damn close.

 

Additionally, do we know how current beneficiaries of the GSE charters are reacting politically to the admin threatening their entire lines of business? I know for a fact that these businesses are valued at hundreds of millions of dollars. Do we think the people with pull at that level are going to go quietly? Not bloodly likely.

 

 

they might not have a choice.  It seems like the Tsy / OMB wants to go with the MBA plan, and likely so do the 2019 Republicans in Congress.  What's left is carving out some $ for affordable housing to get the Dems on board.

And where does that plan leave legacy shareholders?

 

 

the current market cap of all common and jr preferred shareholders is maybe around $10bn?  that is very small relative to the role the minority shareholders have played the last 10 years, the current earnings profile and future valuation of the 2 companies.  all we need is a true American leader, a politician or judge, who has the power to do the right thing.

 

[rros]

recent commentary in the FnF Twitter/blog universe is fairly weak.  it's like they think the guys in charge are lying with some secret alternative strategy.

 

it seems quite clear that mnuchin wants to do this legislatively.  It's not impossible to get done, it's permanent, and the backstop MBS-level govt guarantee is important to consistently have access to the global capital markets (as a replacement for the implied guarantee on the 2 entities, which everyone wants gone).

 

imo people should just accept this is the primary plan and focus their writing energy on more relevant things like stopping the NWS immediately or creating a new $15bn buffer instead of $3bn.

 

The commentary is not as weak as the odds of legislation happening. It's been a decade and nothing. Polarization is at an all time high. I wouldn't say impossible but it's damn close.

 

Additionally, do we know how current beneficiaries of the GSE charters are reacting politically to the admin threatening their entire lines of business? I know for a fact that these businesses are valued at hundreds of millions of dollars. Do we think the people with pull at that level are going to go quietly? Not bloodly likely.

 

 

they might not have a choice.  It seems like the Tsy / OMB wants to go with the MBA plan, and likely so do the 2019 Republicans in Congress.  What's left is carving out some $ for affordable housing to get the Dems on board.

And where does that plan leave legacy shareholders?

 

 

the current market cap of all common and jr preferred shareholders is maybe around $10bn?  that is very small relative to the role the minority shareholders have played the last 10 years, the current earnings profile and future valuation of the 2 companies.  all we need is a true American leader, a politician or judge, who has the power to do the right thing.

I am not sure how to interpret this. But I can't think of aligning with MBA is going to make "shareholders great again".

[allnatural]

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.