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

[hardincap]

"no final decisions have been made on what will be contained in the proposal"  ::)

[Luke 532]

What has me frustrated here is the announcement that the White House will work with Congress. When will this administration ever learn?? There is absolutely zero point in talking about a plan that the White House, Treasury, Otting, and Calabria have signed off on if they're going to bother to get Congress involved. What can Congress even do, short of passing a law that might not give Trump exactly what he wants? Craziness.

 

It's likely just political theatre.

[Wiggins]

https://www.wsj.com/articles/trump-administration-to-work-with-congress-on-fannie-freddie-overhaul-11548785269

 

Perhaps Otting's comments were the trial balloon and now the admin wants to make overtures to Congress to prevent legislative backlash. It would make sense to wait for the en banc decision for cover, and ideally begin to recapitalize.

[hardincap]

@wiggins @midas receivership would also mean forfeiting 100bn profit for taxpayers and creating serious disruptions in the mortgage market. i just dont see that happening, esp due to latter

[DRValue]

so we now wait for plan release.

 

question to me is whether "working with congress" presents a policy content issue or a timing issue.  there may be a few things in the plan that require congressional approval (mbs gtee)

 

This'll be it. The plan includes parts that require legislation like a guarantee.

Recap starts first then they get the legislation done.

[Midas79]

@wiggins @midas receivership would also mean forfeiting 100bn profit for taxpayers and creating serious disruptions in the mortgage market. i just dont see that happening, esp due to latter

 

The disruption part, perhaps, and perhaps probably! I always thought it wouldn't be too hard to just re-brand the companies and transfer nearly all the assets and liabilites over wholesale in a short period of time, only changing the equity structure. But it's likely much harder than I would think. I think I am falling victim to the "anything I don't understand can't be that hard" fallacy.

 

https://dilbert.com/strip/1994-10-17

 

As for the warrants, though, couldn't FHFA and Treasury just agree to give Treasury warrants for 79.9% of the commons in the new companies?

[Wiggins]

@wiggins @midas receivership would also mean forfeiting 100bn profit for taxpayers and creating serious disruptions in the mortgage market. i just dont see that happening, esp due to latter

 

The disruption part, perhaps, and perhaps probably! I always thought it wouldn't be too hard to just re-brand the companies and transfer nearly all the assets and liabilites over wholesale in a short period of time, only changing the equity structure. But it's likely much harder than I would think. I think I am falling victim to the "anything I don't understand can't be that hard" fallacy.

 

https://dilbert.com/strip/1994-10-17

 

As for the warrants, though, couldn't FHFA and Treasury just agree to give Treasury warrants for 79.9% of the commons in the new companies?

 

 

Thanks for responses. Agreed, except that upon selling assets into a new structure all proceeds flow to SPS first so this would offset proceeds lost by cancelled warrants. But totally agree that disruptions would occur unless future MBS in the new structure were guaranteed, which can only happen with Congress -thus making this impossible in the near term.

 

I'm just trying to leave no negative thesis stone unturned. I remain highly optimistic esp. re: en banc and Lamberth, and think ultimately the administration will find a solution that satisfies multiple parties (e.g. further gimp the GSEs but allow upside for JPS and perhaps commons as well).

[Guest cherzeca]

this suggests much longer timeline. https://www.bloomberg.com/news/articles/2019-01-29/fannie-overhaul-said-to-focus-on-legislative-regulatory-changes

[Luke 532]

this suggests much longer timeline. https://www.bloomberg.com/news/articles/2019-01-29/fannie-overhaul-said-to-focus-on-legislative-regulatory-changes

 

Well, it is written (at least in part) by Joe Light.  "with assistance by Joe Light"

[Guest cherzeca]

either otting is a fool (and I don't think that is the case) or the plan is some combination of recap and eventual release coupled with items requiring congress (mbs guarantee and additional charters for competitors).  if so, then one would hope treasury/fhfa would proceed to do what they can do on their own and not wait for congress...

[rros]

Banks may be exerting high pressure preventing all going by the wayside (for them). So Congress involvement may have bee added at the last minute. It doesn't seem it was part of the original plan. I kind of believe Otting's words. I can see Admin marching on, stopping the sweep and allowing capital to flow. Not a full recap. Neither an imminent release. But setting the course. Then, we wait.

[investorG]

Hello everyone.  I've appreciated the recent posts, and it's nice to see hardincap's humble posts return.

 

It appears either a) otting had has equivalent 'mnuchin late 2016 interview moment' in terms of establishment backlash or b) mnuchin wants to see the outcome of collins before moving in a certain direction.  or both. 

 

 

[Luke 532]

either otting is a fool (and I don't think that is the case) or the plan is some combination of recap and eventual release coupled with items requiring congress (mbs guarantee and additional charters for competitors).  if so, then one would hope treasury/fhfa would proceed to do what they can do on their own and not wait for congress...

 

I think this is probably the most important part of the article:

[investorG]

either otting is a fool (and I don't think that is the case) or the plan is some combination of recap and eventual release coupled with items requiring congress (mbs guarantee and additional charters for competitors).  if so, then one would hope treasury/fhfa would proceed to do what they can do on their own and not wait for congress...

 

something likely changed during the past 2 weeks.  my best two ideas are posted above.

[Midas79]

Hello everyone.  I've appreciated the recent posts, and it's nice to see hardincap's humble posts return.

 

It appears either a) otting had has equivalent 'mnuchin late 2016 interview moment' in terms of establishment backlash or b) mnuchin wants to see the outcome of collins before moving in a certain direction.  or both.

 

These are both highly plausible. Otting might not have recognized the possibility of his comments being made public because they were made in an internal meeting, so he perhaps was more direct than was prudent.

 

As to b), I actually don't think it will even be possible for Mnuchin to start down any road without knowing the Collins verdict. If the Fifth Circuit reverses the district court and rules the seniors redeemed, that could drastically change the calculus of the recap. However, if the Fifth Circuit affirms then Mnuchin might feel pressure to get something for the seniors rather than writing them off.

[investorG]

Hello everyone.  I've appreciated the recent posts, and it's nice to see hardincap's humble posts return.

 

It appears either a) otting had has equivalent 'mnuchin late 2016 interview moment' in terms of establishment backlash or b) mnuchin wants to see the outcome of collins before moving in a certain direction.  or both.

 

These are both highly plausible. Otting might not have recognized the possibility of his comments being made public because they were made in an internal meeting, so he perhaps was more direct than was prudent.

 

As to b), I actually don't think it will even be possible for Mnuchin to start down any road without knowing the Collins verdict. If the Fifth Circuit reverses the district court and rules the seniors redeemed, that could drastically change the calculus of the recap. However, if the Fifth Circuit affirms then Mnuchin might feel pressure to get something for the seniors rather than writing them off.

 

going further out on a limb here, but there's some chance this was a pre-meditated plan.  having otting go big on admin action.  release the tape.  have the banks / establishment blowback.  retreat to congress to allow for the govt guarantee and new charters (which mnuchin likely also wants) with a motivated set of legislators who fear a late 2019 pure admin move if congress fails. 

[hardincap]

seems otting may have spoken too bluntly and white house is now trying to control the narrative

 

still, nothing in that article seems to disconfirm the crux of the long position, that f&f are here to stay and cannot be replaced. this itself is bullish for the prefs, though time horizon may be longer than we all hoped

[hardincap]

@investorG, otting is a wall st guy, not a politician. i dont think he has the political disposition to have premeditated this whole thing.

[Guest cherzeca]

It would not be surprising for someone like otting to be candid (and truthful) in what he thought was a private setting, and for a potus spokesperson to be optically correct (and vague) in making an announcement to the press (that was clearly intended to be read by congress).

 

which leaves us to still wonder what the admin plan will look like. we should find out soon, but I suspect the admin plan is some combination of GSE recapitalization along the lines of the moelis blueprint coupled with items requiring congressional legislation (mbs guarantee and additional charters for competitors), should congress wish to implement them. I also think that it will address emerging issues not necessarily on the front burner, such as Ginnie Mae guarantees of federal mortgages that are increasingly generated by nonbank lenders.

 

if so, then one would hope treasury/fhfa would proceed to do what they can do on their own and not wait for congress. but I think the admin doesnt want to crater calabria’s confirmation, so seeking some bi-partisan congressional support for what the admin can do on its own with FHFA is likely….which will likely extend the timeline that otting seemed to have bee intimating, a reality of DC that otting, as more a business man and less a politician, may still be adjusting to.

 

[allnatural]

Mnuchin 2016 2.0

 

It would not be surprising for someone like otting to be candid (and truthful) in what he thought was a private setting, and for a potus spokesperson to be optically correct (and vague) in making an announcement to the press (that was clearly intended to be read by congress).

 

which leaves us to still wonder what the admin plan will look like. we should find out soon, but I suspect the admin plan is some combination of GSE recapitalization along the lines of the moelis blueprint coupled with items requiring congressional legislation (mbs guarantee and additional charters for competitors), should congress wish to implement them. I also think that it will address emerging issues not necessarily on the front burner, such as Ginnie Mae guarantees of federal mortgages that are increasingly generated by nonbank lenders.

 

if so, then one would hope treasury/fhfa would proceed to do what they can do on their own and not wait for congress. but I think the admin doesnt want to crater calabria’s confirmation, so seeking some bi-partisan congressional support for what the admin can do on its own with FHFA is likely….which will likely extend the timeline that otting seemed to have bee intimating, a reality of DC that otting, as more a business man and less a politician, may still be adjusting to.

[investorG]

It would not be surprising for someone like otting to be candid (and truthful) in what he thought was a private setting, and for a potus spokesperson to be optically correct (and vague) in making an announcement to the press (that was clearly intended to be read by congress).

 

which leaves us to still wonder what the admin plan will look like. we should find out soon, but I suspect the admin plan is some combination of GSE recapitalization along the lines of the moelis blueprint coupled with items requiring congressional legislation (mbs guarantee and additional charters for competitors), should congress wish to implement them. I also think that it will address emerging issues not necessarily on the front burner, such as Ginnie Mae guarantees of federal mortgages that are increasingly generated by nonbank lenders.

 

if so, then one would hope treasury/fhfa would proceed to do what they can do on their own and not wait for congress. but I think the admin doesnt want to crater calabria’s confirmation, so seeking some bi-partisan congressional support for what the admin can do on its own with FHFA is likely….which will likely extend the timeline that otting seemed to have bee intimating, a reality of DC that otting, as more a business man and less a politician, may still be adjusting to.

 

if they recapitalize as we hope, the buyers of tens and tens of billions of dollars of new stock are likely to be looking for some legislative blessing on the companies and structure which would emerge.  after all, mnuchin, otting, and trump won't be in charge indefinitely.  bypassing congress has always been likely only a last-ditch solution.

[Guest cherzeca]

It would not be surprising for someone like otting to be candid (and truthful) in what he thought was a private setting, and for a potus spokesperson to be optically correct (and vague) in making an announcement to the press (that was clearly intended to be read by congress).

 

which leaves us to still wonder what the admin plan will look like. we should find out soon, but I suspect the admin plan is some combination of GSE recapitalization along the lines of the moelis blueprint coupled with items requiring congressional legislation (mbs guarantee and additional charters for competitors), should congress wish to implement them. I also think that it will address emerging issues not necessarily on the front burner, such as Ginnie Mae guarantees of federal mortgages that are increasingly generated by nonbank lenders.

 

if so, then one would hope treasury/fhfa would proceed to do what they can do on their own and not wait for congress. but I think the admin doesnt want to crater calabria’s confirmation, so seeking some bi-partisan congressional support for what the admin can do on its own with FHFA is likely….which will likely extend the timeline that otting seemed to have bee intimating, a reality of DC that otting, as more a business man and less a politician, may still be adjusting to.

 

if they recapitalize as we hope, the buyers of tens and tens of billions of dollars of new stock are likely to be looking for some legislative blessing on the companies and structure which would emerge.  after all, mnuchin, otting, and trump won't be in charge indefinitely.  bypassing congress has always been likely only a last-ditch solution.

 

excellent point, and why Mnuchin has always been saying he is looking for legislative support (as opposed to legislative adoption)

[hardincap]

@cherzeca hard for me to believe treasury & en banc judges + staff can keep things a secret until release date. if there is high volume persistent selling id have to think there was a leak of an adverse ruling/development...(just like pre-lamberth)

 

you would think so.  as for admin staff, unless otting is way wrong, it seems a lot of work has already been done on that without a lot of leaking...may be a small group.

 

as for collins, try this:  on 1/24 the All American case (arguing the CFPB is unconstitutionally structured) was calendared by 5th circuit for oral argument en banc (to be argued 3/12). All American had requested an original hearing en banc, which is highly unusual, and the 5th circuit just granted it the day after the Collin en banc oral argument. 

 

did the 5th circuit collins en banc hold a conference after the oral argument on 1/23 and decide to rule only on the collins APA claim and not the constitutional claim (if so, necessarily in favor of Ps on APA claim if not deciding the collins constitutional claim)? and decide to defer any constitutional adjudication to an en banc hearing of All American?  in certain ways, all American is a "cleaner" case to rule on.  why hear all American const. claim en banc in an original hearing if you just heard collins const. claim en banc and anticipated ruling on it?  if collins en banc ruling on const. claim comes out, then an all American merits panel would have been bound by it...no need for it to be en banc.

 

or is all this a coincidence?

 

this would be a good q to ask david thompson on thursday: https://investorsunite.org/investorsunite-teleconference/

[Seahug]

Congress necessary, what I worried about ... Darnit. DJT can't even shake $5.7 bn out of the house tree. Well we didn't really expect it to be that easy.

 

Also par for the course - best not buy when COBF is optimistic.

 

But admin pushing vs not is a concrete improvement.  Might be opportunity to add if the legal cases fail.

 

 

[Luke 532]

Tim Howard comments...

Note that “working with Congress” does not mean legislation; that remains a “bridge too far” in the current divided, partisan and dysfunctional Congress. And Treasury Secretary Mnuchin has repeatedly stressed his desire to consult with Congress on any administrative reform plan he proposes. As recently as December 18 of last year–at Bloomberg’s offices in Washington–he said, “I would like to get [Fannie and Freddie] out of conservatorship, My preference would be to do something that has bipartisan legislative support [note the use of the word ‘support.’] There are changes we will be able to make with a new director at the FHFA.”

 

The letter to Otting from Maxine Waters and Sherrod Brown last week very likely did result in the renewed emphasis this week on the “working with Congress” aspect of the administration’s plan, but other than that I don’t see much sustantive difference between where we were then and where we are now. I think the pro-Fannie and Freddie crowd got a little too far over the tips of their skis last week, and the pro-bank side is now working to sell a counter-narrative. We should all take deep breaths, sit back, and wait to see what the administration actually comes up with.

https://howardonmortgagefinance.com/2018/12/03/the-interested-parties-respond/#comments