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

[Wiggins]

Bove seems to ignore the major court victories that have already happened. For JPS, the only factor is time.

[allnatural]

Bove has it backwards, for common the only thing that matters is the courts. A favorable judgement = less dilution cramdown = better for common and vice-versa. As PFD holder you should get par any which way (legal route, admin route, or organic recap).

[Luke 532]

Thanks for the responses. I agree with you guys, just looking for opposing viewpoints if anybody has one.

[Guest cherzeca]

the best thing for shareholders is for scotus to tell govt that it will defer taking up case until it sees the district court's final order granting relief...and a large judgment (which would itself then be appealable) would fit nicely in the recap timeline. 

[ValueMaven]

Stay long -- many catalysts for both commons and preferred holdings in 1Q 2020. 

[beaufort]

"Failure to review would be devastating [...]."

 

I prefer failure to review could be devastating in the short term.  These stocks move around a lot on nothing, or when it's been quiet too long.  We're in illiquid securities with a limited pool of buyers.  In the short term, anything can happen, including the stocks going up.  I know it's a truism, but it boils down to that.

[Midas79]

Curious of everybody's thoughts on Bove's comments below.  This was in the text of his e-mail this morning...

1. For preferred shareholders the next event will be in mid-January when the Supreme Court decides whether to hear arguments on the many GSE lawsuits. Failure to review would be devastating and but it is widely believed that the court will take up the GSE issues.

 

The rest is in the attached document, but I'm more curious of your thoughts on the quote above.

 

I can't agree with Bove here. What is there for SCOTUS to review anyway? Are they really going to bypass the entire district and appeals process by issuing a final ruling now? I would instead expect them to defer their decision on whether to take the case until after Judge Atlas makes her ruling, and probably after that ruling gets appealed and ruled on (again) by the Fifth Circuit.

[Guest cherzeca]

Curious of everybody's thoughts on Bove's comments below.  This was in the text of his e-mail this morning...

1. For preferred shareholders the next event will be in mid-January when the Supreme Court decides whether to hear arguments on the many GSE lawsuits. Failure to review would be devastating and but it is widely believed that the court will take up the GSE issues.

 

The rest is in the attached document, but I'm more curious of your thoughts on the quote above.

 

I can't agree with Bove here. What is there for SCOTUS to review anyway? Are they really going to bypass the entire district and appeals process by issuing a final ruling now? I would instead expect them to defer their decision on whether to take the case until after Judge Atlas makes her ruling, and probably after that ruling gets appealed and ruled on (again) by the Fifth Circuit.

 

after atlas issues a final order, the govt would then repetition for scotus cert the 5th C en banc decision, now with a final order providing for relief in accordance with that appellate decision...but I suppose you are right that if Ps think judge atlas misapplied the 5th C en banc decision, there could be an interim appeal to 5th C. 

 

we will find out in 10 days but I have seen scotus bend over backwards to accommodate a solicitor general request for cert sometimes and not at other times, so this is a hard one to call.

[Luke 532]

Trades Express Opposition to Re-Proposing GSE Capital Rule

https://www.insidemortgagefinance.com/articles/216794-trades-express-opposition-to-re-proposing-gse-capital-rule?v=preview

 

Trade groups representing independent mortgage lenders and homebuilders aren’t too thrilled with the Federal Housing Finance Agency re-proposing the regulatory capital rule for Fannie Mae and Freddie Mac.

 

In a recent letter to FHFA Director Mark Calabria, the groups were critical of the move, warning that a re-proposal would ultimately delay the process.

 

The letter was written by Ed Wallace, executive director of the Community Mortgage Lenders Association, and signed by the executives of the Independent Community Bankers of America, the Community Home Lenders Association and Leading Builders of America. The American Bankers Association and the Mortgage Bankers Association were not part of the group.

 

The signees agreed that some of the previously issued capital rules may require “adjustment,” but still, they’re concerned. For more details, see the new edition of Inside MBS & ABS, now available online.

 

 

[Guest cherzeca]

little late in the day to object to reproposing.  I just think calabria and mnuchin agreed to the timeline of GSEs retaining earnings to build capital for 2 more Qs and so Calabria thought he had nothing to lose, and he clearly wants to be implementing "his" rule, not a rejiggered Watt rule

[Luke 532]

little late in the day to object to reproposing.

 

Agreed.  They probably just wanted to publicly state their objection to delays, knowing it won't have any impact on the process.

[Luke 532]

Nothing new to us here, but Calabria confirms today that Congress is not needed to exit conservatorship...

 

Calabria at WHF lunch: “I can only call it a myth, the belief that somehow got out there that [Fannie and Freddie are] not supposed to exit conservatorship without congressional action.”

[beaufort]

Nothing new to us here, but Calabria confirms today that Congress is not needed to exit conservatorship...

 

Calabria at WHF lunch: “I can only call it a myth, the belief that somehow got out there that [Fannie and Freddie are] not supposed to exit conservatorship without congressional action.”

 

I know it's not new to us, but I still like hearing it as long as Calabria continues to answer questions in public.

[Guest cherzeca]

1/10 scotus will consider two 5C en banc collins petitions, the successful APA claim and the denial of backward relief in the constitutional claim. 

 

imo, the best outcome for shareholders is for scotus to decide it will defer consideration of the APA claim until the district court enters a final judgment, and may consider the constitutional remedy claim at that later time as well.  this will result in a half year or so, when the administration has said it will pursue a recap plan, in which fact finding adverse to govt will be presented to the district judge, who can be expected to enter a massive judgment against the govt.  this is a scenario the govt does not want to see happen.

 

less favorable would be for scotus to hear both claims, and even less favorable would be for scotus to hear just the APA claim...for if scotus reverses the APA collins 5th C decision and leaves intact the denial of constitutional remedy, then Ps are empty handed.

 

normally I would expect the most favorable result because scotus does not like to review interlocutory appeals, as opposed to final judgments.  but the solicitor general pressed its APA petition as being urgent, and scotus has a way of accommodating a sister branch of govt.

 

and so what if scotus grants review, when will argument be heard?  see https://www.supremecourt.gov/orders/19grantednotedlist.pdf for a listed of cases for the time period between granting petition and hearing oral argument.  ranges over a 6-8 month period mostly...so you can expect oral argument sometime late summer...at a time when fhfa should have finalized its capital rule, GSEs retained financial advisors, another 2 Qs of retained earnings contributed to capital etc...and basically at same time as the district court judgment would issue...and then no scotus decision until early 2021 likely. 

 

still thinking what treasury's end game is with respect to scotus review...since a "good" result for treasury (Ps lose) is not necessarily a good result for the recap...

[Luke 532]

Joint status report due today has requested 14 day extension. Typo in document...should be January 24, 2020.

[Guest cherzeca]

nothing yet. https://www.scotusblog.com/2020/01/justices-grant-three-new-cases-2/#more-291173

 

we will find out Monday

[muscleman]

nothing yet. https://www.scotusblog.com/2020/01/justices-grant-three-new-cases-2/#more-291173

 

we will find out Monday

 

Still nothing? Does it mean the case would not be heard or does it mean it would be pushed for consideration in the next term?

[Guest cherzeca]

I dont know.  it seems they decided many petitions, but I dont see collins mentioned.  https://www.supremecourt.gov/orders/courtorders/011320zor_4fc5.pdf

 

it may mean collins will be reconsidered next Monday.

[DRValue]

Another gse delay?

Colour me surprised.

[allnatural]

@cherzeca

 

SCOTUS - best to worst case (my personal views)

 

1) rejects APA, accepts CONSTITUTIONAL REMEDY

2) rejects both

3) delays case until 2021 term (same effect as rejecting as it increases urgency to address before election)

4) accepts both

5) accepts APA, rejects CONSTITUTIONAL REMEDY

 

4 is most likely, 5 would be net negative, 1-3 would be nice surprise

[Guest cherzeca]

I agree, though rejecting APA is highly unlikely.  there is a split in the circuits, and in event of rejection, district court in Texas would follow 5th C Willet opinion and reach some kind of order adverse to govt...at which point govt would seek to restrain the order in some C favorable to it, such as in DC...a potential mess.

 

this is a highly settle-able case (not saying an easy negotiation, but something that both parties can see as in their best interest to settle), and the best near term pathway to settlement would be to have govt have to sit through a trial/summary judgment motions in Houston imo

[investorG]

It appears likely that the SC is taking the case with no appearance on today's denial sheet.  In that likely case, I believe the Mnuchin-Trump team have underperformed the honorable path so far by letting it get to this somewhat binary point but here we seem to be...good luck everyone.

[Guest cherzeca]

It appears likely that the SC is taking the case with no appearance on today's denial sheet.  In that likely case, I believe the Mnuchin-Trump team have underperformed the honorable path so far by letting it get to this somewhat binary point but here we seem to be...good luck everyone.

 

you cant make any inferences yet. they may not have even begun to discuss it

[orthopa]

I agree, though rejecting APA is highly unlikely.  there is a split in the circuits, and in event of rejection, district court in Texas would follow 5th C Willet opinion and reach some kind of order adverse to govt...at which point govt would seek to restrain the order in some C favorable to it, such as in DC...a potential mess.

 

this is a highly settle-able case (not saying an easy negotiation, but something that both parties can see as in their best interest to settle), and the best near term pathway to settlement would be to have govt have to sit through a trial/summary judgment motions in Houston imo

 

When would trial/summary judgement montions start on this?

[Guest cherzeca]

if scotus says we are going to wait for the district court, then the district court will set up a scheduling conference and the court and the parties will hash this out