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

[Luke 532]

 

10% chance, according to ACG, that we lose both in court.

[investorG]

 

10% chance, according to ACG, that we lose both in court.

 

Thanks for sharing.  I won't guess on the SC but if we get to a verdict, Mnuchin would have dropped the ball on perhaps his most important legacy item.  Unless he wants to be remembered for sanctions and the PPP.

[Guest cherzeca]

 

10% chance, according to ACG, that we lose both in court.

 

[Guest cherzeca]

it appears to me that gabby of ACG has not been in many negotiations: 

[Guest cherzeca]

@midas79

 

I took the liberty of asking TH about your good twitter work:

 

"Tim

 

I have had a conversation with midas79, who posts on this blog periodically, who points out that a Mr. Sugarman at FHFA had this to say during the recent FHFA webinar on the proposed capital rule:

 

“The way buffers work is that it’s not a capital requirement. Rather the enterprises need to hold the prescribed buffer amount, or we start to limit the capital distributions such as dividends and stock repurchases, and we also limit discretionary bonuses to executives.” p. 11 see https://www.fhfa.gov/Media/PublicAffairs/PublicAffairsDocuments/642020_transcript.pdf

 

now, I will be the first to admit that FHFA is confusing regarding the buffers; see Question 26 in the proposed rule and my comment letter to FHFA regarding it: https://www.fhfa.gov//SupervisionRegulation/Rules/Pages/Comment-Detail.aspx?CommentId=15531.

 

are the buffers a capital requirement that need to be met upon pain of regulatory action, or an inducement for GSE management to carry more capital than actually required by the rule in order to avoid dividend and bonus restrictions? the answer to this question is very important for the initial capital raises that will be necessary to at least meet the risk/leverage capital requirements, imo.

 

I have to believe that GSE lead underwriters, MS and JPM, are pounding FHFA for clarification on this point behind the scenes, but if you take what Mr. Sugarman said at face value, that buffers are not a capital requirement, then the capital market might take a more sanguine view of this rule.

 

rolg"

 

now, TH can be dogmatic on the matter of capital, and what is too much, but I have to believe the market will feel better if it is clarified by FHFA that the real regulatory required level is 2.5% an not 4%

 

[muscleman]

What happens if the Supreme Court case is lost? Then it is all over or is there any other possibility for a good outcome?

[DocSnowball]

What happens if the Supreme Court case is lost? Then it is all over or is there any other possibility for a good outcome?

Have been thinking of the same. Or even if it is a win but the monetary relief is a nominal $1

[SnarkyPuppy]

In order to raise common equity, the senior preferred stock cannot be outstanding. 

 

The current regulator, current administration, and the companies are all clearly moving towards raising equity. 

 

If the senior preferred stock is no longer outstanding, the junior preferred stock are money good. 

[Luke 532]

In order to raise common equity, the senior preferred stock cannot be outstanding. 

 

The current regulator, current administration, and the companies are all clearly moving towards raising equity. 

 

If the senior preferred stock is no longer outstanding, the junior preferred stock are money good.

 

+1

[Guest cherzeca]

In order to raise common equity, the senior preferred stock cannot be outstanding. 

 

The current regulator, current administration, and the companies are all clearly moving towards raising equity. 

 

If the senior preferred stock is no longer outstanding, the junior preferred stock are money good.

 

+1

 

while I agree, it seems possible that some big whale (BRK?) could come in and buy a private placement of newly created convertible senior preferred, after treasury's preferred is nuked.  that should still leave juniors at par, but the capital structure will still look top heavy initially.  see OXY's convertible pref that BRK bought for an example.

[locutusoftexas]

In order to raise common equity, the senior preferred stock cannot be outstanding. 

 

The current regulator, current administration, and the companies are all clearly moving towards raising equity. 

 

If the senior preferred stock is no longer outstanding, the junior preferred stock are money good.

 

+1

 

while I agree, it seems possible that some big whale (BRK?) could come in and buy a private placement of newly created convertible senior preferred, after treasury's preferred is nuked.  that should still leave juniors at par, but the capital structure will still look top heavy initially.  see OXY's convertible pref that BRK bought for an example.

 

I believe that, after the travesty that Buffett's own democrats perpetrated on the FnF shareholders, he would be very unlikely to buy into something that the government has exploited shamelessly and can exploit at will. The politics factor and the greed of previously well-meaning humans turned this supposed value investment into a base speculation, as defined by Ben Graham. To reiterate, we investors were taken for a ride. Not that I am bitter or anything -- Ha Ha. Even "great" value investors were fooled.

[Guest cherzeca]

it need not be BRK.  there are a lot of whales overseas that would love the stability and growth of owning a piece of the US housing mortgage market.  again, you get into political sensitivities, but I have talked to advisors to Middle East money in the past, and while they love themselves trophy assets such as marquee resorts/brands etc, they are looking foremost for political and economic stability and growth.

[orthopa]

https://www.boylecapital.com/filesimages/Equity%20July%202020%20No%20CRS.pdf

 

Nice summary and thought process here.

[Guest cherzeca]

https://www.boylecapital.com/filesimages/Equity%20July%202020%20No%20CRS.pdf

 

Nice summary and thought process here.

 

+1

[Guest cherzeca]

GSEs ringing the bell during the pandemic: 

 

"Fannie Mae and Freddie Mac saw a whopping 78.5% jump in issuance of single-family mortgage-backed securities during the second quarter. The government-sponsored enterprises recorded a 111.7% increase in refinance business and a 26.3% gain in purchase-mortgage acquisitions."

 

from IMF

[WB_fan82]

Reading the CMLA comment on the cap rule.. what are "G fee reserves"?

 

It's an odd letter in that it spends one line on a suggested capital adjustment, but does not define nor quantify it.  All the rest is policy preferences post c-ship.

 

Anyone know what those are?

[investorG]

Another day just like the prior thousands -- plenty of people wanting to sell at distressed prices.

 

The window for a 4th amendment is now potentially open through Labor Day.  Waiting for a lame duck is weak.  Paulson closed his hedge fund, there's no strong political reason to wait.  The advisors have been on the field long enough to make it happen with a couple extra zoom conference calls. 

 

Mark Calabria's FHFA release, Sep 30 2019:  "FHFA commits to working with Treasury in the coming months to amend the share agreements and further advance broad housing reform....Now is the time to act."   

 

I wish everyone good luck and a great weekend.

[Guest cherzeca]

no reason to own GSEs right now if you are timing things.  the whole legal denouement awaits scotus next winter.  nothing administrative will be done until after Labor Day, when comment period has closed. 

 

will see some selling and price drift

[investorG]

ACG (no) vs. Craig Phillips (yes) on capital rule comment period extension. 

[Jcmeg35]

Interview with Craig Phillips today:

https://housingfinancestrategies.com/our-follow-up-with-craig-phillips/

 

Guessing that is where you got that from @investorG?

[investorG]

Interview with Craig Phillips today:

https://housingfinancestrategies.com/our-follow-up-with-craig-phillips/

 

Guessing that is where you got that from @investorG?

 

Yes. Unfortunately he's probably correct given the past patterns.

[Guest cherzeca]

I dont understand Phillip's reasoning...says these rules usually take years...well, this proposed rule is a redo of a prior proposed rule from 2018, so this has already taken years.  I dont buy it

[muscleman]

no reason to own GSEs right now if you are timing things.  the whole legal denouement awaits scotus next winter.  nothing administrative will be done until after Labor Day, when comment period has closed. 

 

will see some selling and price drift

 

Hmm... Do Supreme courts usually rule this slowly? I thought they pick up a case in a term and would just rule the next term.... Why can't they do things faster.....

I don't see why admin would do anything after Labor day and before election. If they have dragged it on for 3.5 years, why risk doing it now right before election?

 

[Guest cherzeca]

no reason to own GSEs right now if you are timing things.  the whole legal denouement awaits scotus next winter.  nothing administrative will be done until after Labor Day, when comment period has closed. 

 

will see some selling and price drift

 

Hmm... Do Supreme courts usually rule this slowly? I thought they pick up a case in a term and would just rule the next term.... Why can't they do things faster.....

I don't see why admin would do anything after Labor day and before election. If they have dragged it on for 3.5 years, why risk doing it now right before election?

 

procrastinating and then rushing before a time limitation seems like how most things are done

[Midas79]

I dont understand Phillip's reasoning...says these rules usually take years...well, this proposed rule is a redo of a prior proposed rule from 2018, so this has already taken years.  I dont buy it

 

I agree. May 22, when the rule was released, to August 31, when the comment period is set to end, is over 90 days already. What good would an extra 30 to 60 days do? The rule isn't that complicated.

 

In order to get things done during lame duck the rule needs to be finalized in November. How much time will need to pass between the end of the comment period and finalization of the rule?