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

[cameronfen]

I get it, GSEs have a large political component, and adding one's two cents on the political gloss is not OT, but this investment has been >50% a legal special event, and to preface remarks by saying that the lawsuits have gone nowhere is basically like holding up a sign saying I dont know what I dont know...

 

Maybe you are misunderstanding, again I don’t know the intricacies of this case, but I was responding to the conversation about handicapping admin reform from SM over the next 14 days which was being discussed right before I posted.

 

our posts were simultaneous, I really wasn't responding to you.  if this investment were just a roulette spin, then I would have less objection to the commentary that assumes it is

 

Oh ok my fault. 

[Gregmal]

I think all opinions and offerings should be welcome but also all of them should be subject to ridicule and getting shit on. That keeps things honest.

 

My 2c hasn't changed really. But taking a step back this investment was started in the early party of the decade under the Obama administration and there were a couple avenues, but it was largely a legal battle. Trump came in and it was OMG he/Mnuchin is gonna fix it, but the under appreciated aspect today vs 4 years ago is you have 4 years worth of legal time value now on your side.

 

Theres good likelihood the journey on the legal front is nearing an end, and this ascribes no value to an executive order type of move. Its similar to the SPAC warrant which does have an expiration date, and if things dont roll your way its worth zero, but in any event, contrary to conventional wisdom, it should and usually is worth more the closer it gets to expiration.

[buffetteer1984]

Often has been the case when sentiment has gotten this negative (usually due to price decline) the right move was to buy, even for just a trade.  This investment was never just contingent on mnuchin so the price is an opportunity if you still believe in SCOTUS

[beaufort]

I added more. If there ever was a better time to add more its after a ~40% drop from highs a month ago with 9 business days to go!

 

What I do find interesting is the higher div and lower div preferred seem to be coming together a bit in price. Whatever is coming it seems the market believes divs may not matter as much for whatever reason.

 

All of these securities are trading like an option that expires on Jan 21st. When Mnuchin signs the 4th amendment the expiration date goes out to eternity and the time value embedded will soar. Not a bad idea to add a little each day going forward until its signed.

 

I added again today as well.  I've been noticing the same thing re yields. 

[james22]

Ive added about 20% across the board to FNMAS, FMCCL, FNMAH today.

 

*salutes*

[orthopa]

Ive added about 20% across the board to FNMAS, FMCCL, FNMAH today.

 

*salutes*

 

These seems to undoubtedly be the right move at these prices. Just to review as its easy to let the market guide you not serve you on slow news days.

 

A quick review of recent history reported regarding Mnuchin.

 

https://www.wsj.com/articles/fannie-freddie-overseer-seeks-to-end-federal-control-before-trump-leaves-11605873600?mod=article_inline

 

"The Treasury secretary must agree to any move to alter the terms of either the companies’ bailout agreement or the government’s stakes. One person familiar with the effort said Mr. Mnuchin is supportive of locking in a path to private ownership but mindful of steps that could disrupt the housing-finance market."

 

"Mr. Calabria has met twice recently with Mr. Mnuchin to discuss an expedited exit of the companies from government control, most recently the week of Nov. 9, according to people familiar with the meetings, which also involved Larry Kudlow, the director of the White House’s National Economic Council. Mr. Mnuchin was noncommittal about the push, the people said."

 

https://www.bloomberg.com/news/articles/2020-12-10/mnuchin-says-he-s-likely-to-back-changes-to-fannie-and-freddie

 

Speaking to reporters on Wednesday, Mnuchin said he supports amending the companies’ bailout agreements “to set them on the right direction.” Revamping the accords, established after the government took control of Fannie and Freddie at the height of the 2008 financial crisis, is crucial to releasing them from U.S. control.

 

Federal Housing Finance Agency Director Mark Calabria, Fannie and Freddie’s regulator, has recently pushed for a sweeping amendment that would set them on an irreversible path to leave conservatorship, according to people familiar with the matter.

 

“We’re going to create a blueprint,” said Mnuchin, adding that he had spoken to both Republicans and Democrats in the past few weeks.

 

 

 

At a minimum we have weak hands leaving with the recent rumors of Mnuchin leaving and I believe the market pricing in a "lite" 4th PSPA that does not eliminate the Sr Preferred but only raises the retained earnings cap. This certainly would hamstring Calabria and certainly does not set them on a path anymore then they are now.  Those who have followed along know the unlikelihood of locking in a path to private ownership as Mnuchin says with the Sr. Preferred still in place.

 

So we wait. Only 9 business days left for the crystallization event to occur.

[typicalvalue]

Ive added about 20% across the board to FNMAS, FMCCL, FNMAH today.

 

*salutes*

 

These seems to undoubtedly be the right move at these prices. Just to review as its easy to let the market guide you not serve you on slow news days.

 

A quick review of recent history reported regarding Mnuchin.

 

https://www.wsj.com/articles/fannie-freddie-overseer-seeks-to-end-federal-control-before-trump-leaves-11605873600?mod=article_inline

 

"The Treasury secretary must agree to any move to alter the terms of either the companies’ bailout agreement or the government’s stakes. One person familiar with the effort said Mr. Mnuchin is supportive of locking in a path to private ownership but mindful of steps that could disrupt the housing-finance market."

 

"Mr. Calabria has met twice recently with Mr. Mnuchin to discuss an expedited exit of the companies from government control, most recently the week of Nov. 9, according to people familiar with the meetings, which also involved Larry Kudlow, the director of the White House’s National Economic Council. Mr. Mnuchin was noncommittal about the push, the people said."

 

https://www.bloomberg.com/news/articles/2020-12-10/mnuchin-says-he-s-likely-to-back-changes-to-fannie-and-freddie

 

Speaking to reporters on Wednesday, Mnuchin said he supports amending the companies’ bailout agreements “to set them on the right direction.” Revamping the accords, established after the government took control of Fannie and Freddie at the height of the 2008 financial crisis, is crucial to releasing them from U.S. control.

 

Federal Housing Finance Agency Director Mark Calabria, Fannie and Freddie’s regulator, has recently pushed for a sweeping amendment that would set them on an irreversible path to leave conservatorship, according to people familiar with the matter.

 

“We’re going to create a blueprint,” said Mnuchin, adding that he had spoken to both Republicans and Democrats in the past few weeks.

 

 

 

At a minimum we have weak hands leaving with the recent rumors of Mnuchin leaving and I believe the market pricing in a "lite" 4th PSPA that does not eliminate the Sr Preferred but only raises the retained earnings cap. This certainly would hamstring Calabria and certainly does not set them on a path anymore then they are now.  Those who have followed along know the unlikelihood of locking in a path to private ownership as Mnuchin says with the Sr. Preferred still in place.

 

So we wait. Only 9 business days left for the crystallization event to occur.

 

Mnuchin comes back the 11th. Let's see if we are in endgame, or we have to rely on the fairness of justice. The pretty good thing is that the downside of not doing anything is pretty priced in, so the only thing left is waiting.

[DRValue]

Personally very nervous now Biden confirmed.

[DocSnowball]

I think all opinions and offerings should be welcome but also all of them should be subject to ridicule and getting shit on. That keeps things honest.

 

 

Agree. One of the purposes of this is to listen to different opinions. Otherwise it's just an echo chamber...

[muscleman]

I think all opinions and offerings should be welcome but also all of them should be subject to ridicule and getting shit on. That keeps things honest.

 

 

Agree. One of the purposes of this is to listen to different opinions. Otherwise it's just an echo chamber...

 

It is important to control emotions and have objective assessments on the same facts that everyone is seeing. Sometimes when price drops, people feel a lot of emotional distress and couldn't help but be mad at anyone bearish and disagreeing with their bullish views.

 

Everyone wants to have an informational edge and profit from that, and this thread has done an excellent job on that. But sometimes everyone is looking at the same amount of facts, and have to objectively assign the right probability to the outcome and take actions based on that.

 

[Jcmeg35]

I think all opinions and offerings should be welcome but also all of them should be subject to ridicule and getting shit on. That keeps things honest.

 

 

Agree. One of the purposes of this is to listen to different opinions. Otherwise it's just an echo chamber...

 

Agree as well. I think it is important to constantly challenge one's thesis.

 

While I think it is clear that the market is now saying it doesn't expect any action from Mnuchin, based on current prices, I think the risk/reward is relatively favorable. The market has priced in no PSPA, but there is still time before 1/20 for MC to do what he has said he was going to do. There have also been whispers that Biden Admin would not continue R&R, but we have not yet heard anything from Yellen on the topic. While I won't hold my breath for an upside surprise, I think, again the Market has priced in her not being faborable to R&R, though it is possible she is open to workig with Calabria. Lastly, the legal cases still hang in the background as options that provide additional upside.

 

[SnarkyPuppy]

To be clear, his opinion literally started with "I don't know what I'm talking about".  Specifically:

 

"I don’t really follow FNMA and FMCC" and "I don’t know the intricacies of this case"

 

Has everyone lost their minds?  We are obviously aware of the risk that SM doesn't do anything.  Was the comment supposed to be breaking news?  Struggling w/ the value-add

[investorG]

Sadly it appears we made a mistake trusting that Mnuchin would do as he said. 

 

Despite my disappointments along the way I stuck with the concept of him acting in the end to fix the NWS / sr pref due in part to an interview from years ago when his wife discussed something along the lines of his persistence and stubbornness when he latches on to something. 

 

Forward looking the shares will likely be valued on the 3 legal cases' probabilities and timing.  Collins has been well discussed.  Are we looking at 2024-2025 for post-appeals resolution on Lamberth and sweeney / schwartz?

 

Thank you and good luck everyone.

[WB_fan82]

Call me crazy, I still think he acts.

 

The optics were always impossible until the lame duck, and GA Senate + everything else made it have to happen at the end.

 

He's not even back from his trip yet for pete's sakes.

 

He's not resigning, so he probably has something he'd like to do for the past two weeks rather than dodge calls about a 25th amendment.

[locutusoftexas]

So here is what I see:

(1) Key decision point on buying more shares before Jan 20: Does he (SM) or doesn't he? The bet appears to be 50-50, since he will keep his cards close to the vest. If yes, game over; if no, go to (3) - (5).

(2) Everyone recognizes that in fact this is a bet and not an investment. In this case about all we have is simple technical analysis and the estimation of a minimum possible value, which I believe is not zero. For example, perhaps a strange arbitrage might be possible across securities: common and Jr. Prefs and maybe Sr Prefs. Technical: The trend is your friend. I am suspecting that MM would not be buying yet. If anything, he would probably be selling short right now.

(3) The Biden Administration: Clearly Maxine Waters is interested and has plans to modify GSE policies on lending. The Conservatorship must play in this. So for private investors maybe the only important question is, "Will they exit conservatorship in whatever form that is palatable to the Democrats, thereby settling issues of security values?" I think that this is likely but that it will take at least a year. Who knows what that means regarding compensating equity investors, but it could be bad.

(4) Other than Mnuchin, the most likely factor in exiting conservatorship sooner: The court cases, although this could take at least a year. Government could settle under Biden; then the exit will take place sooner. The go back to (3)

(5) Greed: Thesis: The real reason Mnuchin has done nothing is because the free money streaming  to the Treasury is impossible to give up. Then because the Democrats were the ones who nationalized FnF in the first place and gladly robbed the private equity investors, the equity holders other than the Treasury are probably screwed.

 

Given the time value of money and technical analysis, in the 50-50 possibility of action by Mnuchin ("Are you feeling lucky punk?"), the mix of factors above primarily favors selling out right now for actual money or, after Jan. 20, for peanuts. The wild card is the court cases, which could force the Biden Administration toward a fairer outcome for private equity holders, but again, what are the odds of a favorable outcome? Maybe someone in this thread can give more believable odds on positive Mnuchin action or positive outcomes in court.

[orthopa]

So here is what I see:

(1) Key decision point on buying more shares before Jan 20: Does he (SM) or doesn't he? The bet appears to be 50-50, since he will keep his cards close to the vest. If yes, game over; if no, go to (3) - (5).

(2) Everyone recognizes that in fact this is a bet and not an investment. In this case about all we have is simple technical analysis and the estimation of a minimum possible value, which I believe is not zero. For example, perhaps a strange arbitrage might be possible across securities: common and Jr. Prefs and maybe Sr Prefs. Technical: The trend is your friend. I am suspecting that MM would not be buying yet. If anything, he would probably be selling short right now.

(3) The Biden Administration: Clearly Maxine Waters is interested and has plans to modify GSE policies on lending. The Conservatorship must play in this. So for private investors maybe the only important question is, "Will they exit conservatorship in whatever form that is palatable to the Democrats, thereby settling issues of security values?" I think that this is likely but that it will take at least a year. Who knows what that means regarding compensating equity investors, but it could be bad.

(4) Other than Mnuchin, the most likely factor in exiting conservatorship sooner: The court cases, although this could take at least a year. Government could settle under Biden; then the exit will take place sooner. The go back to (3)

(5) Greed: Thesis: The real reason Mnuchin has done nothing is because the free money streaming  to the Treasury is impossible to give up. Then because the Democrats were the ones who nationalized FnF in the first place and gladly robbed the private equity investors, the equity holders other than the Treasury are probably screwed.

 

Given the time value of money and technical analysis, in the 50-50 possibility of action by Mnuchin ("Are you feeling lucky punk?"), the mix of factors above primarily favors selling out right now for actual money or, after Jan. 20, for peanuts. The wild card is the court cases, which could force the Biden Administration toward a fairer outcome for private equity holders, but again, what are the odds of a favorable outcome? Maybe someone in this thread can give more believable odds on positive Mnuchin action or positive outcomes in court.

 

1. What evidence do you have that he wont act vs that he will. The he will pile is way higher then he wont pile. We are not down to minutes here with still a week and a half to go.

 

2. There is no way to invest in the Sr Preferred now so no way arbitrage with them. And your correct MM buys high and sells low. After the outcome occurs, he will come and tell us what happened. Has  happened 3 or 4 times now.

 

3. FnF do not have to exit conservatorship in any way palatable to Maxine Waters or the Democrats. FnF exit conservatorship is an agreement between Treasury and FHFA and if CD between FHFA and the GSEs. Congress is not involved at all now or in the future with that. Who cares what Maxine Waters thinks. The only input she will have will be in a bill that can pass through congress that hasnt happened in 12 years. I hope you dont hold your breath on that. Maxine Waters has no imput on compensating equity investors. After out of conservatorship its the GSEs that will deal with investors vis CRPs.

 

4. The SCOTUS cannot release the companies from conservatorship. Only deal with the NWS. If you havent already, please re read HERA.

 

5. If you looked at the OMB projections they do not include dividends from FnF. Not really sure this makes much sense objectively.

[orthopa]

I think all opinions and offerings should be welcome but also all of them should be subject to ridicule and getting shit on. That keeps things honest.

 

 

Agree. One of the purposes of this is to listen to different opinions. Otherwise it's just an echo chamber...

 

It is important to control emotions and have objective assessments on the same facts that everyone is seeing. Sometimes when price drops, people feel a lot of emotional distress and couldn't help but be mad at anyone bearish and disagreeing with their bullish views.

 

Everyone wants to have an informational edge and profit from that, and this thread has done an excellent job on that. But sometimes everyone is looking at the same amount of facts, and have to objectively assign the right probability to the outcome and take actions based on that.

 

The problem is you have shown on multiple occasions you dont know the facts, HERA, what congress does with the GSEs, the SCOTUS, on and on and on. So no one who truly is informed on the issue can take your or spek's opinion seriously. You guys don't know the facts so your opinion FWIW is rubbish. No offense meant but perfectly sound reasoning based on your own logic.

[james22]

Even if the Greed thesis true, Mnuchin has no reason to do the Democrats any favors.

 

OTOH, if Mnuchin believes the Court case strong, maybe he likes letting them rule against (and embarrass) the Democrats?

[orthopa]

Thinking more about the conservatorship lite option if that was the plan of action IMO it would be done by now. Why? What's the pushback from that? Plantiffs are already suing and you may get some pushback from small lenders and on twitter but no one on Congress is going to bust  your balls. This is hands down the easiest solution and I dont see a reason to wait and duck out after that. If anything the majority of Congress and the Biden admin would praise the move.  Protecting the taxpayer has been another one of Mnuchins goals and I dont know how a letter agreement with an increased liquidation preference protects the taxpayer with no private capital nor does it follow the Treasury Plan. Reasoning it out makes no sense where we are today. Lastly if any of the reporting lately is to be believed no way Wall Street is meeting with Mnuchin and the DOJ is reviewing a letter agreement. That's a quick agreement between Treasury and FHFA and would Calabria even agree to that? He has been pushing for huge changes. I would argue that Calabria wouldnt even sign that agreement as it goes against his mandate.

 

 

Now on the other hand if you were going to do something a little rash waiting and ducking out is the way to go. No 4 hour hearings in front of congress explaining to those retards why you did what you did and Calabria can scream at the top of his lungs that capital is what is needed. As a regulator he is independent and insulated till the SCOTUS decision.

 

Just thinking out loud here.

[Luke 532]

Excellent point!

 

Thinking more about the conservatorship lite option if that was the plan of action IMO it would be done by now. Why? What's the pushback from that? Plantiffs are already suing and you may get some pushback from small lenders and on twitter but no one on Congress is going to bust  your balls. This is hands down the easiest solution and I dont see a reason to wait and duck out after that. If anything the majority of Congress and the Biden admin would praise the move.  Protecting the taxpayer has been another one of Mnuchins goals and I dont know how a letter agreement with an increased liquidation preference protects the taxpayer with no private capital nor does it follow the Treasury Plan. Reasoning it out makes no sense where we are today. Lastly if any of the reporting lately is to be believed no way Wall Street is meeting with Mnuchin and the DOJ is reviewing a letter agreement. That's a quick agreement between Treasury and FHFA and would Calabria even agree to that? He has been pushing for huge changes. I would argue that Calabria wouldnt even sign that agreement as it goes against his mandate.

 

 

Now on the other hand if you were going to do something a little rash waiting and ducking out is the way to go. No 4 hour hearings in front of congress explaining to those retards why you did what you did and Calabria can scream at the top of his lungs that capital is what is needed. As a regulator he is independent and insulated till the SCOTUS decision.

 

Just thinking out loud here.

[Guest cherzeca]

first, speculating about what SM will do is a fools errand.  second, I care more about what SCOTUS will do than what SM will do.

 

having said that, let me speculate on what SM will do...he strikes me as a cautious man. if he really thinks the mbs market will fall apart with a 4thA, then he won't do it.  I cant understand why he would think that, but so be it. as a cautious man, I am sure he will want "the lawyers", as he calls them, to tell him any 4thA is legally enforceable and doesn't violate any law etc.  he is likely using DOJ for this advice if he is seeking it, and DOJ would have to switch gears from advocating in court in favor of the NWS, which is its job, to advising whether any 4thA is kosher.  this is what lawyers do all the time, switch their march to a different tune called out by the client, but this assumes SM has asked for this advice.

 

I do find it interesting that MC has scheduled interviews soon after 1/20. if there is no 4thA, you would think he would maintain a low profile.

 

so I still believe something will get done before 1/20, but what it is I no longer think I can guess.

[WB_fan82]

Rereading the supreme court transcript, I'm struck by an irony.

 

The Constitutional argument seems like a loser because the arguments for the acting director being constitutional are far stronger than not.

 

But the irony is that the Ps argue "structural error" during the administration of confirmed directors that had removal protection, but nobody has really given a good example of why that's a problem.  And now we are living it.  Trump couldn't get Calabria in there until too late, and now we are out of time because of the time and political considerations it takes to draft capital rules, change PSPAs, litigate, etc.  Watt having removal protection from Trump likely ended up injuring the GSE shareholders.

 

The Court missed the point when it asked whether the confirmed director making the payments contracted to by the earlier acting director caused harm, and Thompson dropped the ball to ACB when he admitted it wasn't a problem.  Left unsaid was how the problem was the NWS couldn't be CHANGED b/c of the protection.  That's the sort of reason why Seila held that Ps have no obligation to prove a "but for" world, but Thomspon not making that point means it was probably lost on the justices.

 

[muscleman]

I think all opinions and offerings should be welcome but also all of them should be subject to ridicule and getting shit on. That keeps things honest.

 

 

Agree. One of the purposes of this is to listen to different opinions. Otherwise it's just an echo chamber...

 

It is important to control emotions and have objective assessments on the same facts that everyone is seeing. Sometimes when price drops, people feel a lot of emotional distress and couldn't help but be mad at anyone bearish and disagreeing with their bullish views.

 

Everyone wants to have an informational edge and profit from that, and this thread has done an excellent job on that. But sometimes everyone is looking at the same amount of facts, and have to objectively assign the right probability to the outcome and take actions based on that.

 

The problem is you have shown on multiple occasions you dont know the facts, HERA, what congress does with the GSEs, the SCOTUS, on and on and on. So no one who truly is informed on the issue can take your or spek's opinion seriously. You guys don't know the facts so your opinion FWIW is rubbish. No offense meant but perfectly sound reasoning based on your own logic.

 

I am not sure if you know how lawless communist countries like China and Russia run. The eight years of Obama has turned this country quickly that way, and Trump is unable to turn it back, and now we have Biden.

 

[TwoCitiesCapital]

what's more likely to happen before 1/20:

Trump declassifying everything, including how Kennedy got assassinated.

Mnuchin saving FnF from the eternal bleeding.

 

I lol'd to stop myself from crying

 

I added more. If there ever was a better time to add more its after a ~40% drop from highs a month ago with 9 business days to go!

 

What I do find interesting is the higher div and lower div preferred seem to be coming together a bit in price. Whatever is coming it seems the market believes divs may not matter as much for whatever reason.

 

All of these securities are trading like an option that expires on Jan 21st. When Mnuchin signs the 4th amendment the expiration date goes out to eternity and the time value embedded will soar. Not a bad idea to add a little each day going forward until its signed.

 

+1

 

Ive added about 20% across the board to FNMAS, FMCCL, FNMAH today. Albeit small allocation. But market neutral/event driven and both sentiment and expectations are pretty rotten right now. Yea, sometimes I just like to take the other side of a trade.

 

+1

 

 

I have added myself. Albeit only a 3% increase. It's already my largest position and I've already been HODLing for way longer than I ever anticipated.

 

Was hard not to add more, but have to temper myself since I've been wrong this whole time

 

 

I am not sure if you know how lawless communist countries like China and Russia run. The eight years of Obama has turned this country quickly that way, and Trump is unable to turn it back, and now we have Biden.

 

This is a but disingenuous methinks. Does the capture of FNMA resemble that? Absolutely.

 

I can't think of much else from Obama admin that does though.

 

There are also things from Trump's admin that are reminiscent of these governments. Like using the military against his own citizens and attempting to orchestrate a coup when he doesn't like democratic election results.

 

Trump was never going to be a savior of anything - our political system or this investment. The latter was only SM and the SC.

 

SM can still turn things around. The SC can still rule in our favor. Both suggest that we're not quite comparable to China or Russia yet.

 

[orthopa]

I have posted this before but helpful again to just reacquaint ourselves with the previous amendment since we maybe close to the end here.

 

https://home.treasury.gov/system/files/136/9-27-19%20_FNMA%20Capital%20Agreement_0.pdf

 

The Enterprise and Treasury agree to negotiate and execute an additional amendment to the

Agreement that further enhances taxpayer protections by adopting covenants broadly consistent

with recommendations for administrative reform contained in Treasury's September 2019

Housing Reform Plan, in further consideration for the amendment contained in Part I of this

agreement.

 

I post this because I believe what we will see in a 4th amendment was decided long ago. If we remember correctly SM and MC were actively negotiating an amendment not long after the Sept 2019 letter agreement. They have been negotiating for 14 months if you can believe its truly will come down to the wire and things are not decided already.

 

What i ponder now looking at the language is what does "broadly consistent" mean? Why not "consistent"?

 

The language to me suggest the liquidation preference will stay in a 4th amendment due to the last sentence correct?

 

Any thoughts on this.