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

[investorG]

After the shares turnover to a new investor base in days / weeks, the pref will likely drift higher until the Collins ruling imo. 

 

With the letter agreement the Tsy is incentivized to move forward because they won't receive cash for decades and they are potentially also on the hook for $125bn / $50bn in Sweeney / Lamberth, even if Collins APA is a loser.

 

Tsy has time to formulate their favored end-state for FnF during 2021 and then execute that plan over the following 1-3 years, economy willing. 

 

 

[Wiggins]

Good read from Mr. Tim Howard:

https://howardonmortgagefinance.com/

 

Here's to hoping facts win the day.

[COBFInfinity]

Here's to hoping facts win the day.

 

60% of the time, it works every time.

[muscleman]

it may be interesting to start a small position here BTW.  ;) I wouldn't go big though.

[typicalvalue]

it may be interesting to start a small position here BTW.  ;) I wouldn't go big though.

 

This last week I've been added some high dividend FMCC pdfs. Interesting R/R. If APA is a win in SCOTUS this could be a steal.

[Guest cherzeca]

The latest from The Rule of Law Guy:

 

https://www.dropbox.com/scl/fi/xvpo0x5zlsuoqahjrc350/For-Fannie-And-Freddie-Shareholders.docx?dl=0&rlkey=ysd8berpue9ryj6a192e3deyr

[typicalvalue]

The latest from The Rule of Law Guy:

 

https://www.dropbox.com/scl/fi/xvpo0x5zlsuoqahjrc350/For-Fannie-And-Freddie-Shareholders.docx?dl=0&rlkey=ysd8berpue9ryj6a192e3deyr

 

Thank you for all your work and help Christian, will take a look at it tomorrow

[investorG]

The latest from The Rule of Law Guy:

 

https://www.dropbox.com/scl/fi/xvpo0x5zlsuoqahjrc350/For-Fannie-And-Freddie-Shareholders.docx?dl=0&rlkey=ysd8berpue9ryj6a192e3deyr

 

Wow. This is good.  Thank you.

 

Regarding your conclusions, we'll have to see.  I would guess we'll see a curve ball good (perhaps a large majority win on APA) or bad (perhaps they say wait for the takings cases (breyer's comment)) and a ruling in June.

[COBFInfinity]

We haven't heard much from any of the major institutional players since the amendment, but Fairholme's annual report is out (http://www.fairholmefundsinc.com/Reports/Funds2020Annual.pdf). But keep in mind that there are 3 Fairholme funds and sometimes Berkowitz will write something a little different for each one even in regards to the same investment. So below I consolidated his relevant comments on F&F.

 

Fannie Mae and Freddie Mac's businesses are booming while in conservatorships. The U.S. Treasury has finally agreed to allow them to retain earnings for capital safety and soundness. Treasury still has not agreed that $191 billion of "loans and fees" have been repaid even after receiving over $300 billion of reimbursements and controlling 80% stakes. I expect The Supreme Court will remedy the rights of two highly successful private enterprises and further their exit from federal control. Until then, preferred shareholders remain in a volatile purgatory. A resumption of preferred stock dividends should benefit the Fund's current dividend of 2.0%.

 

That last line sure is interesting. Does he really expect dividends to be turned back on, as opposed to an exchange of JPS into common?

[JRH]

Well, he only referenced dividends for Focused Income, which has an “income” mandate. No such reference on FAIRX, which does not. I think this was just a proofreading/editing decision as a way to reference current yield for that fund (notice a similar reference for the Allocation Fund in a later paragraph).

[investorG]

Wondering if it makes sense to add some common to complement the jr pref in case biden takes his full term to to turn them into a utility with lower cap requirements. 

[Spekulatius]

“None of the reason for my buying has changed. Rest is noise : no other company on earth does what Fannie Mae and Freddie Mac do, they will survive for another 300 years, they make a ton of money, they help rich and poor alike, I I bought when it was low (post 2008) and for the same reasons I bought them very high (pre 2008). Commons above $300.00 and treasury will make the most money in warrants. Preferreds will get the par, $25 or $50”

 

Actually AGM is similar (guarantees Agricultural loans backed by land). 4.2% dividend yield and 9x PE. I don't own it, but it looks like a decent value to me.

[Wiggins]

FNMAP and FNMAO

Two of the low yielding variable JPS are calculated such that they would actually have a negative interest rate if dividends were turned back on. The calculations are 2-yr CMT minus a fixed number, which is currently higher than the 2-yr CMT for both securities.

I don't think the offering circular contemplates a negative rate, thus I assume they would be 0%

Yes, I know, dividends are irrelevant.

Still, amazing

[asterisk]

FNMAP and FNMAO

Two of the low yielding variable JPS are calculated such that they would actually have a negative interest rate if dividends were turned back on. The calculations are 2-yr CMT minus a fixed number, which is currently higher than the 2-yr CMT for both securities.

I don't think the offering circular contemplates a negative rate, thus I assume they would be 0%

Yes, I know, dividends are irrelevant.

Still, amazing

 

Not sure the point of chasing the lower yields at this point in the game. IMHO positioning to the highest yield amid the JPS stack is the best position, although at a small premium.

[DocSnowball]

We haven't heard much from any of the major institutional players since the amendment, but Fairholme's annual report is out (http://www.fairholmefundsinc.com/Reports/Funds2020Annual.pdf). But keep in mind that there are 3 Fairholme funds and sometimes Berkowitz will write something a little different for each one even in regards to the same investment. So below I consolidated his relevant comments on F&F.

 

Fannie Mae and Freddie Mac's businesses are booming while in conservatorships. The U.S. Treasury has finally agreed to allow them to retain earnings for capital safety and soundness. Treasury still has not agreed that $191 billion of "loans and fees" have been repaid even after receiving over $300 billion of reimbursements and controlling 80% stakes. I expect The Supreme Court will remedy the rights of two highly successful private enterprises and further their exit from federal control. Until then, preferred shareholders remain in a volatile purgatory. A resumption of preferred stock dividends should benefit the Fund's current dividend of 2.0%.

 

That last line sure is interesting. Does he really expect dividends to be turned back on, as opposed to an exchange of JPS into common?

 

We are at 20% of par with Fairholme still digging in. If Supreme Court ruling is adverse and Fairholme decides to sell, we end up in much more "volatile purgatory".

 

Since it is not a class action suit and not the only suit, there is little hope of settlement at this beyond late stage imho from Treasury standpoint. Obviously I'm not a lawyer but as a layperson what I am perceiving is that the NWS "nationalization" was obvious to the Court without any earnings/dividends going to company or shareholders in/after the third amendment, but how will they rule if they feel it was unlawful but not exactly meeting the legal criteria for the claim presented which is not a "takings" case and not even considered ripe anyway? Is 'unscrambling the egg" of NWS part of the Court's job in handling this case? Maybe not, but looking away in writing the verdict when private rights are expropriated doesn't seem the right precedent to set either.

 

What I'm hoping for is that even if they don't reverse NWS to the original contract terms, which I seriously doubt they will, they rule in such a way as to ensure legal rights of private shareholders are protected going forward. This may be enough for market participants to close the gap between price and value.  Feeling deeply uncomfortable using hope as an investment strategy here with hard earned money, but holding on.

[typicalvalue]

We haven't heard much from any of the major institutional players since the amendment, but Fairholme's annual report is out (http://www.fairholmefundsinc.com/Reports/Funds2020Annual.pdf). But keep in mind that there are 3 Fairholme funds and sometimes Berkowitz will write something a little different for each one even in regards to the same investment. So below I consolidated his relevant comments on F&F.

 

Fannie Mae and Freddie Mac's businesses are booming while in conservatorships. The U.S. Treasury has finally agreed to allow them to retain earnings for capital safety and soundness. Treasury still has not agreed that $191 billion of "loans and fees" have been repaid even after receiving over $300 billion of reimbursements and controlling 80% stakes. I expect The Supreme Court will remedy the rights of two highly successful private enterprises and further their exit from federal control. Until then, preferred shareholders remain in a volatile purgatory. A resumption of preferred stock dividends should benefit the Fund's current dividend of 2.0%.

 

That last line sure is interesting. Does he really expect dividends to be turned back on, as opposed to an exchange of JPS into common?

 

We are at 20% of par with Fairholme still digging in. If Supreme Court ruling is adverse and Fairholme decides to sell, we end up in much more "volatile purgatory".

 

Since it is not a class action suit and not the only suit, there is little hope of settlement at this beyond late stage imho from Treasury standpoint. Obviously I'm not a lawyer but as a layperson what I am perceiving is that the NWS "nationalization" was obvious to the Court without any earnings/dividends going to company or shareholders in/after the third amendment, but how will they rule if they feel it was unlawful but not exactly meeting the legal criteria for the claim presented which is not a "takings" case and not even considered ripe anyway? Is 'unscrambling the egg" of NWS part of the Court's job in handling this case? Maybe not, but looking away in writing the verdict when private rights are expropriated doesn't seem the right precedent to set either.

 

What I'm hoping for is that even if they don't reverse NWS to the original contract terms, which I seriously doubt they will, they rule in such a way as to ensure legal rights of private shareholders are protected going forward. This may be enough for market participants to close the gap between price and value.  Feeling deeply uncomfortable using hope as an investment strategy here with hard earned money, but holding on.

 

+1 right now hope is part of this investment I guess. What its beyond my understanding is how come Mark Calabria has not said a word since the PSPA was out, ~20 days and counting. Would love to see what are his views on this, even if pessimistic.

[Guest cherzeca]

justices Thomas and Barrett both addressed "unscrambling the egg" in orals.  scotus need not prescribe a remedy, just identify the right legal principles, though wondering if there is a remedy does affect the analysis of what the law is.  this applies more to const claim than APA claim since the APA claim would still need a merits determination at lower court. the last question at orals was ACB making clear though counsel that treasury wouldn't need to write a check.  so we shall see

[investorG]

Regarding Tsy's compensation for their ongoing line of credit in the January letter agreement, capital builds faster at the GSEs through the selection of increasing the liquidation preference vs. the alternative of an earnings-reducing graduated commitment fee.  Yet another double down on the Sr pref partial / full write down through legal or eventual settlement; but if it occurs, the GSEs will have tens of billions further in capital at that point than if liq pref wasn't increased in letter agreement and instead a commitment fee was installed.

[MrSwankyPants]

The SC issued an opinion today regarding judicial review (https://www.scotusblog.com/2021/02/divided-court-favors-judicial-review-of-agency-decision-on-railroad-worker-benefits/).

 

Curious to hear ROLG's thoughts on any tea leaves that could be read through this to Collins. If i'm correct, JR was a tactic used by the government in it's defense.

[typicalvalue]

Did anyone watch this?

 

https://www.realvision.com/shows/live/videos/identifying-sound-anti-bubble-trades-fannie-mae-and-freddie-mac-live-with-michael-kao-and-tim-pagliara

[WB_fan82]

If the Supreme Court rules that the Collins dismissal was wrong and it gets remanded, what happens to all the other cases that were dismissed on similar grounds and where the dismissals were affirmed by the circuits?  Do the cases get new life and get refiled?

[Guest cherzeca]

The SC issued an opinion today regarding judicial review (https://www.scotusblog.com/2021/02/divided-court-favors-judicial-review-of-agency-decision-on-railroad-worker-benefits/).

 

Curious to hear ROLG's thoughts on any tea leaves that could be read through this to Collins. If i'm correct, JR was a tactic used by the government in it's defense.

 

I just read the link, not the opinion, and this is an interesting case...not the least because most of those favoring judicial review in this majority are justices that I would expect to side with govt in collins re anti-injunction clause.  these cases for statutory interpretation often are decided based upon the precise language of the statute, which is usually different from case to case and statute to statute. but yes you can take this case as indicating a judicial slant in favor of judicial review...and indeed the justices who were in dissent argued that there was another statute that limited review, not that the statute in question didnt support it.  so directly readable to collins? no.  but better than a poke in the eye with a sharp stick

 

collins is interesting since while the justices might recoil at the notion that govt can siphon off >$100B and not have its action subject to judicial review, while at the same time considering granting a remedy in that amount constitutes a tough swallow. 

[typicalvalue]

Did anyone watch this?

 

https://www.realvision.com/shows/live/videos/identifying-sound-anti-bubble-trades-fannie-mae-and-freddie-mac-live-with-michael-kao-and-tim-pagliara

 

Released

 

https://www.realvision.com/identifying-sound-anti-bubble-trades-fannie-mae-and-freddie-mac-live-with-michael-kao-and-tim-pagliara

[Midas79]

Did anyone watch this?

 

https://www.realvision.com/shows/live/videos/identifying-sound-anti-bubble-trades-fannie-mae-and-freddie-mac-live-with-michael-kao-and-tim-pagliara

 

Released

 

https://www.realvision.com/identifying-sound-anti-bubble-trades-fannie-mae-and-freddie-mac-live-with-michael-kao-and-tim-pagliara

 

FYI Tim and Michael, and by extension the rest of us, have been asked not to share that link on Twitter.

 

It was certainly an excellent interview and well worth listening to for any current or prospective FnF investor.

[MrSwankyPants]

The SC issued an opinion today regarding judicial review (https://www.scotusblog.com/2021/02/divided-court-favors-judicial-review-of-agency-decision-on-railroad-worker-benefits/).

 

Curious to hear ROLG's thoughts on any tea leaves that could be read through this to Collins. If i'm correct, JR was a tactic used by the government in it's defense.

 

I just read the link, not the opinion, and this is an interesting case...not the least because most of those favoring judicial review in this majority are justices that I would expect to side with govt in collins re anti-injunction clause.  these cases for statutory interpretation often are decided based upon the precise language of the statute, which is usually different from case to case and statute to statute. but yes you can take this case as indicating a judicial slant in favor of judicial review...and indeed the justices who were in dissent argued that there was another statute that limited review, not that the statute in question didnt support it.  so directly readable to collins? no.  but better than a poke in the eye with a sharp stick

 

collins is interesting since while the justices might recoil at the notion that govt can siphon off >$100B and not have its action subject to judicial review, while at the same time considering granting a remedy in that amount constitutes a tough swallow.

 

I also found it interesting that the judges who were in favor of JR were on the 'left' side of the bench. Agree that it's quite different than our case, but happy to see more JR in general.