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

[waynepolsonAtoZ]

Agreed. Mnuchin has his issues. http://www.thewrap.com/steven-mnuchin-treasury-secretary-donald-trump-5-things-to-know/

 

But he passes the laugh test, which is not the case with many of the other nominees. Linda McMahon, lol. Ben Carson, lol.

 

I'm guessing by the way that the first things the Rs do is get rid of the filibuster. http://www.salon.com/2016/11/10/after-eight-years-of-using-the-filibuster-against-president-obama-republicans-now-want-to-get-rid-of-it/

[BeerBBQ]

Looking at Mnuchin's twitter feed - a couple of congressional leaders seem to support him e.g. McConnell, Hatch, Grassley

[rros]

I don't think many people understand what they're getting into by buying into these companies.

 

It is clear that the former system with Fannie and Freddie as private entities with implicit government backing was unsustainable and led to perverse market effects. There is strong bipartisan opposition to turning these two GSEs into the hands of private ownership again.

 

Not if charters (Congress mission) disappear together with the implicit guarantee. Perhaps Mnuchin recommends an explicit, pay-for guarantee from Treasury for specific segments of mbs.

[Peregrine]

I don't think many people understand what they're getting into by buying into these companies.

 

It is clear that the former system with Fannie and Freddie as private entities with implicit government backing was unsustainable and led to perverse market effects. There is strong bipartisan opposition to turning these two GSEs into the hands of private ownership again.

 

Not if charters (Congress mission) disappear together with the implicit guarantee. Perhaps Mnuchin recommends an explicit, pay-for guarantee from Treasury for specific segments of mbs.

 

If it's an explicit guarantee, then the GSEs will fall under the purview of the US government.

 

Americans love the 30-year mortgage and the 30-year mortgage simply isn't possible without federal government backing. No private entity will lend long for 30 years at fixed rates when their liabilities have technically 0 duration.

[Peregrine]

I don't think many people understand what they're getting into by buying into these companies.

 

It is clear that the former system with Fannie and Freddie as private entities with implicit government backing was unsustainable and led to perverse market effects. There is strong bipartisan opposition to turning these two GSEs into the hands of private ownership again.

 

Except that one side wants to get rid of the entities all together by starving them of their capital. The other side wants them recapitalized to ensure affordable housing, and would rather see them in private hands than in constant jeopardy as they are in their current state. Furthermore, it's all up to the Executive Branch anyway, and if not, the Judicial Branch. Congress is the least important of the three.

 

They are not under "constant jeopardy" as they are under government conservatorship currently. The case can be argued that without the government's backing, these entities would cease to exist and the common and subordinated preferred stock would be worth 0 so why should they receive anything?

 

The GSEs are currently in a weird limbo state, but interestingly enough the mortgage market is functioning well. Only financially-interested hedge funds are complaining.

[onyx1]

I don't think many people understand what they're getting into by buying into these companies.

 

It is clear that the former system with Fannie and Freddie as private entities with implicit government backing was unsustainable and led to perverse market effects. There is strong bipartisan opposition to turning these two GSEs into the hands of private ownership again.

 

Except that one side wants to get rid of the entities all together by starving them of their capital. The other side wants them recapitalized to ensure affordable housing, and would rather see them in private hands than in constant jeopardy as they are in their current state. Furthermore, it's all up to the Executive Branch anyway, and if not, the Judicial Branch. Congress is the least important of the three.

 

Only financially-interested hedge funds are complaining.

 

When did my personal assets morph into a hedge fund?

[Peregrine]

I don't think many people understand what they're getting into by buying into these companies.

 

It is clear that the former system with Fannie and Freddie as private entities with implicit government backing was unsustainable and led to perverse market effects. There is strong bipartisan opposition to turning these two GSEs into the hands of private ownership again.

 

Except that one side wants to get rid of the entities all together by starving them of their capital. The other side wants them recapitalized to ensure affordable housing, and would rather see them in private hands than in constant jeopardy as they are in their current state. Furthermore, it's all up to the Executive Branch anyway, and if not, the Judicial Branch. Congress is the least important of the three.

 

Only financially-interested hedge funds are complaining.

 

When did my personal assets morph into a hedge fund?

 

Haha, duly noted.

[onyx1]

I don't think many people understand what they're getting into by buying into these companies.

 

It is clear that the former system with Fannie and Freddie as private entities with implicit government backing was unsustainable and led to perverse market effects. There is strong bipartisan opposition to turning these two GSEs into the hands of private ownership again.

 

Except that one side wants to get rid of the entities all together by starving them of their capital. The other side wants them recapitalized to ensure affordable housing, and would rather see them in private hands than in constant jeopardy as they are in their current state. Furthermore, it's all up to the Executive Branch anyway, and if not, the Judicial Branch. Congress is the least important of the three.

 

The case can be argued that without the government's backing, these entities would cease to exist and the common and subordinated preferred stock would be worth 0 so why should they receive anything?

 

 

The case can be made that without FDIC backing of deposits, banks would cease as well.  So why should the bank shareholders receive anything?

[Mephistopheles]

I don't think many people understand what they're getting into by buying into these companies.

 

It is clear that the former system with Fannie and Freddie as private entities with implicit government backing was unsustainable and led to perverse market effects. There is strong bipartisan opposition to turning these two GSEs into the hands of private ownership again.

 

Except that one side wants to get rid of the entities all together by starving them of their capital. The other side wants them recapitalized to ensure affordable housing, and would rather see them in private hands than in constant jeopardy as they are in their current state. Furthermore, it's all up to the Executive Branch anyway, and if not, the Judicial Branch. Congress is the least important of the three.

 

They are not under "constant jeopardy" as they are under government conservatorship currently. The case can be argued that without the government's backing, these entities would cease to exist and the common and subordinated preferred stock would be worth 0 so why should they receive anything?

 

The GSEs are currently in a weird limbo state, but interestingly enough the mortgage market is functioning well. Only financially-interested hedge funds are complaining.

 

They will have zero capital in the near future, at which point their survival depends on the whims of whoever is in power and the political environment. Any small loss would make them insolvent. Seems like jeopardy to me.

[Picasso]

I don't think many people understand what they're getting into by buying into these companies.

 

It is clear that the former system with Fannie and Freddie as private entities with implicit government backing was unsustainable and led to perverse market effects. There is strong bipartisan opposition to turning these two GSEs into the hands of private ownership again.

 

Except that one side wants to get rid of the entities all together by starving them of their capital. The other side wants them recapitalized to ensure affordable housing, and would rather see them in private hands than in constant jeopardy as they are in their current state. Furthermore, it's all up to the Executive Branch anyway, and if not, the Judicial Branch. Congress is the least important of the three.

 

They are not under "constant jeopardy" as they are under government conservatorship currently. The case can be argued that without the government's backing, these entities would cease to exist and the common and subordinated preferred stock would be worth 0 so why should they receive anything?

 

 

The case can be made that without FDIC backing of deposits, banks would cease as well.  So why should the bank shareholders receive anything?

 

FDIC isn't government backing, members have to pay into the insurance fund.  I'm with frank on this one, with the explicit government guarantee there isn't some catastrophic risk of having a subsidiary (like the post office) not holding excess capital on their balance sheet.  If they need capital, it just flows back from the parent (in this case the government).  I never understood that line of reasoning.  But the legality of the NWS is another thing altogether.

[Mephistopheles]

There is very little political will to destroy the post office.

[onyx1]

I don't think many people understand what they're getting into by buying into these companies.

 

It is clear that the former system with Fannie and Freddie as private entities with implicit government backing was unsustainable and led to perverse market effects. There is strong bipartisan opposition to turning these two GSEs into the hands of private ownership again.

 

Except that one side wants to get rid of the entities all together by starving them of their capital. The other side wants them recapitalized to ensure affordable housing, and would rather see them in private hands than in constant jeopardy as they are in their current state. Furthermore, it's all up to the Executive Branch anyway, and if not, the Judicial Branch. Congress is the least important of the three.

 

They are not under "constant jeopardy" as they are under government conservatorship currently. The case can be argued that without the government's backing, these entities would cease to exist and the common and subordinated preferred stock would be worth 0 so why should they receive anything?

 

 

The case can be made that without FDIC backing of deposits, banks would cease as well.  So why should the bank shareholders receive anything?

 

FDIC isn't government backing, members have to pay into the insurance fund. 

 

 

FDIC insurance is a full faith and credit guarantee of the United States government.

 

https://www.fdic.gov/deposit/deposits/faq.html

 

 

[Flynnstone5]

@cherzeca @merket @hardincap @steve_berk

 

I joined this board primarily after following you guys for the last year. Terrific insight, knowledge and analysis on FnF.

 

The length of time that has gone by without a decision in Perry just seems ridiculous at this point. I know this is purely a speculative question, but is it probable that they are waiting for the writ of mandamus decision to obtain docs that allow them to basically drop the hammer on the gov.? If not, would it really take this long to write a dissent? Appreciate hearing your thoughts.

[Guest cherzeca]

@cherzeca @merket @hardincap @steve_berk

 

I joined this board primarily after following you guys for the last year. Terrific insight, knowledge and analysis on FnF.

 

The length of time that has gone by without a decision in Perry just seems ridiculous at this point. I know this is purely a speculative question, but is it probable that they are waiting for the writ of mandamus decision to obtain docs that allow them to basically drop the hammer on the gov.? If not, would it really take this long to write a dissent? Appreciate hearing your thoughts.

 

perry is a tough and momentous case. If one judge wants to stall on producing a dissent nothing goes forward. This is what I think may be happening here. Only reinforced if that judge thinks the issue will go away through eventual settlement.

[Eye4Valu]

I would be interested in hearing twacowfca's take on this situation at this point in time. H/t to the legal commentary on the thread, but big h/t to the person who started this thread years ago. The hedge funds too were way ahead of the game, love em or hate em.

[hardincap]

recall sweeney released documents that included internal fannie mae projections just in time for oral arguments. that turned out to be very significant, as hume used it to disabuse ginsberg of the notion that only the cfo, and not fhfa, had an optimistic forecast of the gses.

 

clearly the 56 documents that is under mandamus appeal could be just as significant if not more so. so it seems to me entirely reasonable for appeals court to wait on these documents, if only to "hedge" themselves (against the possibility of issuing an opinion that ends up later obsoleted by new documents)

 

i also think based on the oral arguments and the complexity of this case, we can expect lots of disagreement and thus assume a dissent is being written

[investorG]

what are the odds, purely guessing i know, that we see mandamus ruling in 2016?  thank you

[Guest cherzeca]

what are the odds, purely guessing i know, that we see mandamus ruling in 2016?  thank you

 

As per court rules mandamus takes precedence over other civil appeals. So there's a chance but we have only 8 days left before holiday week

[Flynnstone5]

@cherzeca @hardincap

 

Thank you for your replies!

[rros]

I don't think many people understand what they're getting into by buying into these companies.

 

It is clear that the former system with Fannie and Freddie as private entities with implicit government backing was unsustainable and led to perverse market effects. There is strong bipartisan opposition to turning these two GSEs into the hands of private ownership again.

 

Except that one side wants to get rid of the entities all together by starving them of their capital. The other side wants them recapitalized to ensure affordable housing, and would rather see them in private hands than in constant jeopardy as they are in their current state. Furthermore, it's all up to the Executive Branch anyway, and if not, the Judicial Branch. Congress is the least important of the three.

 

They are not under "constant jeopardy" as they are under government conservatorship currently. The case can be argued that without the government's backing, these entities would cease to exist and the common and subordinated preferred stock would be worth 0 so why should they receive anything?

 

 

The case can be made that without FDIC backing of deposits, banks would cease as well.  So why should the bank shareholders receive anything?

 

FDIC isn't government backing, members have to pay into the insurance fund.  I'm with frank on this one, with the explicit government guarantee there isn't some catastrophic risk of having a subsidiary (like the post office) not holding excess capital on their balance sheet.  If they need capital, it just flows back from the parent (in this case the government).  I never understood that line of reasoning.  But the legality of the NWS is another thing altogether.

 

> I never understood that line of reasoning.

 

When those funds flow from parent, it is taxpayers' money. When it comes from companies' capital it is private money backed or not backed. The difference must be insignificant if you can't see it. Let's have Treasury explicitly back all debt from all corporations and in exchange get 100% of all corporate earnings streams forever while impeding them having their own capital. After all, it may always flow from parent if there is any need. Companies remain open for business so citizens will not notice a thing. Rename the US as the United Cubas of America.

[investorG]

what are the odds, purely guessing i know, that we see mandamus ruling in 2016?  thank you

 

As per court rules mandamus takes precedence over other civil appeals. So there's a chance but we have only 8 days left before holiday week

 

ok.

 

but checking back to last year, opinions are released during the last week of december, in both appeals courts.

 

off topic, but this is a crazy system.  there should be a red light yellow light (or something similar) such that people don't sit in front of the computer refreshing day after day.  talk about reducing productivity.  if it's nowhere close, put a red light on the case.  if it's a possibility to be released, put a yellow.

 

anyway, please do share if anyone has a hunch on if we'll see mandamus in 2016...thank you

[Flynnstone5]

Question I asked Tim Howard with his response.

 

Question: Tim – In your opinion would you say that given it may be impossible to settle every single suit depending on certain controlling P’s rationale, i.e they are looking for an outcome deemed to simply be unreasonable, Mnuchin will hammer out a deal with the key litigants and major shareholders, as well as reach out to smaller cases once the parameters with larger have been agreed to? Assuming they choose to take advantage of warrants with the possibility of altering the original deal, isn’t the pps of common shares a key to a successful transition, i.e. most suits are settled/dropped, ability to raise capital increases, treasury maximizes it’s own interest, prf’d may be convinced to a conversion and remain invested for a longer period, etc.? I ask as many still put forth the notion of shareholders being wiped out, new issuance, etc. This to me doesn’t seem like a reasonable probable outcome when the opportunity exists for a win-win scenario. Am I missing some key element short of an unrealistic capital buffer, say 3% or above?

 

Answer: The way these multi-plaintiff settlements typically work is the “big dogs” negotiate the terms, and the smaller plaintiffs then decide whether to accept those terms or opt out, and continue to sue on their own (with their own money). Knowing that, the large plaintiffs try to structure the terms to maximize the chance that both the defense and the smaller plaintiffs will accept them, so as to end the lawsuits for everyone.

 

And you’re right about the common shares. If the government views a reformed, released and recapitalized Fannie and Freddie as the best available alternative for the secondary mortgage market of the future–as I argue in this piece that it is–then the government and the plaintiffs have a mutual interest in maximizing the long-term value of those common shares (the government because of its ownership of the warrants). Another important mutuality of interest in a negotiated settlement is “getting the capital right.” Yes, the government wants Fannie and Freddie to be, in Mnuchin’s words, “absolutely safe,” but it also would want to achieve that safety with a minimum of unnecessary excess capital. Capital that’s not needed to meet the government’s safety and soundness standards either extends the time to achieve full capitalization via retained earnings (which requires negotiating regulatory forbearance, and limits or prohibits junior preferred and common dividends in the interim) or requires additional equity capital raises (there is a limit to the percentage of its capital structure a financial institution can have in preferred stock), which dilutes existing owners of common (including the government via the warrants) and lowers its price.

[Flynnstone5]

Curios if anyone has given thought to the probability that prfd shareholders are offered a very attractive conversion to common under a settlement? I initially bought about 40% of my position in prfd's primarily as a hedge on the common. We all know the pro's and con's of the shares. I have planned to add another substantial position in common, but for the last couple of weeks, I keep coming back to the idea that prfd's may be offered a very attractive conversion ratio with some sort of incentive to remain invested. If this turned out to be the case, the prfd's could not only be a safer play, but could also yield a greater upside. Like to hear others feedback.

[Guest cherzeca]

Curios if anyone has given thought to the probability that prfd shareholders are offered a very attractive conversion to common under a settlement? I initially bought about 40% of my position in prfd's primarily as a hedge on the common. We all know the pro's and con's of the shares. I have planned to add another substantial position in common, but for the last couple of weeks, I keep coming back to the idea that prfd's may be offered a very attractive conversion ratio with some sort of incentive to remain invested. If this turned out to be the case, the prfd's could not only be a safer play, but could also yield a greater upside. Like to hear others feedback.

 

i think in a settlement there are incentives that favor each of the junior preferred and the common.  i think the pie can be large enough for both to do well.

 

i was looking for reason for slight selloff today, and noticed that watt is reported to have told fhfa employees that he plans to stay on for remainder of his term (2019).  what a joke.  there will 50 ways to tell watt to get lost.

[TonyG]

also, this could be why sell off today

http://www.americanbanker.com/bankthink/gse-recap-experiment-is-just-a-sideshow-1092871-1.html

 

where accordingly line of credit is capital.