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

[Eye4Valu]

The CPPI now stands 26% above its prior December 2007 peak, with core commercial 6% higher and multifamily 65% higher.

 

Above is a very recent stat on the CPPI as backup to my earlier post -- can anyone think of a technical reason why MF is outperforming so much? (hint it's the same reason no one can afford to go to college anymore).

 

Rising rents, similar to rising tuition

[blackcoffee]

The CPPI now stands 26% above its prior December 2007 peak, with core commercial 6% higher and multifamily 65% higher.

 

Above is a very recent stat on the CPPI as backup to my earlier post -- can anyone think of a technical reason why MF is outperforming so much? (hint it's the same reason no one can afford to go to college anymore).

 

Rising rents, similar to rising tuition

 

bzzzzzz wrong.

[Eye4Valu]

The CPPI now stands 26% above its prior December 2007 peak, with core commercial 6% higher and multifamily 65% higher.

 

Above is a very recent stat on the CPPI as backup to my earlier post -- can anyone think of a technical reason why MF is outperforming so much? (hint it's the same reason no one can afford to go to college anymore).

 

Rising rents, similar to rising tuition

 

bzzzzzz wrong.

 

Bloated Administration

[rros]

The CPPI now stands 26% above its prior December 2007 peak, with core commercial 6% higher and multifamily 65% higher.

 

Above is a very recent stat on the CPPI as backup to my earlier post -- can anyone think of a technical reason why MF is outperforming so much? (hint it's the same reason no one can afford to go to college anymore).

 

Rising rents, similar to rising tuition

 

bzzzzzz wrong.

 

Bloated Administration

room+board fees >> rising tuition. Room fees = rents = up and up, no supply.

[blackcoffee]

The CPPI now stands 26% above its prior December 2007 peak, with core commercial 6% higher and multifamily 65% higher.

 

Above is a very recent stat on the CPPI as backup to my earlier post -- can anyone think of a technical reason why MF is outperforming so much? (hint it's the same reason no one can afford to go to college anymore).

 

Rising rents, similar to rising tuition

 

bzzzzzz wrong.

 

Bloated Administration

room+board fees >> rising tuition. Room fees = rents = up and up, no supply.

 

game over - it's direct or indirect gov't subsidies.

[allnatural]

@DoNotLose

 

https://pbs.twimg.com/media/Dp4EQuTV4AAsYne.jpg:large

 

[allnatural]

Mnuchin supports selling the governments stake.

Asset_Backed_Alert_20181019_FHFA.pdf

[Luke 532]

Thanks for those 2 posts, allnatural.  Good stuff!

[rros]

Thanks for those 2 posts, allnatural.  Good stuff!

Yes, thank you. But now the risk has increased substantially. Bloomberg also mentions the Corker risk on his way out. I still think Corker could try to sneak in a Jumpstart on end-of-year legislation that Trump must sign. Anyone think this isn't a risk? We will not even know until it's too late.

[Midas79]

Mnuchin supports selling the governments stake.

 

Do we know how accurate this is, or how credible the source is?

 

But such a move would require the unwinding of the preferred shares the Treasury holds in Fannie and Freddie. Mnuchin has said he supported such an undertaking.

 

Unless Mnuchin has said this very recently, I missed it. Or is it just being extrapolated from the privatization comments?

[allnatural]

No clue how credible the source is. I know they are a respectable publication (~$5k/yr subscription) but I don't recall them publishing on the GSEs before.

 

I believe they are saying he said this in private discussions. Mnuchin has never commented publicly on the government's stake and what they will do with it to my knowledge. Interesting take for sure if true.

 

Mnuchin supports selling the governments stake.

 

Do we know how accurate this is, or how credible the source is?

 

But such a move would require the unwinding of the preferred shares the Treasury holds in Fannie and Freddie. Mnuchin has said he supported such an undertaking.

 

Unless Mnuchin has said this very recently, I missed it. Or is it just being extrapolated from the privatization comments?

[Guest cherzeca]

No clue how credible the source is. I know they are a respectable publication (~$5k/yr subscription) but I don't recall them publishing on the GSEs before.

 

I believe they are saying he said this in private discussions. Mnuchin has never commented publicly on the government's stake and what they will do with it to my knowledge. Interesting take for sure if true.

 

Mnuchin supports selling the governments stake.

 

Do we know how accurate this is, or how credible the source is?

 

But such a move would require the unwinding of the preferred shares the Treasury holds in Fannie and Freddie. Mnuchin has said he supported such an undertaking.

 

Unless Mnuchin has said this very recently, I missed it. Or is it just being extrapolated from the privatization comments?

 

the BI analysis includes stuff we have been saying on this board for years.  sure like it better when I read BI saying it than us!  thanks for sharing @allnatural

[Midas79]

No clue how credible the source is. I know they are a respectable publication (~$5k/yr subscription) but I don't recall them publishing on the GSEs before.

 

I believe they are saying he said this in private discussions. Mnuchin has never commented publicly on the government's stake and what they will do with it to my knowledge. Interesting take for sure if true.

 

That would be quite the scoop if these comments by Mnuchin really weren't public!

 

Another quote that jumped out at me was this.

 

President Trump appears to be leaning toward the appointment of an interim replacement who immediately would institute new policies

 

Josh Rosner tweeted a while back that HERA doesn't allow for this. I found it in HERA, section 1312(f).

 

‘(f) Acting Director- In the event of the death, resignation, sickness, or absence of the Director, the President shall designate either the Deputy Director of the Division of Enterprise Regulation, the Deputy Director of the Division of Federal Home Loan Bank Regulation, or the Deputy Director for Housing Mission and Goals, to serve as acting Director until the return of the Director, or the appointment of a successor pursuant to subsection (b).

 

Trump could only appoint one of three specific people to be interim director between Watt's term ending and Senate confirmation of a new director. Presumably these people were picked by Watt and wouldn't necessarily share the administration's desire to shrink FnF.

 

Then again, if Trump gets the authority to remove the FHFA director at will in the meantime, he could just keep firing people until one of them marches to his tune. Can Trump fire the director at will right now (because the Collins appeal decision said he could), or does he have to wait for SCOTUS to deny cert or uphold the decision? In the latter case, it will take less time to just get his own pick confirmed by the Senate.

 

 

Oh, and I should also thank you for posting this, it is very interesting, and if it turns out that this newsletter's sources really are credible then we get even more insight into the administration's future plans. I didn't know that shrinking FnF's activities was so important to them, but it's basically the whole point of the article: privatization is almost a side issue.

[Midas79]

the BI analysis includes stuff we have been saying on this board for years.  sure like it better when I read BI saying it than us!  thanks for sharing @allnatural

 

What's BI? And do you have a read on how plugged-in they are?

[Guest cherzeca]

No clue how credible the source is. I know they are a respectable publication (~$5k/yr subscription) but I don't recall them publishing on the GSEs before.

 

I believe they are saying he said this in private discussions. Mnuchin has never commented publicly on the government's stake and what they will do with it to my knowledge. Interesting take for sure if true.

 

That would be quite the scoop if these comments by Mnuchin really weren't public!

 

Another quote that jumped out at me was this.

 

President Trump appears to be leaning toward the appointment of an interim replacement who immediately would institute new policies

 

Josh Rosner tweeted a while back that HERA doesn't allow for this. I found it in HERA, section 1312(f).

 

‘(f) Acting Director- In the event of the death, resignation, sickness, or absence of the Director, the President shall designate either the Deputy Director of the Division of Enterprise Regulation, the Deputy Director of the Division of Federal Home Loan Bank Regulation, or the Deputy Director for Housing Mission and Goals, to serve as acting Director until the return of the Director, or the appointment of a successor pursuant to subsection (b).

 

Trump could only appoint one of three specific people to be interim director between Watt's term ending and Senate confirmation of a new director. Presumably these people were picked by Watt and wouldn't necessarily share the administration's desire to shrink FnF.

 

Then again, if Trump gets the authority to remove the FHFA director at will in the meantime, he could just keep firing people until one of them marches to his tune. Can Trump fire the director at will right now (because the Collins appeal decision said he could), or does he have to wait for SCOTUS to deny cert or uphold the decision? In the latter case, it will take less time to just get his own pick confirmed by the Senate.

 

 

Oh, and I should also thank you for posting this, it is very interesting, and if it turns out that this newsletter's sources really are credible then we get even more insight into the administration's future plans. I didn't know that shrinking FnF's activities was so important to them, but it's basically the whole point of the article: privatization is almost a side issue.

 

@midas

 

this HERA section is inapplicable if watt is no longer director...ie his term has ended, as it will in January.  this section relates to what happens if watt becomes unavailable before the end of his term

[Guest cherzeca]

the BI analysis includes stuff we have been saying on this board for years.  sure like it better when I read BI saying it than us!  thanks for sharing @allnatural

 

What's BI? And do you have a read on how plugged-in they are?

 

think of it this way:  Joe light is the JV; some guy writing for BI is Varsity at Bloomberg

[Eye4Valu]

the BI analysis includes stuff we have been saying on this board for years.  sure like it better when I read BI saying it than us!  thanks for sharing @allnatural

 

What's BI? And do you have a read on how plugged-in they are?

 

think of it this way:  Joe light is the JV; some guy writing for BI is Varsity at Bloomberg

 

Don't know about Joe, but I'd rather be on the varsity team

[Luke 532]

think of it this way:  Joe light is the JV; some guy writing for BI is Varsity at Bloomberg

 

fixed it...

think of it this way:  Joe light is the JV for women's field hockey; some guy writing for BI is Varsity for men's ice hockey at Bloomberg

[DocSnowball]

IMHO the reference links show the writer has done his homework, whatever his pedigree

Any thoughts or models of commons valuation if recap with full dilution occurs, beyond what's out there by Moelis?

***

Preferreds are easier, I revalued FNMAT (8.25% dividends) today after reading the BI article to compare it with other opportunities

Discount rate = Risk free rate + Implied Equity risk premium at current level of index*Beta = 3.17%+ (5.38%*1) = 8.55%

NPV whenever dividends turned on (example today)

       = 2.06/0.0855%

       = 24.09 FOR FNMAT

 

NPV if dividends are turned on after capital raise completed 12/31/2021 as per Moelis blueprint (3 years from 1/1/2019)

24.09 discounted back at 8.55%

      = 18.83 for FNMAT (or even lower if rates rise further)

Multiply this by your own judgment of probability of success and you get your expected value

[orthopa]

It sounds like from the look of it the commons are not going to be wiped, just dilution which was a big fear of mine and why i avoided them. If all of this reporting is true then there looks to be much more upside to the common at 9.62-13.15. I hold all preferred but they conceivably could be converted to common either way but this reporting looks like just a straight return back to privatization.  6.7-9.2 times on the common at these prices....

[undervalued]

The article posted above costs $20 https://www.abalert.com/search.pl?ARTICLE=180754&SEARCH=fannie&PAGE=1&PROPERTY=0. I guess this is the closest thing you get to insider information?

[Guest cherzeca]

The article posted above costs $20 https://www.abalert.com/search.pl?ARTICLE=180754&SEARCH=fannie&PAGE=1&PROPERTY=0. I guess this is the closest thing you get to insider information?

 

https://www.dropbox.com/s/zbjm061e5csucqc/Asset%20Backed%20Alert%2020181019%20FHFA.pdf?dl=0

[rros]

Let's not forget the Capital Alpha partners piece that spread the rumor of a settlement and a recap/release a few years ago. Looking back, it may have been a pump job for some hedgie to exit.

[Midas79]

@midas

 

this HERA section is inapplicable if watt is no longer director...ie his term has ended, as it will in January.  this section relates to what happens if watt becomes unavailable before the end of his term

 

True, but it also mentions a director's "absence" and I couldn't find another applicable section of HERA covering what would happen if the director's term ended without a replacement. The closest I could get was 1312(b)(4).

 

‘(4) SERVICE AFTER END OF TERM- An individual may serve as the Director after the expiration of the term for which appointed until a successor has been appointed.

 

I guess that means Watt can stick around until his successor is actually confirmed? Or does "appointed" just mean Trump picking someone, meaning that Watt would have to leave pending the Senate's confirmation of the successor?

 

If he resigns after January 6 but before Trump appoints someone then the other section I quoted would apply.

[Midas79]

It sounds like from the look of it the commons are not going to be wiped, just dilution which was a big fear of mine and why i avoided them. If all of this reporting is true then there looks to be much more upside to the common at 9.62-13.15. I hold all preferred but they conceivably could be converted to common either way but this reporting looks like just a straight return back to privatization.  6.7-9.2 times on the common at these prices....

 

Those Moelis numbers cannot necessarily be counted on. Phillips said that Mnuchin wants the companies out of conservatorship by the end of this presidential term, and I take that to mean the companies will be recapped first. Moelis ran its numbers from mid-2017 to the end of 2020, but starting at the end of 2018 means you have less retained earnings to recap with. That means more equity needs to be raised, which means more dilution.

 

Also, Moelis was going to offer a 3:1 conversion rate (3 commons per $25 of par value) because the JPS holders have to agree to any conversion. But the FNMAS:FNMA ratio then was around 2.5:1. Now it's 4.4:1, and a bit higer for FMCKJ:FMCC. That probably means a 5:1 conversion rate instead, so more dilution again.

 

I'm starting to think that $5 is actually a stretch for the commons, and if Treasury tries to cram through a really really fast recap then common holders could actually lose money from here. I'm staying away from them.