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

[waynepolsonAtoZ]

I wish silent keyboards were more common. I hate listening to someone type during a conference call.

[beaufort]

I won't be able to listen to the audio file for many hours/tomorrow.  Is Hume's discussion regarding the misapplication of Delaware law in relation to who is in the class of shareholders that suffered a loss for breach of K and entitled to a remedy?  For example, the loss is transferred to whoever holds the stock now, not who held the stock in 2012.

 

Hope I am clear.

[merkhet]

I won't be able to listen to the audio file for many hours/tomorrow.  Is Hume's discussion regarding the misapplication of Delaware law in relation to who is in the class of shareholders that suffered a loss for breach of K and entitled to a remedy?  For example, the loss is transferred to whoever holds the stock now, not who held the stock in 2012.

 

Hope I am clear.

 

Yes, basically. Except it's the breach of implied covenant for the dividends and not the breach of K for liquidation preference.

[SnarkyPuppy]

I won't be able to listen to the audio file for many hours/tomorrow.  Is Hume's discussion regarding the misapplication of Delaware law in relation to who is in the class of shareholders that suffered a loss for breach of K and entitled to a remedy?  For example, the loss is transferred to whoever holds the stock now, not who held the stock in 2012.

 

Hope I am clear.

 

Yes, basically. Except it's the breach of implied covenant for the dividends and not the breach of K for liquidation preference.

 

I hold preferred shares purely because of the political / rational solution which seems inevitable.  But am I reading you correctly that you believe the appeals decision in aggregate was a net positive for pref holders?

[Mephistopheles]

Hamish Hume audio on recent court ruling... https://www.dropbox.com/s/2zi3mnvvr013slj/Hamish%2020170227.m4a?dl=0

 

For some reason the dropbox page keeps crashing for me every time I try to play this. Tried it on 2 computers. Happen to anyone else?

[merkhet]

I won't be able to listen to the audio file for many hours/tomorrow.  Is Hume's discussion regarding the misapplication of Delaware law in relation to who is in the class of shareholders that suffered a loss for breach of K and entitled to a remedy?  For example, the loss is transferred to whoever holds the stock now, not who held the stock in 2012.

 

Hope I am clear.

 

Yes, basically. Except it's the breach of implied covenant for the dividends and not the breach of K for liquidation preference.

 

I hold preferred shares purely because of the political / rational solution which seems inevitable.  But am I reading you correctly that you believe the appeals decision in aggregate was a net positive for pref holders?

 

No, not a net positive. One claim, the APA claim, was shot down. The other claim, the breach claim, was allowed to go through. So one negative and one positive. But not a net positive.

[Sunrider]

Sessions also Russia tainted as per FT this morning - this is getting to become a problem-why are these people too unaware in the first instance and then even more daft in the second to lie about it or not to disclose...

 

 

 

I won't be able to listen to the audio file for many hours/tomorrow.  Is Hume's discussion regarding the misapplication of Delaware law in relation to who is in the class of shareholders that suffered a loss for breach of K and entitled to a remedy?  For example, the loss is transferred to whoever holds the stock now, not who held the stock in 2012.

 

Hope I am clear.

 

Yes, basically. Except it's the breach of implied covenant for the dividends and not the breach of K for liquidation preference.

 

I hold preferred shares purely because of the political / rational solution which seems inevitable.  But am I reading you correctly that you believe the appeals decision in aggregate was a net positive for pref holders?

 

No, not a net positive. One claim, the APA claim, was shot down. The other claim, the breach claim, was allowed to go through. So one negative and one positive. But not a net positive.

[Luke 532]

If you download it to your computer first and then play it you should be fine, as opposed to trying to play it from the website.

 

Hamish Hume audio on recent court ruling... https://www.dropbox.com/s/2zi3mnvvr013slj/Hamish%2020170227.m4a?dl=0

 

For some reason the dropbox page keeps crashing for me every time I try to play this. Tried it on 2 computers. Happen to anyone else?

[Mephistopheles]

Great, thanks Luke

[Flynnstone5]

I won't be able to listen to the audio file for many hours/tomorrow.  Is Hume's discussion regarding the misapplication of Delaware law in relation to who is in the class of shareholders that suffered a loss for breach of K and entitled to a remedy?  For example, the loss is transferred to whoever holds the stock now, not who held the stock in 2012.

 

Hope I am clear.

 

Yes, basically. Except it's the breach of implied covenant for the dividends and not the breach of K for liquidation preference.

 

I hold preferred shares purely because of the political / rational solution which seems inevitable.  But am I reading you correctly that you believe the appeals decision in aggregate was a net positive for pref holders?

 

 

What kind of political/rational solution do you anticipate? It is almost a decade that they have been in conservatorship and nothing has taken place.  Democrats want to kill Fannie and Freddie, reason for sweep and so do many of the Republicans. Are you hoping Mnuchin will do something on his own without congress? It appears that hedge funds own mostly pref shares and are most in news, so a political solution that benefits them would be highly unlikely. Do you agree? What would transpire a favorable political solution to pref shareholders after a decade?

 

Mnuchin has indicated that FnF serve a vital purpose and that he is going to free them from gov ownership. The only question for shareholders is how will he raise necessary capital and will he preserve the existing capital structure. Prfds have contractual rights to receive par value (unless a court determines otherwise). Most HF do own prfd with the exception of Pershing. The gov will likely settle with P's at some point and prfds have a stronger position (although weaker than before) over common. All share classes may benefit, but unless Mnuchin wipes out the existing capital structure to start fresh (destroying all shareholders) , prfd are a much safer play at this point.

 

[TwoCitiesCapital]

I won't be able to listen to the audio file for many hours/tomorrow.  Is Hume's discussion regarding the misapplication of Delaware law in relation to who is in the class of shareholders that suffered a loss for breach of K and entitled to a remedy?  For example, the loss is transferred to whoever holds the stock now, not who held the stock in 2012.

 

Hope I am clear.

 

Yes, basically. Except it's the breach of implied covenant for the dividends and not the breach of K for liquidation preference.

 

I hold preferred shares purely because of the political / rational solution which seems inevitable.  But am I reading you correctly that you believe the appeals decision in aggregate was a net positive for pref holders?

 

 

What kind of political/rational solution do you anticipate? It is almost a decade that they have been in conservatorship and nothing has taken place.  Democrats want to kill Fannie and Freddie, reason for sweep and so do many of the Republicans. Are you hoping Mnuchin will do something on his own without congress? It appears that hedge funds own mostly pref shares and are most in news, so a political solution that benefits them would be highly unlikely. Do you agree? What would transpire a favorable political solution to pref shareholders after a decade?

 

As someone who has worked extensively with retail investors, it seems very few even understand the difference between common and preferred shares. I don't think it really matters which part of the capital structure benefits more because 90% of the population can't tell you the difference to begin with.

[muscleman]

Sessions also Russia tainted as per FT this morning - this is getting to become a problem-why are these people too unaware in the first instance and then even more daft in the second to lie about it or not to disclose...

 

 

The left media just kept hiding words and misinterpret events to paint the picture of Russia related issues for the Trump admin.

 

"When contacted by Fox News late Wednesday, Sessions said, "I never met with

any Russian officials to discuss issues of the campaign. I have no idea what

this allegation is about. It is false.""

[Flynnstone5]

Second story today:

http://www.americanthinker.com/blog/2017/03/the_obamacare_financing_flimflam.html

[no_free_lunch]

Flynn, it's just a reference to the original infowars story.  You really need to see this on different media outlets to take it seriously. 

[Flynnstone5]

Flynn, it's just a reference to the original infowars story.  You really need to see this on different media outlets to take it seriously.

 

Totally agree on the need for different media sources. I know it's referencing the same story, but it is additional coverage from a much more credible organization.

[waynepolsonAtoZ]

Q. Did you meet with the Russians?

A. No. [but what I meant was that I didn't meet them with my "campaign hat" on. However, I did talk to the Russians while at the convention and then I had a meeting later where I "may have" talked about election stuff.]

 

If he just has to recuse himself, that might actually be better. He wouldn't be able to lead the DOJ on the Russian issues at all.

 

 

[Sunrider]

Uh no - it's an accounting reserve, it can be released into earnings ....

 

Is it real what the author says "A jewel worth $16 pps"

There is so much misinformation that I have to ask.

 

http://seekingalpha.com/instablog/1040158-carlos-vignote-sanchez/4963765-gses-hidden-shareholders-capital-government-touch

[Midas79]

Uh no - it's an accounting reserve, it can be released into earnings ....

 

Is it real what the author says "A jewel worth $16 pps"

There is so much misinformation that I have to ask.

 

http://seekingalpha.com/instablog/1040158-carlos-vignote-sanchez/4963765-gses-hidden-shareholders-capital-government-touch

 

I think the author's point is that this reserve doesn't immediately count towards earnings and so the NWS won't take it away until it is released. If the NWS is stopped, this reserve could even count towards a recap.

[BeerBBQ]

I keep seeing references to the equity gets wiped out or that the entire capital structure is wiped out.  Since the GSEs are in conservatorship, how would a restructuring occur?  Do these companies need to be put in receivorship first? Or would they have to be declared bankrupt and restructured through a bankruptcy court (prepackaged or otherwise)? What is the mechanism for either of these changes to the capital structure? 

[Luke 532]

FWIW...

Obama Used U.S. Treasury To Confiscate Federal Relief Funds To Keep ObamaCare Afloat (March 1, 2017)

https://conservativedailypost.com/obama-used-u-s-treasury-confiscate-federal-relief-funds-keep-obamacare-afloat/

[Sunrider]

True, but let's not forget that it is a reserve for something ... so first that something needs to not happen (or happen to a lesser extent) before you can release it.

;)

 

Uh no - it's an accounting reserve, it can be released into earnings ....

 

Is it real what the author says "A jewel worth $16 pps"

There is so much misinformation that I have to ask.

 

http://seekingalpha.com/instablog/1040158-carlos-vignote-sanchez/4963765-gses-hidden-shareholders-capital-government-touch

 

I think the author's point is that this reserve doesn't immediately count towards earnings and so the NWS won't take it away until it is released. If the NWS is stopped, this reserve could even count towards a recap.

[Guest cherzeca]

Uh no - it's an accounting reserve, it can be released into earnings ....

 

Is it real what the author says "A jewel worth $16 pps"

There is so much misinformation that I have to ask.

 

http://seekingalpha.com/instablog/1040158-carlos-vignote-sanchez/4963765-gses-hidden-shareholders-capital-government-touch

 

This from Tim Howard. It seems that fnma has $28B of excessive reserves that, if they could be reversed, would go a long way to restoring capital

 

Pretty wild

 

"Troubled debt restructurings is an “in-the-weeds” subset of the DTAs that I decided not to get into in this post, because it’s very technical. But since you asked….(and here again, for simplicity’s sake I’ll use Fannie’s figures, but Freddie has a similar issue).

 

One of the main ways FHFA and Treasury were able to run up Fannie and Freddie’s losses so much in the 2008-2011 period was through making mammoth additions to their loss reserves. At December 31, 2007, Fannie Mae had a single category of loss reserves totaling $3.4 billion. Four years later, at December 31, 2011, Fannie had five categories of loss reserves totaling $93.2 billion. Of this nearly $90 billion increase (every dollar of which resulted in the need to draw an equal amount of non-repayable senior preferred stock from Treasury), $63.2 billion were from actions that that required Fannie to designate the affected loans as Troubled Debt Restructurings (or TDRs). These TDR-related loss reserves fell into two categories: reserves on loans purchased from mortgage-backed securities pools ($16.3 billion), and reserves for loans the company modified ($46.9 billion).

 

If a loan is designated as a TDR, a company is required to use a very conservative “life of loan” accounting treatment that locks up the loss reserve for the life of the loan even if the loan returns to performing status. In a case of a loan modification– which a company does in the hopes that the loan WILL return to paying status– it has to write off immediately not only its estimate of future losses but also the present value of foregone interest payments. If the loan becomes current again, the written-off amount will be brought back into income– either as foreclosed property income (if the write down was an estimated loss) or as net interest income (if it was foregone interest)– only as the loan amortizes (i.e., extremely slowly) or in a lump sum when the loan pays off.

 

FHFA used TDR accounting very aggressively for Fannie during the 2008-2011 period. For example, the use of TDR accounting for the loans bought out of MBS pools ($16.3 billion as of December 31, 2011) was discretionary; GAAP did not require it–Fannie, that is FHFA, chose to do it. And the $46.9 billion in reserves for “individually impaired” modified loans was ballooned in two ways. First, Fannie (and Freddie) HAD to modify all loans that met the standards for Treasury’s Home Affordable Mortgage Program (HAMP), whereas banks could choose whether to modify HAMP-eligible loans or not. Second, Fannie’s write-downs on modified loans were far larger than other institutions’–an average of 27.5 percent of the loan balance, nearly triple the average 10.5 percent write-down of the largest bank modifier of single-family mortgages (Bank of America, whose loans were of much lower quality than Fannie’s).

 

Even today, nine years after the crisis and five years after Fannie’s peak loss-reserve total, Fannie still has $28.5 billion in TDR-related loss reserves ($21.9 billion in individually impaired single-family loans, and $6.6 billion in fair value losses on loans bought out of MBS pools). The vast majority of these reserves are on loans that are now performing, but Fannie can’t get at the reserves until the loans amortize or pay off.

 

FHFA (and Treasury) did a REALLY good job figuring out how to lock up for a very long period of time a substantial amount of what otherwise would have been Fannie Mae’s capital.

 

It’s possible there are ways for Fannie and Freddie to unlock some of their TDR-related reserves, but I don’t know what those ways are. Perhaps their accountants do."

 

 

[Desert_Rat]

That's the once CFO of Fannie Mae speaking. Man, as painful as this holding is likely to get (again), I just refuse to believe that, in the end, we're screwed. It's not gonna happen. It can't happen

 

or I'm moving to Canada

[Luke 532]

Comment from the real Tim Howard on 3-2-2017. Wish we didn't have to put "real" in front of his name each time...

 

https://howardonmortgagefinance.com/2017/02/28/deferred-reform-and-deferred-taxes/#comments

A fortunate aspect of this situation is that Mnuchin CAN cancel the net worth sweep and bring Fannie and Freddie out of conservatorship administratively (just as the Obama administration put them into conservatorship and imposed the sweep). Those who would like to give the companies’ business to the large banks–of whom Mr. Parrott is one–will squawk, but they can’t block what Treasury decides to do; all they can do is see if they can propose and pass legislation that does something different.

 

It WILL be politically challenging for Mnuchin to overrule what the “bankistas” want to do. And a court decision weakening or invalidating the net worth sweep definitely would help. But in the final analysis, the most important factor working in favor of Fannie and Freddie is that a system based on the way they are set up and the way they operate is in every way superior to what the companies’ opponents are offering. Here, Mnuchin’s deep knowledge of the mortgage finance system will serve him well. I’m confident that he’ll have the courage of his convictions to propose and fight for a reformed system that he thinks will succeed– and that system, in my view, will be built around Fannie and Freddie.

[hardincap]

is anyone else spooked by the parallels between our read on mnuchin and our read on ginsberg? we thought ginsberg was a fav judge because:

-he is friends with the lead P lawyer and epstein

-he leans conservative as member of the federalist society

-he said the right things during oral hearing (motivation matters, rebuking govnt lawyers, "salt the earth")

 

all of these have parallels in mnuchin:

-friends w/ paulson, lampert, maybe berk

-finance bias from 30 yrs exp in mortage finance

-said the right things on cnbc and at hearing