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

[Flynnstone5]

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

 

Excellent points - yes

[hardincap]

also want to point out that tim howard stated pre-ruling that if the nws is upheld as legal, f&f shares will be worthless. now, he has drifted to saying he believes mnuchin will administratively end the sweep.

 

he was overconfident we'd see a favorable ruling. are longs committing the same mistake w mnuchin?

[Flynnstone5]

also want to point out that tim howard stated pre-ruling that if the nws is upheld as legal, f&f shares will be worthless. now, he has drifted to saying he believes mnuchin will administratively end the sweep.

 

he was overconfident we'd see a favorable ruling. are longs committing the same mistake w mnuchin?

 

I haven't been invested in this as long as many (1 year), but the narrative certainly always seems to revert to the positive despite the consistent history (last 4-5 years) of negative shareholder results. Definitely a glass half full, confirmation bias, etc. point of view myself included.

 

I guess the question is if everyone's wrong about Mnuchin, what would be his course of action? Do you think that he would simply start with a new capital structure and just figure P's can work through the legal system knowing their success rate so far is terrible? I know Tim Howard has said in the past that basically he can't screw shareholders because he needs to instill trust for future investment/capital raise etc., but that's pretty weak IMO. People might be shocked by the action to wipe out shareholders, but make no mistake there would be plenty of investors lining up to participate in the new entity/structure.

 

I'm 100% preferred now after selling all of my common, but you're spot on highlighting the thought patterns and changing narratives.

[Desert_Rat]

I'd like to point out that the narrative has always been correct, and disappointments along the way have been 100% attributable to injustice and greed. Investors have not applied poor bias along the way, they've been right. For that matter, FnF is like the NE Patriots. Schemes and players will change throughout a season, and fans will point out those are why they're dominating - why the team will win out, but even as players pull up lame and other things change, the final outcome should not be in doubt.

 

[hardincap]

epstein: https://www.forbes.com/sites/richardepstein/2017/03/03/d-c-circuit-refuses-to-see-limits-to-government-power-and-inexcusably-upholds-the-net-worth-sweep/#60c13b0a4167

 

"The great tragedy of the majority opinion is it follows the all-too-common practice of giving the government a free pass when its own motives are as corrupt, or more so, than comparable private parties in similar roles and with similar legal duties."

[Flynnstone5]

I'd like to point out that the narrative has always been correct, and disappointments along the way have been 100% attributable to injustice and greed. Investors have not applied poor bias along the way, they've been right. For that matter, FnF is like the NE Patriots. Schemes and players will change throughout a season, and fans will point out those are why they're dominating - why the team will win out, but even as players pull up lame and other things change, the final outcome should not be in doubt.

 

The only thing that matters is does the investment make money. Injustice, greed, etc, etc, etc. (not that I don't agree) isn't a consolation for losing all your money in the end.

[Luke 532]

I'd like to point out that the narrative has always been correct, and disappointments along the way have been 100% attributable to injustice and greed. Investors have not applied poor bias along the way, they've been right. For that matter, FnF is like the NE Patriots. Schemes and players will change throughout a season, and fans will point out those are why they're dominating - why the team will win out, but even as players pull up lame and other things change, the final outcome should not be in doubt.

 

The only thing that matters is does the investment make money. Injustice, greed, etc, etc, etc. (not that I don't agree) isn't a consolation for losing all your money in the end.

 

I think that's Rat's point... that in the end we'll make money (like in the end the Patriots seem to find a way to win... as much as I hate it as a Broncos fan). 

 

Not that it matters, but many have already doubled their money.  But that's like having a big lead in the 2nd half of the Super Bowl... doesn't matter much :)

[BeerBBQ]

People might be shocked by the action to wipe out shareholders...

 

Does HERA allow the treasury secretary to do this while in conservatorship?  How are all existing shares cancelled - what technically happens? 

 

 

[rros]

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

No. Some of us knew about the connection to Wallison and believed in a 50/50 chance he would favor shareholders. In other words, he was a coin toss. I do not see Mnuchin being connected to anybody who is against shareholders.

[Flynnstone5]

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

 

What would be the alternative Mnuchin will propose and  wipe out shareholders?

 

He could start with a brand new capital structure - transfer assets to a new entity and IPO.

 

For the record, I don't think that he does this, but not much has gone right for shareholders thus far. The unthinkable seems to have a way of coming true so I can't rule it out.

[nodnub]

I have a relatively concentrated position (won't go into detail why).  I was OK with holding it through the run-up given the fact that I thought there was a floor on the stock- If Mnuchin failed, we still had the courts.  if the courts failed, we still had Mnuchin.  Therefore, there was a margin of safety on the stock price.  We don't have that anymore. 

 

It's a difficult decision.

 

I understand your frustration with one court (Perry) being partially affirmed (arguably the part that impacts pref shares the least), but keep in mind that there are many cases still pending... Delaware, Sweeney, Collins, etc.  With that said, I totally can understand why somebody would want to sell a portion of their holdings given the uncertainty.  Markets, and people make up the markets, mostly hate uncertainty.  I'm standing pat because I still really like the potential reward given the risk.

 

for me it's a bet on America. 

 

Either you think someone --- a politician(s) or a judge -- will provide justice or you don't.

 

there is plenty of room for everyone to share in the outstanding work the employees of FNMA and FMCC have produced.

 

all that said, we're only a week removed from a couple setbacks so there's likely more shareholder turnover involved over the near term.  after a major gap drawdown it takes time.

 

Judges and politicians often don't provide the justice we seek or think we deserve.  Good luck to all!

 

of course. there is risk.

 

regarding politicians i go back to the roster:  mnuchin, ross, Paulson/berkowitz, carson, mulvaney, Blackwell. 

 

regarding judges, all it takes is one? (with the assumption that sessions wouldn't appeal).

 

In a situation like this, there can be many moving pieces that are not obvious to even the best informed researcher.  You can attend court, read all the filings, have your side win the case and all the eventual appeals which can drag out for years, and still you can still get screwed on some technicality that was difficult or impossible to foresee.

 

 

 

 

 

 

 

[waynepolsonAtoZ]

Does HERA allow the treasury secretary to do this while in conservatorship?  How are all existing shares cancelled - what technically happens? 

 

If it happened, wouldn't the gov't have to consolidate FnF into its capital structure? This would be why the warrants are only for 80%.

 

FnF are still investors-owned companies, but if someone owned 100% of FnF, the parent usually would have to file consolidated statements.

 

In other words, the gov't would have to add $x trillion of FnF debt to the gov'ts balance sheet.

 

 

 

 

[orthopa]

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

 

I would say no. Maybe Im drunk on the Kool Aid but I still believe this has all been a pre meditated one in a million chance that has worked for Paulson et al. If this is a HRC administration no way I would be as confident or even have more then a small speculative position.

 

Due to ignorance I didnt have a strong opinion on the judge nor to I think he was/is aligned as Mnuchin is. Ginsberg was not appointed by a group of Trump economic advisers that include Paulson. What had the judge done previously that signaled he would go the other way? What he appointed by Trump, nominated by Paulson, previous business partners with Paulson?

 

If Mnuchin did not say the things he said or was not a peer to Paulson, on Trumps economic advisory team up until he was nominated again my read is much different.

 

I do appreciate the mistrust as it keeps us grounded and is totally appropriate.

 

I also think there is a big difference between bias in interpretation of the law and bias of a personal friendship.

 

For all intents and purposes as a preferred shareholder  you are in the same shoes as the guy who is on Trumps economic advisory team. I think you find out that Mnunchin is like Ginsberg when Pauslon leaves the Trump administration. Paulson will be one of the first to know and does he stick around when his previous business partner, peer, and very likely someone he personally pushed for  as Treasury Secretary screws him out of Billions of dollars? All this bipartisan bullshit is just that, bullshit. Mnuchin is on record with Sen Warner not committing to action without legislation and "hopes" for a bipartisan solution.

 

Has anyone thought about this? If Mnuchins plan is to screws shareholders ie Paulson et al,why is Paulson sticking around as an economic advisor? He surely has to know what the grand plan is by now. He may not know granular details but IMO Mnuchin has known the ultimate outcome since November. He is still "working on it".  What motivation does Paulson have to stay on to "influence" the President/Mnuchin if he gets boned out of a couple Billion dollars?

 

As observers of the situation we know a lot. The majority of the details are there. FnF are coming out of conservatorship, private capital will be involved and the person who holds a lot of the cards has gone on record as willing to act without legislation.  Ultimately it comes down to ....whats a few billion and shaping the future of housing finance between friends?

[Desert_Rat]

Playing devil's rat; it's certainly not out of the realm of possibility that Paulson et el are strictly betting on the illegality of NWS, and, failing that, understand their investment will become less than what they had hoped. As far as Munchin, if he considers the GSE's as Hank did/does, which is not unreasonable given the GS culture I've read about, he's not about to just hand them back over to us. There's still the tricky business of leaving the two private firms in control of $5.5t of our economy.

 

So if one ignores seedy presumptions and only considers what is best for all parties involved, not including us bottom feeders: a) Housing finance (30 year, proven competence), b) taxpayers (implicit guarantee), c) treasury (still off books), d) housing policy (control), the matter will be resolved with FnF released from conservatorship but paying 150~ billion senior preferreds at LIBOR+ for ever and ever. And ever.

 

That's my worst case scenario

 

 

[no_free_lunch]

That is worst case scenario rat for sure.  However I don't think it's too likely.  What I see is a more likely scenario (I don't know the odds but may 1 in 3) where it is released but the terms are such that equity is nearly wiped and preferrred's are getting 10 to 20 cents on the dollar.  If they have to raise a lot of equity and the government considers it's warrants ahead of the preferred's it could get ugly.

[Desert_Rat]

Wouldn't your worst case be uglier though? (it would)

 

Also, the govt has no right to "offer" pennies on the dollar, and doing so wouldn't make anyone happy either. The lawsuits would continue as no one would accept it. However, they do have the right to restructure the 3rd amendment and keep receiving dividends on all issued seniors. The lawsuits would then have to resort to if those seniors were actually necessary, and that's unwinnable imo.

 

I must be in a bad mood today  >:(

 

 

[orthopa]

Playing devil's rat; it's certainly not out of the realm of possibility that Paulson et el are strictly betting on the illegality of NWS, and, failing that, understand their investment will become less than what they had hoped. As far as Munchin, if he considers the GSE's as Hank did/does, which is not unreasonable given the GS culture I've read about, he's not about to just hand them back over to us. There's still the tricky business of leaving the two private firms in control of $5.5t of our economy.

 

So if one ignores seedy presumptions and only considers what is best for all parties involved, not including us bottom feeders: a) Housing finance (30 year, proven competence), b) taxpayers (implicit guarantee), c) treasury (still off books), d) housing policy (control), the matter will be resolved with FnF released from conservatorship but paying 150~ billion senior preferreds at LIBOR+ for ever and ever. And ever.

 

That's my worst case scenario

 

I thinking Paulson, Ackman, and Berkowitz as well as some if not all of us were banking on the illegality of the NWS. This was really an only hope when you had with an administration that wanted them gone. This obviously is no longer the case. I think the idea that the court cases (outside of Sweeney releasing some severely damning arguments) doing much regarding bargaining means very little also.

 

 

I think the protecting the tax payers statement by Mnuchin is only a guise to fall back to justify what he is going to do.  If the taxpayer is protect unlike last time what really is the problem then?

 

When have politicians given shit about the tax payer? His protection will be a minimal capital level or first loss mechanism.

[orthopa]

Playing devil's rat; it's certainly not out of the realm of possibility that Paulson et el are strictly betting on the illegality of NWS, and, failing that, understand their investment will become less than what they had hoped. As far as Munchin, if he considers the GSE's as Hank did/does, which is not unreasonable given the GS culture I've read about, he's not about to just hand them back over to us. There's still the tricky business of leaving the two private firms in control of $5.5t of our economy.

 

So if one ignores seedy presumptions and only considers what is best for all parties involved, not including us bottom feeders: a) Housing finance (30 year, proven competence), b) taxpayers (implicit guarantee), c) treasury (still off books), d) housing policy (control), the matter will be resolved with FnF released from conservatorship but paying 150~ billion senior preferreds at LIBOR+ for ever and ever. And ever.

 

That's my worst case scenario

 

I thinking Paulson, Ackman, and Berkowitz as well as some if not all of us were banking on the illegality of the NWS. Dont forget that Paulson had lobbied heavily over the past 3-4 years for GSE reform as another mechanism. The lawsuits were a last option when the enemy gave you no other option of recourse. This was really an only hope when you had with an administration that wanted them gone. This obviously is no longer the case. I think the idea that the court cases (outside of Sweeney releasing some severely damning arguments) doing much regarding bargaining means very little also. That's why this recent court case sell off makes no sense.

 

I think the protecting the tax payers statement by Mnuchin is only a guise to fall back to justify what he is going to do.  If the taxpayer is protect unlike last time what really is the problem then?

 

When have politicians given shit about the tax payer? His protection will be a minimal capital level or first loss mechanism.

[Desert_Rat]

Playing devil's rat; it's certainly not out of the realm of possibility that Paulson et el are strictly betting on the illegality of NWS, and, failing that, understand their investment will become less than what they had hoped. As far as Munchin, if he considers the GSE's as Hank did/does, which is not unreasonable given the GS culture I've read about, he's not about to just hand them back over to us. There's still the tricky business of leaving the two private firms in control of $5.5t of our economy.

 

So if one ignores seedy presumptions and only considers what is best for all parties involved, not including us bottom feeders: a) Housing finance (30 year, proven competence), b) taxpayers (implicit guarantee), c) treasury (still off books), d) housing policy (control), the matter will be resolved with FnF released from conservatorship but paying 150~ billion senior preferreds at LIBOR+ for ever and ever. And ever.

 

That's my worst case scenario

 

I thinking Paulson, Ackman, and Berkowitz as well as some if not all of us were banking on the illegality of the NWS. This was really an only hope when you had with an administration that wanted them gone. This obviously is no longer the case. I think the idea that the court cases (outside of Sweeney releasing some severely damning arguments) doing much regarding bargaining means very little also.

 

 

I think the protecting the tax payers statement by Mnuchin is only a guise to fall back to justify what he is going to do.  If the taxpayer is protect unlike last time what really is the problem then?

 

When have politicians given shit about the tax payer? His protection will be a minimal capital level or first loss mechanism.

 

I'd say that cumulatively they mean a lot. Because, bank on this,  one of these days one court, one judge will call the treasury out on this farce. Sooner or later their lunch will handed to them. Of that I am certain.

 

 

[waynepolsonAtoZ]

Lazy question, does anyone know the names of the judges in the district court cases that are still active? I believe IL, IA, and TX. DE seems dead for now?

[no_free_lunch]

Wouldn't your worst case be uglier though? (it would)

 

Also, the govt has no right to "offer" pennies on the dollar, and doing so wouldn't make anyone happy either. The lawsuits would continue as no one would accept it. However, they do have the right to restructure the 3rd amendment and keep receiving dividends on all issued seniors. The lawsuits would then have to resort to if those seniors were actually necessary, and that's unwinnable imo.

 

I must be in a bad mood today  >:(

 

Fair enough, maybe my case is worse.  I'm just trying to point out that I don't view it as some black swan but a plausible scenario.

 

If they need to raise equity then why can't this happen?  Fact of the matter is there is no equity in fannie.  Even if NWS is reversed there is no equity.  It's not really a taking just what it is.  If they only need to raise $60b equity and some of that comes from new preferred's and you get a $150B market cap then you will probably do okay in the preferred's.  If they decide they want $120B in equity (they don't want this coming back on them and that is around what they drew in 08/09, maybe a bit less) then it will get ugly.  However, the preferred's are already heavily discounted so maybe not the end of the world.

 

The more I think about it, the more I think the lower interest rate preferred's might be the better buy.

[undervalued]

https://www.nytimes.com/2015/12/07/business/a-revolving-door-helps-big-banks-quiet-campaign-to-muscle-out-fannie-and-freddie.html?_r=0

[onyx1]

 

This may be significant.

 

http://gtbdirectory.com/2017/03/justice-department-turns-against-cfpb-in-constitutional-court-case/

[Luke 532]

 

This may be significant.

 

http://gtbdirectory.com/2017/03/justice-department-turns-against-cfpb-in-constitutional-court-case/

 

https://www.americanbanker.com/news/justice-department-turns-against-cfpb-in-constitutional-court-case

[orthopa]

Can anyone post the whole article?