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

[waynepolsonAtoZ]

Gary Cohn is on the rise at the White House. https://www.washingtonpost.com/politics/inside-trumps-white-house-new-york-moderates-spark-infighting-and-suspicion/2017/03/18/51e3c4d2-0b1c-11e7-a15f-a58d4a988474_story.html?utm_term=.91f5867f6fd3

 

With all the GS guys at Tsy and WH, it seems that the possibility of The Donald doing something for FnF investors is DOA.

 

Recapitalization could still happen, but it will take a while.

[rros]

Gary Cohn is on the rise at the White House. https://www.washingtonpost.com/politics/inside-trumps-white-house-new-york-moderates-spark-infighting-and-suspicion/2017/03/18/51e3c4d2-0b1c-11e7-a15f-a58d4a988474_story.html?utm_term=.91f5867f6fd3

 

With all the GS guys at Tsy and WH, it seems that the possibility of The Donald doing something for FnF investors is DOA.

 

Recapitalization could still happen, but it will take a while.

So what is GS's plan for the GSEs?

[DocSnowball]

Isn't all this pure speculation though?

I'd think the things that matter are rights of shareholders in case of liquidation, and what percentage dilution occurs and how preferred shareholders are converted in case of restructuring.

Whether the sweep reverses this month, or what GS wants - how does that matter? I'm assuming the worst anyway as a way to disconfirm my hypothesis

[Guest cherzeca]

collins brief today on the fhfa uncosnt structure:  https://www.dropbox.com/s/urdvu3nqlow0eox/collins%203%3A20%3A17%20brief%20re%20separation%20of%20powers%20fhfa.pdf?dl=0

 

excellent brief imo

 

edit:  especially part where collins argues there is no distinction between an official who serves unlawfully because of a violation of appointments clause (where unlawful officials prior acts are voided), and an official who serves unlawfully because of a violative removal clause.  fhfa argues that at worst, court should simply amend statute going forward to make removable at will, leaving past decisions intact.  collins i think does a great job of challenging this.

 

fhfa argues that while an officer who was improperly appointed never was in a lawful position to act, fhfa director was in a lawful position to act notwithstanding the removal issue, and is lawful until the removal issue is resolved.

 

collins argues that consistent with appointments clause caselaw, the NWS should be invalidated and reconsidered, if the director wishes, by a director who is removable at will.

 

[muscleman]

collins brief today on the fhfa uncosnt structure:  https://www.dropbox.com/s/urdvu3nqlow0eox/collins%203%3A20%3A17%20brief%20re%20separation%20of%20powers%20fhfa.pdf?dl=0

 

excellent brief imo

 

edit:  especially part where collins argues there is no distinction between an official who serves unlawfully because of a violation of appointments clause (where unlawful officials prior acts are voided), and an official who serves unlawfully because of a violative removal clause.  fhfa argues that at worst, court should simply amend statute going forward to make removable at will, leaving past decisions intact.  collins i think does a great job of challenging this.

 

fhfa argues that while an officer who was improperly appointed never was in a lawful position to act, fhfa director was in a lawful position to act notwithstanding the removal issue, and is lawful until the removal issue is resolved.

 

collins argues that consistent with appointments clause caselaw, the NWS should be invalidated and reconsidered, if the director wishes, by a director who is removable at will.

 

How come Chad Readler, the defendant's counsel is arguing that CFPB is unconstitutional but in the Collins case defending for the government?

[Desert_Rat]

Isn't all this pure speculation though?

I'd think the things that matter are rights of shareholders in case of liquidation, and what percentage dilution occurs and how preferred shareholders are converted in case of restructuring.

Whether the sweep reverses this month, or what GS wants - how does that matter? I'm assuming the worst anyway as a way to disconfirm my hypothesis

 

Of which I gotta believe GS would be a proponent of. They may not dig FnF scalping points they'd rather pocket, but I'm sure their primary concern here is with the govt stealing assets. The next asset stolen could be theirs.

[Guest cherzeca]

collins brief today on the fhfa uncosnt structure:  https://www.dropbox.com/s/urdvu3nqlow0eox/collins%203%3A20%3A17%20brief%20re%20separation%20of%20powers%20fhfa.pdf?dl=0

 

excellent brief imo

 

edit:  especially part where collins argues there is no distinction between an official who serves unlawfully because of a violation of appointments clause (where unlawful officials prior acts are voided), and an official who serves unlawfully because of a violative removal clause.  fhfa argues that at worst, court should simply amend statute going forward to make removable at will, leaving past decisions intact.  collins i think does a great job of challenging this.

 

fhfa argues that while an officer who was improperly appointed never was in a lawful position to act, fhfa director was in a lawful position to act notwithstanding the removal issue, and is lawful until the removal issue is resolved.

 

collins argues that consistent with appointments clause caselaw, the NWS should be invalidated and reconsidered, if the director wishes, by a director who is removable at will.

 

How come Chad Readler, the defendant's counsel is arguing that CFPB is unconstitutional but in the Collins case defending for the government?

 

we will see what doj argues in collins going forward.  given PHH, we may see change in position by doj, but if so i would expect doj to argue against vacating nws as remedy, which is consistent with its position in PHH

[muscleman]

Does anyone know if the judge NANCY F. ATLAS for Collin's case is liberal or conservative? It seems to me that all liberal judges have made bad rulings for the plantiffs so far.

[waynepolsonAtoZ]

 

So what is GS's plan for the GSEs?

 

Same old, same old, same as what Hank Paulson, Geithner, and Lew, have done over the past 8+ years.

[Luke 532]

 

So what is GS's plan for the GSEs?

 

Same old, same old, same as what Hank Paulson, Geithner, and Lew, have done over the past 8+ years.

 

I think it is a stretch to put the GS-alum of past administrations on par with the GS-alum of the current administration.

[stevevri]

Does anyone know if the judge NANCY F. ATLAS for Collin's case is liberal or conservative? It seems to me that all liberal judges have made bad rulings for the plantiffs so far.

 

She is a Clinton Appointee.

[waynepolsonAtoZ]

"I think it is a stretch to put the GS-alum of past administrations on par with the GS-alum of the current administration."

 

JMHO, I think investor expectations are distorted. We'll know one way or another soon enough though. It will be interesting to see how DOJ responds to Judge Sweeney on April 17th. I'm still optimistic in the longer run though, with no capital by yearend 2017 being the key driver.

[Guest cherzeca]

Does anyone know if the judge NANCY F. ATLAS for Collin's case is liberal or conservative? It seems to me that all liberal judges have made bad rulings for the plantiffs so far.

 

i think the best thing is not her political geography but her actual geography....meaning she is not a DC judge where politics seems to infect everything, even where it shouldnt, namely a judge's chambers.

[hardincap]

Calabria: It's too early for the Trump admin to have a GSE reform plan but expect to release a set of principles in next couple months

 

[Guest cherzeca]

Calabria: It's too early for the Trump admin to have a GSE reform plan but expect to release a set of principles in next couple months

 

who said he is in charge?  where did you find this?

[hardincap]

http://ln.is/morningconsult.com/2/d7krD

[TwoCitiesCapital]

http://ln.is/morningconsult.com/2/d7krD

 

Officials are examining “what role Fannie and Freddie currently play” in the mortgage market, he said, emphasizing that taxpayers should “never again” bail out the government-sponsored enterprises.

 

Fannie Mae and Freddie Mac were placed under the conservatorship of the Federal Housing Finance Agency in 2008 and received $187 billion in a taxpayer bailout that kept the two GSEs afloat. Republicans in Congress frequently cite the need to wind down government control of the two entities, and Calabria warned today that taxpayers are increasingly exposed to risks in the housing market.

 

“We put ending bailouts at the top of the agenda,” Calabria said, referring to the administration’s regulatory overhaul priorities.

 

All positives from the perspective of ending the conservatorship....and the NWS if you believe that the companies are indispensable/irreplaceable given the size/scall.

 

So, it's just a matter of determining how they handle the NWS and recapitalization for those in the latter boat.

[Guest cherzeca]

http://ln.is/morningconsult.com/2/d7krD

 

Officials are examining “what role Fannie and Freddie currently play” in the mortgage market, he said, emphasizing that taxpayers should “never again” bail out the government-sponsored enterprises.

 

Fannie Mae and Freddie Mac were placed under the conservatorship of the Federal Housing Finance Agency in 2008 and received $187 billion in a taxpayer bailout that kept the two GSEs afloat. Republicans in Congress frequently cite the need to wind down government control of the two entities, and Calabria warned today that taxpayers are increasingly exposed to risks in the housing market.

 

“We put ending bailouts at the top of the agenda,” Calabria said, referring to the administration’s regulatory overhaul priorities.

 

All positives from the perspective of ending the conservatorship....and the NWS if you believe that the companies are indispensable/irreplaceable given the size/scall.

 

So, it's just a matter of determining how they handle the NWS and recapitalization for those in the latter boat.

 

mostly agree.  i am not aware of any "kill the GSEs" proposal that doesnt have a fed govt backstop within the thing.  so yes, those thought proposals are DOA, and restructuring the GSEs will have the devil in the details

[Luke 532]

 

http://ln.is/morningconsult.com/2/d7krD

 

Officials are examining “what role Fannie and Freddie currently play” in the mortgage market, he said, emphasizing that taxpayers should “never again” bail out the government-sponsored enterprises.

 

Wonder if Calabria considers another draw by GSE's to be a bailout? If so, he'd probably be against the March NWS payment.

[orthopa]

Just some stuff a quick google search brought up....

 

http://www.canfieldpress.com/receivership-does-not-end-fannie-mae-and-freddie-mac

 

http://thehill.com/blogs/congress-blog/economy-budget/240014-making-a-fannie-and-freddie-we-could-live-with

 

http://investorsunite.org/wp-content/uploads/2015/01/Krimminger-Calabria-HERA-White-Paper-Jan-29.pdf

 

No mention where I can see  after a quick glance regarding shareholders. Seems like Calabria has a lot to offer regarding restructuring but not property/shareholder rights.

 

[SnarkyPuppy]

I think if we're all being honest, without Berkowitz (and potentially Paulson's) investment(s) and connections to Mnuchin and/or Trump, there would be almost no conviction.

 

I've sold off ~50% of my position.

[SnarkyPuppy]

Just some stuff a quick google search brought up....

 

http://www.canfieldpress.com/receivership-does-not-end-fannie-mae-and-freddie-mac

 

http://thehill.com/blogs/congress-blog/economy-budget/240014-making-a-fannie-and-freddie-we-could-live-with

 

http://investorsunite.org/wp-content/uploads/2015/01/Krimminger-Calabria-HERA-White-Paper-Jan-29.pdf

 

No mention where I can see  after a quick glance regarding shareholders. Seems like Calabria has a lot to offer regarding restructuring but not property/shareholder rights.

 

Mixed bag. 

 

1st link is super negative for us.  It's from 11/2012 (relatively new into the profit-era).  Excerpts: 

"U]nder a receivership, the GSEs can continue to be run — that is, the regulator, FHFA, can still issue debt, buy mortgages and do everything else the GSEs currently do." 

 

"The law is quite clear.  FHFA would continue to run the GSEs, with the option of a good/bad bank model to resolve bad assets, and the only way FHFA can terminate the receivership is to sell the charters back into the marketplace (see Section 1367(i)(6)© Termination of status as limited-life regulated entity)."

 

"So let’s get the facts straight.  Receivership would not end the GSEs.  The fundamental difference between receivership and the current conservatorship is the ability to impose losses on creditors.  "

 

2nd link is mixed.  "Take away Fannie and Freddie’s capital arbitrage and set their equity capital requirements in line with other financial institutions of similar size.  Equity of at least 5 percent of total assets should be their required leverage capital ratio."    "Open up their charters to competition just like banking charters.  End their exclusive duopoly privileges. "

 

3rd link is bullish IMO (co-written by Michael Krimminger and Mark Calabria) 1/2015.  Some excerpts below: 

 

"While shareholders and other stakeholders typically suffer losses under these laws when a company or bank fails, the amount of those losses is determined in a fair and predictable process with rights to contest any disputed decisions. This is fundamental to an accurate

evaluation of the risks and rewards of investing in or doing business with a company or bank. If stakeholders, including shareholders, cannot reliably recover their share of the value of the failed company, future investors and vendors will require higher premiums on investments and higher prices on goods and services to protect themselves against the resulting uncertainty. This will increase the costs of doing business and significantly reduce the ability of the U.S. economy to serve the needs of businesses and all Americans. A chief reason many other countries struggle to achieve their economic potential is precisely because they lack a predictable rule of law."

 

"However, as implemented by Treasury and FHFA, the Companies’ conservatorships serve principally as the instruments for government management of national mortgage policy and enrichment for Treasury. The Companies remain the principal sources of liquidity to the U.S. mortgage industry and the dominant secondary mortgage market companies through their issuance of guaranteed mortgage-backed securities, and have produced billions of dollars of new value. Despite having been repaid far more than it injected into the Companies,

Treasury has ignored the creditor protections required under HERA or, for bank shareholders and other stakeholders, under the FDIA by using the conservatorships to strip all value from the shareholders, rather than complying with the HERA requirement that it "preserve and conserve" the Companies for the benefit of all stakeholders. In addition to violating the fundamental element of creditor protection required by statute and the principles underlying all insolvency laws, Treasury has consciously prevented accumulation of any buffer against future losses - thereby ensuring that taxpayers will again bear the risks. Treasury has purposefully refused to return the Companies to a "sound and solvent" condition as required by HERA. In internal documents, Treasury officials have expressly stated that Treasury will not allow the

rehabilitation of the Companies or any return of value to the stakeholders. "

 

"Importantly, under the PSPAs, Treasury’s senior preferred stock could be redeemed if its liquidation preference was paid down with interest. While the PSPAs were certainly dilutive of the existing shareholders’ interests in the Companies, the fact that such

privately held shares continued to exist in companies that continued to operate and generate substantial cash flows implied a continued right to recovery and were consistent with a potential return to full private control. In addition, despite the dilutive effect of the PSPAs, both Treasury and FHFA explicitly emphasized that there was no nationalization and that the rights of stakeholders would be protected. For example, then-Treasury Secretary Paulson explained that “conservatorship does not eliminate the outstanding preferred stock.” FHFA also confirmed that the “s]tockholders will continue to retain all rights in the stock’s financial worth; as such worth is determined by the market.”

 

"Second, shareholders and other stakeholders were to incur losses consistent with their protection under bank insolvency statutes. The value of the bank was not stripped by the FDIC. The FDIC recognized that the shareholders were to be diluted, but only to the extent of

the assistance actually provided by the FDIC. If the assisted bank returned to profitability, that was success, and after the repayment of the FDIC's assistance all future value would inure to the benefit of the shareholders. "

[Desert_Rat]

I think if we're all being honest, without Berkowitz (and potentially Paulson's) investment(s) and connections to Mnuchin and/or Trump, there would be almost no conviction.

 

I've sold off ~50% of my position.

 

Opinions like yours puzzle me. For one it implies the same reasoning with these men as to why the govt will screw us - they're all unscrupulous and have zero constitutional or righteous bearing. They're all in for themselves. Two, the conviction should be that, since nothing similar to this taking, on this scale anyway, has ever been perpetrated by a US Govt, it's not gonna happen this time either, regardless of support, or lack of, from Berk, Paulson, Mnuchin and Trump. All they mean to the big picture is a presumably faster resolution, which is convenient and all, but in the end the same result will be had.

 

I've been accumulating for 4 years. I wish I was a great trader but I'm not so they all sit in my accounts. Going nowhere.

[Desert_Rat]

 

"So let’s get the facts straight.  Receivership would not end the GSEs.  The fundamental difference between receivership and the current conservatorship is the ability to impose losses on creditors.  "

 

Too late. If we were placed in receivership the preferreds would be pennies and I wouldn't be here. But we weren't and there's no cause now. Other than that, pretty optimistic stuff. The word is getting out how wrong this is.

[rros]

 

"So let’s get the facts straight.  Receivership would not end the GSEs.  The fundamental difference between receivership and the current conservatorship is the ability to impose losses on creditors.  "

 

Too late. If we were placed in receivership the preferreds would be pennies and I wouldn't be here. But we weren't and there's no cause now. Other than that, pretty optimistic stuff. The word is getting out how wrong this is.

In receivership, the liquidation preference of the preferred shares gets triggered. :)