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


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Posted

Corsi at 15:00 mark: "The regulators of Fannie and Freddie are asking President Trump to stop taking the money out of Fannie and Freddie."

https://youtu.be/PWNQNf7DCfY

 

I know, I know, Corsi is a whack job (not factoring in Mnuchin's comments possibly confirming Obamacare story) but I wouldn't be surprised to see Watt say something along these lines during his testimony next week. After all, in the past he has publicly stated the law got trumped and the conservatorship can't last forever.

 

corsi has proven his mettle on the GSEs, more so than the vast majority of other people in this orbit.  he's sticking his neck out for the little guy and working quite hard.

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Posted

God knows, in The Donald era Corsi is a very credible source! Watt always said he would defer to Tsy on the SPSPAs, so this makes sense.

Wayne, I understand where you are coming from. But can hardy believe anyone giving credit to Corsi as an influential agent. Won't move the needle, in my view. This is periphery, at best. Also, is he really talking about Watt? Or is he confused with ICBA and other minority organizations who have been requesting stopping the sweep for some time? Corsi may be a PhD. but he already got some dates mixed up re 3rd amendment and Collyer/Ocare payments.
Posted

I simply see Corsi as a method of introduction, which is fine. Initially he and Jones claim regarding NWS used to pay for Obamacare was looked upon in the same way, i.e what a joke, quack, etc. Weeks later we had Rosner on Tucker Carlson show, Bartiromo asking the direct question and Mnuchin confirming. Pure speculation, but I see a setup taking place albeit slowly where this story of Obama using FnF funds becomes a real main stream story. I think the prfd are paid in the end game and Paulson/Berkowitz make a fortune. The common is too much of a gamble as I could really see Ackman getting screwed. Maybe common works out, but I'll take the safer bet at this point.

Posted

"BlackRock wants to make sure they are interchangeable with Fannie and Freddie’s current bonds. That would prevent legacy debt from getting isolated in its own, dying market"

 

Now that's something I've never considered.

 

https://www.bloomberg.com/politics/articles/2017-05-05/blackrock-says-don-t-recap-and-release-fannie-and-freddie?cmpid=socialflow-twitter-business&utm_content=business&utm_campaign=socialflow-organic&utm_source=twitter&utm_medium=social

Posted

"BlackRock wants to make sure they are interchangeable with Fannie and Freddie’s current bonds. That would prevent legacy debt from getting isolated in its own, dying market"

 

Now that's something I've never considered.

 

https://www.bloomberg.com/politics/articles/2017-05-05/blackrock-says-don-t-recap-and-release-fannie-and-freddie?cmpid=socialflow-twitter-business&utm_content=business&utm_campaign=socialflow-organic&utm_source=twitter&utm_medium=social

 

That's a good point. Taking that into consideration, what's the point of creating a new company that does exactly what FnF is currently doing, and somehow the new company's bonds have to be exchangeable with FnF's bonds?

Posted

I'd like to read that Blackrock whitepaper but I believe the gist of it is they don't care what happens to FnF as long as govt guarantee continues. Many will say BR is just protecting their book, which is legit but so is logic of govt guarantee.

 

Seems as if Corsi has read it and gives big thumbs down, though.

Posted

"BlackRock wants to make sure they are interchangeable with Fannie and Freddie’s current bonds. That would prevent legacy debt from getting isolated in its own, dying market"

 

Now that's something I've never considered.

 

https://www.bloomberg.com/politics/articles/2017-05-05/blackrock-says-don-t-recap-and-release-fannie-and-freddie?cmpid=socialflow-twitter-business&utm_content=business&utm_campaign=socialflow-organic&utm_source=twitter&utm_medium=social

 

Pulled this from the blackrock proposal.  They are basically asking for government guarantee to continue with private investors being first at bat to take losses.  This could work.

 

MBA Proposal

The MBA proposal was recently issued by the Mortgage

Bankers Association, the national association representing

the real estate finance industry.  This proposal would convert

the GSEs to privately

-

owned regulated utilities with

regulated rates of return that issue MBS with explicit

government guarantees.  It provides for new entrants to

compete with the GSEs in that role.  It also converts the

CSP into a government corporation that issues government

guaranteed MBS and offers securitization access to the

GSEs and other competing guarantors

with one objective

of this approach being to ensure fair access for lenders of all

sizes.  Furthermore, the MBA proposal advocates for a

multi

-

year transition period that minimizes market disruption,

including advocating for various alternatives to provide an

appropriate MBS

-

level backstop for the GSEs’ existing MBS.

We commend this proposal for maintaining an explicit

government guarantee at the MBS level with some credit

risk shared by private guarantors, including the reconstituted

version of the GSEs as private regulated utilities.  The

proposal is generally in line with our principles for housing

finance reform.

Posted

"BlackRock wants to make sure they are interchangeable with Fannie and Freddie’s current bonds. That would prevent legacy debt from getting isolated in its own, dying market"

 

Now that's something I've never considered.

 

https://www.bloomberg.com/politics/articles/2017-05-05/blackrock-says-don-t-recap-and-release-fannie-and-freddie?cmpid=socialflow-twitter-business&utm_content=business&utm_campaign=socialflow-organic&utm_source=twitter&utm_medium=social

 

Pulled this from the blackrock proposal.  They are basically asking for government guarantee to continue with private investors being first at bat to take losses.  This could work.

 

MBA Proposal

The MBA proposal was recently issued by the Mortgage

Bankers Association, the national association representing

the real estate finance industry.  This proposal would convert

the GSEs to privately

-

owned regulated utilities with

regulated rates of return that issue MBS with explicit

government guarantees.  It provides for new entrants to

compete with the GSEs in that role.  It also converts the

CSP into a government corporation that issues government

guaranteed MBS and offers securitization access to the

GSEs and other competing guarantors

with one objective

of this approach being to ensure fair access for lenders of all

sizes.  Furthermore, the MBA proposal advocates for a

multi

-

year transition period that minimizes market disruption,

including advocating for various alternatives to provide an

appropriate MBS

-

level backstop for the GSEs’ existing MBS.

We commend this proposal for maintaining an explicit

government guarantee at the MBS level with some credit

risk shared by private guarantors, including the reconstituted

version of the GSEs as private regulated utilities.  The

proposal is generally in line with our principles for housing

finance reform.

 

What would this mean for existing preferred shareholders?

Posted

"BlackRock wants to make sure they are interchangeable with Fannie and Freddie’s current bonds. That would prevent legacy debt from getting isolated in its own, dying market"

 

Now that's something I've never considered.

 

https://www.bloomberg.com/politics/articles/2017-05-05/blackrock-says-don-t-recap-and-release-fannie-and-freddie?cmpid=socialflow-twitter-business&utm_content=business&utm_campaign=socialflow-organic&utm_source=twitter&utm_medium=social

 

Pulled this from the blackrock proposal.  They are basically asking for government guarantee to continue with private investors being first at bat to take losses.  This could work.

 

MBA Proposal

The MBA proposal was recently issued by the Mortgage

Bankers Association, the national association representing

the real estate finance industry.  This proposal would convert

the GSEs to privately

-

owned regulated utilities with

regulated rates of return that issue MBS with explicit

government guarantees.  It provides for new entrants to

compete with the GSEs in that role.  It also converts the

CSP into a government corporation that issues government

guaranteed MBS and offers securitization access to the

GSEs and other competing guarantors

with one objective

of this approach being to ensure fair access for lenders of all

sizes.  Furthermore, the MBA proposal advocates for a

multi

-

year transition period that minimizes market disruption,

including advocating for various alternatives to provide an

appropriate MBS

-

level backstop for the GSEs’ existing MBS.

We commend this proposal for maintaining an explicit

government guarantee at the MBS level with some credit

risk shared by private guarantors, including the reconstituted

version of the GSEs as private regulated utilities.  The

proposal is generally in line with our principles for housing

finance reform.

 

What would this mean for existing preferred shareholders?

 

Devils' in the details. MBA's proposal conveniently does not address how this "conversion into private entities" would work and how the preferred would be handled. Only the ICBA proposal addressed this issue and stated that the preferred should be exchanged.

Posted

"BlackRock wants to make sure they are interchangeable with Fannie and Freddie’s current bonds. That would prevent legacy debt from getting isolated in its own, dying market"

 

Now that's something I've never considered.

 

https://www.bloomberg.com/politics/articles/2017-05-05/blackrock-says-don-t-recap-and-release-fannie-and-freddie?cmpid=socialflow-twitter-business&utm_content=business&utm_campaign=socialflow-organic&utm_source=twitter&utm_medium=social

 

Pulled this from the blackrock proposal.  They are basically asking for government guarantee to continue with private investors being first at bat to take losses.  This could work.

 

MBA Proposal

The MBA proposal was recently issued by the Mortgage

Bankers Association, the national association representing

the real estate finance industry.  This proposal would convert

the GSEs to privately

-

owned regulated utilities with

regulated rates of return that issue MBS with explicit

government guarantees.  It provides for new entrants to

compete with the GSEs in that role.  It also converts the

CSP into a government corporation that issues government

guaranteed MBS and offers securitization access to the

GSEs and other competing guarantors

with one objective

of this approach being to ensure fair access for lenders of all

sizes.  Furthermore, the MBA proposal advocates for a

multi

-

year transition period that minimizes market disruption,

including advocating for various alternatives to provide an

appropriate MBS

-

level backstop for the GSEs’ existing MBS.

We commend this proposal for maintaining an explicit

government guarantee at the MBS level with some credit

risk shared by private guarantors, including the reconstituted

version of the GSEs as private regulated utilities.  The

proposal is generally in line with our principles for housing

finance reform.

 

What would this mean for existing preferred shareholders?

 

 

Doesn't this imply that most likely outcome if pursued would be deem sr. prfd paid, pay off jr. prfd and do a new offering with a very high capital raise (fits with utility, saftey, etc.) that probably dilutes the hell out of existing common?

Posted

Devil is in the details but as you have pointed out it will be hard to transfer to a new entity and wipe the preferred share holders.  Directionally this is the type of proposal I want to see.  Maybe it is best for now that there  aren't too many details on how it is implemented or which "hedge fund" stands to benefit.

 

Flynnstone, I think there would be some type of exchange.

Posted

Devil is in the details but as you have pointed out it will be hard to transfer to a new entity and wipe the preferred share holders.  Directionally this is the type of proposal I want to see.  Maybe it is best for now that there  aren't too many details on how it is implemented or which "hedge fund" stands to benefit.

 

Flynnstone, I think there would be some type of exchange.

 

Yes - was thinking the same as additional possibility, which could even turn out to be a better deal. That said, I'd be more than happy to get par and run at this point!

Posted

I strongly encourage GSE investors to read the whole blackrock piece.  I am just a novice here but I view the contents as being very positive for existing preferred shareholders.  Based on this and the price slump I have upped my investment.

Posted

I strongly encourage GSE investors to read the whole blackrock piece.  I am just a novice here but I view the contents as being very positive for existing preferred shareholders.  Based on this and the price slump I have upped my investment.

 

"Ultimately, private capital in the mortgage market requires a transparent process that provides certainty and respect for the rights of investors, both in the current framework and in any transition to a future system."

Posted

I strongly encourage GSE investors to read the whole blackrock piece.  I am just a novice here but I view the contents as being very positive for existing preferred shareholders.  Based on this and the price slump I have upped my investment.

 

I think most of the jr prefs holders just want par and the special interest can do whatever they please. If Mnuchin considers the Tsy paid in full, then there's enough tangible equity to pay close to par in receivership and float out whatever structure they want.

 

The Blackrock piece acknowledges the Tsy will have full administrative powers to do what they want Jan 1, 2018. So why not just compromise, recap the GSEs to be the backstop in the system, limit their market share and open their platform for outside capital to come in and compete. This will be bad news for the common since the economics of the businesses will change.

 

What's great is that they acknowledge investors/capital must be respected  :)

Posted

Devil is in the details but as you have pointed out it will be hard to transfer to a new entity and wipe the preferred share holders.  Directionally this is the type of proposal I want to see.  Maybe it is best for now that there  aren't too many details on how it is implemented or which "hedge fund" stands to benefit.

 

Flynnstone, I think there would be some type of exchange.

 

HERA provides the framework and legal authority to the regulator to send the GSEs into receiver ship. While in r-ship they can create a new entity (Limited Life Regulated Entity) and the charters will transfer to the new entity. Shareholders cannot have ownership in the new entity. Assets will be liquidated and pay off any outstanding claims. This is where liquidation preference of the jr pref kick in and you will need to pray to God Mnuchin considers the outstanding sr prefs paid which I think he will.

 

That's the end game. Why would they potentially raise a ridiculous amount of capital on a dirty capital structure? Clean slate IMO.

Posted

I strongly encourage GSE investors to read the whole blackrock piece.  I am just a novice here but I view the contents as being very positive for existing preferred shareholders.  Based on this and the price slump I have upped my investment.

 

"Ultimately, private capital in the mortgage market requires a transparent process that provides certainty and respect for the rights of investors, both in the current framework and in any transition to a future system."

 

?  I interpret the language in the Blackrock proposal as discussing MBS investors, not GSE equity investors. 

Posted

Devil is in the details but as you have pointed out it will be hard to transfer to a new entity and wipe the preferred share holders.  Directionally this is the type of proposal I want to see.  Maybe it is best for now that there  aren't too many details on how it is implemented or which "hedge fund" stands to benefit.

 

Flynnstone, I think there would be some type of exchange.

 

HERA provides the framework and legal authority to the regulator to send the GSEs into receiver ship. While in r-ship they can create a new entity (Limited Life Regulated Entity) and the charters will transfer to the new entity. Shareholders cannot have ownership in the new entity. Assets will be liquidated and pay off any outstanding claims. This is where liquidation preference of the jr pref kick in and you will need to pray to God Mnuchin considers the outstanding sr prefs paid which I think he will.

 

That's the end game. Why would they potentially raise a ridiculous amount of capital on a dirty capital structure? Clean slate IMO.

 

Well what do I know but with Citigroup I believe they swapped the preferred's for the new common's.  I assumed something similar would happen here as well.  If they go through liquidation, I mean there is what $3-4B equity depending on whether they just paid the treasury.  If that happens preferred's are getting 10-20 cents on the dollar.

Posted

I strongly encourage GSE investors to read the whole blackrock piece.  I am just a novice here but I view the contents as being very positive for existing preferred shareholders.  Based on this and the price slump I have upped my investment.

 

"Ultimately, private capital in the mortgage market requires a transparent process that provides certainty and respect for the rights of investors, both in the current framework and in any transition to a future system."

 

?  I interpret the language in the Blackrock proposal as discussing MBS investors, not GSE equity investors.

 

I think you're right.

Posted

I think they are talking both MBS and GSE replacement capital.  However having re-read it about a dozen times it is certainly a bit ambiguous.  Here is the full excerpt:

 

While not unanimous, the preponderance of the policy proposals acknowledge the need for a government guarantee to absorb catastrophic risks in order to ensure continued liquidity.  In addition, the proposals contemplate leveraging the capital markets to absorb credit risk in order to protect the taxpayer.  We commend this approach, and recommend the adoption of the policy that will prove the least disruptive with the greatest ease of execution and fungibility between the current and any future state.  Ultimately, private capital in the mortgage market requires a transparent process that provides certainty and respect for the rights of investors, both in the current framework and in any transition to a future system.

Posted

There's also the Endnote 27 which is pretty negative.

 

Lawsuits challenging the terms or actions of conservatorship have struggled, giving less incentive for Congress to grant rights or remuneration for equity or preferred

equity in a legislative solution. See John Carney, The Wall Street Journal, In A Blow to Fannie and Freddie Shareholders, Court Tosses Out Another Lawsuit (Aug. 23,

2016), available at https://blogs.wsj.com/moneybeat/2016/08/23/in-a-blow-to-fannie-and-freddie-shareholders-court-tosses-out-another-lawsuit/.

Posted

That's not negative, that's fact. Negative would be something like "Since courts have rejected each lawsuit brought by these bottom feeders we believe they have no rights going forward and will treat them as such; Poorly"

 

I honestly don't care about any of this stuff because 90% of what we read is not going to happen. My primary concern is if housing reform is going to pass before all our assumed advantages expire. If it does we're golden. If it doesn't we will remain an elusive 10 5 bagger.

 

 

Posted

I strongly encourage GSE investors to read the whole blackrock piece.  I am just a novice here but I view the contents as being very positive for existing preferred shareholders.  Based on this and the price slump I have upped my investment.

 

"Ultimately, private capital in the mortgage market requires a transparent process that provides certainty and respect for the rights of investors, both in the current framework and in any transition to a future system."

 

?  I interpret the language in the Blackrock proposal as discussing MBS investors, not GSE equity investors.

 

I agree. I read the whole report and it mentioned investors 37 times. I think its emphasis on "investor rights" is basically this: I sold you subprime bonds and you later sued me in 2008. I don't like that. I should have the right that you never sue me even if I screw you. In addition, its investor rights emphasizes on a government explicit guarantee of the bonds, so that the bonds will never default, therefore "investor rights".

 

Its evaluate on the various reform proposals are very biased. Writing vaguely about "Recap and release" but trying to sell the benefits of other crooked proposals without mentioning any of their problems.

 

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