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

[beaufort]

So then let the retaining of earnings ride! Once that crosses the 20 bill threshold look at Senators rushing for a bill. 

 

I will fee better knowing that the balance sheet has the liquidation preference covered for the prefs.

[Desert_Rat]

My understanding is that program has already been slated to end 1/1/2018. This admin has nothing to do with it.

?

 

 

http://royce.house.gov/uploadedfiles/pay_back_the_taxpayers_act_of_2015.pdf

[Desert_Rat]

Crapo: hey, let's throw a carrot that we want to finally get this done after 8 years.

Corker: they will figure it out, it's a lie, we have done it enough times

Crapo: nah. we will debate it for many months, then go one recess, then to budget, then to tax reform and soon it will be 2020.

Corker: you are a genius.

Crapo: yes I am.

Corker: Let's get back to shorting it.

 

https://www.politicopro.com/financial-services/story/2017/05/senators-look-to-reach-housing-finance-deal-this-year-157422

 

I don't doubt that the principles involved with FnF/housing reform want a solution, and fast, but when one side of the aisle is demanding govt involvement as an entitlement for the poor, and the other is demanding the govt exit completely, with a whole bunch of others are fearful of what any change to a successful 70 year program will bring, and another demanding no govt backstop, you get stalemate.

 

Eternal stalemate.

 

[Desert_Rat]

LOL

 

https://media.8ch.net/file_store/31881d2645cea2a53d455abb29ad55873c02b37ea9f740f5d962ac80d0bf54b0.png

 

Use the internet carefully  ;D

 

[Picasso]

LOL

 

https://media.8ch.net/file_store/31881d2645cea2a53d455abb29ad55873c02b37ea9f740f5d962ac80d0bf54b0.png

 

Use the internet carefully  ;D

 

Amazing

[Picasso]

It's clearly not authentic.

[Midas79]

http://www.glenbradford.com/wp-content/uploads/2017/05/13-465-0376.pdf

 

3500 documents have been produced to plaintiffs' lawyers.

[beaufort]

Wow.  7500 documents roughly where the US maintains privilege (from my read).  In another 5 years, perhaps we will have a complete List of Documents.  This episode reinforces my view that there is no litigant that is as obstructionist as a government and/or an insurer.

[Flynnstone5]

So after all this BS Sweeney will just go along!? How is it she can order, gov goes to appeal and majority of her opinion is upheld, but gov can simply ignore again without consequence? So much for the Sessions factor as well.

[SnarkyPuppy]

So the Treasury had the clear opportunity to embarrass Obama / create political cushion for a recap/release (Tim Howard speculates mnuchin hasn't been forthcoming bc of the legal losses and therefore has no political capital to do so... how was this not the perfect opportunity to change that by giving up all docs..?)

 

The legal thesis is not playing out as expected.

The administrative thesis is not playing out as expected.

Call a spade a spade.

[investorG]

So the Treasury had the clear opportunity to embarrass Obama / create political cushion for a recap/release (Tim Howard speculates mnuchin hasn't been forthcoming bc of the legal losses and therefore has no political capital to do so... how was this not the perfect opportunity to change that by giving up all docs..?)

 

The legal thesis is not playing out as expected.

The administrative thesis is not playing out as expected.

Call a spade a spade.

 

agree on legal.  on administrative, it's tbd I believe -- why fire an empty weapon now when in 7 months you'll get a loaded one?

 

the Sweeney case, if it's not thrown out, is a multi-year process.  the 11k documents are perhaps good for public perception but they don't seem relevant for the 4 appeals court cases (maybe one will side with Judge Brown) and Delaware.

 

 

 

[beaufort]

More documents would be great for a variety of reasons, including optics.  I am not sure if they are necessary to prove the claims.

 

Either the sweep is a taking or it's not.  I don't know what the documents will change re proving the material facts.

[Guest cherzeca]

"Currently there is virtually no capital in the conventional secondary mortgage market (Treasury has taken it out), so our first priority must be to ensure we can attract sufficient capital for the $5 trillion in credit guarantees that already exist."  https://howardonmortgagefinance.com/2017/04/25/narrowing-the-differences/comment-page-1/#comment-3527

 

just think about it.  forget about new mortgages and new guarantees on their MBS.  there are $5T of guarantees in place without any capital support.  corker says there is >$200B of capital in place in the form of treasury support, but everyone views this as either nonconstructive or absurd.  no one in treasury and few in congress want to see another draw on this line; indeed, one of trump's first executive orders was to empower treasury to end bailouts, and this can only mean that the administration wants to replace the line, not use the line

 

so any proposal that calls for new monoline insurers, and a new guarantee backstop for housing finance going forward, does not address the current capital hole; let's call it $100B of capital.

 

all proposals call for private capital to fill this $100B hole, but CRT transactions dont provide capital, they just shift credit risk, and in fact watt was recently candid enough to admit that fhfa is uncertain how much credit risk is actually transferred...this is a function of how fast prepayments pay down the credit support tranches bought by investors.

 

the only way that $100B hole can be filled is to associate it with the guarantee fee income that the GSEs receive for incurring the $5T in liabilities...and that means eliminating the senior preferred, which conveniently enough, is about to be repaid in full on the basis of the original deal.

 

these are stark financial facts, imo.

[Luke 532]

these are stark financial facts, imo.

 

And facts that Mnuchin, the most important player in this game, is well aware of.

[Luke 532]

these are stark financial facts, imo.

 

And facts that Mnuchin, the most important player in this game, is well aware of.

 

If so, why sit on it? Why not do anything? Mnuchin doesn't even want to stop NWS.

 

Because there are consequences (both good and bad) for Mnuchin personally, for the party he represents, for the economy, for the job market, for various bills he wants to pass, etc. that would all be impacted to some degree by major changes to the GSE's.  And many of these variables are impacted by time.

[Midas79]

If so, why sit on it? Why not do anything? Mnuchin doesn't even want to stop NWS.

 

Not yet. But we could easily see an administrative solution come out soon after Jan 1, 2018 because at that point:

• Fannie and Freddie will have repaid all the draws (at the 10% dividend rate)
  
• The Jumpstart bill language expires, so Treasury can do anything they want with the senior preferred
  
• The zero capital scare is political cover for action, especially if Congress is still spinning their wheels
  
• We might have favorable news from the Perry or Fairholme cases
  

 

Given all this, I'm more surprised that Watt "went rogue" concerning the next NWS payment rather than Mnuchin saying that he expects it to continue.

 

Of course I am making many assumptions here. Mnuchin's words and actions have been consistent with my list, but they are also consistent with other potential courses of administrative action, hence the risk involved.

 

That said, I don't expect anything major to happen in the next 7 months unless we have favorable verdicts for shareholders or Congress really makes a push on their end.

[rros]

these are stark financial facts, imo.

 

And facts that Mnuchin, the most important player in this game, is well aware of.

 

If so, why sit on it? Why not do anything? Mnuchin doesn't even want to stop NWS.

I think, for Mnuchin, the courts have spoken (so far). Whether he agrees, likes it or not he has no option but to "expect the dividends paid to Treasury to continue", as he put it. Any stance other than this would be irrational.

 

On the other hand, he sounded firmly negative about taxpayers continuing supporting the companies.

 

During Corker's exchange Mnuchin used the word "credit" as opposed to capital when he referred to ample credit before the risk loss. Corker rephrased that using the word "capital". But I do not think this was a mistake. I understood it as Mnuchin saying that for a paid-for guarantee Treasury will make sure there is ample credit backing the companies, as in a large credit line. So in the last public appearance Mnuchin totally dodged the "capital" bullet. We know though, he doesn't want Treasury's credit line to be that capital. And that that line would only be a backstop for which taxpayers will be compensated.

 

So now comes June and getting awfully closer to a definition.

 

No surprise the Stegmans and Mark Zandis are coming out like frogs in the rain. Will Antonio Weiss chime in? Another Parrot piece? Larry Fink on the attack? MBA's will try another push? I expect a lot of noise come end of June. In a concerted effort to deter Watt from retaining earnings. Which is the most logical thing that can happen.

[Guest cherzeca]

these are stark financial facts, imo.

 

And facts that Mnuchin, the most important player in this game, is well aware of.

 

If so, why sit on it? Why not do anything? Mnuchin doesn't even want to stop NWS.

I think, for Mnuchin, the courts have spoken (so far). Whether he agrees, likes it or not he has no option but to "expect the dividends paid to Treasury to continue", as he put it. Any stance other than this would be irrational.

 

On the other hand, he sounded firmly negative about taxpayers continuing supporting the companies.

 

During Corker's exchange Mnuchin used the word "credit" as opposed to capital when he referred to ample credit before the risk loss. Corker rephrased that using the word "capital". But I do not think this was a mistake. I understood it as Mnuchin saying that for a paid-for guarantee Treasury will make sure there is ample credit backing the companies, as in a large credit line. So in the last public appearance Mnuchin totally dodged the "capital" bullet. We know though, he doesn't want Treasury's credit line to be that capital. And that that line would only be a backstop for which taxpayers will be compensated.

 

So now comes June and getting awfully closer to a definition.

 

No surprise the Stegmans and Mark Zandis are coming out like frogs in the rain. Will Antonio Weiss chime in? Another Parrot piece? Larry Fink on the attack? MBA's will try another push? I expect a lot of noise come end of June. In a concerted effort to deter Watt from retaining earnings. Which is the most logical thing that can happen.

 

this is a guess, but i think mnuchin was discussing "credit" in the context of a proposal for the feds to guarantee MBS directly (which i cant see getting approved in any event, but it appears that corker is comfortable with it). so if the feds would guarantee securities (as opposed to supply the GSE entities with a paid for credit line), then essentially what mnuchin is saying is that he would want to guarantee a support tranche of any MBS securitization, with the senior classes bearing loss.  those senior classes would have provided "credit" by buying the MBS senior securities.

 

i agree corker's capital comment conflating treasury's line with capital is off base and not something mnuchin (and watt and most of congress) agrees with.  the whole point is to get the feds out of "credit/capital" support.

[Guest cherzeca]

fyi:  http://www.businesswire.com/news/home/20170531006392/en/Release-Blueprint-Restoring-Safety-Soundness-Fannie-Mae

 

CC  6/1 10:30am by moelis, financial advisor to certain GSE preferred shareholders

[SnarkyPuppy]

@cherzeca

 

To play devils advocate, do you foresee any risk that MBA proposals and Corker/Warner get what they want and hand over the business to TBTF banks?  Or you are saying it's a systemic impossibility due to the $100bn capital hole as you describe it.  And if it is a systemic impossibility, have you put your entire net worth into the preferred shares?  Seems like a home run to me.   

[Desert_Rat]

"Currently there is virtually no capital in the conventional secondary mortgage market (Treasury has taken it out), so our first priority must be to ensure we can attract sufficient capital for the $5 trillion in credit guarantees that already exist."  https://howardonmortgagefinance.com/2017/04/25/narrowing-the-differences/comment-page-1/#comment-3527

 

just think about it.  forget about new mortgages and new guarantees on their MBS.  there are $5T of guarantees in place without any capital support.  corker says there is >$200B of capital in place in the form of treasury support, but everyone views this as either nonconstructive or absurd.  no one in treasury and few in congress want to see another draw on this line; indeed, one of trump's first executive orders was to empower treasury to end bailouts, and this can only mean that the administration wants to replace the line, not use the line

 

so any proposal that calls for new monoline insurers, and a new guarantee backstop for housing finance going forward, does not address the current capital hole; let's call it $100B of capital.

 

all proposals call for private capital to fill this $100B hole, but CRT transactions dont provide capital, they just shift credit risk, and in fact watt was recently candid enough to admit that fhfa is uncertain how much credit risk is actually transferred...this is a function of how fast prepayments pay down the credit support tranches bought by investors.

 

the only way that $100B hole can be filled is to associate it with the guarantee fee income that the GSEs receive for incurring the $5T in liabilities...and that means eliminating the senior preferred, which conveniently enough, is about to be repaid in full on the basis of the original deal.

 

these are stark financial facts, imo.

 

I know you don't talk much but would you care to support that a bit? In order for a $100b hole to be covered it would take a decade if tax reform goes through, or still a long time even if it doesn't. How is that a solution to building a capital buffer fast enough to ward off the next recession, which may already be overdue?

 

[Desert_Rat]

fyi:  http://www.businesswire.com/news/home/20170531006392/en/Release-Blueprint-Restoring-Safety-Soundness-Fannie-Mae

 

CC  6/1 10:30am by moelis, financial advisor to certain GSE preferred shareholders

 

"while realizing a significant financial gain for the U.S. taxpayer"

 

Yummy. RSVP requested. Thanks.

[Desert_Rat]

@cherzeca

 

To play devils advocate, do you foresee any risk that MBA proposals and Corker/Warner get what they want and hand over the business to TBTF banks?  Or you are saying it's a systemic impossibility due to the $100bn capital hole as you describe it.  And if it is a systemic impossibility, have you put your entire net worth into the preferred shares?  Seems like a home run to me. 

 

If I might be so bold...

 

NO

NEVER

NOT IN A MILLION YEARS

IT'S SILLY TO EVEN ASK

 

[asterisk]

fyi:  http://www.businesswire.com/news/home/20170531006392/en/Release-Blueprint-Restoring-Safety-Soundness-Fannie-Mae

 

CC  6/1 10:30am by moelis, financial advisor to certain GSE preferred shareholders

Thank you for posting

[maybe4less]

"Currently there is virtually no capital in the conventional secondary mortgage market (Treasury has taken it out), so our first priority must be to ensure we can attract sufficient capital for the $5 trillion in credit guarantees that already exist."  https://howardonmortgagefinance.com/2017/04/25/narrowing-the-differences/comment-page-1/#comment-3527

 

just think about it.  forget about new mortgages and new guarantees on their MBS.  there are $5T of guarantees in place without any capital support.  corker says there is >$200B of capital in place in the form of treasury support, but everyone views this as either nonconstructive or absurd.  no one in treasury and few in congress want to see another draw on this line; indeed, one of trump's first executive orders was to empower treasury to end bailouts, and this can only mean that the administration wants to replace the line, not use the line

 

so any proposal that calls for new monoline insurers, and a new guarantee backstop for housing finance going forward, does not address the current capital hole; let's call it $100B of capital.

 

all proposals call for private capital to fill this $100B hole, but CRT transactions dont provide capital, they just shift credit risk, and in fact watt was recently candid enough to admit that fhfa is uncertain how much credit risk is actually transferred...this is a function of how fast prepayments pay down the credit support tranches bought by investors.

 

the only way that $100B hole can be filled is to associate it with the guarantee fee income that the GSEs receive for incurring the $5T in liabilities...and that means eliminating the senior preferred, which conveniently enough, is about to be repaid in full on the basis of the original deal.

 

these are stark financial facts, imo.

 

I know you don't talk much but would you care to support that a bit? In order for a $100b hole to be covered it would take a decade if tax reform goes through, or still a long time even if it doesn't. How is that a solution to building a capital buffer fast enough to ward off the next recession, which may already be overdue?

 

I think the point is that you will only find private capital to fill that $100B hole if the capital gets the earnings from the guarantee fee. The government therefore has to stop taking those profits. Now, whether that happens via the existing entities or totally new ones is the big question.