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

[Midas79]

@hardin

 

rnc summit was 8/23-26.  apparently posted to rnc website 8/31.  still trying to get clarity on whether reps from trump admin/treasury were at summit/voted on resolution.

 

So this has been on the RNC website the last two weeks and just got found yesterday? Or it was adopted on 8/31 and not posted until yesterday? Given how big of a shift this is the time lag is quite surprising.

[waynepolsonAtoZ]

Weird that D Sen letter and RNC documents are being publicized seemingly simultaneously. No matter.

 

They might hypothetically gotten more attention if they had been released right at September 6 or so, the anniversary of the seizure.

 

No matter, things are looking up.

[merkhet]

to me, the power of the RNC resolution is that it gives mnuchin cover if he wants to push congress in a certain direction.  until this resolution, corker/crapo/hensarling etc could stake out a anti-gse position and be confident that they were defining republican orthodoxy of the gse subject.  now they find themselves on the other side of the "official" party position.  mnuchin can now clothe himself with this resolution and argue for a result that is close to the moelis blueprint and not be a party outlier, and corker/crapo/hensarling etc now bear the burden of pushing a non-orthodox party position.  i say close to the moelis blueprint because that rnc resolution could have been appended as an exhibit to the blueprint.

 

100% agree with all of this.

 

@hardin

 

rnc summit was 8/23-26.  apparently posted to rnc website 8/31.  still trying to get clarity on whether reps from trump admin/treasury were at summit/voted on resolution.

 

So this has been on the RNC website the last two weeks and just got found yesterday? Or it was adopted on 8/31 and not posted until yesterday? Given how big of a shift this is the time lag is quite surprising.

 

Recall that the last two weeks, we've been dealing with two big hurricanes (Harvey & Irma). There was no possible way that this was getting into the news cycle.

[Luke 532]

The news is getting around (nothing new here for us, just wanted to post this as the story is gaining more traction)...

 

https://www.insidemortgagefinance.com/imfnews/1_1191/daily/rnc-wants-fannie-mae-freddie-mc-to-build-capital-1000042848-1.html#Login

September 14, 2017

Short Takes: The RNC is on Board with Fannie and Freddie Building Capital / GSE Investors Might be Sitting Pretty

By Paul Muolo and Brandon Ivey and Sherry Muolo, [email protected], [email protected], [email protected]

 

A few weeks back, the Republican National Committee passed a resolution stating that “no financial institution” in the U.S. can safely operate without adequate capital, noting that taxpayers will “not be sufficiently protected until Fannie Mae and Freddie Mac are permitted to rebuild equity capital.” The two GSEs will see their capital buffer fall to zero in less than four months…

 

The same proclamation adds that the RNC recognizes the sanctity of property rights and “acknowledges the need to resolve the outstanding claims of Fannie Mae and Freddie Mac shareholders in a manner that honors and respects the rule of law governing the rights of corporate stockowners.” For the full story, see the Friday edition of Inside MBS & ABS…

 

Of course, the RNC does not govern, but presumably the Trump administration has a line of communication into the political organization…

 

https://www.insidemortgagefinance.com/imfnews/1_1191/daily/Senate-Banking-democrats-want-gses-to-Build-Capital-1000042847-1.html?ET=imfpubs:e9805:73599a:&st=email&s=imfnews

September 14, 2017

Senior Democrats on Senate Banking Committee Implore Treasury, FHFA to Allow GSEs to Build Capital

By Paul Muolo, [email protected]

 

Six senior Democrats on the Senate Banking Committee late Wednesday sent a letter to Treasury Secretary Steve Mnuchin and GSE regulator Mel Watt, urging the two men to allow Fannie Mae and Freddie Mac to build capital.

 

The correspondence, which includes the signature of ranking minority member Sherrod Brown, D-OH, notes: “We are simply requesting that the GSEs be permitted to build capital. We do not believe they should be released from conservatorship absent reform.”

 

The six also express their concern that Mnuchin is not working with Watt to “prevent another draw” on Treasury funds in the event Fannie and Freddie need another cash infusion.

 

Fannie and Freddie have been posting strong profits for most of the decade, but under a change made to the preferred stock purchase agreements in 2012 their allowable capital buffer declines each year at a measured pace, eventually falling to zero in early 2018.

 

There’s a concern that if either posts a loss next year (most likely from hedging activities), Treasury funds will be needed to maintain a net worth position above zero so investors in their mortgage bonds don’t get spooked.

[onyx1]

feels surreal to read this from the same party that blamed the gses for all the evils in the world. has the tide shifted for good?

 

 

$100bln tide shift.

[rros]

Where does it say GSEs? Or is it part of tax reform? The agenda isn't including housing reform.

http://www.politico.com/live-events/pro-policy-summit/agenda

 

My mistake, I don't see it now after a second reading.  I could have sworn I read it in that article.  I'm reading so many articles that I'm getting them mixed up... my apologies for the confusion.

No need to apologize... I was asking because I thought you may have found someone's tweet with additional information. Thank you for the link and the other great find!

 

Surreal is the perfect word... Jacobs wrote this lol?

[muscleman]

What's the liklyhood of a permanent loss at this point? How about a 50% loss?

[orthopa]

Remember to from the outset Mnuchin said he wanted a bipartisan solution. Seemed like the last thing that was going to happen at the time.

[SnarkyPuppy]

So difficult to not add to my concentrated position right now

[rros]

The only thing missing in the RNC document is that they will restart the Jr. dividends on Jan. 1st 2018, cover all Berkowitz lawsuit expenses and compensate those owning the shares on 8/17/2012 lol.

[Guest cherzeca]

Remember to from the outset Mnuchin said he wanted a bipartisan solution. Seemed like the last thing that was going to happen at the time.

 

if mnuchin is machiavellian, the smart strategy would have been not to personally fight for GSEs, putting himself out on a limb, but to be able to point out that he is within the consensus view, and fighting for GSEs is republican party orthodoxy.  if mnuchin is in a chess game with crapo/corker/hensarling, then i would say that mnuchin has made a smart move, and an even smarter move if his tracks are completely covered vis a vis this rnc resolution

[DocSnowball]

So if rights of shareholders are respected, then commons are not worthless? Can commons still go to zero if rights are respected?

[Midas79]

Good question. What would be the value of common shares if warrants fetch them 100 billion?

 

The Moelis plan has the government exercising the warrants and gaining $100B while existing common shares go to $9-13. That's the most recent number I can find that has substantial logic behind it.

[Guest cherzeca]

the rnc resolution reference to the $100MM figure is of course a direct (approving) reference to moelis blueprint.  this is a real big deal methinks because all non-GSE friendly proposals (ie MBA) do not afford treasury the ability to monetize warrants.  now the discussion with tbtf/mba is, why exactly do you want taxpayers to forego $100B?

[Guest cherzeca]

mnuchin vid live at politico pro:  https://www.pscp.tv/stevenmnuchin1/1lDGLkoQOyQKm

[Midas79]

Nothing new from Mnuchin, except that he views GSE stuff as a 2018 issue. He still expects the NWS dividends to be paid.

 

The moderator has pushed the issue on dodged questions a few times, e.g. why Mnuchin only specified hedge funds and not private equity when it comes to the elimination of carried interest. I really wish the moderator had asked how Mnuchin can reconcile his seemingly contradictory stances of wanting minimal risk to taxpayers and still expecting full NWS dividends.

[Guest cherzeca]

mnuchin vid live at politico pro:  https://www.pscp.tv/stevenmnuchin1/1lDGLkoQOyQKm

 

on gses, mnuchin says: he considers himself an expert on housing finance, wants to fix fannie and freddie, likely 2018, 30 yr prepayable mortgage vital, still expects dividends to be paid.

 

edit: my read:  fix could mean many things. mnuchin still opting for opaqueness and optionality. expecting divs to be paid is probably smart thing for a holder of a security to say when the div payment decision is with the issuer, fhfa

[Luke 532]

mnuchin vid live at politico pro:  https://www.pscp.tv/stevenmnuchin1/1lDGLkoQOyQKm

 

Paraphrased "Given the delays on tax reform I think the GSE's will be fixed in 2018." Later, he said "as I've said all along I expect Watt to make the dividend payment."

[Luke 532]

Hah!  We all typed the same thing about 30 seconds apart :-)

[SnarkyPuppy]

This guy..

[Guest cherzeca]

if i was mnuchin's lawyer, i would point out that the power to make or omit the dividend lies with watt, not mnuchin, so why in god's name would you take a position on something not within your power, especially when it an be argued that if treasury had the power, it would have an obligation as the beneficiary of dividend payments to see to it that the dividend was made

[investorG]

great news day today.

 

RNC release.  And Mnuchin takes what I believe is the smarter long term course of action to avoid a repeat of nov-2016 hysteria / media.

 

for the common shares, there is a lot of resistance in this 2.90 - 3.15 band, but I'm encouraged from the above news + Phillips' comments about getting them out of conservatorship (over the long term) and the nomination of Tim Rood's partner as FHA commissioner.

 

good luck everyone!

 

[SnarkyPuppy]

I can't find it now but I thought Paulson had updated his prediction on timing to 2018- which would be consistent with Mnuchins response yesterday.  Would indicate the two are talking

[rros]

I can't find it now but I thought Paulson had updated his prediction on timing to 2018- which would be consistent with Mnuchins response yesterday.  Would indicate the two are talking

 

"Fannie Mae and Freddie Mac were the main contributors to the positive performance in July. Newly unsealed documents, released under court order, proved Treasury knew the companies were about to turn highly profitable before they enacted the net worth sweep, something they had previously denied. Republican party members of the House of Representatives also unveiled their proposed 2018 budget which called for the Government Sponsored Enterprises (GSEs) to be taken out of conservatorship.

 

As Washington considers options to resolve the situation, Paulson & Co. together with GSO Partners (Blackstone) and other non-litigating shareholders, retained the investment bank Moelis & Company to financially model, draft and publicly release, in June of this year, a safety and soundness blueprint) to raise capital at the GSEs and to address Treasury Secretary Mnuchin's priorities for housing finance - taxpayer protection and market liquidity. We would encourage investors to review the complete blueprint which is publically available and can be found at www.gsesafetyandsoundness.com. We believe there is significant upside to our GSE holdings despite potential volatility and a high probability of a resolution before the end of 2017 or in early 2018."

 

http://www.schroders.com/getfunddocument?oid=1.9.2228909

7/31/17

[SnarkyPuppy]

Thanks.  Bizarre how the current prices aren't reflecting how obvious the end game is here.  Could be a function of us being wrong, a function of the market not connecting the dots, or a function of the fact that everyone who understands the end game and isn't restricted from buying for institutional reasons is already fully positioned (price leaks over time from day traders). 

 

Seems that while there are certain risks that are scary (as I've highlighted), the probability of each is very low as compared to the almost too obvious end game here.  What are we missing...