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

[SnarkyPuppy]

Is there anything formally in the way of Mnuchin acting on 1/1/18?  I presume the only the co guess can do is wirte legislation to change the GSEs structure going forward and cannot block Mnuchin's actions.  Can FHFA block Mnuchin recap/release?

 

You know, I'm rather glad you asked this. Until now I have been assuming that Mnuchin can unilaterally end the NWS (actually the entire SPSPA). But that came from this paragraph in the original SPSPA:

 

      6.12.      Non-Severability. 

Each of the provisions of this Agreement is integrated with and integral to the whole and shall not be severable from the remainder of the Agreement.  In the event that any provision of this Agreement, the Senior Preferred Stock or the Warrant is determined to be illegal or unenforceable, then Purchaser may, in its sole discretion, by written notice to Conservator and Seller, declare this Agreement null and void, whereupon all transfers hereunder (including the issuance of the Senior Preferred Stock and the Warrant and any funding of the Commitment) shall be rescinded and unwound and all obligations of the parties (other than to effectuate such rescission and unwind) shall immediately and automatically terminate.

 

It appears Mnuchin would need some court (any court!) to rule that any part of the agreement is either illegal or unenforceable. To my knowledge this hasn't happened yet.

 

But I think rescinding and unwinding the entire agreement would entail a reset to before it was signed. Does that mean that Treasury would have to send back all dividend payments in excess of the original draw?

 

I will need to go back and read the agreement and amendments with a fine-toothed comb to get a better idea of this. I thought I had done so in the past, but in that case I would have been able to answer your question more thoroughly! Mnuchin could always refuse the NWS payments, but it will take Watt's cooperation to actually end the conservatorship and declare the companies adequately reformed and capitalized. This won't be an entirely administrative solution because as of right now, Trump cannot remove Watt and thus Watt (who isn't part of the administration) will need to be on board too.

 

This highlights the complexities of the legal situation and why we may have blind spots that have not been considered in our general "incentives" and "rational path forward" thesis. 

 

With that said (and not being a lawyer), the wording is "illegal OR unenforceable" and I'm not sure what can be contemplated to determine "unenforceable".

 

Regardless, cancelling the PSPAs per the above language seems to void the warrants as well:  "whereupon all transfers hereunder (including the issuance of the Senior Preferred Stock and the Warrant and any funding of the Commitment) shall be rescinded and unwound and all obligations of the parties (other than to effectuate such rescission and unwind) shall immediately and automatically terminate."

 

How can Mnuchin enact such a decision?  Or if Watt agrees they can simply cancel their contract bilaterally?

[waynepolsonAtoZ]

 

"Watt has explicitly wrote multiple times that a buffer would not be a step towards recap/release.  How do you balance that against the requirement for Watt to sign off on an administrative recap/release?"

 

Where, specifically, has he said this?

[waynepolsonAtoZ]

 

"while watt knows far more than you and me about the GSEs, mnuchin knows 10x more and almost certainly will be the driver -- watt is most likely along for whatever ride, just like always."

 

Maybe, but that surely would be a bad thing, correct?

[SnarkyPuppy]

 

"Watt has explicitly wrote multiple times that a buffer would not be a step towards recap/release.  How do you balance that against the requirement for Watt to sign off on an administrative recap/release?"

 

Where, specifically, has he said this?

 

 

Written testimony from yesterday. 

 

https://financialservices.house.gov/uploadedfiles/hhrg-115-ba00-wstate-mwatt-20171003.pdf

 

"As I mentioned at the outset, FHFA has explicit statutory obligations to ensure that each

Enterprise “operates in a safe and sound manner” and fosters “liquid, efficient, competitive, and

resilient national housing finance markets.” To ensure that we meet these obligations, we cannot

risk the loss of investor confidence. It would, therefore, be a serious misconception for members

of this Committee, or for anyone else, to consider any actions FHFA may take as conservator to

avoid additional draws of taxpayer support either as interference with the prerogatives of

Congress, as an effort to influence the outcome of housing finance reform, or as a step toward

recap and release. FHFA’s actions would be taken solely to avoid a draw during

conservatorship. "

[waynepolsonAtoZ]

Does anyone have a transcript of the hearing? Exactly what did Watt say about 2 to 3 percent buffer if no c'ship during the hearing? Does Watt in fact say that if FnF aren't in conservatorship they should be considered SIFIs and have $100 b to $150b in capital?

 

In other words, the written testimony is one thing, but I'm more interested in what he actually said during the hearing live under questioning during the hearing. Let me know if anyone finds a tr. of the hearing.

[rros]

 

"Watt has explicitly wrote multiple times that a buffer would not be a step towards recap/release.  How do you balance that against the requirement for Watt to sign off on an administrative recap/release?"

 

Where, specifically, has he said this?

 

 

Written testimony from yesterday. 

 

https://financialservices.house.gov/uploadedfiles/hhrg-115-ba00-wstate-mwatt-20171003.pdf

 

"As I mentioned at the outset, FHFA has explicit statutory obligations to ensure that each

Enterprise “operates in a safe and sound manner” and fosters “liquid, efficient, competitive, and

resilient national housing finance markets.” To ensure that we meet these obligations, we cannot

risk the loss of investor confidence. It would, therefore, be a serious misconception for members

of this Committee, or for anyone else, to consider any actions FHFA may take as conservator to

avoid additional draws of taxpayer support either as interference with the prerogatives of

Congress, as an effort to influence the outcome of housing finance reform, or as a step toward

recap and release. FHFA’s actions would be taken solely to avoid a draw during

conservatorship. "

With that statement plus all his public comments defending an action that might be, could be or will be construed as recapitalization, Mel Watt is going to an extreme to disentangle himself from one of the interpretations of such action.

 

As we all know, protecting taxpayers (by allowing a capital build up) and recapitalizing (breathing life into equity) are tied to the hip. Unless they come up with some subterfuge one action leads to the other one and vice-versa. Mel Watt is simply shouting to anyone who wants to hear that for him only one side of the coin exists and that he has nothing to do with the other side. Let's hope these two sides of the same coin remain attached given how creative the government can be constructing new realities.

 

But let's face it, point blank, a buffer IS recapitalization. Provided there are no subterfuges.

[rros]

Does anyone have a transcript of the hearing? Exactly what did Watt say about 2 to 3 percent buffer if no c'ship during the hearing? Does Watt in fact say that if FnF aren't in conservatorship they should be considered SIFIs and have $100 b to $150b in capital?

 

In other words, the written testimony is one thing, but I'm more interested in what he actually said during the hearing live under questioning during the hearing. Let me know if anyone finds a tr. of the hearing.

I listened to that segment. He specifically said that. He hesitated and was pressed by the congressman. So he estimated a 2% to 3% capital level in relation to 5 trillion liabilities. He used those exact numbers. He also said the companies would be SIFIs and that the difference would be that the Federal Reserve would play a role in regulating them. He also made a subsequent comment on differentiating them from banks. And it looked to me this comment had the purpose of justifying a lower percentage of needed capital.

 

Given Moelis' numbers I was expecting some follow up from the crowd referencing capital levels of 400+ bill (organic capital + Treasury's line) but nobody brought that up.

[rros]

@rros

 

This has been my playbook all along. Seems to me the loan +10% IRR has been paid now. Congress’s jumpstart so-called exclusive period to end in 3 months. We shall see.

Countdown to the finish line.

[orthopa]

Everyone may have already considered this so the point may not be worth making but Watt has said the GSE's have been reformed. He feels its congress that should enact housing reform. He seems to feel that they are totally separate things. I think in his prepared statements he mentions this may or may not include the GSE's as they are but in addition he lists reforms that have taken place. Watt feels (or at least says) he feels strongly that congress should take care of housing reform but at the same time I think he feels the GSEs are in a position where they could be released as is because they have been "fixed".

 

He acts like all of this is way bigger then him even though he has the power to do a lot on his own. Also watching the testimony it seems as if he can only say very little of what he actually thinks and feels. He seems very hesitant to answer the most obvious questions. Its almost painful to watch.

 

If he has discussed with mnuchin about a capital buffer then you know for sure that releasing the GSEs, recap release, moelis, etc have been discussed. Only to date Watt has said he does not want a capital buffer to be seen as recap and release. Mnuchin has never said this though right? Wonder why he is very outspoken about expecting the div but has had no comment on what a capital buffer may signify.

 

Also why such a run around with Mnuchin about a capital buffer? Either do it or don't right? How many discussions can you have about it. My one thought is that "capital building discussions" maybe preliminary or ongoing talks for a more final solution in light of everything that Jan1st signifies. Thus the SIFI point brought by Watt. Him saying it means for sure its been discussed as well as the 2-3% capital amounts.

 

The democrats and Watt, ICBA, etc want a capital buffer with a big deadline in 3 months but no one wants it to signify recap and release of companies that have been deemed reformed or "fixed" by their regulator. There also is no alternative to date and you have a treas. sec who wants them out of conservatorship. The answer seems obvious to me what should be done

 

 

 

 

[SnarkyPuppy]

Everyone may have already considered this so the point may not be worth making but Watt has said the GSE's have been reformed. He feels its congress that should enact housing reform. He seems to feel that they are totally separate things. I think in his prepared statements he mentions this may or may not include the GSE's as they are but in addition he lists reforms that have taken place. Watt feels (or at least says) he feels strongly that congress should take care of housing reform but at the same time I think he feels the GSEs are in a position where they could be released as is because they have been "fixed".

 

He acts like all of this is way bigger then him even though he has the power to do a lot on his own. Also watching the testimony it seems as if he can only say very little of what he actually thinks and feels. He seems very hesitant to answer the most obvious questions. Its almost painful to watch.

 

If he has discussed with mnuchin about a capital buffer then you know for sure that releasing the GSEs, recap release, moelis, etc have been discussed. Only to date Watt has said he does not want a capital buffer to be seen as recap and release. Mnuchin has never said this though right? Wonder why he is very outspoken about expecting the div but has had no comment on what a capital buffer may signify.

 

Also why such a run around with Mnuchin about a capital buffer? Either do it or don't right? How many discussions can you have about it. My one thought is that "capital building discussions" maybe preliminary or ongoing talks for a more final solution in light of everything that Jan1st signifies. Thus the SIFI point brought by Watt. Him saying it means for sure its been discussed as well as the 2-3% capital amounts.

 

The democrats and Watt, ICBA, etc want a capital buffer with a big deadline in 3 months but no one wants it to signify recap and release of companies that have been deemed reformed or "fixed" by their regulator. There also is no alternative to date and you have a treas. sec who wants them out of conservatorship. The answer seems obvious to me what should be done

 

I generally agree, but all of the above would also be consistent with moving towards MBA-type plan which may/may not wipe out shareholders (as irrational as it may be, if you watched the full congressional hearing w Watt, it is obvious that these morons would have no trouble winding down the GSEs and implementing MBA's end goal). 

 

I am just not fully comfortable with how this actually will play out in reality.  The amount of negative feedback that Mnuchin (and watt) will receive both publicly and within congress will be enermous.  Does it make sense for Mnuchin and trump to make what will be a perceived hostile move towards the majority of congress, when they need these guys to pass non GSE related legislation? 

 

Seems that everyone here is doing a great job reading between the lines (I mean that seriously, not in jest) but are discounting the overt forces at play and FHFA's anti- recap/release language.  It seems the easiest approach is for Mnuchin to simply continue conservatorship or even worse, cede to an MBA type plan to win votes in more legacy defining areas of government (healthcare, tax, infrastructure). 

 

The incentives/reciprocity bias between trump/Mnuchin and berkowitz/Paulson have been discussed, but these may be less material than other hidden incentives at play.  Mnuchin worked in mortgage finance for 30 years - is it unlikely that there are conflicting incentives with those who stand to benefit from an MBA type plan? 

 

I think directionally we are in a good spot, but I don't share then same level of optimism as you guys. 

[rros]

Everyone may have already considered this so the point may not be worth making but Watt has said the GSE's have been reformed. He feels its congress that should enact housing reform. He seems to feel that they are totally separate things. I think in his prepared statements he mentions this may or may not include the GSE's as they are but in addition he lists reforms that have taken place. Watt feels (or at least says) he feels strongly that congress should take care of housing reform but at the same time I think he feels the GSEs are in a position where they could be released as is because they have been "fixed".

 

He acts like all of this is way bigger then him even though he has the power to do a lot on his own. Also watching the testimony it seems as if he can only say very little of what he actually thinks and feels. He seems very hesitant to answer the most obvious questions. Its almost painful to watch.

 

If he has discussed with mnuchin about a capital buffer then you know for sure that releasing the GSEs, recap release, moelis, etc have been discussed. Only to date Watt has said he does not want a capital buffer to be seen as recap and release. Mnuchin has never said this though right? Wonder why he is very outspoken about expecting the div but has had no comment on what a capital buffer may signify.

 

Also why such a run around with Mnuchin about a capital buffer? Either do it or don't right? How many discussions can you have about it. My one thought is that "capital building discussions" maybe preliminary or ongoing talks for a more final solution in light of everything that Jan1st signifies. Thus the SIFI point brought by Watt. Him saying it means for sure its been discussed as well as the 2-3% capital amounts.

 

The democrats and Watt, ICBA, etc want a capital buffer with a big deadline in 3 months but no one wants it to signify recap and release of companies that have been deemed reformed or "fixed" by their regulator. There also is no alternative to date and you have a treas. sec who wants them out of conservatorship. The answer seems obvious to me what should be done

 

I generally agree, but all of the above would also be consistent with moving towards MBA-type plan which may/may not wipe out shareholders (as irrational as it may be, if you watched the full congressional hearing w Watt, it is obvious that these morons would have no trouble winding down the GSEs and implementing MBA's end goal). 

 

I am just not fully comfortable with how this actually will play out in reality.  The amount of negative feedback that Mnuchin (and watt) will receive both publicly and within congress will be enermous.  Does it make sense for Mnuchin and trump to make what will be a perceived hostile move towards the majority of congress, when they need these guys to pass non GSE related legislation? 

 

Seems that everyone here is doing a great job reading between the lines (I mean that seriously, not in jest) but are discounting the overt forces at play and FHFA's anti- recap/release language.  It seems the easiest approach is for Mnuchin to simply continue conservatorship or even worse, cede to an MBA type plan to win votes in more legacy defining areas of government (healthcare, tax, infrastructure). 

 

The incentives/reciprocity bias between trump/Mnuchin and berkowitz/Paulson have been discussed, but these may be less material than other hidden incentives at play.  Mnuchin worked in mortgage finance for 30 years - is it unlikely that there are conflicting incentives with those who stand to benefit from an MBA type plan? 

 

I think directionally we are in a good spot, but I don't share then same level of optimism as you guys.

I actually do agree with your view. Rewarding shareholders is the most controversial issue and the largest roadblock. Even though we showed up in the recent RNC document.

[orthopa]

It also maybe worth pondering why Trump has not tweeted or commented on this once since Nov. Yeah its Mnuchins'/Watts baby but he has no problem commenting on anything remotely close to his presidency.  He is avoiding this it seems willingly. Makes you wonder why.

 

 

[Mephistopheles]

It also maybe worth pondering why Trump has not tweeted or commented on this once since Nov. Yeah its Mnuchins'/Watts baby but he has no problem commenting on anything remotely close to his presidency.  He is avoiding this it seems willingly. Makes you wonder why.

 

 

 

I know why - he doesn't know about it.

[Luke 532]

It also maybe worth pondering why Trump has not tweeted or commented on this once since Nov. Yeah its Mnuchins'/Watts baby but he has no problem commenting on anything remotely close to his presidency.  He is avoiding this it seems willingly. Makes you wonder why.

 

 

 

I know why - he doesn't know about it.

 

Doubt it.  Mnuchin has stated publicly that GSE reform is one of his top priorities.  Trump Jr. has tweeted about it.  I doubt that Trump doesn't know about it if it's a priority for his Secretary of the Treasury, his son knows about it, and the RNC has commented on it.  He might not care, but he most surely knows.

[Mephistopheles]

It also maybe worth pondering why Trump has not tweeted or commented on this once since Nov. Yeah its Mnuchins'/Watts baby but he has no problem commenting on anything remotely close to his presidency.  He is avoiding this it seems willingly. Makes you wonder why.

 

 

 

I know why - he doesn't know about it.

 

Doubt it.  Mnuchin has stated publicly that GSE reform is one of his top priorities.  Trump Jr. has tweeted about it.  I doubt that Trump doesn't know about it if it's a priority for his Secretary of the Treasury, his son knows about it, and the RNC has commented on it.  He might not care, but he most surely knows.

 

Sorry, I should have been more clear that I meant that facetiously. What I really think is that he doesn't know or care for any specific details, probably has an overview. And if his circle or Fox News start hammering it into him maybe he'll start thinking about it.

[DocSnowball]

I’m sorry if this is late, just catching up and heard Watt’s testimony. Questions as a non expert, if I ask nicely maybe the experts will help me clear my doubts

 

Watt, a Democrat, has been in his role for 3 years, and the capital decline to zero is exactly as planned. So why the sudden cry about creating a buffer from him? What was the expected outcome from his standpoint if his party had won after Jan 2018,and how has that expectation changed? Is he trying to repeatedly go to legislature to achieve something? I’m confused - how can the same conservator who has been hand in glove with Treasury for all these years be our friend now. I don’t get it, but I’m a novice.

 

The best that I can understand is he is documenting the work FHFA has done as regards Fannie and Freddie, and that too in front of the legislature. Why? How does this end, and can Watt stop a restructuring from happening - he has seen the Moelis plan among others and has a yay or nay opinion about it. What outcomes benefit him? Defense if accused of looting the enterprises?

 

Edit:@1:03 ‘I don’t think that has anything to do with winding down or not winding down the GSEs. I don’t see anything in my statute that requires me to wind them down....If Congress wants to wind down,then Congress should wind down the enterprises’

 

1:33 capital discussion: 2-3%

 

 

[orthopa]

I’m sorry if this is late, just catching up and heard Watt’s testimony. Questions as a non expert, if I ask nicely maybe the experts will help me clear my doubts

 

Watt, a Democrat, has been in his role for 3 years, and the capital decline to zero is exactly as planned. So why the sudden cry about creating a buffer from him? What was the expected outcome from his standpoint if his party had won after Jan 2018,and how has that expectation changed? Is he trying to repeatedly go to legislature to achieve something? I’m confused - how can the same conservator who has been hand in glove with Treasury for all these years be our friend now. I don’t get it, but I’m a novice.

 

The best that I can understand is he is documenting the work FHFA has done as regards Fannie and Freddie, and that too in front of the legislature. Why? How does this end, and can Watt stop a restructuring from happening? What outcomes benefit him?

 

Edit:@1:03 ‘I don’t think that has anything to do with winding down or not winding down the GSEs. I don’t see anything in my statute that requires me to wind them down....If Congress wants to wind down,then Congress should wind down the enterprises’

 

My extention of this would be why not just let them draw on tax payer support again. Like Corker says its there, do it. And we know Corkers motives and how another draw solidifies his view and MBAs view of the GSE's and what would happen for the big banks and shareholders. Lets not kid ourselves, the money is there right? Its just changing pockets at that point for a little until they make more money again. 

 

So the question I ask myself when Watt is adamant about preventing a draw who is he really concerned about protecting. Tax payers? Really? I guess optically it reflects very poorly on Watt if that happens but again. Who cares, money changes pockets, everyones hates the GSEs again and we go on our merry way.

 

I think the far and away least resistance path is for congress/mnuchin/watt is to just say fuck it. Liquidate the companies or whatever they come up with....But they dont, and have gone to a painstaking amount of trouble with Phillips, and meetings, and hearings before Congress, yada, yada, yada. But for what reason? In my opinion something is in the way that is causing all of this run around, posturing and bullshit... and honestly I think it does truthfully have a lot to do with bondholders, and MBS, and the 30 yr mortgage etc.....but also shareholders, and the lawsuits. If there are no lawsuits or shareholders this is a easy fix.

 

Im starting to trust all of these guys even less the before but there seems to be a huge roadblock to all of this and a lot of fucking around for a solution that I think most see in plain sight.  Its like they are just afraid to do it.

[SnarkyPuppy]

It also maybe worth pondering why Trump has not tweeted or commented on this once since Nov. Yeah its Mnuchins'/Watts baby but he has no problem commenting on anything remotely close to his presidency.  He is avoiding this it seems willingly. Makes you wonder why.

 

 

 

I know why - he doesn't know about it.

 

Doubt it.  Mnuchin has stated publicly that GSE reform is one of his top priorities.  Trump Jr. has tweeted about it.  I doubt that Trump doesn't know about it if it's a priority for his Secretary of the Treasury, his son knows about it, and the RNC has commented on it.  He might not care, but he most surely knows.

 

Couple this with Fox News asking about Fannie multiple times, to the point of directly asking about "Fanniegate", and then months of radio silence (seemingly purposeful)

[Luke 532]

http://investorsunite.org/jig-shareholder-lawyers-close-getting-look-documents-sweep-litigation/

[DocSnowball]

Looks like everything is well choreographed.

 

- Payments made in full

- Divided of 10% made in full

- All docs will be released by Dec end showing FHFA was not acting independently and thus the whole PSPA is null and void from the beginning. Warrants null and void too.

-Corker's Jan 1, 2018 date is met (or would not matter if PSPA are null and void by then)

- Watt will be hiding as docs will show the loot

On a more realistic level, how about Mnuchin simply declares the Sr. shares extinct as the funds have been repaid. Then, institutes a commitment fee for the remaining 258 billion and going forward all Fannie and Freddie have to pay is that fee for that commitment, a fee for that taxpayer support?

 

This will set the course for a Moelis/admin restructuring, be inline with the SPSPAs and continue to reward taxpayers for their support.

 

The real signals versus the noises Watt is making

[rros]

I’m sorry if this is late, just catching up and heard Watt’s testimony. Questions as a non expert, if I ask nicely maybe the experts will help me clear my doubts

 

Watt, a Democrat, has been in his role for 3 years, and the capital decline to zero is exactly as planned. So why the sudden cry about creating a buffer from him? What was the expected outcome from his standpoint if his party had won after Jan 2018,and how has that expectation changed? Is he trying to repeatedly go to legislature to achieve something? I’m confused - how can the same conservator who has been hand in glove with Treasury for all these years be our friend now. I don’t get it, but I’m a novice.

 

The best that I can understand is he is documenting the work FHFA has done as regards Fannie and Freddie, and that too in front of the legislature. Why? How does this end, and can Watt stop a restructuring from happening - he has seen the Moelis plan among others and has a yay or nay opinion about it. What outcomes benefit him? Defense if accused of looting the enterprises?

 

Edit:@1:03 ‘I don’t think that has anything to do with winding down or not winding down the GSEs. I don’t see anything in my statute that requires me to wind them down....If Congress wants to wind down,then Congress should wind down the enterprises’

 

1:33 capital discussion: 2-3%

 

Watt seems to have a personal view regarding a new draw. In private circles it was mentioned he would consider a draw a dereliction of duty. Publicly, his reasoning has some logic. Drawing on the remaining 258 bill will both erode the *capital* left and set a course downwards after a 6 years (+/-) hiatus. Which will in turn erode agency debt holders and bondholders' confidence in their securities. It makes sense that holders of debt will feel their fate is in the hands of incompetent politicians. Mel Watt, and not Corker, may have a point.

[DocSnowball]

Thanks, makes sense, so he is trying to prevent a draw and protect his turf, while saying it’s not his job to provide a long term solution. As you pointed out, the threat of a draw, and the date of Jan 1st 2018 are two upcoming catalysts then.

[doughishere]

Corker and Trump really going at it this morning. #bullish

[investorG]

Corker and Trump really going at it this morning. #bullish

 

this escalated quickly.  Corker's comments crossed the line this week and so a response was certainly incoming.  but this is not repairable at this point and corker will likely become popular with the press.

[doughishere]

Corker and Trump really going at it this morning. #bullish

 

this escalated quickly.  Corker's comments crossed the line this week and so a response was certainly incoming.  but this is not repairable at this point and corker will likely become popular with the press.

 

trump cant seem to keep too many friends around