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

[merkhet]

Looks like there's a Legal Update call w/ Richard Epstein tomorrow @ 11am EST

 

Investor Unite’s Tim Pagliara Hosts GSE Legal Update Call with Richard Epstein

 

WHEN: Tuesday, October 7, 2014; 11:00 AM EDT

 

WASHINGTON – In the wake of District Court Judge Royce Lamberth’s dismissal of lawsuits brought by Perry Capital and Fairlhome Funds, Investors Unite Executive Director Tim Pagliara will hold a media teleconference call on Tuesday, October 7, 2014, at 11:00 am EDT to provide a status update and strategy assessment of all current litigation challenging the U.S. Treasury’s conservatorship of Fannie Mae and Freddie Mac and the ‘zombification’ of shareholders through the Third Amendment profit sweep.

 

On Tuesday, September 30, U.S. District Judge Royce Lamberth dismissed challenges stemming from the 2012 U.S. government’s sweep of Fannie and Freddie Profits. Judge Lamberth’s decision has created more uncertainty for investors. Discussants will examine the status of concurrent cases in the U.S. Court of Federal Claims and in the Southern District Court in Iowa, which address the constitutional issues of the unlawful seizure of property. Will the discovery process granted by Judge Sweeney in the U.S. Court of Federal Claims reveal possible collusion between the Federal Housing Finance Administration (FHFA) and the U.S. Treasury Dept.? And if investors prevail in these concurrent cases, what are the prospects for appeal of Judge Lamberth’s decision before the Federal Circuit?

 

WHO:

Tim Pagliara is Executive Director Investors Unite coalition, a shareholder invested in Fannie Mae and Freddie Mac and Chairman and CEO of CapWealth Advisors.

 

Richard A. Epstein is an influential legal scholar and the Laurence A. Tisch Professor of Law at the New York University School of Law. He is also an Adjunct Scholar at the Cato Institute, the Peter and Kirsten Bedford Senior Fellow at Stanford University’s Hoover Institution, the James Parker Hall Distinguished Service Professor of Law Emeritus and a Senior Lecturer at the University of Chicago Law School, and a policy advisor for The Heartland Institute.

 

WHEN: Tuesday, October 7, 2014; 11:00 AM EDT

 

DIAL: Toll Free: 866-952-1906 Conference ID: GSE

 

NOTE: Please RSVP to media@investorsunite.com

[merkhet]

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/aig-american-international-group/msg191850/#msg191850

 

Some interesting reading re the AIG case going on in the same court as the Sweeney case.

[colinwalt]

 

 

latest WSJ John Carney HIT piece ….. ” Fannie & Freddie: No Looting Here”

 

By JOHN CARNEY

Oct. 5, 2014 4:12 p.m. ET

Why would any company agree to surrender all profits to the U.S. government?

 

That question lies at the heart of the continuing legal dispute between some shareholders in Fannie Mae FNMA +25.17% and Freddie Mac FMCC +22.30% and the government—even after some investor actions suffered a blow last week in the court of U.S. District Judge Royce Lamberth.

 

The answer explains why the investors’ suits are flawed and hopes the companies’ shares have value are likely to be dashed. In short, the profit-sweep agreement wasn’t an illegal taking. It was a second bailout of the mortgage giants.

 

Consider that even after being taken over by the government in 2008, the companies ended up on a death march. And that had grave implications for the financial system.

 

In the original bailout, Treasury agreed to provide each company with up to $100 billion. As losses mounted, that was increased to $200 billion.

 

In return, Treasury received warrants to purchase common stock along with senior preferred stock. The latter paid annual dividends of 10%. This rose to 12% if the payment couldn’t be made in cash.

 

Each quarter, the Federal Housing Finance Agency determined whether their liabilities exceeded their assets. If so, the companies would draw funds and the value of the preferred would rise, dollar for dollar. By the end of 2009, draws were $125 billion—requiring annual dividends of $12.7 billion.

 

Because that was more than they could afford, the companies had to draw funds to pay dividends. This increased future dividends, requiring more draws because the companies posted losses until 2012.

 

At the end of the second quarter of 2012, the companies were on the hook for $19 billion of dividends annually. Fannie had never earned enough in a single year to pay its $11.7 billion dividend in cash. Only once had Freddie earned enough to pay its dividend.

 

In August 2012, Fannie’s finance chief said he couldn’t imagine his company would ever make enough money to cover the dividend payments.

 

That raised the prospect Fannie and Freddie would eventually need to draw down all the government commitment. Doing so, though, would destabilize the companies.

 

At that point, they would each owe over $20 billion in dividends—an amount they would never be able to pay in perpetuity. So, cash payments would stop, forcing them to pay 12%, digging the dividend hole deeper, faster.

 

More important, hitting the funding limit would undermine market confidence. With no capital, the firms’ ability to sell securities and finance themselves was dependent on access to Treasury cash.

 

With each draw moving the companies closer to the limit, investors would inevitably balk at some point. That could have led to their second collapse.

 

Worse, it would raise doubts about the mortgage securities the companies guarantee. That could again undermine the U.S. housing-finance system.

 

While some investors argue the companies should have paid a noncash dividend at 12%, that, too, would have undermined market confidence.

 

Raising the funding cap was a political nonstarter in gridlocked Washington and Treasury lacked the authority to do so unilaterally.

 

Given that, Treasury and the FHFA amended the bailout agreement to do away with the fixed, 10% dividends, replacing them with sliding payouts that matched the companies’ profits. The result: Fannie and Freddie only draw funds to cover actual losses; those draws don’t raise the dividend. In bad quarters, Treasury might get less than 10% or nothing at all. In good quarters, the net-worth sweep rewards the Treasury for taking this additional risk.

 

Whether the firms’ later improved financial results merited this response isn’t the issue. It is whether the move was rational for the government and FHFA.

 

Clearly, it was. That is why investors face an uphill battle in the courts. John Carney

 

A few things here don't make sense to me.  Carney states that F+F were never going to be able to earn enough to pay the interest on the ~ $200B (on the face of it that does seem to make sense) but as per the "Continental Western" most of what they got was to cover large non-cash losses as per this section:

 

 

"The Companies’ draws from Treasury’s commitment were made in large part to fill holes in their balance sheets created by reserves for large non-cash losses based on the government’s exceedingly pessimistic views of the Companies’ financial prospects, and by write-downs of the value of significant deferred tax assets. Complaint ¶ 55. Deferred tax assets are assets (such as net operating loss carryforwards) that may be utilized to offset future tax liability, but they must be written down to the extent they are not expected to be used." ... "Reserves for non-cash losses such as these temporarily decreased Fannie’s and Freddie’s net worth by hundreds of billions of dollars."

 

Which also means that as soon as they started to become profitable the reverse would happen as per this section of "Continetal's Response"

 

 

"... FHFA would no doubt have understood all this had it exercised its independent judgment, for it was clear that the recognition of deferred tax assets, the release of loan loss reserves, and proceeds from legal settlements would all soon make enormous contributions to the Companies’ net worth."

 

And...

 

"Deferred tax assets, for example, appear on the Companies’ balance sheets when management concludes that it is likely that the Companies will eventually be able to use them to offset future tax liability, but the recognition of those assets is an accounting decision that does not generate any cash. Similarly, the Companies hold numerous assets—including many billions of dollars of derivatives and available-for-sale securities—that are valued on the balance sheets at the prevailing market price. When such assets appreciate, the Companies’ net worth increases but their cash on hand does not. The result is that a cash dividend linked solely to net worth may need to be financed through borrowing. Indeed, the Companies incurred substantial additional debt in 2013 in order to pay cash dividends under the Net Worth Sweep."

 

So Carney says that F+F had to take so much from the Treasury that they could never hope to repay - and even using the PIK option wouldn't work as the amounts were so large nobody would believe that F+F could ever repay.

 

Then "Continental" says most of the losses were cashless (although I know from Ackman's presentation there were billions in real losses too) - so that would mean that most of what F+F got from the Treasury was never used - correct?

 

Which blows a hole in Carney's argument, as F+F should have ample cash to pay the interest and repay most of what they got (because they never used most of what they got), thus drastically reducing the interest payments going forward, presumably to a level they could repay from "cash" profits.

 

But then "Continental" goes on to say that once F+F booked huge non-cash profits, they had to borrow to pay the cash sweep - but if F+F never used most of what they got, why would they have to borrow to pay the cash sweep?  How can that be correct? Is this because Treasury refused to take back the now unneeded funds - to keep F+F with a huge liability and related interest payments - thus making sure F+F do end up in run-off mode?

 

Hope that all makes sense...

 

Note: I have to admit, I have not tried to figure out what's really going on from the filings - I just do not have the time - so apologies to those on the board who probably have put in the time and effort to make sense of this.

[brker_guy]

It seems to me now this FNMA/FMCC is turning into a political battle with the Republicans going up against the Democrats.

 

I see more Republicans are beginning to sound off against the existence of Fannie and Freddie than before...

 

Take for instance: David Stockman here.  I find it comical that David Stockman came out swinging against Fannie and Freddie and praised Judge Lamberth's.  What else would you expect from a Reagan has-been who pillaged and plundered CKC then left the CKC bondholders and shareholders battered, bruised and almost ruined while he ran for higher ground:

 

http://seekingalpha.com/article/2539835-kudos-to-judge-lamberth-bubkis-hedge-fund-claims-against-freddie-fannie-get-heave-ho

 

Yet, he is now speaking against us FNMA shareholders?  What a freaking….

 

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a96aLu_1xFdc

 

 

[constructive]

As a political issue I think it is more insurgent vs establishment than right vs left. Nobody is going to confuse Epstein for a liberal.

[CorpRaider]

Yeah it is the idealogues on the far right versus the pragmatists, establishment, govern the freaking country, types as it is throughout the GOP.

[brker_guy]

I think I just have proven my point...  :D :D :D

[merkhet]

colin,

 

You actually have a pretty decent handle on this -- the importance of going to trial on a case like this is to be able to explain to a layman judge the types of things that you've pointed out. (Thankfully, Sweeney has indicated that Fairholme WILL see its day in court in her status conferences.)

 

I will just -- and, again, I’m not in any way determining something in a vacuum, something that I have -- the specifics I haven’t seen.  But the whole purpose of this exercise, what’s before me now, is to allow the Plaintiffs to have their day in court and for them to have the opportunity to explore whether or not the United States Government, whether we’re talking about Treasury or whether it was -- and I’m just pulling this out of the air -- the White House, whoever it was, whether they directed the conservatorships to take certain actions, whether they were really the guiding force and, so -- and, therefore, they really were not independent or they really are for -- at least for purposes of the net worth sweep with the third amendment, acting at the direction of the United States Government.

 

Essentially, the theory is that Treasury & FHFA knew that F&F would have to take non-cash charges that would be reversed once F&F reverted to profitability. This resulted in giving the government an excuse to force F&F to take cash that was then used to purchase a bunch of mortgages from banks. (Take a look at the cash flow statements from the 2013 10-K & the 2010 10-K and pay special attention to (A) the ballooning balance sheet because of consolidating VIEs and (B) the Net mortgage loans acquired by assuming debt.)

 

For what it's worth, btw, that doesn't really seem to matter that much for the purposes of the claims in the Court of Federal Claims, but I believe that the one-two punch of the AIG trial and the Fannie & Freddie trial will change the political winds once people start to realize the extent of regulatory capture via Hank Paulson.

 

In the end, though, I wouldn't pay much attention to Carney, Stockman or even Epstein for that matter when it comes to rhetoric. The only things that are going to matter are what Judge Sweeney (Court of Federal Claims), Judge Pratt (S.D. Iowa), the Court of Appeals judge Perry and the Circuit Court judge for Ackman think. Everyone else's thoughts at this point are irrelevant at best and distracting at worst.

 

To quote one of my favorite movies, A Few Good Men: "It doesn't matter what I believe. It only matters what I can prove!"

 

Now, if any of those individuals are providing legal points of view, then it's worth listening to -- but again, you have to discount each side for various biases.

[Mephistopheles]

This is what I'm afraid of. Shareholders lose all cases. And yes, private capital won't come in, but does it need to? F+F would be effectively nationalized, Govt will secure massive profits for the rest of eternity, it'll help their budget issues, and they'll technically only own 79.9% so no need to place the debt on the balance sheet. So in this case perpetual nationalized mortgage insurance would work, right?

 

Except, thus far, no one has indicated that this is an acceptable goal -- I can't recall anyone in either party who wants there to be a giant nationalized mortgage insurance arm. Remember, this would mean that the government is explicitly the backstop for all mortgages in the country.

 

That's true, but they have every incentive to keep them nationalized - a) guarantees a reasonable 30 year mortgage for their constituents and b) brings big money into Government coffers for earmarks.

 

Right now, given the crisis is still fresh on peoples mind, any Congressman or Senator that talks about shutting Fannie and Freddie down scores political points, since getting rid of these "big bad financial companies that caused the housing bubble" appeals to people.

 

But in a few years people will forget, and then Congress will see this big money producing duopoly. IMO the sensible thing (for them) would be to keep the status quo.

[merkhet]

Free market conservatives probably won't change their mind on nationalized mortgage insurance.

 

I suppose reasonable minds could differ on this though.

[Mephistopheles]

Merkhet, do you know what the conference idea is for Epstein's call?

[merkhet]

Conference ID is GSE. Just started.

[Mephistopheles]

Thanks!

[merkhet]

Investors Unite is live-tweeting the call --

[colinwalt]

 

Essentially, the theory is that Treasury & FHFA knew that F&F would have to take non-cash charges that would be reversed once F&F reverted to profitability. This resulted in giving the government an excuse to force F&F to take cash that was then used to purchase a bunch of mortgages from banks. (Take a look at the cash flow statements from the 2013 10-K & the 2010 10-K and pay special attention to (A) the ballooning balance sheet because of consolidating VIEs and (B) the Net mortgage loans acquired by assuming debt.)

 

 

Thanks Merkhet, that explains a lot...

[merkhet]

 

@JonAPrior

GAO: Housing market at risk from govt dominance (but FHA share dipped in '13), lays out broad points reform must have politico.pro/LxfZ5V

[muscleman]

What's the probability of winning for the preferreds at this moment? I read through this whole thing but still kept scratching my head.  ::)

It sounds like the federal court's judge is willing to try to take this to trial, but the district court judge doesn't. How will the district court judge's decision affect the federal court?

[merkhet]

There's no direct linkage as the District Court of the District of Columbia (Lamberth) is not the same system as the Court of Federal Appeals (Sweeney).

 

While Sweeney could be influenced by Lamberth's reasoning, it would require her to reverse her own judgment and/or actions this far, which I don't think is very likely.

[merkhet]

A few thoughts on the policy issues inherent in Fannie & Freddie. [Warning: super long, sorry]

 

Without Fannie & Freddie (in some form), it seems like the 30-year fixed-rate mortgage goes away. (http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/buffett-says-no-brainer-to-get-mortgage-to-short-rates/msg192070/#msg192070)

 

A friend of mine from High School comes from a family that has owned a bank for several generations.  He is in line to be the bank president in a few years and knows the business really well.  This summer I asked him "what would be the market rate for a 30yr fixed mortgage if there was no government agency to purchase the paper from you?"  His response, "zero, there is no way we would ever make a 30y fixed loan."

 

It will be interesting to see if in 5/10 years we have a phenomenon of people in the US becoming less mobile because they do not want to give up their 4%ish loans and have to get a new one at 6-8%.

 

Those of you who have invested in AIG would be familiar with the name James Millstein, the Chief Restructuring Officer of Treasury, who was responsible in recapitalizing and privatizing AIG. After stepping down in 2011, he formed Millstein & Co. in DC and began teaching as an adjunct at one of my alma maters, Georgetown University Law Center.

 

http://www.law.georgetown.edu/faculty/millstein-james-e.cfm

 

Incidentally, Millstein has been very vocal about the fact that there's no practical alternative to releasing Fannie & Freddie in some way, shape or form.

 

I would highly suggest reading the two statements I'm linking below, as I think they're fantastic overviews for understanding what Berkowitz means when he says "There is no alternative." Additionally, given Berkowitz's involvement in AIG, I can't imagine that he didn't reach out to Millstein prior to establishing his position in the private preferreds.

 

On April 24, 2013, he gave a statement before the House. (http://financialservices.house.gov/uploadedfiles/hhrg-113-ba00-wstate-jmillstein-20130424.pdf)

 

 

State of the U.S. Mortgage Market

 

We have to deal with the world as we find it, not as we wish it to be. Housing is central to the health of the nation’s economy and to the wealth that remains within the grasp of ordinary Americans. Therefore, it is particularly important that, in designing policy to reduce the government’s now dominant role in mortgage credit formation, we do not engage in wishful thinking about the appetite of private investors for mortgage credit risk. These investors are still reeling from losses generated by the greatest house price decline in four generations.

 

Where are private investors and private providers of mortgage funding today, six years past the peak of the housing bubble? Nibbling at the edges.

 

Let’s start with the banking industry. Since the crisis, the sector as a whole has reduced its exposure to the residential mortgage market by approximately $580 billion, nearly 20 percent off its peak. It is true that after four years of significantly cutting their holdings of single-family residential loans and incurring hundreds of billions of dollars of losses related to those assets, in 2012 commercial banks expanded their holdings. However, that increase was a mere 2.8 percent or approximately $59 billion in mortgage loans. Meanwhile, savings and loan institutions have continued to shrink their exposure to the mortgage market—by $103 billion in 2012. As a result, overall holdings of residential mortgages in the banking sector fell 1.7 percent last year, continuing the basic trend since the peak of the housing bubble in early 2007.

 

Next, let’s look at the private mortgage insurers (PMIs). While it is true that some have recently been able to raise new capital in the public markets and that the aggregate amount of primary insurance in force in the sector is no longer in free fall, total capital in the sector was down from a peak of $17 billion in 2006 to roughly $5 billion at the end of 2012, which is at least $100 billion short of the capital necessary to support the $4.5 trillion in MBS guarantees of the enterprises.

 

Finally, there is the private-label securities (PLS) or non-government-guaranteed MBS market. Issuance of PLS reached $6 billion in 2012, and forecasts suggest that there could be $20 billion of new issuance this year, down from $740 billion in the peak year of 2006. A handful of issuers account for this greatly diminished volume, and the characteristics of the mortgages underlying the securities issued are similar. A recent issuance, Sequoia Mortgage Trust 2013-4, is representative. All loans in the pool were long-term fixed-rate mortgages, and the weighted average coupon was 3.8 percent. But the average loan size was $805,000, the weighted average combined loan-to-value ratio was 65 percent, and the weighted average original FICO (credit score) was 773. In other words, the mortgages in these pools represent the cream of the crop— not the majority of America.

 

Editor's Note: We know from the FT article I posted that 2013 ended up w/ $17 billion in PLS issuance, not $20 billion, and is currently at around $4 billion in PLS issuance.

 

Moreover, as we think about what it might take to get private investors to take mortgage credit risk in this market and to pick up more of the risk being borne by taxpayers through Fannie and Freddie, it is important to understand that newly issued PLS are structured to provide immense protection for investors. The recent Sequoia issuance included four senior tranches, three interest-only strips, and three subordinated tranches. What does that mean? If mortgages in the pool default, investors in the three subordinated tranches take losses up to the amount of their investment before investors in the senior tranches suffer any loss at all. Given that the average combined loan-to-value ratio for the underlying mortgages is 65 percent, home prices would need to decline by 35 percent before the investors in the subordinated tranches would suffer any loss at all. And then, because the subordinated tranches constitute 6.25% of the total debt secured by the mortgages in the pool, investors in the senior tranches would still be protected against loss so long as the underlying homes could be sold upon default for 61% of the value of the home at the time the mortgages were originated.

 

Policymakers need to avoid wishful thinking as they consider whether the sale of these new private label securities truly signal the return of private risk-taking in the mortgage market that is capable of displacing the government. First, while growing, the total volumes might represent one to two percent of aggregate demand. Second, the securities being sold are backed by mortgages that represent the cream of the crop. Finally, and most telling, the issuers of these new private label securities have had to retain the subordinated tranches in their new issues to get investors to buy the senior tranches at all. Regardless of potential risk-retention rules, private investors are not only demanding that issuers have “skin in the game” but also that the issuer’s skin be in the “first loss” tranche in the new structures, and that there be a mountain of homeowner equity ahead of them as well.

 

Further, we must remember that during the period leading up to the crisis, the PLS market was rife with fraud, misrepresentation, fast and loose underwriting practices as well as conflicts of interests. Investors in these securities suffered badly from these practices that ultimately resulted in default rates in excess of 25% and hundreds of billions of dollars of credit losses. No one should be surprised that investors remain reluctant to take mortgage credit risk in such a tarnished market.

 

The slow re-opening of PLS markets gives me hope for the future, but it also leads me to be extremely skeptical that private investors will have the appetite to displace much of the credit risk that Fannie and Freddie currently underwrite in the US mortgage market any time soon. Last year there were roughly $1.9 trillion in single-family mortgage originations in the United States, of which Fannie and Freddie provided support for approximately $1.3 trillion. Going forward, estimates for normalized annual total originations are in the range from $1 trillion to $1.5 trillion. A PLS market projected to do $20 billion of issuance in 2013 clearly cannot handle anything approaching these annual volumes.

 

Again, as we map a way forward in housing finance reform, we must be very careful in the assumptions we make about the appetite of private investors for taking mortgage credit risk.

 

He then goes on to talk about how the GSEs in conservatorship are keeping out private insurers.

 

Fannie and Freddie have been operating with essentially unlimited leverage and no capital to absorb future losses. [Read: Treasury is on the hook for the losses with no equity cushion between them and the losses.] With an open line of equity from Treasury to cover any such losses, they continue to underprice the risk of loss on the mortgages they have guaranteed during the conservatorships vis-à-vis potential private competitors.

 

No private insurance company can compete against a government-controlled insurance business operating with no capital and no real return on capital hurdles.

 

...

 

The same Act also directed the FHFA to increase guarantee fees to levels that "appropriately reflect the risk of loss, as well as the cost of capital allocated to similar assets held by other fully private regulated financial institutions." As the Chairman of this Committee has noted, that has not happened yet. At the end of 2012 the average guarantee fee charged by the enterprises on newly-originated mortgages was just over 50 basis points. That is roughly double what they charged two years ago. Yet they are still not losing market share to new entrants.

 

On November 22, 2013, he also gave a statement before the Senate. (http://www.banking.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=b56f105b-7d98-412c-b554-b79bfef60f31)

 

However, the transition to this new system contemplated by S.1217 is fraught with difficulty and needs serious re-thinking to mitigate three significant risks that any credible transition plan must address. First, our fragile economic recovery cannot afford the risk of a significant disruption in mortgage credit. Borrowing rates will need to rise in the new system to reflect the cost of the first-loss capital and new reserves required to protect taxpayers on their guarantee. At the same time we need to protect against a significant contraction in the availability of housing credit that would push us back into recession. Second, the government must end its ongoing backstop of Fannie Mae and Freddie Mac in conservatorship in a way that minimizes the likelihood that Treasury will need to cover future losses on their $5.5 trillion of liabilities. While the substantial guarantee fees and net interest margin which the companies are currently earning and paying over to Treasury may look like an asset to be seized by taxpayers as the quid pro quo for their bailout, it could easily turn out to be a substantial liability if there were another significant housing downturn. Managing that liability in a responsible way to avoid future taxpayer losses is a critical challenge of the transition. Third, there must be a credible path toward the development of the substantial layer of private “first loss” capital on which the functioning of the new system will depend. If you build the new Government reinsurer but the required layer of first-loss capital doesn’t come in the size or at the pace of your contemplated wind down of Fannie and Freddie, the whole system will shut down before it has a chance to start. The idea that “if you build it, they will come”, may work in the movies, but you are playing with the nation’s housing finance system. Hope is not a credible strategy.

 

You have to make a fundamental choice in meeting these challenges in the transition: Restructure Fannie and Freddie and use their assets and operations to create a well-capitalized set of private market players who can ensure that the new system functions as contemplated, or wind them down on the bet that if you build the new reinsurance system, new private players with the sizeable capital required to make the new system function will come. My concern with both S.1217 and the Protecting American Taxpayers and Homeowners Act introduced in the House of Representatives is that each is based on the bet that to-be-named new players with capital yet to be raised will show up right on queue as the two institutions at the center of the current system are mechanically wound down. As I hope to demonstrate in the following testimony, we don’t have to gamble with the future of the housing market. There is a better alternative.

 

Finally, see his interview on Bloomberg on December 2, 2013. (http://www.bloomberg.com/video/jim-millstein-on-fannie-mae-freddie-mac-2VsoOkALQsGHANjYyzS2LQ.html)

 

Starting @ 4:50

 

So, if you listen carefully to what both House Republicans and the Senate Republicans and Democrats who are involved in this effort are talking about, they all want to bring private capital back to the market. And here, you have, you know, a couple of shrewd investors putting capital at risk behind the idea that Fannie & Freddie will play a significant role, on a restructured basis, going forward, in the future housing finance system. It puts policymakers in a tough position. They all want private capital to come back. The first guys who have stepped up have bought back into the existing capital structures of Fannie & Freddie on the theory that they're worth more than the government has put into them...

 

My sense is that he believes, as I do, that unless the government treats private capital fairly in how they deal w/ Fannie & Freddie, it's not likely that they're going to get a second bite at private capital.

[Mephistopheles]

Does anyone know what the terms are for the FNMA preferred stock symbol "FNMAT"? It has consistently traded well below the other preferred shares. It's currently selling for $4.74, and I'm assuming it's par value is $50. I was under the assumption that all of the preferred shares are pari passu. I looked in the 10-k but they don't show what tickers correspond to what classes, and neither do the offering circulars that they offer in the investor relations section.

[merkhet]

FNMAT should be "8.25% Non-Cumulative Preferred Stock, Series T, stated value $25 per share."

[stevevri]

These are good reference (and I'm sure in this thread someplace else):

 

http://www.freddiemac.com/investors/preferred_stock.html

http://fanniemae.com/portal/about-us/investor-relations/stock-information.html

[morningstar]

Does anyone know what the terms are for the FNMA preferred stock symbol "FNMAT"? It has consistently traded well below the other preferred shares. It's currently selling for $4.74, and I'm assuming it's par value is $50. I was under the assumption that all of the preferred shares are pari passu. I looked in the 10-k but they don't show what tickers correspond to what classes, and neither do the offering circulars that they offer in the investor relations section.

 

The big-coupon, highly liquid issues like that one tend to trade at a meaningful premium (as % of par) to the others. e.g. take FMCCP (~10% of par today) vs. FMCKJ (~13% of par). Some of the difference might be explained by difference in coupon, but I think if you are willing to own the smaller/less liquid issues where institutional investors have a tough time playing, you can get yourself better economics to an ultimate favorable resolution.

[CorpRaider]

I dunno, Argentina and several other south american countries seem to take a new bite of private capital every decade or so.  :D

[ZenaidaMacroura]

I dunno, Argentina and several other south american countries seem to take a new bite of private capital every decade or so.  :D

I played around with this thought too - that private capital has a short memory.  The rejoinder, I think, may be that the required return demanded by private capital and the available quanitity are the conditions (at attractive terms) you only get one bite at.