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

[Luke 532]

From 2014:

 

“It’s a stretch,” said Lockhart, the former chief of the Federal Housing Finance Agency who is now vice chairman at WL Ross. “The stock and the preferred (stock) is worthless and should be worthless,” he told Reuters.

 

“We have to figure out how to get the private market back into the mortgage market,” said Lockhart. “It’s going to be a question of how to do that without hurting the housing market. Obviously, a lot of that will be up to Congress.”

 

Wilbur Ross' response...

 

 

I asked Wilbur Ross in 2014 in Toronto (at one of the dinners associated with the Fairfax annual meeting) to respond to a recent statement by Jim Lockhart while a Vice-Chairman of WL Ross & Co., where Lockhart said in April 2014 about the GSE's:

 

"It's a stretch, the stock and the preferred (stock) is worthless and should be worthless."

 

Ross responded, in effect, that it was a stupid statement for Lockhart to make and does not represent the view of WL Ross & Co.  I haven't heard a peep from Lockhart since then.  Ross didn't offer any additional words of support for the shareholders or the government though. 

 

Many board members from COBF where in attendance, so maybe they can offer their interpretation as well.

 

 

http://finance.yahoo.com/news/former-u-regulator-says-fannie-222316531.html

[rros]

From 2014:

 

“It’s a stretch,” said Lockhart, the former chief of the Federal Housing Finance Agency who is now vice chairman at WL Ross. “The stock and the preferred (stock) is worthless and should be worthless,” he told Reuters.

 

“We have to figure out how to get the private market back into the mortgage market,” said Lockhart. “It’s going to be a question of how to do that without hurting the housing market. Obviously, a lot of that will be up to Congress.”

 

Wilbur Ross' response...

 

 

I asked Wilbur Ross in 2014 in Toronto (at one of the dinners associated with the Fairfax annual meeting) to respond to a recent statement by Jim Lockhart while a Vice-Chairman of WL Ross & Co., where Lockhart said in April 2014 about the GSE's:

 

"It's a stretch, the stock and the preferred (stock) is worthless and should be worthless."

 

Ross responded, in effect, that it was a stupid statement for Lockhart to make and does not represent the view of WL Ross & Co.  I haven't heard a peep from Lockhart since then.  Ross didn't offer any additional words of support for the shareholders or the government though. 

 

Many board members from COBF where in attendance, so maybe they can offer their interpretation as well.

 

 

http://finance.yahoo.com/news/former-u-regulator-says-fannie-222316531.html

Interesting. Perhaps the stupid part was that he made his views public. We will have to wait. Anyway, one thing to remember: it was Lockhart who issued the infamous suspension of capital classifications that has allowed the NWS to exist. Most likely, he never envisioned the 2012 move but somehow it is in sync with what he originally did. In a twisted way, of course.

 

https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Suspension-of-Capital-Classifications-During-Conservatorship-and-Discloses-Minimum-and-RiskBased-Cap.aspx

 

Wouldn't it be ironic we come full circle and have him as Watt's replacement so that he can undo what he did?

[SnarkyPuppy]

Are bitcoins for real? Is it legal to trade them? I keep reading about their astronomical rise. I wish I owned some , would have paid tuition by now.

 

Awesome

[rros]

If the goal is to make equity worthless, the reform will be worthless. They are focusing on the wrong end. They need to focus on housing and on avoiding big bankfellow travelers  lobby get their way. Shareholders are tied to the hip to Fannie and Freddie. Trying to focus on making  equity worthless would be hurting housing finance itself.

 

“If you kick a lion when it is down, God help you when it gets up.”

The dilemma/conundrum is what to do with shareholders as reform moves forward. While there are a few that believe we should be restored, there are some powerful individuals that believe companies were broke and equity was toast (or should be), therefore no bones. And while HERA states shareholders remain and Hank Paulson publicly stated shareholders may retain some value -after all is said and done- we really rely on this Administration (Trump) imposing a positive view on us that will solidly tilt the balance on our favor.

 

Bitcoin is a dangerous game. Blockchain, instead, is a winners game.

You must realize a currency that violently and constantly changes its own value cannot serve the purpose of store of value efficiently. Storing value is about reducing risk of loss through stable demand. Stability is key and stability is missing.

[Midas79]

The dilemma/conundrum is what to do with shareholders as reform moves forward. While there are a few that believe we should be restored, there are some powerful individuals that believe companies were broke and equity was toast (or should be), therefore no bones. And while HERA states shareholders remain and Hank Paulson publicly stated shareholders may retain some value -after all is said and done- we really rely on this Administration (Trump) imposing a positive view on us that will solidly tilt the balance on our favor.

 

FNMA commons were $67.30 on 10/5/07 and $18.78 on 7/3/08, only to fall to $0.30 on 11/21/08. Is there that big of a difference between wiping out 99.5% of equity value over a year, or 98.4% over 4.5 months, and actually getting rid of all of it? The shareholders were already punished nine years ago. It's the government's fault that they allowed the equities to continue trading, right?

 

Of course, these arguments will not sway those like David Stevens who use "don't let the hedge funds have a windfall" as a talking point against current shareholders being allowed to realize any value, regardless of the large percentage of shares held by retail investors, community banks, pension/retirement funds, etc.

[orthopa]

It is interesting to re hear what mnuchin says about the gse's in light of the fact they are going to become a focus in a couple months.

 

*Restructured

*Out of Government ownership

*Out of Government control

 

So again I ask as I did almost 1 year ago. Who owns them and controls them if the govt doesnt? And does restructuring include recievership? Reading the tea leaves gets old after a while

Where did he say this recently?

 

That was in reference to what he said last Nov when on Fox Business that Luke posted. The question is how much if any his thinking has changed.

[orthopa]

I will try to re find and re read mnuchins testimony before the senate finance committee. If you guys gals remember who was pressed on acting on the GSEs and said that working with congress was his preference but reserved that he may act on his own. Will have to get the transcript again and read. Its buried in this thread somewhere. All along Mnuchin has been pretty consistent with what he has said/telegraphed so now that we are where we are now its even more interesting that he did not rule out that he would act alone.

[rros]

I will try to re find and re read mnuchins testimony before the senate finance committee. If you guys gals remember who was pressed on acting on the GSEs and said that working with congress was his preference but reserved that he may act on his own. Will have to get the transcript again and read. Its buried in this thread somewhere. All along Mnuchin has been pretty consistent with what he has said/telegraphed so now that we are where we are now its even more interesting that he did not rule out that he would act alone.

To me it looks like the most recent circulated memo read "radio silence". And what was said last November, was last November. Midas, Buffett agrees with you. He said at one point shareholders have already been punished. Said it many years ago when asked if they should be.

[Guest cherzeca]

I will try to re find and re read mnuchins testimony before the senate finance committee. If you guys gals remember who was pressed on acting on the GSEs and said that working with congress was his preference but reserved that he may act on his own. Will have to get the transcript again and read. Its buried in this thread somewhere. All along Mnuchin has been pretty consistent with what he has said/telegraphed so now that we are where we are now its even more interesting that he did not rule out that he would act alone.

 

mnuchin's recent mantra has been "bipartisan if possible", usually after saying that he considers himself an expert on freddie and fannie, unlike much of the treasury work he has been doing lately, like sanctions.

[investorG]

making two (uncertain) assumptions - tax reform passes next month and the powers in charge do not prefer an actual draw from treasury occurring - then wouldn't there need to be some sort of 4th amendment in the first quarter of 2018? 

 

looking back at 2009, if there's a deficit in a quarter, it's announced at the earnings release ~5 weeks after quarter-end (early feb) with a request for the funds by the end of that next q (mar-31).

[TonyG]

is it just me or did he just admit to not doing away with the GSE's? his " no i  wouldn't"  answer..

[DocSnowball]

the thesis is alive and well, nothing in this interview to disconfirm. Very similar in timing and content to what was said almost a year ago, interestingly.

 

It was an emphatic "No I wouldn't" answer to the question of killing the companies. Just a waiting game once tax reform is done with, tick tock...

[Luke 532]

I don't really think it's news that Mnuchin said the GSE's will live.  There haven't been too many people still saying "kill the GSE's."  Some, but not many.  What matters is how shareholders are treated in any reform or fix.

[rros]

the thesis is alive and well, nothing in this interview to disconfirm. Very similar in timing and content to what was said almost a year ago, interestingly.

 

It was an emphatic "No I wouldn't" answer to the question of killing the companies. Just a waiting game once tax reform is done with, tick tock...

He left out the part "we've got to get them out of government control".

 

That's fine. It may mean Treasury will collect a fee for a commitment line standing behind capital. Which means some kind of government involvement. Since the starting point is keeping the 30YM he must have reached the conclusion this is only possible if government is part of the solution.

[SnarkyPuppy]

I don't really think it's news that Mnuchin said the GSE's will live.  There haven't been too many people still saying "kill the GSE's."  Some, but not many.  What matters is how shareholders are treated in any reform or fix.

 

How do you realistically keep the GSEs and ensure they are adequately capitalized?  (Two things explicitly said by Mnuchin at this point)

[Midas79]

I just wish someone would hold Mnuchin's feet to the fire and ask "if taxpayer safety is such a concern, why do you keep taking the NWS payments and draining the GSEs' capital?" This is the one significant area where Mnuchin's actions are at odds with his words.

[Luke 532]

I don't really think it's news that Mnuchin said the GSE's will live.  There haven't been too many people still saying "kill the GSE's."  Some, but not many.  What matters is how shareholders are treated in any reform or fix.

 

How do you realistically keep the GSEs and ensure they are adequately capitalized?  (Two things explicitly said by Mnuchin at this point)

 

I hear ya, I'm just trying to spend my energy thinking of what strategy the gov't can conjure up that would leave shareholders high and dry.  With that said, I think prefs end up doing very well.

[Luke 532]

I just wish someone would hold Mnuchin's feet to the fire and ask "if taxpayer safety is such a concern, why do you keep taking the NWS payments and draining the GSEs' capital?" This is the one significant area where Mnuchin's actions are at odds with his words.

 

Before any interview or conference, Mnuchin might ask them to not discuss that topic.

[Eye4Valu]

The Treasury, taxpayers and shareholders of GSEs are aligned in their interests. We're in this together in terms of reform. I don't see this as us versus them.

[rros]

I just wish someone would hold Mnuchin's feet to the fire and ask "if taxpayer safety is such a concern, why do you keep taking the NWS payments and draining the GSEs' capital?" This is the one significant area where Mnuchin's actions are at odds with his words.

 

Before any interview or conference, Mnuchin might ask them to not discuss that topic.

For sure he or his team screen out questions. And for sure he rehearses answers. But as midas said, the dissonance is so large that nobody asking is laughable. How much longer can he maintain the precept, as number one or two, of taxpayer's protection once capital dwindles to zero?

[SnarkyPuppy]

I don't really think it's news that Mnuchin said the GSE's will live.  There haven't been too many people still saying "kill the GSE's."  Some, but not many.  What matters is how shareholders are treated in any reform or fix.

 

How do you realistically keep the GSEs and ensure they are adequately capitalized?  (Two things explicitly said by Mnuchin at this point)

 

I hear ya, I'm just trying to spend my energy thinking of what strategy the gov't can conjure up that would leave shareholders high and dry.  With that said, I think prefs end up doing very well.

 

Couldn't agree more.  Majority of posts here have been focused on upside. 

[orthopa]

Being that mnuchin carefully answers the questions and no doubt screens them why not just answer a question regarding shareholders? The easiest answer would be they will get nothing right? FnF would still be backed by the gov, the mortgage market likely would continue as is. What would change? Shareholders would be pissed, and lawsuits now doubt would continue with vigor.

 

I guess my point or question is if shareholders are getting nothing(and I think whether or not they are is already known) why not just come out and say it. Get it over with and move on.  Why the wait? It will affect the share price but who cares. Is it only the warrants keeping the gov from just saying F it and restructuring them?

[Midas79]

Being that mnuchin carefully answers the questions and no doubt screens them why not just answer a question regarding shareholders? The easiest answer would be they will get nothing right? FnF would still be backed by the gov, the mortgage market likely would continue as is. What would change? Shareholders would be pissed, and lawsuits now doubt would continue with vigor.

 

I guess my point or question is if shareholders are getting nothing(and I think whether or not they are is already known) why not just come out and say it. Get it over with and move on.  Why the wait? It will affect the share price but who cares. Is it only the warrants keeping the gov from just saying F it and restructuring them?

 

This is a hard question to answer, but my best guess is that Mnuchin is still trying to walk the razor's edge. If he comes out in support of shareholders he will lose political capital with those in Congress (and elsewhere) who want hedge funds to not make a "windfall" profit, while if he comes out against them then the "respect shareholder rights" types won't like it.

 

He will naturally have to make his intentions known eventually, but if he is trying to keep Congress working towards tax reform, not to mention housing finance reform, he is better served as appearing agnostic.

 

 

I still wish that I knew more about the possible ramifications of the RNC resolution. It is hugely positive language from the ruling party, yet it has not been talked about at all by the major players, so it is hard to tell what impact (if any) it actually has. So far it has been lost in the shuffle. It does provide the administration some cover if they do reform without Congress; they could say "hey, we put up a resolution months ago! We're just following it!"

[investorG]

I believe Mnuchin has a specific plan - why else would watt have backed off after a forceful comment about the airbags this summer.

 

I believe we will find out this plan in 1q 2018.  wisely, mnuchin -- after overstepping last nov -- likely looked at the landscape in early 2017 after the court case was lost, and decided he would get zero upside in talking positive about the GSEs until a) jumpstart expired and b) tax reform is completed (or fails).  so likely he put a gag order on himself and his team and trump for 2017.

 

trump loves real estate.  mnuchin, when pressed, has signaled he likes FnF.  the campaigna and staff connections are there.  I believe we'll see a completely different attitude come 2018.

 

however someone with a lot bigger position than me (the mkt) strongly disagrees with my view -I'd place the securities ~ 50pct above current prices as the current (not end) fair value. 

 

good luck everyone!

[rros]

Being that mnuchin carefully answers the questions and no doubt screens them why not just answer a question regarding shareholders? The easiest answer would be they will get nothing right? FnF would still be backed by the gov, the mortgage market likely would continue as is. What would change? Shareholders would be pissed, and lawsuits now doubt would continue with vigor.

 

I guess my point or question is if shareholders are getting nothing(and I think whether or not they are is already known) why not just come out and say it. Get it over with and move on.  Why the wait? It will affect the share price but who cares. Is it only the warrants keeping the gov from just saying F it and restructuring them?

 

This is a hard question to answer, but my best guess is that Mnuchin is still trying to walk the razor's edge. If he comes out in support of shareholders he will lose political capital with those in Congress (and elsewhere) who want hedge funds to not make a "windfall" profit, while if he comes out against them then the "respect shareholder rights" types won't like it.

 

He will naturally have to make his intentions known eventually, but if he is trying to keep Congress working towards tax reform, not to mention housing finance reform, he is better served as appearing agnostic.

 

 

I still wish that I knew more about the possible ramifications of the RNC resolution. It is hugely positive language from the ruling party, yet it has not been talked about at all by the major players, so it is hard to tell what impact (if any) it actually has. So far it has been lost in the shuffle. It does provide the administration some cover if they do reform without Congress; they could say "hey, we put up a resolution months ago! We're just following it!"

Being agnostic is a good way to put it. But perhaps *Treasury* supersedes any individual. Including Mnuchin and any treasurer after him. Whoever *Treasury* really is, it was adamant that shareholders would not see a penny. It would be hard to morph that same Treasury into one that upholds shareholders' rights. Maybe he just got a slap on the wrist last time stocks move on his statements. And perhaps no more statements until it is time.