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

[constructive]

"Treasury's Craig Phillips also told a group today that Fannie Mae and Freddie Mac will require a draw from Treasury as a result of tax reform which reduced the value of deferred tax assets. This is despite a deal with FHFA to allow each to retain $3 billion in capital"

 

Doesn't make any sense.  Only conclusive is they are saying one thing and doing another.

 

Their writedowns are going to be much bigger than $3B, roughly $12.4B and $5.9B.

 

https://www.housingwire.com/articles/41727-republican-tax-plan-will-trigger-another-fannie-freddie-bailout

[waynepolsonAtoZ]

"imo mnuchin will likely go through the motions in 2018."

 

I like your scenario. I tend to view Mnuchin as a bad guy for FnF, but one never knows for sure.

[waynepolsonAtoZ]

"Huh???"

 

That's my concern. As a practical matter, the commoners and preferreds are dead in the water. Not explicitly, but FnF equities are pretty much dead--other than the senior preferred stock, LOL. And, Treasury and Calabria seem to like it that way. Treasury is Treasury is Treasury--it doesn't really matter who the President is, the financial oligarchy is in control of Treasury.

 

Sweeney really is the only one that is going to save us on this one I think. Mnuchin, I think, is a bad guy although hard to be sure.

 

I've always thought that FnF can't be recapitalized if existing shareholders aren't treated fairly. But, Trump is President, so anything can happen (i.e., pigs can fly). Maybe it can be done.

 

Anyway, Sweeney is the key at this point. I seriously doubt she's going to dismiss her case, but one never knows.

 

 

[rros]

I think you have to contextualize it from the perspective that (I think) he was addressing the governance structure, not necessarily the economics.

 

The market seems to agree with you. I would love to have more context behind those quotes though.

Isn't that the terms of the c-ship? That our rights are suspended? Maybe he is referring to that.

[SnarkyPuppy]

"Treasury's Craig Phillips also told a group today that Fannie Mae and Freddie Mac will require a draw from Treasury as a result of tax reform which reduced the value of deferred tax assets. This is despite a deal with FHFA to allow each to retain $3 billion in capital"

 

Doesn't make any sense.  Only conclusive is they are saying one thing and doing another.

 

Their writedowns are going to be much bigger than $3B, roughly $12.4B and $5.9B.

 

https://www.housingwire.com/articles/41727-republican-tax-plan-will-trigger-another-fannie-freddie-bailout

 

Precisely what doesn't make any sense to me.  They entered into an agreement to hold $3bn.  It was very obvious at the time that $3bn would not be enough to prevent a draw.  What gives?

[constructive]

"Treasury's Craig Phillips also told a group today that Fannie Mae and Freddie Mac will require a draw from Treasury as a result of tax reform which reduced the value of deferred tax assets. This is despite a deal with FHFA to allow each to retain $3 billion in capital"

 

Doesn't make any sense.  Only conclusive is they are saying one thing and doing another.

 

Their writedowns are going to be much bigger than $3B, roughly $12.4B and $5.9B.

 

https://www.housingwire.com/articles/41727-republican-tax-plan-will-trigger-another-fannie-freddie-bailout

 

Precisely what doesn't make any sense to me.  They entered into an agreement to hold $3bn.  It was very obvious at the time that $3bn would not be enough to prevent a draw.  What gives?

 

The retained capital agreement wasn't intended to prevent a Treasury draw, it was really just political theater.

 

Here's what they said: "While it is apparent that a draw will be necessary for each enterprise if tax legislation results in a reduction to the corporate tax rate, FHFA considers the $3 billion capital reserve sufficient to cover other fluctuations in income in the normal course of each Enterprise’s business.”

[SnarkyPuppy]

"Treasury's Craig Phillips also told a group today that Fannie Mae and Freddie Mac will require a draw from Treasury as a result of tax reform which reduced the value of deferred tax assets. This is despite a deal with FHFA to allow each to retain $3 billion in capital"

 

Doesn't make any sense.  Only conclusive is they are saying one thing and doing another.

 

Their writedowns are going to be much bigger than $3B, roughly $12.4B and $5.9B.

 

https://www.housingwire.com/articles/41727-republican-tax-plan-will-trigger-another-fannie-freddie-bailout

 

Precisely what doesn't make any sense to me.  They entered into an agreement to hold $3bn.  It was very obvious at the time that $3bn would not be enough to prevent a draw.  What gives?

 

The retained capital agreement wasn't intended to prevent a Treasury draw, it was really just political theater.

 

Here's what they said: "While it is apparent that a draw will be necessary for each enterprise if tax legislation results in a reduction to the corporate tax rate, FHFA considers the $3 billion capital reserve sufficient to cover other fluctuations in income in the normal course of each Enterprise’s business.”

 

Correct.  And why do you think they are playing political theater?  Just for fun?  I'm growing increasingly confident that there is a coordinated PR attempt to incrementally transition to an inevitable and agreed upon win-win-win legislative outcome.

 

The optics and resulting psychological difference between incrementally releasing independent tidbits of the end result vs. having one massive release with shares soaring 300% in a day is important.  Imagine 1 year ago we learned all of the following on the same day (in addition to Mnuchin's initial comments after nomination):    a) RNC proposed a resolution to respect shareholders rights b) Ben Carson hinted on TV that he has been talking to Blackstone and is not opposed to shareholders "getting their money back" c) the FHFA director coming out w/ a Berkowitz/Millstein proposal & the treasury responding the next day by not in any way, shape, or form criticizing it d) $3bn capital buffer buildup e) ackman supportive of a plan about to be released by corker f) mnuchin stating that he will not consider getting rid of fannie/freddie g) mnuchin saying that it is "absolutely true" that obama used profits from fannie/freddie to fund other parts of the government

 

Berkowitz has been silent.  Ackman has been bullish.  Paulson continues to write about the high-probability of a favorable outcome after being personally invited to Mnuchin's wedding.

 

Oh and by the way-  it is the rational and simplest end to conservatorship along with $120bn of financial incentives tagged along.

 

I've tried to play devils advocate in this thread for the sake of questioning the thesis.  But COME ON.    This is day 1 corporate politics/PR and anyone who has seen it before can recognize this. 

[investorG]

"Treasury's Craig Phillips also told a group today that Fannie Mae and Freddie Mac will require a draw from Treasury as a result of tax reform which reduced the value of deferred tax assets. This is despite a deal with FHFA to allow each to retain $3 billion in capital"

 

Doesn't make any sense.  Only conclusive is they are saying one thing and doing another.

 

Their writedowns are going to be much bigger than $3B, roughly $12.4B and $5.9B.

 

https://www.housingwire.com/articles/41727-republican-tax-plan-will-trigger-another-fannie-freddie-bailout

 

Precisely what doesn't make any sense to me.  They entered into an agreement to hold $3bn.  It was very obvious at the time that $3bn would not be enough to prevent a draw.  What gives?

 

that was likely done to help block jumpstart 2.0 --- the buffer was announced the day after tax reform and it negated re-jumpstart's proposal to withhold funding for a program that conservatives didn't like if the Tsy didn't take in the full amount of sweep each q.

[investorG]

"Treasury's Craig Phillips also told a group today that Fannie Mae and Freddie Mac will require a draw from Treasury as a result of tax reform which reduced the value of deferred tax assets. This is despite a deal with FHFA to allow each to retain $3 billion in capital"

 

Doesn't make any sense.  Only conclusive is they are saying one thing and doing another.

 

Their writedowns are going to be much bigger than $3B, roughly $12.4B and $5.9B.

 

https://www.housingwire.com/articles/41727-republican-tax-plan-will-trigger-another-fannie-freddie-bailout

 

Precisely what doesn't make any sense to me.  They entered into an agreement to hold $3bn.  It was very obvious at the time that $3bn would not be enough to prevent a draw.  What gives?

 

The retained capital agreement wasn't intended to prevent a Treasury draw, it was really just political theater.

 

Here's what they said: "While it is apparent that a draw will be necessary for each enterprise if tax legislation results in a reduction to the corporate tax rate, FHFA considers the $3 billion capital reserve sufficient to cover other fluctuations in income in the normal course of each Enterprise’s business.”

 

Correct.  And why do you think they are playing political theater?  Just for fun?  I'm growing increasingly confident that there is a coordinated PR attempt to incrementally transition to an inevitable and agreed upon win-win-win legislative outcome.

 

The optics and resulting psychological difference between incrementally releasing independent tidbits of the end result vs. having one massive release with shares soaring 300% in a day is important.  Imagine 1 year ago we learned all of the following on the same day (in addition to Mnuchin's initial comments after nomination):    a) RNC proposed a resolution to respect shareholders rights b) Ben Carson hinted on TV that he has been talking to Blackstone and is not opposed to shareholders "getting their money back" c) the FHFA director coming out w/ a Berkowitz/Millstein proposal & the treasury responding the next day by not in any way, shape, or form criticizing it d) $3bn capital buffer buildup e) ackman supportive of a plan about to be released by corker f) mnuchin stating that he will not consider getting rid of fannie/freddie g) mnuchin saying that it is "absolutely true" that obama used profits from fannie/freddie to fund other parts of the government

 

Berkowitz has been silent.  Ackman has been bullish.  Paulson continues to write about the high-probability of a favorable outcome after being personally invited to Mnuchin's wedding.

 

Oh and by the way-  it is the rational and simplest end to conservatorship along with $120bn of financial incentives tagged along.

 

I've tried to play devils advocate in this thread for the sake of questioning the thesis.  But COME ON.    This is day 1 corporate politics/PR and anyone who has seen it before can recognize this.

 

your scenario is why we're all here.  and I wish it good fortune.

 

but it's a delicate dance -- trump doesn't need any new republican enemies, especially in the senate where he potentially faces an impeachment trial at some point.

 

it's strange that the warrants have been off limits in congressional hearings and administrative q&a.  for instance, today, it seems reasonable that phillips would have been asked this question.

 

 

[SnarkyPuppy]

"Treasury's Craig Phillips also told a group today that Fannie Mae and Freddie Mac will require a draw from Treasury as a result of tax reform which reduced the value of deferred tax assets. This is despite a deal with FHFA to allow each to retain $3 billion in capital"

 

Doesn't make any sense.  Only conclusive is they are saying one thing and doing another.

 

Their writedowns are going to be much bigger than $3B, roughly $12.4B and $5.9B.

 

https://www.housingwire.com/articles/41727-republican-tax-plan-will-trigger-another-fannie-freddie-bailout

 

Precisely what doesn't make any sense to me.  They entered into an agreement to hold $3bn.  It was very obvious at the time that $3bn would not be enough to prevent a draw.  What gives?

 

The retained capital agreement wasn't intended to prevent a Treasury draw, it was really just political theater.

 

Here's what they said: "While it is apparent that a draw will be necessary for each enterprise if tax legislation results in a reduction to the corporate tax rate, FHFA considers the $3 billion capital reserve sufficient to cover other fluctuations in income in the normal course of each Enterprise’s business.”

 

Correct.  And why do you think they are playing political theater?  Just for fun?  I'm growing increasingly confident that there is a coordinated PR attempt to incrementally transition to an inevitable and agreed upon win-win-win legislative outcome.

 

The optics and resulting psychological difference between incrementally releasing independent tidbits of the end result vs. having one massive release with shares soaring 300% in a day is important.  Imagine 1 year ago we learned all of the following on the same day (in addition to Mnuchin's initial comments after nomination):    a) RNC proposed a resolution to respect shareholders rights b) Ben Carson hinted on TV that he has been talking to Blackstone and is not opposed to shareholders "getting their money back" c) the FHFA director coming out w/ a Berkowitz/Millstein proposal & the treasury responding the next day by not in any way, shape, or form criticizing it d) $3bn capital buffer buildup e) ackman supportive of a plan about to be released by corker f) mnuchin stating that he will not consider getting rid of fannie/freddie g) mnuchin saying that it is "absolutely true" that obama used profits from fannie/freddie to fund other parts of the government

 

Berkowitz has been silent.  Ackman has been bullish.  Paulson continues to write about the high-probability of a favorable outcome after being personally invited to Mnuchin's wedding.

 

Oh and by the way-  it is the rational and simplest end to conservatorship along with $120bn of financial incentives tagged along.

 

I've tried to play devils advocate in this thread for the sake of questioning the thesis.  But COME ON.    This is day 1 corporate politics/PR and anyone who has seen it before can recognize this.

 

your scenario is why we're all here.  and I wish it good fortune.

 

but it's a delicate dance -- trump doesn't need any new republican enemies, especially in the senate where he potentially faces an impeachment trial at some point.

 

it's strange that the warrants have been off limits in congressional hearings and administrative q&a.  for instance, today, it seems reasonable that phillips would have been asked this question.

 

The only downside scenario which I think is legitimate and is concerning is the Bright/DeMarco mutualization model - http://assets1b.milkeninstitute.org/assets/Publication/Viewpoint/PDF/Toward-a-New-Secondary-Mortgage-Market.pdf for those not familiar.

 

This model is largely consistent with the actions/statements made by treasury/fhfa etc.  The list of arguments against this model is a much shorter list.  Primarily:  warrants, jr liquidation preference, and contingent litigation risk

[Luke 532]

https://www.americanbanker.com/news/cheat-sheet-how-the-senate-is-going-its-own-way-on-housing-finance-reform?utm_content=socialflow&utm_campaign=amerbanker-tw&utm_source=twitter&utm_medium=social

Senate goes own way on housing finance reform

 

 

[TonyG]

just gonna post that Luke. This process has to fail and then Mnuchin will hopefully step in.

[Guest cherzeca]

just gonna post that Luke. This process has to fail and then Mnuchin will hopefully step in.

 

I guess we now know why watt sent his letter over. Also I don’t see this as senate going it’s own way as some senate Rs going their own way. Doesn’t sound like something brown would be in favor of.

[SnarkyPuppy]

It could be a negotiating tool ("extreme" view) with the real objective of meeting dems in the middle with some form of mutualization requiring a national footprint/utility roe. 

 

Having trouble reconciling some of Ackman's statements about Corker

[investorG]

https://www.americanbanker.com/news/cheat-sheet-how-the-senate-is-going-its-own-way-on-housing-finance-reform?utm_content=socialflow&utm_campaign=amerbanker-tw&utm_source=twitter&utm_medium=social

Senate goes own way on housing finance reform

 

ok, the battle is now officially on. 

 

corker needs 9 democratic senators, or maybe even more if it's a standalone bill and if trump/mnuchin don't like it (veto).

 

I guess he'll try his hardest to add it on to another bill that D's are more supportive of.

 

time will tell.

[investorG]

It could be a negotiating tool ("extreme" view) with the real objective of meeting dems in the middle with some form of mutualization requiring a national footprint/utility roe. 

 

Having trouble reconciling some of Ackman's statements about Corker

 

there are ways to reward shareholders in a bob corker bill that involves wind-down.  especially relative to the current market valuation of the commoners ($2bn) and jr pref ($6bn).

 

obviously they'd have to cancel the sr pref for this to happen.  but FNMA has a lot of future earnings baked in, barring a housing collapse, with their current book of business. imo these legacy book cash flows, in theory, can be partially sprinkled out to the public shareholders, even as most of their operations move into a new-co.

 

I don't believe the banks care about whether shareholders make $.  they just want the business.  so if they have to bribe shareholders, they'll try.   

 

[Midas79]

https://www.americanbanker.com/news/cheat-sheet-how-the-senate-is-going-its-own-way-on-housing-finance-reform?utm_content=socialflow&utm_campaign=amerbanker-tw&utm_source=twitter&utm_medium=social

Senate goes own way on housing finance reform

 

I wonder if there are actually two competing Senate bills? Corker-Warner 2.0 as mentioned in this article, and something by Crapo and Brown that aligns more closely with FHFA's proposal?

[Luke 532]

Audio of Craig Phillips' talk yesterday...

https://app.voicebase.com/autonotes/private_detail/58549613/hash=bpyaZG1rZ2uWaZmWxmGWnZ2PnG2XlGZsaWqYkZqWlJRmyMmSl25na5psmJSU

[TonyG]

Rosner on twitter saying he read draft of the bill and says its a "POS"

[Luke 532]

Joe Light‏Verified account @joelight

Phillips: "There actually aren't shareholders so there's no longer a fiduciary relationship between stakeholders in the traditional way. We sort of see ourselves as the stakeholder at the Treasury" but not represented by the board and employees because of the shares' nature

 

This quote makes a lot more sense given proper context (imagine that!).  Audio at around 13:30 contains the quote above and the conversation surrounding it: https://app.voicebase.com/autonotes/private_detail/58549613/hash=bpyaZG1rZ2uWaZmWxmGWnZ2PnG2XlGZsaWqYkZqWlJRmyMmSl25na5psmJSU

[Guest cherzeca]

the concluding paragraph of fhfa perspectives talks about execution feasibility and avoiding disruption to housing finance market during any transition.  this is going to be a real issue for CW if i understand correctly that they want FnF to go into runoff.  how exactly new mortgages get securitized during this runoff isnt clear, and only a politician would think that this is just some pesky detail

[rros]

I listened to it. Thank you. Yesterday's reporting on the context of shareholder was fake news. I am happy we have a recording. Craig is saying that Watt's governance model is IMPOSSIBLE. He uses that 'impossible' word and essentially says that how could such a large corporation be accountable to just one person i.e. conservator?

 

Capital Group (Growth Fund of America) acquires nearly 14 million shares of FNMAS, 16 million shares of FNMAT ,  67 million shares of FNMA common shares, 68 million shares of FMCC common shares, FNMO and many other preferreds series. Go to the end of this link and scroll backwards.

 

https://www.americanfunds.com/individual/investments/quarterlyholdings/agthx

 

 

Joe Light‏Verified account @joelight

Phillips: "There actually aren't shareholders so there's no longer a fiduciary relationship between stakeholders in the traditional way. We sort of see ourselves as the stakeholder at the Treasury" but not represented by the board and employees because of the shares' nature

 

This quote makes a lot more sense given proper context (imagine that!).  Audio at around 13:30 contains the quote above and the conversation surrounding it: https://app.voicebase.com/autonotes/private_detail/58549613/hash=bpyaZG1rZ2uWaZmWxmGWnZ2PnG2XlGZsaWqYkZqWlJRmyMmSl25na5psmJSU

CP refers to their ownership of the Sr. preferreds and what that represents. Inline with what conservatorship and the PSPAs have done (to us). Meaning there are just 2 actors since c-ship: the conservator and one investor (Tsy). Joe Light understands full well what those words may look like out of context. C-ship will keep us invisible for its duration.

 

Thank you for the audio link, Luke. And emily for the funds purchase information.

[Guest cherzeca]

i was multitasking when i was listening.  am i right to say that when CP referred to leveling the playing field he was positing that originators would be better incentivized to keep loans in portfolio, as a way to reduce FnF footprint?  if i got that right, that clearly is not something MBA wants....

[investorG]

CP also implies that the largest shareholder (treasury) isn't even part of the governance and hence IMPOSSIBLE  to do anything. 5 trillion companies governance is just one man show  i.e. conservator. In his paper, Watt  tries to keep his turf the same exact way. Ironic and ludicrous.

 

watt is the man.

 

without his 7 page paper, it would be much easier to convince moderate dems like Heidi heitkamp to go along with corker.  who knows if she will in the end but people like her explicitly looked to watt for guidance in 2017.

 

trump and corker are working on an iran deal.  i'm not sure what mnuchin thinks of corker's GSE plan; but if he doesn't like it, like many believe to be true, it's best to let others derail it than him, at least visibly, to keep the iran plan in place.

[Luke 532]

just gonna post that Luke. This process has to fail and then Mnuchin will hopefully step in.

 

https://www.insidemortgagefinance.com/imfnews/1_1276/daily/-1000044481-1.html#Login

 

If you thought that GSE reform had a good chance of passing this year, think again. Friday morning, industry lobbyists were perplexed about new reports that Senate Republicans were leaning toward a reform plan that entailed placing Fannie Mae and Freddie Mac into receivership as a transition to a new housing-finance system, one with multiple guarantors. The belief is that the GSEs would be killed outright. As one trade group official noted: “There is no vote count for receivership. There is not a single Democrat who will vote for this…”