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

[investorG]

So, what is the agenda?

 

he likely wants a govt guarantee and also permanence of his actions -- both of these require congress not administrative. 

 

so, as he's said a month ago, he's waiting for a new congress, likely with different leadership in place.

 

potential administrative action is late 2019 at a minimum.

 

I just wish he'd stop the sweep in 2018 and turn on the commitment fee -- we're overpaying for the backstop in a big way.

But turning on the commitment fee would change things little. Except for us. It doesn't look like he is going out of his way to help hedge funds/shareholders. Something has changed. The opposite more likely as these appearances happen at the exact moment of shares on the verge of a breakout. Anybody has any reason to believe J Powell and perhaps Mnuchin are in an Andrew Mellon “purge the rottenness out of the system” mission? Yellen would have stabilized markets long time ago. No help for markets, no help for hedge funds, no help for us. Why end the sweep, then?

 

officially, to get the ball rolling on building capital while still leaving most critical reform decisions to congress.   

unofficially, because it's the right thing to do after the full sr pref + 10pct interest has been repaid.

 

[doughishere]

Anyone know what Appaloosa owns?

[rros]

So, what is the agenda?

 

he likely wants a govt guarantee and also permanence of his actions -- both of these require congress not administrative. 

 

so, as he's said a month ago, he's waiting for a new congress, likely with different leadership in place.

 

potential administrative action is late 2019 at a minimum.

 

I just wish he'd stop the sweep in 2018 and turn on the commitment fee -- we're overpaying for the backstop in a big way.

But turning on the commitment fee would change things little. Except for us. It doesn't look like he is going out of his way to help hedge funds/shareholders. Something has changed. The opposite more likely as these appearances happen at the exact moment of shares on the verge of a breakout. Anybody has any reason to believe J Powell and perhaps Mnuchin are in an Andrew Mellon “purge the rottenness out of the system” mission? Yellen would have stabilized markets long time ago. No help for markets, no help for hedge funds, no help for us. Why end the sweep, then?

 

officially, to get the ball rolling on building capital while still leaving most critical reform decisions to congress.   

unofficially, because it's the right thing to do after the full sr pref + 10pct interest has been repaid.

It is mind-boggling. Mnuchin himself said in more than one occasion companies need capital before any reform takes place. He must have gotten used to the idea that taxpayers' backing IS the capital.

[Eye4Valu]

Mnuchin has always been clear that FNMA/FMCC reform is a priority, but not the highest priority. It's no surprise that this is getting pushed back. He is committed to a fix but is not going to reveal more on what he's thinking in that regard until he pulls back the curtains. Tim Howard was right in that the status quo will prevail until a legal victory provides some pressure, or until Mnuchin shows us what is behind the curtains. I think he realized that people hang on his every word, and that he has to be very careful what he says, especially prior to the midterms. I personally don't think he has changed his prior viewpoints on the GSEs, which should eventually be favorable to them, but has to run the political gauntlet.

[SnarkyPuppy]

So many ways of looking at this.  I guess let me try inverting-

 

-If he was anti-GSE's why would he have publicly said he will not get rid of Fannie Mae?  He said this publicly in an interview a few months ago.

-If he was against the public/private model- why not say so?  What downside is there to saying he's against having public shareholders?  The current congress is clearly happy to offer legislation that is anti-shareholder - so if full privatization was Mnuchin's agenda, why not publicly say so and openly push congress towards that model today while the players are in place?  Why the hostility between Corker and Mnuchin/Trump?

-If he is worried about being criticized for taking care of his hedge fund friends, why would he be transparent in his plans?  Why not take a slower approach and make it seem as if he is analyzing the situation objectively without having a foregone conclusion? 

 

I don't necessarily see the downside of being transparent about a negative outcome for shareholders.  I do see downside in being transparent about a positive outcome for shareholders.  So far, he hasn't been transparent.   

 

 

With all of that said - the most likely downside scenario is this model:

http://assets1b.milkeninstitute.org/assets/Publication/Viewpoint/PDF/Toward-a-New-Secondary-Mortgage-Market.pdf

 

I wouldn't be stunned if that's where things end.  Seems consistent with everything we've heard so far across multiple key players. Maybe we would receive some relative compensation in lieu of ownership of the new private mutuals.  Maybe we wouldn't.

 

The counter-argument is that the government doesn't receive $100bn.  Well- as time goes on the current administration is receiving quarterly checks and the period for which the benefit/use of that $100bn for the current administration is shrinking.  The government is financially incented to exercise the warrants - but that assumes that is their primary incentive. 

[rros]

We wouldn't. Given who wrote the paper.

[blackcoffee]

  The government is financially incented to exercise the warrants - but that assumes that is their primary incentive.

 

What other incentive do you see away from the warrants FOR the gov't that would out do $100B?

[SnarkyPuppy]

  The government is financially incented to exercise the warrants - but that assumes that is their primary incentive.

 

What other incentive do you see away from the warrants FOR the gov't that would out do $100B?

 

Personal incentives.  These guys want to get re-elected. Handing over the secondary mortgage market to the large banks -> fundraising from the large banks for the next election cycle. 

[blackcoffee]

  The government is financially incented to exercise the warrants - but that assumes that is their primary incentive.

 

What other incentive do you see away from the warrants FOR the gov't that would out do $100B?

 

Personal incentives.  These guys want to get re-elected. Handing over the secondary mortgage market to the large banks -> fundraising from the large banks for the next election cycle.

 

oh so systemic corruption due to extremely weak campaign finance laws. Got it.

[Midas79]

With all of that said - the most likely downside scenario is this model:

http://assets1b.milkeninstitute.org/assets/Publication/Viewpoint/PDF/Toward-a-New-Secondary-Mortgage-Market.pdf

 

I wouldn't be stunned if that's where things end.  Seems consistent with everything we've heard so far across multiple key players. Maybe we would receive some relative compensation in lieu of ownership of the new private mutuals.  Maybe we wouldn't.

 

This paper involves two things that Mnuchin and Watt (or Watt's successor) cannot do without Congress:

• amend the charters
  
• pass the companies through receivership
  

 

So if Mnuchin is going to do any purely administrative action, he won't be able to come close to what the Milken Institute wants.

 

Even then, a pass through receivership will prompt a whole wave of lawsuits from junior pref holders, unless said holders are made whole anyway (which involves deeming the seniors repaid). The longer FnF build capital and/or make NWS payments (i.e. the further past the 10% moment FnF get), the stronger the case gets for the junior holders.

[DocSnowball]

https://www.bloomberg.com/news/videos/2018-05-01/fannie-mae-ceo-says-conservatorship-wasn-t-long-term-solution-video

 

Wondering again after watching this from Fannie CEO - isn’t Fannie Mae turning into a platform company, connecting buyers and sellers of secondary insurance?

[undervalued]

With all of that said - the most likely downside scenario is this model:

http://assets1b.milkeninstitute.org/assets/Publication/Viewpoint/PDF/Toward-a-New-Secondary-Mortgage-Market.pdf

 

I wouldn't be stunned if that's where things end.  Seems consistent with everything we've heard so far across multiple key players. Maybe we would receive some relative compensation in lieu of ownership of the new private mutuals.  Maybe we wouldn't.

 

This paper involves two things that Mnuchin and Watt (or Watt's successor) cannot do without Congress:

• amend the charters
  
• pass the companies through receivership
  

 

So if Mnuchin is going to do any purely administrative action, he won't be able to come close to what the Milken Institute wants.

 

Even then, a pass through receivership will prompt a whole wave of lawsuits from junior pref holders, unless said holders are made whole anyway (which involves deeming the seniors repaid). The longer FnF build capital and/or make NWS payments (i.e. the further past the 10% moment FnF get), the stronger the case gets for the junior holders.

 

Even then, a pass through receivership will prompt a whole wave of lawsuits from junior pref holders, unless said holders are made whole anyway (which involves deeming the seniors repaid). The longer FnF build capital and/or make NWS payments (i.e. the further past the 10% moment FnF get), the stronger the case gets for the junior holders.

 

Looks like the judges already agreed that FnF is owned by the government now through the conservatorship. Will new lawsuits change anything or just a waste of money? I think the downside is without any win in the court, the government legally owns FnF and can do whatever they want w/o paying current/previous shareholders.

[SnarkyPuppy]

With all of that said - the most likely downside scenario is this model:

http://assets1b.milkeninstitute.org/assets/Publication/Viewpoint/PDF/Toward-a-New-Secondary-Mortgage-Market.pdf

 

I wouldn't be stunned if that's where things end.  Seems consistent with everything we've heard so far across multiple key players. Maybe we would receive some relative compensation in lieu of ownership of the new private mutuals.  Maybe we wouldn't.

 

This paper involves two things that Mnuchin and Watt (or Watt's successor) cannot do without Congress:

• amend the charters
  
• pass the companies through receivership
  

 

So if Mnuchin is going to do any purely administrative action, he won't be able to come close to what the Milken Institute wants.

 

Even then, a pass through receivership will prompt a whole wave of lawsuits from junior pref holders, unless said holders are made whole anyway (which involves deeming the seniors repaid). The longer FnF build capital and/or make NWS payments (i.e. the further past the 10% moment FnF get), the stronger the case gets for the junior holders.

 

Absent actual evidence in the real world to the contrary, this is wishful thinking.  The fact that Mnuchin hasn't/isn't acting administratively is consistent with the fact that this plan could be aligned to his agenda, rather than administratively implementing Moelis.

[SnarkyPuppy]

  The government is financially incented to exercise the warrants - but that assumes that is their primary incentive.

 

What other incentive do you see away from the warrants FOR the gov't that would out do $100B?

 

Personal incentives.  These guys want to get re-elected. Handing over the secondary mortgage market to the large banks -> fundraising from the large banks for the next election cycle.

 

oh so systemic corruption due to extremely weak campaign finance laws. Got it.

 

I've written this before but I'll repeat it.  Indignation is not an investment thesis. 

[Midas79]

Absent actual evidence in the real world to the contrary, this is wishful thinking.  The fact that Mnuchin hasn't/isn't acting administratively is consistent with the fact that this plan could be aligned to his agenda, rather than administratively implementing Moelis.

 

Evidence in the real world of what? I don't follow.

 

Given that Mnuchin cannot unilaterally implement two of the core parts of the Milken proposal, how do you expect that to be a plausible downside scenario? I don't see how the Milken plan could be amended into something Treasury can do by itself. It begins with amending the charters, something only Congress can do.

[blackcoffee]

  The government is financially incented to exercise the warrants - but that assumes that is their primary incentive.

 

What other incentive do you see away from the warrants FOR the gov't that would out do $100B?

 

Personal incentives.  These guys want to get re-elected. Handing over the secondary mortgage market to the large banks -> fundraising from the large banks for the next election cycle.

 

oh so systemic corruption due to extremely weak campaign finance laws. Got it.

 

I've written this before but I'll repeat it.  Indignation is not an investment thesis.

 

Truth hurts right?

 

I was simply pointing out a reality of the situation which should tell people to run away from investing at all in the twins.

 

Which is something I wish I'd done prior to February of last year but here we are waiting for the next explosion.

 

Clearly the political class has been coerced into doing the bidding of their largest contributors, pointing that out doesn't make it any less true and does not constitute an investment thesis but somehow you got there on my behalf.

 

Impressive. 

[SnarkyPuppy]

Absent actual evidence in the real world to the contrary, this is wishful thinking.  The fact that Mnuchin hasn't/isn't acting administratively is consistent with the fact that this plan could be aligned to his agenda, rather than administratively implementing Moelis.

 

Evidence in the real world of what? I don't follow.

 

Given that Mnuchin cannot unilaterally implement two of the core parts of the Milken proposal, how do you expect that to be a plausible downside scenario? I don't see how the Milken plan could be amended into something Treasury can do by itself. It begins with amending the charters, something only Congress can do.

 

It can't be.  Hence why I'm worried that he's waiting for another Congress & a new FHFA director to stand behind him.  If he wanted to go the route of Moelis, he can do that today.  Doesn't need a new congress.  Doesn't need a new FHFA director. 

 

With respect to your legal argument, all of the legal arguments to date have passed every basic common sense test (and seemingly the opinion of some attorneys), yet we've been absolutely blindsided by the judicial branch opining that it does not have the authority to review.  How does that argument not also apply to the liquidation preference in the event of receivership?  You're acting like its a probable event that we win a liquidation preference suit and I just don't see how you're optimistic on the legal front at this point. 

 

To be clear-  I remain cautiously optimistic and am playing devils advocate. 

[rros]

Absent actual evidence in the real world to the contrary, this is wishful thinking.  The fact that Mnuchin hasn't/isn't acting administratively is consistent with the fact that this plan could be aligned to his agenda, rather than administratively implementing Moelis.

 

Evidence in the real world of what? I don't follow.

 

Given that Mnuchin cannot unilaterally implement two of the core parts of the Milken proposal, how do you expect that to be a plausible downside scenario? I don't see how the Milken plan could be amended into something Treasury can do by itself. It begins with amending the charters, something only Congress can do.

 

It can't be.  Hence why I'm worried that he's waiting for another Congress & a new FHFA director to stand behind him.  If he wanted to go the route of Moelis, he can do that today.  Doesn't need a new congress.  Doesn't need a new FHFA director. 

 

With respect to your legal argument, all of the legal arguments to date have passed every basic common sense test (and seemingly the opinion of some attorneys), yet we've been absolutely blindsided by the judicial branch opining that it does not have the authority to review.  How does that argument not also apply to the liquidation preference in the event of receivership?  You're acting like its a probable event that we win a liquidation preference suit and I just don't see how you're optimistic on the legal front at this point. 

 

To be clear-  I remain cautiously optimistic and am playing devils advocate.

Common sense is that doing anything administratively now, including Moelis, will only create controversy/animosity and open the door for other administrations to restart the fight. Mnuchin, whether we like it or not, is correct in looking for an accord from Congress. An agreement (turned into law) that will settle the matter forever, never to hear again from the GSEs. What remains to be seen is what his agenda is. And if any future Congress will buy it. We will have to wait until after the elections. Or, if you believe in miracles, perhaps Mnuchin shows his hand a little before that.

[Midas79]

Absent actual evidence in the real world to the contrary, this is wishful thinking.  The fact that Mnuchin hasn't/isn't acting administratively is consistent with the fact that this plan could be aligned to his agenda, rather than administratively implementing Moelis.

 

Evidence in the real world of what? I don't follow.

 

Given that Mnuchin cannot unilaterally implement two of the core parts of the Milken proposal, how do you expect that to be a plausible downside scenario? I don't see how the Milken plan could be amended into something Treasury can do by itself. It begins with amending the charters, something only Congress can do.

 

It can't be.  Hence why I'm worried that he's waiting for another Congress & a new FHFA director to stand behind him.  If he wanted to go the route of Moelis, he can do that today.  Doesn't need a new congress.  Doesn't need a new FHFA director. 

 

With respect to your legal argument, all of the legal arguments to date have passed every basic common sense test (and seemingly the opinion of some attorneys), yet we've been absolutely blindsided by the judicial branch opining that it does not have the authority to review.  How does that argument not also apply to the liquidation preference in the event of receivership?  You're acting like its a probable event that we win a liquidation preference suit and I just don't see how you're optimistic on the legal front at this point. 

 

To be clear-  I remain cautiously optimistic and am playing devils advocate.

 

It only takes one win, and we're not close to the point of all outstanding cases being dead right now. I just meant that receivership opens a whole new can of worms for the government because it breaches contracts (wrt liquidation preference) with all current junior pref holders, giving them all standing to sue. Right now only those who have continuously held since before the NWS have standing.

 

This is where I differ from the Seeking Alpha crowd that shouts "the government can't exercise the warrants because it will be a taking!" in that the liquidation preference rights have been explicitly recognized by the court, and FHFA/Treasury are trying to argue that they aren't ripe yet. Receivership certainly would ripen those claims along with creating a bunch of new ones. To be sure there is still plenty of downside: the cases would take years to resolve and might only result in a return of cost basis, perhaps with interest.

 

On a side note, this might be why we have seen only one major case (Washington Federal) challenge the conservatorship itself: the set of people/companies who have held shares since before the conservatorship and are willing to spend the time and money to drag it out in court is likely vanishingly small by now.

[rros]

Treasury is Treasury.

I am starting to feel nothing has really changed since the Obama days. While Mnuchin himself may not care or be thrilled to see the Jr. preferreds crashing since his appearance on TV I suspect someone in his team feels "mission accomplished". The only difference between now and Obama's Treasury is that they aren't coming out guns blazing against us. Just a softer approach. But equally negative.

[rros]

...Berkowitz, Paulson should lobby to get this done and let public see what went on for 10 years © Watt needs to leave.

Emily, lobby the government to go against the government? Maybe we have all been myopic all the way.

I have a better plan for you. Why not get Mnuchin in front of someone who can call his bullcrap? Like asking him about the Treasury he heads stealing from private shareholders? It doesn't have to pretty or sexy Bartiromo style.

[rros]

"Berkowitz’s fund continued trimming its holdings in preferred shares of Freddie Mac and Fannie Mae. During the quarter, the fund sold 7,886,338 shares of Freddie Mac 8.375% fixed-to-floating preferred shares (FMCKJ.PFD) and 7,678,501 of Fannie Mae Series S preferred shares (FNMAS.PFD). The two trades chopped 9.78% of the portfolio in the aggregate."

 

https://www.gurufocus.com/news/675474/bruce-berkowitzs-fairholme-fund-buys-vistra-energy-in-1st-quarter

There is a big short on St. Joe that is out there where Fairlhome is the largest shareholder. His, is a very illiquid position and by recent SEC rules Fairholme is being forced to sell. Maybe he is in dire need of raising cash. Briefly, his downsizing may have nothing to do with the merit of the FF investment.

[rros]

We all sell and send a 'wishing you well' card to Mnuchin.

[Luke 532]

Seventh Circuit released its opinion affirming the District Court's ruling dismissing the Roberts Plaintiffs' lawsuit (attached)

17-1880-0048.pdf

[Luke 532]

Emily, with all due respect, many (not all) of your posts are simply a complaint about the current situation.  That doesn't add value to the board and just bogs it down.  With that said, I do appreciate it when you post something that adds value to the board.  Thank you.