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

[orthopa]

It sounds like from the look of it the commons are not going to be wiped, just dilution which was a big fear of mine and why i avoided them. If all of this reporting is true then there looks to be much more upside to the common at 9.62-13.15. I hold all preferred but they conceivably could be converted to common either way but this reporting looks like just a straight return back to privatization.  6.7-9.2 times on the common at these prices....

 

Those Moelis numbers cannot necessarily be counted on. Phillips said that Mnuchin wants the companies out of conservatorship by the end of this presidential term, and I take that to mean the companies will be recapped first. Moelis ran its numbers from mid-2017 to the end of 2020, but starting at the end of 2018 means you have less retained earnings to recap with. That means more equity needs to be raised, which means more dilution.

 

Also, Moelis was going to offer a 3:1 conversion rate (3 commons per $25 of par value) because the JPS holders have to agree to any conversion. But the FNMAS:FNMA ratio then was around 2.5:1. Now it's 4.4:1, and a bit higer for FMCKJ:FMCC. That probably means a 5:1 conversion rate instead, so more dilution again.

 

I'm starting to think that $5 is actually a stretch for the commons, and if Treasury tries to cram through a really really fast recap then common holders could actually lose money from here. I'm staying away from them.

 

Thanks for your insights. My oversight was not considering the 2020 deadline and time past since Moelis.  With conversion to common no need to consider dividends right? Wonder why market still respecting div yields for many of the preferred still.

[investorG]

Mnuchin supports selling the governments stake.

 

Do we know how accurate this is, or how credible the source is?

 

But such a move would require the unwinding of the preferred shares the Treasury holds in Fannie and Freddie. Mnuchin has said he supported such an undertaking.

 

Unless Mnuchin has said this very recently, I missed it. Or is it just being extrapolated from the privatization comments?

 

not very credible imo unless the story appears in multiple outlets.  (or hardincap is impressed).

[Guest cherzeca]

Mnuchin supports selling the governments stake.

 

Do we know how accurate this is, or how credible the source is?

 

But such a move would require the unwinding of the preferred shares the Treasury holds in Fannie and Freddie. Mnuchin has said he supported such an undertaking.

 

Unless Mnuchin has said this very recently, I missed it. Or is it just being extrapolated from the privatization comments?

 

not very credible imo unless the story appears in multiple outlets.  (or hardincap is impressed).

 

seems to me the only outlets that care about this are Bloomberg and specialized housing finance and securitization rags.  and WSJ...after it happens

[orthopa]

As hokey as it seems I wonder if the admin/those in charge float/leak these little tidbits from time to time to gauge outrage/satisfaction of all of those involved. Im still planning for end of 2020 to temper my own expectations. Anything sooner is a win that way. :D

[Guest cherzeca]

As hokey as it seems I wonder if the admin/those in charge float/leak these little tidbits from time to time to gauge outrage/satisfaction of all of those involved. Im still planning for end of 2020 to temper my own expectations. Anything sooner is a win that way. :D

 

to me the real impetus will be maxine waters in charge of the house financial services committee.  death knell to congressional GSE reform getting actually passed

[allnatural]

Can anyone point me to the exact language in HERA that allows FHFA/Treasury (admin) to end the conservatorship unilaterally and bypass any legislation?

[rros]

Can anyone point me to the exact language in HERA that allows FHFA/Treasury (admin) to end the conservatorship unilaterally and bypass any legislation?

 

‘‘(A) IN GENERAL.—The Director shall appoint the

Agency as receiver for a regulated entity if the Director

determines, in writing, that—

‘‘(i) the assets of the regulated entity are, and

during the preceding 60 calendar days have been, less

than the obligations of the regulated entity to its creditors

and others; or

‘‘(ii) the regulated entity is not, and during the

preceding 60 calendar days has not been, generally

paying the debts of the regulated entity (other than

debts that are the subject of a bona fide dispute) as

such debts become due.

 

‘‘(D) RECEIVERSHIP TERMINATES CONSERVATORSHIP.—

The appointment of the Agency as receiver of a regulated

entity under this section shall immediately terminate any

conservatorship established for the regulated entity under

this title.

 

But receivership can be avoided due to this section:

 

SEC. 1108. PRUDENTIAL MANAGEMENT AND OPERATIONS STANDARDS.

The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 et seq.) is amended by inserting after section 1313A, as added by this Act, the following new section:

 

‘SEC. 1313B. PRUDENTIAL MANAGEMENT AND OPERATIONS STANDARDS.

‘(a) Standards- The Director shall establish standards, by regulation or guideline, for each regulated entity relating to--

 

‘(1) adequacy of internal controls and information systems taking into account the nature and scale of business operations;

 

‘(2) independence and adequacy of internal audit systems;

 

‘(3) management of interest rate risk exposure;

 

‘(4) management of market risk, including standards that provide for systems that accurately measure, monitor, and control market risks and, as warranted, that establish limitations on market risk;

 

‘(5) adequacy and maintenance of liquidity and reserves;

 

‘(6) management of asset and investment portfolio growth;

 

‘(7) investments and acquisitions of assets by a regulated entity, to ensure that they are consistent with the purposes of this title and the authorizing statutes;

 

‘(8) overall risk management processes, including adequacy of oversight by senior management and the board of directors and of processes and policies to identify, measure, monitor, and control material risks, including reputational risks, and for adequate, well-tested business resumption plans for all major systems with remote site facilities to protect against disruptive events;

 

‘(9) management of credit and counterparty risk, including systems to identify concentrations of credit risk and prudential limits to restrict exposure of the regulated entity to a single counterparty or groups of related counterparties;

 

‘(10) maintenance of adequate records, in accordance with consistent accounting policies and practices that enable the Director to evaluate the financial condition of the regulated entity; and

 

‘(11) such other operational and management standards as the Director determines to be appropriate.

 

‘(b) Failure To Meet Standards-

 

‘(1) PLAN REQUIREMENT-

 

‘(A) IN GENERAL- If the Director determines that a regulated entity fails to meet any standard established under subsection (a)--

 

‘(i) if such standard is established by regulation, the Director shall require the regulated entity to submit an acceptable plan to the Director within the time allowed under subparagraph ©; and

 

‘(ii) if such standard is established by guideline, the Director may require the regulated entity to submit a plan described in clause (i).

 

‘(B) CONTENTS- Any plan required under subparagraph (A) shall specify the actions that the regulated entity will take to correct the deficiency. If the regulated entity is undercapitalized, the plan may be a part of the capital restoration plan for the regulated entity under section 1369C.

 

‘© DEADLINES FOR SUBMISSION AND REVIEW- The Director shall by regulation establish deadlines that--

 

‘(i) provide the regulated entities with reasonable time to submit plans required under subparagraph (A), and generally require a regulated entity to submit a plan not later than 30 days after the Director determines that the entity fails to meet any standard established under subsection (a); and

 

‘(ii) require the Director to act on plans expeditiously, and generally not later than 30 days after the plan is submitted.

 

‘(2) REQUIRED ORDER UPON FAILURE TO SUBMIT OR IMPLEMENT PLAN- If a regulated entity fails to submit an acceptable plan within the time allowed under paragraph (1)©, or fails in any material respect to implement a plan accepted by the Director, the following shall apply:

 

‘(A) REQUIRED CORRECTION OF DEFICIENCY- The Director shall, by order, require the regulated entity to correct the deficiency.

 

‘(B) OTHER AUTHORITY- The Director may, by order, take one or more of the following actions until the deficiency is corrected:

 

‘(i) Prohibit the regulated entity from permitting its average total assets (as such term is defined in section 1316(b)) during any calendar quarter to exceed its average total assets during the preceding calendar quarter, or restrict the rate at which the average total assets of the entity may increase from one calendar quarter to another.

 

‘(ii) Require the regulated entity--

 

‘(I) in the case of an enterprise, to increase its ratio of core capital to assets.

 

‘(II) in the case of a Federal Home Loan Bank, to increase its ratio of total capital (as such term is defined in section 6(a)(5) of the Federal Home Loan Bank Act (12 U.S.C. 1426(a)(5)) to assets.

 

‘(iii) Require the regulated entity to take any other action that the Director determines will better carry out the purposes of this section than any of the actions described in this subparagraph.

 

‘(3) MANDATORY RESTRICTIONS- In complying with paragraph (2), the Director shall take one or more of the actions described in clauses (i) through (iii) of paragraph (2)(B) if--

 

‘(A) the Director determines that the regulated entity fails to meet any standard prescribed under subsection (a);

 

‘(B) the regulated entity has not corrected the deficiency; and

 

‘© during the 18-month period before the date on which the regulated entity first failed to meet the standard, the entity underwent extraordinary growth, as defined by the Director.

 

‘© Other Enforcement Authority Not Affected- The authority of the Director under this section is in addition to any other authority of the Director.’.

 

 

So if a court issues an injunction on the nws and the PSPAs blew up and the commitment disappears (as written in there), the Director can correct that deficiency unilaterally. My understanding...

 

And I think the above should be read together with this:

https://www.law.cornell.edu/uscode/text/12/4622

-----

 

Importantly, the PSPAs contain their own termination guidelines:

https://www.fhfa.gov/Conservatorship/Documents/Senior-Preferred-Stock-Agree/2008-9-26_SPSPA_FannieMae_RestatedAgreement_N508.pdf

 

5.3. Conservatorship. Seller shall not (and Conservator, by its signature below, agrees that it

shall not), without the prior written consent of Purchaser, terminate, seek termination of or permit

to be terminated the conservatorship of Seller pursuant to Section 1367 of the FHE Act, other

than in connection with a receivership pursuant to Section 1367 of the FHE Act.

[Midas79]

Can anyone point me to the exact language in HERA that allows FHFA/Treasury (admin) to end the conservatorship unilaterally and bypass any legislation?

 

Short version: FHFA was the only agency allowed to put the companies in conservatorship and they did, no legislation needed. Or more accurately, FHFA's power to do that is outlined in HERA.

 

Treasury must approve a release from conservatorship per the terms of the SPSPAs.

 

No legislation is needed for FHFA to release the companies, but they will need some level of capital. I think this stands to reason, but I don't know if it's specifically in HERA.

[DocSnowball]

Can anyone point me to the exact language in HERA that allows FHFA/Treasury (admin) to end the conservatorship unilaterally and bypass any legislation?

 

This is not from HERA, but from the FHFA website - quoted from the Conservatorship announcement FAQs - it states FHFA director holds the authority

[ftp=ftp://www.fhfa.gov/Media/PublicAffairs/Pages/Conservatorship-of-Fannie-Mae-and-Freddie-Mac.aspx]https://www.fhfa.gov/Media/PublicAffairs/Pages/Conservatorship-of-Fannie-Mae-and-Freddie-Mac.aspx[/ftp]

[ftp=ftp://www.treasury.gov/press-center/press-releases/Documents/fhfa_consrv_faq_090708hp1128.pdf]https://www.treasury.gov/press-center/press-releases/Documents/fhfa_consrv_faq_090708hp1128.pdf[/ftp]

 

"Q: When will the conservatorship period end?

A: Upon the Director’s determination that the Conservator’s plan to restore the Company to a safe and solvent condition has been completed successfully, the Director will issue an order terminating the conservatorship. At present, there is no exact time frame that can be given as to when this conservatorship may end"

[investorG]

Mnuchin supports selling the governments stake.

 

Do we know how accurate this is, or how credible the source is?

 

But such a move would require the unwinding of the preferred shares the Treasury holds in Fannie and Freddie. Mnuchin has said he supported such an undertaking.

 

Unless Mnuchin has said this very recently, I missed it. Or is it just being extrapolated from the privatization comments?

 

not very credible imo unless the story appears in multiple outlets.  (or hardincap is impressed).

 

seems to me the only outlets that care about this are Bloomberg and specialized housing finance and securitization rags.  and WSJ...after it happens

 

a big if, but if something materially good is coming after the elections or new year via administrative action, it's likely to be leaked often in advance to limit the actual price move on the day of official announcement when most of the news stories are written, given the HF and berkowitz narrative.  so far there's 1.  would need multiple more to have credibility imo.

[DocSnowball]

Mnuchin supports selling the governments stake.

 

Do we know how accurate this is, or how credible the source is?

 

But such a move would require the unwinding of the preferred shares the Treasury holds in Fannie and Freddie. Mnuchin has said he supported such an undertaking.

 

Unless Mnuchin has said this very recently, I missed it. Or is it just being extrapolated from the privatization comments?

 

not very credible imo unless the story appears in multiple outlets.  (or hardincap is impressed).

 

seems to me the only outlets that care about this are Bloomberg and specialized housing finance and securitization rags.  and WSJ...after it happens

 

a big if, but if something materially good is coming after the elections or new year via administrative action, it's likely to be leaked often in advance to limit the actual price move on the day of official announcement when most of the news stories are written, given the HF and berkowitz narrative.  so far there's 1.  would need multiple more to have credibility imo.

Both the marginal investor and the marginal journalist are not impressed yet...

[investorG]

Mnuchin supports selling the governments stake.

 

Do we know how accurate this is, or how credible the source is?

 

But such a move would require the unwinding of the preferred shares the Treasury holds in Fannie and Freddie. Mnuchin has said he supported such an undertaking.

 

Unless Mnuchin has said this very recently, I missed it. Or is it just being extrapolated from the privatization comments?

 

not very credible imo unless the story appears in multiple outlets.  (or hardincap is impressed).

 

seems to me the only outlets that care about this are Bloomberg and specialized housing finance and securitization rags.  and WSJ...after it happens

 

a big if, but if something materially good is coming after the elections or new year via administrative action, it's likely to be leaked often in advance to limit the actual price move on the day of official announcement when most of the news stories are written, given the HF and berkowitz narrative.  so far there's 1.  would need multiple more to have credibility imo.

Both the marginal investor and the marginal journalist are not impressed yet...

 

it's tough to know.  the demand pool is somewhat limited and there's likely a lot of forced supply from fairholme and other liquidating hedge funds like highfields.  but I do believe we'll see multiple more stories coming out if the asset backed alert story has any validity.

[blackcoffee]

Mnuchin supports selling the governments stake.

 

Do we know how accurate this is, or how credible the source is?

 

But such a move would require the unwinding of the preferred shares the Treasury holds in Fannie and Freddie. Mnuchin has said he supported such an undertaking.

 

Unless Mnuchin has said this very recently, I missed it. Or is it just being extrapolated from the privatization comments?

 

not very credible imo unless the story appears in multiple outlets.  (or hardincap is impressed).

 

seems to me the only outlets that care about this are Bloomberg and specialized housing finance and securitization rags.  and WSJ...after it happens

 

a big if, but if something materially good is coming after the elections or new year via administrative action, it's likely to be leaked often in advance to limit the actual price move on the day of official announcement when most of the news stories are written, given the HF and berkowitz narrative.  so far there's 1.  would need multiple more to have credibility imo.

Both the marginal investor and the marginal journalist are not impressed yet...

 

it's tough to know.  the demand pool is somewhat limited and there's likely a lot of forced supply from fairholme and other liquidating hedge funds like highfields.  but I do believe we'll see multiple more stories coming out if the asset backed alert story has any validity.

 

Speaking of stories of dubious validity - care to share the sources you have on all these hedge funds liquidating their holdings?

 

Also I never heard back from my prior response! :(

[investorG]

Mnuchin supports selling the governments stake.

 

Do we know how accurate this is, or how credible the source is?

 

But such a move would require the unwinding of the preferred shares the Treasury holds in Fannie and Freddie. Mnuchin has said he supported such an undertaking.

 

Unless Mnuchin has said this very recently, I missed it. Or is it just being extrapolated from the privatization comments?

 

not very credible imo unless the story appears in multiple outlets.  (or hardincap is impressed).

 

seems to me the only outlets that care about this are Bloomberg and specialized housing finance and securitization rags.  and WSJ...after it happens

 

a big if, but if something materially good is coming after the elections or new year via administrative action, it's likely to be leaked often in advance to limit the actual price move on the day of official announcement when most of the news stories are written, given the HF and berkowitz narrative.  so far there's 1.  would need multiple more to have credibility imo.

Both the marginal investor and the marginal journalist are not impressed yet...

 

it's tough to know.  the demand pool is somewhat limited and there's likely a lot of forced supply from fairholme and other liquidating hedge funds like highfields.  but I do believe we'll see multiple more stories coming out if the asset backed alert story has any validity.

 

Speaking of stories of dubious validity - care to share the sources you have on all these hedge funds liquidating their holdings?

 

Also I never heard back from my prior response! :(

 

I generally try to limit posts about 2008 and subjective views such as loan loss reserve sufficiency.  it doesn't seem too relevant at this point, and it's hard or impossible to prove.  regarding highfields (a plaintiff), they publicly announced that the fund is closing.  and educated guessing on fairholme -- they had large redemptions before, their relative performance has worsened, and so generally in this industry redemptions continue.

 

[blackcoffee]

Mnuchin supports selling the governments stake.

 

Do we know how accurate this is, or how credible the source is?

 

But such a move would require the unwinding of the preferred shares the Treasury holds in Fannie and Freddie. Mnuchin has said he supported such an undertaking.

 

Unless Mnuchin has said this very recently, I missed it. Or is it just being extrapolated from the privatization comments?

 

not very credible imo unless the story appears in multiple outlets.  (or hardincap is impressed).

 

seems to me the only outlets that care about this are Bloomberg and specialized housing finance and securitization rags.  and WSJ...after it happens

 

a big if, but if something materially good is coming after the elections or new year via administrative action, it's likely to be leaked often in advance to limit the actual price move on the day of official announcement when most of the news stories are written, given the HF and berkowitz narrative.  so far there's 1.  would need multiple more to have credibility imo.

Both the marginal investor and the marginal journalist are not impressed yet...

 

it's tough to know.  the demand pool is somewhat limited and there's likely a lot of forced supply from fairholme and other liquidating hedge funds like highfields.  but I do believe we'll see multiple more stories coming out if the asset backed alert story has any validity.

 

Speaking of stories of dubious validity - care to share the sources you have on all these hedge funds liquidating their holdings?

 

Also I never heard back from my prior response! :(

 

I generally try to limit posts about 2008 and subjective views such as loan loss reserve sufficiency.  it doesn't seem too relevant at this point, and it's hard or impossible to prove.  regarding highfields (a plaintiff), they publicly announced that the fund is closing.  and educated guessing on fairholme -- they had large redemptions before, their relative performance has worsened, and so generally in this industry redemptions continue.

 

It's entirely relevant because this mess would never have existed if they didn't come in manipulating the loss amounts and the accounting.

 

The upshot is that the entire thing was a lie from day 0.

[TwoCitiesCapital]

Mnuchin supports selling the governments stake.

 

Do we know how accurate this is, or how credible the source is?

 

But such a move would require the unwinding of the preferred shares the Treasury holds in Fannie and Freddie. Mnuchin has said he supported such an undertaking.

 

Unless Mnuchin has said this very recently, I missed it. Or is it just being extrapolated from the privatization comments?

 

not very credible imo unless the story appears in multiple outlets.  (or hardincap is impressed).

 

seems to me the only outlets that care about this are Bloomberg and specialized housing finance and securitization rags.  and WSJ...after it happens

 

a big if, but if something materially good is coming after the elections or new year via administrative action, it's likely to be leaked often in advance to limit the actual price move on the day of official announcement when most of the news stories are written, given the HF and berkowitz narrative.  so far there's 1.  would need multiple more to have credibility imo.

Both the marginal investor and the marginal journalist are not impressed yet...

 

it's tough to know.  the demand pool is somewhat limited and there's likely a lot of forced supply from fairholme and other liquidating hedge funds like highfields.  but I do believe we'll see multiple more stories coming out if the asset backed alert story has any validity.

 

Speaking of stories of dubious validity - care to share the sources you have on all these hedge funds liquidating their holdings?

 

Also I never heard back from my prior response! :(

 

I generally try to limit posts about 2008 and subjective views such as loan loss reserve sufficiency.  it doesn't seem too relevant at this point, and it's hard or impossible to prove.  regarding highfields (a plaintiff), they publicly announced that the fund is closing.  and educated guessing on fairholme -- they had large redemptions before, their relative performance has worsened, and so generally in this industry redemptions continue.

 

It's entirely relevant because this mess would never have existed if they didn't come in manipulating the loss amounts and the accounting.

 

The upshot is that the entire thing was a lie from day 0.

 

The problem is that hindsight is 20/20. Was the Treasury/FHA overly conservative with their write down? Absolutely. But that only became clear AFTER the Fed and government took unprecedented actions to arrest a declining economy and a few years of a recovery after that.

 

Is any judge going to fault them for that conservativeness? Unlikely.

 

The crux of the problem is that AFTER the writedowns, it became apparent they were overly conservative and that shareholders were going to get paid on the reversal. The government then unilaterally altered it's contractual agreement to steal all of those profits and all future profits.

 

The economic environment doesn't give them cover for the latter decision. Nor does it require the benefits of hindsight to have known the companies were in the brink of massive profitability giving them the ability to float the 10% dividend. It's entirely unjustifiable and an easier case to make than are the original accounting assumptions.

[blackcoffee]

Mnuchin supports selling the governments stake.

 

Do we know how accurate this is, or how credible the source is?

 

But such a move would require the unwinding of the preferred shares the Treasury holds in Fannie and Freddie. Mnuchin has said he supported such an undertaking.

 

Unless Mnuchin has said this very recently, I missed it. Or is it just being extrapolated from the privatization comments?

 

not very credible imo unless the story appears in multiple outlets.  (or hardincap is impressed).

 

seems to me the only outlets that care about this are Bloomberg and specialized housing finance and securitization rags.  and WSJ...after it happens

 

a big if, but if something materially good is coming after the elections or new year via administrative action, it's likely to be leaked often in advance to limit the actual price move on the day of official announcement when most of the news stories are written, given the HF and berkowitz narrative.  so far there's 1.  would need multiple more to have credibility imo.

Both the marginal investor and the marginal journalist are not impressed yet...

 

it's tough to know.  the demand pool is somewhat limited and there's likely a lot of forced supply from fairholme and other liquidating hedge funds like highfields.  but I do believe we'll see multiple more stories coming out if the asset backed alert story has any validity.

 

Speaking of stories of dubious validity - care to share the sources you have on all these hedge funds liquidating their holdings?

 

Also I never heard back from my prior response! :(

 

I generally try to limit posts about 2008 and subjective views such as loan loss reserve sufficiency.  it doesn't seem too relevant at this point, and it's hard or impossible to prove.  regarding highfields (a plaintiff), they publicly announced that the fund is closing.  and educated guessing on fairholme -- they had large redemptions before, their relative performance has worsened, and so generally in this industry redemptions continue.

 

It's entirely relevant because this mess would never have existed if they didn't come in manipulating the loss amounts and the accounting.

 

The upshot is that the entire thing was a lie from day 0.

 

The problem is that hindsight is 20/20. Was the Treasury/FHA overly conservative with their write down? Absolutely. But that only became clear AFTER the Fed and government took unprecedented actions to arrest a declining economy and a few years of a recovery after that.

 

Is any judge going to fault them for that conservativeness? Unlikely.

 

The crux of the problem is that AFTER the writedowns, it became apparent they were overly conservative and that shareholders were going to get paid on the reversal. The government then unilaterally altered it's contractual agreement to steal all of those profits and all future profits.

 

The economic environment doesn't give them cover for the latter decision. Nor does it require the benefits of hindsight to have known the companies were in the brink of massive profitability giving them the ability to float the 10% dividend. It's entirely unjustifiable and an easier case to make than are the original accounting assumptions.

 

the problem with the hindsight argument is that the loss projections contemplated to achieve the desired write downs had never happened in the history of the country... meaning - they were multiple standard deviations away from the lowest ever... Add to that the environment laid out in The Mortgage Wars. Then you could see that the entire thing was premeditated. This is why people have to read it to understand the background. I'd be happy to read a competing history but none I've found to date are close to as good. Feel free to offer up suggestions.

[TwoCitiesCapital]

http://gselinks.com/wp-content/uploads/2018/10/GSEs_Bloomberg-Intelligence-20181019.pdf

 

 

 

a big if, but if something materially good is coming after the elections or new year via administrative action, it's likely to be leaked often in advance to limit the actual price move on the day of official announcement when most of the news stories are written, given the HF and berkowitz narrative.  so far there's 1.  would need multiple more to have credibility imo.

 

I don't disagree with you, but hoping that a judge will agree with you is a higher burden and one that I don't think is going to get met.

[investorG]

my overview, FWIW:

 

Ben Carson's comments yesterday on Bloomberg TV complement Phillips' from last week (and Mnuchin's prior) when he says HUD (FHA + Ginnie Mae) needs to be a large player in GSE reform with $3trn in assets.

 

It's clear to me that the MBA Plan is Mnuchin's plan, broadly speaking.  He has said he wants more competition, private capital, and a guarantee on MBS not the guarantor.  IMO we should re-read the MBA 6-page plan from last year.  IMO there will be no recap and release, admin action, etc, like many on the Twitter and message boards pine for.  He is not 'primarily' thinking about warrants but rather the long term stability of the US housing system, especially in cyclical downturns (hence the MBS gtee's importance).

 

I also re-read Landon Parson's op-ed from Sep-27.  He barely mentions the Moelis plan.  He simply asks for 2 things:  stop the sweep and cancel the Sr pref, while mentioning the warrant value.  Importantly, he says these 2 steps do NOT preclude legislative action.

 

I believe the Democrats will go along with the plan.  They will likely look at the affordable housing subsidies embedded in the current system (there are studies) and then simply ask for a larger amount in the future system, likely explicitly paid for out of the G-fees.  The ask will obviously be larger if Maxine Waters has the gavel. 

 

Besides an unexpected court win or settlement, the best we can hope for imo over the near term is a 4th amendment between Mnuchin and Watt whereby the sweep stops and is replaced by the long-dormant periodic committment fee.  A cancellation of the sr pref would be gravy.  This capital-building action would be a jolt for the GSE reform legislation potential in 2019.

 

At this point, I'd need material new information or a Democratic sweep (senate too) to change my view, which are both possible.  I could also be wrong.  I understand not all here share this view.  Good luck everyone!

 

[allnatural]

Thanks for your view. One key piece you miss and that continues to be reiterated by all parties: the white house plan, Mnuchins recent comments, and Phillips recent comments is- get the GSEs OUT of conservatorship (not unwind / replace), and RE-PRIVATIZE them. How do they achieve those 2 goals while not recap/releasing them is my question? I think a weaker pair of GSEs open to private competition but recapped and released is not inconsistent with MBA's plan.

 

Also is the admin willing to roll the dice with a potential $130b reversal in litigation (in light of recent Lamberth ruling + potential for court of federal claims to play out favorably to shareholders) vs. they stand to make $75-$100b+ while not returning a penny to shareholders? That's potential for ~$200b PnL swing. I hope they want to start with clean slate and get rid of the "pesky" shareholders.

 

my overview, FWIW:

 

Ben Carson's comments yesterday on Bloomberg TV complement Phillips' from last week (and Mnuchin's prior) when he says HUD (FHA + Ginnie Mae) needs to be a large player in GSE reform with $3trn in assets.

 

It's clear to me that the MBA Plan is Mnuchin's plan, broadly speaking.  He has said he wants more competition, private capital, and a guarantee on MBS not the guarantor.  IMO we should re-read the MBA 6-page plan from last year.  IMO there will be no recap and release, admin action, etc, like many on the Twitter and message boards pine for.  He is not 'primarily' thinking about warrants but rather the long term stability of the US housing system, especially in cyclical downturns (hence the MBS gtee's importance).

 

I also re-read Landon Parson's op-ed from Sep-27.  He barely mentions the Moelis plan.  He simply asks for 2 things:  stop the sweep and cancel the Sr pref, while mentioning the warrant value.  Importantly, he says these 2 steps do NOT preclude legislative action.

 

I believe the Democrats will go along with the plan.  They will likely look at the affordable housing subsidies embedded in the current system (there are studies) and then simply ask for a larger amount in the future system, likely explicitly paid for out of the G-fees.  The ask will obviously be larger if Maxine Waters has the gavel. 

 

Besides an unexpected court win or settlement, the best we can hope for imo over the near term is a 4th amendment between Mnuchin and Watt whereby the sweep stops and is replaced by the long-dormant periodic committment fee.  A cancellation of the sr pref would be gravy.  This capital-building action would be a jolt for the GSE reform legislation potential in 2019.

 

At this point, I'd need material new information or a Democratic sweep (senate too) to change my view, which are both possible.  I could also be wrong.  I understand not all here share this view.  Good luck everyone!

[rros]

Thanks for your view. One key piece you miss and that continues to be reiterated by all parties: the white house plan, Mnuchins recent comments, and Phillips recent comments is- get the GSEs OUT of conservatorship (not unwind / replace), and RE-PRIVATIZE them. How do they achieve those 2 goals while not recap/releasing them is my question? I think a weaker pair of GSEs open to private competition but recapped and released is not inconsistent with MBA's plan.

 

Also is the admin willing to roll the dice with a potential $130b reversal in litigation (in light of recent Lamberth ruling + potential for court of federal claims to play out favorably to shareholders) vs. they stand to make $75-$100b+ while not returning a penny to shareholders? That's potential for ~$200b PnL swing. I hope they want to start with clean slate and get rid of the "pesky" shareholders.

 

my overview, FWIW:

 

Ben Carson's comments yesterday on Bloomberg TV complement Phillips' from last week (and Mnuchin's prior) when he says HUD (FHA + Ginnie Mae) needs to be a large player in GSE reform with $3trn in assets.

 

It's clear to me that the MBA Plan is Mnuchin's plan, broadly speaking.  He has said he wants more competition, private capital, and a guarantee on MBS not the guarantor.  IMO we should re-read the MBA 6-page plan from last year.  IMO there will be no recap and release, admin action, etc, like many on the Twitter and message boards pine for.  He is not 'primarily' thinking about warrants but rather the long term stability of the US housing system, especially in cyclical downturns (hence the MBS gtee's importance).

 

I also re-read Landon Parson's op-ed from Sep-27.  He barely mentions the Moelis plan.  He simply asks for 2 things:  stop the sweep and cancel the Sr pref, while mentioning the warrant value.  Importantly, he says these 2 steps do NOT preclude legislative action.

 

I believe the Democrats will go along with the plan.  They will likely look at the affordable housing subsidies embedded in the current system (there are studies) and then simply ask for a larger amount in the future system, likely explicitly paid for out of the G-fees.  The ask will obviously be larger if Maxine Waters has the gavel. 

 

Besides an unexpected court win or settlement, the best we can hope for imo over the near term is a 4th amendment between Mnuchin and Watt whereby the sweep stops and is replaced by the long-dormant periodic committment fee.  A cancellation of the sr pref would be gravy.  This capital-building action would be a jolt for the GSE reform legislation potential in 2019.

 

At this point, I'd need material new information or a Democratic sweep (senate too) to change my view, which are both possible.  I could also be wrong.  I understand not all here share this view.  Good luck everyone!

The MBA plan of multiple guarantors includes this:

 

* Preserve where possible the existing infraestructure -for example, a rechartered Fannie Mae and Freddie Mac could be the first two guarantors.

 

In their detailed plan, where the first initial action is legislation, they actually make room for something similar to Landon Parson's wish list. There is this:

 

Congress should direct Treasury and FHFA to amend the PSPAs to ensure that they provide an appropriate MBS-level backstop for the GSE's existing MBS. As discussed below, GSE reform legislation could direct that the PSPAs be amended to permit the guarantors to build capital by retaining earnings after they begin operations and before Treasury sells its equity interests in them

 

So Parson's request is not incompatible. However, the MBA plan requires a bridge bank that would buy GSEs assets and liabilities to the extent that liabilities do not surpass assets. So Srs. may need to be cancelled for Jrs. and commons to also transition to the bridge bank. Who decides this in MBA's plan? Congress. Unless Parson gets his wish.

 

If he does, MBA plan will still have a backstop set at $258 billion with perhaps... a commitment fee, instead?

 

Adding..

The MBA plan fully contemplates Treasury's divestiture. So no question Treasury will make tens of billions out of the warrants. The plan, in the transition and implementation stage, keeps Treasury's interests alive. However, this doesn't guarantee a place for legacy shareholders. The plan doesn't specify if Treasury's stake that transitions to the bridge bank are the warrants or the exercised stock. I personally don't think it is possible to transform the current warrants into warrants of a different, newly issued Guarantor's common stock. If warrants and the common stock they are attached to are indistinguishably bonded, they must travel together, no? Further, it is literally impossible to conceive a transition where one of the actors is permitted to transition its 79.9% stake while the other actor who owns the remaining 20.1% disappears in the ether.

 

Still, the ideal situation would be for fully diluted common stock. This will guarantee total survival in the transition. If not, commons may not survive and Jrs. may survive in part or in full as a receivership may trigger our liquidation preference issue.

[allnatural]

Thanks for thoughts. Just to add- if treasury warrants are worth a penny or more (ownership of 80% of the common stock), jr prefs should be money good as they are senior to warrants/equity on the capital structure. Can't dance around us

 

Thanks for your view. One key piece you miss and that continues to be reiterated by all parties: the white house plan, Mnuchins recent comments, and Phillips recent comments is- get the GSEs OUT of conservatorship (not unwind / replace), and RE-PRIVATIZE them. How do they achieve those 2 goals while not recap/releasing them is my question? I think a weaker pair of GSEs open to private competition but recapped and released is not inconsistent with MBA's plan.

 

Also is the admin willing to roll the dice with a potential $130b reversal in litigation (in light of recent Lamberth ruling + potential for court of federal claims to play out favorably to shareholders) vs. they stand to make $75-$100b+ while not returning a penny to shareholders? That's potential for ~$200b PnL swing. I hope they want to start with clean slate and get rid of the "pesky" shareholders.

 

my overview, FWIW:

 

Ben Carson's comments yesterday on Bloomberg TV complement Phillips' from last week (and Mnuchin's prior) when he says HUD (FHA + Ginnie Mae) needs to be a large player in GSE reform with $3trn in assets.

 

It's clear to me that the MBA Plan is Mnuchin's plan, broadly speaking.  He has said he wants more competition, private capital, and a guarantee on MBS not the guarantor.  IMO we should re-read the MBA 6-page plan from last year.  IMO there will be no recap and release, admin action, etc, like many on the Twitter and message boards pine for.  He is not 'primarily' thinking about warrants but rather the long term stability of the US housing system, especially in cyclical downturns (hence the MBS gtee's importance).

 

I also re-read Landon Parson's op-ed from Sep-27.  He barely mentions the Moelis plan.  He simply asks for 2 things:  stop the sweep and cancel the Sr pref, while mentioning the warrant value.  Importantly, he says these 2 steps do NOT preclude legislative action.

 

I believe the Democrats will go along with the plan.  They will likely look at the affordable housing subsidies embedded in the current system (there are studies) and then simply ask for a larger amount in the future system, likely explicitly paid for out of the G-fees.  The ask will obviously be larger if Maxine Waters has the gavel. 

 

Besides an unexpected court win or settlement, the best we can hope for imo over the near term is a 4th amendment between Mnuchin and Watt whereby the sweep stops and is replaced by the long-dormant periodic committment fee.  A cancellation of the sr pref would be gravy.  This capital-building action would be a jolt for the GSE reform legislation potential in 2019.

 

At this point, I'd need material new information or a Democratic sweep (senate too) to change my view, which are both possible.  I could also be wrong.  I understand not all here share this view.  Good luck everyone!

The MBA plan of multiple guarantors includes this:

 

* Preserve where possible the existing infraestructure -for example, a rechartered Fannie Mae and Freddie Mac could be the first two guarantors.

 

In their detailed plan, where the first initial action is legislation, they actually make room for something similar to Landon Parson's wish list. There is this:

 

Congress should direct Treasury and FHFA to amend the PSPAs to ensure that they provide an appropriate MBS-level backstop for the GSE's existing MBS. As discussed below, GSE reform legislation could direct that the PSPAs be amended to permit the guarantors to build capital by retaining earnings after they begin operations and before Treasury sells its equity interests in them

 

So Parson's request is not incompatible. However, the MBA plan requires a bridge bank that would buy GSEs assets and liabilities to the extent that liabilities do not surpass assets. So Srs. may need to be cancelled for Jrs. and commons to also transition to the bridge bank. Who decides this in MBA's plan? Congress. Unless Parson gets his wish.

 

If he does, MBA plan will still have a backstop set at $258 billion with perhaps... a commitment fee, instead?

 

Adding..

The MBA plan fully contemplates Treasury's divestiture. So no question Treasury will make tens of billions out of the warrants. The plan, in the transition and implementation stage, keeps Treasury's interests alive. However, this doesn't guarantee a place for legacy shareholders. The plan doesn't specify if Treasury's stake that transitions to the bridge bank are the warrants or the exercised stock.

 

Ideally, it should be common stock. This will guarantee our survival in the transition. If not, commons may not survive and Jrs. may survive in part or in full as a receivership may trigger our liquidation preference issue.

[rros]

Thanks for thoughts. Just to add- if treasury warrants are worth a penny or more (ownership of 80% of the common stock), jr prefs should be money good as they are senior to warrants/equity on the capital structure. Can't dance around us

 

Thanks for your view. One key piece you miss and that continues to be reiterated by all parties: the white house plan, Mnuchins recent comments, and Phillips recent comments is- get the GSEs OUT of conservatorship (not unwind / replace), and RE-PRIVATIZE them. How do they achieve those 2 goals while not recap/releasing them is my question? I think a weaker pair of GSEs open to private competition but recapped and released is not inconsistent with MBA's plan.

 

Also is the admin willing to roll the dice with a potential $130b reversal in litigation (in light of recent Lamberth ruling + potential for court of federal claims to play out favorably to shareholders) vs. they stand to make $75-$100b+ while not returning a penny to shareholders? That's potential for ~$200b PnL swing. I hope they want to start with clean slate and get rid of the "pesky" shareholders.

 

my overview, FWIW:

 

Ben Carson's comments yesterday on Bloomberg TV complement Phillips' from last week (and Mnuchin's prior) when he says HUD (FHA + Ginnie Mae) needs to be a large player in GSE reform with $3trn in assets.

 

It's clear to me that the MBA Plan is Mnuchin's plan, broadly speaking.  He has said he wants more competition, private capital, and a guarantee on MBS not the guarantor.  IMO we should re-read the MBA 6-page plan from last year.  IMO there will be no recap and release, admin action, etc, like many on the Twitter and message boards pine for.  He is not 'primarily' thinking about warrants but rather the long term stability of the US housing system, especially in cyclical downturns (hence the MBS gtee's importance).

 

I also re-read Landon Parson's op-ed from Sep-27.  He barely mentions the Moelis plan.  He simply asks for 2 things:  stop the sweep and cancel the Sr pref, while mentioning the warrant value.  Importantly, he says these 2 steps do NOT preclude legislative action.

 

I believe the Democrats will go along with the plan.  They will likely look at the affordable housing subsidies embedded in the current system (there are studies) and then simply ask for a larger amount in the future system, likely explicitly paid for out of the G-fees.  The ask will obviously be larger if Maxine Waters has the gavel. 

 

Besides an unexpected court win or settlement, the best we can hope for imo over the near term is a 4th amendment between Mnuchin and Watt whereby the sweep stops and is replaced by the long-dormant periodic committment fee.  A cancellation of the sr pref would be gravy.  This capital-building action would be a jolt for the GSE reform legislation potential in 2019.

 

At this point, I'd need material new information or a Democratic sweep (senate too) to change my view, which are both possible.  I could also be wrong.  I understand not all here share this view.  Good luck everyone!

The MBA plan of multiple guarantors includes this:

 

* Preserve where possible the existing infraestructure -for example, a rechartered Fannie Mae and Freddie Mac could be the first two guarantors.

 

In their detailed plan, where the first initial action is legislation, they actually make room for something similar to Landon Parson's wish list. There is this:

 

Congress should direct Treasury and FHFA to amend the PSPAs to ensure that they provide an appropriate MBS-level backstop for the GSE's existing MBS. As discussed below, GSE reform legislation could direct that the PSPAs be amended to permit the guarantors to build capital by retaining earnings after they begin operations and before Treasury sells its equity interests in them

 

So Parson's request is not incompatible. However, the MBA plan requires a bridge bank that would buy GSEs assets and liabilities to the extent that liabilities do not surpass assets. So Srs. may need to be cancelled for Jrs. and commons to also transition to the bridge bank. Who decides this in MBA's plan? Congress. Unless Parson gets his wish.

 

If he does, MBA plan will still have a backstop set at $258 billion with perhaps... a commitment fee, instead?

 

Adding..

The MBA plan fully contemplates Treasury's divestiture. So no question Treasury will make tens of billions out of the warrants. The plan, in the transition and implementation stage, keeps Treasury's interests alive. However, this doesn't guarantee a place for legacy shareholders. The plan doesn't specify if Treasury's stake that transitions to the bridge bank are the warrants or the exercised stock.

 

Ideally, it should be common stock. This will guarantee our survival in the transition. If not, commons may not survive and Jrs. may survive in part or in full as a receivership may trigger our liquidation preference issue.

If commons are green light, we shine bright. With the caveat above.

[Luke 532]

From the attached document...

"Plaintiffs’ Position: Given that they believe there is a reasonable probability for settlement, Plaintiffs believe the case could benefit from ADR procedures such as mediation. Plaintiffs’ counsel have discussed ADR and their response to this provision with their clients. While Plaintiffs believe that ADR procedures could be useful, they do not believe that proceedings in the case should be delayed during the pendency of any such procedures.

 

Defendants’ Position: Defendants do not believe ADR would be productive."

13-cv-01053-0089.pdf

[Sunrider]

Yes - but also ‘defendants do not believe ADR would be productive’ .... so I’m not sure what you make of this?

Thanks!

 

From the attached document...

"Plaintiffs’ Position: Given that they believe there is a reasonable probability for settlement, Plaintiffs believe the case could benefit from ADR procedures such as mediation. Plaintiffs’ counsel have discussed ADR and their response to this provision with their clients. While Plaintiffs believe that ADR procedures could be useful, they do not believe that proceedings in the case should be delayed during the pendency of any such procedures.

 

Defendants’ Position: Defendants do not believe ADR would be productive."