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

[orthopa]

Nevertheless, fellow travelers getting nervous...

 

https://thehill.com/opinion/finance/420633-fannie-and-freddie-investors-want-us-to-forget-about-the-housing-crisis

 

This certainly gives some legitimacy to Moelis as these guys are obviously worried this maybe in the works or the best plan. Their outrage and warnings seems to have dissipated in reading the text.  Seems like they are getting tired of fighting too.

[DRValue]

Apologies if already posted.

 

https://www.housingwire.com/articles/47672-what-would-mark-calabria-as-fhfa-director-mean-for-the-future-of-fannie-and-freddie

 

Seems positive overall.

 

The ability of the fhfa to control (raise) guarantee fees worries me a little. I would understand influencing gse's with capital levels but controlling pricing seems off to me. I'd imagine the only reason for wanting the fhfa to control pricing is to price Fannie and Freddie out of the market? Thoughts?

[orthopa]

Apologies if already posted.

 

https://www.housingwire.com/articles/47672-what-would-mark-calabria-as-fhfa-director-mean-for-the-future-of-fannie-and-freddie

 

Seems positive overall.

 

The ability of the fhfa to control (raise) guarantee fees worries me a little. I would understand influencing gse's with capital levels but controlling pricing seems off to me. I'd imagine the only reason for wanting the fhfa to control pricing is to price Fannie and Freddie out of the market? Thoughts?

 

Obviously as a shareholder Im biased but I think its becoming more and more clear there is a very high likely hood this happens with some debate on what the actual recap and release is.

 

“We think it is possible the administration does not wait for Congress to act (on ending the GSE conservatorship) and instead decides to act on its own to end the conservatorship by recapitalizing and releasing the GSEs,” the KBW analysts write. “The fact that Dr. Calabria has said that amending the conservatorship was illegal suggests that he would end the profit sweep and allow the GSEs to start rebuilding capital. We think this view has support within the administration.”

 

I know that for the sake of discussion others have brought up other scenarios but has there been any evidence thus far to say the above  doesnt happen? Its seems like maybe as a result of speculation fatigue or recency bias the scenario is being totally discounted by many as too good to be true and un realistic when in fact its likely just the opposite.

[Guest cherzeca]

@drv

 

G fee pricing is an important issue that reasonable people can disagree on. Just like pricing any product or service what you gain in per transaction you can lose in number of transactions. Because of the policy goals of GSEs some think pricing is less than the market could bear. This is the kind of thing economists like Calabria could study and recommend ex ante and get it wrong.

[Wiggins]

Just another thought... what of the bizarre possibility of Calabria who has penned the best repudiation of the NWS in an academic paper becoming the head of an agency that is defending the NWS in court? Wouldn't the plaintiffs reference the Calabria/Krimminger paper heavily in court? It would not only be the words of the FHFA director but it's an elegant work in its own right. What would the defense attorneys say?: that the prior, academic, explicit, expert policy views of the director are not the views of the agency? That just seems bizarre and stupid. So maybe the Calabria possibility should provide some solace to shareholders. At the very least one would expect the NWS to stop. Further, it may also suggest the warrants are in play. Based on Calabria's prior comments he absolutely would not support the warrants being executed. He stated plainly that the Government was not meant to make money, only to recoup its original investment. Of course, he won't be in charge of Treasury which will be making the decisions. And while he wouldn't support the warrants, he would support a massive restructuring of the agencies which could make commons worthless. But with this theory, since the Government is paid back the JPS are first up for any residual value on the table. Just a theory though.

In my view, writing a paper from the bench and having godlike powers as the head of the FHFA can radically alter one's perspective. Calabria may be in a position, as Director of the FHFA, to play in a sandbox and follow his dreams responding to nobody once confirmed. So it may be a mistake to nail him down on his paper. Deep down, Calabria believes there is no reason for Fannie and Freddie to exist. Less than deep down there is the market reality which, as Locus has just mentioned, is becoming less orderly. And the housing market in particular has been subject to many headwinds that any head of the FHFA will not be able to ignore.

 

We should also not speculate on a warrants gift to the government. Trump just said on TV that 5 billion will do wonders for the wall. He doesn't need Treasury's warrants. Further, he wants that money to come from Democrats, in a way.

 

Finally, I agree with investorG. For any resolution, which implies unloading vasts amounts of money on Fannie and Freddie's fire (lack of capital), money men will absolutely want to have some kind of legislation as assurance and insurance. Even though HERA, as comprehensive as it was, became useless both as assurance and insurance when one person -just one- decided there was a better way.

 

The 2015 academic CATO paper written by Calabria is a masterwork that took tons and tons of time, and one which will remain a cornerstone of his career. I do not buy the notion that for the trappings of power Calabria will cast this history aside when and if he is installed as the FHFA director, a post that has been ruled unconstitutional, by process of nomination by a president likely to be impeached (but not convicted by the senate, of course). This is a highly visible position that may effect the entire US economy and be judged for years into the future. My bet would be that he would ascend (descend?) to the post of FHFA director to effect change and try and put his stamp on the process, not to harness the trappings of that post. I could be wrong, but I know what it takes to write an academic paper and the paper he wrote for CATO is no joke. It is a thing of beauty.  I think the point about what plaintiffs' attorneys would do with this material is a good one and I stand by it. If it goes that far along we will see; perhaps on January 23rd. One cannot unwrite those words.

 

I'm sorry but I'm kind of focused on the court cases. I think they are fascinating, they will set precedent that is important in the US, and forgive me but I don't trust any of these jackalopes without the rule of law standing firmly behind them keeping them in line. Politics plays its part, but the law is supreme.

[Luke 532]

Calabria it is... https://www.whitehouse.gov/presidential-actions/president-donald-j-trump-announces-intent-nominate-appoint-individuals-key-administration-posts-3/

[Midas79]

Calabria it is... https://www.whitehouse.gov/presidential-actions/president-donald-j-trump-announces-intent-nominate-appoint-individuals-key-administration-posts-3/

 

As the Joker would say, "Here. We. Go."

 

I'm not sure how to feel about this. Calabria is certainly no fan of the status quo, and I think we will see changes very soon. Whether those are good or bad for current shareholders, who knows.

 

I feel even more comfortable about my 100% preferred allocation (no commons) than I ever have before.

[SnarkyPuppy]

HAs anyone in this thread directly addressed the significant reduction in Fairholmes ownership?  Doesn't seem entirely due to redemptions etc

[rros]

Just another thought... what of the bizarre possibility of Calabria who has penned the best repudiation of the NWS in an academic paper becoming the head of an agency that is defending the NWS in court? Wouldn't the plaintiffs reference the Calabria/Krimminger paper heavily in court? It would not only be the words of the FHFA director but it's an elegant work in its own right. What would the defense attorneys say?: that the prior, academic, explicit, expert policy views of the director are not the views of the agency? That just seems bizarre and stupid. So maybe the Calabria possibility should provide some solace to shareholders. At the very least one would expect the NWS to stop. Further, it may also suggest the warrants are in play. Based on Calabria's prior comments he absolutely would not support the warrants being executed. He stated plainly that the Government was not meant to make money, only to recoup its original investment. Of course, he won't be in charge of Treasury which will be making the decisions. And while he wouldn't support the warrants, he would support a massive restructuring of the agencies which could make commons worthless. But with this theory, since the Government is paid back the JPS are first up for any residual value on the table. Just a theory though.

In my view, writing a paper from the bench and having godlike powers as the head of the FHFA can radically alter one's perspective. Calabria may be in a position, as Director of the FHFA, to play in a sandbox and follow his dreams responding to nobody once confirmed. So it may be a mistake to nail him down on his paper. Deep down, Calabria believes there is no reason for Fannie and Freddie to exist. Less than deep down there is the market reality which, as Locus has just mentioned, is becoming less orderly. And the housing market in particular has been subject to many headwinds that any head of the FHFA will not be able to ignore.

 

We should also not speculate on a warrants gift to the government. Trump just said on TV that 5 billion will do wonders for the wall. He doesn't need Treasury's warrants. Further, he wants that money to come from Democrats, in a way.

 

Finally, I agree with investorG. For any resolution, which implies unloading vasts amounts of money on Fannie and Freddie's fire (lack of capital), money men will absolutely want to have some kind of legislation as assurance and insurance. Even though HERA, as comprehensive as it was, became useless both as assurance and insurance when one person -just one- decided there was a better way.

 

The 2015 academic CATO paper written by Calabria is a masterwork that took tons and tons of time, and one which will remain a cornerstone of his career. I do not buy the notion that for the trappings of power Calabria will cast this history aside when and if he is installed as the FHFA director, a post that has been ruled unconstitutional, by process of nomination by a president likely to be impeached (but not convicted by the senate, of course). This is a highly visible position that may effect the entire US economy and be judged for years into the future. My bet would be that he would ascend (descend?) to the post of FHFA director to effect change and try and put his stamp on the process, not to harness the trappings of that post. I could be wrong, but I know what it takes to write an academic paper and the paper he wrote for CATO is no joke. It is a thing of beauty.  I think the point about what plaintiffs' attorneys would do with this material is a good one and I stand by it. If it goes that far along we will see; perhaps on January 23rd. One cannot unwrite those words.

 

I'm sorry but I'm kind of focused on the court cases. I think they are fascinating, they will set precedent that is important in the US, and forgive me but I don't trust any of these jackalopes without the rule of law standing firmly behind them keeping them in line. Politics plays its part, but the law is supreme.

Thank you, Wiggins. Are you referring to this paper https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2539197? Because I was only referring to the Amicus Curiae he wrote together with Krimminger where he sides with shareholders.

[rros]

I am sorry. I removed the link. The video was from 2015. By error, I quoted the video below on that page. A more recent one.

 

So not happy anymore. I believe anything written or said 3-1/2 years ago doesn't really count.

[allnatural]

I believe Calabria's most recent public appearance where he spoke at a housing conference last year (nov 2017) is helpful to reference  (

).

 

He touches on GSEs but here are a few comments I was able to takeaway:

- #1 Objective of housing finance reform is to reduce the risk to the taxpayer

- Highlighted that the GSEs have no capital, thus taxpayers are on the hook for any modest decline and are more exposed to the mortgage market today than in 2008 or ever

- Wants a housing market less dependant on federal support (+private capital)

- Wants to make sure conservatorship isn't handed over to next admin

- Just began looking at a path out of conservatorship (since then the whitehouse has publicly stated said they want to re-privatize the GSEs)

- Wants a glide path to get them out of conservatorship (interesting choice of language, doesn't say unwind or get rid of but get out of)

- Says hes a rule of law / due process guy (we already know his take on how FHFA is conducting the conservatorship)

- No commentary about getting rid of gses, getting rid of 30 year mortgage, etc.

 

I also want to comment that I have seen some comments thrown around that he is pro receivership... I think this is taken out of context. He has discussed in past that after 2008 when the government took control of the GSEs, FHFA should have placed them into receivership rather than conservatorship at the time... But that receivership ship has sailed since then and I don't believe he thinks that's a valid option today.

 

[Guest cherzeca]

If you think this administration wants to recapitalize GSEs and get them out of conservatorship then you have to reverse the NWS. Calabria is on board with reversing the NWS. I’m keeping it simple for now. So far I am a fan of this nomination

[orthopa]

All of the "enemys" of FnF, Warner, Dave Stevens are unhappy with nomination. I think its easy to see why. In a twitter reply before Calabria was announced Dave Stevens said the narrative shouldn't be about shareholders it should be about reform first. He sees it.

 

Does anyone at this point legitimately not see Calabria/Mnuchin taking FnF out of conservatorship, stopping NWS, starting recapitalization? If you don't believe that this will happen in light of everything that has happened to date then why are you still holding shares? Is it just too good for some to believe?

 

We are the closest we have ever been. Are you/we being modest in case of a huge let down? What gives

 

Over time we went from salting the earth with Fannie and Freddie to a FHFA nominee that wants to build capital, stop the conservatorship, has been pro shareholder on paper and  yet some still don't think this may actually happen? :o

[DRValue]

All of the "enemys" of FnF, Warner, Dave Stevens are unhappy with nomination. I think its easy to see why. In a twitter reply before Calabria was announced Dave Stevens said the narrative shouldn't be about shareholders it should be about reform first. He sees it.

 

Does anyone at this point legitimately not see Calabria/Mnuchin taking FnF out of conservatorship, stopping NWS, starting recapitalization? If you don't believe that this will happen in light of everything that has happened to date then why are you still holding shares? Is it just too good for some to believe?

 

We are the closest we have ever been. Are you/we being modest in case of a huge let down? What gives

 

Over time we went from salting the earth with Fannie and Freddie to a FHFA nominee that wants to build capital, stop the conservatorship, has been pro shareholder on paper and  yet some still don't think this may actually happen? :o

 

haha. If they're angry then something shareholder friendly must be coming.

 

I'm quietly confident and I think its a question of how much will the return be rather than will there be one. If the share price doesn't meet my estimate of intrinsic value by a large enough margin if recap and release is announced with the terms, then I'm going all in.

[orthopa]

Secondly if we are aware of what Calabria has written, sure as shit others in congress/ Trump administration are also. How is this guy nominated with pro shareholder views on paper if he isnt going to execute those views...which coincidentally match word for for what Mnuchin has said?

 

Why would Trump administration make it difficult? Just nominate someone else if you had a different agenda. He had a conference call with Investors Unite in 2015 for christ sakes. NO ONE else in the trump administration outside of Mulvaney has been as proshare holder as Calabria. True he has had some conflicting views on housing policy but to my knowledge not shareholder treatment. They could have picked anyone else.

[DRValue]

Secondly if we are aware of what Calabria has written, sure as shit others in congress/ Trump administration are also. How is this guy nominated with pro shareholder views on paper if he isnt going to execute those views...which coincidentally match word for for what Mnuchin has said?

 

Why would Trump administration make it difficult? Just nominate someone else if you had a different agenda. He had a conference call with Investors Unite in 2015 for christ sakes. NO ONE else in the trump administration outside of Mulvaney has been as proshare holder as Calabria. True he has had some conflicting views on housing policy but to my knowledge not shareholder treatment. They could have picked anyone else.

 

I don't think everything he has said can be seen as shareholder friendly, it could be argued either way. I do note the Investors Unite conference call though. I looked for it today but its not on the website that i can see. Do you know if it's anywhere online?

[rros]

Secondly if we are aware of what Calabria has written, sure as shit others in congress/ Trump administration are also. How is this guy nominated with pro shareholder views on paper if he isnt going to execute those views...which coincidentally match word for for what Mnuchin has said?

 

Why would Trump administration make it difficult? Just nominate someone else if you had a different agenda. He had a conference call with Investors Unite in 2015 for christ sakes. NO ONE else in the trump administration outside of Mulvaney has been as proshare holder as Calabria. True he has had some conflicting views on housing policy but to my knowledge not shareholder treatment. They could have picked anyone else.

I think we all see this. But in the best Pavlov fashion we have been trained to expect bad outcomes. In my own case I know I am now terrified of a windfall. Maybe I will even give it away to Corker. Or Stevens. Parrot?

[DRValue]

Secondly if we are aware of what Calabria has written, sure as shit others in congress/ Trump administration are also. How is this guy nominated with pro shareholder views on paper if he isnt going to execute those views...which coincidentally match word for for what Mnuchin has said?

 

Why would Trump administration make it difficult? Just nominate someone else if you had a different agenda. He had a conference call with Investors Unite in 2015 for christ sakes. NO ONE else in the trump administration outside of Mulvaney has been as proshare holder as Calabria. True he has had some conflicting views on housing policy but to my knowledge not shareholder treatment. They could have picked anyone else.

I think we all see this. But in the best Pavlov fashion we have been trained to expect bad outcomes. In my own case I know I am now terrified of a windfall. Maybe I will even give it away to Corker. Or Stevens. Parrot?

 

"I am now terrified of a windfall".  ;D one of the best comments.

[Luke 532]

In my own case I know I am now terrified of a windfall. Maybe I will even give it away to Corker. Or Stevens. Parrot?

 

Classic! 

[Midas79]

Many parts of Calabria's paper, written with Krimminger, directly contradict positions that FHFA has taken in the various lawsuits. What does that mean for the lawsuits? We already saw some of this when the DoJ refused to defend CFPB as a constitutionally structured agency, and thus had to take the same stance with FHFA (or did I remember wrong)?

 

http://investorsunite.org/wp-content/uploads/2015/01/Krimminger-Calabria-HERA-White-Paper-Jan-29.pdf

 

An example from page 5

 

HERA requires FHFA to conduct the conservatorships in order to “preserve and conserve” the

Companies and to rehabilitate them so that they return to a “sound and solvent” condition.

 

Watt's name on all the lawsuits will be changed to Calabria's, right? If Calabria himself had the opinion that preserving and conserving the assets are actually required (and not optional, as FHFA and Treasury have held so far), would he have to either change his stance or stop defending the lawsuits?

[Eye4Valu]

Many parts of Calabria's paper, written with Krimminger, directly contradict positions that FHFA has taken in the various lawsuits. What does that mean for the lawsuits? We already saw some of this when the DoJ refused to defend CFPB as a constitutionally structured agency, and thus had to take the same stance with FHFA (or did I remember wrong)?

 

http://investorsunite.org/wp-content/uploads/2015/01/Krimminger-Calabria-HERA-White-Paper-Jan-29.pdf

 

An example from page 5

 

HERA requires FHFA to conduct the conservatorships in order to “preserve and conserve” the

Companies and to rehabilitate them so that they return to a “sound and solvent” condition.

 

Watt's name on all the lawsuits will be changed to Calabria's, right? If Calabria himself had the opinion that preserving and conserving the assets are actually required (and not optional, as FHFA and Treasury have held so far), would he have to either change his stance or stop defending the lawsuits?

 

I think there will be a global resolution to settle the lawsuits and end the conservatorship. I don't think Calabria or an acting director will immediately drop the lawsuits or change position until they put forward the global resolution. What I wonder is if a 5th Circuit decision comes down before a global resolution is announced, which seems probable.

[Wiggins]

Just another thought... what of the bizarre possibility of Calabria who has penned the best repudiation of the NWS in an academic paper becoming the head of an agency that is defending the NWS in court? Wouldn't the plaintiffs reference the Calabria/Krimminger paper heavily in court? It would not only be the words of the FHFA director but it's an elegant work in its own right. What would the defense attorneys say?: that the prior, academic, explicit, expert policy views of the director are not the views of the agency? That just seems bizarre and stupid. So maybe the Calabria possibility should provide some solace to shareholders. At the very least one would expect the NWS to stop. Further, it may also suggest the warrants are in play. Based on Calabria's prior comments he absolutely would not support the warrants being executed. He stated plainly that the Government was not meant to make money, only to recoup its original investment. Of course, he won't be in charge of Treasury which will be making the decisions. And while he wouldn't support the warrants, he would support a massive restructuring of the agencies which could make commons worthless. But with this theory, since the Government is paid back the JPS are first up for any residual value on the table. Just a theory though.

In my view, writing a paper from the bench and having godlike powers as the head of the FHFA can radically alter one's perspective. Calabria may be in a position, as Director of the FHFA, to play in a sandbox and follow his dreams responding to nobody once confirmed. So it may be a mistake to nail him down on his paper. Deep down, Calabria believes there is no reason for Fannie and Freddie to exist. Less than deep down there is the market reality which, as Locus has just mentioned, is becoming less orderly. And the housing market in particular has been subject to many headwinds that any head of the FHFA will not be able to ignore.

 

We should also not speculate on a warrants gift to the government. Trump just said on TV that 5 billion will do wonders for the wall. He doesn't need Treasury's warrants. Further, he wants that money to come from Democrats, in a way.

 

Finally, I agree with investorG. For any resolution, which implies unloading vasts amounts of money on Fannie and Freddie's fire (lack of capital), money men will absolutely want to have some kind of legislation as assurance and insurance. Even though HERA, as comprehensive as it was, became useless both as assurance and insurance when one person -just one- decided there was a better way.

 

The 2015 academic CATO paper written by Calabria is a masterwork that took tons and tons of time, and one which will remain a cornerstone of his career. I do not buy the notion that for the trappings of power Calabria will cast this history aside when and if he is installed as the FHFA director, a post that has been ruled unconstitutional, by process of nomination by a president likely to be impeached (but not convicted by the senate, of course). This is a highly visible position that may effect the entire US economy and be judged for years into the future. My bet would be that he would ascend (descend?) to the post of FHFA director to effect change and try and put his stamp on the process, not to harness the trappings of that post. I could be wrong, but I know what it takes to write an academic paper and the paper he wrote for CATO is no joke. It is a thing of beauty.  I think the point about what plaintiffs' attorneys would do with this material is a good one and I stand by it. If it goes that far along we will see; perhaps on January 23rd. One cannot unwrite those words.

 

I'm sorry but I'm kind of focused on the court cases. I think they are fascinating, they will set precedent that is important in the US, and forgive me but I don't trust any of these jackalopes without the rule of law standing firmly behind them keeping them in line. Politics plays its part, but the law is supreme.

Thank you, Wiggins. Are you referring to this paper https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2539197? Because I was only referring to the Amicus Curiae he wrote together with Krimminger where he sides with shareholders.

 

rros I was referring to the Krimminger Calabria paper from 2015 which is 50 pages long with 123 references. Here is another paper providing food for thought, and in some ways hits harder than the paper with Krimminger:

https://object.cato.org/sites/cato.org/files/pubs/pdf/working-paper-25_1.pdf

In this paper, he dings "prudential regulators" for not following the law. Boom. He is consistent and it's crystal clear what he believes. He says a lot more, such as dinging the "transparency" of decisions by FHFA and Treasury if you go through this paper.

The paper/link YOU posted is consistent with a number of his op/ed pieces on why he does not like the GSE business model. He has a nuanced view. Here is a summation of his nuanced views followed by my own simplified distillation of what that means for shareholders at this current time:

1) Pro-shareholder views: HERA was violated and laws were broken. As a result the GSEs have dangerously low capital, and taxpayers are more at risk now than ever. Shareholders were screwed.

2) Anti-shareholder views: the GSEs are bad business models because they create more leverage in the system, and we need to deleverage. This should be accomplished by getting rid of the mortgage-interest deduction entirely and by increasing required equity (down payments) in loans. The GSEs subsidize leverage in the housing sector which is their main failing.

3) Distillation: #1 is fairly easy to do as we all know, and will not risk the economy. #2 if enacted quickly would clearly throw the economy into a recession/depression. Calabria and others obviously know this point about #2, thus it needs to be done very gradually. Thus, #1 wins and will be the dominant Calabrian view that we see in immediate policy going forward. He will certainly work on #2, but these will be gradual. As an aside I would just make a couple of observations: his point that housing prices would fall under his policies is correct, but his implication that housing would be more affordable is not (actually he doesn't make this point so much, more that there will be less risk, which likely IS correct); because prospective buyers would have less incentives/subsidies to buy a home..so they would be able to AFFORD less. So really this just moves prices; it doesn't necessarily make housing more affordable. And the other observation about Calabria's views (#2) is that since they will take a lot of time, they become subjected to the vagaries of political winds and changing administrations over time, which softens their impact. Thus, in my view the recap is coming, and there's no guarantee the GSEs WON'T remain dominant in housing for years to come. Commons could do quite well.

[Midas79]

He is consistent and it's crystal clear what he believes.

 

I agree here. I think this makes it less likely that Calabria is just going to be a yes-man for Trump, and instead that Trump actually supports Calabria's views and appointed him in order for them to be carried out.

 

As an aside I would just make a couple of observations: his point that housing prices would fall under his policies is correct, but his implication that housing would be more affordable is not (actually he doesn't make this point so much, more that there will be less risk, which likely IS correct); because prospective buyers would have less incentives/subsidies to buy a home..so they would be able to AFFORD less. So really this just moves prices; it doesn't necessarily make housing more affordable. And the other observation about Calabria's views (#2) is that since they will take a lot of time, they become subjected to the vagaries of political winds and changing administrations over time, which softens their impact. Thus, in my view the recap is coming, and there's no guarantee the GSEs WON'T remain dominant in housing for years to come. Commons could do quite well.

 

I see your point about affordable housing: Calabria argues that having lower home prices while keeping incomes unchanged makes housing more affordable, but if you can't get a loan even with a better loan value-to-income ratio, it doesn't necessarily make housing more available. Or, more accurately, home ownership.

 

I do agree with Calabria that increasing the housing supply is the best way to promote home ownership.

 

I don't share your optimism about the commons, though, for many reasons.

 

• Calabria wants very, very high capital standards, arguing for at least 5% in some places and as high as 8% in others. FHFA's proposal, by contrast, calls for 3.25%. The amount of dilution needed to get to Calabria's standards while Trump is still in office is staggering.
  
• Calabria and Treasury both want the GSEs to have a smaller footprint, meaning less in earnings power. Predictions based on current income levels, as Moelis includes, are likely to be overly optimistic.
  
• You can get the best of both worlds if the junior preferreds are offered a conversion, because it would have to be voluntary and thus at a premium to what you could get in the market. Many see par as the ceiling for the juniors, but the plaintiffs will be starting their negotiations at par plus back dividends, interest, etc. so they might be able to get more, especially in a conversion scenario.
  

 

Every time I think about selling some of my juniors to buy commons I hesitate, and end up being glad that I did. I do think the commons have a higher upside in the best-case scenario, but there is real and substantial downside risk there if enough new shares get issued for a recap.

[DocSnowball]

Thank you for sharing this paper.

 

To date I have thought that Treasury holds 79.9% of equity in addition to seniors, and one reason why they will not walk away. What of the scenario of receivership and restructuring using a good bank/ bad bank model and Treasury making its money in perpetuity by the explicit guarantee fee instead of over 2-3 years by selling its common equity? In that scenario shareholders are left to get whatever is felt to be the value of the residual bad bank assets, which may be ultimately dependent on a takings claim decision. Appreciate if there is any reason to disconfirm this line of thinking apart from the language in HERA about needing to do this over a few years which I have read. 

[Guest cherzeca]

Many parts of Calabria's paper, written with Krimminger, directly contradict positions that FHFA has taken in the various lawsuits. What does that mean for the lawsuits? We already saw some of this when the DoJ refused to defend CFPB as a constitutionally structured agency, and thus had to take the same stance with FHFA (or did I remember wrong)?

 

http://investorsunite.org/wp-content/uploads/2015/01/Krimminger-Calabria-HERA-White-Paper-Jan-29.pdf

 

An example from page 5

 

HERA requires FHFA to conduct the conservatorships in order to “preserve and conserve” the

Companies and to rehabilitate them so that they return to a “sound and solvent” condition.

 

Watt's name on all the lawsuits will be changed to Calabria's, right? If Calabria himself had the opinion that preserving and conserving the assets are actually required (and not optional, as FHFA and Treasury have held so far), would he have to either change his stance or stop defending the lawsuits?

 

I think there will be a global resolution to settle the lawsuits and end the conservatorship. I don't think Calabria or an acting director will immediately drop the lawsuits or change position until they put forward the global resolution. What I wonder is if a 5th Circuit decision comes down before a global resolution is announced, which seems probable.

 

It could well be that Collins en banc decision comes out before Calabria is confirmed. Oral arg is 1/23 and the en banc court has two opinions from the merits panel both pro P (of course one was a dissent, the majority didn’t bother to write an opinion on the APA claim, the other one re constitutional claim  needs to go further and provide relief to Ps). So the groundwork for an en banc opinion has been laid. As for senate confirmation the senate banking committee needs to hold a hearing and dems are likely to stall it until cloture is reached through lapse of time.