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


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https://www.marketwatch.com/story/fhfa-acting-director-discussing-plan-to-take-fannie-and-freddie-out-of-conservatorship-2019-01-18?mod=mw_share_twitter

 

"The acting director of the Federal Housing Finance Agency has told the agency’s employees that the regulator will announce a plan within weeks to take the government-sponsored enterprises out of conservatorship."

 

Later...

 

"A spokesperson for the agency confirmed there was discussion about ending Fannie and Freddie conservatorship but denied there was any talk of timing or details."

 

I'm assuming this all happens after q4 earnings but before calabria confirmation.

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I wonder how David Stevens is going to spin this...

 

Trying to spin this as a giveaway to hedge funds was a bad idea with this administration in place. The tax cuts were a far bigger giveaway, and didn't even fully close the carried interest loophole (if I remember right).

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https://www.marketwatch.com/story/fhfa-acting-director-discussing-plan-to-take-fannie-and-freddie-out-of-conservatorship-2019-01-18?mod=mw_share_twitter

 

"The acting director of the Federal Housing Finance Agency has told the agency’s employees that the regulator will announce a plan within weeks to take the government-sponsored enterprises out of conservatorship."

 

Later...

 

"A spokesperson for the agency confirmed there was discussion about ending Fannie and Freddie conservatorship but denied there was any talk of timing or details."

 

Wow.  This is huge.

 

My only concern right now is with Calabria's position.  He seems to want to completely open things up for private industry and wind down the GSE's.  Is it possible we are being fooled by this announcement?

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I wonder how David Stevens is going to spin this...

 

Trying to spin this as a giveaway to hedge funds was a bad idea with this administration in place. The tax cuts were a far bigger giveaway, and didn't even fully close the carried interest loophole (if I remember right).

 

Trump will get away with it anyway.

 

"The government did something illegal and a bunch of people made some money. I call that smart. That's smart."

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https://www.marketwatch.com/story/fhfa-acting-director-discussing-plan-to-take-fannie-and-freddie-out-of-conservatorship-2019-01-18?mod=mw_share_twitter

 

"The acting director of the Federal Housing Finance Agency has told the agency’s employees that the regulator will announce a plan within weeks to take the government-sponsored enterprises out of conservatorship."

 

Later...

 

"A spokesperson for the agency confirmed there was discussion about ending Fannie and Freddie conservatorship but denied there was any talk of timing or details."

 

Wow.  This is huge.

 

My only concern right now is with Calabria's position.  He seems to want to completely open things up for private industry and wind down the GSE's.  Is it possible we are being fooled by this announcement?

 

Calabria will be an implementer not a policy shaper imo.

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This is what I am talking about.  I hope this isn't what they are discussing.  I guess even in this scenario they still might have to make the prefs whole but I think you would rely on the courts for that outcome.

 

Two proposals we reviewed would terminate the enterprises and completely privatize the housing finance industry, with no federal guarantee on MBS. Under these proposals, the enterprises’ charters would be revoked and the enterprises would be wound down over a multiyear transition period during which their guarantee fees would increase and their loan limits decrease until they no longer guaranteed new mortgages. One proposal would keep the common securitization platform and make it available to all market participants, but it would operate as a nongovernmental entity and would be prohibited from guaranteeing MBS.

 

https://www.gao.gov/assets/700/696516.pdf

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Guest cherzeca

this is speculation, but I think what otting has up his sleeve is none of the 14 proposals that gao report summarizes.  the gao report appears to be a sort of rear guard maneuver. otting will say this is what we are doing at fhfa, and we don't need congress.  if you want to do something else, call your congressperson and reference whatever proposal in the gao report you prefer. 

 

edit:  about the only thing this gao report affirmatively states is that no proposal covers the entire housing finance system (including fha, hud etc).  Mnuchin has said for over a year that congressional reform should take a comprehensive approach, covering not just GSEs but all housing finance.  so I find this GAO report akin to a "white paper", and you know what happens to white papers...

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Chris could be right.

 

GAO is unrelated to the WH.

 

"The U.S. Government Accountability Office (GAO) is an independent, nonpartisan agency that works for Congress. Often called the "congressional watchdog," GAO examines how taxpayer dollars are spent and provides Congress and federal agencies with objective, reliable information to help the government save money and work more efficiently.

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2019 is shaping up to be one heck of a year. Rolled the gains from crypto to jr prefs and common. I don't think the treasury will want to write another check to these entities and will instead want to receive a check for infrastructure spending and 2020 campaigning....

 

Good luck all  ;)

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2019 is shaping up to be one heck of a year. Rolled the gains from crypto to jr prefs and common. I don't think the treasury will want to write another check to these entities and will instead want to receive a check for infrastructure spending and 2020 campaigning....

 

Good luck all  ;)

 

If you don't mind me asking, what's your preferred vs common allocation? And what made you decide on it?

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Guest cherzeca

@midas

 

interesting to see yesterday the common go up about double as a percentage than prefs. there are two possible "events" on the horizon that would be favorable:  a win in collins and a recap plan from admin.  both of these events should also result in more appreciation for common as a % than for pref.  so if you are bullish, you probably should have some common.  and if you are cautious given all past setbacks, then you probably should have more pref than common.

 

 

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Still very interesting that the main-stream media has not really picked this up ... Sure, one half-page bloomberg article, and a marketwatch piece yesterday afternoon ... wait till this hits WSJ and other major sources. 

 

The Moelis plan will be playing out in front of us ...

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Still very interesting that the main-stream media has not really picked this up ... Sure, one half-page bloomberg article, and a marketwatch piece yesterday afternoon ... wait till this hits WSJ and other major sources. 

 

The Moelis plan will be playing out in front of us ...

 

Media has its own agenda. This news doesn’t help impeach Trump so why waste resources reporting it? They’d rather get high with BuzzFeed’s liar news all day yesterday.

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interesting to see yesterday the common go up about double as a percentage than prefs. there are two possible "events" on the horizon that would be favorable:  a win in collins and a recap plan from admin.  both of these events should also result in more appreciation for common as a % than for pref.  so if you are bullish, you probably should have some common.  and if you are cautious given all past setbacks, then you probably should have more pref than common.

 

If I wasn't bullish, I wouldn't own either class of shares!

 

I'm still afraid that if the timeframe for the recap is too short, and if the capital standards are high enough, the commons are potentially subject to heavy dilution from equity raises. Personally, I don't own any commons and I don't regret my decision at all, even after yesterday's action. I think many of yesterday's buyers have been lured by the siren's song of 1000+% returns on the commons, but I don't see that as being possible at all.

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Guest cherzeca

interesting to see yesterday the common go up about double as a percentage than prefs. there are two possible "events" on the horizon that would be favorable:  a win in collins and a recap plan from admin.  both of these events should also result in more appreciation for common as a % than for pref.  so if you are bullish, you probably should have some common.  and if you are cautious given all past setbacks, then you probably should have more pref than common.

 

If I wasn't bullish, I wouldn't own either class of shares!

 

I'm still afraid that if the timeframe for the recap is too short, and if the capital standards are high enough, the commons are potentially subject to heavy dilution from equity raises. Personally, I don't own any commons and I don't regret my decision at all, even after yesterday's action. I think many of yesterday's buyers have been lured by the siren's song of 1000+% returns on the commons, but I don't see that as being possible at all.

 

right.  I guess I meant bullish in the next 3 months. what I was getting at was that I think there are illiquid prefs you can own for "long term", liquid prefs you can own for "medium term" and common for the short term (3 months).  just a thought

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To many things are lining up here IMHO ... 

 

Otto's 'Within weeks' comment is H-U-G-E ... and still makes this situation super-valued, and misunderstood by the market ...

 

We will likely see Moelis 2.0 plan, with some minor modifications to adjust for recent developments in the market etc - but nothing dramatic...

 

I have to give it to Trump right now...China, NK, Taxes, withdrawal from Syria etc - Economy and markets are booming... fixing Fannie and Freddie - with pro-govt policies ...tough to see how he doesnt get re-elected

 

 

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Cherzeca,

 

In your most speculative way....and no one ever would hold you accountable for wild forecast....

 

What do you “speculate” the next 3 months look like for lawsuits, Ottings direction, WH position, when Calabria will confirmed?

 

Thanks in advance and great job here along with all of the rest of you!

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Guest cherzeca

 

Cherzeca,

 

In your most speculative way....and no one ever would hold you accountable for wild forecast....

 

What do you “speculate” the next 3 months look like for lawsuits, Ottings direction, WH position, when Calabria will confirmed?

 

Thanks in advance and great job here along with all of the rest of you!

 

I like the chances in collins en banc.  enhanced by FHFA lay down on the merits of the separation of powers claim (Ps still have to establish standing and redressability).  the big issue will be retrospective relief...which I think the collins en banc lineup is more poised to give Ps than any other circuit.  S. 706 of APA mandates voiding agency action if agency violates constitution.  P's best argument.

 

I have nothing on otting other than what he was reported to have said:  admin has a plan, and the plan is to release GSEs from conservatorship.  I have always believed that a businessman's view of the NWS is that it would be ok too accelerate repayments, but nationalizing is too far.  otting and Mnuchin are businessmen.

 

I think Calabria will be capital reg focused and may insist on a higher cap % than we all would like

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Thank you.

You have done an incredible job here we have all benefitted from your effort whether the stock moves higher or not.

 

Hands down Christian deserves the MVP award for Most Valuable Poster. His work on MBIA was incredible as well. I have a law degree and still learn a ton reading his posts. Thank you!! Once this saga ends, I hope you find another potential investment to keep the intelligent posts coming!

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