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

[rros]

As for today's hearing not sure if you all picked this little gem by Senator Warner minute 1:06:00

"... we are not doing this in a vacuum. The new FHFA Director has enormous broad powers.. matter of fact there was a segment from Politico today saying that Treasury may start offering executive actions as early as today, so the notion that this may be taken away from Congress is a concern,..." Will the WH really risk offending Congress on 3/31?

[Guest cherzeca]

As for today's hearing not sure if you all picked this little gem by Senator Warner minute 1:06:00

"... we are not doing this in a vacuum. The new FHFA Director has enormous broad powers.. matter of fact there was a segment from Politico today saying that Treasury may start offering executive actions as early as today, so the notion that this may be taken away from Congress is a concern,..." Will the WH really risk offending Congress on 3/31?

 

we will find out if the train has left the station.  if not it will soon

[hardincap]

otting preannounced communication from white house and treasury, and today we see communication from just the white house. so apparently, treasury's approach has lost favor. this is not good imo. tim howard again:

 

In sum, I view this memo from the White House as a major development in the mortgage reform process, and not a positive one. And I do think the big banks are behind it.

 

 

[Midas79]

I do not believe anything in this memo supports the idea that the sweep stops 3/31. Instead, I think it supports the idea that Congress is in play. There is hope, though.

 

By far, the most favorable paragraph for us is Section 1, c).

 

It establishes the basis for the dual track investorG was hoping for. We will have to wait until Treasury outlines specifically what is they can do w/o Congress and this will likely include how a recapitalization may be done (steps, time frame), with details on how warrants and Jrs. will be treated and how a compensation for an implicit guarantee might replace the sweep. My view is that sweeping will stop only after this outline clears Treasury's desk and is approved by Trump. Somehow, I have the feeling that Trump himself wants the credit for stopping it.

 

The emphasis on the word 'competition' -it is both in the introduction as well as within sections of the memo-, tells us Trump supports Congressional involvement (change of charters). Within this context, the words "successors" and "explicit/implicit" may find a better interpretation. If the idea is to split reform Admin-Cong, both the implementation of the "explicit" part as well as the determination to change GSEs charters to allow for more guarantors fall on Congress' lap. The "implicit" part is then on the administrative side.

 

As was mentioned before: compensation/implicit are incompatible by their nature. The very action of compensating eliminates implicitness. Why was this added? Likely, it opens the doors for replacing the sweep with a different compensatory mechanism, administratively (commitment fee + guarantee fee). It's the only hint I could find indicating the end of the NWS.

 

What is troubling about this memo is that it directs Treasury to work on a multi-guarantor system directly colliding with much of what we heard today in the Senate hearing.. While we may not see it in our lifetime and while the companies may be fully recap before Congress initiates any dramatic change, questions is, will they be out of c-ship?

 

And if c-ship extends, will a full recap be enough for the Jrs. to achieve par? I personally see them trading between $10 and $14 next quarter.

 

I agree that it's starting to look like legislation is possible after all. It just won't be all that close to Crapo's outline. Mnuchin said a while back that he wants comprehensive housing finance reform, including changes to FHA and Ginnie. This can only be done by Congress. With Corker gone, the Congressional impetus to destroy FnF is also gone. Congress just might give Trump what he wants here, with the possible exception of the additional guarantors.

 

One way to interpret 1© is "do as much of what's in this memo as legally possible administratively". I wonder if that's how Trump and Mnuchin will do things?

 

I think the idea of a fee for an implicit guarantee, as contradictory as it sounds, is to have it function the same as one for an explicit guarantee. FHFA and Treasury can calculate by how much FnF benefit (in terms of borrowing costs) due to the implicit guarantee, and charge them some or all of that amount. The crucial thing about this is that it can be done administratively, while an explicit guarantee requires Congress.

 

This memo just hammers home that Trump wants the companies out of conservatorship by the end of his term, as Mnuchin and Phillips promised. Releasing before a full recap just doesn't make sense from a taxpayer safety perspective, so the recap will probably be quick and dirty. Therefore I won't worry much about timing for now.

[Guest cherzeca]

otting preannounced communication from white house and treasury, and today we see communication from just the white house. so apparently, treasury's approach has lost favor. this is not good imo. tim howard again:

 

In sum, I view this memo from the White House as a major development in the mortgage reform process, and not a positive one. And I do think the big banks are behind it.

 

this memo is something of a Rorschach blot, but I disagree with howard;  this is an administrative reform green light, and congress is given a job to do which is less noxious than the crapo plan and by the way, it will not be able to get its act together to do anything.  I look at this blot and I smile

[rros]

One way to interpret 1© is "do as much of what's in this memo as legally possible administratively". I wonder if that's how Trump and Mnuchin will do things?

And we only really need 1 thing to be done administratively to see the fruits of our patience, which appears to be close at hand after this memo.

 

Yes, the implicit/explicit thing should not be underestimated. The explicit is a whole different animal... what to guarantee, narrow-broad, which securities, etc. I can see hearings after hearings on this. The implicit, in a way, seems straightforward. FHFA/Treasury have room to play a little and use it to replace the sweep.

[rros]

otting preannounced communication from white house and treasury, and today we see communication from just the white house. so apparently, treasury's approach has lost favor. this is not good imo. tim howard again:

 

In sum, I view this memo from the White House as a major development in the mortgage reform process, and not a positive one. And I do think the big banks are behind it.

 

this memo is something of a Rorschach blot, but I disagree with howard;  this is an administrative reform green light, and congress is given a job to do which is less noxious than the crapo plan and by the way, it will not be able to get its act together to do anything.  I look at this blot and I smile

TH could be correct in that Banks may have gotten a big win today. What I fail to connect is how that win interferes with stopping the sweep, which the memo today lays the ground for. The win for the banks may have been the future Congress involvement (competition, successors, explicit). The Admin actions anticipated by this memo aren't necessarily Bank related and could be tied to something more pressing: recapitalization.

[Guest cherzeca]

One way to interpret 1© is "do as much of what's in this memo as legally possible administratively". I wonder if that's how Trump and Mnuchin will do things?

And we only really need 1 thing to be done administratively to see the fruits of our patience, which appears to be close at hand after this memo.

 

Yes, the implicit/explicit thing should not be underestimated. The explicit is a whole different animal... what to guarantee, narrow-broad, which securities, etc. I can see hearings after hearings on this. The implicit, in a way, seems straightforward. FHFA/Treasury have room to play a little and use it to replace the sweep.

 

the implicit guarantee proposition is huge. first, lets assume that congress never passes an an explicit guarantee. so, what is the major criticism of the GSEs? that private gains public losses refrain.  this kills that. GSEs will pay govt for nothing other than its continued existence. and it is a wink to the institutional market that the govt will be there next time since this time it is being paid to.  this is a subtle part of the whole admin reform plan...that we are moving forward with or without you congress, and we dont even need you to act in order to have a paid for backstop

[Guest cherzeca]

otting preannounced communication from white house and treasury, and today we see communication from just the white house. so apparently, treasury's approach has lost favor. this is not good imo. tim howard again:

 

In sum, I view this memo from the White House as a major development in the mortgage reform process, and not a positive one. And I do think the big banks are behind it.

 

this memo is something of a Rorschach blot, but I disagree with howard;  this is an administrative reform green light, and congress is given a job to do which is less noxious than the crapo plan and by the way, it will not be able to get its act together to do anything.  I look at this blot and I smile

TH could be correct in that Banks may have gotten a big win today. What I fail to connect is how that win interferes with stopping the sweep, which the memo today lays the ground for. The win for the banks may have been the future Congress involvement (competition, successors, explicit). The Admin actions anticipated by this memo aren't necessarily Bank related and could be tied to something more pressing: recapitalization.

 

well stated, which is why I think TH is wrong. TH has banks on the brain, well earned given what he has been through, but in this memo, the bank bone is thin gruel (to mix metaphors)

[rros]

One way to interpret 1© is "do as much of what's in this memo as legally possible administratively". I wonder if that's how Trump and Mnuchin will do things?

And we only really need 1 thing to be done administratively to see the fruits of our patience, which appears to be close at hand after this memo.

 

Yes, the implicit/explicit thing should not be underestimated. The explicit is a whole different animal... what to guarantee, narrow-broad, which securities, etc. I can see hearings after hearings on this. The implicit, in a way, seems straightforward. FHFA/Treasury have room to play a little and use it to replace the sweep.

 

the implicit guarantee proposition is huge. first, lets assume that congress never passes an an explicit guarantee. so, what is the major criticism of the GSEs? that private gains public losses refrain.  this kills that. GSEs will pay govt for nothing other than its continued existence. and it is a wink to the institutional market that the govt will be there next time since this time it is being paid to.  this is a subtle part of the whole admin reform plan...that we are moving forward with or without you congress, and we dont even need you to act in order to have a paid for backstop

Agree. A paid-for implicit is an absolute first one. Sticks out. And was added to the memo for a reason.

[orthopa]

Ill let you guys be negative for me. Maybe Im naive but I see nothing negative about this. Big banks or not I could care less as long as the recap happens in a manner friendly to me and I see nothing suggesting otherwise so far.

 

Recap is coming. We used to be at FnF getting "wound down" and I was able to wrap my head around that not happening.  Worrying about minute possibilities not worth the time IMO now. We are getting hit in the head by an implement so close that we cant read what it says because have been conditioned otherwise.

 

If WH memo discussed private gain public loss, HF enriching themselves etc shareholders should be worried. Any shareholder discussion has been left out on purpose to avoid that criticism.

 

Next big step for shareholders are recap plans which have been called upon. Worst part will be in the waiting but looking at a Moelis-ish timeline if this is going to get done before 2020 election we only have 18 months. Gitty up.

[SnarkyPuppy]

https://video.foxbusiness.com/v/6019111648001/#sp=show-clips

 

5:06 and ownwards.  Pretty much confirms Moelis/recap. 

[orthopa]

For those technically influenced FNMAS forming a nice 3 white soldier formation. Typically means higher. Problem now is its 20% higher then earlier this week. :o :o

[SnarkyPuppy]

My screens yesterday showed a triple reverse monthy python which today has turned into a massive bull.  But wait, it's starting to look like the bull is sitting on some object... a toilet?

[orthopa]

https://video.foxbusiness.com/v/6019111648001/#sp=show-clips

 

5:06 and ownwards.  Pretty much confirms Moelis/recap.

 

No question,

 

180 Billion of creative financing he says. Wouldnt it help to allow them to start to keep some of the 20B a year that they make?  ::) ::)Also makes mention of people needing to trust and not be afraid of the GSEs. Not mentioned directly but people need to not be afraid of investing/putting capital in them too.

 

The plan has been outlined for us. Now we just wait and ponder if we have enough in the investment.

[hardincap]

gse capital rules expected this summer: https://www.americanbanker.com/news/gse-capital-rule-expected-this-summer-fhfas-otting

 

Not sweeping this weekend seems premature to me?

[SnarkyPuppy]

One thing I'm having trouble wrapping my head around-

 

Capital seems to be a fundamental goal of the admin and FHFA - effectively confirmed through multiple statements now (Calabria testimony, Otting leaked comments, Mnuchin written testimony a while back re: any solution requires capital, and today's Carson comments).

 

I'm struggling with how they will efficiently raise capital with "outstanding" legislative uncertainty regarding "new competition/guarantors", changes to charters, and other uncertainties regarding the economics of paying for the government guarantee.  I previously have arrived at the answer of - this has quite literally always been the case pre-conservatorship in that congress could have theoretically passed legislative modifying charters and creating a paid-for guarantee structure. 

 

But the reality is that anyone posting capital will want some certainty regarding the economic viability and potential returns of a more terminal/long term state for the GSEs. 

 

How are you guys squaring the ability to efficiently raise capital with the longer term legislative uncertainty?  I understand that we all believe legislation isn't happening - but we also have variant views from the market on this investment.  Average participant in whatever IPO is going to want to some closure on potential legislative paths, no?  Is this not a realistic roadblock to raising capital? 

[muscleman]

For those technically influenced FNMAS forming a nice 3 white soldier formation. Typically means higher. Problem now is its 20% higher then earlier this week. :o :o

 

I don't use Japanese candle sticks. ;)

I was expecting a bottom last Friday that should go low first and then close strong and I would buy then. I actually messaged one of our members here to look out for the bottom last Friday. But it closed super weak so I missed the buy this time. I am expecting certain things to happen before I act. I don't arbitrarily buy and sell.

I am on the sidelines right now seeing you all making money. Congrats for those who held on.  :)

However, I don't feel jealous or feel the pressure to do something at this moment. After value investing for many years, I realized that my emotion can't handle big down times, and I can handle the fear of "missing a rally" far better than handling big down times. So I switched my styles. Note that no strategy can get the best of both worlds.

I am now doing everything very calmly and no more heart attacks and adrenaline rushes.

 

With that said, FNMA actually looks stronger than FNMAS. Hmm... Fundamentally it is too risky for me.

 

 

[muscleman]

For anyone of you who remotely believe in some of what I am saying about focusing on technicals, check out  the daily chart of FNMAS. The big move started on 3/26, one day before WH big announcement.

Why? As I said before, there are players who are either smarter than us or have insider information or both, and these people are acting ahead of the news.

 

[rros]

... a nice 3 white soldier formation :o :o

Would that be:

 

Calabria, Mulvaney, Otting? or

Mnuchin, Kudlow, Trump?

 

Oh.. sorry. Trump is not a soldier. Sorry about that.

[orthopa]

One thing I'm having trouble wrapping my head around-

 

Capital seems to be a fundamental goal of the admin and FHFA - effectively confirmed through multiple statements now (Calabria testimony, Otting leaked comments, Mnuchin written testimony a while back re: any solution requires capital, and today's Carson comments).

 

I'm struggling with how they will efficiently raise capital with "outstanding" legislative uncertainty regarding "new competition/guarantors", changes to charters, and other uncertainties regarding the economics of paying for the government guarantee.  I previously have arrived at the answer of - this has quite literally always been the case pre-conservatorship in that congress could have theoretically passed legislative modifying charters and creating a paid-for guarantee structure. 

 

But the reality is that anyone posting capital will want some certainty regarding the economic viability and potential returns of a more terminal/long term state for the GSEs. 

 

How are you guys squaring the ability to efficiently raise capital with the longer term legislative uncertainty?  I understand that we all believe legislation isn't happening - but we also have variant views from the market on this investment.  Average participant in whatever IPO is going to want to some closure on potential legislative paths, no?  Is this not a realistic roadblock to raising capital?

 

Maybe this is delineated in the Trumps request for what is Administrative vs. Legislative.  Maybe legislative options are unimpressive and most will rely on inertia and the last 10 years as evidence of such.

 

As you said legislative uncertainty is always there and could very well be priced into the eventual make up of the common more so then the prfd. I think what would scare capital away would be more so another sweep type situation but I bet the capital rules go a long way toward showing as Mnuchin says "taxpayers never put at risk again. "

 

If captial is raised while Trump is in office it may give some solace that anything congress would pass would have to be signed/vetoed by him also protecting their investment to some degree. After his term is up for debate.

[hardincap]

anyone else surprised at the underwhelming volume in prefs, given the magnitude of the news? market is quite pessimistic on prospects of shareholders not getting screwed (again). if this is a reliable indicator of sentiment, i dont know how admin will succeed in raising 150bn. admin is "working on it", per sources, but market is skeptical

[BeerBBQ]

https://video.foxbusiness.com/v/6019111648001/#sp=show-clips

 

5:06 and ownwards.  Pretty much confirms Moelis/recap.

 

Any thoughts on what he meant around the 6:28 mark where he mentions GNMA?

[muscleman]

anyone else surprised at the underwhelming volume in prefs, given the magnitude of the news? market is quite pessimistic on prospects of shareholders not getting screwed (again). if this is a reliable indicator of sentiment, i dont know how admin will succeed in raising 150bn. admin is "working on it", per sources, but market is skeptical

 

It is hard to say on volume alone. It could be that there are no sellers, so the smart players are not able to buy too many shares.

[DRValue]

https://video.foxbusiness.com/v/6019111648001/#sp=show-clips

 

5:06 and ownwards.  Pretty much confirms Moelis/recap.

 

No question,

 

180 Billion of creative financing he says. Wouldnt it help to allow them to start to keep some of the 20B a year that they make?  ::) ::)Also makes mention of people needing to trust and not be afraid of the GSEs. Not mentioned directly but people need to not be afraid of investing/putting capital in them too.

 

The plan has been outlined for us. Now we just wait and ponder if we have enough in the investment.

 

Creative financing. I wouldn't be surprised to see a fourth amendment refund some of the nws monies you know.