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

[Guest cherzeca]

For those that have not seen it:

https://www.wsj.com/articles/trump-appointed-official-promises-full-push-to-overhaul-plumbing-of-mortgage-market-11555938001

 

I am curious as to others' thoughts are on what Calabria thinks Congress needs to act on? Is this statement related to new charters for other guarantors or something else?

 

Excerpt:

"Part of his job, Mr. Calabria said, will be urging Congress to act, since there are limits on what the administration can do with Fannie and Freddie absent legislation

 

“A lot of responsibility lies upon Congress to get us to a different model,” he said. “And I think we should go to a different model.”"

Charters and paid-for government guarantee may require legislation. Modifying PSPAs doesn't (commitment fee, nws, etc.).

 

"Charters and paid-for explicit government guarantee may require legislation".  I think Calabria's willingness to do an interview on day 1 is good, as is his desire for Treasury to lead off the festivities with its plan.  recapping and releasing GSEs will be done w/o congressional action, but congress will be pissed and will want to be told by Calabria all of the things it can do post release (ie competition), none of which can be expected to happen given current political polarization.  so Calabria is wise to this (former senate staffer) and will keep talking about future plans while recap and release proceeds administratively

[rros]

For those that have not seen it:

https://www.wsj.com/articles/trump-appointed-official-promises-full-push-to-overhaul-plumbing-of-mortgage-market-11555938001

 

I am curious as to others' thoughts are on what Calabria thinks Congress needs to act on? Is this statement related to new charters for other guarantors or something else?

 

Excerpt:

"Part of his job, Mr. Calabria said, will be urging Congress to act, since there are limits on what the administration can do with Fannie and Freddie absent legislation

 

“A lot of responsibility lies upon Congress to get us to a different model,” he said. “And I think we should go to a different model.”"

Charters and paid-for government guarantee may require legislation. Modifying PSPAs doesn't (commitment fee, nws, etc.).

 

"Charters and paid-for explicit government guarantee may require legislation".  I think Calabria's willingness to do an interview on day 1 is good, as is his desire for Treasury to lead off the festivities with its plan.  recapping and releasing GSEs will be done w/o congressional action, but congress will be pissed and will want to be told by Calabria all of the things it can do post release (ie competition), none of which can be expected to happen given current political polarization.  so Calabria is wise to this (former senate staffer) and will keep talking about future plans while recap and release proceeds administratively

Precisely! (explicit/ may)...

This will be the year.

[Guest cherzeca]

For those that have not seen it:

https://www.wsj.com/articles/trump-appointed-official-promises-full-push-to-overhaul-plumbing-of-mortgage-market-11555938001

 

I am curious as to others' thoughts are on what Calabria thinks Congress needs to act on? Is this statement related to new charters for other guarantors or something else?

 

Excerpt:

"Part of his job, Mr. Calabria said, will be urging Congress to act, since there are limits on what the administration can do with Fannie and Freddie absent legislation

 

“A lot of responsibility lies upon Congress to get us to a different model,” he said. “And I think we should go to a different model.”"

Charters and paid-for government guarantee may require legislation. Modifying PSPAs doesn't (commitment fee, nws, etc.).

 

"Charters and paid-for explicit government guarantee may require legislation".  I think Calabria's willingness to do an interview on day 1 is good, as is his desire for Treasury to lead off the festivities with its plan.  recapping and releasing GSEs will be done w/o congressional action, but congress will be pissed and will want to be told by Calabria all of the things it can do post release (ie competition), none of which can be expected to happen given current political polarization.  so Calabria is wise to this (former senate staffer) and will keep talking about future plans while recap and release proceeds administratively

Precisely! (explicit/ may)...

This will be the year.

 

this tracks from the POTUS memo, which asks for treasury to address in its plan the need for an explicit or implicit guarantee.  I may be reading too much into this, but this says to me that the administration is serious about moving forward with an administrative recap/release plan since it knows it cant do an explicit guarantee without congress and knows that the major complaint is that the federal charters imply a federal implicit guarantee, so POTUS is saying fine the GSEs will have to pay for the implicit guarantee, pay for their charters in effect. 

[orthopa]

For those that have not seen it:

https://www.wsj.com/articles/trump-appointed-official-promises-full-push-to-overhaul-plumbing-of-mortgage-market-11555938001

 

I am curious as to others' thoughts are on what Calabria thinks Congress needs to act on? Is this statement related to new charters for other guarantors or something else?

 

Excerpt:

"Part of his job, Mr. Calabria said, will be urging Congress to act, since there are limits on what the administration can do with Fannie and Freddie absent legislation

 

“A lot of responsibility lies upon Congress to get us to a different model,” he said. “And I think we should go to a different model.”"

Charters and paid-for government guarantee may require legislation. Modifying PSPAs doesn't (commitment fee, nws, etc.).

 

"Charters and paid-for explicit government guarantee may require legislation".  I think Calabria's willingness to do an interview on day 1 is good, as is his desire for Treasury to lead off the festivities with its plan.  recapping and releasing GSEs will be done w/o congressional action, but congress will be pissed and will want to be told by Calabria all of the things it can do post release (ie competition), none of which can be expected to happen given current political polarization.  so Calabria is wise to this (former senate staffer) and will keep talking about future plans while recap and release proceeds administratively

Precisely! (explicit/ may)...

This will be the year.

 

this tracks from the POTUS memo, which asks for treasury to address in its plan the need for an explicit or implicit guarantee.  I may be reading too much into this, but this says to me that the administration is serious about moving forward with an administrative recap/release plan since it knows it cant do an explicit guarantee without congress and knows that the major complaint is that the federal charters imply a federal implicit guarantee, so POTUS is saying fine the GSEs will have to pay for the implicit guarantee, pay for their charters in effect.

 

Do you feel like the WH will act in short order once presented with plans from Treasury/HUD in June-ish time frame from article? This incessant urging and waiting for congress to act/help although good lip service is getting very tiring. 

 

The non optimistic part of me see this whole process easily continuing back and forth until the fall. Govts only seem to react to deadlines and the next will be the re election campaign. 

 

A part of me also reads the article layout with a time line very convenient for the en-banc opinion either positive or negative.

[Guest cherzeca]

@orthopa

 

been thinking about this. 

 

my best guess at moment is that i) Treasury will produce a roadmap/plan without too much specificity, but enough for it to say, ok it is time for us to hire an investment banker, and ii) say to FHFA (or fhfa will simply pronounce on its own), ok it is time for fhfa to require each GSE to come up with a capital restoration plan (required under HERA), and iii) each GSE will then hire its own investment banker to do this, and iv) fhfa will announce the capital targets that the GSEs will be required to shoot for.

 

this will be a dance that, while orchestrated, will look like Treasury is doing only what it should do and FHFA will do only what it should do, and then the collection of investment bankers (and lawyers, all will hire lawyers) will work as a team to get the recap done.  in reality, there will be much cross-checking in the background.

 

 

[orthopa]

@orthopa

 

been thinking about this. 

 

my best guess at moment is that i) Treasury will produce a roadmap/plan without too much specificity, but enough for it to say, ok it is time for us to hire an investment banker, and ii) say to FHFA (or fhfa will simply pronounce on its own), ok it is time for fhfa to require each GSE to come up with a capital restoration plan (required under HERA), and iii) each GSE will then hire its own investment banker to do this, and iv) fhfa will announce the capital targets that the GSEs will be required to shoot for.

 

this will be a dance that, while orchestrated, will look like Treasury is doing only what it should do and FHFA will do only what it should do, and then the collection ton of investment bankers (and lawyers, all will hire lawyers) will work as a team to get the recap done.  in reality, there will be much cross-checking in the background.

 

Otting said capital rules by July-ish correct? So hopefully we are getting to some of the more specifics of a framework by then.  If things start falling in line the June-Sept time period should hopefully be eventful.

[Guest cherzeca]

@orthopa

 

been thinking about this. 

 

my best guess at moment is that i) Treasury will produce a roadmap/plan without too much specificity, but enough for it to say, ok it is time for us to hire an investment banker, and ii) say to FHFA (or fhfa will simply pronounce on its own), ok it is time for fhfa to require each GSE to come up with a capital restoration plan (required under HERA), and iii) each GSE will then hire its own investment banker to do this, and iv) fhfa will announce the capital targets that the GSEs will be required to shoot for.

 

this will be a dance that, while orchestrated, will look like Treasury is doing only what it should do and FHFA will do only what it should do, and then the collection ton of investment bankers (and lawyers, all will hire lawyers) will work as a team to get the recap done.  in reality, there will be much cross-checking in the background.

 

Otting said capital rules by July-ish correct? So hopefully we are getting to some of the more specifics of a framework by then.  If things start falling in line the June-Sept time period should hopefully be eventful.

 

I think that is right.  hopefully the plan and marching orders are set before July/august, by which time collins en banc will have been decided

[SnarkyPuppy]

For those that have not seen it:

https://www.wsj.com/articles/trump-appointed-official-promises-full-push-to-overhaul-plumbing-of-mortgage-market-11555938001

 

I am curious as to others' thoughts are on what Calabria thinks Congress needs to act on? Is this statement related to new charters for other guarantors or something else?

 

Excerpt:

"Part of his job, Mr. Calabria said, will be urging Congress to act, since there are limits on what the administration can do with Fannie and Freddie absent legislation

 

“A lot of responsibility lies upon Congress to get us to a different model,” he said. “And I think we should go to a different model.”"

Charters and paid-for government guarantee may require legislation. Modifying PSPAs doesn't (commitment fee, nws, etc.).

 

"Charters and paid-for explicit government guarantee may require legislation".  I think Calabria's willingness to do an interview on day 1 is good, as is his desire for Treasury to lead off the festivities with its plan.  recapping and releasing GSEs will be done w/o congressional action, but congress will be pissed and will want to be told by Calabria all of the things it can do post release (ie competition), none of which can be expected to happen given current political polarization.  so Calabria is wise to this (former senate staffer) and will keep talking about future plans while recap and release proceeds administratively

 

This goes back to the point I was trying to raise a couple of weeks ago.  How the hell do you (efficiently) recapitalize ~$150bn when you're also pitching removal of one of the most important advantages of this business (charters)?  I can't figure this one out.  Seems entirely contradictory for these guys to try to raise significant amounts of money while also diminishing the business prospects. 

 

Even if these clowns do believe removing charter is important - why not wait until fnma/fmcc are recapitalized?  Congress can't stop them.  Why not just raise the capital first and then go to congress and say ok lol time to remove charters.  Congress hasn't and can't do shit - but with a level headed and intelligent leader (Calabria) steering their direction it's possible he brings all of the clowns of Congress together to do something that hasn't been done before. 

 

Why not be silent on the charters until capital has been raised?

[investorG]

 

This goes back to the point I was trying to raise a couple of weeks ago.  How the hell do you (efficiently) recapitalize ~$150bn when you're also pitching removal of one of the most important advantages of this business (charters)?  I can't figure this one out.  Seems entirely contradictory for these guys to try to raise significant amounts of money while also diminishing the business prospects. 

 

Even if these clowns do believe removing charter is important - why not wait until fnma/fmcc are recapitalized?  Congress can't stop them.  Why not just raise the capital first and then go to congress and say ok lol time to remove charters.  Congress hasn't and can't do shit - but with a level headed and intelligent leader (Calabria) steering their direction it's possible he brings all of the clowns of Congress together to do something that hasn't been done before. 

 

Why not be silent on the charters until capital has been raised?

 

One idea, offer the new investors a deal they won't want to refuse.  which likely means a larger % ownership of the pro forma companies to provide them a margin of safety to offset for the lack of future earnings clarity. 

 

this is likely why the common stays low; when including warrants each $1 rise is ~ $10bn of mkt cap that new investors wouldn't receive.  and the jr pref may get a haircut on their par value in any potential deal, perhaps depending on the outcome of the Collins appeal.

 

imo the moelis plan set unrealistic expectations relative to the goals of current political leaders.  it did however raise attention to the situation, which I believe was its main purpose. 

 

good luck everyone

 

[Guest cherzeca]

 

This goes back to the point I was trying to raise a couple of weeks ago.  How the hell do you (efficiently) recapitalize ~$150bn when you're also pitching removal of one of the most important advantages of this business (charters)?  I can't figure this one out.  Seems entirely contradictory for these guys to try to raise significant amounts of money while also diminishing the business prospects. 

 

Even if these clowns do believe removing charter is important - why not wait until fnma/fmcc are recapitalized?  Congress can't stop them.  Why not just raise the capital first and then go to congress and say ok lol time to remove charters.  Congress hasn't and can't do shit - but with a level headed and intelligent leader (Calabria) steering their direction it's possible he brings all of the clowns of Congress together to do something that hasn't been done before. 

 

Why not be silent on the charters until capital has been raised?

 

One idea, offer the new investors a deal they won't want to refuse.  which likely means a larger % ownership of the pro forma companies to provide them a margin of safety to offset for the lack of future earnings clarity. 

 

this is likely why the common stays low; when including warrants each $1 rise is ~ $10bn of mkt cap that new investors wouldn't receive.  and the jr pref may get a haircut on their par value in any potential deal, perhaps depending on the outcome of the Collins appeal.

 

imo the moelis plan set unrealistic expectations relative to the goals of current political leaders.  it did however raise attention to the situation, which I believe was its main purpose. 

 

good luck everyone

 

I agree snarky/IG.  this is a very difficult capital raise that is being done in public, as it were, with people like Calabria so far being involved without having a clue as to what even a small capital raise entails.  one would hope of course that treasury will be driving the capital raise bus (once it has released its plan) and that retained investment bankers/lawyers will lend some professionalism to the process, but so far we are still in "policy talk" mode.  this will dissipate when we segue into "money raise" mode

[rros]

People... there has been no bad news. Relax and enjoy the journey. Next month we move higher. And even higher the month after that. We are in a 2 steps forward-1 step back process.

[investorG]

People... there has been no bad news. Relax and enjoy the journey. Next month we move higher. And even higher the month after that. We are in a 2 steps forward-1 step back process.

 

I wish it was that simple.  the banks via the Republican establishment prefer their piece -- competition and explicit guarantee -- done through congress at the same time, not after, any tangible actions to help shareholders.  that is why we likely wait until later this year, and hope for a collins victory for potential negotiating leverage.  I'm guessing that if we go down the recap route, the first chunk is taken down by private equity (or Buffett) for privacy and validation purporses before going to the public markets.

 

[Luke 532]

Bloomberg Intelligence attached...

[Guest cherzeca]

@IG

 

I think the "validation" route makes sense and will be the first approach done by Treasury's financial advisor once appointed.  I also think you are going to hear a lot of talk, or as Taleb's fat Tony would say "tawk", about competition and explicit guarantees for two reasons: first as you say, because the bank lobby wants this, and second because congress can only deliver this, and congress wants to have its role to play, because politics is power and you can't exercise power while sitting on the sidelines.

 

and until the POTUS memo, all we had was talk.  the memo was a call to action, to present administration plans.  it is no accident that the memo was released immediately after Crapo ended his most recent (and desultory) hearings.  didn't want to preempt congressional "tawk".  and what can calabria do at this point when interviewed by WSJ other than "tawk"?

 

it is grating, but at some point the money raising effort will begin and when it does, those folks who have nothing to contribute will contribute nothing.  calabria has a role...tell GSEs to develop capital restoration plans that meet a specified capital target, but eventually calabria too will become a bystander to the capital raising effort...at which point he will be told by the investment bankers if not mnuchin to clam up.

[Guest cherzeca]

Bloomberg Intelligence attached...

 

thanks for this Luke.

 

I note that the Bloomberg terminal screenshot incorporates an explicit guarantee as part of the administrative plan.  this of course makes it a congressional/administrative plan, and beholden to a congressional timeline (which I dont sense the administration is willing to do).  if congress passes this explicit guarantee, then it would likely do so in conjunction with some sort of competition legislation.  if congress passes this competition legislation, then the recap will become more difficult.

 

of course recall that the POTUS memo called for examination of an explicit or implicit paid-for guarantee.  if treasury decides to proceed with provision for a paid-for implicit guarantee (and any explicit guarantee, and competition, would be a later add-on to the plan), then the administration can maintain control over the timeline.

 

so I think Bloomberg's schedule's reliance on an explicit guarantee is likely to be optional, with an implicit paid-for guarantee as a starting point.

 

EDIT:  of course Bloomberg may believe that the administration will only proceed with an explicit guarantee, but this is not something that the administration has made public

[rros]

The B analyst is not considering that Tsy/FHFA may agree on a commitment fee for the balance of the credit line. Maybe have overlooked this? The balance is substantial and the commitment fee will be radically different than Sr. preferreds drawing 10% or all of the earnings. So the downside coming from a ratings downgrade may not exist as federal support may extend for a while.

 

While thinking the bank lobby owns the Treasury Dpt. is an interesting idea, mine is that Trump owns everybody and everything and is the 1st President (or one among a few) who understands how to pull all the right levers to exert real power preventing him from becoming another puppet. And that if indeed the Bank lobby or Warren Buffett's preference is that the Jrs. take a cut, that will never happen. Nothing but an opinion sitting in front of my screen...

[Midas79]

On another subject, the government's reply brief is due in Sweeney's court in 13 days. Should we expect anything different than past briefs, given that Otting had a few months in office and now Calabria has been confirmed and sworn in? And is there any more to the briefing schedule, or is this the last one?

[allnatural]

On another subject, the government's reply brief is due in Sweeney's court in 13 days. Should we expect anything different than past briefs, given that Otting had a few months in office and now Calabria has been confirmed and sworn in? And is there any more to the briefing schedule, or is this the last one?

 

This is the final brief due in this case. Hallelujah.

[muscleman]

For those who cares about TA, today's price action is very positive. While John Carney and Gasparino are powerful market movers, their negative articles only caused a 3% decline for less than a few hours, and then price fully recovered, with more weak holders shaken out.

 

[Guest cherzeca]

For those who cares about TA, today's price action is very positive. While John Carney and Gasparino are powerful market movers, their negative articles only caused a 3% decline for less than a few hours, and then price fully recovered, with more weak holders shaken out.

 

while I dont read gaspo and carney, I can see how the LIFO guys do, and so this can only mean volatility until a plan is released...and likely a new round of volatility once the plan is sought to be executed.  the POTUS memo was a sea change (the B guy thinks a recap is now a foregone conclusion), and a favorable collins en banc decision is another sea change opportunity.  but this is going to be a slow moving process with a lot of chirping by the gaspo/carney/tbtf types

[Luke 532]

https://www.forbes.com/sites/tedknutson/2019/04/24/mnuchin-consumers-need-much-more-user-friendly-ways-of-controlling-who-gets-their-personal-data/#2da6f4a25341

 

On Mnuchin... "He told the gathering he is aiming to get housing finance reform done in six months. Mnuchin said the goal is to reduce risk at the FHFA as well as removing Fannie Mae and Freddie Mac from conservatorship."

[Midas79]

https://www.forbes.com/sites/tedknutson/2019/04/24/mnuchin-consumers-need-much-more-user-friendly-ways-of-controlling-who-gets-their-personal-data/#2da6f4a25341

 

On Mnuchin... "He told the gathering he is aiming to get housing finance reform done in six months. Mnuchin said the goal is to reduce risk at the FHFA as well as removing Fannie Mae and Freddie Mac from conservatorship."

 

What does "reduce risk at the FHFA" even mean? It would have made far more sense to say "reduce risk at Fannie and Freddie" or "reduce risk to taxpayers", but I don't know if that's what Mnuchin meant. I don't see what risks FHFA itself poses.

[Guest cherzeca]

https://www.forbes.com/sites/tedknutson/2019/04/24/mnuchin-consumers-need-much-more-user-friendly-ways-of-controlling-who-gets-their-personal-data/#2da6f4a25341

 

On Mnuchin... "He told the gathering he is aiming to get housing finance reform done in six months. Mnuchin said the goal is to reduce risk at the FHFA as well as removing Fannie Mae and Freddie Mac from conservatorship."

 

What does "reduce risk at the FHFA" even mean? It would have made far more sense to say "reduce risk at Fannie and Freddie" or "reduce risk to taxpayers", but I don't know if that's what Mnuchin meant. I don't see what risks FHFA itself poses.

 

reduce the risk at fhfa means telling calabria not to grant any more interviews

[Midas79]

https://www.forbes.com/sites/tedknutson/2019/04/24/mnuchin-consumers-need-much-more-user-friendly-ways-of-controlling-who-gets-their-personal-data/#2da6f4a25341

 

On Mnuchin... "He told the gathering he is aiming to get housing finance reform done in six months. Mnuchin said the goal is to reduce risk at the FHFA as well as removing Fannie Mae and Freddie Mac from conservatorship."

 

What does "reduce risk at the FHFA" even mean? It would have made far more sense to say "reduce risk at Fannie and Freddie" or "reduce risk to taxpayers", but I don't know if that's what Mnuchin meant. I don't see what risks FHFA itself poses.

 

reduce the risk at fhfa means telling calabria not to grant any more interviews

 

;D

 

This seems to point to a very fast recap, then, because I believe release can't happen until all capital requirements are met. We should see Calabria's capital requirements in about 3 months, according to Otting. Bill Ackman's "largest private capital raise in history" comment is looking quite prescient.

 

One post on iHub says that perhaps Mnuchin wants all this done in time for the end of the government fiscal year on September 30. That's an intruiging possibility, though it only leaves 5 months to work with.

[rros]

Reducing risk at FHFA could mean terminating FHFA's role as Conservator so that it becomes Regulator. This way, FHFA is not "in the shoes of Fannie and Freddie" anymore. So he said the same thing twice in that sentence. But why would a conservator have any risk?

Honestly, 6 months is really tight if he really meant that.