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

[muscleman]

Buffett's be greedy when others are fearful comment comes to mind.  simple but never easy

 

his idea of greedy is getting convertible preferred with 10% dividend in companies with fortress balance sheets at depressed share prices. he wouldnt touch such a speculative investment as the gses with a 10 foot pole.

 

I was referring to his quote as possible advice for what we may want to do, not a prediction for what he will do

 

 

10% dividend in companies with fortress balance sheets at depressed share prices.... Such as Solomon Brothers? :D

[Guest cherzeca]

https://www.abalert.com/search.pl?ARTICLE=183913

 

I know nothing about this website and maybe its b.s., just sharing a link i came across on twitter.  This article reports that a shareholder 'spoke' with Calabria last week.  The article uses pretty strong, high-confidence language that an IPO will happen.

 

Obviously this can't be verified so I don't know how to judge how meaningful this is.

 

this is a legit publication...so legit that I never would pony up for a pricey subs once I left my firm.  so the reporting may or may not be true but the publication is reliable as a general matter

 

EDIT:  one thing this article intimates is that GSE stock will be an easier sell if there is a govt guaranty...referring to the PIMCO REIT failed offering.  so it makes perfect "deal sense" for mnuchin to prefer congressional action for a guaranty since it would make the underwriters effort a bit easier

[Guest cherzeca]

https://www.abalert.com/search.pl?ARTICLE=183913

 

I know nothing about this website and maybe its b.s., just sharing a link i came across on twitter.  This article reports that a shareholder 'spoke' with Calabria last week.  The article uses pretty strong, high-confidence language that an IPO will happen.

 

Obviously this can't be verified so I don't know how to judge how meaningful this is.

 

thanks for posting this cox.  today you have an interesting case of variant perception:  the Bloomberg article to which the street is reacting to, and the asset back alert that is read mostly by the securitization industry as opposed to the general stock investing public.  what makes a market, and perhaps some money

[investorG]

the securities closed at / near 52 week highs on Friday. my guess is this is likely the start of a consolidation period.  the Tsy report will likely be balanced at best for shareholders because there is still a deference to congress (semi-permanence) and their likely preference to thread a needle to achieve their objectives and not irritate various constituencies. 

 

[rros]

the securities closed at / near 52 week highs on Friday. my guess is this is likely the start of a consolidation period.  the Tsy report will likely be balanced at best for shareholders because there is still a deference to congress (semi-permanence) and their likely preference to thread a needle to achieve their objectives and not irritate various constituencies.

Good, common-sense post. Thank you. So we wait..

 

[rros]

i think there is a non trivial chance that the treasury plan calls for congress to enact housing reform as a last step in the process of releasing the gses. mnuchin's statement on its face highlights that risk and as we see today it was a negative surprise, as markets were primed for quick recap and release. what mnuchion actually meant, we'll find out soon enough

 

there is a nontrivial risk of many things screwing up the GSEs as we have found over past 5 years.  as for Mnuchin's "statement," all I saw was Bloomberg reporting on a side press availability while mnuchin was in Japan.  there were quotes about reform and private/public capital, but I dont see something that looks like a "statement".  let's see what the treasury plan says (which itself will have been written by committee and have things in there we will not like)

Bloomberg quoted these 3 statements. The rest was their opinion.

 

“What we’re not going to do is business as usual with no changes, just re-capitalize them and float them,”

“There needs to be housing reform as part of this.”

“Could be IPO, could be private capital, there are lots of ways of doing it, but ultimately it would need a combination of retention and capital raise,”

 

The above does not contradict Mnuchin's testimony from a few weeks ago posted by allnatural. These, together with that testimony, do not represent a change of Mnuchin's mind, in my view. As Chris said, an explicit government guarantee may be an essential requirement by investors willing to fund an IPO. So he is dealing here, suggesting Congress get that explicit guarantee (reform) going. And if this fails, he still can omplement the commitment fee administratively.

 

It does not look like he is backtracking. Just threading a needle (as per investorG). Yes, consolidation time.

[allnatural]

Here are some additional quotes from the original article on saturday.

 

“If we were to get legislation, these entities either need an implicit or explicit guarantee, my preference would be that they have an explicit guarantee and that taxpayers are compensated for that guarantee.”

 

“In any scenario we would want significant capital in front of the government guarantee.”

 

i think there is a non trivial chance that the treasury plan calls for congress to enact housing reform as a last step in the process of releasing the gses. mnuchin's statement on its face highlights that risk and as we see today it was a negative surprise, as markets were primed for quick recap and release. what mnuchion actually meant, we'll find out soon enough

 

there is a nontrivial risk of many things screwing up the GSEs as we have found over past 5 years.  as for Mnuchin's "statement," all I saw was Bloomberg reporting on a side press availability while mnuchin was in Japan.  there were quotes about reform and private/public capital, but I dont see something that looks like a "statement".  let's see what the treasury plan says (which itself will have been written by committee and have things in there we will not like)

Bloomberg quoted these 3 statements. The rest was their opinion.

 

“What we’re not going to do is business as usual with no changes, just re-capitalize them and float them,”

“There needs to be housing reform as part of this.”

“Could be IPO, could be private capital, there are lots of ways of doing it, but ultimately it would need a combination of retention and capital raise,”

 

The above does not contradict Mnuchin's testimony from a few weeks ago posted by allnatural. These, together with that testimony, do not represent a change of Mnuchin's mind, in my view. As Chris said, an explicit government guarantee may be an essential requirement by investors willing to fund an IPO. So he is dealing here, suggesting Congress get that explicit guarantee (reform) going. And if this fails, he still can omplement the commitment fee administratively.

 

It does not look like he is backtracking. Just threading a needle (as per investorG). Yes, consolidation time.

[Cox022]

https://www.abalert.com/search.pl?ARTICLE=183913

 

I know nothing about this website and maybe its b.s., just sharing a link i came across on twitter.  This article reports that a shareholder 'spoke' with Calabria last week.  The article uses pretty strong, high-confidence language that an IPO will happen.

 

Obviously this can't be verified so I don't know how to judge how meaningful this is.

 

thanks for posting this cox.  today you have an interesting case of variant perception:  the Bloomberg article to which the street is reacting to, and the asset back alert that is read mostly by the securitization industry as opposed to the general stock investing public.  what makes a market, and perhaps some money

 

Sure, thanks to you others that commented on the publication.

 

Yes a good example of the noise vs signal we will have to parse out until this all gets settled.  Mnuchin says he prefers an explicit guarantee and a big institution like Bloomberg declares "Mnuchin Dashes Investor Dreams of Quick Fannie Freddie Windfall."  For me this was an, "Am I taking crazy pills?" moment.

 

It is an uncomfortable position to maintain the courage to stick to your beliefs while also having the courage to change them.

 

It's amazing to me that we sit just weeks away from the unveiling of this big plan, yet all the people from WSJ, NYT, BBerg, all the other people who make a killing being paid to know this kind of information before everyone else....yet they all appear to know nothing.  One mistake is thinking you know better than everyone else, but it is also a mistake to assume these other people know more. 

[Guest cherzeca]

this tweet has a screenshot of commentary by compass point about the same mnuchin comments that Bloomberg leads with its misleading headline:  https://twitter.com/Alec_Mazo/status/1138113127667490817

[Midas79]

I have seen "reform" mean different things to different people.  its like the word "privatize". yes it could mean that congress has to act first, and it also could mean some way of making permanent the reforms that fhfa has implemented during conservatorship...by regulation or more likely a contractual agreement in the amendment to the SPSA.  the best answer to your question is to see what the treasury plan says, but even after that, to watch what fhfa and treasury do (and congress not do).  TINA

 

I agree with this. Some articles, like this one,

https://nationalmortgageprofessional.com/news/71331/mnuchin-gses-conservatorship-remains-until-housing-finance-reformed

jump to the conclusion that "housing reform" necessarily means legislation, but that doesn't have to be the case. Calabria can effect many reforms on his own, this was even part of the presidential memo.

 

© For each reform included in the Treasury Housing Reform Plan, the Secretary of the Treasury must specify whether the proposed reform is a "legislative" reform that would require congressional action or an "administrative" reform that could be implemented without congressional action. For each "administrative" reform, the Treasury Housing Reform Plan shall include a timeline for implementation.

[Guest cherzeca]

@cox

 

"It's amazing to me that we sit just weeks away from the unveiling of this big plan, yet all the people from WSJ, NYT, BBerg, all the other people who make a killing being paid to know this kind of information before everyone else....yet they all appear to know nothing.  One mistake is thinking you know better than everyone else, but it is also a mistake to assume these other people know more. "

 

also at play imo is that publishers at WSJ/bbg etc influence the news divisions, mixing church and state, simply because the publishers are afraid it will be harder to sell advertising to banks and others who are anti-GSE if the articles aren't edited in a fashion that curries favor

[orthopa]

What is everyones opinion on this line from the Asset Backed Alert piece...

 

"Shareholders argue that money should have flowed to them as dividend payments instead. While many of the lawsuits have been dismissed, some still are outstanding. Most of the actions could be resolved by making preferred shareholders whole, potentially via a mass “sweep” of profits."

 

What is meant by a mass "sweep" of profits?

 

 

Also if memory serves there was another Asset Backed Alert that someone posted 6-12? months ago that I think was pretty accurate too. I think it was out same-ish time as bloomberg intelligence piece about plans to release GSEs from corservatorship I think? That being said piece should be somewhat reputable huh?

 

EDIT: Found it...wont let me read whole article but was before elections...

 

10/19/18  White House Seeks FHFA Action

The idea of scaling back Fannie Mae and Freddie Mac without legislative approval is gaining traction.

 

[Guest cherzeca]

@orthopa

 

the good thing about asset backed alert is that when it reports that it has spoken to institutional investors you can count on it,  as AB is written exclusively for IIs and their subs price reflects that.  so in this case, while I doubt that Bloomberg (the eponymous Joe Light(weight)?) has cozy and easy access to large GSE investors who are recounting a recent meeting with calabria, I have not doubt that AB has done so.

 

the downside is that AB is not conversant in the GSE capital raise mechanics itself, just the mbs world that the GSEs dominate.  so when AB heard what was likely a reference to a cancellation of the sweep, it was just thinking in terms of a reverse sweep if you will. 

 

the discussion about the PIMCO Reit is another indication of AB's understanding of the market that it covers.  I could see that pro/con discussion of whether the PIMCO failed offering portends an issue for GSE recap having been had among AB's audience.  no way does Bloomberg have a clue about this.

[orthopa]

@orthopa

 

the good thing about asset backed alert is that when it reports that it has spoken to institutional investors you can count on it,  as AB is written exclusively for IIs and their subs price reflects that.  so in this case, while I doubt that Bloomberg (the eponymous Joe Light(weight)?) has cozy and easy access to large GSE investors who are recounting a recent meeting with calabria, I have not doubt that AB has done so.

 

the downside is that AB is not conversant in the GSE capital raise mechanics itself, just the mbs world that the GSEs dominate.  so when AB heard what was likely a reference to a cancellation of the sweep, it was just thinking in terms of a reverse sweep if you will. 

 

the discussion about the PIMCO Reit is another indication of AB's understanding of the market that it covers.  I could see that pro/con discussion of whether the PIMCO failed offering portends an issue for GSE recap having been had among AB's audience.  no way does Bloomberg have a clue about this.

 

Thanks cherzeca. I went back in the thread and found the post on the AB piece, it was your post lol! https://www.dropbox.com/s/zbjm061e5csucqc/Asset%20Backed%20Alert%2020181019%20FHFA.pdf?dl=0

 

All seems like pretty dead on reporting to me. Timing was a little off but that maybe due to Ottings taped slip up.

 

That being said if we take AB for gospel.

 

1. Treasury plan should be out in next ~20 days.

2.  Preferred maybe made whole based on investor discussions.

3. Freddie and Fannie shareholders seem to love it and it seems like administrative action is what will happen.

4. Calabria firmly believes the IPO will be fully subscribed.

 

That being said looks like today shares were on sale.  :)

[Guest cherzeca]

@orthopa

 

I will be interested to see what level of detail the treasury plan has about the capital raise.  I suspect it will state that treasury will take next step by formally hiring investment bankers as financial advisor, at which point fhfa will do likewise.  then it is my sincere hope that both mnuchin and calabria will defer questions to the bankers, who will layout a blueprint )so to speak) in due course.  let the bankers do the details

 

per your earlier post, it will also be interesting to see the scope of administrative reforms.  I suspect these are the "reforms" that mnuchin was referring to in the Bloomberg piece which flew right over the heads of the Bloomberg editors who crafted the headline

[orthopa]

@orthopa

 

I will be interested to see what level of detail the treasury plan has about the capital raise.  I suspect it will state that treasury will take next step by formally hiring investment bankers as financial advisor, at which point fhfa will do likewise.  then it is my sincere hope that both mnuchin and calabria will defer questions to the bankers, who will layout a blueprint )so to speak) in due course.  let the bankers do the details

 

per your earlier post, it will also be interesting to see the scope of administrative reforms.  I suspect these are the "reforms" that mnuchin was referring to in the Bloomberg piece which flew right over the heads of the Bloomberg editors who crafted the headline

 

I went back and looked over the presidental memorandum again and it clearly delineates the need for reform/guarantee and treasuries duty to discuss if it is an administrative or legislative. Mnuchin just reiterated this. The market must have forgotten what the memorandum said.

[SnarkyPuppy]

New article today

https://www.wsj.com/articles/regulator-to-press-congress-to-act-on-mortgage-finance-revamp-11560337204?redirect=amp#click=https://t.co/rPGBeVanRR

 

Its becoming increasingly clear that the administrations plan to reduce recapitalization execution risk and attract "private capital" is to ask congress to implement changes prior to a clearly defined recap start date. 

- Regardless of whether congress acts, there will be some form of guarantee (explicit securities based guarantee from congress  or moelis backstop administratively). 

- One wildcard is increased competition via changes to charters - but fnma/fmcc if nothing else have a head start with infrastructure, timing, brand, IP, and existing business portfolio - see cherz comments above for more in why this isn't necessarily the end of the world scenario.  For years FMCC securities traded at a discount to FNMA securities for no clear reason other than brand.  Potentially...this applies to non FNMA/FMCC in the same manner

 

By communicating a clearly defined start date for administrative-only recap, the admin is signaling to the market that it recognizes the "legislative risk" that private capital clearly cares about,  but is also basically providing congress with a deadline.  Implicit in this structure is the hope that if congress can't enact anything with a deadline in place, the market will  be incrementally more comfortable that there won't be any changes

[SnarkyPuppy]

New article today

https://www.wsj.com/articles/regulator-to-press-congress-to-act-on-mortgage-finance-revamp-11560337204?redirect=amp#click=https://t.co/rPGBeVanRR

 

Its becoming increasingly clear that the administrations plan to reduce recapitalization execution risk and attract "private capital" is to ask congress to implement changes prior to a clearly defined recap start date. 

- Regardless of whether congress acts, there will be some form of guarantee (explicit securities based guarantee from congress  or moelis backstop administratively). 

- One wildcard is increased competition via changes to charters - but fnma/fmcc if nothing else have a head start with infrastructure, timing, brand, IP, and existing business portfolio - see cherz comments above for more in why this isn't necessarily the end of the world scenario.  For years FMCC securities traded at a discount to FNMA securities for no clear reason other than brand.  Potentially...this applies to non FNMA/FMCC in the same manner

 

By communicating a clearly defined start date for administrative-only recap, the admin is signaling to the market that it recognizes the "legislative risk" that private capital clearly cares about,  but is also basically providing congress with a deadline.  Implicit in this structure is the hope that if congress can't enact anything with a deadline in place, the market will  be incrementally more comfortable that there won't be any changes

 

And.... FHFA recommendations for legalislative action came out this morning.

 

https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-2018-Report-to-Congress-Includes-Legislative-Recommendations.aspx

[investorG]

New article today

https://www.wsj.com/articles/regulator-to-press-congress-to-act-on-mortgage-finance-revamp-11560337204?redirect=amp#click=https://t.co/rPGBeVanRR

 

Its becoming increasingly clear that the administrations plan to reduce recapitalization execution risk and attract "private capital" is to ask congress to implement changes prior to a clearly defined recap start date. 

- Regardless of whether congress acts, there will be some form of guarantee (explicit securities based guarantee from congress  or moelis backstop administratively). 

- One wildcard is increased competition via changes to charters - but fnma/fmcc if nothing else have a head start with infrastructure, timing, brand, IP, and existing business portfolio - see cherz comments above for more in why this isn't necessarily the end of the world scenario.  For years FMCC securities traded at a discount to FNMA securities for no clear reason other than brand.  Potentially...this applies to non FNMA/FMCC in the same manner

 

By communicating a clearly defined start date for administrative-only recap, the admin is signaling to the market that it recognizes the "legislative risk" that private capital clearly cares about,  but is also basically providing congress with a deadline.  Implicit in this structure is the hope that if congress can't enact anything with a deadline in place, the market will  be incrementally more comfortable that there won't be any changes

 

good post, thanks. 

 

mnuchin is likely concerned with 2 things more than Tsy's $$ take:

 

a) try not to disrupt the agency mbs market for global investors. this seemingly requires either an explicit (congress) or implicit (ongoing committment fee) backstop, preferably the former.

 

b) minimize failed deal risk in a potential transaction(s).  ~$100bn is a lot to raise.  congressional blessing would help, hence the delicate dance that's going on now.  I guess it's well orchestrated with calabria as the main public face given his skills, time, and relative lack of relationship baggage.  even if the congressional route goes nowhere, it provides some political cover.

 

 

[Guest cherzeca]

this was posted on Tim howard' blog:

 

"Tim

 

this WSJ article is germane to your last comment: https://www.wsj.com/articles/regulator-to-press-congress-to-act-on-mortgage-finance-revamp-11560337204?mod=hp_lead_pos6

 

the gist is that calabria is going to send to congress some to-do items that calabria wants congress to act on, such as giving calabria power to charter additional guarantors (much like banking regulators can charter additional banks), and enacting some form of mbs govt guarantee. the article identifies the guarantee as something that should improve mbs pricing, which therefore should make a recapitalization somewhat easier to execute. calabria also intimated that the treasury plan will identify separate admin and congressional tracks for reform.

 

my takeaway from the article is that both calabria and mnuchin are prepared to take admin action to implement reforms (to be identified in detail next week) that they have the power to implement, while suggesting congressional action that could be layered onto admin action that would seem to improve their ability to execute a capital raise and release GSEs from conservatorship.

 

the article also referred to an interview with sen. brown in which he said his prior objection to SBC proposals was that they were “Rube Goldberg-esque”, which may even be an understatement. one may think that if any congressional action is done (ie brown…and even the HFSC goes along), it will be more limited in scope to what calabria and mnuchin will request.

 

since the article stated that calabria would be presenting his to do list to congress next week, I would assume that would be the timing we would expect for the treasury plan. so yes we wait for the details, but I find this article to provide more coherence to Bloomberg’s recent misleading article on Mnuchin’s statements

 

rolg"

 

I wonder if you guys think this is a fair reading, or too polyanna-ish

 

[Guest cherzeca]

New article today

https://www.wsj.com/articles/regulator-to-press-congress-to-act-on-mortgage-finance-revamp-11560337204?redirect=amp#click=https://t.co/rPGBeVanRR

 

Its becoming increasingly clear that the administrations plan to reduce recapitalization execution risk and attract "private capital" is to ask congress to implement changes prior to a clearly defined recap start date. 

- Regardless of whether congress acts, there will be some form of guarantee (explicit securities based guarantee from congress  or moelis backstop administratively). 

- One wildcard is increased competition via changes to charters - but fnma/fmcc if nothing else have a head start with infrastructure, timing, brand, IP, and existing business portfolio - see cherz comments above for more in why this isn't necessarily the end of the world scenario.  For years FMCC securities traded at a discount to FNMA securities for no clear reason other than brand.  Potentially...this applies to non FNMA/FMCC in the same manner

 

By communicating a clearly defined start date for administrative-only recap, the admin is signaling to the market that it recognizes the "legislative risk" that private capital clearly cares about,  but is also basically providing congress with a deadline.  Implicit in this structure is the hope that if congress can't enact anything with a deadline in place, the market will  be incrementally more comfortable that there won't be any changes

 

And.... FHFA recommendations for legalislative action came out this morning.

 

https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-2018-Report-to-Congress-Includes-Legislative-Recommendations.aspx

 

fhfa recs for congressional action is not a line item in the table of contents.  anyone find it?

[Guest cherzeca]

New article today

https://www.wsj.com/articles/regulator-to-press-congress-to-act-on-mortgage-finance-revamp-11560337204?redirect=amp#click=https://t.co/rPGBeVanRR

 

Its becoming increasingly clear that the administrations plan to reduce recapitalization execution risk and attract "private capital" is to ask congress to implement changes prior to a clearly defined recap start date. 

- Regardless of whether congress acts, there will be some form of guarantee (explicit securities based guarantee from congress  or moelis backstop administratively). 

- One wildcard is increased competition via changes to charters - but fnma/fmcc if nothing else have a head start with infrastructure, timing, brand, IP, and existing business portfolio - see cherz comments above for more in why this isn't necessarily the end of the world scenario.  For years FMCC securities traded at a discount to FNMA securities for no clear reason other than brand.  Potentially...this applies to non FNMA/FMCC in the same manner

 

By communicating a clearly defined start date for administrative-only recap, the admin is signaling to the market that it recognizes the "legislative risk" that private capital clearly cares about,  but is also basically providing congress with a deadline.  Implicit in this structure is the hope that if congress can't enact anything with a deadline in place, the market will  be incrementally more comfortable that there won't be any changes

 

good post, thanks. 

 

mnuchin is likely concerned with 2 things more than Tsy's $$ take:

 

a) try not to disrupt the agency mbs market for global investors. this seemingly requires either an explicit (congress) or implicit (ongoing committment fee) backstop, preferably the former.

 

b) minimize failed deal risk in a potential transaction(s).  ~$100bn is a lot to raise.  congressional blessing would help, hence the delicate dance that's going on now.  I guess it's well orchestrated with calabria as the main public face given his skills, time, and relative lack of relationship baggage.  even if the congressional route goes nowhere, it provides some political cover.

 

I agree with this completely.  I also imagine that calabria/mnuchin have a good idea what senator brown might be in favor of, as a way of focusing the congressional ask in a way that actually improves chances for passage...and that ask will likely be capital raising enhancements rather than barriers

[Guest cherzeca]

New article today

https://www.wsj.com/articles/regulator-to-press-congress-to-act-on-mortgage-finance-revamp-11560337204?redirect=amp#click=https://t.co/rPGBeVanRR

 

Its becoming increasingly clear that the administrations plan to reduce recapitalization execution risk and attract "private capital" is to ask congress to implement changes prior to a clearly defined recap start date. 

- Regardless of whether congress acts, there will be some form of guarantee (explicit securities based guarantee from congress  or moelis backstop administratively). 

- One wildcard is increased competition via changes to charters - but fnma/fmcc if nothing else have a head start with infrastructure, timing, brand, IP, and existing business portfolio - see cherz comments above for more in why this isn't necessarily the end of the world scenario.  For years FMCC securities traded at a discount to FNMA securities for no clear reason other than brand.  Potentially...this applies to non FNMA/FMCC in the same manner

 

By communicating a clearly defined start date for administrative-only recap, the admin is signaling to the market that it recognizes the "legislative risk" that private capital clearly cares about,  but is also basically providing congress with a deadline.  Implicit in this structure is the hope that if congress can't enact anything with a deadline in place, the market will  be incrementally more comfortable that there won't be any changes

 

And.... FHFA recommendations for legalislative action came out this morning.

 

https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-2018-Report-to-Congress-Includes-Legislative-Recommendations.aspx

 

incoherence in the release notes to the fhfa 2018 report to congress:

 

"In the report, FHFA Director Mark Calabria encourages Congress to act on housing finance reform while also requesting chartering authority similar to the Office of the Comptroller of the Currency. “There is urgent need for Congress to act on housing finance reform. To promote competition in the marketplace, I encourage Congress to authorize additional competitors and provide FHFA the same powers as other federal financial regulators."

 

The legislative recommendations outlined in the letter include:

 

Acting on housing finance reform;

Increasing competition; and

Strengthening the FHFA's regulatory powers."

 

what letter? doesn't seem to be in report either.

[DRValue]

New article today

https://www.wsj.com/articles/regulator-to-press-congress-to-act-on-mortgage-finance-revamp-11560337204?redirect=amp#click=https://t.co/rPGBeVanRR

 

Its becoming increasingly clear that the administrations plan to reduce recapitalization execution risk and attract "private capital" is to ask congress to implement changes prior to a clearly defined recap start date. 

- Regardless of whether congress acts, there will be some form of guarantee (explicit securities based guarantee from congress  or moelis backstop administratively). 

- One wildcard is increased competition via changes to charters - but fnma/fmcc if nothing else have a head start with infrastructure, timing, brand, IP, and existing business portfolio - see cherz comments above for more in why this isn't necessarily the end of the world scenario.  For years FMCC securities traded at a discount to FNMA securities for no clear reason other than brand.  Potentially...this applies to non FNMA/FMCC in the same manner

 

By communicating a clearly defined start date for administrative-only recap, the admin is signaling to the market that it recognizes the "legislative risk" that private capital clearly cares about,  but is also basically providing congress with a deadline.  Implicit in this structure is the hope that if congress can't enact anything with a deadline in place, the market will  be incrementally more comfortable that there won't be any changes

 

And.... FHFA recommendations for legalislative action came out this morning.

 

https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-2018-Report-to-Congress-Includes-Legislative-Recommendations.aspx

 

incoherence in the release notes to the fhfa 2018 report to congress:

 

"In the report, FHFA Director Mark Calabria encourages Congress to act on housing finance reform while also requesting chartering authority similar to the Office of the Comptroller of the Currency. “There is urgent need for Congress to act on housing finance reform. To promote competition in the marketplace, I encourage Congress to authorize additional competitors and provide FHFA the same powers as other federal financial regulators."

 

The legislative recommendations outlined in the letter include:

 

Acting on housing finance reform;

Increasing competition; and

Strengthening the FHFA's regulatory powers."

 

what letter? doesn't seem to be in report either.

 

There doesn't seem to be much more substance than that, just the comments in his introductory letter of the report.

[Midas79]

fhfa recs for congressional action is not a line item in the table of contents.  anyone find it?

 

The report reads as if everything but the introduction was just copied and pasted, with appropriate adjustments, from the Watt-era reports. As Calabria mentions, June 15 is the statutory deadline, so I wouldn't read too much into the contents. Other than the introduction I think it's just a TPS report.