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

[Luke 532]

...I think it's just a TPS report.

 

[Guest cherzeca]

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.

 

there is a 3 page intro letter which talks about competition and refining capital setting process to avoid undesirable workarounds...not sure what that's about

[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.

 

there is a 3 page intro letter which talks about competition and refining capital setting process to avoid undesirable workarounds...not sure what that's about

 

Perhaps it's just a platform for Calabria to say what he wants to, not that he needs it.

 

For the rest of the report, I just ask myself "is this something Watt's FHFA would have produced?" The intro is clearly a no, but the parts I skimmed through, especially the Maintain/Reduce/Build conservatorship section is yes. I think Calabria lacked the time, and Otting the inclination (and also time, perhaps), to make wholesale changes to the report's structure and contents.

 

The report also mentions the upcoming CECL standards and how they might push FnF's net worth under zero. The last estimate I saw was $12.5B.  I don't think this would become an issue until the end of Q2 2020 though, because the writedown would happen on 1/1/2020 (during Q1 2020) and its effect on net worth wouldn't be reported until the Q1 10-Q is released in May 2020. This could be a deadline for the capital raise to avoid ugly bailout accusations in the middle of campaign and election season.

[Guest cherzeca]

I admit that I am subject to confirmation bias with the best of them, but I am getting real comfortable with what I see as the two main asks of congress from calabria/mnuchin:  competition and mbs backstop govt guaranty

 

any govt guaranty should help GSEs in short term, especially with capital raise.  I am sure that is what institutional investors have been asking for, and it will only help GSEs in short term.

 

in longer term, the govt guaranty may help other financial institutions enter the secondary mortgage finance market.  I sure wouldn't want to compete against a $5T duopoly without help.  but longer term is post capital raise, and while the specter of competition is a negative, I think it is far overshadowed by the capital raise benefit of an mbs guaranty in favor of GSE mbs

 

there has been a lot of antagonism against GSEs over past 7 years, and so it is natural that one is suspicious of calabria/mnuchin motives in asking for congressional action.  I am warming up to it

[Jcmeg35]

Another article from WSJ. Not much added here...it is interesting though that he cites common shares and not preferred as indicating "the end of NWS being priced in", IMO just highlights the lack of knowledge on the GSEs.

 

https://www.wsj.com/articles/sound-and-fury-over-fannie-mae-and-freddie-mac-11560359890

[Ahab]

2/3 of the subject matter experts on the GSEs are probably surreptitiously writing to one another on this very message board. I've given up on the mainstream financial media understanding GSE reform because most journalists have either not put in the work to understanding the history of Fannie/Freddie and the nuances of the reform debate, or they understand perfectly well what's likely to happen and have been told to gum up the works.

[SnarkyPuppy]

It's interesting to me that the administration has been signaling release of a completed plan for the month of June 2019.  The timing aligns closely to the en banc decision and that seemingly hasn't impacted their timeline for releasing the plan.

 

I see three options as a result:

a) They aren't actually releasing it in June 2019 - or they are waiting until en banc comes out.

b) The plan is so high-level that is compatible with a positive and negative (for shareholders) en banc outcome.

c) The plan notes that Tsy has been repaid and the sr pref must be eliminated, consistent with a positive en banc outcome.

[SnarkyPuppy]

And on the flipside...

[Guest cherzeca]

It's interesting to me that the administration has been signaling release of a completed plan for the month of June 2019.  The timing aligns closely to the en banc decision and that seemingly hasn't impacted their timeline for releasing the plan.

 

I see three options as a result:

a) They aren't actually releasing it in June 2019 - or they are waiting until en banc comes out.

b) The plan is so high-level that is compatible with a positive and negative (for shareholders) en banc outcome.

c) The plan notes that Tsy has been repaid and the sr pref must be eliminated, consistent with a positive en banc outcome.

 

Calabria has stated that the recap plan will take care of those pesky lawsuits...so my guess is C

 

EDIT:  though I dont think the treasury plan will necessarily go into such detail

[Luke 532]

Prepared Remarks of Dr. Mark A. Calabria, Director of FHFA, at 2019 Ginnie Mae Summit (today 3:30-4:00pm)

 

https://www.fhfa.gov/mobile/Pages/public-affairs-detail.aspx?PageName=Prepared-Remarks-of-Dr-Mark-A-Calabria-Director-of-FHFA-at-2019-Ginnie-Mae-Summit.aspx

 

 

[Luke 532]

Prepared Remarks of Dr. Mark A. Calabria, Director of FHFA, at 2019 Ginnie Mae Summit (today 3:30-4:00pm)

 

https://www.fhfa.gov/mobile/Pages/public-affairs-detail.aspx?PageName=Prepared-Remarks-of-Dr-Mark-A-Calabria-Director-of-FHFA-at-2019-Ginnie-Mae-Summit.aspx

 

Doesn't sound like Net Worth Sweep is going to be stopped in 2019...

We will continue to engage with Treasury to develop a responsible plan to end the conservatorships – with a clear road map and mile markers – and to adjust the Treasury share agreements accordingly.

 

And by sometime next year, my hope and expectation is that we will be on the path where Fannie and Freddie can start to build capital.

[Jcmeg35]

Prepared Remarks of Dr. Mark A. Calabria, Director of FHFA, at 2019 Ginnie Mae Summit (today 3:30-4:00pm)

 

https://www.fhfa.gov/mobile/Pages/public-affairs-detail.aspx?PageName=Prepared-Remarks-of-Dr-Mark-A-Calabria-Director-of-FHFA-at-2019-Ginnie-Mae-Summit.aspx

 

Thanks Luke.

 

"And by sometime next year, my hope and expectation is that we will be on the path where Fannie and Freddie can start to build capital."

 

This caught my eye, in an unpleasant way. Hopefully, I am not reading too much into it, but starting to build capital next year (I have to think this means retained earnings not just capital raising) is a longer an more opaque timeline than what he has previously said. Not very reassuring.

 

Edit: @luke Looks like you had the same reaction.

[Luke 532]

Well, he didn't say "in 2020" but rather "by next year" which would mean anytime from now until December 31, 2020.  But who knows... we'll see when the report comes out (hopefully).

[Guest cherzeca]

I wonder what happens if congress dawdles and then does not pass a guaranty?  does the capital raising process wait for congress?  for how long?  I would hope the treasury plan has timetables as well as mileposts

[Luke 532]

I wonder what happens if congress dawdles and then does not pass a guaranty?  does the capital raising process wait for congress?  for how long?  I would hope the treasury plan has timetables as well as mileposts

 

I hope so, too.  Looks like that is Calabria's intention...

"We will continue to engage with Treasury to develop a responsible plan to end the conservatorships – with a clear road map and mile markers – and to adjust the Treasury share agreements accordingly."

[muscleman]

I am completely sold out. (The third time this year) The chart looks weak. Good luck to everyone!

[muscleman]

Prepared Remarks of Dr. Mark A. Calabria, Director of FHFA, at 2019 Ginnie Mae Summit (today 3:30-4:00pm)

 

https://www.fhfa.gov/mobile/Pages/public-affairs-detail.aspx?PageName=Prepared-Remarks-of-Dr-Mark-A-Calabria-Director-of-FHFA-at-2019-Ginnie-Mae-Summit.aspx

 

Thanks Luke.

 

"And by sometime next year, my hope and expectation is that we will be on the path where Fannie and Freddie can start to build capital."

 

This caught my eye, in an unpleasant way. Hopefully, I am not reading too much into it, but starting to build capital next year (I have to think this means retained earnings not just capital raising) is a longer an more opaque timeline than what he has previously said. Not very reassuring.

 

Edit: @luke Looks like you had the same reaction.

 

Yeah.... I have two concerns for this.

1. "sometime next year". That may not even be 1st Q of next year. Maybe 2nd Q, or 3rd Q.

2. "we will be on the path where Fannie and Freddie can start to build capital." He didn't say "FnF will start to build capital", but "on the path where Fannie and Freddie can start to build capital.". This implies that the ACTUAL time when FnF starts to build capital may be even further away.

 

Anyway, fundamental is not something I am good at. I was a bit concerned since Tuesday but decided to get out completely today. But that's purely based on my technical analysis.

 

[muscleman]

Prepared Remarks of Dr. Mark A. Calabria, Director of FHFA, at 2019 Ginnie Mae Summit (today 3:30-4:00pm)

 

https://www.fhfa.gov/mobile/Pages/public-affairs-detail.aspx?PageName=Prepared-Remarks-of-Dr-Mark-A-Calabria-Director-of-FHFA-at-2019-Ginnie-Mae-Summit.aspx

 

Doesn't sound like Net Worth Sweep is going to be stopped in 2019...

We will continue to engage with Treasury to develop a responsible plan to end the conservatorships – with a clear road map and mile markers – and to adjust the Treasury share agreements accordingly.

 

And by sometime next year, my hope and expectation is that we will be on the path where Fannie and Freddie can start to build capital.

 

Isn't it interesting that since a few years ago, at the beginning of every year, I always thought FnF preferreds are the best idea of the year? Then it goes up, and then dives back. Hope that doesn't happen this year.

We will have en banc coming. Not sure how that will play out.

 

 

[rros]

Prepared Remarks of Dr. Mark A. Calabria, Director of FHFA, at 2019 Ginnie Mae Summit (today 3:30-4:00pm)

 

https://www.fhfa.gov/mobile/Pages/public-affairs-detail.aspx?PageName=Prepared-Remarks-of-Dr-Mark-A-Calabria-Director-of-FHFA-at-2019-Ginnie-Mae-Summit.aspx

 

Doesn't sound like Net Worth Sweep is going to be stopped in 2019...

We will continue to engage with Treasury to develop a responsible plan to end the conservatorships – with a clear road map and mile markers – and to adjust the Treasury share agreements accordingly.

 

And by sometime next year, my hope and expectation is that we will be on the path where Fannie and Freddie can start to build capital.

 

Isn't it interesting that since a few years ago, at the beginning of every year, I always thought FnF preferreds are the best idea of the year? Then it goes up, and then dives back. Hope that doesn't happen this year.

We will have en banc coming. Not sure how that will play out.

Why does this matter to you? You do not own any stock anymore.

[rros]

As investorG said, time for consolidation. Which means, you can sell now and buy back around September time frame or simply stay put if you don't mind another 10%-15% price drop from here. By September, the pump will re-start and reignite shares. Nothing has changed.

 

In the next 3 months, Calabria will try to get something out of Congress and by then it will be clearer -to him- whether there is a real chance of doing so or no chance at all. A time when IPO options can be explored in more depth. After consolidation, we go higher.

 

By 4Q, Calabria will either have new powers at the FHFA plus a good shot at a Congress-approved government guarantee or they will go the route of the commitment fee/line of credit plus a full recap voiding the NWS.

[muscleman]

Prepared Remarks of Dr. Mark A. Calabria, Director of FHFA, at 2019 Ginnie Mae Summit (today 3:30-4:00pm)

 

https://www.fhfa.gov/mobile/Pages/public-affairs-detail.aspx?PageName=Prepared-Remarks-of-Dr-Mark-A-Calabria-Director-of-FHFA-at-2019-Ginnie-Mae-Summit.aspx

 

Doesn't sound like Net Worth Sweep is going to be stopped in 2019...

We will continue to engage with Treasury to develop a responsible plan to end the conservatorships – with a clear road map and mile markers – and to adjust the Treasury share agreements accordingly.

 

And by sometime next year, my hope and expectation is that we will be on the path where Fannie and Freddie can start to build capital.

 

Isn't it interesting that since a few years ago, at the beginning of every year, I always thought FnF preferreds are the best idea of the year? Then it goes up, and then dives back. Hope that doesn't happen this year.

We will have en banc coming. Not sure how that will play out.

Why does this matter to you? You do not own any stock anymore.

 

I continue to watch stocks that I don’t own.

[investorG]

this delay reinforces the likelihood that initial investor feedback after Calabria's May excitement directed them to give congress a real shot.

 

without congress, there is higher deal execution risk and/or the new investors would conceivably demand such a margin of safety in terms of pro forma % ownership that the govt and private investors get squeezed.  with congress, the deal might flow easier (depending on what they pass) and allow for greater potential returns for the govt's warrants.

 

so, it appears they will try congress.  and give them at least the rest of the year to do so.  if that doesn't work, then I guess plan B.  personally, I am disappointed that they can't do them both in parallel - stop the sweep, switch to the periodic commitment fee, and at the same time prioritize congress.  (but I've thought this for a long time and it's just not happening).

 

good luck, everyone.

[orthopa]

Prepared Remarks of Dr. Mark A. Calabria, Director of FHFA, at 2019 Ginnie Mae Summit (today 3:30-4:00pm)

 

https://www.fhfa.gov/mobile/Pages/public-affairs-detail.aspx?PageName=Prepared-Remarks-of-Dr-Mark-A-Calabria-Director-of-FHFA-at-2019-Ginnie-Mae-Summit.aspx

 

Doesn't sound like Net Worth Sweep is going to be stopped in 2019...

We will continue to engage with Treasury to develop a responsible plan to end the conservatorships – with a clear road map and mile markers – and to adjust the Treasury share agreements accordingly.

 

And by sometime next year, my hope and expectation is that we will be on the path where Fannie and Freddie can start to build capital.

 

My read on this is mainly related to the IPO not the NWS. If FHFA and Treasury decide on ending the NWS in the fall as previously discussed, they could easily come to an agreement in the fall with the last payment swept being ~ November which is when the Q3 payment is swept. That would set up the Q4 payment to be held to build capital in the ~Feburary. There is incentive for this to be done concisely and quickly as elections become the main focus by early 2020.

[muscleman]

Prepared Remarks of Dr. Mark A. Calabria, Director of FHFA, at 2019 Ginnie Mae Summit (today 3:30-4:00pm)

 

https://www.fhfa.gov/mobile/Pages/public-affairs-detail.aspx?PageName=Prepared-Remarks-of-Dr-Mark-A-Calabria-Director-of-FHFA-at-2019-Ginnie-Mae-Summit.aspx

 

Doesn't sound like Net Worth Sweep is going to be stopped in 2019...

We will continue to engage with Treasury to develop a responsible plan to end the conservatorships – with a clear road map and mile markers – and to adjust the Treasury share agreements accordingly.

 

And by sometime next year, my hope and expectation is that we will be on the path where Fannie and Freddie can start to build capital.

 

My read on this is mainly related to the IPO not the NWS. If FHFA and Treasury decide on ending the NWS in the fall as previously discussed, they could easily come to an agreement in the fall with the last payment swept being ~ November which is when the Q3 payment is swept. That would set up the Q4 payment to be held to build capital in the ~Feburary. There is incentive for this to be done concisely and quickly as elections become the main focus by early 2020.

 

 

Why not stop the sweep now?

[orthopa]

Prepared Remarks of Dr. Mark A. Calabria, Director of FHFA, at 2019 Ginnie Mae Summit (today 3:30-4:00pm)

 

https://www.fhfa.gov/mobile/Pages/public-affairs-detail.aspx?PageName=Prepared-Remarks-of-Dr-Mark-A-Calabria-Director-of-FHFA-at-2019-Ginnie-Mae-Summit.aspx

 

Doesn't sound like Net Worth Sweep is going to be stopped in 2019...

We will continue to engage with Treasury to develop a responsible plan to end the conservatorships – with a clear road map and mile markers – and to adjust the Treasury share agreements accordingly.

 

And by sometime next year, my hope and expectation is that we will be on the path where Fannie and Freddie can start to build capital.

 

My read on this is mainly related to the IPO not the NWS. If FHFA and Treasury decide on ending the NWS in the fall as previously discussed, they could easily come to an agreement in the fall with the last payment swept being ~ November which is when the Q3 payment is swept. That would set up the Q4 payment to be held to build capital in the ~Feburary. There is incentive for this to be done concisely and quickly as elections become the main focus by early 2020.

 

 

Why not stop the sweep now?

 

Good question. You would think it would help to have an extra 4,6,8 Billion dollars to help capitalize. For one thing the treasury plan isnt out. FHFA has to "negotiate" with treasury regarding any amendments, and as monotonous as it is it isnt time yet in the carefully coordinated plan to do so.