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

[Luke 532]

Freddie Mac adds Mark Grier to its Board of Directors

https://www.housingwire.com/articles/freddie-mac-adds-mark-grier-to-its-board-of-directors/

In late 2011, Grier led the $3 billion initial public offering of Prudential Financial, which was one of the largest IPOs in history at the time.

[james22]

Yeesh.

 

Hard to blame the administration for prioritizing tax reform, regulation reform, trade agreements, etc. before the GSEs. Only so much bandwidth.

 

Especially when they know GSE reform will be used against them and so risks a second term and all they might accomplish then.

 

Tiring, sure. But that's why the outsized opportunity exists.

 

I'm only frustrated that I'm at my position limit. (Though when Trump announces in his victory parade that reforming FnF is a priority, I'll be sorely tempted to up that.)

 

[Guest cherzeca]

Yeesh.

 

Hard to blame the administration for prioritizing tax reform, regulation reform, trade agreements, etc. before the GSEs. Only so much bandwidth.

 

Especially when they know GSE reform will be used against them and so risks a second term and all they might accomplish then.

 

Tiring, sure. But that's why the outsized opportunity exists.

 

I'm only frustrated that I'm at my position limit. (Though when Trump announces in his victory parade that reforming FnF is a priority, I'll be sorely tempted to up that.)

 

I dont want to politicize this thread, but just like there is a "deep state" of left of center bureaucrats that push back against many of Trump's initiatives, there is also a "deep state" of bureaucrats who are GSE-haters (or at least pro-banks).  I truly believe that calabria and mnuchin are moving shoulder to shoulder to implement a recap and release, but there is always going to be those who have to be consulted in treasury and NEC that will slow things down (I have no doubt that any bank lobbyist can get Kudlow to pick up the phone)...plus there is the drag posed by a congress that whether pro or anti GSE, simply wants its power prerogatives respected.

 

this is something that I didn't realize and should have not discounted.  having said that, I dont see the GSEs as posing a political risk regarding re-election.  sure there is plenty of anti-billionaires speak going on but that is very generalized level class warfare jabbering, and not really specific to particular policies such as GSE recap that can move voters in a way that voters aren't already inclined to vote, given their class identities and sympathies. 

[orthopa]

Yeesh.

 

Hard to blame the administration for prioritizing tax reform, regulation reform, trade agreements, etc. before the GSEs. Only so much bandwidth.

 

Especially when they know GSE reform will be used against them and so risks a second term and all they might accomplish then.

 

Tiring, sure. But that's why the outsized opportunity exists.

 

I'm only frustrated that I'm at my position limit. (Though when Trump announces in his victory parade that reforming FnF is a priority, I'll be sorely tempted to up that.)

 

Tax reform could just have easily been used against them and will as the debates heat up. Closer we get to election sure GSE reform could be used but honestly is the average voter going to give a shit? More $$$ has been given to evil corporations and billionaires via tax cuts then any amount the GSEs will. Whats becoming obvious is that the admin/mnuchin/calabria are not going to be nearly as aggressive as signaled earlier. You can blame it on any other priority the administration had but going back to the Treasury plan being delayed by 4 months there has been a consistent and deliberate delay every step of the way. I think at this point its foolish to think that unless forced in some fashion they act quickly at any point. No way. Trump getting elected opens up 4 more years and at this rate it will take a good chunk of that. The question is how long do you want to wait? Want to wait 2-3 more years for 75%-80% of par? At some point it makes sense to take look, be realistic and reassess the situation.

 

What does all of this mean in my opinion? There is a lobby or external source that has been powerful enough to significantly influence the plan, every step of the way. Thats no bueno at this point. Absent a court ruling that forces their hand this could take 4 more years. Do we get made whole? I guess but it eats into returns and their is the opportunity cost of holding.

 

Again I maybe reaching maximum pessimism but there is every reason to expect the longest, most drawn out version of this recap you can imagine. For some that may mean waiting 10,11,12 years.

[james22]

I can see trump getting reelected. I dont see Rs getting to 60 in the senate.

 

I believe Nevada just voted to give the Republicans the House back.

[james22]

having said that, I dont see the GSEs as posing a political risk regarding re-election.  sure there is plenty of anti-billionaires speak going on but that is very generalized level class warfare jabbering, and not really specific to particular policies such as GSE recap that can move voters in a way that voters aren't already inclined to vote, given their class identities and sympathies.

 

Closer we get to election sure GSE reform could be used but honestly is the average voter going to give a shit?

 

Yeah, this is probably right.

[Luke 532]

 

“FHFA’s capital rule will be a critical mile marker. It must be in place before Fannie and Freddie can go to the market to raise capital. I expect we will have re-proposed the capital rule very soon. Our goal is to publish the final rule by the end of 2020.” Director Calabria

 

“We will also continue to build on the changes Secretary Mnuchin and I made last September to the Preferred Stock Purchase Agreement. My goal is to put ourselves in position to complete our work on amending the PSPAs by the end of the year.”

 

“Based on this timeline, 2021 is the most likely target for an external capital raise by the Enterprises. However, let me emphasize that this effort will continue to be process dependent, not calendar dependent.”

[DRValue]

 

“FHFA’s capital rule will be a critical mile marker. It must be in place before Fannie and Freddie can go to the market to raise capital. I expect we will have re-proposed the capital rule very soon. Our goal is to publish the final rule by the end of 2020.” Director Calabria

 

“We will also continue to build on the changes Secretary Mnuchin and I made last September to the Preferred Stock Purchase Agreement. My goal is to put ourselves in position to complete our work on amending the PSPAs by the end of the year.”

 

“Based on this timeline, 2021 is the most likely target for an external capital raise by the Enterprises. However, let me emphasize that this effort will continue to be process dependent, not calendar dependent.”

 

So they're putting the rule out for comment then.

[investorG]

 

“FHFA’s capital rule will be a critical mile marker. It must be in place before Fannie and Freddie can go to the market to raise capital. I expect we will have re-proposed the capital rule very soon. Our goal is to publish the final rule by the end of 2020.” Director Calabria

 

“We will also continue to build on the changes Secretary Mnuchin and I made last September to the Preferred Stock Purchase Agreement. My goal is to put ourselves in position to complete our work on amending the PSPAs by the end of the year.”

 

“Based on this timeline, 2021 is the most likely target for an external capital raise by the Enterprises. However, let me emphasize that this effort will continue to be process dependent, not calendar dependent.”

 

So they're putting the rule out for comment then.

 

we were downgraded by the Admin many months ago.  post-election, if at all.  the sad thing is the market at these prices imo still doesn't even believe end of year;  and who could blame them given what's transpired.

[Guest cherzeca]

it does not take 9 months to finalize the capital rule once proposed (assuming it is proposed by end of march), so this is at least 3 months longer than necessary. another quarter to build up capital I suppose, to get the GSEs out of statutory undercapitalization.  as far as I am concerned, all ears will be on the SCOTUS Seila oral arg march 3.  this is still a litigation-driven investment

[orthopa]

 

“FHFA’s capital rule will be a critical mile marker. It must be in place before Fannie and Freddie can go to the market to raise capital. I expect we will have re-proposed the capital rule very soon. Our goal is to publish the final rule by the end of 2020.” Director Calabria

 

“We will also continue to build on the changes Secretary Mnuchin and I made last September to the Preferred Stock Purchase Agreement. My goal is to put ourselves in position to complete our work on amending the PSPAs by the end of the year.”

 

“Based on this timeline, 2021 is the most likely target for an external capital raise by the Enterprises. However, let me emphasize that this effort will continue to be process dependent, not calendar dependent.”

 

Last time Calabria discussed this it was middle of this year (2020).  Before that was by end of 2019 when they talked right after the capital level increase. Now end of 2020 for PSPA and 2021 for external capital raise? Frankly I don't think you can even look at that capital raise date or PSPA agreement date and take it seriously.

[orthopa]

it does not take 9 months to finalize the capital rule once proposed (assuming it is proposed by end of march), so this is at least 3 months longer than necessary. another quarter to build up capital I suppose, to get the GSEs out of statutory undercapitalization.  as far as I am concerned, all ears will be on the SCOTUS Seila oral arg march 3.  this is still a litigation-driven investment

 

At this point it certainly is. Hopefully in the end the litigation puts a fork in them. At the same time I wonder now if the litigation is what is delaying alot of this. How can you have a PSPA amendment now or mid year if you dont know what the courts will decide?

[Luke 532]

How can you have a PSPA amendment now or mid year if you dont know what the courts will decide?

 

Because the PSPA amendment will be in conjunction with a legal settlement.

[Guest cherzeca]

it does not take 9 months to finalize the capital rule once proposed (assuming it is proposed by end of march), so this is at least 3 months longer than necessary. another quarter to build up capital I suppose, to get the GSEs out of statutory undercapitalization.  as far as I am concerned, all ears will be on the SCOTUS Seila oral arg march 3.  this is still a litigation-driven investment

 

At this point it certainly is. Hopefully in the end the litigation puts a fork in them. At the same time I wonder now if the litigation is what is delaying alot of this. How can you have a PSPA amendment now or mid year if you dont know what the courts will decide?

 

@orthopa and @Luke.

 

I am coming to the belief that mnuchin/calabria WANT to have the courts tell them what to do.  best political cover there is.  I think they really dont want congress (banks, Kudlow etc etc) jumping down their throats, and delaying until a court finally kills the NWS is a no lose proposition...blame it all on the Obama administration.  while Seila is a pivot point, if it turns out as I expect, then it is a matter of time.  and I think they think they will still be in the saddle in 2021

[muscleman]

Does anyone track IMH and its preferred shares? IMPHO is trading at huge discount to par while IMPHP is almost at par. It seems to me that the judge said IMPHP amendment is invalid but IMPHO is neither entitled to dividends nor directors.

https://seekingalpha.com/article/4145488-judges-ruling-spells-turmoil-for-impac-mortgage-holdings-preferreds-valuation

I am curious if anyone tracks that and could help explain why that makes sense? And if that make happen here for the Fannie?

[james22]

I am coming to the belief that mnuchin/calabria WANT to have the courts tell them what to do.  best political cover there is.  I think they really dont want congress (banks, Kudlow etc etc) jumping down their throats, and delaying until a court finally kills the NWS is a no lose proposition...blame it all on the Obama administration.  while Seila is a pivot point, if it turns out as I expect, then it is a matter of time.  and I think they think they will still be in the saddle in 2021

 

Exactly.

[Midas79]

I am coming to the belief that mnuchin/calabria WANT to have the courts tell them what to do.  best political cover there is.  I think they really dont want congress (banks, Kudlow etc etc) jumping down their throats, and delaying until a court finally kills the NWS is a no lose proposition...blame it all on the Obama administration.  while Seila is a pivot point, if it turns out as I expect, then it is a matter of time.  and I think they think they will still be in the saddle in 2021

 

Perhaps the inexplicable Perry appeal loss in February 2017 was much more of a setback than we thought. Mnuchin might have been counting on that, and a subsequent denial of cert by SCOTUS, to give him the cover he needed when he made his now-infamous comment about getting FnF out of government control "reasonably quickly" in November 2016.

 

Watt might not have cooperated though.

[Luke 532]

@markCalabria has ambitious goal to move @FreddieMac and @FannieMae

out of conservatorship. I hope he can do it. Sounds easy, five easy steps. 1/

 

He spoke to them and @MortgageLaurie listed them in slide shown here: (attached)

 

Skeptical too about “easy” reform is @DrFrankNothaft

with ability to get capital rules & housing goals policy in place quickly. Outstanding warrants held by Treasury would complicate IPO. Fed legislation hard to do so no charter changes anytime soon. #Competition #gsereform

powerpoint_slide_GSE.jfif

[allnatural]

Interesting for Calabria to highlight the overpayment of ~$100b. First time i have seen FHFA publicly acknowledge this to my knowledge. Boy who cried wolf strikes again.

[Guest cherzeca]

Interesting for Calabria to highlight the overpayment of ~$100b. First time i have seen FHFA publicly acknowledge this to my knowledge. Boy who cried wolf strikes again.

 

I noticed that too.  there is a lot of GSE-hater doublespeak to counteract, as we all know.  still sometimes hear that treasury needs to be repaid etc.

 

I wonder whether fhfa's financial advisor is counseling calabria to slow go the process this year, build up more capital so as to make the capital raise more likely executed.  not bad advice, though not what a shareholder wants to hear

[Luke 532]

Follow this account, lot of stuff coming out right now:

[Luke 532]

Follow this account, lot of stuff coming out right now:

 

"the shareholders will be heavily diluted when we raise capital... so at the end of the day I am not focused on whether there’s a windfall, because I don’t think there’s really going to be that big of a windfall" $FNMA $FMCC

 

"important to remember that the shareholders haven't had a dividend in over a decade" [the John Paulson defense] $FNMA $FMCC

 

"Treasury ultimately needs to determine the value of their investment... has senior preferred and warrants... how much Treasury want to sell or forgive is up to Sec. Mnuchin" $FNMA $FMCC

 

"see if we need to do [capital raise] in multiple tranches... with $AIG it wasn't just one equity raise... we have a financial adviser..." to discuss one raise or multiple $FNMA $FMCC

 

 

[Luke 532]

 

"the shareholders will be heavily diluted when we raise capital... so at the end of the day I am not focused on whether there’s a windfall, because I don’t think there’s really going to be that big of a windfall" $FNMA $FMCC

 

Pretty much zero reason to hold common shares at this point (in the future after recap is done, then that might be a different story).

[Guest cherzeca]

calabria saying shareholders "diluted" in what sense?  % interest in company diluted? of course, happens every time there is a capital raise. economically diluted? depends on issue price, about which neither he nor anyone else knows.  calabria drives me crazy when he talks

[investorG]

Calabria's bloomberg interview mentioned the Tsy lawyer's powers at the end, which was interesting.  If we believe Thompson that a settlement is possible,

 

Then it appears to me the bid-ask spread between plaintiffs and Tsy is too wide currently for action.

 

Plantiffs' request likely comes down if:  a) Trump loses (lame duck) b) Seila loses backward looking relief and/or c) we lose APA at SC

 

Tsy's offer likely goes up if they lose Seila (indirectly) or they lose APA at SC.

 

So we likely wait for more guidance from the above issues.