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

[Luke 532]

thanks Luke.  just fyi, nothing will be done with fhfa general counsel or treasury general counsel.  each will need to hire deal firms that can handle this negotiation.  while it is good to see fhfa look for a deal counsel, treasury will need one too

 

Thanks, cherzeca.  With the market volatility, do you think a settlement is agreed to in calendar year 2020?  Won't hold you to it, of course, just curious of your opinion as of today.

[orthopa]

Trade of the day/week. Do a cash out refinance of your mortgage and buy more FNMA/Freddie preferred!

[Guest cherzeca]

thanks Luke.  just fyi, nothing will be done with fhfa general counsel or treasury general counsel.  each will need to hire deal firms that can handle this negotiation.  while it is good to see fhfa look for a deal counsel, treasury will need one too

 

Thanks, cherzeca.  With the market volatility, do you think a settlement is agreed to in calendar year 2020?  Won't hold you to it, of course, just curious of your opinion as of today.

 

I just think the virus has an end date sometime this summer.  viruses usually do and this one seems to have a similar profile, although perhaps more infectious and debatably higher mortality.  and lower oil prices are bad for the oil patch but good for everyone else so I just dont think GSEs are affected beyond the short term, when everything is affected

[Luke 532]

thanks Luke.  just fyi, nothing will be done with fhfa general counsel or treasury general counsel.  each will need to hire deal firms that can handle this negotiation.  while it is good to see fhfa look for a deal counsel, treasury will need one too

 

Thanks, cherzeca.  With the market volatility, do you think a settlement is agreed to in calendar year 2020?  Won't hold you to it, of course, just curious of your opinion as of today.

 

I just think the virus has an end date sometime this summer.  viruses usually do and this one seems to have a similar profile, although perhaps more infectious and debatably higher mortality.  and lower oil prices are bad for the oil patch but good for everyone else so I just dont think GSEs are affected beyond the short term, when everything is affected

 

Thanks.

[Luke 532]

Judge Sweeney today (attached)...

[Luke 532]

Q4 2019 earnings for Fannie and Freddie accelerate #GSE reform timeline. #ACGAResearch

 

Timeline attached...

 

FWIW, I asked today and David Metzner (ACG) says recent market developments (coronavirus, oil, Treasury yield, etc.) have zero impact on the timing in the graph attached to the post I quoted above.

[Guest cherzeca]

Rule of Law Guy's latest:  https://seekingalpha.com/article/4330784-for-fannie-and-freddie-shareholders-assessing-seila-scotus-oral-argument?utm_medium=email&utm_source=seeking_alpha&mail_subject=fmcc-for-fannie-and-freddie-shareholders-assessing-the-seila-scotus-oral-argument&utm_campaign=rta-stock-article&utm_content=link-2

 

[Luke 532]

Rule of Law Guy's latest:  https://seekingalpha.com/article/4330784-for-fannie-and-freddie-shareholders-assessing-seila-scotus-oral-argument?utm_medium=email&utm_source=seeking_alpha&mail_subject=fmcc-for-fannie-and-freddie-shareholders-assessing-the-seila-scotus-oral-argument&utm_campaign=rta-stock-article&utm_content=link-2

 

Well done!

[beaufort]

@cherzeca

 

Excellent analysis. 

 

Question for you:

 

If CFPB single director is found to be unconstitutional and the remedy is to strike down the whole statute, then we should assume the same thing would happen with HERA.  That means we go back to the previous governing statute OFHEO presumably.  Do you agree?  I don't know what that opens up moving forward.  I understand this is an unlikely scenario. 

[Guest cherzeca]

@cherzeca

 

Excellent analysis. 

 

Question for you:

 

If CFPB single director is found to be unconstitutional and the remedy is to strike down the whole statute, then we should assume the same thing would happen with HERA.  That means we go back to the previous governing statute OFHEO presumably.  Do you agree?  I don't know what that opens up moving forward.  I understand this is an unlikely scenario.

 

so what is the status of past actions (by fhfa or cfpb) if statute is struck due to nonseverability?  these actions would arguably be void.  but if I were a SCOTUS, I might distinguish between actions taken by the director (who was subject to the unconstitutional removal provision) and some lower level officer or staff person at the agency.  (So Seila's CID may survive, but the NWS might not since executed by acting director). these fine points weren't discussed of course, which is one reason why I think you will either find severance or, if no severance, some kind of relief crafted so that congress has x days to repass "corrected" statute before entire statue is struck. also, even if past actions void, many parties subject to those past actions may no longer have the right to seek relief since their prior action did not involve a "timely challenge" to the unconstitutional removal provision.  there are a lot of ways SCOTUS could go.

[beaufort]

I agree with everything you said.  I think it is more likely that the court gives congress X number of days to remedy the defective statute than going back to OFHEO.  Hopefully the court keeps it clean as in your most likely scenario, decreasing the risk of further blowing up the timeline to release.

[Guest cherzeca]

I agree with everything you said.  I think it is more likely that the court gives congress X number of days to remedy the defective statute than going back to OFHEO.  Hopefully the court keeps it clean as in your most likely scenario, decreasing the risk of further blowing up the timeline to release.

 

now understand that if there is a cfpb scotus unconstitutional ruling with backward relief, that is not self-executing with respect to fhfa.  soctus would likely issue a grant, vacate an remand in Collins, and we would go back to Texas federal district court and then proceed with papers there moving for a judgment that NWS is void, and DOJ will likely dream up some arguments to try to stall things...but it is just my supposition that by this time the writing would be on the wall for mnuchin to see and a negotiation would be in order.

[beaufort]

@cherzeca

I am expecting stalling along the way, much the way the litigation has been conducted thus far.  But things will move quicker by resolving the points of law hopefully by June. 

 

https://www.law.cornell.edu/rules/frcp/rule_26

 

Federal Rules of Civil Procedure.  Rule 26. Duty to Disclose; General Provisions Governing Discovery

 

(2) Disclosure of Expert Testimony.

 

(A) In General. In addition to the disclosures required by Rule 26(a)(1), a party must disclose to the other parties the identity of any witness it may use at trial to present evidence under Federal Rule of Evidence 702, 703, or 705.

 

(B) Witnesses Who Must Provide a Written Report. Unless otherwise stipulated or ordered by the court, this disclosure must be accompanied by a written report—prepared and signed by the witness—if the witness is one retained or specially employed to provide expert testimony in the case or one whose duties as the party's employee regularly involve giving expert testimony. The report must contain:

 

(i) a complete statement of all opinions the witness will express and the basis and reasons for them;

 

(ii) the facts or data considered by the witness in forming them;

 

(iii) any exhibits that will be used to summarize or support them;

 

(iv) the witness's qualifications, including a list of all publications authored in the previous 10 years;

 

(v) a list of all other cases in which, during the previous 4 years, the witness testified as an expert at trial or by deposition; and

 

(vi) a statement of the compensation to be paid for the study and testimony in the case.

 

© Witnesses Who Do Not Provide a Written Report. Unless otherwise stipulated or ordered by the court, if the witness is not required to provide a written report, this disclosure must state:

 

(i) the subject matter on which the witness is expected to present evidence under Federal Rule of Evidence 702, 703, or 705; and

 

(ii) a summary of the facts and opinions to which the witness is expected to testify.

 

(D) Time to Disclose Expert Testimony. A party must make these disclosures at the times and in the sequence that the court orders. Absent a stipulation or a court order, the disclosures must be made:

 

(i) at least 90 days before the date set for trial or for the case to be ready for trial; or

 

(ii) if the evidence is intended solely to contradict or rebut evidence on the same subject matter identified by another party under Rule 26(a)(2)(B) or ©, within 30 days after the other party's disclosure. 

 

So unless otherwise ordered, 90 days before trial for assertive opinion reports and 30 days before for rebuttal reports. 

 

My memory is that the 5th circuit en banc appellate court remanded the matter to the lower court and that the matter has been set down for summer 2020.  I hope I am not making the latter part up.  If we have a trial date end of summer 2020, we will be getting to settlement discussions, particularly after reports have been served. 

 

It is also possible that the Trump admin doesn't want to settle and wants an order, or that they don't want to settle before the election.  I guess in that case we could have a trial and a potential settlement after the trial but before getting judgment. 

 

I have narrowed my worry to the PSPA issues for now. 

[investorG]

the House democrats are unlikely to give the president any material fiscal boost this year unless they absolutely have to.  Objectively, it's too bad they sat on their hands rather than move the train and put themselves in position to monetize the warrants $50bn+ for some sort of payments to those most affected by the slowdown / recession.    I suspect it is but wonder if it's too late to move quickly and sell the warrants for ~$5-6 per common share + a fresh preferred issue to private equity in conjunction with a 4th amendment / consent decree in the next few months.

[Luke 532]

Nothing new, but this was said about Layton's talk last week:

https://www.valuewalk.com/2020/03/fannie-mae-offering/

In the same vein, questions also remain about what will happen to the Junior Preferred shares. If nothing is done with then and the Senior Preferred shares are eliminated, then the Junior Preferred shares will return to par. That would mean they would more than double in price. However, Layton also said some kind of settlement could be negotiated, or there could be a deal to trade the Junior Preferred shares for common shares.

 

Additionally, several lawsuits over the Senior and Junior Preferred shares and the net worth sweep are still pending in the courts. Before Fannie Mae and Freddie Mac can hold offerings, these lawsuits will have to be settled.

[DRValue]

Anyone taking advantage of these lower prices?

[TwoCitiesCapital]

Anyone taking advantage of these lower prices?

 

I modestly increased FMCCJ yesterday @ 11.99

[Luke 532]

Anyone taking advantage of these lower prices?

 

I sold everything at the top tick a few months back, and I re-bought it all today at the bottom tick.  Unless there's more downside, then I'm just joking and will re-buy later.

[DRValue]

Anyone taking advantage of these lower prices?

 

I sold everything at the top tick a few months back, and I re-bought it all today at the bottom tick.  Unless there's more downside, then I'm just joking and will re-buy later.

 

Good strategy  ;)

[Guest cherzeca]

@beaufort

 

I do not know the timing on the APA claim that was remanded to Southern Federal District Court of Texas.  it is my understanding that Ps in Lamberth's court are doing discovery of Treasury right now and this might be used in the Collins APA trial.

[Guest cherzeca]

I took some profits and rebalanced a bit when higher, but I am not going to do anything with that cash for awhile, so I am all allocated to juniors at this point.  very hard to trade this so I dont

[orthopa]

Hopefully this is (I think it will be) a short term, hopefully first half shock to the economy but its hard to not think about Calabria talking about "when the sun is shining".  Im not sure that an extended market swoon would necessarily force mnuchins hand in any negotiation in to the absence of legal action but surely would make raising billions of capital more difficult if things continue the way they are.  This would have to continue on for some time to ripple through but it would be a real pisser if it started to hit retained earnings making hitting capital mileposts harder/take longer.

 

 

[beaufort]

It doesn't look like Collins is set down for trial in the summer of 2020.  I called the court to verify.   

[Guest cherzeca]

Hopefully this is (I think it will be) a short term, hopefully first half shock to the economy but its hard to not think about Calabria talking about "when the sun is shining".  Im not sure that an extended market swoon would necessarily force mnuchins hand in any negotiation in to the absence of legal action but surely would make raising billions of capital more difficult if things continue the way they are.  This would have to continue on for some time to ripple through but it would be a real pisser if it started to hit retained earnings making hitting capital mileposts harder/take longer.

 

right, no re-ipo in this market for sure.  but steady as she goes capital retain/build was the plan all along, and that plan looks like it was remarkably prescient

[Fat Pitch]

Think another bailout is coming.