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

[Guest Covid-19_Survivor]

so optics aside, treasury sending $120B (senior pref balance) plus some more for the overage dividends in exchange for settlement of litigation would recap Fannie, though I believe the optics of treasury writing a big check to settle litigation are not good.  perhaps it could be spun as a recap move.

 

but how can treasury go above 80% ownership of Fannie by exchanging common for its senior pref?  that would put Fannie's $3T of liabilities on the govt balance sheet.  I suspect that would violate the debt ceiling limit that was raised last year after a contentious fight in congress.  and while treasury has authority to purchase securities under HERA, I dont know that settling litigation with a huge cash payment would be authorized and considered appropriated.

 

of course, the senior pref can stay outstanding and get sold off over time though exchanges into common prior to secondary sale by treasury, which would avoid the consolidation of Fannie's debt on the US balance sheet.  I suppose that could be made to work, change the NWS into something fair, leave it outstanding for now, and then have treasury sell it off through a series of for-common exchanges and sales.

 

1) Perhaps Treasury can give FnF a credit of $125B rather than sending a check, similar to the idea that they would give FnF a $25-30B credit in the seniors-extinguished remedy. It could also be an arrangement where Treasury sends FnF 80% (or some other number) of all cash proceeds from the sale of its (converted from senior) common stock up to $125B. That would guarantee Treasury a profit. I don't know if this liability would count towards the debt ceiling, though.

2) Treasury had a 92% stake in AIG at one point and I don't think they had to consolidate AIG's balance sheets onto the government's, though I could be wrong. Does anyone here have knowledge of how that transaction was structured?

3) Treasury should easily be able to structure a senior conversion to avoid 80% ownership, or even 50% if controlling shareholder issues matter. One option is to convert the seniors to convertible non-cumulative prefs (which count towards core capital), but with a provision that Treasury can convert them to commons at any time up to a specified date, at which point the conversion to common would be forced. This allows for an easy piecemeal conversion over time that gives Treasury an eventual 99.5% common stake (or whatever number is enough to recoup the $125B plus whatever the warrants would have brought in) but doesn't ever trigger the 80% or 50% thresholds.

 

The unwinding of Treasury's stake basically is the re-IPO here, but this resolution allows for immediate release (because FnF would be fully capitalized), or at the very least before the election. Releasing FnF and getting rid of the seniors (and thus the NWS) are the two major irreversible steps this administration can take.

 

Incidentally, this scenario answers the questions of how Treasury gets paid and how hedge funds don't make a huge windfall. The juniors do go to par here, but I don't see a recap/release scenario that doesn't involve this. Maybe FHFA and Treasury can strong-arm the juniors into accepting a "haircut" exchange for commons (at less than par) as a condition for going through with recap and release at all?

 

If we are to believe what Calabria/Mnuchin have said, as well as the steps they have taken so far then we have to believe at some point FnF will be recapped and released. I agree dont really see a scenario where preferred does not go to par or is compensated in some way if a hair cut is taken.  That being said 4-500% still can be made via some preferred. Crazy.

 

Question to those on the board. Which step taken in the future will give the biggest push to preferred?

 

1. Capital rule in late May?

 

2. Freddie/Fannie hiring advisers?

 

3. Final PSPA admendment Fall/winter?

 

I would have to imagine they really wont pop until the most clarity is given via the final amendment. By year end capital at Fannie should be ~22-23B. If the senior preferred are gone by year end at that level of capital shouldn't the preferred trade near par or be worth par anyway? Dividends wont be turned on but the capital will be there to make the preferred worth par.

 

If that is the case there will have to be a sweetener to get preferred to convert at a haircut before that level of capital builds on the balance sheet and PSPA amended.  Otherwise why not just let the capital build and wait?

 

I think this is why some have contemplated a surprise bang/announcement where conversion is announced with a PSPA agreement based on previous 30 day trading price of common etc. Otherwise why would preferred be motivated to convert?

 

Just thinking out loud. Dont want to count chickens before they hatch but we are coming up on 7 months till end of the year and 6 to the election.

 

I'll suggest that our biggest pop will occur once it's obvious FnF will not be eating too many mortgages for a year+

[orthopa]

I'll be honest about this site. It would be more beneficial to everyone, that is subscribers, lurkers, and investment accounts all, if every likely scenario introduced didn't conclude with 'to the moon'.

 

Chances are we'll be fine (I've thought this for a decade) but to those who understand the details far better than we do, how about a thread on what's most likely to happen? Put yourselves in Treasury's position.

 

Because I'll guarantee to you that none of your shit's gonna happen.

 

Think of how:

1) "taxpayers are protected" (LOL)

2) FnF is efficient as a backstop

3) hedgefunds don't get away with raping taxpayers

4) Treasury gets PAID

 

That's the answer.

 

To the moon is fun to think about but I think it is being brought up because as unlikely as it is, its most likely to occur during a time of stress.

 

The preferred can trade to par and all of your criteria can be met and to me this is all that matters for my investment. The common is less clear as it always has been.

 

Our juniors could also trade less than par.

 

Who says seniors must be extinguished? AFAIC, all the treasury needs to do is find a way to reimburse us for the $118 mil it stole. But seniors could be amended and IPO'd @ say 8%. We wouldn't want to but FnF could deal with that $16 bil/yr. And that $118 bil credit (or whatever) would become core capital, resolving everything except warrants. They could safely be extinguished because 1) it would historically consistent to do so, and 2) 90% of Congress doesn't even know what a warrant is.

 

And there's no rule that says we must be converted to commons. They could just tell the hedgefunds to get bent, you're non-cumulative. Reject deal at your own risk.

 

FIXED, and we're nowhere near 25/50

 

Probably not but come on, the very clear future we see for ourselves seems to have a few holes. 1 year 5 bagger on most.

 

Sure anything is possible like you said and all scenarios should be considered. I appreciate the apprehension and its been good to have all along as these securities have never really seemed to trade in lockstep with reality. That being said all scenarios are not realistic. Sure Treasury could take steps as you say but a lot of those scenarios are very unproductive and interfere with a recap which I really think is just the opposite goal of Treasury/FHFA.

 

The path of least resistance for both sides will be the most likely and FWIW the closer we get to the election the more both sides are incentivized to move this along due to uncertainty on November 3rd. 

 

What holes do you see in Treasury/FHFA goals or actions thus far?

[investorG]

 

What holes do you see in Treasury/FHFA goals or actions thus far?

 

The main problem with Fhfa's and Tsy's lackadaisical approach to date is they are putting all of their eggs into a basket of a 2021-2022 capital raise which is wildly risky due to personnel and economic uncertainty.  We could have Tsy scty Warren, FHFA head Waters, and/or an economic collapse in 2021. 

 

In addition this servicer drama is harming many Americans who need a real break not a non bank company making citizens' lives unnecessarily difficult out of fear of the servicers' own demise. 

 

The GSEs need capital asap.  Private is preferable but in the absence of that a fair public infusion is necessary.  Calabria bought himself time until mid to late May which is reasonable.  Imo the country needs him and Mnuchin to get Plan B done.

[orthopa]

 

What holes do you see in Treasury/FHFA goals or actions thus far?

 

The main problem with Fhfa's and Tsy's lackadaisical approach to date is they are putting all of their eggs into a basket of a 2021-2022 capital raise which is wildly risky due to personnel and economic uncertainty.  We could have Tsy scty Warren, FHFA head Waters, and/or an economic collapse in 2021. 

 

In addition this servicer drama is harming many Americans who need a real break not a non bank company making citizens' lives unnecessarily difficult out of fear of the servicers' own demise. 

 

The GSEs need capital asap.  Private is preferable but in the absence of that a fair public infusion is necessary.  Calabria bought himself time until mid to late May which is reasonable.  Imo the country needs him and Mnuchin to get Plan B done.

 

I do agree the lackadaisical approach is annoying. Especially with what we got out of Otting early last year. We may never know unless someone writes a memoir but someone slammed on the brakes big time last spring. It appears that the election and the projected capital levels are playing heavily into what they plan to do. Again if we are to take their stated goals and work thus far to be genuine then for lack of better options we have to trust the plan.

 

The concerns about 21-22 are real and in an act of blind trust I have to believe Treasury/FHFA are aware of them also and have a plan. I don't think I would ever blindly trust another investment like this and type a similar sentence but if you understand the entirety of this investment and spent as much time as we have you see "it" clearly where others would just pass.  In Mnuchin and Calabria we trust.

[Guest cherzeca]

all this is well put, but me?  I am waiting for Seila. 

 

now, even if Seila comes down as I expect, as a favorable and directly applicable precedent to invalidate the NWS (I can see no substantial reason why Seila doesnt have its CID voided), the more interesting thing to consider is the different reactions one can expect from Arnold & Porter, and Milbank.  A&P will immediately start to divine differences between the Seila holding and the Collins situation so as to neuter Seila, and all good litigators are very good at doing this, and so the litigation beat goes on so far as A&P is concerned.  I would expect Milbank to take a very different approach, advisory rather than litigious.  and if Seila comes down the way I expect, I also expect Milbank to advise FHFA that Seila is the bad news that we all want FHFA to think it is.

[orthopa]

all this is well put, but me?  I am waiting for Seila. 

 

now, even if Seila comes down as I expect, as a favorable and directly applicable precedent to invalidate the NWS (I can see no substantial reason why Seila doesnt have its CID voided), the more interesting thing to consider is the different reactions one can expect from Arnold & Porter, and Milbank.  A&P will immediately start to divine differences between the Seila holding and the Collins situation so as to neuter Seila, and all good litigators are very good at doing this, and so the litigation beat goes on so far as A&P is concerned.  I would expect Milbank to take a very different approach, advisory rather than litigious.  and if Seila comes down the way I expect, I also expect Milbank to advise FHFA that Seila is the bad news that we all want FHFA to think it is.

 

It seems Milbank was brought on for more of what seems the recap aspect then the litigation. Does Milbank replace Arnold & Porter at some point in entirety? I appreciate the Milbank advising FHFA what the bad new would be but would the DOJ do the same for Treasury? They seem to be the most stubborn.

[Midas79]

@midas

 

you are missing my point.  under what authority does treasury have to write a >$120B check to the GSEs?  this is a little removed from altering the terms of the senior pref, n'est-ce pas?

 

I don't know the answer to your question. The reason I brought up alternatives to Treasury writing that huge check is to show that the senior cramdown remedy is possible without it.

[Guest cherzeca]

all this is well put, but me?  I am waiting for Seila. 

 

now, even if Seila comes down as I expect, as a favorable and directly applicable precedent to invalidate the NWS (I can see no substantial reason why Seila doesnt have its CID voided), the more interesting thing to consider is the different reactions one can expect from Arnold & Porter, and Milbank.  A&P will immediately start to divine differences between the Seila holding and the Collins situation so as to neuter Seila, and all good litigators are very good at doing this, and so the litigation beat goes on so far as A&P is concerned.  I would expect Milbank to take a very different approach, advisory rather than litigious.  and if Seila comes down the way I expect, I also expect Milbank to advise FHFA that Seila is the bad news that we all want FHFA to think it is.

 

It seems Milbank was brought on for more of what seems the recap aspect then the litigation. Does Milbank replace Arnold & Porter at some point in entirety? I appreciate the Milbank advising FHFA what the bad new would be but would the DOJ do the same for Treasury? They seem to be the most stubborn.

 

if Milbank is substituted for A&P that will be headline news.  but it wont happen.

 

recap v. litigation is a false dichotomy.  Milbank HAS to develop a view and advise FHFA re litigation prospects in order to advise FHFA re recap, which necessarily involves settlement prospects. this in my mind is very important.

[orthopa]

all this is well put, but me?  I am waiting for Seila. 

 

now, even if Seila comes down as I expect, as a favorable and directly applicable precedent to invalidate the NWS (I can see no substantial reason why Seila doesnt have its CID voided), the more interesting thing to consider is the different reactions one can expect from Arnold & Porter, and Milbank.  A&P will immediately start to divine differences between the Seila holding and the Collins situation so as to neuter Seila, and all good litigators are very good at doing this, and so the litigation beat goes on so far as A&P is concerned.  I would expect Milbank to take a very different approach, advisory rather than litigious.  and if Seila comes down the way I expect, I also expect Milbank to advise FHFA that Seila is the bad news that we all want FHFA to think it is.

 

It seems Milbank was brought on for more of what seems the recap aspect then the litigation. Does Milbank replace Arnold & Porter at some point in entirety? I appreciate the Milbank advising FHFA what the bad new would be but would the DOJ do the same for Treasury? They seem to be the most stubborn.

 

if Milbank is substituted for A&P that will be headline news.  but it wont happen.

 

recap v. litigation is a false dichotomy.  Milbank HAS to develop a view and advise FHFA re litigation prospects in order to advise FHFA re recap, which necessarily involves settlement prospects. this in my mind is very important.

 

I see so how does this happen? FHFA just keeps fighting the lawsuits half heartedly until they release a recap plan?

[Guest cherzeca]

all this is well put, but me?  I am waiting for Seila. 

 

now, even if Seila comes down as I expect, as a favorable and directly applicable precedent to invalidate the NWS (I can see no substantial reason why Seila doesnt have its CID voided), the more interesting thing to consider is the different reactions one can expect from Arnold & Porter, and Milbank.  A&P will immediately start to divine differences between the Seila holding and the Collins situation so as to neuter Seila, and all good litigators are very good at doing this, and so the litigation beat goes on so far as A&P is concerned.  I would expect Milbank to take a very different approach, advisory rather than litigious.  and if Seila comes down the way I expect, I also expect Milbank to advise FHFA that Seila is the bad news that we all want FHFA to think it is.

 

It seems Milbank was brought on for more of what seems the recap aspect then the litigation. Does Milbank replace Arnold & Porter at some point in entirety? I appreciate the Milbank advising FHFA what the bad new would be but would the DOJ do the same for Treasury? They seem to be the most stubborn.

 

if Milbank is substituted for A&P that will be headline news.  but it wont happen.

 

recap v. litigation is a false dichotomy.  Milbank HAS to develop a view and advise FHFA re litigation prospects in order to advise FHFA re recap, which necessarily involves settlement prospects. this in my mind is very important.

 

I see so how does this happen? FHFA just keeps fighting the lawsuits half heartedly until they release a recap plan?

 

I have been involved in contested transactions that have been litigated.  at some point the worm turns from pursuing adversity to pursuing common interest.  settlement is a momentum building process, and each transaction has its own profile. here, we have a FHFA that is very much on record as seeking a conservatorship release...very different from the FHFA that hired A&P to defend litigation.  so it goes

[orthopa]

all this is well put, but me?  I am waiting for Seila. 

 

now, even if Seila comes down as I expect, as a favorable and directly applicable precedent to invalidate the NWS (I can see no substantial reason why Seila doesnt have its CID voided), the more interesting thing to consider is the different reactions one can expect from Arnold & Porter, and Milbank.  A&P will immediately start to divine differences between the Seila holding and the Collins situation so as to neuter Seila, and all good litigators are very good at doing this, and so the litigation beat goes on so far as A&P is concerned.  I would expect Milbank to take a very different approach, advisory rather than litigious.  and if Seila comes down the way I expect, I also expect Milbank to advise FHFA that Seila is the bad news that we all want FHFA to think it is.

 

It seems Milbank was brought on for more of what seems the recap aspect then the litigation. Does Milbank replace Arnold & Porter at some point in entirety? I appreciate the Milbank advising FHFA what the bad new would be but would the DOJ do the same for Treasury? They seem to be the most stubborn.

 

if Milbank is substituted for A&P that will be headline news.  but it wont happen.

 

recap v. litigation is a false dichotomy.  Milbank HAS to develop a view and advise FHFA re litigation prospects in order to advise FHFA re recap, which necessarily involves settlement prospects. this in my mind is very important.

 

I see so how does this happen? FHFA just keeps fighting the lawsuits half heartedly until they release a recap plan?

 

I have been involved in contested transactions that have been litigated.  at some point the worm turns from pursuing adversity to pursuing common interest.  settlement is a momentum building process, and each transaction has its own profile. here, we have a FHFA that is very much on record as seeking a conservatorship release...very different from the FHFA that hired A&P to defend litigation.  so it goes

 

Great insight, thanks.

[Luke 532]

Thoughts?

Fannie & Freddie reportedly submitted plans to the FHFA to provide liquidity to MBS servicers. It's just waiting on approval: https://t.co/h2t9JilXrW

[beaufort]

If the PSPA was amended to reflect a write down of SPS to 0 (and end NWS), along with future credit of a prepaid asset for the return of the 30B or so in overpayment to the GSEs, I wonder if a commercial lender/Fed would provide a line against the 30B sitting on the balance sheet as a prepaid asset?

 

Treasury doesn't send out any money.  NWS is done.  Seniors are gone.  Servicers get liquidity.  Recap stays on pace?

 

 

[Guest cherzeca]

If the PSPA was amended to reflect a write down of SPS to 0 (and end NWS), along with future credit of a prepaid asset for the return of the 30B or so in overpayment to the GSEs, I wonder if a commercial lender/Fed would provide a line against the 30B sitting on the balance sheet as a prepaid asset?

 

Treasury doesn't send out any money.  NWS is done.  Seniors are gone.  Servicers get liquidity.  Recap stays on pace?

 

I get your thinking, but I just think the credit markets will give credit to that prepaid asset and lend as if a discounted amount of that asset was actual capital on the b/s.  that prepaid asset is money good over the period needed to earn it out

[Guest Covid-19_Survivor]

If the PSPA was amended to reflect a write down of SPS to 0 (and end NWS), along with future credit of a prepaid asset for the return of the 30B or so in overpayment to the GSEs, I wonder if a commercial lender/Fed would provide a line against the 30B sitting on the balance sheet as a prepaid asset?

 

Treasury doesn't send out any money.  NWS is done.  Seniors are gone.  Servicers get liquidity.  Recap stays on pace?

 

Why would they also issue a future credit of $30B if they'd already be resolving to writing off $200B? All they owe is the $118B they stole. Why would they do that, fear of treble damage? sweeet!

[Midas79]

If the PSPA was amended to reflect a write down of SPS to 0 (and end NWS), along with future credit of a prepaid asset for the return of the 30B or so in overpayment to the GSEs, I wonder if a commercial lender/Fed would provide a line against the 30B sitting on the balance sheet as a prepaid asset?

 

Treasury doesn't send out any money.  NWS is done.  Seniors are gone.  Servicers get liquidity.  Recap stays on pace?

 

I get your thinking, but I just think the credit markets will give credit to that prepaid asset and lend as if a discounted amount of that asset was actual capital on the b/s.  that prepaid asset is money good over the period needed to earn it out

 

I'm more concerned with whether this asset would end up increasing core capital by that amount.

 

I don't think the PSPA amendment and potential $30B return (no matter what form it takes) will happen nearly quickly enough, though. That seems like a Q4 thing to me.

[Guest Covid-19_Survivor]

Sure anything is possible like you said and all scenarios should be considered. I appreciate the apprehension and its been good to have all along as these securities have never really seemed to trade in lockstep with reality. That being said all scenarios are not realistic. Sure Treasury could take steps as you say but a lot of those scenarios are very unproductive and interfere with a recap which I really think is just the opposite goal of Treasury/FHFA.

 

The path of least resistance for both sides will be the most likely and FWIW the closer we get to the election the more both sides are incentivized to move this along due to uncertainty on November 3rd. 

 

What holes do you see in Treasury/FHFA goals or actions thus far?

 

Isn't the recap solely for the purpose of getting FnF on their own two feet and with plenty of capital cushion? And didn't cherzeca suggest that it's probable that blowback was experienced with earlier plans?

 

So plan A may not be solution anymore.

Plan B:

1) Sufficient capital

2) Resolve lawsuits

3) Make some sweet money for taxpayers

 

That can be accomplished without seniors (and warrants) being cancelled. I still contend that those seniors are not just going away. Wish I was smart enough to know how they're not and we'll be fine regardless, but I'm  not.

 

[beaufort]

If the PSPA was amended to reflect a write down of SPS to 0 (and end NWS), along with future credit of a prepaid asset for the return of the 30B or so in overpayment to the GSEs, I wonder if a commercial lender/Fed would provide a line against the 30B sitting on the balance sheet as a prepaid asset?

 

Treasury doesn't send out any money.  NWS is done.  Seniors are gone.  Servicers get liquidity.  Recap stays on pace?

 

I get your thinking, but I just think the credit markets will give credit to that prepaid asset and lend as if a discounted amount of that asset was actual capital on the b/s.  that prepaid asset is money good over the period needed to earn it out

 

I'm more concerned with whether this asset would end up increasing core capital by that amount.

 

I don't think the PSPA amendment and potential $30B return (no matter what form it takes) will happen nearly quickly enough, though. That seems like a Q4 thing to me.

 

Perhaps the Fed, if not commercial banks.  But I also don't forget about the income producing assets these amazing businesses have.

 

My scenario is credit by another name - but it's not the PSPA line, which seems to be where Calabria has drawn a line in the sand.  I don't know how it would be treated for core capital purposes. 

 

It's a grand bargain of the kind we have speculated about recently.  Midas, to your point, my continual disappointment has been that this has not been quick enough and I think you are likely to continue to be right. 

 

[orthopa]

Sure anything is possible like you said and all scenarios should be considered. I appreciate the apprehension and its been good to have all along as these securities have never really seemed to trade in lockstep with reality. That being said all scenarios are not realistic. Sure Treasury could take steps as you say but a lot of those scenarios are very unproductive and interfere with a recap which I really think is just the opposite goal of Treasury/FHFA.

 

The path of least resistance for both sides will be the most likely and FWIW the closer we get to the election the more both sides are incentivized to move this along due to uncertainty on November 3rd. 

 

What holes do you see in Treasury/FHFA goals or actions thus far?

 

Isn't the recap solely for the purpose of getting FnF on their own two feet and with plenty of capital cushion? And didn't cherzeca suggest that it's probable that blowback was experienced with earlier plans?

 

So plan A may not be solution anymore.

Plan B:

1) Sufficient capital

2) Resolve lawsuits

3) Make some sweet money for taxpayers

 

That can be accomplished without seniors (and warrants) being cancelled. I still contend that those seniors are not just going away. Wish I was smart enough to know how they're not and we'll be fine regardless, but I'm  not.

 

Where is that sweet money for the taxpayers going to come from? Someone who wants to buy common just off of a freshly removed NWS for 12 years and a huge overhang from still in place Sr Preferred?

 

Who the hell would do that? No one in their right mind or group of people with enough money to account for the largest IPO in history staged or not will put up Billions of dollars with the Sr. Preferred in place.

 

I highly question why you are invested in this if you don't believe they get resolved in some fashion, esp if your holding preferred. Common is its own story and discussion.

 

If you think the Sr. Preferred do not go way plus/minus some return of overage you better sell when the market opens Monday.

[orthopa]

Thoughts?

Fannie & Freddie reportedly submitted plans to the FHFA to provide liquidity to MBS servicers. It's just waiting on approval: https://t.co/h2t9JilXrW

 

1. Its coming from the MBS rag

2. Calabria has made it clear its not Fannie and Freddies problem and has doubled down with the CFPB to really pile on the servicers

3. Calabria is following HERA, HERA does not allow Fannie/Freddie to be a liquidity source for the servicers. Preserve and Conserve.

 

At this point I wouldnt pay much mind to it. The economy is slowly starting to re open thank god, housing prices are staying firm and Treasury/Fed are watching this. Calabria has made clear where he stands on this.

 

 

[Guest Covid-19_Survivor]

Sure anything is possible like you said and all scenarios should be considered. I appreciate the apprehension and its been good to have all along as these securities have never really seemed to trade in lockstep with reality. That being said all scenarios are not realistic. Sure Treasury could take steps as you say but a lot of those scenarios are very unproductive and interfere with a recap which I really think is just the opposite goal of Treasury/FHFA.

 

The path of least resistance for both sides will be the most likely and FWIW the closer we get to the election the more both sides are incentivized to move this along due to uncertainty on November 3rd. 

 

What holes do you see in Treasury/FHFA goals or actions thus far?

 

Isn't the recap solely for the purpose of getting FnF on their own two feet and with plenty of capital cushion? And didn't cherzeca suggest that it's probable that blowback was experienced with earlier plans?

 

So plan A may not be solution anymore.

Plan B:

1) Sufficient capital

2) Resolve lawsuits

3) Make some sweet money for taxpayers

 

That can be accomplished without seniors (and warrants) being cancelled. I still contend that those seniors are not just going away. Wish I was smart enough to know how they're not and we'll be fine regardless, but I'm  not.

 

Where is that sweet money for the taxpayers going to come from? Someone who wants to buy common just off of a freshly removed NWS for 12 years and a huge overhang from still in place Sr Preferred?

 

Who the hell would do that? No one in their right mind or group of people with enough money to account for the largest IPO in history staged or not will put up Billions of dollars with the Sr. Preferred in place.

 

I highly question why you are invested in this if you don't believe they get resolved in some fashion, esp if your holding preferred. Common is its own story and discussion.

 

If you think the Sr. Preferred do not go way plus/minus some return of overage you better sell when the market opens Monday.

 

That sweet money could come from IPO'ing seniors and I'll disagree that no one would buy them. For starters, with nirp a very real possibility, state pension funds should buy them hand over fist. But no, I don't think that's going to happen because if would leave FnF with too much a burden. I'm just acting as devils advocate. Will they just be cancelled though? Not likely. Will they be converted to commons? Not likely. I'd like to read of a more logical solution to them.

 

[Guest cherzeca]

Thoughts?

Fannie & Freddie reportedly submitted plans to the FHFA to provide liquidity to MBS servicers. It's just waiting on approval: https://t.co/h2t9JilXrW

 

1. Its coming from the MBS rag

2. Calabria has made it clear its not Fannie and Freddies problem and has doubled down with the CFPB to really pile on the servicers

3. Calabria is following HERA, HERA does not allow Fannie/Freddie to be a liquidity source for the servicers. Preserve and Conserve.

 

At this point I wouldnt pay much mind to it. The economy is slowly starting to re open thank god, housing prices are staying firm and Treasury/Fed are watching this. Calabria has made clear where he stands on this.

 

correct!  that is why I call IMF a "rag".  it is a pure industry puff piece of crap, and it doesnt even try to report straight industry news.  do GSEs have some plan tucked away in some hard drive to save servicers servicing on behalf of GSEs? likely so as a contingency in more normal times.  will it be implemented now?  NO. so IMF is just trying to make Calabria look bad and incite more letters to senator Warner 

[Midas79]

That sweet money could come from IPO'ing seniors and I'll disagree that no one would buy them. For starters, with nirp a very real possibility, state pension funds should buy them hand over fist. But no, I don't think that's going to happen because if would leave FnF with too much a burden. I'm just acting as devils advocate. Will they just be cancelled though? Not likely. Will they be converted to commons? Not likely. I'd like to read of a more logical solution to them.

 

The seniors must be either extinguished or converted to a form of capital that counts as core capital (non-cumulative prefs or commons). This would add $193B to core capital instantly.

 

FnF's core capital was negative $170B at the end of 2019. They will never get to a reasonable core capital number (Watt wanted either $103.5B or $139.5B) without such treatment of the seniors.

 

Getting rid of the seniors also ends the NWS because NWS dividends are payable to the holders of the seniors.

 

Bottom line: recap and release cannot happen with the seniors in place. Getting rid of them (via a PSPA 4th amendment) is the single biggest step Calabria and Mnuchin can take, and the single most important one to us FnF shareholders. Not to mention that a future administration could not reinstate them, at least not easily.

 

 

 

On this note, I think Treasury converting the seniors to 0%, non-cumulative, convertible prefs is better than converting them straight to commons. Treasury could then unwind its position at its own pace and never have to worry about the 80% balance sheet consolidation threshold, the 50.1% controlling shareholder threshold, or having any voting rights. Just put in a provision that Treasury itself can never exercise the conversion option, only whoever buys them from Treasury (who could do so at any time, and presumably would do it immediately because 0% prefs themselves aren't worth much).

 

If Treasury can offload enough of them fast enough, they could structure things so that they send some or all of the proceeds to FnF up to $125B (or whatever number they agree on), which accomplishes the recap in full.

[Luke 532]

Agree with you guys on IMF's suspect motives, but it is a bit alarming to me that F&F would submit plans to FHFA even after Calabria told them he's not helping out the servicers.

 

Fannie & Freddie reportedly submitted plans to the FHFA to provide liquidity to MBS servicers. It's just waiting on approval:

[allnatural]

The article reads stale / like a rehash of the original article that said everyone was waiting for FHFA to signoff and Calabria surprisingly put his foot down. I imagine this headline is just referencing that event. Calabrias approval (which has been pending for 2-3 weeks now?) won't come bc he already decided on what is his duties as conservator are.

 

 

Agree with you guys on IMF's suspect motives, but it is a bit alarming to me that F&F would submit plans to FHFA even after Calabria told them he's not helping out the servicers.

 

Fannie & Freddie reportedly submitted plans to the FHFA to provide liquidity to MBS servicers. It's just waiting on approval: