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

[undervalued]

Ok here is my biased opinion.. Nothing has changed on what Mnuchin/Calabria might do before he left.

 

And the answer is that nothing will be done before they leave.

They have to think about their future as they leave the office. They could be offered highly paid jobs like the other "revolving door" politicians who implemented the NWS. Of course if that's not enough incentive, what just happened to Brian Kemp's daughter's bf could be enough incentive.

 

I think that's exactly what we're betting on - that they will do something before they leave.

[investorG]

Question for some smart poster:  ACG's timeline (under biden win) predicts (hopes) for PSPA amendment before jan20.  but the window for consent order goes through June -- if Tsy is required as everyone is now saying, how do they get there - assume Yellen is on board? or some other more realistic option?

[TwoCitiesCapital]

As for the WSJ article, it seems to me that the entire conclusion that Mnuchin won't act before inauguration is based on the quote "In a Wall Street Journal interview, Mnuchin said he’s not going to pursue any actions that put taxpayers at risk or limit consumers’ access to home loans."

 

That conclusion cannot be logically drawn from the quoted premise. Amending the PSPAs to eliminate the NWS and seniors neither puts taxpayers at risk nor limits access to home loans. Taxpayers would actually be more protected because those two things are necessary to raise third-party capital, and as long as the backstop remains in place access to home loans shouldn't be any different than it is now.

 

This was my read as well, buy Schwab won't let me submit orders to buy more :/

[beaufort]

My read is that we get a consent decree if the relevant target capital is met.  For example, Treasury contracts with FHFA for consent decree if X dollars are raised/retained by Y date.  Then the terms of the contract have been met and the GSEs are out on consent decree.  If the terms are not met, GSEs are not out.  If I am right, perhaps the GSEs hit the relevant capital target with a private placement and get out by the inauguration.  If not, my speculation is there will still be time after that to perform under the contract.

 

I have been trying to buy more this morning but I am having difficulty getting my bid.     

[COBFInfinity]

Ok here is my biased opinion.. Nothing has changed on what Mnuchin/Calabria might do before he left (Like Luke/Midas mentioned). Might be a good time to add more if you aren't fully allocated.

 

It is probably correct that nothing has changed about Mnuchin/Calabria plan. But our guess of what that plan is keeps changing. Since we don't know, the price goes low.

[SnarkyPuppy]

My read is that we get a consent decree if the relevant target capital is met.  For example, Treasury contracts with FHFA for consent decree if X dollars are raised/retained by Y date.  Then the terms of the contract have been met and the GSEs are out on consent decree.  If the terms are not met, GSEs are not out.  If I am right, perhaps the GSEs hit the relevant capital target with a private placement and get out by the inauguration.  If not, my speculation is there will still be time after that to perform under the contract.

 

I have been trying to buy more this morning but I am having difficulty getting my bid.   

 

Would this be legally irreversible though even with a new Treasury/FHFA?  Section 5.3 of the PSPA is the concerning language that needs to be specifically amended. 

 

Ultimately, my view of the news today is that it DID NOT say the PSPA would not be written off/NWS would not be amended.  Once the PSPA is gone, it's simply a function of time with the jr pref at the top of the capital stack.  Fannie/Freddie aren't going anywhere. 

[undervalued]

Random questions, do journalist have privileges to trades on these information? I imagine journalists could make a handsome profit doing these articles.

[SnarkyPuppy]

Random questions, do journalist have privileges to trades on these information? I imagine journalists could make a handsome profit doing these articles.

 

https://www.businessinsider.com/bloomberg-reporters-compensation-2013-12 if nothing else

[beaufort]

My read is that we get a consent decree if the relevant target capital is met.  For example, Treasury contracts with FHFA for consent decree if X dollars are raised/retained by Y date.  Then the terms of the contract have been met and the GSEs are out on consent decree.  If the terms are not met, GSEs are not out.  If I am right, perhaps the GSEs hit the relevant capital target with a private placement and get out by the inauguration.  If not, my speculation is there will still be time after that to perform under the contract.

 

I have been trying to buy more this morning but I am having difficulty getting my bid.   

 

Would this be legally irreversible though even with a new Treasury/FHFA?  Section 5.3 of the PSPA is the concerning language that needs to be specifically amended.

 

I am not an expert in this area of the law, but I don't see how the Biden admin can unilaterally back out of a contract.  If all of the elements of a contract are in place, I don't know why the PSPA would be any different unless there are specific rules related to, among other issues, whether lame duck parties have capacity to consent.  Consent is one element of a contract.   

[orthopa]

I added more this AM. I dont see how you can take the context of the WSJ article as he wont do anything when he unilaterally brought it up as an option during a congressional when not pressed for it? Again have to look at the big picture here. 

 

What do you put more weight behind? Testimony to congress less then 2 weeks ago? Internal non biased memos from a Fannie executive? Confirmed discussions between Mnuchin/Calabria on PSPA? etc or a middle of the night article from Ackerman with a one liner?

 

This whole thing has been airtight up until the business insider leak yesterday. Im not saying Mnuchin did this on purpose but as tight as this has been and as well as he had played this there was no way he was happy with the Fannie Exec.

 

 

[DocSnowball]

Ok here is my biased opinion.. Nothing has changed on what Mnuchin/Calabria might do before he left (Like Luke/Midas mentioned). Might be a good time to add more if you aren't fully allocated.

 

It is probably correct that nothing has changed about Mnuchin/Calabria plan. But our guess of what that plan is keeps changing. Since we don't know, the price goes low.

 

I disagree. Until this article, Mnuchin has been on record stating they are deliberating on the issue. Then these statements appear from a late in the day interview in the article - he would have known it will end up on the front page of the WSJ. Puzzling but definitely a negative coming from him (alternative being silence). WHY? Did talks breakdown? Was a decision to punt reached with concern for impact on the financial system? What changed for him to give these statements?

 

Mr Market letting prices freefall along with volume indicate some are getting the message.

[orthopa]

Ok here is my biased opinion.. Nothing has changed on what Mnuchin/Calabria might do before he left.

 

And the answer is that nothing will be done before they leave.

They have to think about their future as they leave the office. They could be offered highly paid jobs like the other "revolving door" politicians who implemented the NWS. Of course if that's not enough incentive, what just happened to Brian Kemp's daughter's bf could be enough incentive.

 

You said a while a go you were leaving and not coming back because no one liked your analysis. Why the fuck did you come back then? Go away please. Your probably the least informed investor in this thread posting recently (you have competition though), and you and everyone else knows your "signals" are a bunch of fucking horseshit. Its frankly embarrassing to even imply something so ignorant with this investment. Seriously what's wrong with you?

 

 

[orthopa]

Ok here is my biased opinion.. Nothing has changed on what Mnuchin/Calabria might do before he left (Like Luke/Midas mentioned). Might be a good time to add more if you aren't fully allocated.

 

It is probably correct that nothing has changed about Mnuchin/Calabria plan. But our guess of what that plan is keeps changing. Since we don't know, the price goes low.

 

I disagree. Until this article, Mnuchin has been on record stating they are deliberating on the issue. Then these statements appear from a late in the day interview in the article - he would have known it will end up on the front page of the WSJ. Puzzling but definitely a negative coming from him (alternative being silence). WHY? Did talks breakdown? Was a decision to punt reached with concern for impact on the financial system? What changed for him to give these statements?

 

Mr Market letting prices freefall along with volume indicate some are getting the message.

 

I think you have a lot of quick money that bought in after the Capital rule was announced getting out. Muscleman is a clear example of a complete idiot who may or may not buy shares so I'm honestly not surprised some people are selling. Look how fucked up his reasoning on this investment is and he has the ability to buy and sell like anyone else.

[COBFInfinity]

Ok here is my biased opinion.. Nothing has changed on what Mnuchin/Calabria might do before he left (Like Luke/Midas mentioned). Might be a good time to add more if you aren't fully allocated.

 

It is probably correct that nothing has changed about Mnuchin/Calabria plan. But our guess of what that plan is keeps changing. Since we don't know, the price goes low.

 

I disagree. Until this article, Mnuchin has been on record stating they are deliberating on the issue. Then these statements appear from a late in the day interview in the article - he would have known it will end up on the front page of the WSJ. Puzzling but definitely a negative coming from him (alternative being silence). WHY? Did talks breakdown? Was a decision to punt reached with concern for impact on the financial system? What changed for him to give these statements?

 

Mr Market letting prices freefall along with volume indicate some are getting the message.

 

 

Look at the actual quotes from Mnuchin in the article. He doesn't say he's not going to do act at all. He just "suggests" that there won't be a consent decree ending the conservatorship. So I don't actually know that his plan has changed.

 

If you gave me two options right now: 1) consent decree with Snr Pfd outstanding or 2) no consent decree with Snr Pfd written off, I'd choose option 2 and assume the GSEs will be released at some point. The market seems to be giving a lot of weight to 3) no consent decree and no Snr Pfd. If that happens, then we are fools for having believed anything he said for 4 years.

[orthopa]

Mnuchin may have been responding to this:

 

https://narfocus.com/billdatabase/clientfiles/172/3/4198.pdf

 

A premature release of the GSEs from conservatorship would threaten these outcomes without clear benefits in terms of the near-term health of the GSEs – that is, from an operational perspective, the GSEs outside of conservatorship but under strict consent decrees would look very similar to the GSEs in conservatorship. There is little to gain from this approach, but, as noted above, much to lose.

 

Letter he recieved yesterday from the usual groups again.

 

These folks are getting awfully worried. Funny I haven't seen/read any letters from the side wanting the GSEs to be released. Just the side against? Why is the side for release been so quiet and tamped down the rhetoric?

 

Parrot, Demarco, MBA, Stevens, NAR, NAB, WaPo editorial boards have been really fucking noisy for some reason. Must be because Mnuchin isnt going to do a PSPA agreement and release on consent order, yeah, yeah thats it.

 

edit: reading the article again more closely the concern these groups have is losing govt backstop but  they DO NOT mention a paid for guarantee that will be in place in a PSPA until action taken by congress. This is a key part they leave out as a reason to not release and a convenient one at that.

[orthopa]

Ok here is my biased opinion.. Nothing has changed on what Mnuchin/Calabria might do before he left (Like Luke/Midas mentioned). Might be a good time to add more if you aren't fully allocated.

 

It is probably correct that nothing has changed about Mnuchin/Calabria plan. But our guess of what that plan is keeps changing. Since we don't know, the price goes low.

 

I disagree. Until this article, Mnuchin has been on record stating they are deliberating on the issue. Then these statements appear from a late in the day interview in the article - he would have known it will end up on the front page of the WSJ. Puzzling but definitely a negative coming from him (alternative being silence). WHY? Did talks breakdown? Was a decision to punt reached with concern for impact on the financial system? What changed for him to give these statements?

 

Mr Market letting prices freefall along with volume indicate some are getting the message.

 

Serious question? Does one line from a biased journalist overturn all the evidence you have other then what he reported, even with direct contradicting quotes from the same person (Mnuchin)?

[beaufort]

I'll use an analogy.

 

A contracts to buy a house from B.  A says the offer, or ability to perform the contract, is contingent on the following:

 

1.  A needs to secure financing of 100k.  A wants 90 days to secure financing at a rate of no more than 2.5% for a 25 year term.

2.  A needs to get a home inspection that is satisfactory to A's banker.  A needs 60 days to get a home inspection and A needs B to let A into the house so A can do that.

3.  A wants access to the house 3 times so A can show it to A's mother in-law all three times.  A wants to do that once a month over 90 days. 

 

A proposes to close March 15, 2021, failing which the proposed deal falls apart. 

 

If B agrees to the offer, A and B have a binding contract. 

 

At this time, Dec 15, no money has changed hands.  A may not have the money yet.  The home inspector hasn't come by or done his report.  But there is a contract capable of being performed if A chooses to do so.

 

If A:

 

1.  gets the 100k;

2.  gets the home inspection that is satisfactory to the banker;

3.  gets access to the house 3 times;

 

A and B have a deal provided all is done on March 15, 2021 and A is hosting dinner for his extended family. 

 

If not, B is free to sell the house to somebody else, or not sell, and there is no deal with A.

 

Now, admittedly, A doesn't have a house under the scenario above by the time Biden becomes President.  But A and B have a deal that is capable of being performed and it is up to A to get money, at the rate he wants etc.  Importantly, all of A's conditions are for his benefit.  As long as A meets them, A will get his house. 

 

Deal is done over a period of 3 months. 

 

 

[SnarkyPuppy]

I'll use an analogy.

 

A contracts to buy a house from B.  A says the offer, or ability to perform the contract, is contingent on the following:

 

1.  A needs to secure financing of 100k.  A wants 90 days to secure financing at a rate of no more than 2.5% for a 25 year term.

2.  A needs to get a home inspection that is satisfactory to A's banker.  A needs 60 days to get a home inspection and A needs B to let A into the house so A can do that.

3.  A wants access to the house 3 times so A can show it to A's mother in-law all three times.  A wants to do that once a month over 90 days. 

 

A proposes to close March 15, 2021, failing which the proposed deal falls apart. 

 

If B agrees to the offer, A and B have a binding contract. 

 

If A:

 

1.  gets the 100k;

2.  gets the home inspection that is satisfactory to the banker;

3.  gets access to the house 3 times;

 

A and B have a deal provided all is done on March 15, 2021 and A is hosting dinner for his extended family. 

 

If not, B is free to sell the house to somebody else, or not sell, and there is no deal with A.

 

Now, admittedly, A doesn't have a house under the scenario above by the time Biden becomes President.  But A and B have a deal that is capable of being performed and it is up to A to get money, at the rate he wants etc.  Importantly, all of A's conditions are for his benefit.  As long as A meets them, A will get his house.

 

Deal is done over a period of 3 months.

 

Sure.  This is all contingent on Calabria staying in office otherwise a new UST/FHFA can presumably unwind the contract bilateraly. 

[beaufort]

Yes Snarky agreed.

[Wiggins]

Mnuchin may have been responding to this:

 

https://narfocus.com/billdatabase/clientfiles/172/3/4198.pdf

 

A premature release of the GSEs from conservatorship would threaten these outcomes without clear benefits in terms of the near-term health of the GSEs – that is, from an operational perspective, the GSEs outside of conservatorship but under strict consent decrees would look very similar to the GSEs in conservatorship. There is little to gain from this approach, but, as noted above, much to lose.

 

Letter he recieved yesterday from the usual groups again.

 

These folks are getting awfully worried. Funny I haven't seen/read any letters from the side wanting the GSEs to be released. Just the side against? Why is the side for release been so quiet and tamped down the rhetoric?

 

Parrot, Demarco, MBA, Stevens, NAR, NAB, WaPo editorial boards have been really fucking noisy for some reason. Must be because Mnuchin isnt going to do a PSPA agreement and release on consent order, yeah, yeah thats it.

 

edit: reading the article again more closely the concern these groups have is losing govt backstop but  they DO NOT mention a paid for guarantee that will be in place in a PSPA until action taken by congress. This is a key part they leave out as a reason to not release and a convenient one at that.

 

Thanks for posting this. I find it noteworthy that MBA is advocating for raising the cap on retained earnings which is a stark about-face from their previous stance. Their previous stance was to NOT allow retained earnings as this would take away the incentive for Congress to act. I also find it noteworthy that Forbes, AEI, and other GSE enemies have issued recent opinions stating the GSEs should be released (or rather, that efforts in that direction be carried out). This is all incredibly bullish. I also think SCOTUS will award a win to investors on the APA claim, if it gets that far of course.

[Midas79]

@cherzeca (and anyone else who might know)

 

A legal question. 12 USC 4617(a)(7) says:

 

(7) Agency not subject to any other Federal agency

 

When acting as conservator or receiver, the Agency shall not be subject to the direction or supervision of any other agency of the United States or any State in the exercise of the rights, powers, and privileges of the Agency.

 

while Section 5.3 of the PSPA says:

 

5.3. Conservatorship. Seller shall not (and Conservator, by its signature below, agrees that it shall not), without the prior writtenconsent of Purchaser, terminate, seek termination of or permit to be terminated the conservatorship of Seller pursuant to Section 1367of the FHE Act, other than in connection with a receivership pursuant to Section 1367 of the FHE Act.

 

Is there a conflict here? Is FHFA allowed to voluntarily tie its hands and allow another US agency, namely Treasury, to exercise a right that FHFA has, namely the ability to end the conservatorships without declaring receivership? More accurately, Treasury would be preventing FHFA from exercising that right.

[WB_fan82]

Just repeating myself with nobody engaging except orthopa calling me an idiot, but here goes:

 

1.  Mnuchin's objectives are private ownership.  Timeframe doesn't matter.

2.  Calabria's objective is raising capital and private ownership.  Timeframe doesn't matter.

3.  Calabria's job is most secure until June, and even more secure if Rs hold Georgia and nominating a replacement would be a slog.

4.  Calabria therefore has until June to make major / irreversible change.

5.  Calabria cannot do #4 unless Mnuchin gives up TSY approval of consent decree

6.  Mnuchin will give that up b/c he's leaving and approval rights block #1

7.  For #1, all you need is:  no more NWS, no more cumulative property, and prepayable sr pfd

8.  To reiterate, YOU DO NOT NEED SR PFD TO GO POOF to accomplish Mnuchin's or Calabria's objectives

9.  Therefore the senior preferred will stay in place.  It will be non cumulative.  The dividend rate will change from NWS to X%.  This is how mnuchin "protects taxpayer".

10.  When the sr pfd is non-cumulative it will also count as capital

11.  Calabria will be at statutory capital requirements by June with retained earnings and non-cum sr pfd

12.  Consent order signed by June.  Buffers fill up over time.  GSE capital plans can be considered.  Calabria gets time to build up his agency and the GSEs

13.  GSE commons and preferred both do well from here.

14.  Pray Biden doesn't pick a fight by trying to fire Calabria for cause, and then fire all his deputies too

15.  Pray we win the lawsuit, even though likely scenario is a remand then a loss b/c statute allows FHFA to act in its own interest so Collins is a total dud.

 

I see a lot of assumption that capital can't be raised with sr pfd liquidation preference outstanding, but that's totally wrong.  Once the GSEs are under a consent order and the mgmts are free to act on recap, there are many levers to pull even with a 200B weight of sr pfd.  Meanwhile it's retained earnings over time since calabria won't be declaring divs on any of the pfds, sr or jr.

[investorG]

Just repeating myself with nobody engaging except orthopa calling me an idiot, but here goes:

 

1.  Mnuchin's objectives are private ownership.  Timeframe doesn't matter.

2.  Calabria's objective is raising capital and private ownership.  Timeframe doesn't matter.

3.  Calabria's job is most secure until June, and even more secure if Rs hold Georgia and nominating a replacement would be a slog.

4.  Calabria therefore has until June to make major / irreversible change.

5.  Calabria cannot do #4 unless Mnuchin gives up TSY approval of consent decree

6.  Mnuchin will give that up b/c he's leaving and approval rights block #1

7.  For #1, all you need is:  no more NWS, no more cumulative property, and prepayable sr pfd

8.  To reiterate, YOU DO NOT NEED SR PFD TO GO POOF to accomplish Mnuchin's or Calabria's objectives

9.  Therefore the senior preferred will stay in place.  It will be non cumulative.  The dividend rate will change from NWS to X%.  This is how mnuchin "protects taxpayer".

10.  When the sr pfd is non-cumulative it will also count as capital

11.  Calabria will be at statutory capital requirements by June with retained earnings and non-cum sr pfd

12.  Consent order signed by June.  Buffers fill up over time.  GSE capital plans can be considered.  Calabria gets time to build up his agency and the GSEs

13.  GSE commons and preferred both do well from here.

14.  Pray Biden doesn't pick a fight by trying to fire Calabria for cause, and then fire all his deputies too

15.  Pray we win the lawsuit, even though likely scenario is a remand then a loss b/c statute allows FHFA to act in its own interest so Collins is a total dud.

 

I see a lot of assumption that capital can't be raised with sr pfd liquidation preference outstanding, but that's totally wrong.  Once the GSEs are under a consent order and the mgmts are free to act on recap, there are many levers to pull even with a 200B weight of sr pfd.  Meanwhile it's retained earnings over time since calabria won't be declaring divs on any of the pfds, sr or jr.

 

What are the many levers?

 

Pref down 20pct since last week.  Another leg lower incoming over next month under the wb82 plan.

[investorG]

Ok here is my biased opinion.. Nothing has changed on what Mnuchin/Calabria might do before he left (Like Luke/Midas mentioned). Might be a good time to add more if you aren't fully allocated.

 

It is probably correct that nothing has changed about Mnuchin/Calabria plan. But our guess of what that plan is keeps changing. Since we don't know, the price goes low.

 

I disagree. Until this article, Mnuchin has been on record stating they are deliberating on the issue. Then these statements appear from a late in the day interview in the article - he would have known it will end up on the front page of the WSJ. Puzzling but definitely a negative coming from him (alternative being silence). WHY? Did talks breakdown? Was a decision to punt reached with concern for impact on the financial system? What changed for him to give these statements?

 

Mr Market letting prices freefall along with volume indicate some are getting the message.

 

Serious question? Does one line from a biased journalist overturn all the evidence you have other then what he reported, even with direct contradicting quotes from the same person (Mnuchin)?

 

He said he was contemplating.  Maybe he decided against the consent order among other things.  We may have made a mistake for believing in some person or team who has ignored / screwed us for 47 months and stays the course in month 48. 

[locutusoftexas]

Much of the discussion seems to revolve around what Mnuchin might be thinking or what his strategy might be, etc. As someone said, no one can read Mnuchin's mind. Similar gaming logic has been applied to Calabria. This has probably reduced confusion on the technical details of different approaches to ending the conservatorship. However, because of our lack of clairvoyance, this clarification has apparently not resulted in actionable ideas on how to approach this investment.

 

Maybe another tack would be fruitful:

(1) What does Mnuchin stand to gain by actually implementing a plan to release the companies from conservatorship?

(2) What does he stand to lose by not doing so?

(3) Similarly, what does Calabria stand to gain if the companies are released from conservatorship?

(4) What does he stand to lose by not doing so?

 

The two have very different backgrounds and therefore are likely to have very different goals and values. Mnuchin comes from a transactional background, i.e., investment banking with the goal of financial gain. Calabria's background, on the other hand, is in studies and analysis related to economics and government policy.

 

Does this stimulate any ideas regarding the most likely actions that Manuchin or Calabria would take to maximize their personal gains, given their likely value systems and careers?