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

[COBFInfinity]

5 hours ago, sleepydragon said:

 

There won't be much impact . I have seen a JPM research, where they have done a survey on their MBS funds clients - basically the result is as long as the implicit guarantee remains, the mortgage rate will go up 20 bps (or 40? to the best of my memory). There's only issue if govt says explicitly there will no guarantee. 

 

I saw the survey a few months back and can't find it again now, but I think if a government backstop remained, it was expected to be tighter than that - like 5 to 15 bps? Anyway, the question we don't have an answer to is how much is too much? A 40bps widening of mortgage spreads would be massive and if there was any sign of that happening, they would slam on the brakes on an exit. The only message from Bessent and Pulte is that "mortgage rates (by which they meant spreads) not rise", so we have no evidence that they're willing to allow much of an increase at all - maybe 5 to 10bps? Who knows?

 

Risks remain here. Waaaaay to early to celebrate an exit when they haven't even laid out a plan. There was all sorts of planning last time around and it still didn't get done.

[sleepydragon]

47 minutes ago, COBFInfinity said:

I saw the survey a few months back and can't find it again now, but I think if a government backstop remained, it was expected to be tighter than that - like 5 to 15 bps? Anyway, the question we don't have an answer to is how much is too much? A 40bps widening of mortgage spreads would be massive and if there was any sign of that happening, they would slam on the brakes on an exit. The only message from Bessent and Pulte is that "mortgage rates (by which they meant spreads) not rise", so we have no evidence that they're willing to allow much of an increase at all - maybe 5 to 10bps? Who knows?

 

Risks remain here. Waaaaay to early to celebrate an exit when they haven't even laid out a plan. There was all sorts of planning last time around and it still didn't get done.

I think 20bps is nothing, at current mortgage market of 6-7%. A mortgage quote from two national bank is more than 50bps. If i setup auto payment it’s 12.5bps discount.

 

 

[COBFInfinity]

17 hours ago, sleepydragon said:

I think 20bps is nothing, at current mortgage market of 6-7%. A mortgage quote from two national bank is more than 50bps. If i setup auto payment it’s 12.5bps discount.

 

 

I think everyone in the housing and mortgage markets would disagree that an unforced (in their opinion) 20bps widening of spreads in "nothing."

[DRValue]

On 5/26/2025 at 2:56 AM, sleepydragon said:

I think 20bps is nothing, at current mortgage market of 6-7%. A mortgage quote from two national bank is more than 50bps. If i setup auto payment it’s 12.5bps discount.

 

 

Of course, and in any case, if this is announced formally before rates are lowered then when they are, the vested interests saying mortgage rates will rise won't have a leg to stand on when they have already fallen 1-2%.

[Mephistopheles]

[COBFInfinity]

20 minutes ago, Mephistopheles said:

Daaaaaamn...DJT had mentioned the GSEs like 2-3 times in the prior decade, now twice in a week. I think they really do want to get it done this time.

[Malmqky]

I tried to buy these in 2023 sub $1, never got it done. Looks like I missed out big time on this moonshot.

 

Not sure if it gets done, but this alone is enough to generate some significant alpha.

 

 

 

Edited May 28, 2025 by Malmqky

[TwoCitiesCapital]

3 hours ago, Mephistopheles said:

 

"Implicit guarantees" seems like an oxymoron, but we'll see what they do

[orthopa]

They will probably do a pay for guarantee. Explicit goes on the US balance sheet. MBA, Whalen, Zandi, Parrott, Bright, Pimco and Blackrock can all choke on it now. Again, they are on the outside looking in, big middle finger for them. Paulson is on the inside and Paulson gets paid this time. 4 years ago yeah it didnt work out but something like $160B was missing, not this time. 

 

That being said it gets done this time. No way the POTUS is tweeting about the kind of guarantee these companies get and they are just "thinking" about releasing them. FWIW he said he is working on taking them public now. 

 

Bought more FNMAS yesterday and got lucky it seems. 

 

That being said I would expect an EO or plan, (hopefully not a framework of a plan.) sooner then later. 

 

If POTUS is tweeting out the fact there is an implicit guarantee this seem to have moved along WAY beyond discussion about taking them public. Makes sense as WSJ reported these were being discussed last summer by Trump team. 

 

As preferred shareholder waiting on 2 things....

 

1. Official agreement between Treasury and FHFA delineating privatization process, 

2. Treatment of preferred, fingers crossed for dividend resumption but conversion at a lower share price with common at $10 a share works for me too. 

Edited May 28, 2025 by orthopa

[orthopa]

 

Pulte keeps pumping....

 

[COBFInfinity]

1 hour ago, orthopa said:

As preferred shareholder waiting on 2 things....

 

1. Official agreement between Treasury and FHFA delineating privatization process, 

2. Treatment of preferred, fingers crossed for dividend resumption but conversion at a lower share price with common at $10 a share works for me too. 

Meaningless to talk about conversion of JPS at a particular common price until it is clear what happens to SPS. JPS aren't going to swap into common at $10 if potential exists for full SPS converted such that common drops to $3.

[COBFInfinity]

Pulte confirms that there is, in fact, no plan at this time. One can never assume competence from these guys until they actually show their work.

 

https://www.cnbc.com/video/2025/05/28/fannie-mae-and-freddie-mac-could-be-worth-trillions-of-dollars-says-chairman-bill-pulte.html

[orthopa]

2 hours ago, COBFInfinity said:

Pulte confirms that there is, in fact, no plan at this time. One can never assume competence from these guys until they actually show their work.

 

https://www.cnbc.com/video/2025/05/28/fannie-mae-and-freddie-mac-could-be-worth-trillions-of-dollars-says-chairman-bill-pulte.html

 

 

After watching this sounds like the sovereign wealth fund. “We’re studying actually potentially keeping it in conservatorship and taking it public.”

The Securities are already "public" they still trade publicly.  Being in a SWF would essentially keep them in "conservatorship" as the assets would be for the benefit of the country. Does gov keep their shares, SP, if converted SP, warrants etc in the SWF and the remaining common and preferred trade as is but no longer under official gov conservatorship?

 

Seems almost like partnering with the gov or implicit guarantee is because gov would have $100s of billions invested in Fannie and essentially obligated to guarantee them or lose money. Not a bad idea I guess. Need a BOD equally represented by gov and private investors or corporate structure to assure a take over conservatorship like last time doesnt happen again. 

[orthopa]

2 hours ago, COBFInfinity said:

Pulte confirms that there is, in fact, no plan at this time. One can never assume competence from these guys until they actually show their work.

 

https://www.cnbc.com/video/2025/05/28/fannie-mae-and-freddie-mac-could-be-worth-trillions-of-dollars-says-chairman-bill-pulte.html

 

There for sure is a plan. Pulte isnt going to tell you the plan. He already told you its up to President Trump multiple times now. You need to ask the POTUS the plan. Something of this magnitude will 100% go under the credit of President Trump.  Interesting the court case he references. Notes  FHFA and Treasury both serve at the pleasure of the President. This is 100%Trumps deal and decision. Pay attention to what he says

[orthopa]

Is it happening? we will see, Chuck thinks it is. 

 

https://thehill.com/homenews/senate/5321688-schumer-trump-plan-privatize-fannie-mae-freddie-mac/

[COBFInfinity]

I don't follow MBS spreads, but an article or two imply that there wasn't much movement in MBS market today. Can anyone confirm?

[sleepydragon]

4 hours ago, orthopa said:

 

There for sure is a plan. Pulte isnt going to tell you the plan. He already told you its up to President Trump multiple times now. You need to ask the POTUS the plan. Something of this magnitude will 100% go under the credit of President Trump.  Interesting the court case he references. Notes  FHFA and Treasury both serve at the pleasure of the President. This is 100%Trumps deal and decision. Pay attention to what he says

 

it is said there are already several proposals submitted by a few investment banks who want this business, and the proposals are being in front of Bessent. 

[DooDiligence]

39 minutes ago, sleepydragon said:

 

it is said there are already several proposals submitted by a few investment banks who want this business, and the proposals are being in front of Bessent. 

 

[orthopa]

On 5/28/2025 at 7:38 PM, sleepydragon said:

 

it is said there are already several proposals submitted by a few investment banks who want this business, and the proposals are being in front of Bessent. 

 

Im sure there are. Other thoughts are consent decree to essentially keep companies in conservatorship but allow price discovery of common after capital structure is corrected. Capital structure has to be corrected first. That should instantly let all share classes know their fate as gov deals with SPS and liquidation preference. 

 

Pulte seems to be conflating public and privatize but maybe purposely so. Fannie never had an explicit guarantee so MBS spreads shouldn't widen too much and with an ongoing investment in FNF or paid for guarantee even more of a reason for no change. 

 

Either way looks like a busy couple of weeks maybe coming up. 

[orthopa]

On 5/28/2025 at 7:08 PM, COBFInfinity said:

I don't follow MBS spreads, but an article or two imply that there wasn't much movement in MBS market today. Can anyone confirm?

 

Pulte did 3 interviews yesterday, Fox, Bloomberg and Newmax. I bet these as well as trumps tweets have been trial balloons to test the water. The market is pretty efficient. If there was worry you could think this chatter would cause some movement. 

[sleepydragon]

https://howardonmortgagefinance.com/2024/12/09/release-2-0/
 

howard’s new comments. He agrees with Ackman on the commons.

 

Shall we be buying the commons instead?

[orthopa]

 

 

 

 

 

 

https://x.com/pulte/status/1928089429211484425

 

 

 

Lots a bullish tidbits in these, listen and decide. 

[orthopa]

Yield  spreads between mortgages and US treasuries have been in the same range for a while, no meaningful change yet. 

 

https://www.longtermtrends.net/bond-yield-credit-spreads/

[sleepydragon]

8 hours ago, orthopa said:

 

 

 

 

 

 

https://x.com/pulte/status/1928089429211484425

 

 

 

Lots a bullish tidbits in these, listen and decide. 

pulte says “go public without privatization “, and mentioned pink sheet. Is he implying one of the options is to relist current pink sheets to exchange first. If so, this seems to be good for commons but not so good for prefers?

 

what Bessent said about he wanted to see the MBS spread to even narrows is also worrisome to me. The only way to narrows the spread seems to me an explicit guarantee or govt own the stocks forever.

 

On the other hand, i think what Pulte says is possibly not very important

 

 

[sleepydragon]

On 5/28/2025 at 7:08 PM, COBFInfinity said:

I don't follow MBS spreads, but an article or two imply that there wasn't much movement in MBS market today. Can anyone confirm?

yes, a JPM research report also said that. The reason they say is likely because there's really no details behinds all the news/twitter/tv interviews. Pluto's words are confusing