Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 2628313 times)

rros

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9980 on: June 14, 2018, 05:37:34 AM »
12  U.S.C.  §  4623(d) limits court review of "director" actions.  this was taken up at judge Ginsburg's insistence in the perry appeal.
Thanks!


Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9981 on: June 14, 2018, 07:44:43 AM »
12  U.S.C.  §  4623(d) limits court review of "director" actions.  this was taken up at judge Ginsburg's insistence in the perry appeal.

Thanks, I didn't know about that.

The text reads:

Quote
(d) Limitation on jurisdiction

Except as provided in this section, no court shall have jurisdiction to affect, by injunction or otherwise, the issuance or effectiveness of any classification or action of the Director under this subchapter (other than appointment of a conservator under section 4616 or 4617 of this title or action under section 4619  of this title) or to review, modify, suspend, terminate, or set aside such classification or action.

Technically, Watt not issuing the capital standards that he is by statute required to do is neither a "classification" nor an "action", is it? Or does an inaction legally count as an action? Would a court order forcing Watt to come up with enforceable capital standards, and following the statute when they are not met, be considered as the court "affect[ing], review[ing], modify[ing], suspend[ing], terminat[ing], or set[ting] aside" some classification or action?

I know it sounds like I'm being pedantic. I'm just trying to understand the laws better and how violations and challenges tend to work in practice.

It kind of rankles that one section of a law could be used to prevent review of a violation of another part of the law. While claims against the NWS haven't had any clear statute of HERA that is violated, Watt's refusal to do what he is obligated to does directly violate 1361(a)(1). I'm not sure how much that matters.


Edit: Earlier in section 4623 is this:

Quote
(b) Scope of review

The Court may modify, terminate, or set aside an action taken by the Director and reviewed by the Court pursuant to this section only if the court finds, on the record on which the Director acted, that the action of the Director was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with applicable laws.

4623(d) only applies to things not covered in (b). Refusing to fulfill a statuory obligation - in this case setting capital requirements in 1361(a)(1) - seems like it is "not in accordance with applicable laws."

rros

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9982 on: June 14, 2018, 07:54:43 AM »
There is a "suspension" of this requirement set by prior Director. And it looks like courts can't get close to this. According to ch.

There is the law. And there is governing by regulation which aims at circumventing the law. Judge Brown specifically referred to this on her dissent. Lockhart did just that in 2008 when he suspended assessing capital levels. And it looks like he has been able to get away with murder.
« Last Edit: June 14, 2018, 08:02:11 AM by rros »

John Hjorth

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9983 on: June 14, 2018, 08:19:49 AM »
Pretty amazing to now read 10,000+ posts in this topic.
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SnarkyPuppy

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9984 on: June 14, 2018, 08:36:58 AM »
Pretty amazing to now read 10,000+ posts in this topic.

You read them all?

John Hjorth

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9985 on: June 14, 2018, 08:47:12 AM »
Pretty amazing to now read 10,000+ posts in this topic.

You read them all?

Almost. CoBF is my most valuable "paper" every day.
« Last Edit: June 14, 2018, 08:49:59 AM by John Hjorth »
”In the race of excellence … there is no finish line.”
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai

SnarkyPuppy

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9986 on: June 14, 2018, 09:12:29 AM »
Pretty amazing to now read 10,000+ posts in this topic.

You read them all?

Almost. CoBF is my most valuable "paper" every day.

What are your thoughts?  Personally, I think the preferred should be trading in the mid teens.  Even a 66% upside to par ($15 for a $25 par) seems absurd given the current constraints involved.  Seems a combination of ignored, hated, misunderstood, and frankly most of the buyers have already bought multiple dips over the years leaving more sellers (due to timing, liquidations) than buyers.   This is exactly the type of investment I look for as a contrarian investor looking for systemic edges. 

Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9987 on: June 14, 2018, 10:13:20 AM »
This is exactly the type of investment I look for as a contrarian investor looking for systemic edges.

+1
Doesn't beat around the bush, gets right down to the business of Christ laying down His life and conquering death for you, me, and everybody else that accepts Him. "Oh death, where is your sting? Oh Hell, where is your victory?" Listen: https://www.youtube.com/watch?v=7bJzhkWVANc

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9988 on: June 14, 2018, 11:43:05 AM »
What are your thoughts?  Personally, I think the preferred should be trading in the mid teens.  Even a 66% upside to par ($15 for a $25 par) seems absurd given the current constraints involved.  Seems a combination of ignored, hated, misunderstood, and frankly most of the buyers have already bought multiple dips over the years leaving more sellers (due to timing, liquidations) than buyers.   This is exactly the type of investment I look for as a contrarian investor looking for systemic edges.

If people really understood what was going on and the $25s had a 60%-of-par valuation, this investment wouldn't be nearly so contrarian. Right?

Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #9989 on: June 14, 2018, 01:35:36 PM »
Rosner's paper on FHFA Capital Requirements... https://www.scribd.com/document/381737512/GF-Co-FHFA-s-Proposed-Capital-Rule

PDF attached...

Tim Howard's comments on Rosner's paper...
https://howardonmortgagefinance.com/2018/05/03/a-view-on-affordable-housing/comment-page-1/#comment-6828

I’m a little puzzled by this note from Josh. I generally agree with his overall assessment of the FHFA capital proposal—which he calls “a good start,” and “not being so onerous as to reduce the economic viability of their mandated mission to ensure liquidity to the primary mortgage market”—but he then spends the bulk of his piece objecting to the fact that “FHFA will not implement the capital requirements while the GSEs are in Conservatorship and will, instead, wait for Congress or the Administration to affirmatively act on GSE reform,” arguing that “Such a position is in direct opposition to the requirements of the HERA law and, again, ignores that Congress has acted and given it direction in the HERA law.”

All of that is true. The problem is that Treasury and FHFA interpret HERA differently from how Josh does, and so far the Treasury/FHFA interpretation has prevailed in every court case decided to date. Fannie and Freddie cannot be recapitalized as long as the net worth sweep remains in force or until the conservatorship has ended, and FHFA cannot end either the sweep or the conservatorship without Treasury’s approval. For those reasons, I’ll take the half a loaf FHFA has given us: beginning a substantive dialogue about the right way to capitalize the companies post-conservatorship, if, whenever and however—i.e. legislatively or administratively—that happens.

As I noted shortly after the FHFA capital proposal came out, I’m going to take my time going through and analyzing it before I write my comment letter (which I’ve got a couple of months to do). But I do have a preliminary reaction to it: it is extremely, and I would say unnecessarily, conservative. I’m going to withhold judgment as to whether the average 3.24 percent “estimated risk-based capital requirements as of September 31, 2017” for Fannie and Freddie shown in Table 1 of the summary document would make the companies “unviable” (I suspect not), but I will make arguments for how and why that number could be reduced without materially increasing taxpayer risk, and at the same time significantly lowering the cost and increasing the availability of mortgages to the large majority of homeowners Fannie and Freddie were chartered to serve.

I recognize, of course, that there is a political dimension to the recapitalization of Fannie and Freddie, and that there will be some threshold capital percentage below which it will be very difficult to go, irrespective of the merits of the arguments for doing so. Building on the “Rule of Law Guy’s” observation, the range of dollar capital numbers for Fannie and Freddie as of September 2017 given in the FHFA summary table—from $154.1 billion without a deferred tax asset reserve to $180.9 billion with one—is virtually identical to the $155 to $180 capital range in the Moelis recapitalization plan released just over a year ago. I doubt this is coincidental, and it suggests we now are seeing some serious “fleshing out” of a pathway to administrative reform of the companies, if only for informational purposes. And it’s interesting that given the fundamentally high credit quality of the mortgages Fannie and Freddie finance, the only way to get to a 2.75 to 3.25 percent average capital number is to add a host of conservative buffers, a few of which are redundant. Hopefully some of those can be worked down as the discussion moves forward.
Doesn't beat around the bush, gets right down to the business of Christ laying down His life and conquering death for you, me, and everybody else that accepts Him. "Oh death, where is your sting? Oh Hell, where is your victory?" Listen: https://www.youtube.com/watch?v=7bJzhkWVANc