Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 4459270 times)

emily

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #10650 on: October 17, 2018, 09:50:17 AM »
So it costs only $19 billion to guarantee 12 trillion?


ďCBO projects that under current policy, the GSEs will guarantee  almost $12 trillion in new MBSs over the next 10 years and that those guarantees will cost the government about $19 billion on a fair-value basis. That cost represents the estimated amount that the government would have to pay private guarantors to bear the credit risks of the new guarantees.Ē

https://www.cbo.gov/system/files?file=2018-08/54218-GSEupdate.pdf


DocSnowball

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #10651 on: October 17, 2018, 09:52:11 AM »
@allnatural

I re-viewed the Craig Phillips video on twitter after reading your comments to avoid bias from all the interpretations - "The administration advocates ending the conservatorship of Fannie Mae and Freddie Mac and returning them to private ownership. Their charters should be removed from statute and their operations should be overseen by the primary regulator who has the authority to approve additional guarantors to introduce competition into the secondary mortgage market"

This would count as progress not activity - 1) it is very consistent with the OMB document, 2) with the additional words "returning them to private ownership".
https://www.performance.gov/GovReform/Reform-and-Reorg-Plan-Final.pdf
Excerpts from Page 75-76

"WHAT WEíRE PROPOSING AND WHY ITíS THE RIGHT THING TO DO
Under the current system, Fannie Mae and Freddie Mac, two privately-owned GSEs, buy and guarantee mortgages from lenders and sell them to investors as MBS. Although they are private companies, they are congressionally chartered, a unique status that has been viewed as conveying an implicit Federal backstop that has in turn lowered their cost of capital relative to similarly-sized institutions. In 2008, Fannie Mae and Freddie Mac were taken into conservatorship and received (and continue to receive) an explicit but limited backing from the Treasury under a Preferred Stock Purchase Agreement (PSPA), which gives access to capital funding that covers any loss the enterprises may incur. In their Federal charters and by action of their primary regulator, the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac have goals of providing a certain amount of financing to low- and moderate-income borrowers. However, these a ffordable housing activities are not clearly accounted for on the Federal balance sheet.
In addition to the GSEs, other Federal programs provide mortgage support, contributing to a large Federal footprint in the housing market. The Department of Housing and Urban Development (HUD) Federal Housing Administration (FHA) provides mortgage insurance intended to aid borrowers traditionally underserved by the conventional mortgage market, including lower-wealth households, minorities, and first-time homebuyers. The Departments of Veterans A ffairs (VA) and Agriculture (USDA) also administer mortgage insurance programs targeted to veterans and lower-income rural households, respectively. The loans guaranteed by FHA, VA, and USDA are in turn packaged into MBS that are guaranteed by Ginnie Mae, a Federal entity operated by HUD. Together, loans backed by the GSEs and Ginnie Mae comprised about 70 percent of mortgages originated in 2017.
All these entities, taken as a whole, form a complex and overlapping network of cross-subsidization, without clear accountability as to who is paying for, and who is receiving, housing subsidies. Although the Federal role in the housing market has helped to facilitate the availability of the 30-year fixed-rate mortgage, the current system has structural flaws that have also created distortions in home pricing that may actually hinder the goal of homeownership. This reorganization proposal, which includes broad policy and legislative reforms beyond restructuring Federal agencies and programs, would:
ē Increase competition. The proposal would remove the Federal charter from statute and fully privatize the GSEs. A Federal entity with secondary mortgage market experience would be charged with regulatory oversight of the fully privatized GSEs, have the authority to approve guarantors, and develop a regulatory environment that is conducive to developing competition amongst new private guarantors and the incumbent GSEs, ensuring they would all be adequately capitalized and competing on a level playing field. If the GSEs lost some of the benefits that have led them to dominate the market, this would enable other private companies to begin competing in this space. The regulator would also ensure fair access to the secondary market for all market participants, including community financial institutions and small lenders...."

investorG

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #10652 on: October 17, 2018, 10:33:05 AM »
I agree legislative reform will be difficult to pass / low probability event regardless of the makeup of congress (all gop, half gop/dems, all dems). The bigger question is what happens if they fail down this path that OMB/Whitehouse/Phillips discussed? Will they turn to administrative options or not?


yes, likely.  but not until the legislative route fails in either late 2019 or 2020. it's legislative or bust for the next 12+ months imo.  this is complex and really important stuff, in their view it needs to go through congress rather than a few figures building a (reversible) solution administratively. 

they should tweak/end the NWS now though.

investorG

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #10653 on: October 17, 2018, 10:34:59 AM »
Josh Rosners take on Phillips comments (FWIW):

@JoshRosner
People are reading too much into @CraigPhillipsDC's comment. They aligned w/ OMB's statements re legislative goals. He didn't suggest they would sit on their hands pending legislation. I expect administrative reform is a separate track & UST may begin work with a post Watt @FHFA.

@JoshRosner
Watt has not proactive & was willing to sit & wait for legislation for which there are no votes. I suspect they decided, given it is so close to the end of his term, it would be easier to coordinate policy goals when they have a counterparty who shares their staging & priorities.

@JoshRosner
Until recently, GSE & mortgage market reform were not near the top of the priority list. Given it has now moved up the list there isnít much need to rush rather than wait until after Jan 6th. I believe they are engaged in planning but I donít think they see a reason rush today.

thanks for this allnatural.  I quit twitter awhile ago.  I don't think josh is part of the conversation, but at least he is closer to it than we are.

seems to me that if polls are prescient (ha!), Rs will keep senate and Ds will retake house.  does everyone agree with me that this is a recipe for no GSE legislation passage?  does anyone think any legislation will pass with this political profile?

legislation is quite doable.  2 of the 3 parties are aligned.  throw 5-10bn of annual affordable housing (a slice of the g-fees) and Dems could be good to go too.   pat Toomey, if in charge of the senate committee, is a highly capable man (crapo less so).

allnatural

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #10654 on: October 17, 2018, 10:38:23 AM »
+1 for Pat Toomey, lets hope he gets the seat.

Josh Rosners take on Phillips comments (FWIW):

@JoshRosner
People are reading too much into @CraigPhillipsDC's comment. They aligned w/ OMB's statements re legislative goals. He didn't suggest they would sit on their hands pending legislation. I expect administrative reform is a separate track & UST may begin work with a post Watt @FHFA.

@JoshRosner
Watt has not proactive & was willing to sit & wait for legislation for which there are no votes. I suspect they decided, given it is so close to the end of his term, it would be easier to coordinate policy goals when they have a counterparty who shares their staging & priorities.

@JoshRosner
Until recently, GSE & mortgage market reform were not near the top of the priority list. Given it has now moved up the list there isnít much need to rush rather than wait until after Jan 6th. I believe they are engaged in planning but I donít think they see a reason rush today.

thanks for this allnatural.  I quit twitter awhile ago.  I don't think josh is part of the conversation, but at least he is closer to it than we are.

seems to me that if polls are prescient (ha!), Rs will keep senate and Ds will retake house.  does everyone agree with me that this is a recipe for no GSE legislation passage?  does anyone think any legislation will pass with this political profile?

legislation is quite doable.  2 of the 3 parties are aligned.  throw 5-10bn of annual affordable housing (a slice of the g-fees) and Dems could be good to go too.   pat Toomey, if in charge of the senate committee, is a highly capable man (crapo less so).

investorG

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #10655 on: October 17, 2018, 10:39:38 AM »
Josh Rosners take on Phillips comments (FWIW):

@JoshRosner
People are reading too much into @CraigPhillipsDC's comment. They aligned w/ OMB's statements re legislative goals. He didn't suggest they would sit on their hands pending legislation. I expect administrative reform is a separate track & UST may begin work with a post Watt @FHFA.

@JoshRosner
Watt has not proactive & was willing to sit & wait for legislation for which there are no votes. I suspect they decided, given it is so close to the end of his term, it would be easier to coordinate policy goals when they have a counterparty who shares their staging & priorities.

@JoshRosner
Until recently, GSE & mortgage market reform were not near the top of the priority list. Given it has now moved up the list there isnít much need to rush rather than wait until after Jan 6th. I believe they are engaged in planning but I donít think they see a reason rush today.


lazy commentary imo.  it seems clear now why watt's utility or Moelis (administratively) hasn't been acted on or advanced in 2018 even though jump start expired -- Mnuchin wants the MBA plan with the govt g'tee.  they tried to get going on it with corker about 10 months ago (see joe light articles and preferred stock pump) but they decided the landscape was too difficult with henserlang and the House right wingers in charge.  well that's possibly going to change in 2.5 months, and so now the repubs should be more aligned with toomey as the player and so its just convincing (bribing) Maxine waters.

blackcoffee

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #10656 on: October 17, 2018, 10:40:55 AM »
Josh Rosners take on Phillips comments (FWIW):

@JoshRosner
People are reading too much into @CraigPhillipsDC's comment. They aligned w/ OMB's statements re legislative goals. He didn't suggest they would sit on their hands pending legislation. I expect administrative reform is a separate track & UST may begin work with a post Watt @FHFA.

@JoshRosner
Watt has not proactive & was willing to sit & wait for legislation for which there are no votes. I suspect they decided, given it is so close to the end of his term, it would be easier to coordinate policy goals when they have a counterparty who shares their staging & priorities.

@JoshRosner
Until recently, GSE & mortgage market reform were not near the top of the priority list. Given it has now moved up the list there isnít much need to rush rather than wait until after Jan 6th. I believe they are engaged in planning but I donít think they see a reason rush today.

thanks for this allnatural.  I quit twitter awhile ago.  I don't think josh is part of the conversation, but at least he is closer to it than we are.

seems to me that if polls are prescient (ha!), Rs will keep senate and Ds will retake house.  does everyone agree with me that this is a recipe for no GSE legislation passage?  does anyone think any legislation will pass with this political profile?

legislation is quite doable.  2 of the 3 parties are aligned.  throw 5-10bn of annual affordable housing (a slice of the g-fees) and Dems could be good to go too.   pat Toomey, if in charge of the senate committee, is a highly capable man (crapo less so).

beyond the question of affordable housing - does anyone really want to give banks this market? Other than the banks?

investorG

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #10657 on: October 17, 2018, 10:46:42 AM »
Josh Rosners take on Phillips comments (FWIW):

@JoshRosner
People are reading too much into @CraigPhillipsDC's comment. They aligned w/ OMB's statements re legislative goals. He didn't suggest they would sit on their hands pending legislation. I expect administrative reform is a separate track & UST may begin work with a post Watt @FHFA.

@JoshRosner
Watt has not proactive & was willing to sit & wait for legislation for which there are no votes. I suspect they decided, given it is so close to the end of his term, it would be easier to coordinate policy goals when they have a counterparty who shares their staging & priorities.

@JoshRosner
Until recently, GSE & mortgage market reform were not near the top of the priority list. Given it has now moved up the list there isnít much need to rush rather than wait until after Jan 6th. I believe they are engaged in planning but I donít think they see a reason rush today.

thanks for this allnatural.  I quit twitter awhile ago.  I don't think josh is part of the conversation, but at least he is closer to it than we are.

seems to me that if polls are prescient (ha!), Rs will keep senate and Ds will retake house.  does everyone agree with me that this is a recipe for no GSE legislation passage?  does anyone think any legislation will pass with this political profile?

legislation is quite doable.  2 of the 3 parties are aligned.  throw 5-10bn of annual affordable housing (a slice of the g-fees) and Dems could be good to go too.   pat Toomey, if in charge of the senate committee, is a highly capable man (crapo less so).

beyond the question of affordable housing - does anyone really want to give banks this market? Other than the banks?


what we think doesn't really matter. it appears mnuchin wants a) the govt guarantee to ensure the mkt works through the cycle and b) less GSE market share.  he and phillips have said this multiple times.   mnuchin directly said in congress a govt guarantee should be tied to the securities (ie not to the companies), behind other layers of loss protection, and explicitly paid for.   

investorG

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #10658 on: October 17, 2018, 10:53:35 AM »
recent commentary in the FnF Twitter/blog universe is fairly weak.  it's like they think the guys in charge are lying with some secret alternative strategy.

it seems quite clear that mnuchin wants to do this legislatively.  It's not impossible to get done, it's permanent, and the backstop MBS-level govt guarantee is important to consistently have access to the global capital markets (as a replacement for the implied guarantee on the 2 entities, which everyone wants gone).

imo people should just accept this is the primary plan and focus their writing energy on more relevant things like stopping the NWS immediately or creating a new $15bn buffer instead of $3bn.

The commentary is not as weak as the odds of legislation happening. It's been a decade and nothing. Polarization is at an all time high. I wouldn't say impossible but it's damn close.

Additionally, do we know how current beneficiaries of the GSE charters are reacting politically to the admin threatening their entire lines of business? I know for a fact that these businesses are valued at hundreds of millions of dollars. Do we think the people with pull at that level are going to go quietly? Not bloodly likely.


they might not have a choice.  It seems like the Tsy / OMB wants to go with the MBA plan, and likely so do the 2019 Republicans in Congress.  What's left is carving out some $ for affordable housing to get the Dems on board.
And where does that plan leave legacy shareholders?


the current market cap of all common and jr preferred shareholders is maybe around $10bn?  that is very small relative to the role the minority shareholders have played the last 10 years, the current earnings profile and future valuation of the 2 companies.  all we need is a true American leader, a politician or judge, who has the power to do the right thing.
I am not sure how to interpret this. But I can't think of aligning with MBA is going to make "shareholders great again".


one thing I fall back on is the quickest way to get hired in or mentioned by the Trump administration seems to have been either direct or indirect advocacy against an indefinite conservatorship / NWS / FHFA structure.   Mnuchin, Mulvaney, kudlow, Kavanaugh, Janice rogers brown, ken Blackwell, others i'm forgetting.    it's not impossible to both a) treat minority shareholders with respect and b) create a new system

ok, I know that's a lot of posts lately - i'll try to hold back!

blackcoffee

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #10659 on: October 17, 2018, 11:11:55 AM »
Josh Rosners take on Phillips comments (FWIW):

@JoshRosner
People are reading too much into @CraigPhillipsDC's comment. They aligned w/ OMB's statements re legislative goals. He didn't suggest they would sit on their hands pending legislation. I expect administrative reform is a separate track & UST may begin work with a post Watt @FHFA.

@JoshRosner
Watt has not proactive & was willing to sit & wait for legislation for which there are no votes. I suspect they decided, given it is so close to the end of his term, it would be easier to coordinate policy goals when they have a counterparty who shares their staging & priorities.

@JoshRosner
Until recently, GSE & mortgage market reform were not near the top of the priority list. Given it has now moved up the list there isnít much need to rush rather than wait until after Jan 6th. I believe they are engaged in planning but I donít think they see a reason rush today.

thanks for this allnatural.  I quit twitter awhile ago.  I don't think josh is part of the conversation, but at least he is closer to it than we are.

seems to me that if polls are prescient (ha!), Rs will keep senate and Ds will retake house.  does everyone agree with me that this is a recipe for no GSE legislation passage?  does anyone think any legislation will pass with this political profile?

legislation is quite doable.  2 of the 3 parties are aligned.  throw 5-10bn of annual affordable housing (a slice of the g-fees) and Dems could be good to go too.   pat Toomey, if in charge of the senate committee, is a highly capable man (crapo less so).

beyond the question of affordable housing - does anyone really want to give banks this market? Other than the banks?


what we think doesn't really matter. it appears mnuchin wants a) the govt guarantee to ensure the mkt works through the cycle and b) less GSE market share.  he and phillips have said this multiple times.   mnuchin directly said in congress a govt guarantee should be tied to the securities (ie not to the companies), behind other layers of loss protection, and explicitly paid for.

right because that gives the banks the superfecta referenced previously - they not only want moral hazard on the entity level, which they already have and no one seems to notice,  they want it on the securities they create so they can get beneficial treatment for holding those debt instruments and also race to the bottom on the collateral quality in those vehicles because after all it's just another put to the gov't for them so who cares right?

While I understand you're attempting to be level headed about what's happening, you shouldn't discount the idea that this breaks something that is working to move the entire industry into an untested alternative. Currently the beneficiaries of the charters will likely not want to be primed and have a decently sized lobby themselves.

I would also add that it doesn't make sense to put the guarantee on the individual pools, because similar to CRTs, that takes away the ability to spread the risk premiums from an enterprise level and moves it to a security level, which means it will be too lumpy to be efficient and will serve to raise mortgage costs for every borrower.

So while your lamentations about what we want or whatever are noted, there are real structural issues that have yet to be addressed by the MBA proposals, because they don't really care about the details, they just want to kill the roadblocks and those are the GSEs. Read and understand Howard on CRTs. If you have good for you, if you haven't please do. Doing so makes clear that these are 1/2 baked ideas with 1 overarching goal - to get the market. I would also suggest reading Howard's book for background, it is pretty wild even if it's pretty wonkish.