Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 3724768 times)

hardincap

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13240 on: August 14, 2019, 05:48:18 PM »
“Treasury plan will disappoint”. Are you 51% confident or 90%?

Without putting some rough odds isn’t your statement basically useless?


muscleman

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13241 on: August 14, 2019, 06:04:11 PM »
“Treasury plan will disappoint”. Are you 51% confident or 90%?

Without putting some rough odds isn’t your statement basically useless?

Why is it useless? I already said I moved from 50/50 to 70% bearish. Could this come from disappointing treasury plan or could this come from Collins or could this come from something else that we have not even account for? I won't know.
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Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13242 on: August 15, 2019, 06:53:49 AM »
" Have the shareholders been robbed off more than $25 in dividends for a $25 stock? Yes

Have they looted over 270 billion from two of the companies that control 15% of economy and left them with just 3 billion in capital and making them completely vulnerable to downturns and recession? Yes

Have they lost credibility of  crap  talk on camera by not stopping  NWS immediately ? Yes

Have the public been lied over and over again on timing of recap : Jan 6, March, June, July, Aug and goes on. Yes

Have they applied double standard on constitutionality when compared with CFPB so that loot can keep going on? Yes

Have they  been able to reach out to courts as well to meddle into  our justice system? "

"The best and most legitimate quotes are those that offer no source or reference."
A wise husband, a wise father, asks God for help. Don't be a prideful, self-reliant fool. "Father, lead me, 'cause I can't do this alone..." Lead Me by Sanctus Real: https://www.youtube.com/watch?v=yLr6G8Xy5uc
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DRValue

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13243 on: August 15, 2019, 08:44:20 AM »
" Have the shareholders been robbed off more than $25 in dividends for a $25 stock? Yes

Have they looted over 270 billion from two of the companies that control 15% of economy and left them with just 3 billion in capital and making them completely vulnerable to downturns and recession? Yes

Have they lost credibility of  crap  talk on camera by not stopping  NWS immediately ? Yes

Have the public been lied over and over again on timing of recap : Jan 6, March, June, July, Aug and goes on. Yes

Have they applied double standard on constitutionality when compared with CFPB so that loot can keep going on? Yes

Have they  been able to reach out to courts as well to meddle into  our justice system? "

"The best and most legitimate quotes are those that offer no source or reference."

"Lol" said people familiar with the matter.
[E]xpedience does not license omnipotence.

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Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13244 on: August 15, 2019, 12:16:00 PM »
The GSE stress test results were all out by now in previous years.

Came out today: https://www.fhfa.gov/mobile/Pages/public-affairs-detail.aspx?PageName=FHFA-Announces-Results-of-Fannie-and-Freddie-Dodd-Frank-Act-Stress-Tests-8-2019.aspx

Possibly lower capital requirements than previously thought.  Very interesting. 
« Last Edit: August 15, 2019, 12:25:06 PM by Luke 5:32 »
A wise husband, a wise father, asks God for help. Don't be a prideful, self-reliant fool. "Father, lead me, 'cause I can't do this alone..." Lead Me by Sanctus Real: https://www.youtube.com/watch?v=yLr6G8Xy5uc
"Life will rise, death will die..." https://www.youtube.com/watch?v=L_uJYKoHhQo

DRValue

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13245 on: August 15, 2019, 12:35:41 PM »
The GSE stress test results were all out by now in previous years.

Came out today: https://www.fhfa.gov/mobile/Pages/public-affairs-detail.aspx?PageName=FHFA-Announces-Results-of-Fannie-and-Freddie-Dodd-Frank-Act-Stress-Tests-8-2019.aspx

Possibly lower capital requirements than previously thought.  Very interesting.

Thanks for this. Just read through the results and I find it hard to make a good case for 180 billion of capital based on the results.
[E]xpedience does not license omnipotence.

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WB_fan82

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13246 on: August 15, 2019, 01:51:49 PM »
Easier scenario this year with a 25% decline in home prices rather than a 30% decline in home prices.

Does anyone understand the difference between the credit provisions and "Credit losses" line near the bottom?


Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13247 on: August 15, 2019, 02:07:30 PM »
The GSE stress test results were all out by now in previous years.

Came out today: https://www.fhfa.gov/mobile/Pages/public-affairs-detail.aspx?PageName=FHFA-Announces-Results-of-Fannie-and-Freddie-Dodd-Frank-Act-Stress-Tests-8-2019.aspx

Possibly lower capital requirements than previously thought.  Very interesting.

I don't know if there's a direct relationship between these results and capital requirements. That's especially true of minimum capital requirements, which are defined as

Quote
(a) EnterprisesFor purposes of this subchapter, the minimum capital level for each enterprise shall be the sum of—
(1) 2.50 percent of the aggregate on-balance sheet assets of the enterprise, as determined in accordance with generally accepted accounting principles;
(2) 0.45 percent of the unpaid principal balance of outstanding mortgage-backed securities and substantially equivalent instruments issued or guaranteed by the enterprise that are not included in paragraph (1); and
(3) 0.45 percent of other off-balance sheet obligations of the enterprise not included in paragraph (2) (excluding commitments in excess of 50 percent of the average dollar amount of the commitments outstanding each quarter over the preceding 4 quarters), except that the Director shall adjust such percentage to reflect differences in the credit risk of such obligations in relation to the instruments included in paragraph (2).

I asked Tim Howard about this in the past and he said that FnF's minimum capital requirements were rather low before conservatorship because most of the MBS were off-balance sheet (classified as trusts, I think) and thus only had the 0.45% multiplier. Watt's proposed rule had two minimum capital alternatives, and the higher ($139.5B combined) was based on 2.5% of all on-balance sheet assets. However, I don't see how Calabria can get around category (1) because in 2010 FnF added all the MBS to the balance sheets. Now that all the MBS are on the official balance sheets, is it even possible to set the minimum capital requirement lower than $139.5B? Watt must have thought so because he had an alternative lower number of $103.5B, but I'm not seeing how to square that with the statute.

I wish I could find that post by Tim but I think he deleted it. It ended with "there's no mystery if you know the history" and searching that phrase, or even just the term "0.45%", in all comments on his posts did not yield the comment I'm referring to.

If FnF really have to get to $139.5B in core capital it will take a massive equity raise because only retained earnings, common equity, and non-cumulative preferred equity count towards that. No mitigation from CRTs and such. It would be pretty hard to issue a metric ton of non-cumulative preferred shares because they each jeopardize the dividends of the others, and they would be limited in price appreciation if sold at par. I would expect, then, that there will be a crazy number of commons being issued if Calabria and Mnuchin really want to finish recap and release before the end of 2020.

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13248 on: August 15, 2019, 02:42:00 PM »
Followup to my last post. A friend pointed me to the comment, I had just neglected to click "Older Comments" before searching. Oops!

https://howardonmortgagefinance.com/2019/02/07/a-three-year-retrospective/comment-page-1/#comment-9463

Quote
Fannie and Freddie’s MBS are technically trusts, and they fell within the category of variable interest entities. So as of January 1, 2010 both companies began accounting for their MBS as on-balance sheet assets. But because their risk hadn’t changed, FHFA made the explicit exception to the companies’ statutory minimum capital requirements you noted, allowing assets that were “underlying Fannie Mae [and Freddie Mac] MBS held by third parties” to continue to be capitalized using a minimum ratio of 0.45 percent, not the 2.50 percent that applied to other on-balance sheet assets.

It appears that FHFA was technically violating HERA here. Category (1) in the definition is quite clear. If Calabria, as he has said, really is going to follow the letter of HERA every time he makes a decision, I don't know if he can come to any conclusion other than setting the minimum capital requirement at $139.5B (2.5% of all on-balance sheet assets), if not higher as is his prerogative.

investorG

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13249 on: August 15, 2019, 04:41:41 PM »
Easier scenario this year with a 25% decline in home prices rather than a 30% decline in home prices.

Does anyone understand the difference between the credit provisions and "Credit losses" line near the bottom?

maybe this helps?  credit provisions are anticipatory, flow through the P&L and fund the loan loss reserve (the pool of money on the balance sheet set aside to cover future credit losses).   when times look bleak, like the stress exam tests, financial companies materially increase the credit provision cost to build a higher loan loss reserve - this reduces or eliminates profits during that time.   credit losses are the actual real time losses, they do not flow through the P&L but rather come out of the loan loss reserve that has been previously built up during the credit provision process.