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

[rros]

David Thompson did a great job in the bhatti oral argument before the 8th C merits panel, but it was a messy argument owing to a contentious judge, with the other two being more reticent.  long story short, if scotus grants review of the collins cert petition, bhatti will be back back burner

From what I can tell, I'm not rooting for the SC to take our case, even though I understand why it was filed. 

imo it's the least compelling of the stools we're counting on on:  administrative settlement / solution,  APA claim (collins), damages from lamberth / sweeney, and constitutional.   if the FHFA structure is unconstitutional, fine, but it appears too easy to just apply forward relief; backwards looking, it seems arbitrary to say some decisions were fine but some deserve compensation.   

also, it could delay everything as everyone waits until june 2020.

yes and no.  given the collins APA opinion, and assuming it is not appealed since not a final judgment, that process will proceed at the district court level irrespective of scotus review of the constitutional claim.  so any scotus review would be a total additional opportunity for Ps.  an easy way out for scotus would be just to affirm on both structure and remedy, so there would be nothing gained, but nothing to my mind lost.  yes a removable at will Calabria post 2020 would be one result of that, but once GSEs move out of conservatorship and into "consent decree," and the final capital rule is promulgated, any new fhfa director would have few degrees of freedom.

Does "consent decree" mean they will be operating almost as *free* with a greater likelihood of dividends reinstatement?

[cherzeca]

@rros

fhfa hasn't defined what the consent decrees will look like but I believe 1) it is necessary for GSEs to be out of conservatorship once they do offerings, as the power for evil represented by a HERA conservatorship must no longer apply once new investors pony up cash (and once released from conservatorship the GSEs cannot easily be put back into conservatorship in the absence of another FC), so that 2) the consent decrees will constitute contracts between fhfa and GSEs that will pertain to the GSEs operations (ie no more building up of whole loan portfolios, charge g fees of x etc), so that fhfa maintains whatever controls it believes it needs until the GSEs satisfy the capital rule, at which time, one presumes and hopes, the consent decree falls away. 

[rros]

@rros

fhfa hasn't defined what the consent decrees will look like but I believe 1) it is necessary for GSEs to be out of conservatorship once they do offerings, as the power for evil represented by a HERA conservatorship must no longer apply once new investors pony up cash (and once released from conservatorship the GSEs cannot easily be put back into conservatorship in the absence of another FC), so that 2) the consent decrees will constitute contracts between fhfa and GSEs that will pertain to the GSEs operations (ie no more building up of whole loan portfolios, charge g fees of x etc), so that fhfa maintains whatever controls it believes it needs until the GSEs satisfy the capital rule, at which time, one presumes and hopes, the consent decree falls away.

So c-ship as we know it should be over, replaced by these internal agreements. Is that it? And what role will Tsy play, in your judgement? Will Tsy be part of the consents in any way? Are you also suggesting Tsy's role will finally be that of a simple creditor (charging a commitment fee for the unused line and letting go of the Srs.)? That would make the Jrs. whole in an instant.

[cherzeca]

@rros

fhfa hasn't defined what the consent decrees will look like but I believe 1) it is necessary for GSEs to be out of conservatorship once they do offerings, as the power for evil represented by a HERA conservatorship must no longer apply once new investors pony up cash (and once released from conservatorship the GSEs cannot easily be put back into conservatorship in the absence of another FC), so that 2) the consent decrees will constitute contracts between fhfa and GSEs that will pertain to the GSEs operations (ie no more building up of whole loan portfolios, charge g fees of x etc), so that fhfa maintains whatever controls it believes it needs until the GSEs satisfy the capital rule, at which time, one presumes and hopes, the consent decree falls away.

So c-ship as we know it should be over, replaced by these internal agreements. Is that it? And what role will Tsy play, in your judgement? Will Tsy be part of the consents in any way? Are you also suggesting Tsy's role will finally be that of a simple creditor (charging a commitment fee for the unused line and letting go of the Srs.)? That would make the Jrs. whole in an instant.

fhfa will negotiate the consent decrees with GSEs, but of course treasury will consult with fhfa.  treasury will also consult with fhfa re capital rule.  treasury's starring role will be getting capital structure ready for recap/re-ipo/litigation settlement.  I dont see any of that happening unless the senior prefs are nuked.

[Luke 5:32]

I dont see any of that happening unless the senior prefs are nuked.

What do you think is a reasonable expectation as to when that might happen?  Thanks.

[cherzeca]

I dont see any of that happening unless the senior prefs are nuked.

What do you think is a reasonable expectation as to when that might happen?  Thanks.

later than we would like.  my nose tells me that treasury/fhfa has gotten good informal advice from bankers...leading to the consent decree idea as being necessary, and also having a sufficient capital cushion before the first offering such that the first offering gets the GSEs close (if not to) the capital rule requirement.  just makes sense.  hence the retained earnings/capital build up period.

[Luke 5:32]

later than we would like.  my nose tells me that treasury/fhfa has gotten good informal advice from bankers...leading to the consent decree idea as being necessary, and also having a sufficient capital cushion before the first offering such that the first offering gets the GSEs close (if not to) the capital rule requirement.  just makes sense.  hence the retained earnings/capital build up period.

Thank you.  I always appreciate your input.

[cherzeca]

God knows I hate setting up IMF as an authority but this gets at what might be the capital threshold for transitioning from conservatorship to consent decree:  https://twitter.com/pgray41/status/1184872171149103104?s=21

[rros]

God knows I hate setting up IMF as an authority but this icee gets at what might be the capital threshold for transitioning from conservatorship to consent decree:  https://twitter.com/pgray41/status/1184872171149103104?s=21

Appears to be good news, if correct. Maybe I will buy back some of what I sold lol. Moving in this direction could mean prices closer to face value within 12 months. Thank you for your responses, Chris!

[Luke 5:32]

What We’re Hearing: Talk of a GSE Legal Settlement? / Using Consent Decrees / Goldman’s New Prime Non-Agency MBS / Fannie Exec Departs for Industry Vendor
https://www.insidemortgagefinance.com/articles/216144-what-were-hearing-talk-of-a-gse-legal-settlement-using-consent-decrees-goldmans-new-prime-non-agency-mbs-fannie-exec-departs-for-industry-vendor?v=preview

The Treasury Department is weighing a legal settlement with the junior shareholders in Fannie Mae and Freddie Mac stock. At least that was one rumor making the rounds this week in both New York and Washington. One veteran MBS source said talks between these investors (who sued the government over the quarterly profit sweep) have taken on a new urgency ever since the Trump White House released its housing-finance reform blueprint in early September. For more on the story, see Inside MBS & ABS, now available online…

By the way, we ran the settlement rumor by a very large GSE (preferred) shareholder who did not respond to our inquiry…