Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 4282663 times)

TwoCitiesCapital

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15580 on: May 28, 2020, 08:45:12 PM »
Jamie Dimon yesterday on forbearance:

      ○ 1/3 of people who ask for it, never actually use it
      ○ I suspect a lot of people who did use it are doing so as a safety precaution
      ○ My hope would be, as we see first people coming off forbearance, that the people who start repaying is higher than people think, not lower
         § This by the way gives them a chance to do a re-fi, which could be really smart for them in certain cases
      ○ We will start to see the first cohort of people coming off of forbearance in June
      ○ In the old days, it was a danger that once you stopped paying your mortgage, you never started again
         § But remember last time around, home prices were down 40%, there was a good reason not to pay, you weren't going to lose any equity value in your home, whereas today, it’s the opposite,
                           there are very few people underwater in their homes today

With the way current mortgages standards are, I'm not so sure that you can simply repay the forbearance and then be eligible for a refi. I read an article (I believe WSJ) talking about individuals who were unknowingly signed up for the forbearance program simply by calling their banks and asking about the details about the program.

The article highlighted an individual who has made all of his monthly payments, but is ineligible to refinance because he was listed as "seeking forbearance" despite having made all of his mortgage payments on time. It seems even just asking about it might be enough to scare banks away from making the loan at this point in time.

http://www.freddiemac.com/about/pdf/covid_19_forbearance_servicer_script.pdf

Did I miss something relevant in this script to my post or the post before it?

I don't think so. I just addressed that those actually in forbearance enjoy option to refi.

I feel blind and dumb for asking, but am I missing something?  I breezed over this once before posting and just browsed it again and then read it thoroughly and still don't see any mention of refinancing. Also, when I Ctrl+F there isn't a mention of refi or refinancing.

I'm guess I'm overlooking something?

"As we work with you on the next steps after the forbearance, the best solution will depend on your
financial situation when your forbearance plan has concluded.
o If you are able to afford it, you can reinstate which means paying the total amount due, or we
can set up a repayment plan, allowing you to catch up gradually while you are paying your
regular monthly payment.
o If you can’t afford the additional amount, but you can resume making your normal monthly
payment, we can leverage alternative ways of paying back the suspended payments in a
manner that is affordable.
o If you have a sustained reduction in income resulting from the crisis, then we can look at a
modification (changes to the terms of your loan) that might suit your new circumstances; those
changes will aim to reduce your original monthly payment amount.
"

"We’ll reach out to you about 30 days before your forbearance plan is scheduled to end to determine
which assistance program is best for you at that time — a repayment plan, loan modification, or even
an extension of the forbearance period if needed."

 Ah, I think i see now.

A loan modification is not akin to a refinance. A refinance is a brand new loan to repay off the old loan - no black mark on your credit report.

A mortgage modification is NOT the same thing. A modification is an admission that you cannot pay the existing loan and is a restructuring of sorts. Not quite a default, but a restructuring outside of bankruptcy to avoid full default.

As mentioned at the below link, a mortgage modification is available if your're INELIGIBLE to refinance and is damaging to your credit score (though not as much so as foreclosure).

https://www.knowyouroptions.com/options-to-stay-in-your-home/overview/modify-overview/modification
« Last Edit: May 28, 2020, 08:47:05 PM by TwoCitiesCapital »


Covid-19_Survivor

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15581 on: May 29, 2020, 08:46:40 AM »

 Ah, I think i see now.

A loan modification is not akin to a refinance. A refinance is a brand new loan to repay off the old loan - no black mark on your credit report.

A mortgage modification is NOT the same thing. A modification is an admission that you cannot pay the existing loan and is a restructuring of sorts. Not quite a default, but a restructuring outside of bankruptcy to avoid full default.

As mentioned at the below link, a mortgage modification is available if your're INELIGIBLE to refinance and is damaging to your credit score (though not as much so as foreclosure).

https://www.knowyouroptions.com/options-to-stay-in-your-home/overview/modify-overview/modification

But it is the same thing. If the terms of a mortgage are changed ("Lowers your mortgage payment by as much as 20% (with an adjustment of your interest rate, loan duration or forbearance of a portion of your unpaid principal balance")) and there is no credit hit (per CARES, not allowed with FnF backed mortgages), how is that different than a refi? I mean, technically you're right, but in actuality what is the difference?

TwoCitiesCapital

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15582 on: May 29, 2020, 02:59:22 PM »

 Ah, I think i see now.

A loan modification is not akin to a refinance. A refinance is a brand new loan to repay off the old loan - no black mark on your credit report.

A mortgage modification is NOT the same thing. A modification is an admission that you cannot pay the existing loan and is a restructuring of sorts. Not quite a default, but a restructuring outside of bankruptcy to avoid full default.

As mentioned at the below link, a mortgage modification is available if your're INELIGIBLE to refinance and is damaging to your credit score (though not as much so as foreclosure).

https://www.knowyouroptions.com/options-to-stay-in-your-home/overview/modify-overview/modification

But it is the same thing. If the terms of a mortgage are changed ("Lowers your mortgage payment by as much as 20% (with an adjustment of your interest rate, loan duration or forbearance of a portion of your unpaid principal balance")) and there is no credit hit (per CARES, not allowed with FnF backed mortgages), how is that different than a refi? I mean, technically you're right, but in actuality what is the difference?

There's no credit hit from a temporary mortgage deferral. There's absolutely a credit hit from a permanent restructuring/mortgage modification.

beaufort

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15583 on: May 30, 2020, 10:11:21 AM »
If FnF are recapped according the the capital rule as currently presented, I don't know if they still need the PSPA backstop.  If they do keep it, the price of the backstop price should be very low.  Let's assume it's negligible because there will be so much capital in front of the Treasury backstop that if it is not extremely cheap, FnF would be best to self insure if possible.   

In addition, if the Temporary Payroll Tax Cut Continuation Act of 2011 ("TPTCA") levy representing 10 basis point is diverted to the GSEs after it expires in 2021, the ROE goes from 8 to 10ish%. 

In 2018, the total average guarantee fee was 65 basis points, including the 2011 ten basis point fee paid directly to Treasury currently but set to end in 2021: 

https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/GFee-Report-2018.pdf.  See page 1 first bullet point and page 9.

Another 5 basis point increase in guarantee fees brings us to 11% ROE and 70 basis points in fees. 

I don't know the level of guarantee fees where FnF become uncompetitive.  Another 5 or 10 basis points doesn't seem like that much, but I don't know. 

With 10 basis points coming from the current TPTCA fee and 10 new basis points charged, we get to approximately 12% ROE with the rule as presented and normalized earnings according to Howard on his blog in the latest post "Now We Know":

"With 4 percent minimum capital, Fannie and Freddie’s normalized earnings (that is, earnings without the recent benefits for credit losses, which are about to end) would produce returns on equity (ROEs) for each of around 8 percent, far below the 12 percent average ROE in the banking industry last year and even further below the ROE of a typical Standard & Poor’s 500 company. Both companies could potentially increase their ROEs by raising guaranty fees, but this would reduce the amount of business they can do in normal times [...]." 

We are 10 basis points away from today's guarantee fees to an approximately 12% ROE normalized as currently presented by FHFA (and with my TPTCA diversion assumption). 

 
« Last Edit: May 30, 2020, 10:54:43 AM by beaufort »

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15584 on: May 30, 2020, 10:57:28 AM »
a sliding scale for the commitment fee based on GSE capital is a good idea Beaufort.  you should submit a comment to fhfa to that effect.

I expect govt will want to keep its 10 bps, but we shall see.

with rates still low, a bump up in g fees will be something I expect GSEs will ask for and fhfa will permit.  calabria is a pain in the ass but no fool.

Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15585 on: June 01, 2020, 07:28:40 AM »
FHFA Announces Public Webinar on Re-Proposed Capital Rule for the Enterprises on June 4 at 2:00pm EDT https://t.co/ajqifPP6sP
"You are life, You are life, in You death has lost its sting.  I'm running to Your arms, I'm running to Your arms.  The riches of Your love will always be enough, nothing compares to Your embrace.  Light of the world, forever reign." Listen: https://www.youtube.com/watch?v=ADuWzd7x25c

investorG

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15586 on: June 01, 2020, 09:35:09 AM »
FHFA Announces Public Webinar on Re-Proposed Capital Rule for the Enterprises on June 4 at 2:00pm EDT https://t.co/ajqifPP6sP

Thanks.

Presentation entitled either 'Tough luck if you're not wealthy' or 'How to discreetly siphon more money to the banks from wage earners'.

Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15587 on: June 02, 2020, 07:04:01 AM »
https://twitter.com/FHFA/status/1267818366426689537
FHFA Publishes Credit Risk Transfer Tool based on Re-Proposed Capital Rule for the Enterprises http://ow.ly/YRJG50zWEoY
"You are life, You are life, in You death has lost its sting.  I'm running to Your arms, I'm running to Your arms.  The riches of Your love will always be enough, nothing compares to Your embrace.  Light of the world, forever reign." Listen: https://www.youtube.com/watch?v=ADuWzd7x25c

investorG

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15588 on: June 02, 2020, 11:41:40 AM »
If Seila law comes out as expected with a forward remedy to make the director removable, it's naive imo to expect a reasonable 4th amendment in a likely lame duck period in late 2020 because there's a good chance the SC will have taken up the Collins apa case from the 5th circuit with a decision possibly already pending.   

An appropriate course of action in that scenario would be to move quickly on a collins settlement.

DRValue

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #15589 on: June 05, 2020, 05:37:56 AM »
While I've given up predicting anything FHFA may do re the capital rule. I can't help but think that there is a possibility that Calabria can lower required capital by saying that the G-Fees would need to be so high to hold that level of capital, that it would hurt home buyers. I'd expect Democrats would accept that but I'm sure they'll find some way of objecting.

$135b with some tweaks to the rule and paid for backstop seems fair. I'd like to know what the terms of payback would be on the backstop but I'm sure that would come out.

Fingers crossed, but not confident.
[E]xpedience does not license omnipotence.

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