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

[cherzeca]

agree with allnatural on Sweeney/lamberth cases

watch for whether there is any capital dollar amount for the new letter agt. last one permitted $3B capital, new one may be open ended or have a capital cap.  totally immaterial imo that the senior pref is added since there has been no 4th A or settlement, so of course the senior pref will increase.  as David Thompson said, that just adds to the relief to be claimed (and amount of senior pref to be cancelled by way of settlement/4th A).  one step at a time

I think junior pref prices are undervaluing developments.  of course there is reason to take position that admin talk is cheap and discount the turning off of the sweep until it actually happens.  but given that SBC has signed off and both calabria and Mnuchin have discussed it as an end of month item, I dont see what would stop it.

[investorG]

agree with allnatural on Sweeney/lamberth cases

watch for whether there is any capital dollar amount for the new letter agt. last one permitted $3B capital, new one may be open ended or have a capital cap.  totally immaterial imo that the senior pref is added since there has been no 4th A or settlement, so of course the senior pref will increase.  as David Thompson said, that just adds to the relief to be claimed (and amount of senior pref to be cancelled by way of settlement/4th A).  one step at a time

I think junior pref prices are undervaluing developments.  of course there is reason to take position that admin talk is cheap and discount the turning off of the sweep until it actually happens.  but given that SBC has signed off and both calabria and Mnuchin have discussed it as an end of month item, I dont see what would stop it.

thanks for the legal answers allnatural and cherzeca.   the list of things that could go wrong from here is unfortunately still long.  that's why the shares are @ 50pct of par, no free $ out there.  every day plenty of smart people wake up and decide its a great day to sell FnF securities.

[cherzeca]

agree with allnatural on Sweeney/lamberth cases

watch for whether there is any capital dollar amount for the new letter agt. last one permitted $3B capital, new one may be open ended or have a capital cap.  totally immaterial imo that the senior pref is added since there has been no 4th A or settlement, so of course the senior pref will increase.  as David Thompson said, that just adds to the relief to be claimed (and amount of senior pref to be cancelled by way of settlement/4th A).  one step at a time

I think junior pref prices are undervaluing developments.  of course there is reason to take position that admin talk is cheap and discount the turning off of the sweep until it actually happens.  but given that SBC has signed off and both calabria and Mnuchin have discussed it as an end of month item, I dont see what would stop it.

thanks for the legal answers allnatural and cherzeca.   the list of things that could go wrong from here is unfortunately still long.  that's why the shares are @ 50pct of par, no free $ out there.  every day plenty of smart people wake up and decide its a great day to sell FnF securities.

dont disagree but I think the big issue is the huge % of institutional investors who have put GSEs in the too hard pile.  at some point there will be clarity and these IIs will look at these GSE cash flows and say ok time to get into the pool.  I am happy for the market to agree with me.....later. would be nice though if later came soon

[Cox022]

Every once in a while someone (snarky maybe) asks: what could go wrong, what is the downside?

I'd love to hear your answers...For argument's sake: if we knew 2 years from now we would be really disappointed, what would you say is the most likely cause?

My top answer, as most likely, is Treasury for whatever reason never gets around to making the big changes to the PSPA and status quo continues. 

This seems more likely to me than the actual recapitalization being disappointing.  Hence, I'm quite bullish but constantly worried if I'm missing something.

[hardincap]

IMO you always need a MOS for unknown unknowns. Say 25%. Add to it 10% discount rate assuming IPO in a year, and another 10% chance of a serious market dislocation. You can easily get to a 40-50% discount to par this way.

[cherzeca]

Every once in a while someone (snarky maybe) asks: what could go wrong, what is the downside?

I'd love to hear your answers...For argument's sake: if we knew 2 years from now we would be really disappointed, what would you say is the most likely cause?

My top answer, as most likely, is Treasury for whatever reason never gets around to making the big changes to the PSPA and status quo continues. 

This seems more likely to me than the actual recapitalization being disappointing.  Hence, I'm quite bullish but constantly worried if I'm missing something.

the most likely snafu is not being able to raise money in capital markets.  lots of possible reasons.  then you are in a very slow cap rebuild through retained earnings. but even then, based upon a leak of a calabria talk to FHFA staff, it seems fhfa will release GSEs from conservatorship pursuant to an agreement covering their operations.  that was very encouraging to hear...if it happens.  I assume that there is a 4th A in connection with any release that nukes the seniors prefs.  there are many other snafus other than cap markets lockdown, such as scotus reversing collins, but I dont think they would be the headline risk.

[SnarkyPuppy]

Alex Pollock - https://www.realclearmarkets.com/articles/2019/09/20/have_fannie_and_freddie_paid_the_taxpayers_back_yet__103920.html

Didn't this same clown write about the 10% moment?

[orthopa]

Every once in a while someone (snarky maybe) asks: what could go wrong, what is the downside?

I'd love to hear your answers...For argument's sake: if we knew 2 years from now we would be really disappointed, what would you say is the most likely cause?

My top answer, as most likely, is Treasury for whatever reason never gets around to making the big changes to the PSPA and status quo continues. 

This seems more likely to me than the actual recapitalization being disappointing.  Hence, I'm quite bullish but constantly worried if I'm missing something.

the most likely snafu is not being able to raise money in capital markets.  lots of possible reasons.  then you are in a very slow cap rebuild through retained earnings. but even then, based upon a leak of a calabria talk to FHFA staff, it seems fhfa will release GSEs from conservatorship pursuant to an agreement covering their operations.  that was very encouraging to hear...if it happens.  I assume that there is a 4th A in connection with any release that nukes the seniors prefs.  there are many other snafus other than cap markets lockdown, such as scotus reversing collins, but I dont think they would be the headline risk.

The day after that happens we should wake up to preferred close to par +/- some arbitrage opportunity I would imagine.

[allnatural]

Lucky for us we don't have to speculate what the periodic committement fee would have been. We found out in the unsealed docs from the Sweeney case and on the eve of the sweep internal government docs showed it would have been $400m annual for Freddie (25bps on the commitment line). So safe to assume around $1b/yr for both companies. Pollack's anti gse bias is very clear.

Source: https://fanniefreddiesecrets.org/freddie-mac-pcf-presentation-redacted/ - page 27

quote author=SnarkyPuppy link=topic=3656.msg382509#msg382509 date=1568938856]
Alex Pollock - https://www.realclearmarkets.com/articles/2019/09/20/have_fannie_and_freddie_paid_the_taxpayers_back_yet__103920.html

Didn't this same clown write about the 10% moment?
[/quote]

[rros]

Lucky for us we don't have to speculate what the periodic committement fee would have been. We found out in the unsealed docs from the Sweeney case and on the eve of the sweep internal government docs showed it would have been $400m annual for Freddie. So safe to assume around $1.2b/yr for both companies, or roughly 50bps on the $250b committement line. Pollack's anti gse bias is very clear.

Alex Pollock - https://www.realclearmarkets.com/articles/2019/09/20/have_fannie_and_freddie_paid_the_taxpayers_back_yet__103920.html

Didn't this same clown write about the 10% moment?

He calculates the fee on total liabilities, not on the funding that is or will be made available. He knows perfectly well what he is doing. Which doesn't make things easier for us. A clever, believable narrative that is complete fiction can be thrown out there and people will buy it. In fact, he just did.

I maybe mistaken and can't exactly remember but I think the Sweeney math for the cf was part of the defense by the plaintiff. So even then, not set in stone (correct me if I am wrong). Still, cf's are not punitive in nature but mean a discrete compensation for opportunity cost.