Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 3708030 times)

allnatural

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14260 on: November 16, 2019, 12:47:12 PM »
A simple workaround is to simply announce what the commitment fee would be, but not activate it until all conditions of exiting conservatorship are met so no fee is required in interim. Also rosners point is you can't direct the GSEs to come up with a capital restoration plan without knowing the status of spspa so this needs to be addressed sooner rather than later.


emily

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14261 on: November 16, 2019, 01:15:14 PM »
Are both GSE’s buying their own shares: defeasance to minimize dilution and increase warrants value for the government?

allnatural

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onyx1

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14263 on: November 18, 2019, 05:16:11 AM »
I recognize I’m leap frogging ahead, but assuming we face a future decision to convert Jrs to common, nothing will cut my interest in owning a converted-to-common position faster than a threat of the NWS monster returning during the next housing downturn. 

I expect investors in a future public offering will also demand protection from government overreach, and I don’t think verbal assurances like “sorry, won’t happen again” from the FHFA will cut it.

Calabria expects the lawsuits will “go away” with a new PSPA amendment/Sr. liquidation write down.  If Rosner is right on timing, the lawsuits will be “moot” sometime in Q1 2020.

Without a definitive legal decision declaring the illegality of the NWS, where and in what form will shareholders get comfort?  An act of Congress clarifying the HERA language?  If part of a settlement agreement with plaintiffs, will it be enforceable?

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14264 on: November 18, 2019, 08:48:39 AM »
I recognize I’m leap frogging ahead, but assuming we face a future decision to convert Jrs to common, nothing will cut my interest in owning a converted-to-common position faster than a threat of the NWS monster returning during the next housing downturn. 

I expect investors in a future public offering will also demand protection from government overreach, and I don’t think verbal assurances like “sorry, won’t happen again” from the FHFA will cut it.

Calabria expects the lawsuits will “go away” with a new PSPA amendment/Sr. liquidation write down.  If Rosner is right on timing, the lawsuits will be “moot” sometime in Q1 2020.

Without a definitive legal decision declaring the illegality of the NWS, where and in what form will shareholders get comfort?  An act of Congress clarifying the HERA language?  If part of a settlement agreement with plaintiffs, will it be enforceable?

one more consideration:  the NWS was a creature of the HERA conservatorship. once the GSEs go from "in conservatorship" to "consent decree" phase, the conservator no longer has the power to try another NWS (never had the power to do it in first place as collins points out).  that is why this "consent decree" phase that fhfha has recently confirmed is so important...to answer the very question of new investors that you just articulated

onyx1

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14265 on: November 18, 2019, 09:44:13 AM »
I recognize I’m leap frogging ahead, but assuming we face a future decision to convert Jrs to common, nothing will cut my interest in owning a converted-to-common position faster than a threat of the NWS monster returning during the next housing downturn. 

I expect investors in a future public offering will also demand protection from government overreach, and I don’t think verbal assurances like “sorry, won’t happen again” from the FHFA will cut it.

Calabria expects the lawsuits will “go away” with a new PSPA amendment/Sr. liquidation write down.  If Rosner is right on timing, the lawsuits will be “moot” sometime in Q1 2020.

Without a definitive legal decision declaring the illegality of the NWS, where and in what form will shareholders get comfort?  An act of Congress clarifying the HERA language?  If part of a settlement agreement with plaintiffs, will it be enforceable?

one more consideration:  the NWS was a creature of the HERA conservatorship. once the GSEs go from "in conservatorship" to "consent decree" phase, the conservator no longer has the power to try another NWS (never had the power to do it in first place as collins points out).  that is why this "consent decree" phase that fhfha has recently confirmed is so important...to answer the very question of new investors that you just articulated


That's a reasonable argument, and I believe it will satisfy investors for the near future and hopefully through the public offering.

But once free of the consent decree shareholders don't have any protection against a scenario down the road where:  (1) housing downturn, leads to (2) fear of losses, triggers (3) over reserving "to be safe", and panicked regulators (4) impose another conservatorship & money grab to "protect the taxpayers" and the new government backstop.

Yes, this is a hypothetical scenario.

But the government operators have a terrible track record in their treatment of shareholders.  The NWS was bad enough, but add the egregious sale of Jr. preferred in the summer of 2009.  Regulators gave investors assurances that the GSEs were "adequately capitalized" only to throw them in conservatorship a few weeks later. 

With the risk of government abuse, it's hard for me to put the common into the category of a long-term holding.

I am hoping for comfort, and recognize maybe it's a pipe dream.
« Last Edit: November 18, 2019, 11:20:05 AM by onyx1 »

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14266 on: November 18, 2019, 09:51:23 AM »
@onyx

I just dont think that is a material risk once GSEs come out of conservatorship. recall that the GSEs had only about .5% capital as SOP before GFC.  and they handled that thin capitalization quiet well for a long time.  now they will have substantially more capital.  I see the business model as becoming much more stable, for a business that was already very stable.  the mortgages that propelled the GFC are no longer being made, and while high DTA loans are being made, that would appear to be easily handled with higher capital level and capable underwriting (which the GSEs are very good at).  assuming that there is an exchange of junior preferred for common, then everybody will need to have a fresh look at the landscape, and make their decisions at that time imo. 

SnarkyPuppy

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14267 on: November 18, 2019, 10:20:18 AM »
Onyx- interesting points but I think cherz is on the money.  They will have significantly more capital and will also potentially have an explicit line of credit standing behind it.

In my informal notes I have the following:
- combined f&f cash losses during financial crisis = $64bn.  Could add $18bn on top for DTAs currently on the books as of 9/30/2019
- 2019 2-year stress testing results = $43bn

Minimum Capital will almost definitely be $104-$140bn, and minimum+risk based will likely be $160-$220bn. 

onyx1

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14268 on: November 18, 2019, 11:34:29 AM »
@cherz
@snark

Thanks for the thoughtful replies.

It appears this is playing out to be an investment in a higher quality guarantor with substantially more capital than history has shown was ever needed, but with some legally unresolved government overreach risk that may affect share valuation.  Especially in times of housing stress.

Best,

Onyx

Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #14269 on: November 19, 2019, 09:27:38 AM »
https://twitter.com/ACGAnalytics/status/1196838750053183490

Judge Sweeney questions government on @USTreasury loan that could never be paid back. Uses phrase "death grip." #GSEs #housingfinance #Fairholme
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