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

[onyx1]

https://www.c-span.org/video/?475865-1/federal-housing-finance-agency-fhfa-director-testifies-mortgages-covid-19

1:34:56

Rep asks Calabria if he plans to make any "adjustments" to his capital framework, or "stay the course"?

Calabria responds that he plans to "stay the course", and offers an argument for the need of buffers.


Question:  Is Calabria talking about the form of the capital framework or the proposed levels of capital?

[WB_fan82]

I listened to the whole hearing at 2x speed.  Wrote this part down in caps.  I think he means both.

4% capital level will remain.  2.5% core and 1.5% buffers.

In other places he discussed CRTs in more open terms.  I think he will very modestly tweak their capital treatment and that's about it.

All of this also points to him finalizing the capital rule quickly, which would then officially trigger the next step:  drafting and submitting capital restoration plans.

[cherzeca]

I listened to some of the HFSC hearing with part attention.  with respect to aded fees (G fees) that the cap rule will cause, I think I heard him to say that no one will have to pay more fees since the rule will be phased in over time.  this is Calabria's way of accommodating the capital markets.  see above discussion I had with Midas as to why phasing in the rule should put less pressure on the early capital raises than otherwise, putting less pressure on any G fee raises than otherwise.

[orthopa]

I don't see how FHFA could pull off a 4thA/release into consent decree before a Biden inauguration given current pace of developments.  in order to do this, I would think FHFA would need the capital restoration plans from the GSEs, so that they could be reviewed by FHFA (and Treasury) as a reasonable basis for deciding to enter into the 4thA/release into consent decree. I don't see how JPM/MS and GSEs can produce capital restoration plans until the capital rule has been finalized.  I don't see Calabria finalizing the capital rule soon.  he has received substantial comments that will need to be digested and responded to (he may have already done this, but I doubt it) and is on a listening tour for next two weeks. Calabria has never worked in private enterprise where a deadline is a deadline and not an opportunity to kick the can down the road further (as it is in govt and at think tanks).  so I think the whole lame duck conservatorship release idea is lame, not because it is politically improper but because I don't see Calabria being efficient enough to do it.

I tend to agree with this.  Calabria has repeatedly stated that releasing the GSEs from conservatorship will be process dependent, not timeline dependent. Reading through the comments for the reproposed Capital Rule there is much discussion about CRTs being strongly disincentivized. According to the US Treasury’s September 2019 Housing Reform Plan, CRTs are to be encouraged. I expect this part of the rule to be rewritten. I also expect many other parts of the rule to be rewritten too.  This will all take time.  Government doesn’t do anything quickly.

My optimism is starting to wain with speed of things. All it took was to remember the captial rule was supposed to be published for comment by the end of 2019 and here we are ~1 year since Calabria made that comment.

[cherzeca]

I listened to parts of Calabria's testimony at HFSC and I get the impression that Calabria knows exactly what the final rule will look like.  I don't expect the % levels to change, I do expect some more credit to be given to CRTs, and I expect the rule's % levels to be phased in over time.  I think Calabria thinks that this phase in will avoid the necessity of raising G fees while still allowing the capital market offerings spread over time to be successful.  the upside to all of this is that I think Calabria could finalize the rule rather quickly if he wants to. 

[Midas79]

My optimism is starting to wain with speed of things. All it took was to remember the captial rule was supposed to be published for comment by the end of 2019 and here we are ~1 year since Calabria made that comment.

Calabria actually did address this in the hearing. He said the rule was supposed to be out in March and was delayed by the pandemic. In a late February interview he said that the rule would be released "in the coming weeks, months" so while he did cover his bases there, it does sound like he was ready to release it earlier.

To be fair, that is still 3 months after the end of 2019, and the delays are certainly frustrating. At this point, you either trust the administration to get things done in the lame duck period or you don't. And if you don't, it probably isn't worth holding. I think the shares will take a moderate to large short-term dip if Biden wins, but will have a similar-sized rally if Trump wins, so I'm just going to hold through the election.

Edit: this doesn't take into account the lopsidedness of Biden and Trump's respective chances of winning, but if there's anything I learned from the 2016 presidential election it's that I have become very hesitant to ever give a major-party presidential candidate a less than 45% chance of winning no matter what the polls say.

[Midas79]

I listened to parts of Calabria's testimony at HFSC and I get the impression that Calabria knows exactly what the final rule will look like.  I don't expect the % levels to change, I do expect some more credit to be given to CRTs, and I expect the rule's % levels to be phased in over time.  I think Calabria thinks that this phase in will avoid the necessity of raising G fees while still allowing the capital market offerings spread over time to be successful.  the upside to all of this is that I think Calabria could finalize the rule rather quickly if he wants to.

I sure hope he is doing this on the advice of, rather than in spite of, advice from the financial advisors. I also hope he is in contact with JPM and MS rather than only listening to HL; no disrespect to HL but this has to be a team effort and JPM/MS's experience and clout are invaluable.

[cherzeca]

I listened to parts of Calabria's testimony at HFSC and I get the impression that Calabria knows exactly what the final rule will look like.  I don't expect the % levels to change, I do expect some more credit to be given to CRTs, and I expect the rule's % levels to be phased in over time.  I think Calabria thinks that this phase in will avoid the necessity of raising G fees while still allowing the capital market offerings spread over time to be successful.  the upside to all of this is that I think Calabria could finalize the rule rather quickly if he wants to.

I sure hope he is doing this on the advice of, rather than in spite of, advice from the financial advisors. I also hope he is in contact with JPM and MS rather than only listening to HL; no disrespect to HL but this has to be a team effort and JPM/MS's experience and clout are invaluable.

HL doesn't practice in the big public capital markets.  they mostly do financial advisory work (with expertise in bankruptcy) and private placements.  so absolutely JPM/MS are the ones to listen to...but I wouldn't be surprised if JPM/MS talks to HL, and then HL talks to Calabria.  no reason to think HL filters anything, but they are there to provide quality control over JPM/MS, so HL is in the position to make sure that JPM/MS advice sounds right before the message gets to Calabria.

[Williams406]

My optimism is starting to wain with speed of things. All it took was to remember the captial rule was supposed to be published for comment by the end of 2019 and here we are ~1 year since Calabria made that comment.
[/quote]

Reading Tim Howard's take on Calabria's comments related to the GSE's poor corporate culture is the latest Huh? moment for me with respect to Calabria. The capital rule levels were another. I've wanted to add to my preferred position many times over the past year, but just can't get confident enough to do so. Having the advisers engaged is a big positive, but I'm much less confident in the principal players than I was during the Otting "all in alignment" days. I think the ball gets over the end line here, but it will have been more of a three-yards-and-a-cloud-of-dust grind than it probably had to be. And we aren't there yet.

[cherzeca]

My optimism is starting to wain with speed of things. All it took was to remember the captial rule was supposed to be published for comment by the end of 2019 and here we are ~1 year since Calabria made that comment.

Reading Tim Howard's take on Calabria's comments related to the GSE's poor corporate culture is the latest Huh? moment for me with respect to Calabria. The capital rule levels were another. I've wanted to add to my preferred position many times over the past year, but just can't get confident enough to do so. Having the advisers engaged is a big positive, but I'm much less confident in the principal players than I was during the Otting "all in alignment" days. I think the ball gets over the end line here, but it will have been more of a three-yards-and-a-cloud-of-dust grind than it probably had to be. And we aren't there yet.
[/quote]

well said.  I am extraordinarily frustrated with Calabria, and his comment re GSE culture was outrageous, considering his predecessor at FHFA was credibly charged with sexual harassment. however, I come back to collins, and I am reasonably confident of Ps chances on both claims.  even if there is some new numbnuts fhfa director appointed by potus Biden (G*d forbid) a collins win is very good for the junior prefs.