Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Thank you 20c. We haven't seen 5*s in a while...
Given Berkshire Hathaway 20% ownership of the Post I would give a lot of credibility to this line:
When the companies announce their first quarter results next week, Wonkblog has learned that the companies are likely to unwind some of
The 50.1% potential future ownership by the Tsy is plausible. However, Ds may not like the fact that if government changes hands the ball will fall in the other court. With Watt they may seek a more permanent control. Plus Watt may try to consolidate the GSEs government role via regulation as opposed to a giant Congress overhaul. Maybe a Dem controlled FHFA acquires even more power to "work" on the entities in a next stage. With regulation, Ds can make sure the 30 year will forever exist.
That said, I believe some changes will almost certainly occur. Perhaps an IPO on their multi-family side of business or DeMarco's divestiture of the securitization component. I think any of these may happen prior to any decision regarding the warrants. And prior to any IPO we might see a change to the PSPA allowing the companies to rebuild capital.
It really makes no sense to move along any sale of assets if the issue of recapitalization hasn't been resolved. My assumption is that by the time talk about IPOing becomes more serious (and Watt himself is considering some) companies will be net zero or within a few quarters of.
My little speculation.
They were meant to provide security on the sr preferred investment
OT: I have run my own forum (travel) for a long time with thousands of members and not one ban. I have kept a copy of the post by NJM and went back to read it after 20c mentioned the personal attack issue and I must say the sentence in question was an eyebrow raiser. Unless these two have been old buddies from the past it is difficult to accept such wording. It was funny, though.
But on a public forum is best to have some restrain. Reading written lines is awfully different than say, an oral exchange where there is also body language. And many times, if not always, what is only being read ends up being translated with a negative slant. Which produces a reaction and a fight ensues. Then, it is virtually impossible to go back to normal as resentment sets in.
Forums are tricky. If not handled carefully members start to leave. In the end, the message board gets hurt. The good posters stop contributing and interest in the board vanishes.
Although I understand what the moderator did -any of the 6 we now have-, it would have been a lot better to just "edit" the message with a note clarifying who edited, when and why. This adds to transparency and everyone learns the rules of the game and noone gets hurt. So the way the corrective measure was applied is what I don't approve of.
Too bad we lost the rest of the content of his message as it added to the discussion.
Pressure to clip Fannie and Freddie’s wings
By Stephen Foley in New York
Are Fannie Mae and Freddie Mac about to get caught up in a whole new area of partisan controversy?
The government-controlled mortgage finance giants are often accused of having distorted the US housing market in the run-up to the crash by enabling the rush towards subprime lending.
Now they have been ramping up their activities in a new area – trading commercial mortgages of the kind that developers take out to build or buy apartment blocks.
Think-tanks are warning that the cheap money they are steering into the market may be driving up the price of developments, creating local distortions and setting the US on the road to another housing crash.
The question of what to do with Fannie and Freddie’s commercial mortgage businesses is about to soar up the political agenda with the imminent publication of internal discussion papers about whether these divisions can be privatised.
But strong forces are lining up to prevent such an outcome, including politicians worried they will be accused of pushing up rents, lenders who love the cheap finance, and investors who are addicted to Fannie and Freddie’s government-guaranteed securities. “There is a government-mortgage complex in the US,” says Edward Pinto, a former chief credit officer at Fannie Mae and now resident fellow at the conservative American Enterprise Institute.
“Congress is looking around and asking what the stakeholders say but of course developers, lenders and people involved in financing all love the government involvement.”
Fannie and Freddie began buying up commercial mortgages on multifamily accommodation three decades ago, but since the crisis they have become something like factories, turning these loans into mortgage-backed securities for sale to private investors. Because the MBS come with a guarantee against default, supported by the federal government, investors have snapped them up, driving up prices and pushing down interest rates.
“Any Fannie or Freddie paper is generally considered to be near-Treasury quality but in this case it is even closer to Treasury paper because the underlying collateral quality is so high,” says Franco Castagliuolo, portfolio manager at Fidelity Investments.
Fannie Mae issues so-called DUS bonds, backed by the cash flows from a single apartment block.
DUS stands for delegated underwriting and servicing, reflecting the fact that Fannie has outsourced the management of the loan to the original lender. Freddie issues securities called “K certificates”, which are backed by pools of multifamily properties from all over the US.
Only some of these Freddie-K bonds come with a government guarantee; others explicitly do not. This hybrid scheme pushes at least some of the risk away from taxpayers and on to private investors.
DUS bond issuance jumped from $26.5bn in 2010 to $37.7bn last year, Freddie-K issuance from $6.4bn to $21.2bn.
Fannie and Freddie both say their programmes only funnel money to conservatively underwritten developments and safe mortgages, and that there would probably be less affordable housing if they were cut. Yet the Federal Housing Finance Agency has ordered them cut their new multifamily businesses by 10 per cent this year and is finalising the publication of white papers prepared by Fannie and Freddie that discuss the practicality of a spin-off.
Even the 10 per cent cut got some push-back on Capitol Hill at a recent Senate hearing.
Democrat Mark Warner said Fannie and Freddie’s multifamily operations were important to the market and asked why anyone would tinker with them given that they had not been a contributor to the latest crisis.
The companies say they provide stability of financing to developers, even through violent economic cycles. Some investors credit Freddie with almost single-handedly reopening the market for commercial MBS, which shut down during the credit crisis.
The unguaranteed Freddie-K bonds reveal a market price for commercial mortgage risk on apartments and help investors price other CMBS deals. Mr Castagliuolo argues that the Freddie-K programme in particular could prove a model for the even bigger question of how to recast the US government’s involvement in the housing market.
After the crash, investors stopped buying single-family residential mortgages unless they had a Fannie or Freddie guarantee, yet the FHFA is working to get more private capital into the market so it can wind down the two companies.
Because Freddie-K deals have both guaranteed and unguaranteed portions, Mr Castagliuolo says: “The group is a potential model for reform. In Freddie-K deals they are selling off some of the credit risk in this space, which helps you find a market clearing price for the risk of a loan. A lot of energy is currently going into finding a similar design for the residential space.”
Mr Pinto and the AEI are lobbying for an end to the government guarantee, saying the multifamily market operated perfectly well without one before Fannie and Freddie became involved in the 1980s. “The trouble with these national programmes is that they mask the correcting effect that market forces could have – for example, if there is overbuilding going on in one location,” he says.
“Investors care about the government guarantee and don’t care about anything going on beyond that. That lets pressure build up, drives up prices and then, instead of a series of small local corrections, you get a large national correction.”
Anybody read the latest ft article on Fannie and Freddie? It requires (free) membership. I will post it here if some can't access it.
A few issues I wasn't aware of.
May be you are right... Could be where there losses will originate if there is a broad ppal reduction program applied and that is why the Tsy enticed them with *reimbursements*.
Weren't the mortgages bought, securitized and then sold to investors? If so, aren't the mortgages now collateral to the securities? So less collateral and less income stream from a lowered principal. Investors take the hit.
Mel Watt at work...
What he couldn't do from the House seat he may try from the armchair at the FHFA's office. In the unlikely event he gets confirmed.
http://democrats.financialservices.house.gov/press110/press052307.shtml (died in the Senate).
Full text
http://www.gpo.gov/fdsys/pkg/BILLS-110hr1427rfs/pdf/BILLS-110hr1427rfs.pdf
Brief commentary
http://democrats.financialservices.house.gov/press110/press052307.shtml
Another possible source of income for Fannie via lawsuit?
http://www.ritholtz.com/blog/2013/04/suntrust-shortcut/
And there's a piece by Bill Maloni too.
http://malonigse.blogspot.com/2013/04/w.html
I am not a fan of zerohedge but today they wrote a few lines on the nomination...
http://www.zerohedge.com/category/tags/mel-watt
20c, do you think consensus is quietly building to allow the GSEs to rebuild their capital down the road?
Have you watched the latest hearing with Millstein, Hughes, Katopis and Kling?
Glad to see you are back posting and hope your recovery continues steady.
Problem with earnings is that they can't be retained!
I would not be surprised to see a change of heart regarding the full sweep the closer the companies get to net zero investment. Allowing for rebuilding capital will greatly affect share prices. It takes time to turn the Titanic.
Millstein on yesterday's hearing...
"In the interest of full disclosure my firm owns certain of the Jr. preferred securities issued by Fannie and Freddie. These securities are only entitled to a recovery if the government is repaid in full on its investments. The merits of my proposal for ending the conservatorship, however, does not rise on whether those securities are entitled to a recovery. The primary objective of the proposal is..."
"We want Fannie and Freddie to become a private guarantor to re-insure..."
Posting and participating here has become quite uncomfortable. If you all old-timers want to try a private fora with no interference I can share the url privately and so on. If it doesn't work, it doesn't. But it is one more option. Invitation only. No agenda.
Quieter here...
another sign that the administration still sees FnF as the gov't piggy bank.
Ok. Was thinking on some of his 08' papers. Looks like he has changed his mind on that and I had forgotten about that quote. Thanks.
Who says Zandi is for an explicit guarantee? Where did you get that from? Four years ago his stance was the opposite. And who can tell how Zandi views shareholders? It is not clear from his papers.
Zandi can move forward with an IPO. Maybe there's your team right there: Zandi, Lew, Millstein. The latter already involved in Maxine Waters' panel. Zandi's past proposals are inline with co-ops schemes, Millstein proposals and HR 1859. One would hope that there is no brief receivership called on before any restructuring and that Zandi is already loaded with Jrs.
Moody's Zandi: Replace Fannie, Freddie With Public-Private Hybrid.
Some old articles that reveal Zandi's thinking...
http://online.wsj.com/article/SB10001424052748704422204576130912600571064.html?mod=WSJ_WSJ_US_News_5
http://seekingalpha.com/article/251929-mark-zandi-s-new-gses-would-look-a-lot-like-the-old-gses?source=feed
Donotunderstand, all good posts!
Yes, foolish indeed. But not impossible under certain circumstances. As for your other posts your back-of-the-envelope numbers look decent and correct and such a deal would probably make every party happy: commoners, Jrs., taxpayers. Including any potential buyer of the IPO who will not have to worry -in the new FNMA- about dividend's drain to the old Jrs. Makes good HYPO sense to the point that hurrying up a potential IPO prior to deciding on dividends restoration might be more realistic. We should be hearing more from Millstein then :)
I think it is a forgone conclusion that as little as one dollar in profits can not be paid as dividends to the juniors until the taxpayers have been paid back in full.
I do not believe they can pay dividends as 20c has described.
Dividends are a distribution of funds that happens, my understanding only, after those funds that were originated from earnings have been allocated to retained earnings. So any payment of dividends reduces necessarily retained earnings. Since the PSPA has established fixed amounts for the GSEs' net worth there is an accounting impossibility. This is why I think a modification to the PSPA is needed. Sure they may have enough cash to pay dividends but I don't think ordinary dividends are really cash outlays but earnings being distributed. A cash distribution will be more akin to a capital distribution.
Do I think this can happen? Not now. If an amendment like this were to occur it will require -my view- months of preparation. And the reasons for such amendment should not be related specifically to reward Jrs. by reinstating their dividends. This should be the unintended consequence of another objective. Like DeMarco -he has the authority by the PSPA- stating that it is in the GSEs best interest for recapitalization purposes to rebuild their net worth and allow them to keep some of their profits. Which will automatically trigger dividend payments.
The caveat is the political risk always present that could mess any amendments in a way that nothing reaches the Jrs.
Joe, if you need to be spoon-fed I'll go ahead.
Shareholders own 20.1% of the company. How about an amendment that allows Fannie and Freddie to retain 20.1% of the profits? Would that be enough to pay all of the dividends and perhaps keep some as retained earnings and rebuild net worth? Tell me where my math is wrong.
Oh, yes. This requires a PSPA amendment stating that the sweep will no longer be 100% of the profits but only 79.9%. Which in turn requires some profuse, year-long propaganda and brainwashing to influence the media and the public prior to any change.
I am not saying this is what will happen. These shares could be worth zero as far as we know. Or not, depending on how politics plays out. Time... Let's give it time, Joe.
OT:
the building doesn't have their windstorm insurance up to speed
I think what twentycents is trying to say -and 5 stars to that post- is that it is bizarre to try to entice new investors for recapitalization purposes when there is factual evidence of having messed with the old ones. In other words, "do the right thing".
DeMarco could also claim anytime that it is in the GSEs best interest -for recap goals, if it comes to that- to do exactly that: restore dividends.
And for that an amendment to the PSPA letting the companies rebuild their capital (perhaps no more total sweep) is needed.
Two things are now needed:
- amendment to the PSPA
- relisting of shares.
20c sorry if I put words on your mouth.
I think CEO Mayopoulos will be on Bloomberg TV this afternoon.
We need two more things to really take it easy...
1. If they want to keep FF alive till 2023 to collect the dividends the 2018 zero networth clause has to go. May we start hearing talk about a modification to the PSPA? Perhaps Tsy can throw a bone to shareholders in there too by letting FF retain part of their earnings.
2. Relisting. At some point we will need to be relisted.
in that this is semi 11 court
Thank you for the link. Good read.
Treasury owns 80% of the two companies through the senior preferred stock
Good point. This is our blind spot and potential source for another 8/17... coming tomorrow yikes!
Meant "main", sorry.
Here is my may point:
if Jrs. are portrayed as a "get rich quick" opportunity Congressmen are going to react to that.
I am sorry to disagree. Their interests are never aligned with retail. And here, we are all retail. Even if you are holding hundreds of thousands of preferreds. Still retail. I am positive on the Jrs. but I do not like hedge funds. And them coming out so forcefully worries me. Bass may not speak against the Jrs. totally only for respect to some of his peers.
Gotta love it!
None of the recent media exposure is going to be really helpful.
What we need is media advocating issues such as historical ways the government has dealt with conundrums like this in the past and a lot more talk about Government VS Private issues. A "back to basics" of well-understood capitalism. We need to be reading more about principles and rights. And the morality of it all. As opposed to speculation by hedge funds, possible conflicts of interests by former gov. officials and defying sentences against Congress and Treasury.
I still have to read one piece -aside from 4cents thoughts and editorials- that would intelligently explain why nuking shareholders and disregarding the rights of preferred shareholders is good business. Specially when old shareholders still own 20.1% of the company.
The problem with this is the "Bass" effect.
I remember when he was pumping the shares in Vegas while unloading to the unaware. Following this script today is big unloading day. Three months from now the "basses" will come out explaining why the Jrs. have no value.