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That was a good piece. Thank you, Betah.
"...taking away the greed of days past,"
problem with this is that it conflicts with the notion of having shareholders.
Sometimes I ask myself how will the government now in control prevent the excesses of the past. And I fear the answers. If earnings are somehow capped, provided there is a Freddie and Fannie in the future, common stock will not be worth much.
Actually, I think you are right. He wrote like having an agenda.
I don't think the author of IBD understands the details of what is happening. He is just shooting from the hip.
My view only... Nothing drastic like 8/17 has happened. But nothing was said regarding the chances of a redemption/dividends resumption either. So buyers and sellers will meet in the middle.
Given yesterday's hearing I can't see too much downside from here.
In general, there is a change of heart going on at Washington and in the media and GSEs supporters are starting to come out. But that doesn't mean shareholders are out to party. We still are looked down at and the preferred shares are as fickle as ever. Although a door is opening for 'selling a FF stake', 'an IPO of their new platform', 'government getting paid back', 'not throwing 150 bill invested down the toilette' there is still too much talk of winding them down that can push the weak to sell.
Actually, by doing that, *you* are the one deciding and doing *that* thinking :)
“Fannie Mae and Freddie Mac: How Government Housing Policy Failed Homeowners and Taxpayers and Led to the Financial Crisis”
http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=321540
I can't understand why you would let someone influence your decisions so easily. How about doing your own thinking? Better yet, watch today's hearing on Fannie and Freddie. From the 4 panelists, three would support the GSEs in one form or another or defend their role/function. Or at a minimum minimize their role as the culprits of the crisis.
When you have Rosner, co-author of Reckless Endangerment, telling a group of congressmen that 'maybe Fannie and Freddie can survive as completely private entities and that maybe there is a place for them', you really have to wonder.
Try here:
http://mfile3.akamai.com/65722/wmv/sos1467-1.streamos.download.akamai.com/65726/hearing030613.asx
It was posted on #4637
After watching today's hearing I feel my preferreds are going to be just fine. I recommend that everyone who's betting heavily take the time -about 3 hours- to watch the video. I posted the link below. You may be gladly surprise. How times have changed!
I would not know. Even if all goes well an obscure/misunderstood piece of news could spark selling.
The breakout has not started yet. It will happen once the sp breaks through its old intraday high of 1576 on 10/11/07 and triggers even more buying pressure. Eventually, markets will consolidate and retrace but it doesn't look like it will happen for the next few weeks.
I am sorry taint, I don't see the violence. I looked at all trades for fnmas and fmckj on the time and sales sheet and can't see a sell-off pattern. In fact, it looks there has been plenty of buying off the weak hands. Let's see what happens till the end of the day.
If you are trying to play some mean reversion or swing on the verge of breakout of all indexes you are crazy. Don't go long if you don't believe this rally but don't short it either. You should buy those puts on a secondary reaction. Too risky on the verge of a breakout.
#1. Yes.
FF will continue to do exactly what they do now. Except that at a higher cost. They will continue to buy loans but will have to pay for securitization and pay for a guarantee. Both activities now free will become expenses but the guarantee will be explicit. This is just my view of how things are shaping up.
Will they continue to have good earnings? Perhaps, but not as high. They may also retain their advantages over other insurers as they have the expertise to filter the loans they buy finding it easy to acquire needed guarantees keeping open access to mbs investors. Their business model will not change. It will just become more expensive and prone to competition. In this new world, they will be first in line for losses and they could fail. May be off here but I think there is a chance they could still be the elite insurer and the place to go for originators to sell their loans.
#2. Agree. I don't see the bad news. The new asset jointly owned will be extremely valuable and one hopes the government (FHFA, Tsy) will understand how to monetize it. Don't forget We is also "them" via the 79.9%.
I think the news of the sweep had more controversy to it.
Some thought it was bad because it meant no retained earnings, no recapitalization. While others thought repaying taxpayers faster was a good thing.
This announcement is setting a direction and leaving the doors open for an ipo. Why would the government keep the platform? Their involvement is in regards to full back stop guarantees only. The rest is private market.
Off the top of my head -if I remember correctly- prospectus' stated that upon sale of assets the Jrs. will still have a claim lower in the chain to any security above. If so, Jrs. will get any excess after repaying senior obligations.
I actually think this is very good. With the new system, risk could be priced correctly, specific loans could be explicitly guaranteed and private funds may return quicker than with the current system. The new operation will be extremely valuable and owned by FF. The focus will shift away from the GSEs and they will stop being the punching bag by the media.
It will also make it easier to release them from c-ship. If there is a chance to ipo the platform to a cooperative/consortium of banks we would have come full circle with the 3rd proposal of the original Tsy paper by Geithner. Note this is just a securitization platform, not the guaranteeing. That may be a layer above run by a government agency selling guarantees for a fee. So the cooperative will be another anchor wall prior to the full back stop by the guarantor.
FF will remain, albeit different and smaller, and the Jrs will remain intact. FF will also have enough funds to repay taxpayers, perhaps redeem the seniors. What will be the fate of the warrants within this picture? No idea. After all is said and done, will they have enough earnings to pay dividends on preferreds? No idea either.
Fourcents,
do you think this is a precursor to the "public guarantor" from the bipartisan panel or the guarantor might be an additional layer on top of DeMarco's securitization platform?
Also, do you see this moving into Millstein's direction in that FF may first lose their securitization ability, then their pseudo-explicit guarantee function and finally their charter and simply become private mortgage insurers securitizing via the NewCo and guaranteeing from a 3rd institution? At this point, DeMarco may let FF out of conservatorship as completley different -and smaller- companies.
I don't think he had in mind a merger. In an article from Nov. 2012 he explained his plan entailed stripping the charter away from the GSEs, have a 3rd entity explicitly guaranteeing low figure mortgages and letting Fannie and Freddie operate as regular pmi buying re-insurance from the new agency after having been sold to the public.
She doesn't blame Fannie and Freddie for the debacle:
"Second, it explains the mortgage-finance supply glut as resulting from the failure of markets to price risk correctly due to the complexity, opacity, and heterogeneity of the unregulated private-label mortgage-backed securities (PLS) that began to dominate the market in 2004. The rise of PLS exacerbated informational asymmetries between the financial institutions that intermediate mortgage finance and PLS investors. These intermediation agents exploited informational asymmetries to encourage overinvestment in PLS that boosted the financial intermediaries’ volume-based profits and enabled borrowers to bid up housing prices."
/unregulated private label MBS/
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1669401
If I understood correctly your posts you meant operation fortitude meant Dems deceptively aligning with Reps' principles while actually focusing on a continuation of the subsidies for the 30 y mortgage via FF. Therefore, pressing for more wealth redistribution.
All of which explains why Obama never fired DeMarco and why DeMarco keeps blaming Congress for inaction. It was all about gaining time while sweetening Reps' ears with the chant 'they will never get out of C alive, shareholders will never recover, let's not let them rebuild net worth'.
So where does all this put the 20.1% owners of the companies while the political battle is about to be over?
Under your assumptions it's hard to believe that Trea will sell their 79.9 stake to private hands but just the opposite. A territorial gain that should never be let go again. Did I understand your points?
Ok. I made a mistake on figures and dates. Here is the ammendment that explains the sweep:
--------
For each Dividend Period from January 1, 2013 through and including December 31, 2017, the Dividend Amount for a Dividend Period is the amount, if any, by which Freddie Mac’s Net Worth Amount at the end of the immediately preceding fiscal quarter, less the Applicable Capital Reserve Amount, exceeds zero. For each Dividend Period from January 1, 2018, the Dividend Amount for a Dividend Period means the amount, if any, by which the Net Worth Amount at the end of the immediately preceding fiscal quarter exceeds zero. The term Net Worth Amount is defined as (i) the total assets of Freddie Mac (excluding Treasury’s commitment and any unfunded amounts thereof), less (ii) its total liabilities (excluding any obligation in respect of capital stock, including the Senior Preferred Stock Certificate), in each case as reflected on Freddie Mac’s balance sheet prepared in accordance with generally accepted accounting principles. The Applicable Capital Reserve Amount, as defined in the Third Amendment, will be $3 billion for 2013 and will be reduced by $600 million each year until it reaches zero on January 1, 2018. If the calculation of the Dividend Amount for a Dividend Period does not exceed zero, then no Dividend Amount shall accrue or be payable for such Dividend Period.
------
So it appears the net worth should be reduced to zero in 5 years or 20 quarters. Zero on Jan 1, 2018. Next quarter, when they announce next sweep we will know if it is (-600) mill/year or (-150) mill/quarter. That gives us plenty of time to pay taxpayers.
I feel the same.
No reason to pop tomorrow. But no reason to sell either, specially in light of great earnings. Yet the impatient will sell and the MM will take advantage to replenish inventory on the cheap.
The last ammendment to the PSPA contains a clause by which FF are allowed a maximum net worth of 3 billion the first year the ammendment takes place (2013) with a reduction of 1 billion a year, if I remember correctly.
What is not clear from the ammendment is if the 1 billion change takes place "per year" or in quarterly installments. We will know next quarter when they announce the sweep.
In this pr, they announced 5.8 billion sweep for March. Which is the result of present net worth 8.8 billion minus the max allowed 3 billion = 5.8 billion goes to Tsy. If the next quarter's equation has the max. net worth at 2.75 billion then we know that the discount will be 250 million each quarter for the next 12 quarters.
Remember, by Jan 1 2016 -I think- net worth should be zero. So the GSEs have basically 12 quarters to have net investment at zero and pay back taxpayers to let shareholders push their claim. Even when the companies will still owe the Seniors funding just as they may owe the Jrs. Problem is, if net worth is zero, there is really no company left. Even if profitable. It's all about Tsy's magick wand. Now you see something. Now you don't see it anymore.
My understanding only.
Except for g) "by consent".
As I understand it, if there is a bill in Congress calling for receivership then g) will have DeMarco "consenting".
This is where the March 5+ bill div is coming from. It's the excess from their permitted net worth and what they really have at present. So the sweep will increase over time, substantially, as their earnings increases and the permitted net worth gets smaller.
Although this sounds like a horrible idea at first for shareholders, it will accelerate the pace of net investment becoming zero making taxpayers whole.
Once this happens, shareholder's claims will become more valuable. So there is a silver lining. I believe net worth should be zero within 3 years. That gives the companies enough time to pay back taxpayers.
The Fitch note is relevant.
How long before DeMarco states the GSEs are safe and solvent?
Ok... so Pilecki and not Pielicki. Sorry about that.
I wonder what Pielicki has been up to...
I remember one of his blog posts where he wrote that a 3rd or 4th profitable quarter will automatically activate the tax assets -we are there now, or this week- which I think he estimated to be around 40 billion. Too bad his blog is gone.
That ball is in the Tsy's field. Now that Jack Lew is almost a sure thing the details may come sooner than what we think. A guess. Or a hope... I guess.
Don't have all the answers... FF, in the future, may have to pay for the guarantee from the public guarantor like any other insurer. Playing level field. As for legacy insured mortgages may be the insurance will have to become explicit and get paid for. Or the firms will be left with none and just new capital for a new start.
It could also be true that Millstein may -by now- be a legacy himself :)
From the November article...
____________
Back on Wall Street and heading his own investment boutique, Millstein believes “it’s crazy” to keep Fannie and Freddie in conservatorships where they are guaranteeing new mortgages (with Treasury backing) but with only $1 of real net worth. (The two GSEs owe the government about $140 billion.)
His plan calls for winding down their huge mortgage portfolios over a three- to four-year period and allowing the GSEs to retain their earnings and profits to rebuild capital.
Right now those dollars are going to Treasury. Under Congress’ arcane budget rules, those funds don’t count toward deficit reduction.
“In our estimation, the common stock could be sold for an amount that would be more than sufficient to pay back the federal government more than $140 billon,” Millstein told NMN.
Millstein’s idea is to build on a GSE reform option that Geithner is believed to favor.
That option calls for creating a new government agency that provides re-insurance for qualified mortgage-backed securities. once the GSEs are sold to the public, Millstein explained, they would become private mortgage insurers that could purchase re-insurance from this new agency. (So could other private insurers.)
But to make that happen, Congress must pass legislation to create this new agency. Many lawmakers, particularly Republicans, do not want to create another government mortgage agency or consider new loan guarantees.
________________
If you ask me, greed is such a raw, powerful drive. Greed can spread. I would not discount those on the restructuring side just yet.
Oh. And that was "many players" not "much players". Sorry for the typo.
Joe, for all practical purposes I do not think shareholders matter.
This game appears to be played at a much higher level and none of the power-participants are looking down to us. This is just my personal assumption. But I would not be surprised to one day learn there are as much players pushing for and advocating for a Millstein's exit plan, by which a new public entity replaces FF's function of guaranteeing specific low figure loans at 30 years fixed while FF get carefully removed from the picture, kept alive without a charter, and began operating as simple pmi companies in the private arena, as the guys in the opposite spectrum who we all have known for a while. The stakes must be really high given the numbers we know. But those pushing for this solution are not as vocal as the vociferous ones that want to kill FF for political reasons.
I am afraid we -speculators/shareholders/investors- are simply outside observers with a bet. In a way, we are just coattailing. Betting on someone else's vision.
That's because any restructuring plan will come straight from the source. It's a role reserved for the Treasury. Could be on the way.
Same.
I understood they propose a 3rd company with charter and let FF wind down. However, in the article I posted from last November -now inaccessible- there were more details as to what may have been discussed or the input the BPC received. According to the article, Millstein's input was for Congress to create the new entity that would explicitly guarantee mortgages up to $250k or so. As for FF, his idea was to offer it to the public and let Congress collect the potential 140/180 billion that could be fetched and apply this figure to deficit reduction. FF will continue to exist without a charter and would become just another private mortgage insurer that will buy guarantess from the public guarantor. The article also mentioned that Geithner really favored Millstein's plan -a first one for me- and this plan was supposed to be unvelied prior to elections but that the executive decided to hold back post-election.
I cannot find any cache version of the article. It simply disappeared from the "free" internet.
The problem with 8/17 is the front man. Which appears to be the same as the one backing/sponsoring tomorrow's report: Michael Stegman. This, maybe in tomorrow's agenda...
http://www.nationalmortgagenews.com/nmn_features/treasury-blueprint-fannie-freddie-on-hold-1033177-1.html
When the feeling is of a surefire thing I start to get nervous. Reminiscence of 8/17. And now Mikeb and Woond believe that nothing can go wrong. Not one bit.
May Joestocks also be wrong. For everyone's sake.
Wow. Those are weird ones with an underlying AIG security issued by a subsidiary of American General Corp as a back up. They are XFP and XFD. The MKS is even stranger: Structured Asset Trust Unit Repackagings. Repackagings sounds like sausage-making. Maybe there's even some in there.
If AFF is one of them it traded at around $25 pre-crisis, made a low at around $2.50 in 03/09 and went back to the 20's on 10/10. Last session price was $25.41. No r/s.
However, I found information that these securities (AFF and AVF) are not actually preferred stock but "exchange traded dept security". So they are bonds with many of the characteristics of preferred shares. These securities are like debt (junior subordinated debentures) so no comparison to our Jrs.
http://quantumonline.com/search.cfm search for AFF or AVF.
AFF was ahead of the US Treasury shares.
The other preferreds I found stopped trading on 04 and 05. They were called.
Unfortunately, the apparent AIG resemblance does not offer us anything to cling on.
More an more, I think closer to Kissing in that we are at the mercy of Congress. I still remember vividly an interview to an analyst many years ago in which the preferred situation was discussed. Briefly, the analyst's words were:
- a resolution will be measured in "how many" congresses.
- it will end up with Congress throwing "them" a bone.