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Missing from Kathie Buehler's article is the important note that Fannie/Freddie are required by law to list ALL known risks in their 10-q SEC filings. However, the death spiral is NOT listed as a risk in the 10-qs. Hume, the plaintiffs' attorney, specifically pointed this out to the jury. Thus, Hume was able to debunk the government's death spiral argument as a "spin story".
Should I really drop the f-word now - with f = fulcrum?
I honestly hope you'll be right.
Would be nice if the government respected that. Hopes are dim, though.
If you assume (as I do) that the government has acted fraudulently over the past 14 years, SPS shares are not expected to be cancelled "for free."
Already in the Brookings Institution paper (Feb. 2020) co-authored by Mike Calhoun...
https://www.brookings.edu/research/government-sponsored-enterprises-at-the-crossroads/
... there was talk of a government "investment" that could bring in as much as $100 billion on recap/release. Calhoun proposed to use the money for affordable housing.
Getting that extra money out would also be the only incentive for Biden to release the GSEs at all. By "cancel for free" I meant that it is illusory to expect the government to voluntarily give up $100 billion.
The problem is that the development of the last 14 years has not been random. The government wanted to defraud the shareholders. It was malicious intent. Therefore, in my opinion, it is illusory to expect that the courts, which more or less "cooperate" with the government (con game), can or even want to turn things around.
Moreover, in your scenario, CET1 capital is insufficient for a release. Even if the SPS get cancelled (for free), there is a gap of at least $95 billion between the target value for CET1 (at least $185 billion) and the actual value (after SPS cancellation) which can only be closed by a capital raise.
Email from Aug. 17, 2012 from Sharon [?Macale], Don Layton (Freddie CEO), Subject: Tsy announcement, "Don, I want you to see how Tsy was characterizing it [NWS]" copy/paste from Tsy announcement about expediting wind down. DeMarco recalls the "insure every $ sent to Tsy" part
— FnFan (@FnFGateFan) October 22, 2022
Yes.
Dont forget he came from us treasury and it was an inside job
— Fanniegate Hero (@DoNotLose) October 20, 2022
Thanks, Kthomp.
Question for Kthomp19: What is the cutoff date to have purchased JPS or FMCC to receive Lamberth damages? Is it the judgment date or the trial start date?
Mortgage demand falls to the lowest level in 22 years amid rising rates and slowing home sales
https://www.cnbc.com/2022/06/08/mortgage-demand-falls-to-the-lowest-level-in-22-years.html
- The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.40% from 5.33%.
- Applications for a mortgage to purchase a home fell 7% for the week and were 21% lower than the same week one year ago.
- Refinance demand dropped 6% for the week and was down 75% year over year.
Probably half the current volume
I would be afraid of an SPS-to-common-swap happening during the time I hold commons. Even if only 5% of my portfolio would be gone.
Secret Plan. Yes, it sounds crazy. But why haven't Biden and Yellen said a single word about release? I'm sure there are ongoing internal discussions. So there is certainly secrecy to some extent.
Sounds like Sandra Thompson wants to use "special spending" on climate change to further reduce FnF's capital so she can continue the conservatorship forever. No excuse is too woke to achieve the noble goal.
That would make sense in my opinion.
How would this work technically? Senior conversion leads to a dilution by factor 170. Warrants exercise adds another factor of 5. Makes a total factor 850.
This would mean that commons would drop from around 85 cents now to 0.1 cents.
If - afterwards - the JPS are converted at par value of $25, each JPS holder would have to receive 25,000 commons per JPS.
Because 25,000 x 0.1 cents = $25.
Is this a realistic expectation?
There are Fanny and Freddie commons and about 35 different classes of JPS. Should 37 different discussion boards be opened for this? This board here is a kind of collective board for all FnF investors, and it should stay that way.
Have you never heard the song "Sounds Of Silence"?
There is probably no holder of JPS who would not be satisfied with a "call" (payout at par). In this context, it does not matter whether the JPS are equity or not (they are equity, of course).
The pessimism revealed here these days is the antithesis of the boundless optimism before the Scotus decision - when many were dreaming of quick riches. I saw the optimism at that time as a negative contra-indicator, and see the current pessimism as a positive contra-indicator.
Stocks usually go in a direction that most market participants don't expect.
However, the impending SPS-to-common conversion is indeed a cause for concern, and I think there is much less risk owning the JPS.
I would be 100% okay with commons going to $100 or higher on release as long as JPS get par. I just don't think that $100 dream will come true. The problem is HERA. SPS are equity, not bonds or a line of credit. Therefore, the $300 billion that FnF paid to the government is not a loan repayment, but a dividend. Dividend payments do not cause shares to disappear as a result. Scotus has stated that this was legal (although of course it's a fraud on existing shareholders).
Conversion of the SPS to commons brings CET 1 from currently -$178 billion to +$15 billion. This already takes into account the cancellation of the SPS that accompanies the conversion. To release the twins from conservatorship, CET 1 must be at least $178 billion (corresponding to 2.5% capital rule). The missing $163 billion will come from external investors. If, in addition, the JPS are converted to commons, CET 1 will increase by $33 billion, so that only $130 billion have to be raised. The book capital "at hand" of currently $69 billion is not relevant for the release.
It depends on whether the SPS ($193 billion) are converted or the liquidation preference, which is $69 billion higher ($262 billion).
It depends, secondly, on what price is used for the common stock.
At the current share price of about 84 cents for FNMA and 83 cents for FMCC (combined 1.8 billion shares), the combined market cap is about $1.5 billion.
Dilution in the case of an SPS swap is about 99.23% (193 divided by sum of 193 + 1.5).
Dilution in the case of a liquid pref swap is approximately 99.43% (262 divided by sum of 262 + 1.5).