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I thought the budget specifically called for 4.7B for fannie
What do you guys use for level 2 and how much do you pay?
Mnuchn is too cryptic on his message. Out of govt control could mean a multitude of things. The biggest takeaways for me from the last month:
- Corker acknowledged shareholders when talking to mnuchin, means someone has been pressuring him to take us into account
- the govt is counting on income from FnF one way or another for the next ten years, so theyre not going anywhere
- draw is smaller than expected by a billion dollars. This one is particularly curious because you’d have thought that mnuchin would have had accurate numbers to report for the budget
Added a couple thou at 1.75, but will sell it as soon as there is a 10% pop.
I find it extremely unlikely that we’d go to zero, but as someone mentioned, some admin action could leave us with a post released pps of $1.xx, instead of the $ 10+ most people here were hoping for if not expecting.
It takes a good stomach to hold on to the twins’ common, but I do think there’ll be a resolution this year, for better or worse. I just wish we’d know right now because the uncertainty is what bothers me.
You can buy FNMA on the cheap.
And have a very nice valentine's day next year. Or in 10 years.
I don’t think FNF are going to go into receivership, but I do think the upside potential has decreased significantly.
The liquidation preference is not the same as the value Treasury puts on their ownership stake in the GSE's, else the number would be 190B+ instead of 95B.
I'm not sure why there was such a decrease in valuation if they expect the g fee revenue to increase.
There are some details on how they calculate the worth based on a 2015 report (I couldn't find one for this year):
https://www.fiscal.treasury.gov/fsreports/rpt/finrep/finrep15/note_finstmts/fr_notes_fin_stmts_note8.htm
At any rate, the only news I see here in the budget is that they are expecting to increase the g fee to allow banks to compete with FnF. So open the market to competition and keep FnF profits for the next 10 years.
Hmmm...
Increase and Extend Guarantee Fee:
Justification
Under current law, Fannie Mae and Freddie Mac (Government Sponsored Enterprises or GSEs) impose
a 0.10 percentage point fee above and beyond their normal guarantee fees that is collected and remitted to
the U.S. Treasury for deficit reduction pursuant to the Temporary Payroll Tax Cut Continuation Act of 2011
(TPTCCA). This existing TPTCCA fee is currently in effect through 2021 and generates approximately $38
billion in deficit savings over the 10-year Budget window. This proposal would help to level the playing
field for private lenders seeking to compete with the GSEs.
https://www.gpo.gov/fdsys/pkg/BUDGET-2019-MSV/pdf/BUDGET-2019-MSV.pdf
I don't know how they estimate the value, it changes every year, it's back to the FY2016 level. The preferred stock would at least go down by the 5.1B expected draw from Treasury.
There seems to be a change in the budget, they're now expecting g-fee income explicitly, and it starts with 200M next year. There wasn't this category in last year's budget.
FY19 Budget:
https://www.gpo.gov/fdsys/pkg/BUDGET-2019-BUD/pdf/BUDGET-2019-BUD-24.pdf
FY18 Budget:
https://www.gpo.gov/fdsys/pkg/BUDGET-2018-BUD/pdf/BUDGET-2018-BUD-4.pdf
So FnF are goin nowhere, but they gotta turn in anywhere from 200M to 4B a year of profit to Treasury?
The fact that the first few years is a ramp up makes me think this would be the recapitalization period. I want to take this as good news, but I’m just cautiously optimistic
Budget deal done, Congress can now focus on hou...immigration?
Does anyone have access to the article from american banker that can post its text here?
https://www.americanbanker.com/news/how-fhfa-could-reform-housing-finance-if-congress-doesnt
That article is slightly biased, they only mention one 15.9B payment!
Anyways, what's important for us is that this would be good news for us if he becomes FHFA director.
From Mnuchin's testimony though, I almost get the feeling that he doesn't want to deal with a new director. Maybe he already has a deal struck with Watt, maybe he doesn't like Mulvaney, but the way he answered JH's questions without offering a different viewpoint on what a new director would do, seemed strange to me.
You can see it that way if you want, but then any reform that leads to them eventually being released can be seen as r&r, even if after the release there is no profitable business. That is wht most people make the distinction between r&r and other plans like moelis. Moelis plan itself distinguishes from r&r within the report outlining differences between the two plans.
Recap and release: allow the companies to retain capital, and release them without changing their business model. If we were to win court cases that make the NWS illegal, this is where we'd end up.
Moelis plan talks about an explicit guarantee fee, which lowers the profit made by the GSEs, and exercising warrants which lower common pps.
Recap and release would have been a huge windfall for all shareholders, Moelis is a big windfall for preferred in the short term, and a good one for commons in the medium term.
so you're investing in this stock without knowing the impact Moelis would have?
Here's the plan:
http://gsesafetyandsoundness.com/wp-content/uploads/2017/06/Safety-and-Soundness-Blueprint.pdf
It means warrants exercised, and preferred get converted to common on a ratio to make them whole to their par value. If Treasury makes 75B from the warrants, pps would be around 10$ on 2020.
If Treasury gives some of the business to GS, however, that's another story. Say other guarantors are given 30% of FnF's business, you'd expect the pps to drop at least that much.
I sold some common I had picked up below 2$ and buying preferreds. FNMFN to be specific.
I'm still going to be long on both common and preferred, but just playing the volatility
Part of it yes. Big enough so that it'll be profitable for GS, and so that he'll take a cut. But not bigger than what FnF will be in the future. I don't think GS can compete with the infrastructure FnF have in place...unless Mnuchin has been buying them time to build one...
There won't be a recap and release by trumps admin. Mnuchin has been very careful not saying what he plans to do with the GSE's, but he's been clear that he never meant to do a recap and release on camera. They would have done it by now if that was his intent.
It seems things are gearing towards a Moelis like reform.
I think a key part of corkers statements was that he acknowledge shareholders of FnF. That acknowledgement seems to come from conversations with mnuchin.
So Jerry Moran previously voted in favor of Crapo's bill. Does anyone know where Doug Jones stands with respect to the GSE's?
I made a bet (added to my position) at 2.57, and may make another bet at 2.30-2.33. Im not sure when it will end, but if it continues like this for another 11 days, all my lots will be red.
Still a long.
That's a big IF. Even with dilution though, this stock is worth much more than its current price.
Went thru 2.50 resistance level, I almost bought more there.
It doesn't make sense that the companies would go through receivership when last year the GOP published a resolution stating that the GSE's would be recapitalized and recognizing that the govt could profit an additional 100B from the warrants (https://prod-cdn-static.gop.com/media/documents/Resolution+on+Protecting+Taxpayers+by+Restoring+Safety+and+Soundness+to+Government-Sponsored++Enterprises.pdf)
Yes, dilution is very likely, but it has been since the gov't issued the warrants. I'd be surprised if an investor like Ackman didn't see this as a likely scenario.
Can't say this doesn't hurt. I was expecting the stock to bounce back.
Anyone else add to their position thinking 2.62 would be the bottom?
...Or, he will have spent his political capital by the time housing reform comes along.
Tax reform has been expected to be done by Q4 2017/Q2018, whereas housing reform could wait until corker is gone.
Sounds like that and that they´re trying to disallow anyone else besides Congress to make changes to the GSEs. Why would the executive sign this though?
sure, I just bought the FNMA yesterday...
It´s awfully quiet for such a big impact coming so soon (tax implications and gse jumpstart ending).
But think as you wish
All this silence...something must be brewing...
you must be new.
2.89 - 2.90 has been a big level of support/resistance over the last few days, and at this band overall.
Looks like $ 2.90 is the new bottom, bears and shorts can't push it back down
The way that is written (or was spoken) leaves room for a lot possibilities. What they're saying could mean re-structure FnF with an explicit guarantee from the government where they have to build a reserve for the first loss position for catastrophic scenarios (ie over 35% of home value depreciated), and pay a portion of their g fees to the government. This would still have FnF as profitable companies--albeit not as profitable as they are now.
An explicit, paid for guarantee seems to be the price to pay for FnF doing away with conservatorship. The sooner it's done, the sooner profits go towards shareholders.
I believe that accumulated deficit includes the terrible losses suffered during the crisis and the dividends paid to treasury before the NWS started, that's why it's so high.
There are scenarios that prevent the draw. The Senate tax bill doesn't phase the corporate tax reduction until 2019, which would mean FnF could pre-allocate 2018 earnings to expected losses and so cover the DTA losses with their regular income. This would be favored by a switch to a yearly NWS instead of a quarterly one.
Or, FnF are allowed to retain capital as part of the next NWS, and the tax bill doesn't pass until early next year. Then, the GSE's could use 2 quarters worth of earnings and a lower tax bill to cover for the DTA writedowns.
Everything is still speculation at this point, but time will definitely tell.
I think that if tax reform passes and the MID is phased out, it will not lower home ownership, bur rather lower home prices to offset the deduction going away. People have a certain amount of dollars to pay for a mortgage every year, if part of that amount goes away, demand goes down, and so prices go down; overall affordability shouldn't be hurt. Maybe at first there's a bit of a shock on a bubbly housing market, but I don't see prices going down as a bad thing. They're artificially high right now.
What's the source on this number? I knew it was a very sizable number, but, if true, this is ridiculous. Wouldn't that exacerbate their 'printing' money out thin air?
'Printing' because they just enter a credit to whatever entity is selling them, instead of actual money printing.
What 200 billion?
I'm a bit worried about the tax reform impact on the DTA's as well, but a few things to consider:
- The GSE's would be even more profitable with a lower tax rate: about $600M+/quarter or $2.4B+/year extra income if the tax reform passes
- The GSE's have slightly wound down their DTA's (Fannie went from 33.5 to 30.4 billion) YOY through the 3rd quarter
- Originally, BMO estimated that the GSE's would need to draw 17 B from Treasury to cover for the write downs based on last years holdings. Assuming a 10%+ decrease of DTA holdings, this means roughly a 15 B draw from Treasury would be needed
- This represents roughly 2 quarters worth of earnings from the GSE's, not the initial dire scenario of a full year loss for the GSE's
If the NWS is stopped this quarter, by the time the GSE's have to account for DTA's losses (first 2018 quarter), it may be a minuscule draw, or a zero profit quarter.
That's if tax reform passes. With the optics of lowering corporate tax rate not being the most positive, it is possible and likely the final bill will have a lower corporate tax rate than right now, but higher than 20%--lessening the impacts on DTA write downs.
- unHombreAlado
Any links to todays hearing?
Update:nvm i thought it was today but its on 11/2