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Trump has sufficient cause to terminate Watt on January 21st. Opinions, otherwise, are just mentally defective invective.
When Trump ends the conservatorship, shares will hit $20 with the news. Then, even if all the court cases are all dismissed, the flight for shareholders takes off and the shorts enter the cramatorium.
Rood's comments on CNBC were compelling as the head of Trump's transition team.
JMHO.
I do not disagree with what obiterdictum said. His view of the law is excellent. My spin is that there is sufficient cause for dismissal after 8 years of FHFA failing to implement DTA requirements imposed by HERA in 2008.
I do not believe Watt would object to leaving his appointed term early at the request of President Trump after his inauguration. All executive branch appointees serve at the pleasure of the President.
For the record,I actually think Melvin Watt did a good job as FHFA Director. It is just time for a change.
JMHO.
Great question. Forget the crap you have heard about how he can't be let go without justification. Trump can fire him as soon as he is inaugurated with cause. Watt knows it. That us why I really think he will release and then resign before January 20th.
HERA, when enacted in 2008, imposed a mandate called Duty To Serve on FHFA that required both GSEs to fulfill the mission of supporting three key areas in the housing market:
1. Manufactured housing.
2. Affordable housing for low and low-to-middle income borrowers.
3. Rural, under-served housing markets.
Since 2008, NOTHING concrete has happened to meet this objective as specified by HERA. Under Watt's regime which commenced in 2014, FHFA is still doinking around with "rules" hearings and public meetings scheduled for 2017 to consider options and public views. Or, in other words, 8 years later NOTHING has been done by FHFA to fulfill its proscribed mission as dictated by Congress when it passed the Housing and Economic Recovery Act.
Here is just one link from yesterday's news wire on Watt's failure to adhere to the legal parameters established under HERA and as passed by Congress and signed into law by President George W. Bush regarding Duty to Serve:
http://www.nationalmortgagenews.com/news/compliance-regulation/cheat-sheet-how-fnma-will-require-gses-to-serve-poorer-communities-1092828-1.html
Trump is an experienced businessman who knows how to dispose of employment problems. He will give Watt a package and Watt will accept it and retire comfortably. Then Trump will do what he wants. Release the GSEs and let Treasury handle the clean-up op after confirmation.
This is going to go quickly.
JMHO.
Your question was fair and actually less snarky than most, today. I was critical of common shares for a long time, so I understand some confusion over my change in position.
I follow an old adage in investing... "never fall in love with what you bought." In my case, I never fell out of love with FNMAS preferred shares, just decided to add FnF commons when conditions changed to favorable for commons after the election
I offer no mea culpa for being wrong in my earlier position. It was what made sense to me for the last 1 year+. And still does. But when the results rolled in on November 8th, the landscape changed, then changed again BIG TIME with the Mnuchin interviews on CNBC & Fox. And so I changed with the altered state of affairs. To me, that's being smart, not disloyal. I invest to make money, like everyone else.
What has changed with common shares is the inescapable FACT that the conservatorships are going to end. VERY SOON. And no court verdict will be needed to propel this outcome that will send FNMA & FMCC common shares to easily the $20/share area in either January or February. Then everyone can figure out whether to stay or exit, at that point. I haven't decided, but I am leaning in the "stay" direction at this time.
Mel Watt will either quit before inauguration day, or Trump will fire him shortly after taking office. It's all laid out for him on a silver platter. Trust me. I am very thoroughly researched on Fannie.
JMHO.
I actually thought this article was excellently written and validated what I exposed earlier in the day about the content of protected documents. I think Trump is going to want to settle this mess and get on with more important battles.
My latest prediction to track: the GSE conservatorships will be ended before the Super Bowl that is scheduled for Sunday, February 5, 2017.
Trump can fire Watt on January 21, 2017. That is, if has has not stepped down of his own volition prior to that date. Conservatorship can end on that date and then the task falls on Treasury and Mnuchin to deal with the rest. Could take a few additional days or weeks to occur, but Trump does not have to await Mnuchin's confirmation to get the process underway.
This will be the first giant step in restoring the GSEs to private ownership and begin the process of restoring healthier share price valuations for everyone, including the government's warrant position if it decides to pursue a Maiden Lane style sale and recovery.
JMHO.
Desperate shorts with margin calls start to talk gibberish with no reality or facts to challenge disciplined shareholders in Fannie Mae, be it common or preferred shares. I stated in early November that shorting Fannie Mae was a suicidal investment strategy.
I remain equally convinced of that, today. You can day trade a short for quickie gains, but to sustain a short position now is a fool's errand.
JMHO.
Disclosure: long FNMA, FMCC & FNMAS
I only chose to reveal the PPT angle because it could explain why the incoming team, especially Mnuchin who bleeds Goldman-Sachs blood would want to avoid documents being released that could tie back to Hank Paulson, GS, and possibly how QE and even fund ownership of giant blocks of GSE stock were amassed.
If you haven't, yet, please read the link I posted earlier this morning. It is a huge eye-opener. And I am not considered a conspiracy theorist by anyone that knows me at all well.
JMHO.
Judge Sweeney is playing this entire Motion to Compel in a very cool manner. The mandamus is also very slow to progress. Maybe this is just due caution for due process... but maybe it also reveals concern for some of the content in those 12,000 yet-to-be-unprotected documents, some of which have been viewed in camera? Is there an Area 51 secret of genuine concern that could gain exposure?
Any Fannie followers familiar with Reagan's PPT, the Plunge Protection Team?
Never confirmed? Never denied? Only whispered about in dark corners?
http://www.marketoracle.co.uk/Article464.html
Maybe in 2007/2008 the government actually did have something that needed to be kept quiet to avoid roiling markets?
JMHO.
Ah, yes, John Paulson. The Wall street whale that made $4.7 B on credit default swaps betting that the sub-prime mortgage market would collapse. Mnuchin's partner, too. How nice is that!
Hey, thanks a lot for clarifying which Paulson is in bed with the nominee for Treasury Secretary. And to think... I was only concerned that Mnuchin shared a Goldman-Sachs pedigree with Hank Paulson who imposed conservatorship on the GSEs in 2008. Silly me.
Incorrect. Hank Paulson is not an announced investor in Fannie Mae shares. You are confusing him with John Paulson.
Rising rates are favorable to Fannie Mae income. They do somewhat affect the default rate, but not significantly at these still very low levels.
I would be surprised to see more than a 25 basis point increase announced by Yellin. Hoping for 50, though.
So Collins vs. FHFA is destined to fail? Melvin Watt is the most powerful man inside the Beltway because he is bulletproof?
I think you lost more than just your barnyard animal, Mr. Goat, there barrister.
LOL. There is a sign hung in many prominent West Wing office spaces that reads "I serve at the pleasure of the President." Have you ever seen them? They speak the reality of life within the Executive Branch.
If Trump wants Mel Watt to depart, he will ask for and receive his resignation. I suspect he won't have to ask.
JMHO.
1. Is this some form of seizure? Scrotal what?
2. Many mutual funds are closed end and are not available to anyone. One example: Vanguard Wellington. Your answer is nonsense.
3. Means "no contribution" as I stated? Guess so. I was right again. Yeah for me.
4. So?
5. You TOTALLY failed to answer my question. Try again. YOU asked "how many hedge funds brought and paid for legal complaints before a US Court." That is all cases, not just Fannie Mae related. And all courts, not just those hearing the cases reprised from GSELINKS. Please answer my question. List ALL cases filed by hedge funds in all courts of jurisdiction for anything.
If you want to state that this is impractical, then please confirm that my similar response to your earlier questions deserves equal respect and exemption. And that your question was stupid.
Cheers!
1. If you could answer your own question, why did you ask me to?
2. A large Wall Street player defined as a mutual fund vs. as a hedge fund bears scant little difference in a discussion of whether big money investors were seeking gains in Fanniegate litigation vs. small investors who were only looking to salvage their retirement savings.
3. What value would any such empirical observation contribute? I see none.
4. So?
5. You answered 2 of the 3 questions, yourself, so why ask them? As for your question #3... "how many hedge funds have brought and paid for legal complaints before a US Court"...please specify the nature of all complaints about which you inquire, and all the US courts that you reference. All of each.
Thank you.
When I did my litigation review there were, by recollection, 7 standing suits that could qualify as class actions depending on how you qualify "... and others similarly situated.."
That is how some small suits turn into big ones.
JMHO.
Someone is paying for the Fairholme suit. I can only logically assume that would be Fairholme. It could be on contingency, too, I suppose.
Fairholme is a major Wall Street player with expressed designs on taking over and privatizing Fannie Mae's insurance business. Whether that qualifies for them as a hedge fund or not gets into corporate structuring that is beyond my level of interest.
I have no view on how many hedge funds have brought and paid for legal complaints before a US Court. I frankly do not see why I should care about that. Maybe you could explain why that matters.
Here's a wild card on warrants I will share with you that played a significant role in my decision to add substantial positions in Fannie & Freddie common stocks after a lengthy insistence on preferred shares being the better play. The weekend before the election I conducted a re-review of most all the pending cases in Fanniegate. What struck me differently, this time around, was how much of the complaint "inventory" revolved around retirement funds and retirement savings that were trashed by conservatorship and later by Amendment 3. It is the one common thread throughout suit after suit, but notably in Washington Federal, Fairholme, Jacobs/ Hindes, Robinson, Sammons, both Pagliara's, etc.. It is significant that much of the Investors Unite campaign has focused precisely on this issue of government actions impairing the retirement security of ordinary citizens.
A bunch of the government's defense against various lawsuits focuses on motives of opportunism and hedge fund vulture capitalism. And there is some credibility to that argument, as I have noted in many earlier posts. But a lot of the smaller litigatons are not being put forward by deep-pocketed hedge funds. In fact, what Sammons introduced was outrage being expressed by one small fish that felt squashed and lost in the shuffle... at least as I read his comments in his brief. This is the type of case that courts can't dismiss as Wall Street adventurism. This IS Main Street stuff and Main Street damages to Mr. & Mrs. America.
It is my belief that HERA is too empowering for government to be forced by the courts to payback money to the GSEs. I do think the courts will end Amendment 3 to at least some extent, and possibly altogether. But what I think is likely is that suspending dividends for 8 years will be ruled as punishment enough for shareholders who may have made a poor investment choice in FnF shares of either variety, but do not deserve to suffer an additional 80% dilution during government's exit.
So, while most everyone else is living and dying for a decision in the Perry Appeal or from Judge Sweeney, I see the opportunities being perhaps better driven by some of these more under-the-radar actions that seek to void warrants. That being said, Perry & Fairholme are still very important, but just not the whole enchilada.
JMHO.
I think that Ackman cares greatly about the warrants, and all common shareholders should, too. Prior to 2008, common divvies were paying $.50/Q out of generated income. In a diluted scenario the divvy would be reduced to $.40 at parity with 2007 metrics. On a 100 M common shareholding, that costs Ackman $160 M per year. That is not chump change. Then there is the concurrent impact on expected share price.... $15 to $20 with warrants, $60 to $80 without warrants.
JMHO.
Yes, I agree with you on he Collins case. It is actually a very well written brief, as I believe I stated in an earlier post as well.
Why do you think no specific constitutional challenge has been undertaken against HERA? I have always assumed that the reason was intertwined with the penalty phase benefit for plaintiff actions.
LOL.
Thanks for your service. True dat!
Collins/Texas case flirts with HERA unconstitutionality, but fails to make claim in remedy portion of filing brief. Evidence is cited that FHFA director empowered as a single entity with uncontrolled Presidential oversight vs. panel with agency oversight and POTUS accountability is a violation of constitutional law. But it drops that topic before seeking that as rationale for any claim or remedy. Quite strange, actually.
All Collins seeks is a repeal of Amendment 3. So, to answer a question asked earlier, Collins does not challenge the legality of HERA as a law.
JMHO.
No news = tread water.
Good news = scotch and water.
Bad news = bread and water.
Repeat daily = pass water.
Such is the life of a Fannie Mae investor.
Fannie Mae profit is higher because it stopped paying dividends to both common and preferred shareholders in late 2008,and because it has raised guarantee fees at the direction of FHFA.
The $60 S/P often tied to a released and recapped Fannie Mae is generous, and should be hugely attractive to investors, everywhere. The other thing to add value in these equities is the restoration of dividends. A long term holder of common shares could be considering a restored 2007-level dividend of $2 per share on a stock bought by many at $.25. This is the real money maker in this deal. A $2 divvy on a $4 stock, even as it sits today, is a thing of beauty. And if Fannie gets through RRR and these court actions without plaintiffs punishing the GSEs in too costly a way, it would become the world's highest paying annuity with very little risk.
JMHO.
You could offer up similar credentials for Peter Wallison or James Parrott. How about Mario Ugoletti? Ed Demarco?
Promoting Calabria's nomination is like "Looking for Love in All the Wrong Places" from the Johnny Lee classic song.
JMHO.
I have read and re-read Mnuchin's comments several times and none of the inference indicates he favors selling or otherwise eliminating the GSEs. He clearly stated a goal to see them as safe and protected from ever being taken over again. That posture could, obviously include Fannie and Freddie sharing the playing field with other parties, but that is consistent with the alternatives revealed going back to Geithner's report to Congress back in early 2012 and the 3 options to which the politicos never responded. I do not view this outcome as detrimental to shareholders of any class of stock.
Calabria, on the other hand, could be toxic for common shareholders. Yes I have read his stuff condemning FHFA and actions taken that were not consistent with HERA and his intent with the law that he helped craft. But remember that his view for years is that government should play NO role in housing which should be wholly returned to the private sector. I think his selection for a senior post in the new administration could be helpful to some of the pending lawsuits, explaining why Investors Unite might promote some of his views. But that might be more beneficial to plaintiff litigants than to any class action sort of settlement that might benefit all common shareholders.
You can draw a clue from the Miami settlement concerning Freddie Mac and PWC. They may have received some $$$, but did anyone else? NO! When things start to get down to who gets what, multi-party settlements always seem to devolve into a round-robin chorus singing the refrain from a Blood, Sweat & Tears classic: "Hi de ho, hi de hi; going to get me a piece of the pie." A Calabria pick under a novice Ben Carson could leave shareholders like many of us standing in line at the soup kitchen.
I'm not a big fan of eating gruel.
JMHO.
Think twice before advocating for Mark Calabria's nomination.
As a preferred shareholder I might like his objective to liquidate Fannie and Freddie, but as also a common shareholder I would get wiped out in his "kill 'em" goal. The Cato Institute is NOT GSE-friendly. Calabria helped write HERA. This is not a guy to be putting a rally cap on for.
http://www.canfieldpress.com/receivership-does-not-end-fannie-mae-and-freddie-mac
http://finance.townhall.com/columnists/markcalabria/2012/01/01/fannie_and_freddie_need_to_go
Both links are to 2012 articles.
JMHO.
That's exactly what I predicted, several days ago, that a new super agency would be re-formatted and merge the regulatory authority of HUD, FHFA, CFPSA and SEC.
True. Ackman really needs a big win after so many losses over the last 2 years. Trust me, with a large position in VRX myself, I feel some of his pain. But beyond his impetus to settle and use warrants as a bargaining chip, Ackman has a different perspective on a $20 common share settlement estimate. He bought a huge chunk of his shares at market bottom prices in 2008. In fact, he was shorting Fannie stock in the lead in period to conservatorship, according to published reports. He is looking at close to a 1000% gain on a $20 price.
Those holding at prices before conservatorship don't look quite so rosy. Neither do the long term investors that bought shares in 2007 or earlier when Fannie traded in the $60's.
This is where the conservatorship injects another wrinkle in Fanniegate which is that shareholders don't get a vote in any settlement discussions unless they are a named party in all these litigations. You get what you get that is agreed to between government attorneys and plaintiff attorneys.
Sad to say it, but shareholder interests fare best if a court decides to rule in their favor on at least some of their complaints. If not, things go back into the dim light of some proverbial smoke filled room and eventually you get told if you win or lose. The waiting game is agonizing... like watching the Vatican chimney for white or black smoke signals when the cardinals are voting for a new Pope.
JMHO.
Your question on the Appeal panel modifying HERA is an important one I have raised many times previously. Judge Lamberth gave you a clue to the answer to your question in his ruling back in 2014 when he observed that the Perry complaint never questioned the legality of HERA under constitutional empowerment and, so, neither did he.
It has never made sense to me why no challenge to HERA has ever been filed.
If obi or someone else wants to directly confront your question on modifying standing law, I'd like to add a second question, as follows: "Does the statute of limitations apply to challenges in constitutional law?" Where I am heading with that is: would it still be possible to repeal or alter HERA which was enacted in 2008, if a new suit was brought today? My guess is that it would be permissible, but I wouldn't stake my life on it.
The reason for my request is a question asked recently by other posters as to whether there is some new class action that might be filed by investors, all of us smaller guys and not just the hedge funds, that might prevail if the Perry appeal somehow goes down in flames. I keep reminding everyone that this is no slam dunk, having earlier estimated its probability at 20%. (And, yes, I did make even higher probability estimates, months ago, when the landscape looked a lot different. So please leash Mr. Snarky).
Replies appreciated.
Everything seems frozen here. News needed.
There is an important change in financial marketplace dynamics that seems inevitable in 2017. Both party's platforms vowed a restoration of Glass-Steagall restrictions on dual positions in mortgage banking and commercial banking among today's TBTF players. That tells me that the big houses will be actively seeking new ways to continue expansion and top line revenues.
What may have looked unforeseeable a year ago may create new interest, especially if much of Dodd Frank gets whittled down or simplified.
CNBC has begun running a regular segment entitled "Trump o nomics" of which this Fannie/Freddie piece was just another episode...their little logo icon was displayed in the lower l/h corner of the screen while this aired. Every one of these that I have seen was derogatory of Trump's policies, either as announced or presumed by some "expert" trying largely to discredit the plan.
CNBC Fnma & FMCC segment just ended. It was a total hatchet job. No balance whatsoever. One guest is preaching liquidation, the other preaching the end of the 30 year mortgage and blaming the GSEs for escalating housing prices.
On part #1 of your question: it would be illegal to "settle" with preferred shareholders and then wipe out commons in any manner except an insolvency and liquidation. So, simply put, commons and prefereds are actually sleeping in the same bed... Fannie Mae is worth more alive than dead.
There are no absolutes to protect preferred shareholders against a toxic reform measure passed by Congress. Several have been proposed that would deliver a junior preferred payday of WAY less than liquidation at par. And, as non-voting shares, there is very little defense preferred shareholders have other than a class action suit that rarely nets any proceeds for anyone but the lawyers. So, in a nutshell, there is no sure thing in any of Fanniegate.
JMHO.
I had not seen that narrative from Howard,so thanks for that. My problem with his view, as correct as it appears on a superficial level, is that there is deep-rooted and intense animosity over warrants in many of what might be termed "the underbelly litigation" that rages on beyond Fairholme, Perry and Ackman. To me, that makes any settlement unlikely or even impossible until all legal challenges to the warrants have been dispensed with by a variety of courts. That could be a year's long slog through the courts while the GSEs are frozen out of issuing common shares due to dilution uncertainty.
I'll put some financial perspective on this, using Fannie Mae as an example. Freddie would be very similar to this analogy. Fannie Mae needs to raise about $50 B in capital and can only generate around $9-10 B at current income run rates. So that leaves private capital as the source for recap. Fannie has approx. 550 M shares in various preferred equities outstanding. I could see that maybe doubling to around 1 B shares via new offers. That would add around $12.5 B in capital and about $1 B in divvy support. Total divvy contribution would then be around $3 B on preferred. Such offers would likely be about the max # of non-voting shares that the market would be likely to absorb comfortably (meaning without a much higher coupon rate tan the current benchmark S & T series stocks).
That is too slow a capital build back for Mnuchin's "safe" privatization goal. So that means some common equity will need to be offered, as well. That is where the warrants and their potentially huge dilutive effect are deal killers. As long as the dilution threat is out there, no common offers will fly at virtually ANY coupon. Restored dividends on common cost around $2 B, so adding more commons in any large increment starts to consume too high a proportion of income generation required to pay them. So let's say you float 500 M of new common shares at a $20 valuation. You gain $10 B in new capital for a new total of $22.5 B raised quickly and a much shorter 2 year window to full financial health. That is probably acceptable as a time line for risk.
That would put your dividend cost at an estimated $5 B per year, in normal years, vs. a $9-10 B per year inticipated income generation rate. In real estate parlance, which Trump and Mnuchin would clearly comprehend, this would actually give the GSEs a 50% dividend distribution expectation vs. a 90% payout required by REITs in order to maintain their tax status... somewhat like what Fannie & Freddie enjoy in their Federally-chartered status. So this is NOT out of lunch as a load borne by the companies. There is $5 B per year in dispensible income which, as I haveobserved previously, could grow geometrically in a rising rate market and has virtually no downside risk at today's Fed rates.
I'm not saying I'm smarter than Tim Howard or anyone else. They could, of course, be right. But my position on warrants is not lightly taken based on how I see the mechanism likely to raise sufficient capital, sufficiently fast to prevent another risk of bailout.
JMHO.
Yes, I agree fully. Trump is a free enterprise guy and a big thinker. He wants businesses to grow and in his world that means BIG business. He is the antithesis of "too big to fail" chicken-little concerns that have paralyzed much of the business climate for way too long. He just wants businesses that don't need or get any government bailout.
I do not see Trump immersing himself in any trench warfare in Fannie Mae or Freddie Mac except cutting them loose in a sensible way and letting them get back to doing their thing without a lot of interference. I don't think he cares a hoot about swept income... UST gets their payment from taxes at a sensible rate paid by successful businesses which FnF should return to being with the shackles removed. He is the one guy that will not be intimidated by the huge size of the GSE's magnitude in the mortgage market.
There is WAY too much concern being floated out there in the blogosphere about what privatization might mean for shareholders. It seems like ominous predictions are being articulated by pundits everywhere, replete with all manner of dire consequences....especially involving the sale of warrants. I think this whole thing is being over-thought and, frankly, irrationalized.
Read what Mnuchin actually said about getting the government out of the GSEs. He clearly stated that returning them to private status would be done in a safe way where there was no risk of their being taken over again. There is absolutely nothing ominous in his very clear statements.
Fannie & Freddie will need to raise private capital. That is likely only accomplished via new stock issuance. For new equity to be successfully introduced, the old equity... common and preferred... must be restored to attractive status for investors. This means dividends. This also means common share price becomes important and exercise of warrants, even the threat of that, becomes problematic to raising private capital.
So my point is that getting all lathered up over events that seem unlikely to occur in any kind of game-changing way is unproductive, at best, and possibly idiocy, at worst.
Release in January. Retain formerly swept income in GSEs after Q3/2016 December distribution is paid. Restore dividends in Q2/2017.. Relist on NYSE. Recapitalize with new equity. Reform affordable housing mandates via transfer to Ginnie Mae. Regulate FnF as part of a new Federal super agency merging FHFA, HUD, CFSPA and SEC in a simplified and consistent matrix, leveling the playing field for all competing bodies in all business sectors.
This is where I see things heading. No worries.
JMHO.
All projected share price valuations put forth by reputable analysts are income based. Changes in reserves and capital requirements are balance sheet items.
The G-fees were based on the uptrend shown in Q1 to Q3 2015 10-Q reports and are hardly farfetched.
The part of the analysis I found to be flawed was that the payouts on junior preferred dividends are underestimated since private capital must quickly be raised and additional preferred share issues are the likeliest vehicle by which this can be accomplished. I would guesstimate they are about $1 B on the light side, but even backing this out of projected income generates some lively returns in share price of commons. The $1 B additional amount comes from a 50% increase in new preferred shares that would be issued by Fannie & Freddie for recapitalization.
The reason issuing preferred shares is preferable to raising capital via third party bond offerings is the complexity of collateralizing assets held in trust funds, and the indexing of most secured bond offerings in GSEland that typically are tied to changes in LIBOR. Preferred equity, on the other hand, carries a fixed coupon and would be advantageous as we enter a cycle of rising interest rates. The preferred issues make much better sense.
JMHO.
That $.25 reference Epstein cites pertains to the takings claim in Fairholme's complaint before Judge Sweeney. The alleged "taking" carried a market value of about a quarter in the timeline presented in the claim.
JMHO.