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Hi Kthomp:
You seem to indicate that the FHFA will adminsiter a future Conservatorship different than how they will resolve the current one?
IF the US Govt can steal from current common shareholders what stops them from doing it in the future no matter how long between the thefts?
Do you disagree that the FHFA should look to the insolvency principles and procedures relevelant to US Depository institutions in the FDIA?
Isnt your opinion based on the assumption that the FHFA will interpret HERA to implement the maximum screw to existing common sharholders and then try to convince future investors that the FHFA will have a different intepretation of HERA going forward?
Hi Kthomph:
Why do you want to convert to common or why would anyone want to convert to common or invest in common if the UST can screw common investors again?
The name of the Paper is: The Conservatorship of Fannie Mae and Freddie Mac: Actions Violate HERA and Established Insolvency Principles. I dont see the Apples and the Oranges because it is the same amount of JPS and Common currently outstanding - one of Calabria's points is that the NWS violate HERA.
Here is a quote at the end of the Introduction:
disregarding HERA's requirement to “maintain the corporation’s status as a
private shareholder-owned company” and FHFA’s commitment to allow
private investors to continue to benefit from the financial value of the
company’s stock as determined by the market.
I am focusing on "..FHFA's commitment to allow private investors to continue to benefit from the financial value of the company's stock as determined by the market." I am focusing on private and benefit.
Close to $20 bn of that capital was raised in the prior 6 months with the urging of Paulson. This is the majority of the outstanding JPS.
Calabria advocated for a "Fair and Principled" resolution scheme in his White Paper. Does the UST really want to set the precedent of screwing private capital investors in public/private ventures going forward. The US Govt needs public/private investment structures more than ever - they will probably at the core of a $ 2 Trillion infrastructure program. Why doesnt Calabria just follow the "fair and principled" guidelines outlined in his White Paper
https://www.cato.org/sites/cato.org/files/pubs/pdf/working-paper-26_1.pdf
Dont Understand Whalen's Point. If the current FNMA Servicer runs into trouble they have to transfer it to a financialy solvent Servicer approved by FNMA. The MSR strip owned by FNMA stays the same - just serviced by a financially strong servicer rather than failed servicer. The real issue is that lower interest rates have caused refinancing and the MSR owned by weak servicers has disappeared when the loan in refinanced. FNMA makes out well either way if the new mortgage is ultimately repacked in a new FNMA MBS - the weak servicer is screwed because they will not be strong enough to service the new loan. What is clear the mortgage market needs the GSE's more than ever - the private label MBS market can not compete at these interest rates and with this level of market volatility. Once refinanced the new mortgages could stay with FNMA for very long weighted average lives if mortgage rates rise over time because it will not make economic sense to refinance.
https://www.investopedia.com/terms/m/msr.asp
SCOTUS has not ruled on any ruling identified as "major" like Seila or any ruling in the February set which includes Seila.
https://www.scotusblog.com/statistics/
There are over 20 cases still outstanding - see stats.
Fidelity Asset Management added FNMA common during the 3/31/2020 quarter also. I dont have the post but it was posted a few days ago.
SCOTUS Decision Calendar
https://www.scotusblog.com/statistics/
Good summary of when cases were argued, which Justices have written majority opinions and pace of decisions granted. So far the Court is a little below average in releasing opinions.
Interesting Table on SCOTUS Blog
https://www.scotusblog.com/statistics/
You can see what cases are outstanding each sitting by month and which one are considered "Major". None of the Major decisions have been decided yet. Seila is consider a "Major" decision. Some cases from October have not been decided yet but a 9-0 and a 8-1 case argued in January have both been decided.
Also - on another part of the Blog it is noted that Justice Kavanaugh has only authored one majority opinoin. Perhaps he will have the time and the assignment from the Chief Justice to author the majority opinion for Seila?
Definitely understand your perspective - I think we all are assuming that the capital rules and SCOTUS decision is coming in the next 3 months which will see if folks like me will drown in the Kool aid we have been drinking or not.
Good Point Rumple. Based off of comments from Secretary McNuchin and Governor Powell I totally agree that this was a well thought out resolution and agreement between all three entities. It shows how important the GSEs are to our financial system and housing markets. With all the money going out the door I would imagine that the Fed, UST and FHFA are even more motivated to get private capital invested with FNMA and FMCC as a first loss position. Of course there is risk but the return will be an attractive dividend yield. Also -
probably more of a reason to be fair and principled in treating all stakeholders including JPS and public common in the resolution of the recap
Although the GSEs are taking risk on loans that currently make up 5% of their MBS portfolio it takes away the argument that the GSEs should bail out the weak servicers. Servicers still have to advance 4 months and after that the GSE's will have to cover MBS payments. Remember the GSE's will ONLY incurr loses if the underlying mortgages go into default and the net proceeds from the sale of the underlying homes are less than unpaid payments and principal.
This seems to be a reasonable risk although they may take reserves for this. The GSEs have a excellent opportunity to expand the weighted average lives of their MBS portfolio with every new purchase or refinance at historically low interest rates. The loan to value of their portfolios protect them but if the US real estate market collaspes there will be losses..
This is the business opportunity - everything has risks. Overall it may be one of the best risk vs return opportunities in the mortgage finance or banking sectors on a comparative basis ?
Calabria makes a clear case for "fair and predictable" resolution for shareholder and stakeholder claims. It is not about a fiduciary duty but prescribed fairness and predictablity in US Govt regulated and supervised institutions.
The following quote is from Calabria's white paper - bottom of Page 7:
"...Fair and predictably applied insolvency rules allow investors, creditors and even consumers to judge the risks of investing in,
doing business with, or buying products or services from a company. If that process can be manipulated to favor one creditor – as FHFA has favored Treasury – then there is no basis to judge what could happen if a company fails. This is particularly troubling because it is the
government that has subverted the normal conservatorship process. It could call into question the reliability of any process where the government controls the rehabilitation or resolution of a company. Given the important role that government bodies play in the resolution of many
financial institutions, such as banks under the FDIA or
systemically important financial institutions under the Dodd-Frank Act’s new Orderly Liquidation Authority, it is essential that the performance of this role assure all stakeholders of fairness and predictability. "
SCOTUS Blog is great source for SCOTUS issues. Cases decided today were argued in the fall of 2019.
https://www.scotusblog.com/
Calabria's White Paper is a good summary of the duty of the FHFA under HERA
https://www.cato.org/sites/cato.org/files/pubs/pdf/working-paper-26_1.pdf
Stay at Home Reading Suggestion - White Paper by Director Calabria.
https://www.cato.org/sites/cato.org/files/pubs/pdf/working-paper-26_1.pdf
Really a great paper written by Calabria and Lawyer from Prominent Fiancial Services Law Firm.
It is my assumption that Calabria still believes in sound principles and fairness - even to public common sharholders.
Thank you again Director Calabria for standing up for the rule of law and principles of fairness.
The fact that Fidelity Asset Management bought 3.5 million shares may even be more significant. Looks like GFA sold some but anothe American Fund bought 10 million shares.
Here is Guido's link:
http://finra-markets.morningstar.com/MarketData/CompanyInfo/detail.jsp?query=22%3A0P0000023H&sdkVersion=2.48.0
Thank you for posting Guido!
I want to know what happened to all that booze in the background? - there must be at least 2000 bottles.
Maybe they drank it all in the 5 years since the video?
Who are the guys in the pictures on the wall - family members?
Hi Kthomp,
My apologies if I was not specific enough in the hopefully constructive criticism.
You obviously have a great understanding regarding HERA and the outstanding litigation which you have inteligently shared reasonable perspectives on. Thank you for that.
Regarding the criticism part - it seems you are reading a lot into Director Calabria's statements regarding timing and how the common shareholder economic interest may ultimately be determined. It has seemed to me that many people have many different interpretations of his statements and he has changed his statements over time - especially on the timing of the ultimate resolution.
Otherwise - it seems you are assuming their is no pragmatic value in treating common shareholders fairly or more than fairly just to have a successful and expedient capital raise.
Finally - it seems that you are not considering the possibility even if it is lower probability of a common shareholder friendly judicial outcome. If there is a outsized settlement or judgement it would most impact the economic interest of existing common shareholders
I hope you feel that is the courtesy you definitely deserve.
Hi Kthomp,
Regarding your assumptions - do you think you know for certain that the capital raise or conversion will happen or be completed before an independent BOD is put into place?
Do you know for certain that there will not be a shareholder vote will not happen before a conversion or capital raise?
Do you know for certain that the conversion will be completed before the initial capital raise?
Maybe the conversion will happen over several years and be prorated on the offering price of each tranche so as to limit the impact of converted JPS shares being sold in the market?
Basically - how can you be so certain to use terms like "lunacy", "laughable" and "absurd" regarding one of the most complex multi-party legal and capital market fact patterns in history?
Hi Kthomp
I think you are assuming a whole lot that could be very wrong. Time will tell.
There are going to be three different financial advisors - Holihan Lokey and one each for FNMA and FMCC. Probably three different law firms. Perhaps additional advisors and law firms for Special Committees.
Additionally, it is most likely that the UST has the same economic interest in raising capital with the least amount a dilution possible.
We will see - for potentially the largest capital raise in history yor are assuming an unprecedented disregard for shareholder rights and just plain pragmatism to assure a successful capital raise. Is there a part of HERA that gives the FHFA the power to disregard shareholder interest without a rational governmental benefit?
Hi Kthomp
I do not understand your "lunacy" comment and why you think FNMA or any commany could raise public funds without a working BOD or some type of Special Committee accountable to legacy and new shareholders as a transitional step.
We do know that FNMA will hire a financial advisor who may be the lead underwriter as one of its next steps? Why would any firm take the underwriters liability without an independent BOD or shareholder Special Committee in place? Dont you think the FHFA would have to consider the advice of the financial advisor?
I dont see how capital can be raised without an independent BOD or shareholder Special Committee as a subset of the BOD. The path forward seems to be a consent decree approved by an independent BOD advised by its own legal counsel and financial advisor or a Special Committee working with the FNMA financial advisor.
Hi Kthomp
Do you think FNMA or FMCC BOD would authorize a listing or a potential reverse split without the advice of a financial advisor?
Doesnt there have to be some rational basis about what is best for the capital raise?
Maybe the BOD would also establish a Special Committee to represent the interests of common shareholders?
When do you think financial advisors will be selected - before or after the capital requirements ? Before of after the SCOTUS opinion on Seila?
More like Cinderella! Waiting for Judge Sweeney to be our fairy godmother. Would you short Cinderella now?
Thanks for the reply Kthomp.
Yes - my bad on the $ 8 to $14 range projection by Gaby - went to the video and you were right. It is $6 to $14 as you mentioned. Thanks to Navy for the link:
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=151142246
I believe it is around the 9 minute mark but a good refresher overall and a chance to reassess where we are from a timing and litigation perspective.
Regarding whether AGC thought that common shareholders would be "wiped out". Gaby made the point that the common is alligned with the UST warrants and that the best way forward: (1) is to have the SPS deemed paid in full as part of a negotiated settlement (2) a relisting on the NYSE prior to capital raise and (3) a negotiated sett;ement completed. David agreed that the common would "absolutely not" be wiped out at minute 25:37
Regarding the upside at $6 you may be right because I would agree the JPS gets par and probably par plus unpaid divs. If the valuation approaches the $14 level then common is probably clearly the better trade.
Thanks for the post Louie - well said. Shareholders have suffered through so much it would be a shame to have some intentional misinformation cause some one to make an misinformed investment decision. Good luck to all - common and preferred alike.
Hi Kthomp19
Stockprofitter gave the link to the AGC call.
Check out the discussion beginning on minute 24. The discussion focuses on the need for a settlement and relisting to raise capital
Gaby mentioned that we should remember that the shareholder interest is alligned with the US Government.
Everyone can make there own interpretation but it seemed that AGC believes a settlement is necessary. UST and common interest are alligned. Common shareholders will "absolutely not" be wiped out. In my perspective $ 0.30 is being wiped out.
I guess What I ask is that you leave the possibilty open that common shareholders may have a greater return because of the risk.
Thanks for the post Navy. In case the FHFA ever pays attention to this Board - I just want to again go on record saying that I think Director Calabria is doing an awesome job. That also goes for Secretary McNuchin, Secretary Carson and of course - POTUS!!. We are putting our trust in the awesome capabilities, fairness and respect for the rule of law of this Adminsitration.
Doesnt AGC have a price target of $8 to $14 for the common?
Didnt AGC say that the UST and common shareholders have alligned interest on the last call?
Hi Joseph,
I understand and agree that JPS have more security but I dont understand why you think the UST would not want to maximize the value of its 80% warrant position?
How does it bring capital in unless the GSE's sell common equity?
Why wouldn't POTUS want a high valuation for its equity position via the warrants which could make headlines about how so much money was made when Obama just wanted to shut everthing down?
How do you get $ 0.30 - there is $14.4 bn of equity now and FNMA makes approximately $ 0.14 to $ 0.20 per month assuming $10 to $ 15 bn in earnings?
Maybe one can argue for a $ 5 valuation but just as easy a $ 8 to $14 valuation?
Dont understand how one can be so confident that the UST would not screw JPS but is more likely to screw common. Why not just treat every one fairly and make more money for the US Taxpayer in a fair and constructive way?
Yes - I forgot - great points! Maybe McNuchin can bring Hank Paulson out of retirement to handle each servicer BOD member with his favorite gansta move. What was the quote - "hearing the sound of their heads hitting the floor"? Surely all the mutual funds, community banks, insurance companies and retail investors of FNMA common and JPS are just as deserving as the current investors in mortgage servicers.
FED cant lend money to servicers so they want the GSEs to bail them out. Remember when Warner said that he thought the 10% return to taxpayers was too low? If FNMA does help out Mortgage Servicers - FNMA should get warrants for 80%, greater that 10% return on senior preferred of each servicer and take all their profits in any case for at least 12 years. I am sure Corker and Warner would agree that these are fair terms!
SCOTUS should take judicial notice of the debate between the MBA and FHFA. If POTUS really thought it was a crisis could POTUS remove the FHFA Director under HERA? More of a reason to strike down the removal for cause only provision of HERA!
It has to be fake news. Did you know Hawaii has a 14 day quarantine on all vacationers? Not sure how your 10 day vacation would work with that?
https://www.usnews.com/news/best-states/articles/2020-03-23/hawaii-orders-14-day-quarantine-for-those-entering-the-state
FOS - Friends OF Servicers that is. Probably not friends of FNMA or POTUS?
https://www.zimbio.com/photos/Mark+Warner/Terry+McAuliffe/Hillary+Clinton+Addresses+Virginia+Democratic/BpQgIU0YQv5
Thanks for your comments FFF. I agree with you that Director Calabria seems to be doing a fine job especially under the circumstances. If anything is clear - those who respect this Adminsitration are more likely to get positive consideration. Personally - I am very impressed and thankful for Secretary McNuchin, Secretary Carson, Director Calabria and definitely POTUS when it comes to moving toward a fair and equitable resolution of FNMA and FMCC>
Mortgage Servicers collect mortgage payments and hold escrow accounts for real estate taxes and insurance for some borrowers. They make sure FNMA gets the mortgage payment necessary to make the payment on the MBS mortgage pools and that real estate taxes are paid and the insurance premiums are paid.
As approved servicers by FNMA and FMCC they have to have the financial stability and business ethics not to run away with the money and advance mortgage payments even when the homeowner does not pay. Eventually the homeowner will go into foreclosure, sell the house or pay the mortgage with late fees. The servicer likes fees because it gets its money back that was advanced to FNMA but with penalties and interest.
Another thing that happens is that some mortgages are issued at higher rates or at rates when interest rates were generally higher so perhaps the mortgage servicer not only gets a fee but keeps the excess amount over the average coupon of the MBS pool. Sometimes the excess servicing amount is sold to an investor which could complicate things for the servicer when mortgages are not paid on time.
All of this points to a volume business with higher capital needs if a lot of homeowners miss payments like now. The other thing is that when interest rates fall - homeowners refinance so the servicer golden goose
is gone so mortgage servicers are not only stressed because they have to come up with the capital to advance payments to FNMA but they will likely loose there book of business when mortgage rates fall after things settle down. When a refinance happens there may be a totally different mortgage servicer for the new loan.
As you can imagine the business has changed a lot but some servicers may have not adapted to new technology because AI probably can do a lot of this work these days. Calabria is right because the US taxpayer should not be bailing out bad business models. Also - right now mortgage servicers only need to advance the April 1 payment so there is plenty of time to see who is crying wolf for the right reasons.
Here is a Wikipedia cite:
https://en.wikipedia.org/wiki/Mortgage_servicer
Thanks - Got it.
This is his portfolio as of 12/31/19. He also owns FNMA JPS and has some type of total return swap on the books as of 12/31/19. Not sure why some are suggesting this is tradeable news since it is 12/31/19 position reporting. The report came out on April 6th but the position is very dated. Check out pages 89/90
https://pershingsquareholdings.com/wp-content/uploads/2020/04/Pershing-Square-Holdings-Ltd.-2019-Annual-Report.pdf
Thanks. This looks like a excerpt from an undated report. Do you know where the complete report is?