Link to this mornings senate banking committee testimonies. I suggest reading these to draw your own interpretations. Regardless of the intent, sometimes the optimism or pessimism of ihub analysts can affect interpretation.

http://www.banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=43c24d50-cb8c-4aff-8bed-7f1ab8038f18

Don't forget about Millstein et al testifying at the Senate Banking Commitee hearing this morning, advocating against current congressional proposals for housing reform.

Read the testimonies here:

http://www.banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=43c24d50-cb8c-4aff-8bed-7f1ab8038f18

Also, preferred shares had a defined advantage in the Berkowitz proposal, while common shares had an implied upside. Therefore, rejection of the Berkowitz proposal would have a greater perceived negative effect on the preferred shares. IMO...

Can somebody tell me how to ignore someone? I have no problem with oppositional viewpoints but when you start spamming false article headlines, I've had enough....

Tomorrow will be interesting for sure. If we can maintain above $2.70, there are no resistance levels until $5.4. If the PPS bounces off of 2.70 several times, look for it to go back down...all IMO.

Look at the 6 month chart: 2.70 has been resistance 3 times. If we can bust through the ~ 2.70, it's blue sky until $5+. Claytrader has nicely demonstrated this in his recent videos.

News. Motley Fool Article.
Will Hedge Funds Take Over Fannie Mae and Freddie Mac?

http://www.fool.com/investing/general/2013/11/13/will-hedge-funds-take-over-fannie-mae-and-freddie.aspx

I don't have access but if someone is willing to post, that would be great!

So then I guess my next question would be "what happens to current common shareholders?"

I took that as meaning the group of hedge funds who currently hold preferred shares would convert those shares to cash and collectively pool their money together to provide common equity for acquisition of FnF platform.

I would then imagine they would have to do an IPO for the 2 newly created entities.

All in my opinion. Somebody more versed in business transactions probably has a more comprehensive understanding. Comments and insight are welcome.

Emz:

The cnbc article only states that hedge funds would convert their preferred shares to common equity, which I take to mean "pool all of their cash from preferred sales". I don't think it means common shares. Please tell me if I'm wrong or missed something! I hope I am/did! Thanks in advance!

Exactly. Even if the gov rejects the hedge fund proposal, lawyers can use this as ammunition to further exemplify illegal takings and inappropriate acts of congress.

What defense does the Treasury have if they reject an offer that satisfies what has been proposed by several potential reform efforts?

My only question is, what happens to common shares in said proposal?

Unfortunately I'm on a plane this morning and will miss the opening action. Good luck to all. Give 'em hell FnF!!!

To echo this:

http://www.streetinsider.com/Insiders+Blog/FINRA+Halts+All+OTC+Trading/8859929.html

If this was the post, you my friend are a master of the anti-climactic. :)

F it. I'm not above begging. Post away crawford!

Well, I'm not in the IT field, so I can't comment and hold your opinion in regard.

That being said, let's use this snafu as a shining example of why FnF should be up-listed with the big boys! ;)

True but backups only do so much. If it truly is a connectivity issue, all the backups in the world can't get data in or out. The issue may or may not be the OTC markets fault, but if I were them I'd be looking for a new data servicing contract ASAP.

News. Not sure if this was posted.

http://online.wsj.com/news/articles/SB10001424052702303309504579183831541669864

OTC Markets Halted Due to 'Connectivity Issue'
OTC Markets Noticed Tech Issues Ahead of Thursday's Open; Unknown When Will Reopen Trading

By JACOB BUNGE CONNECT
Nov. 7, 2013 12:43 p.m. ET
Trading in thousands of stocks listed on OTC OTCM 0.00% Markets Group Inc. froze Thursday after the platform suffered a "connectivity issue," according to a spokeswoman.

The outage prevented OTC Markets from opening up trading Thursday, leaving traders without the main market for trading securities not listed on major exchanges such as the New York Stock Exchange or the Nasdaq Stock Market.

The breakdown on the lightly regulated market for stocks of companies too small, sparsely traded or troubled to be listed on the major markets came on a major news day for two of the market's most closely watched stocks, the government-backed mortgage investors Freddie Mac and Fannie Mae.

OTC Markets' outage was unrelated to the reports and was "purely a connectivity issue," said a spokeswoman for the company. She said officials at the marketplace didn't know when it would be able to reopen.

The outage is the latest glitch to hit U.S. financial markets following a series of malfunctions at market operators such as Nasdaq OMX Group Inc. The developments have raised concerns among many market players about the stability of the technology backing trading in stocks, bonds and commodities, and the potential for a broader meltdown that could saddle investors with losses.

The New York-based market operator, which lets investors trade about 10,000 securities around the world, was previously known as the "Pink Sheets."

Staff first noticed the technology problems around 6 a.m. EST Thursday and opted not to open up trading when the U.S. stock market opened at 9:30 a.m. EST, the spokeswoman said.

Freddie Mac said it would make a $30.4 billion dividend payment to the U.S. Treasury by the end of this year, while Fannie Mae said it would pay $8.6 billion in dividends, leaving the companies very close to making taxpayers whole on their large investments in the companies since they were taken over by the government five years ago.

On Thursday, there was little share-price movement or volume in the shares—an unusual development given that millions of shares change hands in a typical day and many more on days with major news.

Fannie Mae and Freddie Mac have become enormously profitable, buoyed by a federal backstop, an improving housing market and little competition from private investors. Over the past year, hedge funds and other investors have bid up the shares, once considered worthless.

But those are effectively political and legal bets, not financial ones, because Fannie and Freddie's bailout agreement doesn't allow them to pay back the government, meaning they can't emerge from government control without action from Congress or the Treasury.

—Nick Timiraos contributed to this article.

original message deleted to avoid confusion (i.e. I'm an idiot!)

Obviously Fannie is just about 3B shy of net zero. But I'm wondering if Freddie uses it's DTA and has positive income, could it make up for Fannies shortfall? So, while Fannie may be still short, cumulatively the bailout could be net zero with Freddie's excess. I'm not sure profits will be high enough to achieve this though.

To eventually liquidate them I suppose, or at least ensure that FnF could never dominate the mortgage finance market again. It's almost as if the SPSA 3rd amendment was written with expectation that FnF would never fully recover from the recession. Ironically, it was enacted just before FnF became very profitable. The timing just doesn't make sense, but somebody was either very wise or very foolish with the deal making. I think there's a case to be made both ways.

Kylie, that 600M reduction is in the SPSA 3rd amendment as well. See FNMA's Q2 earnings release (page 2):

http://www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2013/q22013_release.pdf

"In August 2012, the terms governing the company’s dividend obligations on the senior preferred stock were amended. The amended senior preferred stock purchase agreement does not allow the company to build a capital reserve. Beginning in 2013, the required senior preferred stock dividends each quarter equal the amount, if any, by which the company’s net worth as of the end of the preceding quarter exceeds an applicable capital reserve amount. The applicable capital reserve amount is $3.0 billion for each quarter of 2013 and will be reduced by $600 million annually until it reaches zero in 2018."

Keep in mind that this could very well change with any future SPSA amendments.

Absolutely jackticker! Lawsuits could be game changers...hopefully to our benefit!

Thanks for the kind comments Kylie.

To be very honest, I'm not sure what will happen. I can't imagine the government will simply walk away from a chance to cash in on those common shares. Guaranteed money is seldom turned down, but Congress doesn't always act rationally (see: recent shutdown).

What I fear most is that FnF will be kept in financial shackles via perpetual dividend sweeps to the Treasury. These payments in excess of draws could be used to capitalize whichever new mortgage finance system is eventually enacted. We must also remember that starting in 2014, FnF's capital reserves will be depleted by $600M each year until they reach 0. That's bad news for shareholders because what little assets we do have will be depreciating at a rate of ~15% annually.

All of this could change (and I hope it does!) with net zero, followed by public outcry, inability of Congress to agree on reform, and lack of a comprehensive plan that would not create systemic risk or catastrophic failure to the fragile economy.

Again, just my thoughts. I could very well be way off in my thinking.

Unfortunately, I don't think termination of conservatorship will be that simple. As it stands right now, Fannie and Freddie ARE the mortgage market, guaranteeing 9/10 new loans. Whether Republican or Democrat, it seems the only partisan notion is that the GSE's footprint needs to be reduced, with private capital stepping in to fill some of the void left behind. Most taxpayers also agree with not being left on the hook in time of crisis and therefore have relatively widespread congressional support on this matter (as long as their 30 year fixed and affordable access to credit is preserved).

What would happen if FnF were suddenly released from conservatorship? They would likely continue to dominate the mortgage market. No politician will let that happen without an attempt at reform. Moreover, FnF are woefully undercapitalized currently due to the SPSA 3rd ammendment (aka "dividend sweep"). Releasing them now is probably not in FnF's best interest, although one can argue that continued profitability would solve that issue. Also, what happens when QE tapering begins, and the $85B in monthly bond and MBS purchases are pulled out from underneath FnF? Will they remain as profitable? Could they survive being currently undercapitalized?

It's a complex issue that will take time to resolve, even with net zero being imminent. While this lengthy decision process may suppress our beloved PPS, it's probably the best for long-term sustainability of the housing market and preservation of FnF's role in the mortgage market at some capacity.

I know it's probably not a popular opinion with many on this board, but it's likely that release from conservatorship will take a considerable amount of time. Nevertheless, long and strong. I see only upside as main street and wall street psychology slowly changes. Pending court cases will help too.

This is what chessmaster was referring to: Warner's pathetic attempt at dodging a legitimate question.

'At a housing forum last month, Sen. Mark Warner (D., Va.) brushed away the idea that Fannie and Freddie should be returned to their former ownership simply after paying as much in dividends as they had borrowed. “I was a venture capitalist for a lot longer than I’ve been a politician. If I had put $180 billion into Fannie and Freddie back in 2009, I’d expect more than a one-to-one return on that,” he said. “So once I got a 30-to-one return…talk to me about Fannie and Freddie making money.'

http://blogs.wsj.com/developments/2013/11/06/why-fannie-and-freddie-are-paying-back-uncle-sam/

In my opinion, not only did Treasury get the money back in which it invested, it also got liquidation preference on the preferred shares as well as warrants to 79.9% of the commons. Given FnF's recent profitability, I'd say that's one hell of an investment return.

I haven't sold, flipped a single share. I was just watching the intraday chart and making an observation. The truth of the matter is that the volume was essentially stagnant at the time of posting. The job of the MMs is to provide liquidity to the stock. If it just sits there, it's not at a price that the market likes. It has to adjust.

Do I believe it will move up? Yes. If I didn't, I wouldn't be holding since January. It will move once the volume comes in.

What was backward about that post? It went from 2.29 to now 2.26 on low volume.

If I recall correctly, FnF have usually released them pre-market. Somebody correct me if I'm wrong...

Volume is incredibly low over the last 15 mins. I'd expect another dip again soon. MMs will have to walk it down to a price that generates some movement.

It looks like the percentage gains are converging over the last month. Perhaps commons predicted the preferred gains? Just a thought.

Yes, there wasn't a run at Q2 earnings release. There is an equally likely possibility that there will be no run this earnings either. But then again, there might be.

The point of the post was to simply demonstrate that at this time, volume on days immediately prior to earnings is not a reliable predictor of pps post-earnings. However, this trend could change as we get more data.

Look at the volume prior to earnings release in the May run. It was also pretty anemic.

May Volume:
5/6 = 5 M
5/7 = 3.26 M
5/8 = 61.5 M
5/9 = 75 M (earnings release date)
5/10 = 16.8 M

I'm not saying this should be an indicator of what to expect, but today's low volume doesn't exclude an explosive run post-earnings.

Thanks to you for all of your hard work, DD, and analysis. Here's to what I'm hoping is a great ~week! Go FnF!

Thanks Crawford for the info. In fact, this scorecard was published on the FHFA website since March.

http://www.fhfa.gov/webfiles/25023/2013EnterpriseScorecard3413.pdf

I'd guess it will be Thursday 11/7, based on precedent. No guarantee though.

Q1 results released 5/9 (Thursday)
Q2 results released 8/8 (Thursday)

I'm not saying that the majority of Americans haven't been mislead in their ire. But overall, I do feel that many think the recession was precipitated by too big to fail institutions, and FnF are almost always cited as culprits. Perhaps our encounters with the public are different...I can only give my experience.

Unfortunately, the GSEs are still vilified by many Americans. In the end, all the middle class really cares about is their 30 year fixed and affordable access to credit.

If the gov can provide these essential elements of the mortgage market outside of FnF, the vast majority of consumers won't care who originates the mortgage as long as it's cheap and attainable (within reason). I could very likely see a Corker-Warner-like proposal being funded by profits generated by FnF. Hopefully this won't happen, or they will at least be released from conservatorship without being liquidated.

I still retain a long-term positive outlook on FnF, but a dose of reality is never entirely bad. I hope that the sooner we approach net zero, the more congressional and market psychology will change in favor of shareholders. Unfortunately, for now, we seem to be on the bottom rung of the priority list.

A lot of buys going through above the bid...

I can appreciate that stance, javachip.

I'm just afraid that once Watt would get the post, the urgency to initiate reform would subside. Why end the current cash-cow status of the GSEs?

Aside from a few select Democrats, I have not heard an overwhelming chorus for maintenance of FnF. They all agree on access to the 30-year fixed and an explicit govt guarantee. That's about where the commonality amongst Democrats stops. I could really see them bleeding FnF dry by keeping them in conservatorship and using those continuing dividends to fund the new mortgage market (whatever that may ultimately be). Once their use with FnF is done, they will liquidate or severely wind them down, screwing shareholders in the process.

All just my opinion. At this point, as many of you have stated, shareholder's interests are at the bottom of the pecking order, save for the pending court cases.

An extremely tricky one to predict at best...