This is a few years old, but No Name is in some very elite company:
https://finance.yahoo.com/news/column-23-000-households-reported-214037151.html

Maybe you can be the new Daddy Warbucks to Bradford?

Well good for you, assuming those figures weren't negative nor imaginary, and not intersected by a decimal point somewhere.

Hmm. Maybe math isn't your strong suit?

Exactly right. It's why the govrats have avoided owning Common to date. They don't want it on the books. They have gone to great lengths to preserve the illusion of privately owned companies. Converting the seniors and exercising warrants changes the accounting and makes the GSEs official property of the US govt until such time they can offload all those shares. And it's an ENORMOUS amount to offload, which will take time.

Those who think the SPS conversion is coming and Treasury will own 99.9% of the GSEs - why? Other than it fits the Preferred fantasy....

If the govt wanted it on their books, they could exercise the warrants tomorrow.

We need all this shadow accounting to come to light - that normal companies would not be able to get away with!

Well I don't know if you realize, but you just gave a reason there doesn't need to be a SPS conversion. They can just wait until the capital threshold is reached, then sit back and collect dividends that equal the NW in perpetuity. They can end the conservatorship and still "legally" reap all of the profits from these private entities based on 10%/NWS dividends on the enormous LP. Treasury doesn't need common shares to do this, the Seniors have been working just fine...

The dividends on their SPS are the goose laying the golden eggs every quarter like clockwork. What is the incentive to convert to common and sell off for a one-time gain when they can just keep pillaging?

"A senior pref writedown is an action that only Treasury can take, while the jury verdict only pertained to FHFA. There is no connection between the two. "

Ummm... The FHFA is signing agreements with Treasury. Now, for the first time since 2008, they have been called out for signing horrific agreements that make no financial sense to shareholders, and arguably highly questionable as to the best path for the GSEs themselves. If any of these agreements were between corporations or private citizens instead of the government, they would stand zero chance of being defended court.

If there is to be any future agreements or a restating of prior agreements to adjust or remove any language that was in breach of fair dealing, I believe they will not have as much leeway on the level of ridiculousness in accepting horrible contract terms. The agreement could be restated to replace the NWS with something else like a fixed rate that is more in line with fair dealing. This may not be a true "writedown" but it could impact the amount of LP outstanding.

"Putting a 1% probability on a "well you just never know" scenario might sound low, but using your numbers it skews the results heavily. Reducing that to zero knocks your hypothetical 1200% return down by several hundred basis points."

Well you can assign a 100% probability on the AIG model if you like. I personally think this is going to be uncharted territory for the resolution. Hence, I invest on my thesis and you can invest on yours. Good luck to you.

"That does not change that fact that Treasury claimed a writedown would be illegal. Your stance that since no more detail was given therefore the claim is invalid makes no sense. That isn't logic, it's a refusal to accept the evidence."

I'm just going to agree to disagree on this point since we are just talking in circles and boring everyone. If you think those 10 words have significant weight, then more power to you. I see the lack of specificity as something entirely different. Time will tell if the writedown is illegal or not. In the meantime if ANYONE can find a law that it would violate, I'm all ears and willing to take in new information.

"What is your estimate of the probability that Treasury will change its mind on this front? Personally I think it's quite low given that Treasury has defended the NWS tooth and nail throughout the Obama, Trump, and Biden administrations."

Treasury can defend the NWS all they want. If that contract clause is forced to be stricken because it's a breach of good faith and fair dealing, then there is nothing left to defend. The relevant question is - what is the probability that FHFA and Treasury will pretend nothing has changed and continue to enforce the NWS currently in LP form, and eventually in cash dividend form when the dividends resume?

I find this odd also. FMCC common gets part of the settlement, you'd think that value would be set in the price. I think maybe someone is thinking separate lawsuit for FNMA? Path to victory would be pretty clear.

"I truly cannot wrap my mind around the idea that a jury verdict in a case that found no wrongdoing at all by Treasury (they weren't even a party to the case!) could lead to Treasury taking an action they otherwise wouldn't have."

Well consider that if the FHFA was found to not have acted in good faith and fair dealing for the NWS, do you think maybe just maybe they could be subject to a similar argument when it comes to agreeing to the non-cash sweeps? Let's not pretend like we all don't know that the NWS is still happening, albeit in a different form.

"The liquidation preference ratchet, by contrast, doesn't harm the companies at all even though it does continue to harm the shareholders."

I'm not so sure about this. If the future state is that the LP could get so large that the GSEs end up having to provide their NW to Treasury, sure they would by then have the minimum capital, but this essentially puts them in a position where they are effectively nationalized. JPS and Common will get zero in perpetuity as there may not be any scraps to give. I'm not sure this is a sound strategy on the part of FHFA.

"This sounds like weaseling to me. Show your work.
And in and case you already did give me numbers: $38 per share with warrants and $190 without. I just want to know more details about how you got them. You said that you're constantly making adjustments so I won't hold you to whatever number you happen to quote forever into the future, but as of now I do have something to anchor on."

Yes, I gave you some example numbers based on your 75% likelihood of SPS conversion. $38/190 if you want to use that as my position given YOUR input criteria. There's probably enough info for you to substitute whatever % likelihoods you want and come up with new expected returns. If you can't reverse engineer my methods, that's too bad.

"Smart. Effective portfolio management doesn't depend only on expected value but also variance of returns. Since so much of the common expected value in your model hinges on something you think has a 1% chance of happening (seniors and warrants both cancelled), slight deviations to that 1% would have a huge effect on your distribution of potential returns."

The 1% I also did for your benefit as I figured anything higher you would balk at. A lot of what I do is based on weighted risk averages and scenario planning. Over the past 5 years I have a risk-adjusted alpha of 5.96 with a Beta of 1.04 vs the S&P500. The last few years have been particularly challenging in the market and I'm mitigating the best I can. Just because I don't show my work doesn't mean I'm not putting in the work.

I wish I was like Ace Trader and had retired at 47, but I'm late to the game and have only been doing this the past 10 years.

I stand corrected, I should be saying violated implied covenant of good faith and fair dealing instead of bad-faith. They aren't quite the same thing. It's just easier to type.

"Here's the quote from the book:
There had been some calls over the course of the conservatorship for Treasury to just forgive all or part of its claim. That was a nonstarter, politically, for Treasury. Moreover, Treasury claimed that it could not legally do so."

I'm sure you are smart enough to know what a red herring is, especially in the context of uncomfortable conversations, and more so when politicians are involved and don't want to do things that constituents want. The political non-starter may be true. The rest of the claim is questionable at best. There isn't any detailed information about why it would be illegal, nor what discussions were had, nor with whom. It's an unsubstantiated claim. And you interpolate that 10 word sentence as "evidence" that Treasury had an official position, Mnuchin checked with DOJ and they know of existence of statutes that prevent the write down. That's more of a stretch than anything I've said.

"If Treasury disagrees and insists on converting the seniors to commons anyway (because from their perspective writing them down would be illegal), how does that help you?"

I believe the correct term for this is "LIE".... If Treasury LIES and says they can't do anything other than steal more value from the shareholders. So they write up yet another agreement, that is clearly another breach of good faith, based on more lies to cover up the previous lies. That is what you are implying. And yes, I'd agree it's entirely possible.

"You don't seem to grasp the fact that the jury verdict did not alter a single letter of any contract or agreement, either retrospectively or prospectively."

I don't think you grasp the concept that if a contract has a clause that has been deemed a breach of good faith, that clause is effectively rendered moot. They can't keep enforcing a bad-faith clause in a contract. It could even render the entire contract moot. So while nothing has changed yet, that doesn't mean everything will stay the same as it is today.

"This would be a good time to channel DaJester and ask: was Werfel part of the Treasury Department at the time? How did he have the authority to speak for them?"

Not sure he had the authority to speak on behalf of Treasury. Sounds like an inference based on whatever info was provided at the time.

"that clearly changed by the time this report was released at which point Treasury said "The value of the warrants issued to the government under the terms of the PSPAs could potentially increase, thereby providing enhanced value to the taxpayers.""

Well this sort of highlights my point. Depending on political winds and who is in charge of Treasury, their stance may change over time. Someone's recollection of the thought process at a point in time doesn't mean that stance will stick in the future.

Maybe it will be a new "draw" from Treasury since they can't use FnF earnings. Which will then be used to paint a story of how FnF are insolvent because they can't pay the court order.... LOL!

Exactly. And I think *if* this ever gets back in front of the SCOTUS or another jury for damages, it's going to be hard to argue that math. The probably that the LP gets adjusted to zero is much greater today than it was prior to this year.

"The Supreme Court already said that the NWS, in the form that it existed when it was signed in 2012, was ended. From page 4 the Supreme Court's Collins opinion:

After oral argument was held in this case, the FHFA and Treasury agreed to amend the stock purchasing agreements for a fourth time. That amendment eliminated the variable dividend formula that caused the shareholders’ injury. As a result, the shareholders no longer have any ground for prospective relief, but they retain an interest in the retro-spective relief they have requested."

So you don't think that was a LIE that the SCOTUS bought? The NWS really ended in the 4th amendment? Let's look at the language from the amended and restated SPS agreement from April 2021:

"For each Dividend Period after the Capital Reserve End Date (as defined in the Preferred Stock Purchase
Agreement, as amended), “Dividend Amount” means an amount equal to the lesser of 10.0 percent per annum on the
then-current Liquidation Preference and a quarterly amount equal to the increase in the Net Worth Amount, if any,
during the immediately prior fiscal quarter; provided, however, that if at any time the Company shall have for any
reason failed to pay dividends in cash in a timely manner as required by this Certificate, then immediately following
such failure and for all Dividend Periods thereafter until the Dividend Period following the date on which the
Company shall have paid in cash full cumulative dividends (including any unpaid dividends added to the
Liquidation Preference pursuant to Section 8) the “Dividend Amount” shall mean an amount equal to 12.0 percent
per annum on the then-current Liquidation Preference."

Seems to me that after the capital reserve end date, FnF are going to owe a boat-load of dividends based on a dollar for dollar increase of retained profits (SWEEP), and when they pay it back it will be based on 10% of the LP or the NWS, whichever is less. That doesn't sound like the same variable dividend formula (SWEEP)?

I don't know if they are trying to hypnotize the public, but we are getting very SWEEPY....

"It seems possible that you have not taken into account the possibility of a capital raise or a junior-to-common exchange offer. Those are sources of dilution that stand apart from the seniors and warrants."

I don't think that was the question nor stipulated in the response.

If you want to throw in additional criteria to the question - Why not throw total dissolution and revocation of the Charter in there so the value is zero?

I honestly don't like sharing numbers because I'm not a fortune teller and I don't intend to sway anyone to believe my numbers are the right numbers. No matter how much math I put into it, I am pretty certain that my model, and all other predictions on this board are likely to be wrong.

I wasn't on this board back then, but prior to 2012 I highly doubt anyone was predicting the NWS. I don't know how the Conservatorship will end, but it may be equally unpredictable.

"What is your overall expected value of FNMA right now? That's a single number that doesn't require any disclosure of the finer details of your methods."

I'm not going to give you a number that you will then quote back to me in the future. The situation is fluid, and I'm constantly making adjustments.

IMO, at the recent prices there is good upside to offset the high risk. And only a portion of my portfolio is dedicated to high-risk. The actual value is zero since the companies have been essentially illegally nationalized. I am speculating that will change eventually - I'm in this for the long haul. So I'm not buying based on an actual value number of today but on mathematical probabilities of what could happen in the future. Feel free to insert comment about hope not being an investment strategy here __________________.

"Please don't tell me you're another one of the cheerleaders here that mindlessly clicks "like" on any post that disagrees with me"

No, but I am human and I sometimes get a chuckle out of a post and will like it just because I like it.

"Retroactively applying the NWS dividends in excess of 10% to the LP would be a unilateral decision by Treasury because it would basically just be a writedown. FHFA wouldn't be involved with that."

Oh, you mean the illegal action that can't happen? :) I guess we shall see.

"Treasury mentioned a writedown in Calabria's book"

Who mentioned? Was Treasury a co-author, I may have missed that. And a mention implies legal backing? I think not.

"Your position, that since Treasury did not cite a specific law when claiming that a writedown is illegal and therefore it's actually legal, is far more ludicrous."

I beg to differ. The absence of a law forbidding something, makes it legal. Unless someone, ANYONE can provide a legal statute that says the write down is illegal, I'll stick with the supposition that it is permitted.

"Your third sentence contradicts the first two"

Not at all actually. If I get caught swindling someone with a bogus contract, and the jury awards the other party damages as a result a clause not being crafted in "good faith"... Those damages are an independent rendering of judgment. If after that verdict, I continue to use the same swindling method, there can be additional damages and a completely different jury may come up with a completely different damages model.

But the fact is - if I continue to use the same swindling technique that I have already been called out by a jury as being a breach of contract - then I have ZERO legal defense in the future. At that point, I clearly know that the swindling clause is not in good faith, and it should no longer stand. So yes - the damages award(s) can be independent of the clause in the contract that caused the breach. Only a fool would set themselves up to use the same contract clause on the same plaintiff thinking they will get away with it again.

That's preparing for a different kind of release...

I've seen this movie before. Cool good-guy company was doing great and then BAM - they get blindsided by some outsider who demands money, fully backed by the legal system. Oh no! The company doesn't have the money to pay... What shall we do? I know, let's throw a bikini carwash to raise money and save the company!!!

I expect a FNMA Bikini carwash soon. The Lamberth delay is just long enough for them to set up a video montage with suds, bubbles, and boobage.

Maybe FNF can have a bake sale to raise some money to pay the plaintiffs?

$60 is the ceiling with no SPS and no warrants? LOL!!!

If you actually believe that, then it's a good thing you are steering clear of the commons...

This is why I think the LP is a future domino that could fall. Based on acting in bad faith when creating the NWS amendment, verified by a trial by jury... And lying to the SCOTUS about it being ended, if it ever makes it back to court in a future form it's a much harder corner for FHFA & Treasury to get out of.

I think the verdict (once official) will impact the current version of the NWS in the form of LP that keeps building. If it's wrong do to it in cash, it's wrong to do it as IOUs...

Wholeheartedly agree! Let's get this thing released AND keep the grubby government hands out of the private citizen's pot!

1.) I was basing it on FNMA not combined FnF, but your examples are still directionally correct. I do predict P/E starting more in the 6-9 range, but I expect it to grow to 12-13 range. So the $38 is not immediate, but will take time - as I stated in my example.
2.) Not quite, while #3 likely starts well under $25 and builds to my predicted $38 while I sip my cheap wine, the #4 is more immediate. If there are no SPS or warrants to hinder investor confidence, then the 12+ P/E hits fast and hard. Lowering value in #3 does not impact #4 as they are different situations, different outcomes. Pure speculation on my part of course.
3.) Removing the LP and the associated dividends would put the GSEs on solid footing faster coming out of conservatorship. If combined with a lower threshold, which I also think is likely to happen given the current political interest, I don't believe a capital raise is necessary in #3 or #4. As I mentioned, there are many more scenarios. Large or small secondary offerings, partial warrants being exercised, JPS conversion, etc.
4.) I am counting on JPS going to par in #3 and #4, as I am also invested there. I agree on the JPS having lower risk, but there is also less upside potential. In a best case scenario, it could be a 1200% gain for a $25 JPS currently priced at $2. But when you factor in the possible haircuts or total loss, it's lower as you mention - a 750% weighted average is not a bad estimation. Still positive in my book.

This was all assuming your 75% probability of SPS cramdown. I don't think that is the case. I give it less than 50% probability, which changes my numbers drastically. I have an entire worksheet with various scenarios and buy/sell points based on risk vs return. Explaining it to you would require screen-sharing and conversation, which I'm not inclined to do.

As for riding the risk - it's just different strategies for different people. I am not invested in any amount of money that I can't afford to lose (insert Bradford joke here). It's a calculated bet. We all calculate differently, or some don't bother to calculate at all. To each their own...

"My point was that you have held me to an extremely stringent evidentiary standard, to the point of absurdity, and far more than anyone else on this board."

That's ironic. I think your standards are higher than most on this board (not necessarily a bad thing). I'm not nitpicking Calabria's quote. I just calling it what it is - a quote in a book. NOT an official Treasury stance, not evidence that the DOJ looked into anything or found a legal violation. Not indicative of what current or future Treasury stance may be. It's just book quote for pete's sake.

My blanket "agreement" doesn't relate to every word or sentence, I'm agreeing with the sentiment of the post. I agree that FHFA should have been allowed to pay down the LP. I am aware that the contract language prevents that. One of the many future possibilities is that the contract language can be revised (to remove potential contract breach language) and dividends can be retroactively calculated to apply to the LP.

"The DOJ must have had some law in mind when they advised Treasury on the (il)legality of writing off the seniors during Treasury's negotiations with FHFA in late 2020. Your idea that since Calabria didn't mention a specific law means that law doesn't exist is just plain faulty logic"

Good gravy... Dead horse beating alert. What is faulty logic is your assumption that the DOJ "must have had some law in mind" when the reality is that neither DOJ nor the Treasury ever mentioned anything about write downs. If there is actual evidence to the contrary, then please provide it! Calabria doesn't need to mention a law because he's just recollecting a conversation. To think that every word in a remembered conversation is fact with legal backing is ludicrous.

"You need to stop calling the NWS an illegal contract. The jury verdict did NOT say that the NWS is illegal. Your opinion as to its legality carries no weight in any court or agency decisions."

I didn't say the jury said it. I can say it. A clause that has been legally deemed a breach of good faith and fair dealing is a moot clause in contract. Or at the very least opens itself to be nullified lest there be future damages by continuing the bad-faith practice. The damages are independent of the breach itself, yes. I am not limited to only saying things that are proven in court. Again, I'm not sure you understand what a conversation is.

"Treasury just writing that off for nothing in return would blow a $220B hole in the entire nation's balance sheet. Political fallout indeed!"

Yes, but again, outside of political fallout, there is no law that the SPS can't be written down. The laws being thrown around referred to debt.

How did the $220B get on the balance sheet to begin with? So it's ok for the money to appear from an illegal (or at least bad faith) contract, but it can't be removed once it's uncovered? I fail to see how the remedy for ill-gotten money is not the removal of that money. The only thing stopping it is politics, not the law.

"Not having read the book hasn't stopped you so far!"

Yep, let me know if I'm getting annoying. I'm not here to bash you. I just question some of your assumptions. I think there's confirmation bias on both sides of this issue.

"Do you ever eat a salad without having grown all the ingredients in your own garden?"

Do you expect to receive a rotten salad after reading a review that a restaurant had a rotten salad at a specific point in time? Is the restaurant more likely to have a rotten salad? Sure. Does that make it the most likely outcome? Nope. You'd want more information on the current situation.

"Yes, either Treasury will convert the seniors to commons or they won't. But from our point of view all we can do is assign a probability to it. Right now I'm at 75%, and saying 0% is ridiculous in light of the evidence. What is your number, and what is your reasoning behind it?"

Likewise, I've never said SPS conversion has a zero percent chance. It's certainly possible, but should not be stated as if it's a forgone conclusion. Even if I conceded to you the 75% probability for illustrative purposes, what is the result of the other 25%?

Let's use a $1000 hypothetical example based on $0.50 common cost basis and ignore any JPS for easier math.
- 12% chance common gets wiped out through receivership or other means. My $1000 goes to zero. I go live on a beach and mooch off my family.
- 75% chance common gets diluted by SPS and warrants. My $1000 goes to $10. I buy myself a scratch off ticket and lose that too.
- 12% chance common get diluted by warrants only. My $1000 goes to $76K (based on ~$38/sh) may take some time to stabilize and get P/E to double digits. I patiently watch my investment grow and buy a cheap bottle of wine and go about my life.
- 1% chance common not diluted by anything, both SPS and warrants rescinded. My $1000 goes to $380K, and I buy a car and nice bottle of wine, and I can still afford a lawyer after I get a DUI.

Even with a combined 87% probability of a horrendous outcome, the weighted return on this risk is about 12:1 so I am likely to make money. IMO - the entire above scenarios represent no more than 50% of the likely outcomes. The other 50% is a resolution that we are unlikely to predict, unique to the GSE issue. I'll call that a net-zero gain for now because it could be good or bad, totally unknown but should be accounted for as it becomes clearer.

There is no point bashing Common holders if they are willing to take the risk or are riding out the risk due to the situation they were handed years ago.

Beneficial to the Agency or beneficial to Treasury? IMO some of the contract negotiations don't really help FHFA rehabilitate anything.

I can't fault you for that. Cheers.