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Looks like a net projected COST to the gses' of $1.7B to $2.7B. We won't really know what it ends up being for some time:
"Market conditions and data related forbearances have been very fluid over the course of the
pandemic. More recently, the Agency has projected that cost to be approximately $7 billion
to $8 billion. It also projects that, absent a severe downturn in the housing market, the
Enterprises are well-positioned to bear that cost and continue performing their role of providing
liquidity, stability, and affordability to the mortgage market.
In reaching this conclusion, the Agency relied on two mitigants to address the costs of
forbearance to the Enterprises. First and foremost was the $59 billion capital buffer that the
Enterprises have amassed as a consequence of a pre-pandemic amendment to the Preferred Stock
Purchase Agreements (PSPAs) between FHFA and Treasury. The second was the estimated
$5.3 billion in revenue raised from the Agency’s October 2020 implementation of a temporary
“adverse market fee,” which has helped the Enterprises to recoup the majority of the projected
$7-$8 billion cost of forbearance."
Jones Day: "In Bhatti, the Eighth Circuit recognized that Collins controlled and reversed
the district court’s ruling dismissing the shareholders’ separation of powers claims
for lack of standing. Specifically, the court determined that the shareholders had
standing because “the relevant action in this case is the third amendment, and [ ] the
shareholders’ concrete injury flows directly from that amendment.” Bhatti, 2021 WL
4558312 at *1 (quoting Collins v. Yellen, 141 S. Ct. 1761, 1779 (2021) (emphasis
added)).
As the Shareholders explained in their Joint Supplemental Brief Regarding
Collins [ECF 75], the determination that shareholders have a “concrete injury [that]
flows directly from” the Net Worth Sweep directly supports the Shareholders’
explanations of why they have direct claims. Jt. Supp. Br. 9. The Shareholders
alleged that the Net Worth Sweep transferred their ownership rights including their
rights to dividends and a liquidation preference, in which they have a “direct
personal interest,” to the government. Because this injury is entirely separate from, and independent of, any injury to Fannie Mae and Freddie Mac themselves, this
gives rise to a “distinct injury.” Id. at 9–10. And moreover, the Shareholders seek
money damages for themselves. Bhatti confirms that, under Collins, these
allegations establish that the Net Worth Sweep directly injured Shareholders."
It's like no one does on site due diligence before buying! I've seen houses on Zillow that are off by hundreds of square feet, I've heard of alot of horror stories over the years when cracked foundations and other errors go unnoticed before the buyers buy. Here it sounds like a self inflicted wound.
Zillow makes money by letting Realtors and mortgage providers advertise on their site for a fee. I wonder how Zillow cutting into the commissions and fees of their customers made them feel?
"Zillow bought almost 10,000 homes in the third quarter and sold about 3,000, with sales producing an average loss of $80,000 per home. Revenue rose 164% to $1.74 billion from a year ago, but was below the $2 billion forecast of analysts surveyed by FactSet.
“This is a prime example of why people should make decisions vs. an automated algorithm,” said another mortgage-bond investor of Zillow’s home-buying process.
Also, the mortgage to Zillow is “non recourse,” meaning creditors can’t come after the company’s other assets if it fails to pay, making it easier to walk away. Although, if Zillow defaults on its mortgage debt, a loan servicer would be put in place to handle existing properties to maximize recoveries for bondholders."
https://www.marketwatch.com/amp/story/zillows-1-2-billion-of-mortgage-bonds-in-focus-after-company-abruptly-exits-home-buying-business-11635984135
One thing MC did that I liked was at least he brought up the idea that the government should be following the law and at least had a plan for release, UNLIKE ALL OF HIS PREDECESSORS. Although he was idealistically opposed to having the government interfere with free markets and like any Libertarian thought those that exclusively use government services should pay for their costs. Here, he tried to bring in more competition from the private label market and portfolio lenders by jacking up the gfs so high that the private market would come in. You grew up in the South and I don't mean SoCa, didn't you, cause that's some good eating there !
Maybe when all this is over with we can open up a Memphis barbeque restaurant in SoCo with a bluesy theme like this one https://redhotandblue.com/
I think the giveaway of $15B of much needed capital to the financial establishment is a problem, yet our dear leaders (except MC to some extent) choose to ignore HERA's mandate to preserve and conserve their wards assets. Either the current head of the FHFA is getting bad internal advice, is purposely depleting billions of dollars to satiate her powerful lobbying critics, or WORSE HASN'T A CLUE!
I think the giveaway of $15B of much needed capital to the financial establishment is a problem, yet our dear leaders (except MC to some extent) choose to ignore HERA's mandate to preserve and conserve their wards assets. Either the current head of the FHFA is getting bad internal advice, is purposely depleting billions of dollars to satiate her powerful lobbying critics, or WORSE HASN'T A CLUE!
A little color from TH on CRT from last night: "What’s missing, though, is the economic context. These are mortgages that carry private mortgage insurance, which significantly reduces their loss severity on default. Fannie publishes data on recent annual default rates and loss severities for these loans in its Connecticut Avenue Securities Investor Presentations. In the January 2021 version of this publication, it says that for its five most recent origination years that have enough loss data to be meaningful—2012 through 2016—the average annual default rate for loans with LTVs over 80 percent and up to 97 percent has been 0.2 percent, and their average annual loss severity has been 0.11 percent. That’s an annual credit loss rate of 2 basis points per year. It would take 30 years of credit losses of 2 basis points per year for the 60-basis point threshold of credit losses to be reached—at which point the mortgage insurers that are counterparties to this deal would have to begin picking up losses—and the term of the insurance is only 12.5 years. On top of that, Fannie is paying for insurance for up to 375 basis points of losses, which is close to 200 years of losses at the current credit loss rate. As I noted in my current post, even in a repeat of the Great Financial Crisis the total losses on an insured pool of loans are unlikely to exceed 150 basis points of the pool balance. This deal is a giveaway to the mortgage insurers, just as similarly-structured Connecticut Avenue Securities deals are giveaways to investors.
The only reason Fannie is doing these grossly uneconomic deals is to get the capital relief FHFA is proposing to offer them. And that’s the scandal. FHFA knows the Calabria capital standard is far too onerous, but rather than reduce it, it only allows the companies to “buy it down” somewhat by issuing CIRTs or CRTs that will lose them billions of dollars in the real world, through greatly overpaying for insurance that will never pay off. And Fannie’s customers are bearing the cost of that. Shame on FHFA."
I think he said a 10% ownership in the company NOT his portfolio, listen again.
Currently the US outstanding debt is approximately $28.9T. https://www.usdebtclock.org/ (hey just let our children and grandchildren be burdened by this, right !)
Currently the US GDP as of the 3Q21 is $23.17T. https://www.bea.gov/news/2021/gross-domestic-product-3rd-quarter-2021-advance-estimate#:~:text=Current%2Ddollar%20GDP%20increased%207.8,table%201%20and%20table%203).
Japan has a 2x debt to GDP ratio. https://www.fitchratings.com/research/sovereigns/fitch-affirms-japan-at-a-outlook-negative-11-08-2021#:~:text=Fitch%20Ratings%20%2D%20Hong%20Kong%20%2D%2011,A'%20with%20a%20Negative%20Outlook.
What do you think Japans sovereign debt rating is? https://www.crfb.org/blogs/japans-credit-rating-cut-standard-poors
If you were a decision maker in the federal government, would you want to roll the dice and add up to $7.2T in liabilities to the federal government balance sheet and possibly raise the annual interest expense for the entire nation annually or keep your cushy gubmint job and do the right thing?
During the over 13 year 'conservatorship', the federal government has been in 100% control. We on paper own 20.1% of a corporation that is currently and has been 100% controlled by our 'conservator', who has done the exact opposite of conserve and preserve our corporations assets and has chosen to transfer $100's of billions of dollars of much needed capital to the UST coffers instead of building capital.
THE FEDERAL GOVERNMENT HAS CHOSEN THROUGH ITS 'CONSERVATOR' ROLE TO TRANSFER ALL POWER OVER THE CORPORATIONS TO ITSELF AND HAS TAKEN THEIR ASSETS, WHY SHOULDN'T THEY ALSO ASSUME THEIR LIABILITIES?
It has been and continues to be a defacto nationalization of our private property rights.
Defacto means according to Webster: exercising power as if legally constituted
If the ratings agencies eventually get a clue and figure out that the federal government has in fact nationalized these companies they should put all or a portion of the nationalized corporations liabilities on the federal government balance sheet.
A post trial verdict from a federal judge ruling that a taking by the federal government has occurred could result in one or more of the big 3 credit rating agencies putting the federal government debt on a negative credit watch during the federal governments appeals period.
If the intent of the federal government 'conservator' is to salt the Earth with their carcasses, and keep their wards in perpetual conservatorship, a 20.1% ownership is meaningless, isn't it?
Virginia and the federal government were the exact same, the executive and legislative branches were controlled by the same party. Just like the federal Executive and Legislative Branch, Virginia allowed the extreme end of their party to pass hundreds of Progressive bills. The people grew sick and tired of being "woke" and voted them out of power in both the executive branch (governor) and the house (legislative). No Senators were up for reelection. NJ is in a dead heat. Seattle voted for a R attorney general. Minneapolis rejected a ballot initiative to remove their police department.
Joe Manchin (whose state was originally part of Virginia) said today that his party should take notice of the message.
If the $350B affordable housing fund bill doesn't make it through Congress and become law, the current administration may take the idea of monetizing their "investment" in the gses more seriously. If they determine that they can't or that it will not be feasible they could simply order the gses to pay for their governmental affordable housing initiatives through new programs like the ones they are planning for now under the umbrella of the program the CEOs announced in their latest earnings call the other day.
It's just ridiculous that two corporations earning $10B to $20B per year are now going to be saddled with loss producing loans subsidized by a hit to much needed capital as they begin their 14th year of a 'conservatorship' that has been artificially prolonged by the 'conservator'.
"The government-sponsored enterprise will provide closing cost credits on multifamily loans for rental landlords who agree to report on-time rental payments through Esusu Financial. Esusu, a credit-building fintech, will deliver the on-time rental payment reports from landlords’ property management software to the credit bureaus. Freddie Mac negotiated discounted fees for Esusu’s services."
Oh goody, ANOTHER GOVERNMENT INITIATIVE PAID FOR WITH FUNDS THAT COULD HAVE GONE DIRECTLY TOWARD BUILDING CAPITAL! Good thing our 'conservator' transferred hundreds of billions of dollars from the gses' retained earnings into the coffers of the UST FOR NOTHING!
Thanks Uncle Suggy, you're the best! Of course our talented CEO and management SHOULDN'T BE MAKING THESE BUSINESS CALLS... You're so smart, no way the puppet management of these companies should be making these complicated business decisions, only our great dear leaders can! Let's keep the CONservatorship going forward into perpetuity, maybe Mr. Parrot has some new ideas!
https://www.housingwire.com/articles/freddie-mac-spurs-landlords-to-report-on-time-rent-payments/
BA: "Mispriced probalistic investments, like owning a royalty on the mortgage finance business in the US with a built in moat, they will become publicly traded companies again, it may take several years..."
SALT Income tax deduction is generally a positive for American homeowners and reduces the housing costs for prospective buyers. Did Bernie have a rough night last night, he looks a little frazzled: https://www.cnbc.com/2021/11/03/house-democrats-propose-increasing-salt-cap-to-72500-through-2031.html
It looks like Mr. Market is valuing Fannie Mae's common outstanding at approximately $1.2B (three weeks of earnings) and jps at between 5% and 10% of par.
https://finance.yahoo.com/quotes/fmcc,fnma,fmckj,fmcki,fmccm,fmcck,fmcct,fmcci,fmckk,fmccg,fmcch,fmccl,fmccn,fmcco,fmccp,fmccj,fregp,fmckp,fmccs,fmcko,fmckm,fmckn,fmckl,fnmap,fnmao,fnmfo,fnmam,fnmag,fnman,fnmal,fnmak,fnmah,fnmai,fnmaj,fnmas,fnmat,fnmfm,fnmfn/view/v1
HeeeHeee! We'll see what happens ! If the Plaintiff shareholders survive these preliminary trial motions, the cases go to trial, and the bright sunshine is shinned on and exposes some or all the bad acts of the federal government here, some relief is possible. In the meantime, in addition to retaining earnings in theory, Uncle Suggy could have a come to Jesus moment and see that his errant ways need to change course or the so far clueless credit rating agencies could finally realize that this is in fact a defacto nationalization, or during the trial the judge could say something to the government attorneys like, "Wow, just like the Mafia! Why don't you see if you guys could consider a settlement?" OR IN THEORY THE FEDERAL GOVERNMENT COULD ACTUALLY FOLLOW HERA, PRESERVE AND CONSERVE THEIR ASSETS AND RELEASE THE GSES.
I keep accumulating more cash from my other investments (can you believe that some investments actually reward their owners?) and am waiting for the 50 cent moment you keep talking about that is definitely going to happen by TDay, right? Amelia told me the same thing, so it's gotta be true !
FOMC cuts MBS purchases November and December, will continue to reinvest runoff in MBS:
The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.
With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months, but the summer's rise in COVID-19 cases has slowed their recovery. Inflation is elevated, largely reflecting factors that are expected to be transitory. Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.
The path of the economy continues to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation. Risks to the economic outlook remain.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In light of the substantial further progress the economy has made toward the Committee's goals since last December, the Committee decided to begin reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities. Beginning later this month, the Committee will increase its holdings of Treasury securities by at least $70 billion per month and of agency mortgage-backed securities by at least $35 billion per month. Beginning in December, the Committee will increase its holdings of Treasury securities by at least $60 billion per month and of agency mortgage-backed securities by at least $30 billion per month. The Committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook. The Federal Reserve's ongoing purchases and holdings of securities will continue to foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Raphael W. Bostic; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Charles L. Evans; Randal K. Quarles; and Christopher J. Waller.
https://www.federalreserve.gov/newsevents/pressreleases/monetary20211103a.htm
Do the companies even have a choice? No, our governmental overlords will decide 100% on it's own EXACTLY WHAT'S IN THE BEST INTERESTS OF THE FORMERLY PRIVATE CORPORATIONS!
"I don't stay awake at night worrying about the shareholders!". Mel "chase me some skirt around the office" Watt.
I don't think that the ratings agencies will require the federal government to include 100% of the $7.2T on the liability side of their balance sheet, since the Stress Test shows little if any exposure, BUT THEY COULD CERTAINLY DECIDE TO PUT ALL GSE MBS OUTSTANDING ON THE FEDERAL BALANCE SHEET AND MAKE THE GUARANTEE EXPLICIT!
If I am not mistaken, the CBO already has been advising former presidents to include their liabilities or a portion of them for budgetary purposes. Of course this inconvenient truth has been ignored.
The federal governments overreach in this fact pattern is stunning and that the federal government attorneys would argue that the impetus for the nws was to avoid a death spiral when they knew they had exhausted all their accounting shenanigans and the gses' were beginning their golden years is disturbing.
For a federal government conservator to transfer hundreds of billions of dollars to itself, continue hobbling its wards, and using its powers to perpetuate a defacto nationalization is problematic and IF we get to trial will be exposed to the full light of day.
Will a federal judge whose paycheck is signed by the federal government rule in a meaningful way to provide real relief? Will the inevitable appeals result in victory for the government in the end? Don't know. But first we have to survive these preliminary trial motions.
Do you think that it's just cluelessness and lack of empathy of the business press, judges, the American people, and a lingering sense of a need for retribution for two major corporations so involved with the GFC that will prevail in the end?
If it's disclosed during the trial that the federal government used its Incidental Powers to "salt the Earth with the gses'" or to "let the US Congress decide the future of housing finance policy" by pressuring the US Congress through the taking of all the gses' capital and nationalizing them, you would think most judges would see the taking/injustice. Of course after watching the SCOTUS ignore 400+ years of conservatorship law and rule that it's okay for a conservator to self deal was unusual and disturbing to say the least.
Well FFF, you hit the ball out of the park with your prognosis on what you saw the SCOTUS decision would be and that they would strictly interpret HERA to allow the Incidental Powers to override the Primary Power in HERA to conserve and preserve.
Since little is written about the legal philosophy of the judges deciding the CFC case, BUT we do know that the losing side will likely appeal, do you care to hazard a guess as to the eventual outcome? I don't think the message board or too many people have dissected the CFC case like people did with the 5th Circuit EnBanc Panel decision and the SCOTUS decision...
This has got to be the most bizarre "conservatorship" EVER IN THE ENTIRE HISTORY OF THE WORLD! Let's see if in the end the ship is righted and the gses' are allowed to sail away. Does anyone really know how this ends? Definitely not, but this investment, with all of its twists and turns, often magnified by the weaknesses of human nature like greed, power, retribution, etc., make all my other investments so boringly tame!
From todays WSJ: "Mortgage companies in the U.S. issued $21 billion of mortgage-backed bonds in October, the second heaviest month of borrowing since the 2008-09 financial crisis, according to research by Bank of America Corp.
One reason: It is cheaper for many companies to borrow in the "private-label" market than to issue bonds guaranteed by government-sponsored enterprises Fannie Mae and Freddie Mac.
The lower-cost funding is prompting home-loan originators such as loanDepot Inc., as well as real-estate investment trusts to tap the market, said Pratik Gupta, head of residential mortgage-backed securitization research at Bank of America.
Overall mortgage-bond issuance hit $163 billion this year through October, the heaviest pace since the financial crisis, and is likely to reach $190 billion by year-end, according to the bank. Borrowers hit the monthly postcrisis high in July when they issued $25 billion of bonds.
Borrowing in the government-sponsored bond market has grown less attractive because Fannie and Freddie charge borrowers loan-level price adjustments that can be prohibitive, Mr. Gupta said.
At the same time, low benchmark interest rates and demand for yield from bond investors have pushed down spreads of private-label bonds, making them more cost effective.
Mortgage-backed issuance in October also got a boost from a large sale of credit-risk transfer bonds, as mortgage insurers used the bonds to shift mortgage-default exposure into the private market.
Rising issuance hasn't translated into the inclusion of riskier mortgages in bond deals so far, Mr. Gupta said.
The average borrower FICO score on jumbo mortgages included in securitizations is 775, about 40 points higher than precrisis levels, the bank found."
Wow, that's interesting! Mr. Yi may already know and have a working relationship with Michael Calhoun and may be aware of his plan to monetize the governments "investment" in the gses' for what the current administration is unanimously for - increasing affordable housing.
One major problem: Until the courts rule what exactly are the legal rights and responsibilities of the Plaintiffs in the current pending (or new?) litigation how can such a large transfer of assets be achieved? Would such a large transfer of alleged legitimate government assets into a narrow purpose possibly violate the Separation of Powers? Can MC2 make the lawsuits disappear with a settlement with the Plaintiffs? Will Sherrod and Elizabeth scream out, "This is nothing more than a giveaway to Wall Street?"
I'll stay tuned, will you?
I think our jps friends fail to recognize that 100% control over the gses' with zero liabilities on the federal balance sheet while each quarter the probability of a UST draw decreases is a sweet spot for the gubmint to be in. Did I mention that they are slam dunking the ball in court and sign ALL THE FEDERAL JUDGES PAYCHECKS!
Eviction Moratoriums:
1. Artificially decrease the supply of housing for rent.
2. Cause less resourced mom and pop landlords and partnerships to sell (especially in heated residential real estate markets) and some of that rental property is sold to owner occupied housing and lowers the overall supply of rental housing.
3. So long as the local economy maintains strong job growth new arrivals will typically pay higher rents because of the limited supply.
"It’s basic economics. As the supply of rental housing declines, rents inevitably rise. And ultimately that exacerbates problems for those families already struggling to keep a roof over their head. But of course, when pressed, the CDC argues in court that it wasn’t concerned with the impact on affordable housing.
There are other attendant consequences as well. If you are a landlord and you know that evictions are not on the table, you might require more stringent credit checks on tenants or require higher security deposits. Those are rational responses to eviction moratoria policies. But they ultimately make it harder for low-income families seeking to secure housing. But don’t blame the landlords when it’s CDC’s policy at issue. Yet again, for every regulatory restriction, there is an equal and opposite (but not always anticipated) regulatory consequence."
https://pacificlegal.org/unintended-consequences-cdcs-eviction-moratorium/
Those evil Landlords (just like you!) MUST PAY! How many Landlords got stuck with ZERO compensation from the $45B "Rescue Plan" because their Tenant just took off or the federal government refuses to pay for whatever reason?
Will future investors in American residential housing demand higher ROI'S as a result of the added risk of 18 to 24 months of zero cash flow? Maybe.
https://www.google.com/amp/s/www.forbes.com/sites/forbesrealestatecouncil/2021/01/12/eviction-moratoriums-may-negatively-impact-affordable-housing-supply/amp/
"For the good of the country, I had proposed that we seize control of the companies,..." Hank Paulson
A Taking in violation of the US Constitution? Were the Board of Directors coerced into complying with Hank, Ben, and other high ranking federal government officials for the public the two private corporations serve?
"I'm making you an offer that you can't refuse!"
Don't worry I'm sure that it's just "temporary" like any conservatorship !
https://bscholarly.com/advantages-and-disadvantages-of-nationalization/