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Max 1% bump of assessed price from previous year ie net value plus all the approved bonds and fixed charge assessments. Great deal if you bought in 1970. Not so much 2021.
Yes, Mello Roos and HOAs are insane. Mello Roos sunset though. I know a guy selling a condo due to HOAs now at $1100 a month for a 2BR. Nutty…
Thanks for sharing.
What's more, Fannie and Freddie could access billions of dollars for these and other initiatives without an act of Congress. That is, if the new director pushes for it.
Will Thompson push for it? Idk, but Calhoun has a plan. Hopefully JB can see the difference between the candidates. Also highlighted on Tim Howard’s blog in a bunch of his responses.
Did John Carney ever publish his article on his reasoning why all other cases are dead in the water? If I recall, he wasn’t sure but then changed his mind.
Gary Hindes has posted a new report on his site. Gary is as good as they come.
Get ready to be disappointed.
They don’t even have a permanent director of the FHFA. By September 30, 2022, we might have a new capital rule collecting comments. That’s about it.
jtimothyhoward
AUGUST 24, 2021 AT 9:17 AM
“I believe that Fannie and Freddie’s conservatorships have not yet become an area of focus for the Biden administration, and no senior person or group of people have been asked to take charge of figuring out what to do about them. And of course the administration has quite a lot on its plate right now, and it’s still August, with lot of key players out of town. Hopefully I’ll have a better idea about the chances of the Fannie and Freddie issue getting closer to the forefront as we move through the fall.”
Does Biden need the GSEs recapped to pay for affordable housing initiatives or not?
Will the legal claims ever exert enough pressure to bring the government to the settlement table?
Tina is Tina but that doesn’t mean the government won’t act as the backstop capital, especially if they are not being paid a fee.
Since Congress won’t act, we will move slower than molasses to a utility with implementation circa 2028.
There might even be capped rates of return, with overages going to Treasury as a sort of nouveau NWS.
I recall you mentioning this in a prior post and assumed this would be the fee for the gov guarantee. However, curious if you think this could also serve to function as mechanism by which a fiduciary could gain assurance that the money used for recap wouldn’t be taken so easily.. As in, the government would take some % loss of their stake before the new money would? How else could they provide that assurance to new money without legislation?
Always look forward to the KThomp19 posts.
“I’m perfectly happy that government is taking all their profits, because it keeps them from gaining capital. If they had capital there would be tremendous pressure in Congress to release them.” Peter Wallison
In the MMT - printer goes brrrr era, does this hold true?
Speaking of executive privilege and Gary Hindes, he’s posted his comments from the USCFC Washington Federal case on his site yesterday. A good read.
He removed the “Time for a Fresh Look” letter from March 9, I assume because people were posting it or maybe his views have changed.
Par and not a penny more for the JPS seems about right whether as part of an administrative led restructuring or judicial settlement. But as you say, who knows…
If indeed nothing happens administratively, I would assume they would shelve JPM/MS at some point but what do I know,
Regarding Buffett:
In 2008, Buffett passed when Freddie Mac approached him about participating in a capital infusion.
“They’re looking for help, obviously. And the scale of help is such that I don’t think it can come from the private sector,” Buffett told CNBC.
Think about this…how many 10Ks did Warren evaluate during that time from companies looking for cash? LEH, AIG, etc. Don’t think he read the GSEs.
Then he goes to The NY Times weeks before conservatorship and says they don’t have any net worth and it’s game over. It sounds to me like the Oracle knew something the public didn’t.
But I guess A lot of people did courtesy of Hank Paulson.
Only the extension of the 10BP G fee as a pay for.
The Tax Foundation mentioned last week:
“Extending fees on GSEs (Fannie Mae and Freddie Mac) is fine, but lawmakers would do better to privatize these quasi-government entities and make them full taxpaying companies.”
https://taxfoundation.org/bipartisan-infrastructure-plan/
If I had time, would love to do the math to see the difference v. $21B in G fees.
Yes, Ron Klain (WHCOS) was a lobbyist for Fannie until 2005.
Would it shock me if that is who the paper is for? No.
Tim’s words were: “I’ll be doing a short paper for someone in a senior policy position in the administration”. Unlike his amicus curiae for SCOTUS, we can hope it catches more eyeballs but you get the sense they ask for this, file it away and mark it “in case of emergency, break glass and distribute to appropriate members of Congress”
The lack of political will and total legal mess likely keeps the GSEs in conservatorship for years. Happy to be wrong.
This could be very well true especially considering, as I understand the situation, they would need Congress to implement a utility style structure AND exit conservatorship.
Agreed, it’s thought provoking and his arguments are well reasoned,
I have been thinking about the “commitment to develop proposal to resolve conservatorship” due to Congress by September 30 and it’s likely that it gets pushed back until after the FHFA nominee is confirmed but I don’t think this part of the letter agreement is ignored as some have speculated. My hunch is the statement released at this time will be the first we hear of how the Biden administration wants to tackle housing finance reform.
Anyhow, I can't see the new Conservator re-instituting the NWS sweep after SCOTUS and en banc said it was over.
Lower the liquidation preference. We will call that the alternative to the “alternative compensation” for a few quarters. Is it a possibility once they get around to changing the letter agreement?
Will the Biden FHFA kill those deals and give the cash to the lawyers to keep fighting the plaintiffs? Since the cash sweep has been halted, they’ve dropped how much of our tax money to pay those legal fees? Talk about cash incineration.
Agree there is a high probability this is dead money for long period. And there’s clearly going to be some time between catalysts.
But ultimately this gets settled administratively and to me, that’s why the next director is crucial.
There is at least one wing in the Biden camp coalescing around recap into the utility model and indeed if you read this report: https://narfocus.com/billdatabase/clientfiles/172/21/4233.pdf or the Brookings one authored by Mike Calhoun and Lou Raneri, it seems the writing is on the wall. Will the AEI or other interests stand in the way?
As Tim Howard would say and in general I would agree, each administration has suffered from a lack of execution to their plan. Politics aside, One glimmer of hope with this administration is they have shown the ability to execute on the infrastructure plan. Why is that interesting? Well, that’s a plan that includes some amount of public/private partnerships. Not exactly like recapping and still our legal situation is much messier, but maybe just maybe this administration puts forth an offer.
At this point, who wants to go through years and years of litigation? Take a haircut and let the market do what it will.
Looking forward to Gary Hindes next publication.
Speaking of Steve, been thinking about this quote from the December 9 Bloomberg article:
“If they rule in Treasury’s favor it simplifies things,” he said. “If they rule against, it’s still going to end up in litigation.”
Draw your own conclusions of course but for me, presuming a Yellen blessed LA, it seems there’s a process this administration wants to follow. With the appointment of the next FHFA head, we can read the tea leaves.
My question is how do we influence the administration to choose Sue Wacthter? Somebody should ask Gary Hindes.
Julia Gordon.
Not Wachter, Calhoun or Zandi.
Wondering the same. The investment letters login is recent. Was going through a few of them as of 3/22. I always appreciated their commentary.
If SCOTUS rules in Collins favor, Sue Wachter will be chosen as the next FHFA director. Slowly but surely conservatorship comes to an end.
If SCOTUS rules for Treasury, Mark Zandi will be chosen as the next FHFA director. It’s Government control for the foreseeable future and Look out below!!
Right but important to note they need 2 to tango so the LA won’t be changed for some time after the SCOTUS decision. We’ll likely sacrifice Calabria and hope for SCOTUS to determine there should be a remedy and kick it back down to the 5th.
Our success sets the guard rails on what can and will be amended going forward. From there it’s anybody’s guess because the government can decide to go on appealing and chewing as much time up as they desire.
My simplistic read is if they choose Zandi as the next FHFA director it is headed down the nationalization route. If Sue Wachter, it is headed down the recap into a utility model route. That’s the tell for me.
One for you from the NYT quoting Mark Zandi. Sue Wachter is preferable for next FHFA head, I think!!!!!
“The changes are “modest” and nonbinding, basically accounting tweaks, said Mark Zandi, the chief economist of Moody’s Analytics. And they won’t dictate what the next Treasury secretary can do, which is a good thing in Mr. Zandi’s view. Quasi-governmental status has allowed Fannie and Freddie to be more flexible about extending credit, as well as foreclosure and eviction moratoriums, during the pandemic than if they were purely private. “It’s proof positive to me why a government corporation is the way to go,” Mr. Zandi told DealBook.”
Yep, I if I remember correctly it’s was something like $2B a year for 10 years so $20B total during the campaign. Treasury still holds the cards and ignoring a housing collapse, I think it will take a situation more like the creation of Freddie Mac where they “need” to make a move. A dangerous game (ticking time bomb as some have called it) but one we don’t have the intestinal fortitude to tackle politically or as a society.
I’ve been running through various bearish scenarios. Could Yellen do nothing and then set a mechanism for raising the cash herself via Congress when she has a willing FHFA director? What’s to stop a Democratic Congress from appropriating the capital needs as part of a stimulus bill? Gotta figure lots of interests trying to figure out how to restructure to sweep all the profits again.
“#1 and #2 are correct, that's in the agreement.“
These are wrapped up together, likely to be negotiated together in the next 6-12mo as part of settling litigation?
Or am I missing something and there’s a motivation to exercise the warrants sooner and separately?
Still trying to sequence this all in my head. Thanks again for everything you do!
Very low probability of that happening.
Depending on Mark’s status after the SC in June, the next best possible option is getting Sue Wachter in and hoping for a glide path to release because there’s guard rails released today in the PSPA that cannot be overturned.
Years away.
Agree, 100%. The losses are steep and likely steeper coming still but their logic and reasoning has been on point. I have learned a lot, which I guess is the silver lining.
I look forward to hearing from you all surrounding the next crystallization event, whatever year that is.
Of course, you could be right. As chaotic as it has been, I don’t think this last week played a role but of course it’s possible. If Trump killed the Big Bang, why? Because team Trump abandoned him at the end? Or he wasn’t personally benefitting? Part of a political negotiation for something at the end?
Unless it’s been updated, ACG Analytics, still have Jan 20 listed on version 16 of the reform timeline. Not saying you can’t be right, but I would guess they’ve thought thru the ramifications of a last minute Big Bang and chosen Jan 20 not another date prior.
I agree, cake is baked and Sherrod and Maxine aren’t assigning staffers to send the treasury a press release during the middle of stimulus talks, right before Steve’s vacation to MX demanding He “halt any significant changes” to housing finance reform for the fun of it.
For sure and if this was all he intended on doing, we wouldn’t be sitting here twisting in the wind. I acknowledge doing nothing has a nonzero probability but have figured it low in my reasoning.
Based on my odds, More is coming. ie potential writedown, warrant exercise, but I am convinced it’s dependent on DOJ lawyers. And who knows if Treasury can push all components of what they want in time to get sign off.
There’s a lot of people saying well, we should be hearing more, the street is wise, etc but not every TS is John Paulson and we don’t know the forces at play in the DOJ and how they are interacting with Treasury. When you have multiple stakeholders involved but compartmentalized In their workflow and knowledge of the situation, it is possible, if not likely, they are not drawing an accurate conclusion. And to that point, Mnuchin DOES NOT want to catch the heat that Paulson did for tipping off Hedge funds in July 2008 of pending conservatorship.
One narrative I find interesting from the American Banker article yesterday which I am sure is included on purpose. “It is not clear that Calabria and Mnuchin entirely agree on how to revise the agreements.”
They agree enough where Calabria isn’t acting like he will be a placeholder. He’s prepping for more.
Right so if you believe Calabria is doing interviews to talk CRPs, Adios NWS.
I assume DOJ is putting the brakes on. I wish somebody had some insight on if treasury could turn the screws here and push it along.
What’s your theory?
Talk about the CRPs, including tapping the capital markets in coming months?
Talk about how they will continue to retain earnings for as long as his cap requirement is in effect and explain how he did everything he could and checked every box but treasury OR the DOJ wouldn’t cooperate re the SPSA ( “but they’ll be in much safer and sounder position”)
My guess is either, but depending on DOJ sign off. If this fails, that’s my guess who catches the blame.
If DOJ signs off and it’s ready, Game on. They all want this but do they have the time with all else going on to make it happen?
Lawyers work on their timeline. Not a lawyer but I work with corporate legal every day.
Is DOJ approval still required for as Holden has described, a “PSPA lite”? I guess, but realistically just do a letter agreement and call it a day for a fraction of the energy exerted. I tend to think the PSPA coming is more involved and the DOJ made some amends and hence the delays. Plus holidays, short turnaround, etc. Realistically, Jan 20th is the only date that matters. Of course I could be wrong but process wise this doesn’t compute to me.
Anyone know...Has BRKs 13F been amended to reflect their undisclosed position mentioned in November? Possible PSPA release aligns with an amend date which would disclose? Not necessarily BRK but another player? I see BRKs next file date is mid Feb FWIW.
FHFA wants the PSPA finalized before year end.
I assume they want some time prior to the admin change to execute the consent order.
Would love to know why, for anybody with insight into the mechanics here.
I think the timing on this letter is interesting and IMO it could back up CG’s report on Fox Biz that the PSPA amend is indeed sitting on his desk. After the Stimulus Bill is signed, they immediately jumped into action. And Trump didn’t even sign it so they would have to suspect requested amends would soak up more of Steve’s time when he returns from Mexico. I know we are all disappointed that it didn’t come yesterday, but there’s a decent amount of smoke surrounding it.
If SM is faking it, what’s the purpose? Threatening Congress? Doubtful.
Check out the Hank Paulson documentary on Netflix.
In one of the closing lines, he says something to the effect of “we have to get Fannie and Freddie out of conservatorship”.
It’s up to the viewer to interpret, all things considered,