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Tutt - this was pre-covid - you mine as well throw that out.
Navy, the curious thing in the APP is the CRP says to be completed in FY 2021. I would’ve thought it would’ve been Q1 21, not FY 2021, as basically all other major events are bucketed quarterly. Interesting they built in that much flexibility ...
CRPs already done? And SCOTUS vacates the entire NWS and has Treasury repay $124 billion to FnF. CRPs can be amended with FHFA. FnF want 5 years and any raise does not require it to be front loaded to “protect taxpayers.” More bridges too far ...
BTW, Calabria won’t be there in 6 months. Any CRP plan can be changed. Maybe the Cap Rule also gets changed. No cap raise until Scotus rules and really no CRP should be done until all legal issues are settled. A PSPA does not moot the possibility of adjudicating the whole conservatorship, or at minimum the NWS, and any potential damages.
Once Calabria is gone all CRP plans are off the table.
Trump losing and Covid are the larger issues. And Ackerman is a waste, but the quotes from Mnuchin in front of the house fin committee were pretty clear. We watched them like you should’ve on CSPAN. It isn’t Ackerman’s article, where the garbage of his article is at the beginning. The ending is essentially a full, verbatim record of what Mnuchin said to the house committee. And I still believe Mnuchin has control over everything as he can amend the PSPA any way he wants to make it irreversible. It is just a contract and FnF are already party. Any future amendment could be contigent upon FnF’s agreement. Nice try again ...
Not Cap Rule - CRP
JGlen - the PSPA is contract law plain and simple. There are ways to make changes irreversible.
Well, there was a divergence in Commons with most JPS, so maybe the recent FY 2021 to 2024 plan and FY APP 2021 plan is pointing to a methodical cap raise with only a bang = PSPA amendment and no PSPA and contingent release, e.g., consent order or decree.
I think a PSPA and no consent order. If the PSPA is amended in such a way that it can’t be reversed, consent order is contingent upon retained earnings at some future date under Yellen.
If PSPA liquidation pref is essentially written down substantially with, say, any future amendments requiring FnF to signoff on said amendments going considering FnF are already party to the PSPAs currently, then the PSPA can remain intact with all the “guarantees” for a methodical capital raise that won’t potentially disrupt the mortgage markets.
2021 Annual Performance Plan for FHFA
Looks like the Cap Rule is planned for FY 2021, while virtually all other goals are listed quarterly.
I don’t think the Cap Rule needs to come out anytime soon. I always thought the defined window discussed here was not really defined and is essentially at the discretion of FHFA.
https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/FY2021_APP.pdf
Chaser - Precisely correct.
Trump losing really hurt JPS chances, as well as Covid 19. One could imagine all ducks getting organized for a Big Bang if Covid didn’t happen.
FnF are in charge of raising their capital. They asked for 5 years to raise capital. Factor in Scotus, which can deem the PSPA paid.
A PSPA amendment to help FnF on their way to retaining capital is all that will get done.
Wait, you’ll see! Haha
jcro - in 6 years we’d be over 200 per share with a continual rise during that time. You’d get paid.
Urban Kaoboi gets it - There are many paths .. all credibility from jps is gone.
kthomp - very simple counter arguments. No one was concerned about protecting taxpayers until 2019 for 11 years after conservatorship. Plus, Calabria will not be in the FHFA when they even think about raising capital.
So this new found protect taxpayer narrative as fast as possible is a red herring.
A PSPA amendment is all that will happen and Calabria will be gone within six months.
High cap rule could mean higher fees for prospective home buyers, means it costs more for affordable housing. It’s that simple and Dems will take a hard look at the cap rule relatively soon ...
Calabria is gone in 6 months or less ... he will not be around for any capital raises, in fact, he will be long gone long before any capital raise happens ...
A new FHFA sheriff is coming to town ...
Help the companies on their way to retaining capital by amending the PSPA ... Anything beyond that is a bridge too far ...
Trump losing sets the stage for a longer capital raise process ... No matter what Calabria says, he is gone in 6 months or less ...
Nats - once Calabria is gone all bets are off. If the new FHFA director wants to provide more favorable terms to FnF on anything, any CRP, etc., then the old is replaced with the new as long as FnF agree, hence “favorable.”
Calabria will not be around for a capital raise.
Trump losing really threw a wrench into JPS plans. T-Minus 21 days ...
Why did Brickman leave? What is the rush to raise capital under Biden? Calabria’s fate is sealed politically speaking.
I think a Big Bang is a bridge too far and believe just a PSPA amendment is all we get to help us on our way in retaining capital.
Time to revisit ACG Analytics
Per ACG Analytics, a Bang is "extremely bullish for commons" ... not good for JPS. See below for confirmation.
PSPA amendment only and no consent decree = quote “extremely bullish for commons” as it sets the stage for retained earnings over the next 5 years, which is even what FnF want.
Start at 33 min mark and goes to 36:30 min mark - You’re welcome ...
https://www.realvision.com/the-ultimate-election-trade-fannie-and-freddie-live-with-gabriella-heffesse
Once SCOTUS rules in the spring Calabria is gone. Period, full stop. And there is a high likelihood any act taken by Calabria while under Biden could be reversed.
ACG Analytics puts a high probability on a favorable outcome at SCOTUS. Holden highly respects ACG, so he says. If he disagrees with ACG on that point then a pattern is forming where he only disagrees with ACG analysis that favors commons.
20 days - Good Luck!
$175 to $200 billion over 5 years.
Start at $45 billion - add $25 to $30 billion per year over 5 years. That is $170 to ~$200 billion.
What are you trading at over 5 years? 10, 20, 50, 100 per share?
A couple billion shares and you’ve reached full capitalization.
SCOTUS could provide further remedy.
A new FHFA director could amend the cap rule. FSOC would agree.
I don’t think Mnuchin and Calabria are fully on the same page.
20 days - Good luck!
You’re discussing the merits of may vs shall? This is why you lose significant credibility. Quit while you think you’re ahead. Remember, the designation may vs shall was used in all venues except SCOTUS when discuss conservatorship. Why was it omitted from a SCOTUS argument? Because it is an argument that will get laffed out of the court.
You also weren’t aware of the injunction request by Collins ...
At a loss for words ...
Fine 5 years ... recalculate and post again ...
kthomp - it was worse than it is today for 12 years. You’re going to tell me 3 more years of retained earnings is off the table? Doesn’t even come close to passing the smell test.
Ya got 20 days. Good luck!
Look, once Trump lost, JPS plan got severely hamstrung.
There are 20 days for the big bang. Let’s see what happens.
Good luck!
Holden, appreciate your response. Collins is seeking an injunction on the PSPA to prevent another NWS amendment and to deem the PSPA paid (common parlance), which means the liquidation preference is written to 0, and to have the overpayment on top of the 10% dividend returned to shareholders.
If you question that please refer to Collins’ briefs or to oral arguments, particularly ACB’s questions to Thompson.
SCOTUS is absolutely an option to wait for and ACG believes Biden will wait for SCOTUS to adjudicate the PSPA and the 3rd amendment. But Bradford says Biden will turn on the NWS on Jan 21st? What? Talk about jabs ... Unless, of course, you disagree with ACG again ...
There is not one path. The whole JPS premise to get good conversion terms and not be diluted is predicated on one path. That might be the only path for JPS but it is not the only path for commons.
Ackman provides a solid interview on FnF = totally ignored by Bradford.
Jacob’s analysis has one bullet point on how commons can outperform JPS in several scenarios but not even a slide follow-up across 30 slides?
The insistence WaFed is materially different from Fairholme in terms of remedy? False and Sweeney states as much.
The list goes on and on ...
Cmon ... where there is smoke ...
Bradford - as you get older, you mellow ... this trade is obviously getting to you guys ... Long and slow is “extremely bullish for commons.”
Good luck!
Stock Doc - I’m not sure that is 100% true. If you read through the SCOTUS briefs, at the very core of the discussion is a director enacting a directive that is outside direct control of the president. If Biden doesn’t want a consent order and it hasn’t been enacted by Jan 20th, anything Calabria does after Jan 20th could be subject to legal review.
After Jan 20th things get very interesting ...
Well, the question is, can a substantial PSPA amendment be done in such a way to make said efforts irreversible while still maintaining the conservatorship until sufficient capital is raised to be released on a consent order?
Basically, once the PSPA is amended and would require, say, GSE signoff for future amendments, there would be virtually no influence from Treasury on the GSEs. FHFA would excerpt primarily regulatory governance over the companies, and would be governing their CRP plans.
I think ACG is spot on in their analysis. SCOTUS also must play into the calculus.
Why would Mnuchin even state he is working on a framework for the GSEs to essentially hand off to Yellen? Makes no sense if there is going to be a Big Bang.
Holden - unless Mnuchin confused his words, he directly spoke to a consent order.
Can you quote me the volume for FNMAS and T over the past hour?
Well, interesting times ...
I love ya, Holden! Looks like the trademark may be worthless after all ...
Ha! Ya gotta have Bradford and Holden there also ... throw in Kaoboi for good measure ...
Can a consent decree be agreed to by Jan 20th? Long odds, and anything after Jan 20th will be subject to legal review if not approved by Biden.
A confirmed FHFA director acting against a president's prerogative. That is currently under consideration with SCOTUS now.
I'm not getting the warm fuzzies on a lightening fast recap and release. Trump losing hurt JPS ... Looks like we'll get some type of PSPA amendment and then we wait for SCOTUS to adjudicate the matter ...
First rule of ACG fight club - don't talk about ACG fight club ... don't break the rules ...
Nats - and then what is the estimated timeline for FnF to operate under a consent order?
Mnuchin speaks to a consent order, very much implying he has direct control over a consent order with the PSPAs.
I think Mnuchin and Calabria are at odds on some paths. Calabria may want a faster path than Mnuchin ... we'll see ...
Mnuchin may transfer some controls over to Yellen ... fascinating times ...
kthomp - so you’re suggesting the gov will own the vast majority of equity (79.9%) in FnF for at least the better part of 2021. To me it makes it harder to raise capital in the future and will create more legal uncertainty.
Also, in the precedent you mentioned, Citi didn’t repay the gov over $120 billion. Isn’t there the possibility of legal action. I know it has turned into a punchline, but needs to be factored into the decision making as not so “good faith” transactions could lead to more takings claims.
The above has been publicly discussed by Treasury and FHFA, and is even highlighted in Jacob’s presentation.
I think it’s a bridge too far for Mnuchin.
Donot, the document would need enough size and scope to obviate the need for some of the “critically under capitalized” verbiage of HERA/FHFA.
I don’t know if the agreement on Mnuchin’s desk goes that far. It may only go as far as significantly writing down the liquidation preference, cancelling the NWS, and extending a line of credit for a fee. I don’t think it will cross over into HERA/FHFA territory that much. That is my guess ...
Donot - that is a good question and I'll give you a simple non-lawyered answer.
If FnF are out of conservatorship without some kind of "agreement" with the gov, and any unforeseen adverse events happen, e.g., a more deadly covid19 strain, then all of the "critically undercapitalized" events defined by FHFA/HERA could trigger unwanted action, e.g., receivership.
Now, those unwanted actions could be circumvented via regulatory changes, but why risk those things by releasing FnF prematurely?
More capital needs to be retained before release can happen via a consent order. Mnuchin said it plain as day.
Nats, I'm sure there are creative ways to tie Calabria's hands so he can't go rogue.
Nagoya - please refute Mnuchin's quotes. Otherwise ...
The below quote demonstrates how uneasy Mnuchin is about releasing FnF with the practical "zero capital" they have today compared to the full capital required.
Say, for example, they were to do a "Big Bang" in the next 20 days. FnF are released under a consent decree with the capital they have. We get a deadlier strain of Covid 19. The big one hits in California, and we have a record Hurricane season in 2021.
The capital FnF have on the books would risk another taxpayer bailout given HERA's contingency rules of being critically undercapitalized. FnF could be put into receivership, which no one wants. It could also significantly disrupt the mortgage market. You have to plan for adverse scenarios and releasing them without enough capital is not practical. Go slow, build up "reserves" and then contemplate the best path forward on an SPO.
JPS do not want to contemplate the macro view of adverse events that can't be reasonably foretold. You have to be responsible and all of the Mortgage Industry trade groups have voiced similar concerns.
The below quote from Mnuchin trumps all other viewpoints. A rush to release is foolhardy, and Mnuchin is no dummy. Not only does capital get raised via retained earnings for longer, there is also a possibility that once Calabria is dismissed, a more reasonable cap rule could be implemented under a Biden administration to assure affordable housing is not inadvertently impacted years down the road by Dr. Calabria's onerous capital rule.