The beauty of these boards is among that the wide range of opinions, some are reasonable and come with factual reasons to support them. As far as potential share price outcomes, I have seen a range that includes ...
$0.00 along4zride
$7.00 to $12.00 bradford86
$13.00 to $16.00 Clark6290
$20.00 to $30.00 Stocks212
$60.00 GVInvestments
$161.00 Patswil
My optimistic range is $45.00 to $50.00 and my low-ball range is $7.00 to $12.00 and I am writing this post basically as a thought exercise AND to give anyone the opportunity to correct me if any of my understandings are flawed. I will not go into the whole ACA/NWS connection idea because that may or may not be a matter of cause and effect, I am only talking about the actual moving parts involved in freeing us, and determining where our share price falls. So PLEASE ... lets keep the political dogma out of this and JUST talk about nuts and bolts.
I see a lot of talk about PPS, but let's take a moment to talk about the factors that drive the price outcome. Simply stated, the current administration COULD be giving us all a huge head-fake with their words and have every intention of feeding us to the wolves at the big banks. It is hard for me to imagine, in that case, why Mnuchin would have made the public statements that he has made. But as Khaled Hosseini wrote ... “And that's the thing about people who mean everything they say. They think everyone else does too.” I suppose he could have been lying to get the price up so friends and relatives could make a ton shorting the thing. But I digress. That is the best case I can make for the $0.00 estimate. Or perhaps we don't know something about the GSE's that has allowed one or more foreign countries to gain too much control of our housing market, and Mnuchin has learned of it since his remarks. I actually think I may have read an article that suggested as much.
But assuming the $0.00 case is off the table (may be a large assumption), Other factors as I see it are ...
The NWS:
To be clear, Mel Watt has not suggested ending the NWS, only reducing the impact of the NWS in order to have some capital on hand. In an earlier hearing, one of the Senators (Corker, I believe) tried to pin him down on how much. Watt remained vague. That is step one that we need to begin to hold hope. It is my understanding that Mnuchin's directive is needed to actually END the NWS because the money is owed to Treasury and he heads Treasury and this is how it was written in the NWS amendment. Jumpstart GSE prohibits him from taking any actions against the SPSPA R the NWS until January 2018.
Fate of SPSPA:
Killing the NWS alone will not save us. The SPSPA calls for 10% dividends IN PERPETUITY, that means forever. The math suggests that the end result of that would, like the continuation of the NWS, be the death of the GSEs. For us to survive, the SPSPA needs to be re-characterized as a loan. If the interest rate on said loan were to be 10%, I believe Freddie would be all paid off now and Fannie, if not also paid off, would be damned close. i believe Rep. Capuano has repeatedly suggested a plan that involves a re-characterization as a lon with a 5% rate of interest. I assume that would mean some moneis returned to us, because if there is no return of funds, what's the difference between 5% and 10%? Again, such a step has to be undertaken by Mnuchin, and cannot happen until January 2018.
It is because these first two things cannot happen by law until January 2018, that I am being patient ... and not a part of the lynch mob calling for the heads of Watt and/or Mnuchin on stakes.
Warrants:
There are approximately 1.16B outstanding common shares. treasury holds warrants allowing for the dirt cheap purchase of approximately 4.64B more shares. If they exercise these warrants, we go from owning 100% of a valueless company, to 20% of a valueless company (the actual value returns with re-cap). Whether Treasury will exercise any or all these warrants is a big question, and will be one of the biggest factors in what value we MIGHT end up getting. Some argue that the 88B to 98B (depending on timing) that we returned to Treasury over an above the 187B that was originally transferred to us is return enough for the government. Some believe that the warrants would make what would be the largest capital raise ever, near impossible. The Moelis Plan that Glenn predicts exercises all of the Warrants. I recall a Judge in a previous situation similar to this (AIG?), declaring that the Federal Government should not be in such endeavors to make money. So the range of possibilities is wide here.
Capital requirements:
Assuming the NWS is killed, the SPSPA is re-characterized as a loan, the next issue affecting share price (after the warrants) will be cap. requirements. I have heard numbers from 70B to 500B The latter number represents the 10% capital requirement in a plan proposed by one of the less shareholder-friendly Senators, which would be poison for us. We recently heard Mel Watt suggest 2.0% to 3.0% (if my memory is correct). That would be 100B to 150B. Obviously, the lower the cap. req. ends up, the higher our share price can grow in a short amount of time.
G-Fees:
I don't believe that G-fees are an independent factor (now before you get out the tar & feathers) ... What I mean, is that my understanding is that the G-Fees charges will slide up and down in direct correlation to the cap. requirements. So while different G-fees will bring different share prices, if I understand properly, the G-fees are kind of hooked to the cap. Requirements.
There you have it ... my understanding of our situation. The floor is now open.
