Replies to post #596374 on Fannie Mae-No Politics (FNMA)

[Rickie foo]

If we proceed to trials, and all the following are proven:

1. FnF were never insolvent even in 2008.
2. That the boards are proven to be Unduly and forcefully replaced
3. That all factors for conservatorship are proven to be absent.
4. That the books since conservatorship are cooked for FnF to absorb losses intentionally
5. That T n FHFA intended to block and make conscious effort to stop them from exiting Conservatorship
6. That FHFA under the influence of T, have actually been running them into receivership in the pretext of conservatorship
7. All of the above.

These are things that we knew AS FACTS. They are just waiting to be proven in court, reverse of all the redactions and testimonials by key perpetrators.

Assuming there’s no settlement prior to these (given the gloomy scenarios most painted here, which CS holders in their right mind will? trials is only less than a year away on 2 or more fronts), what will happen? Can FHFA and T still can proceed to do what they intend to do? can they still enrich themselves?

I am really interested to know.

[FOFreddie]

Hi Kthomp19 Thanks again for taking the time and sharing your perpective. I think the public discourse is informative because of the different perspectives and knowledge bases.

Why does timing matter when interest rates are at historical lows? I am sure others have a better understanding than me but it is clear that there are both mortgage finance and capital market value considerations to drive timing decisions.

Regarding capital market timing:

If the JPS stays outstanding - why convert a 5.5% preferred when the issue could be recalled and refinanced with a 3.5% preferred? We dont know what the future capital structure will look like but at such low interest rates some type of newly issued straight subordinated preferred or a risk sharing COCO type security could make a lot more sense than converting to common or leaving it outstanding.

Furthermore - you may be asssuming that JPS shareholders will get value for pass missed dividend payments - does it make sense to have those accrue at 5-8% when they could be settled and refinanced in the 3 to 4% range?

Regarding mortgage market fundamentals:

30 year mortgage rates are approaching 3% and there will be a likely refinace boom. Perhaps UST rates approach 0% but there will be a massive refinancing boom and the GSEs will end up holding the newly issued mortgages over the next few years. Even if new competitors come into the picture in the next 5 years the mortgages that will come on the GSE balance sheets due to this refinancing boom will stay longer because there will be no economic reason to refinance in a zero interest rate environment or a rising rate environment. The result is that weighted average lifes of 30 year portfolio mortgages will extend toward 15 years and the corresponding net interst margin and periodic fee income will also extend.

The reason that weighted average lifes of mortgages matter is that the net present value of these annuities increase with longer lifes and lower interest rates. If you discount $100 for 15 years at 2% rather than 3% the net present value of the annuity discounted at 2 % is significantly higher and of course an annuity that is outstanding for 15 years is much higher than one outstanding for 8 years in a low rate environment.

I understand your point regarding the timing regarding the election and it makes total sense but possibly this low interest environment will increase the value of the GSE's by multiple billions because of better refinancing scenarios and extension of mortgage portfolio average lives.

[JosephS]

Kthomp-

Appreciate the posts my brother from a different mother. You are doing a service sharing your unique perspective and I appreciate it.

While I still believe that common will have similar returns that preferred do, we just won't know until we know what the common share count will be.

I am hiding out in preferred shares and may move some into common if we revisit 6-7x for the fnmas/fnma ratio.

Not a recco

[FOFreddie]

Hi Kthompson

Regarding your other points why the UST may not care about the sanctity of public/private issuer debt - perhaps there are several pragmatic and philosophical reasons why.

Philosophically I believe Hamilton was right when the US Govt honored revolutionary war debt because the sanctity of contract law is paramont when it comes to the global debt markets. I would wonder if Moody's and Standard & Poors could justify rating public/private debt AAA if there was precendent for future politicans to screw debt investors by legislative action in time of a crisis.

Philosophically - I think Directory Calabria, Secretary Mcnuchin and Present Trump care about the rule of law and are much more sophicated and honorable that the likes of Geitner and Liew. Obama had no background in business or finance and frankly he probably didnt care if he his policy screwed investors.

Pragmatically - Mcnuchin and Trump have been and probably will be in the mortgage and real estate business. Public/Private partnerships are a corner of mortgage and large real estate and infrastructure projects and why would they want to hurt the financing options for these type of projects with wider risk spreads caused by political and legal uncertainy from a GSE prececent that screwed investors? Just look at some the announcements by FNMA and FMCC where they are financing projects around the country on behalf of real estat big wigs.

Pragmatically - I would suggest that the GSE equity is the fulcrum security in a restructuring and that the UST has the most to gain by maximizing the value of GSE common stock. Perhaps the value is more like $ 8 to $ 15 like AGC suggests but I dont see the upside in screwing common investors when the UST owns 80% of the common?

Pragmatically - the UST needs to settle the derivative shareholder suits and Ackman's suits - dont they or am I wrong about this? Why not come to a resolution that is good for the common security litigants and the UST warrant valuation?

Practically - why does the GFA continue to purchase common? Why does Nomura have a buy on the common? Why does ACG have a valuation of $8 to $15

Why would the UST go out if its way to screw the little guy when there is a golden win/win/win situation by a fair and expedient restructuring of the GSEs?

[Commons_Cancelled]

Incredible $FNMA Facts. This should be stickied. Thanks!