At a Senate Banking Committee Meeting (link) today Bob corker made the following comments. For the first time since this whole thing started Corker is talking about “fair” treatment for shareholder vs “wiping them out”. This is a really big deal……
NOTE: These are as close to accurate, will update as soon as actual transcript is released:
– Mnuchin on GSE reform: “It’s critical that we have a 30-year mortgage. I don’t think the private markets could support it on their own.”
– Corker stated GSE jumpstart has expired and Admin can act unilaterally. Tried to get Mnuchin to say publicly what those options might look like. Mnuchin refused to answer worrying about market risk to any of his comments
– Corker mentioned the shareholders and said there’s a way to resolve this to be “fair to everyone“. That’s the first thing I’ve heard him say publicly that wasn’t dumping on shareholders. Pretty significant.
Corker says shareholders should be treated FAIRLY!
Here are his exact words on that topic…..
…We have a lot of interest out there, lets face it. I mean we have people, we have shareholders, we have shareholders in these entities today. And, um, I understand some of the rubs that have existed there. I think we have an opportunity though to, to really deal with ALL of the interests in a manner that is a FAIR, but also move our nation ahead in a manner that we don’t have these two behemoths that a basically are 100% right now, ah, backed by the federal government and I hope we’ll get there
Bloomberg on the hearing
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We are finally now hearing signs that stockholders in the GSE’s will see their holdings retain value. The article below states common shareholders may get wiped out and preferred may retain value near par. What to think?
I still think what I have thought since day 1 of the Trump/Mnuchin reign. I see little likelihood they willing forfeit a Treasury common share stake that could easily be worth $50-$70B and sold off over time (see: AIG example)
I think this is a natural first step to that reality but in now way is this a final plan. It is encouraging those at Treasury and in Congress are now realizing shareholders should see some residual value in their shares.
I can see a scenario preferred holders get 100% par and common get something. If a group is going to take a hit, it’ll be common holders but even then there is plenty of value left in shares even in that scenario. It’s been an iceberg but it is slowly moving in our direction.
]]>Lawmakers have a long ways to go before resolving the biggest remaining quagmire from the 2008 financial crisis. But a consensus is now forming around principles for overhauling Fannie Mae, Freddie Mac and the U.S. mortgage-finance system.
Senators Bob Corker and Mark Warner have been working on a bill for months, and they intend to start sharing ideas and legislative text with other senators and the Trump administration in the coming weeks, said people familiar with the matter. Their plan would preserve Fannie and Freddie but take steps to make it easier for investors or other companies to create competitors, the people said. The two lawmakers want to introduce a bill by early next year.
Such a move would begin what’s sure to be a drawn out and contentious process to address one of the most critical components of the U.S. economy. Fannie and Freddie provide the grease for the housing market by guaranteeing nearly $5 trillion in mortgage bonds. Reforming the companies will likely have broad implications for consumers’ borrowing costs and the availability of home loans.
“Reforming our nation’s housing finance system is the last major piece of unfinished business of the financial crisis,” Corker, a Tennessee Republican, said in a Wednesday statement to Bloomberg. “We are engaged in productive discussions with our colleagues, the administration, and a number of stakeholders on the best path forward.”
Government Guarantee
The new effort comes as a key Republican lawmaker, House Financial Services Chairman Jeb Hensarling of Texas, said Wednesday he’s open to a government guarantee on some mortgage bonds. In a speech at an event in Washington, Hensarling said he still didn’t like the government having wide involvement in mortgage bonds but grasps the political reality that reform probably would not progress without one. That move from Hensarling, who previously disavowed any government guarantee, could make some Democrats more open to proceeding with an overhaul.
Fannie and Freddie were taken over by the government in 2008 and eventually received $187.5 billion in bailout money after the housing market cratered. Lawmakers and regulators initially said their fates would be resolved quickly, but instead the companies have been stuck in government control for more than nine years.
Fannie and Freddie are a central component of the U.S. mortgage market, buying loans from lenders, wrapping them into securities and making guarantees to investors in case borrowers default. That process frees up cash for lenders to make more mortgages.
Before the crisis, in part because they were chartered by the federal government, investors believed the bonds they issued carried an “implied” government guarantee if Fannie and Freddie themselves went under.
Lawmaker Frustration
Many lawmakers derided that situation, asserting that the system meant that private Fannie-Freddie investors made money in good times, while the government had to bail them out in bad times. Many of the Fannie-Freddie reform plans that have been released since have sought to address that issue, though none have gotten enough traction to become law.
The proposal from Corker and Warner, a Virginia Democrat, would attempt to address that central quandary. It would put an explicit guarantee from the federal government on mortgage bonds issued under the new system, provided by Ginnie Mae for a fee. Ginnie, which is a government-owned corporation, already provides such a guarantee for mortgage bonds containing loans backed by the Federal Housing Administration and other agencies.
Fannie, Freddie and any new competitors would be required to have enough capital to pass stress tests, similar to what the government mandates for big banks. The companies also would be encouraged to offload some of the risk they take on to private investors, which Fannie and Freddie already do to some extent. Behind that backstop would be yet another layer of protection: A new government fund, meant to protect taxpayers in the event of a mortgage-finance company failing.
Senate Banking Committee Chairman Mike Crapo, an Idaho Republican, a few other senators and some members of the Trump administration have been kept abreast of the broad strokes of what Corker and Warner are working on.
Taxpayer Protections
Corker in an interview said that the goal of his and Warner’s plan will be to keep rates and the mortgage system unchanged for borrowers, while increasing taxpayer protection and competition in the secondary-mortgage market.
Under the proposal, preferred shareholders of Fannie and Freddie could be made whole or close to it, depending on the final outlines of the transition, the people said. But common shareholders may not fare as well, they said. Whether and how shareholders get compensated in the transition to the new system is still an open question. Investors in the companies include several prominent hedge funds.
This isn’t the first time Corker and Warner have tried to deal with Fannie and Freddie. A few years ago, the pair helped author legislation that would have wound down the companies and replaced them with an entirely new system. That bill foundered after opposition from some affordable housing advocates and small lenders.
“One of the lessons I learned from the last Corker-Warner effort was that our proposal was too complex, and didn’t do enough on affordability,” Warner said in a statement. “So what we’re looking for now is a viable simplified approach that protects the taxpayer, preserves the 30-year fixed mortgage, and includes robust access and affordability provisions.”
The new plan would require Fannie, Freddie and the other guarantors to offer small lenders access to the mortgage system on equal terms to large lenders, the people said. Corker and Warner are attempting to work with affordable housing advocates and more progressive senators to ensure mortgages are available to low-income borrowers, the people said.
1- TopGolf keeps expanding and celebrity sightings are becoming the norm
2- I think it is pretty safe to say after this exchange, any legislation with Corker’s name on it will never be signed by Trump. That means Corker/Warner is dead……(applause)
3- From Inside Mortgage Finance:
Treasury Department counselor Craig Phillips is believed to be helping craft a statement of principles on housing finance reform, perhaps to coincide with an executive order from the president tasking agencies to pursue its goals, according to a new report from Capital Alpha. We heard about a possible GSE-related executive order from President Trump two weeks back, but little in the way of detail
With Trump being a real estate developer though that part of his career is on hold right now it will be interesting to see if he takes a hands-on approach to reforming Fannie Mae and Freddie Mac or whether he just lets Treasury handle the details. From what we know, Trump (and his late father) is strictly a multifamily developer. But did any of his projects ever receive GSE financing? Probably not
This would be welcomed news as far as I’m concerned. Trump will definitely want the government to turn a profit and the best way to do that is to keep the gov’t stake in tact which means the common stock retains value.
4- Marcellus M&A is expected to pick up.…. CHK is a major producer there and is dirt cheap….
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1- Corker is leaving………. his plan for the GSE’s will die now…….good riddance
2- Neat website that fact checks Fracking claims….
3- AIG is adding billions in assets with its digital efforts…
4- The Landmark Mall redevelopment may be two years away
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1- With this technology and being so cheap, someone is gonna buy this
2- Oil production estimates are already coming down
3- FERC backhands NY over its pipeline ruling
4- No wonder Bob has been so congenial lately
]]>Bob Corker took his time at the Special Committee on Aging Hearing on Drug Pricing (a committee he rarely attends he admitted) to quiz Ackman on Herbalife and the GSE’s. It was bizarre to say the least. It was bizarre in that his line of questioning had nothing to do with the topic of the hearing and more so because he seemed to insinuate that Pershing’s potential profit in the GSE’s was a bad thing. He kept quoting it at “$7-$8 billion” while casually brushing aside Ackman’s retort that taxpayers, who will own 80% of the company would see $300-$400 billion in proceeds. That would be in addition to the ~$250B and counting they have already seen due to the net worth sweep.
When you watch it you won’t be able to avoid the feeling Corker hasn’t listened to anyone on the other side of the topic or made any real effort to understand it. He seemed truly uninformed regarding arguments that were contrary to his own opinion and spent his time quoting Forbes articles. Honestly it was kind of depressing….we should expect more from the guy trying to take control of GSE reform. At one point when Ackman said “I am of the opinion the government cannot take control of private enterprises without just compensation”, Corker cut him off saying “you’re getting into philosophical discussion….” and instead tried to nailed down Pershing’s potential profit (which would be dwarfed by the taxpayer’s profit). “Philosophical discussion”??? Um, Bob, it is called the 5th Amendment to the Constitution?
Say what you want about someone like Elizabeth Warren (I cannot stand her personally) but when she shows up at a committee meeting she has done her homework and knows the topic. Corker seemed lost. Now, he did mention he would see Ackman to discuss the GSE’s but I’m highly skeptical he really meant it.
The whole exchange for me was a bit ironic given Corker’s own hedge fund involvement that may soon be under investigation
Clearly, if the GSE’s are “recapped and released”, taxpayers are by far the largest beneficiaries.
Here is a link to the exchange
]]>1- The courts rule the 3rd Amendment to the SPSA illegal:
This simply means Corker’s addition is wholly meaningless as the NWS will be thrown out and now Treasury owes shareholders $243B (and counting). What to see Congress pass a law and the President sign it in about 15min? Consider that outcome. In this scenario Congress passes a law calling it “all even” and eliminating the SPSA (but maintaining their 70% ownership in the common) and whoever the President is signs it…nothing busts a budget faster than a >$200B verdict. Shareholders happily take the deal and commence figuring out a recap.
Of course one has to think Treasury appeals a decision like this but a negative outcome in any court now puts everything in doubt and makes the repayment of $243B + VERY real. The conversation in Congress and the media VERY quickly then turns to “how will they repay it?” and “Conservator-Gate” articles will start popping up everywhere.
2- The President decides to direct the FHFA to release the GSE’s from conservatorship…
Can he? Doesn’t the act prohibit it? Nope….the FHFA, even with this act included could do it. Treasury could legally suspend the dividend and cancel the NWS without falling in violation of the Bill. The bill only says they cannot “sell or dispose of the shares” themselves, it says nothing about altering the terms of them. The President, or FHFA, Treasury could then declare the SPSA extinguished as of 1/1/2018 and commence actions to recap (or combine) the GSE’s and exit the conservatorship.
Couldn’t the next Administration then just reverse this decision? Doubtful. Once released the GSE’s would elect new management and Board of Directors. This group would be highly unlikely to agree to anything they would view as going backwards. If the entities were combined (makes sense for cost savings) then the new charter could explicitly contain language extinguishing the SPSA as of 1/1/18 making it almost impossible to reverse. Should Congress balk at that then Treasury and FHFA could just alter the terms of the SPSA again sunsetting it on 1/1/18. Having both the FHFA, Treasury and President sign off on its extinguishment makes a subsequent administrations actions to reverse that virtually impossible and would set off another round of litigation no new administration would want.
3- The courts rule for the government
This scenario is not affected by the Jump Start act as plaintiffs will appeal this as far as they can meaning any final resolution is many years away and well after the 1/1/18 date
Well, then, what does this bill do?
Well, it lets Corker and Warner grab another round of TV air time to thump their chests and lets them go home for the Christmas break and tell their constituents how much safer they have made the housing market (which is a lie). They’ll be the toast of the Waffle House……
Other than that, it does absolutely nothing.
The wording:
