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Pending FHFA Leadership Rules Telegraph GSE Recapitalization

Glen Bradford profile picture
Glen Bradford


  • Sandra Thompson appears to be laying the framework for a world where Fannie and Freddie eventually exit conservatorship.
  • This framework can be used to help Fannie and Freddie figure out how to raise capital, how much capital to raise, and when to raise capital.
  • Sandra's predecessor, Mark Calabria, says Treasury's 2008 approach to Fannie and Freddie was self described as "against Congressional intent" - which Calabria says is a fancy way of saying illegal.

Affordable Housing Crisis

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Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) are two companies in conservatorship regulated by the Federal Housing Finance Agency (FHFA). The companies currently are retaining their earnings on their path out of conservatorship, but if

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Glen Bradford profile picture
Glen Bradford MBA contributes to Seeking Alpha primarily to read people's negative feedback so that he can avoid generating unnecessary losses. "Uncertainty will certainly work for me." - Glen Bradford March 2009.Glen wishes you a bright sunny warm day filled with smiles, laughter, and love.The Supreme Court got it wrong, which is sad, but it's not over yet.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of FMCCG,FMCCI,FMCCJ,FMCCL,FMCCM,FMCCN,FNMAO,FNMAP,FNMFO either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (74)

RidgeHaven Capital profile picture
Question.... the FHFA target is 0.75% in the linked document. I haven't been paying attention for about 5 years. Can someone tell me this? Are they taking equity divided by assets to get this number? How is this capital buffer calculated?
Valuemonster profile picture
@Sotiri , @ghlbtsk ,



Posted on Howard's Blog

I have had this on and off for quite awhile first purchase was 28 cents.
I am now in the belief it will never leave conserativship.
No president is going to give up a cash cow.
Measure what they can make on a one off against a perpetual payment.
dusty1 profile picture
@q123we The Government is getting no milk from the cow nor would it for many, many years if the conservatorship continues with an organic recap. They have repeated stated that the goal is to end the conservatorship and even the Trump letter states that they want a big bucks payment out of it. But its not simply a one off against a perpetual payment - it would be both -as the Government is in a position to also extract some ongoing funding from the GSEs for its housing programs. So the incentive for the Biden administration is to put them on a path out of conservatorship. This has already started with the suspension of the NWS and if there is a cash raise the Government will reduce or eliminate the corresponding LP. The question for commons holders is whether or not the Government cashes in the seniors.
Rollo Thomasi profile picture
@q123we Forget about the money. Government, especially this Administration, does not care about other peoples money -they care about power!! The recap and release will be slow-walked until they figure out a way to have their fingers in the till for eternity.
@dusty1 You are nearly as optimistic as Glen.
Moffatt Media profile picture
Fannie became infused with artificial stock manipulation. Institutional investors were forced to selloff retiree investment accounts once Fannie Mae stock started dropping below $5.00, dollars, no longer qualified to trade now on NYSE. How UnAmerican!
@Moffatt Media Can you calculate how many small banks were forced out of business because Treasury, at one time, let the banks' held shares in F&F as Tier ! assets; that is, until it maliciously and suddenly put F&F near worthless status forcing huge write-offs and collapse of smaller banks.
Hey Glenn im finally above water on the GNW, so now your right 50% of the time
Milkweed profile picture
"Previously, in 2015, Mark Calabria wrote a paper on the law that he wrote that governs FHFA saying that it broke the law when it implemented the net worth sweep. This paper is what likely put him first in line to head the agency under Trump who seems to agree with the governmental stealing of Fannie and Freddie narrative"


“It’s insolvency, lack of capital that triggered the conservatorship,” he said. “It’s going to have to be solvency, sufficient capital that primarily triggers the exit.”


“I’m working for the taxpayers,” Calabria said during testimony Tuesday to the House Financial Services Committee. “If the circumstances present themselves where we have to wipe out the shareholders, we will.

“I’m on the record as saying in 2008 what we should have done is wipe out the shareholders,” Calabria told Congress in the Tuesday hearing.


I'm not sure what relevance Calabria has to the current situation except maybe he gets another crack after 2024 BUT you continue to misunderstand his comments about defending the "Rule of Law" in regard to F&F. His issue is that F&F should have been allowed to fail in 2008 and shareholders wiped out.

Even if Trump runs and wins in 2008 and Mnuchria get another crack at "getting F&F out of Government control" there is no guarantee they don't find a way to wipe existing shareholders out and Callabria is on record stating he thinks it's a good idea.

Calabria never was and never will be your friend. At best their is a path of least resistance to an instant recap and release that would spare Jr Preferred while all but wiping out common. They didn't git er done when they had the chance.
Valuemonster profile picture
@Milkweed ,
Quoting Calabria verbatim, u are making a YUGE glaring superficial mistake. When Calabria refers to "shareholders" he means the Commons, NOT the JPS. Big Difference.
It is such a shame that many do not clearly make their distinctions plain, as Calabria should be highly faulted for this.
Having stated this, one could easily envision AT THIS POINT IN TIME, that the Commons get wiped out while the JPS are made partial, whole, or whole+.
Milkweed profile picture

In 2008 he is referring to an actual bankruptcy restructuring that would include both common and JPS. His more recent comments "could" mean only common because an instant recap and release could be done within the existing capital structure via diluting common to oblivion but sparing JPS. In this scenario sparing JPS would have nothing to do with any concerns for shareholders...just the path of least resistance to get F&F out of government control ASAP.
mag1205 profile picture
Love your comment above.
Calabria is a two face s o.b. and whatever comes out of his mouth is shit. It's true that given his authority at FHFA during his term, he would have wiped out FF shareholders.
He didn't want to end recapitalization of GSE by setting 4.5% recap capital.
He was hoping just like Trump that Republicans will win and Calabria will have another 4 years of cushy job collecting hefty pay cheque and screw FF shareholders.
In a way, I am glad that Biden fired him and he never saw it coming so quick. What a frigging liar this Mark Calabria is?
Can anyone explain where is all the cash that continues to pour in to F&F, I’m serious, is it just sitting in an account? waiting for directions?
@Rainman 06 I think Carlos has it hidden away in a secret bank account....still waiting for him to announce he's releasing it all back to F&F
SungpillHan profile picture
Never have seen any court ruling for restructurig favorable to cmm9n share holders. It will be wiped out to 0 right after ruling reault comes out. Trade galse hope daily only
Meet the new boss, same as the old boss.

Sorry folks, nothing to see here.
@bellbottomblues Although we've disagreed in the past, I completely subscribe to this comment and reference to The Who.
Glen Bradford -

"Common could be worth $4-8"



Glen Bradford profile picture
@rs4110 whether a reverse split is needed is a function of if the spspa liquidation preference is written down or converted to common.
@Glen Bradford
Been here with you a long time,
My investment in F/\ F is in commons.
You have constantly perditions of 4-8.00 for commons, do you mean that is your guess when it’s released?.
I bought in for the long term, thinking that when all the dust settles and it trades like a normal company again the value would be between 80.00-140.00.
So if it was released today, would would you think a fair share price would be after one or two years?
Others can chime in as well.
Valuemonster profile picture
@Rainman 06 ,
B/c u asked, you (or any speculator) are a blatant idiot to just own Commons. Ackman, who owns a TONNE of Commons realized his mistake and bought (in addition) a boatload of JPS. He calls(ed) it a 'hedge', it is nothing of the sort, but to each his own.
Be like Ackman. Be smart.
05 Jan. 2022
Would protecting the tax payer include Article I, section 10’s constraint upon the states emitting fraudulent bills of credit. Ignoring the Constitution’s specific constraints always brings BIg troubles.

Justice Alito already ruled that a takings took place. However, he concluded to bad.
Rollo Thomasi profile picture
Does anyone know if ST's nomination be televised on CSPAN?
Moffatt Media profile picture
Lies and more lies by the Government that Fannie and Freddie, will be eventually released from (2008) Conservatorship. See article:
Pending FHFA Leadership Rules Telegraph GSE Recapitalization
Great news Glen and thaink you for all the great work you do . I am keeping my FMCC shares until they reach $33 + again . So glad I have so many in my portfolio this really needs to be done to be fair to the public .
Glen Bradford profile picture
@KEEPYOURMONEY hoping for your sake the spspa liq pref balance is written down and not converted / equitized --- but i'm not thinking that's going to be the case anymore.
det.sci profile picture
It'll be a great day when I see a headline like this with a different byline
preferred have been popping lately, FMCCl up 9% right now. Maybe some in the ruling class know something.
Hi Glen. I always enjoy your articles. I am not always sure of your timing, but, your optimism is contagious (if not dangerous should this SAGA end badly). I make comments here and there just so that Seeking Alpha will alert me if someone makes additional elucidations on your observations. Keep them articles flowing. Oh! by-the-way, this Thomson lady is a shill and a yes-man bureaucrat who will achieve absolutely NOTHING for the shareholders. But, as I said, I love your optimism.
Danglinert profile picture
@PHILIP MAX Here is where you lose me. Let's say Glen is completely wrong and it takes 15 years to free Fannie. In that scenario, assuming that the JP's are redeemed or converted at the liquidation preference value, it is still a 18.34% return. Yes, it would be nice for things to move faster, but I do think it is a tragedy if we have to wait. Do you disagree with my thinking?
Danglinert profile picture
@Danglinert I should couch the 18.34% would be my return at the time that I purchased FNMAP and FNMAO. I am sure that the % has changed since the time of purchase.
@Danglinert oh no! I am a long suffering holder and heartfelt believer in the Constitution and our Capital system. I am sorry if I gave the wrong impression. You see, after 14 years in Purgatory, i am cynical and jaded. Not to mention that I have lost manny thousands on this stuff. I have learned not to trust the government or the courts or any of our elected officials all of whom are working for vested interests against us. As far a Glen is concerned, I would be totally lost without his articles. I never meant to offend him. I just have a little fun once in a while.
I have traded JPS since SCOTUS decision this past Summer. Luckily I had enough dry powder to catch falling knives and trade the pops and buy the pull backs enough to make a tiny tiny profit so no loss is good. Now holding a different JPS to avoid 30 day rule and was wondering why it was strengthened today. Just nice to see the support but I haven’t added but don’t want to take profits because I expect over time for JPS to rise. Commons are fun to trade and though they might have more upside, I prefer JPS slow and steady. Also SCOTUS had some interesting comments and it was why I kept adding as it crashed half a year ago. Some compensation?!? So I’ll play it safe til I know more but buy common drops and profit on the pops. JPS is my slow and low for now.
Glen Bradford profile picture
@GNR8NRG congrats on trading i guess
AlphaTaurus profile picture
Our hope lies with the courts...now on remand. Let the prayers for relief reign!

Long FnF
Sotiri profile picture
The major flaw in your analysis at this point is your insistence that balance sheet restructuring will allow the GSEs to raise capital. That's not true because they have an unworkable “Enterprise Regulatory Capital Framework” (ERCF) rule. Readers are encouraged to go over to howardonmortgagefinance.com/... for an explanation. Sandra Thompson's proposed fix for the obvious flaws in the ERCF is to increase credit risk transfers (CRTs), which cause the GSEs to hemorrhage money into the coffers of the financial establishment. Investors: this is more of your money being pissed away. No one will invest while this crap is going on.

Barring fixing the ERCF, which doesn't seem on the horizon any time soon, salvation lies in the lawsuits. A win in any of the lawsuits going forward could result in direct compensation to JPS holders or it could result in a payout to the GSEs which would help them get recapitalized. Either way it would be huge for the shareholders. But this has to happen at this point and it would be foolish to continue placing hope in Michael Calhoun-type scenarios. We need a court win for anything to happen.

Glen, please stop whining about Elon Musk. You're really not contributing anything and you come across as a jealous person. Investors have made great returns in bubbles; just either admit you missed the bus or stop talking about it. Instead, it would be a lot better for all of us and The World if you used your talents to keep spreading the word about the GSEs. Be positive. Tim Pagliara or Tim Howard could use help spreading the positive messages they're trying to spread. Perhaps you could discuss the GSEs business models and how liberatrian folks like Calabria are wrong about them. Educate the masses.

Cheers and Happy New Year,
Glen Bradford profile picture
@Sotiri haha, my distaste for fraud/elon musk is sort of how i found my way to fannie/freddie (anti fraud).. because the government committed fraud to steal these companies.

i actually think timothy howard's heart is in the right place with his analysis of the capital rule --- but i think ST lowered the capital requirements from calabria's rule slightly --- and my understanding is that even though the capital rule is not really in line with business risk --- it is trying to help protect against the systemic risk that is posed by what would happen if agency MBS didn't trade at 100 cents on the dollar, which is the real risk.

and anyway, i think fannie and freddie can raise money and earn their way out of this with ST's capital rule, but that is really up to morgan stanley / jp morgan
@Sotiri Yes, as I've said here for over 10 years, relief, if any, will ultimately flow from the courts. Relying on Congress, the Executive or the political hacks at federal agencies is a bad idea, though I recognize there has always existed, and still exists, the possibility of a "political solution" which would pleasantly surprise me. For me, this has been and remains a litigation play and the race, though a marathon, is not over.
Valuemonster profile picture
@Sotiri ,

An article on 'your man' Charles Yi. LOL.....


Appears he is the bag man for the uneconomic CRT issuances. Completely with the 'Financial Establishment'. As u said, he didn't join FHFA as "Senior Advisor for Legal Affairs" for the Dental Plan.
We have his history, but would luv to know his current allegiances as they stand today so there could be no guess work.

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