You raise some interesting points about the value even if the net worth sweep is overturned. I would like to mention the following points as a rebuttal:
1. Once the portfolio's is reduced the companies revert to insurance companies, so relevant capital ratios should be the same as public companies such as mtg ,rdn and gnw. These companies have far less than 10% capital to total risk in force. See Ackman's presentation.
2. Punitive capital ratios are just going to be passed along to future homeowners in the form of higher guarantee fees, so I don't think that will play well politically. We are already seeing the pressure by Mel Watt to push for loans with 3% down etc.
3. 10% capital does not have to be equity capital and the recurring income will allow for new issues of debt. This presumes that nws overturned and all ove payment reduces principal. Note if the money does not reduce sr pfd then it goes to the companies anyway. 187 billion stays on the books but the over payment is 200 billion or more.
4. Amount of liabilities that the government-tax payer is backing in practice is overstated. The liabilities are backed by actual property. If property in the us declines another 50% from present levels the tax payers are going to have to worry about the liabilities they guarantee to the banking system etc. In any case the first 20% of any decline in property value is a loss for the homeowner or the private mortgage insurance company etc. The forensic accounting , whether it holds up in court are not, provide that proof that these companies were able to hold up under the worst possible conditions thrown at them. Risks to tax payer arguments are inflated to say the least.
5. Yes , I am figuring that over payments reduce the balance down to the 30 billion owed in any court decision. Since they have overpaid 40 billion, I am not sure your 30 billion deficit is right. In addition there is at least a combined 25 billion in excess loss reserves for both companies. This should be counted as capital since just the recurring income easily covers any quarters actual charge-offs. Note the word actual charge offs versus loss provisions. Reread Hempton's blog for November 2009 for an explanation of charge offs vs provisions etc.
6. The forensic accounting raise issues that at least 75% of the 187 billion was not needed. We have no idea about future restatements etc. In addition we may see new legal action once the nws overturned , possibly looking at the warrants. if any of this happens it's a whole new ball game!
7. Finally if Lambreth is upheld in court. as Senator Toomay has mentioned this a strong disincentive to attract the private capital that Corker etc claim they seek for the mortgage market. Lambreth's decision establishes a precedent that changes the rules for not just the gse's but any financial company. It complicates the government's negotiations in the future for any financial company in trouble where a future Treasury secretary is seeking a private solution. This why the former head of the fdic under Reagan is associated with one of the amicus briefs. If it can to the gse's, who can it happen to next? bac? jpm?
Precedent is now established. That's why Lambreth has to be overturned or there will be new problems!
