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Good update article. In reality, if a solution is found through Congress, it would require a"tri-partisan support (democrats ,and both the moderate and conservative republican trenches). Remember, it was not solely the lack of democratic party support that failed the Obamacare repeal, but rather discord within the moderate and conservative views of senate republicans. On that basis,I find hard to believe that the senate would have the votes to eliminate the GSE's and replace them with untested systems especially since the GSE's are working so well presently and I would have to feel by now a majority of the members of Congress understand that the 2008 financial crisis , although multifactorial in its causes, had a lot more to do with the big banks lack of discretion , than the GSE's .Further, I find it hard to believe, with the above in mind, that the Administration would want to wait a full year to see if a tri-partisan resolution can be found . If I were in their shoes ,I would want to get a resolution well before the mid-terms ,so as to favor republican support in the election, especially if their grass root support is at risk with the upcoming tax reform.Thus I doubt they would be in favor of extending the GSE jumpstart another year which would likely mean another year of conservatorship. My "guess" they will try to provide an all around solution, perhaps along the lines of the Moellis proposal and Ackman's presentation but modified. They will have something for everyone and enough for the shareholders that would eliminate and/or substantially reduce the threat of the current or possibly new lawsuits.I suspect the arrangement will be similar to the pre crisis arrangements with the exception that the system will be more carefully regulated. The simplest method would be to have the GSE's survive , be released and continue to play a role.Selling everything out to the big banks ,I think would be a political catastrophe for the republicans.
Doesn't help that Bradford is blaring about Jumpstart v1.0 expiration. Probably clued French and Corker into concocting v2.0
Doh!
clean up and cover before he leaves the S.House!
Very Interesting that Senators Bob Corker and Mark Warner are major players in reforming FnF
i think that he meant the 3rd circuit court
Delaware-3rd appeal. Years to go. What a crock on a straightforward case. Who can help but be disillusioned with our country. Too many Washington DC capers to keep track of and a judicial system that completely confounds. Where are our Constitutional judges who will stand for clear justice?
Thanks for the updates, Navy. But how maddening!
Based on yesterday with the heavy down day for common and pfd up big- it seems like it might be the other way around.
Strict enforcement of existing laws will go much further than increased regulations. Problem is lack of enforcement of rule-of-law as the law was intended, not contorted to meet some previously mis-contrived conclusion.
Senator Grassley pinpoints the problem best when he stated, “Conclusion first, fact-gathering second—that’s no way to run an investigation. The FBI should be held to a higher standard than that, especially in a matter of such great public interest and controversy,” the senators wrote in a letter today to the FBI."
"It is a conclusion not evidence. …I do not make my conclusions first and try to shoehorn the facts to fit my conclusions."
https://www.infowars.com/senator-grassley-lashes-out-at-fbi-doj-in-fiery-senate-floor-speech/
Sounds like she was fed the lie from heavy Preferred share holding hedge funds selling their holdings and swapping into common...
There's still time to read "Bleak House" before this is over, although I think we'll see Hensarling wound down before the GSE's are decided on...
Over at Treasury they are singing a familiar song:
"Leave Our Profit Sweep Alone"
Prospects for housing finance reform ‘brighten’ and may favor shareholders
http://www.marketwatch.com/story/prospects-for-housing-finance-reform-brighten-and-may-favor-shareholders-2017-12-08
Dodd-Frank is massive. Financial institutions have to hire additional personnel to become experts in the new regulations to know and understand the increased requirements to ensure compliance. These experts then have to pass that info to others in the company who then have to ensure compliance while doing their part, a trickle-down affect. THAT is extremely resource intensive. Just ask ANY financial institution, TBTF or otherwise. THAT was the MAJOR complaint of community banks as they do NOT have the resources to acquire that expertise and that leaves them with no choice but to abandon those markets. Just what TBTF wants, a monopoly, which results in higher costs passed on to the consumer, you and I, the taxpaying public. Increased regulation is NOT the answer. Those with deep pockets will ALWAYS find a way around them and control the market. Trump, being a business man, understands this and that is why he is fighting for reduced regulations.
From that very article.
“There are two classes of equity in both companies: preferred and common. Bloomberg and Politico reported this week that the current proposals would boost the preferred shares, but leave the common ones out. “
HOT! -Prospects for housing finance reform 'brighten' and may favor shareholders ! 12:03 PM ET 12/8/17 |MarketWatch
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Prospects for housing finance reform 'brighten' and may favor shareholders By Andrea Riquier
Bipartisan consensus on one of the thorniest issues left unfinished from the financial crisis?
Prospects for an overhaul of the housing finance system are "brighter" as fresh legislation advances through Congress, one analyst believes.
Senators Bob Corker and Mark Warner are working on a bill to decide the fates of Fannie Mae and Freddie Mac, the two government-sponsored enterprises still lingering in a financial-crisis-era limbo. That question has taken on some urgency in recent weeks as the time nears when the two companies no longer have any capital cushions, as directed by Congress, yet will likely need to tap taxpayer dollars if proposed tax law changes slash the value of tax credits they hold on their balance sheets.
Read:Here's what else tax reform means: another bailout of Fannie and Freddie (http://www.marketwatch.com/story/heres-what-else-tax-reform-means-another-bailout-of-fannie-and-freddie-2017-12-05)
There are still big questions to be determined, and Congress has its hands full with other financial services priorities, wrote Capital Alpha's Charles Gabriel. Still, he said, some of the broad outlines of the plan that's emerged seem to be gaining traction and garnering compromise.
"Specifically, we see the shifted Corker-Warner stance toward a continued GSE role and some concessions to shareholders as potentially reducing or removing barriers to reform," Gabriel wrote late Thursday. "And we thus expect it to importantly change the threshold debate."
Among the biggest shifts: House Financial Services Committee Chairman Jeb Hensarling's acknowledgment (https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=402755)that he recognizes the political necessity of keeping some form of government guarantee for mortgages.
"Although I hate to have the federal government in the position of deciding which mortgages can be securitized, with $5.7 trillion in guarantees, decide it must," Hensarling said Wednesday (https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=402755).
The broad outlines of the Corker-Warner plan suggest that Fannie(FNMA) and Freddie(FMCC) 's investment portfolios would be wound down, and future mortgages would be explicitly guaranteed by a government agency led by Ginnie Mae, the agency that currently securitizes mortgages from the Federal Housing Administration and Veterans Administration, with a wrap from a federal mortgage insurance agency that would be created later.
But as Gabriel notes, compromise on the contours of the future housing finance system may be easy compared to untangling what's owed to shareholders.
Between the 2008 crisis bailout and a 2012 amendment to that agreement, which siphoned the enterprises' profits to Treasury, shareholders have been nearly wiped out, and years of fighting the government in court have done little to settle the matter.
There are two classes of equity in both companies: preferred and common. Bloomberg and Politico reported this week that the current proposals would boost the preferred shares, but leave the common ones out.
"This messaging seemed puzzling in that it might devalue the government's own 79.9% equity stake in the two Enterprises," Gabriel wrote. "But, as some observe, it might be attractive to Senator Corker in settling scores with hedge funds and shareholder groups with whom he has tangled for several years."
On Thursday, shares of the preferred stocks surged while the common class of shares stumbled.
There are still many open questions and constituencies to please before reform is finalized. Earlier attempts at overhauls, including one from Corker and Warner, failed. Even despite the recent momentum, Gabriel thinks there's only a 35% change of comprehensive housing finance reform next year.
Still, as he wrote, "We think Fannie-Freddie investors may finally be on the verge of seeming less as outliers, which could attract additional capital, from heretofore fence-sitting institutional firms, as well. As for the common vs preferred struggle, we'll leave it to others to see the future, though we doubt a negative verdict with regard to the former might be that quick or easy to assume.
-Andrea Riquier; 415-439-6400; AskNewswires@dowjones.com
> Dow Jones Newswires
December 08, 2017 12:03 ET (17:03 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
MarketWatch: 12/08/17 - Andrea Riquier Given AverageJoe Plan & Notified Senators Corker & Warner Have It To Help In Consideration Of New Legislation...
https://twitter.com/nsfraudbuster/status/939152118065217536
This is not even close to over. Its clear from the article below, the Trump admin is keeping its position a secret. Wonder why.... ·
https://www.nationalmortgagenews.com/news/fannie-and-freddie-should-they-stay-or-should-they-go
Us as shareholders have been here dealing with this for so long and led on. I truly believe we should have had some sort of notification not publicly made as to the direction of this and these entities. It is another taking and they have allowed us to invest and trade in it when this should not be allowed. It is rape!
HOWARD ON MORTGAGE FINANCE - The Path Forward
JUNE 6, 2017 ~ JTIMOTHYHOWARD
At the beginning of this year, in a post titled “Economics Trumping Politics,” I wrote: “For the past eight years, what I refer to as the Financial Establishment—large banks and Wall Street firms, and their advocates and alumni at Treasury and elsewhere—has been engaged in a well designed, carefully scripted and highly orchestrated political campaign to convince Congress to replace Fannie Mae and Freddie Mac with a mechanism more financially beneficial to themselves. Then, seemingly out of nowhere, five weeks ago Treasury Secretary-designate Steven Mnuchin announced his intention to “get [Fannie and Freddie] out of government control…reasonably fast.” With this statement, the odds immediately flipped to favor the prospect that the fates of Fannie and Freddie will be determined not by a misinformation-based political process likely to benefit banks, but by a fact-based economic process likely to benefit borrowers.”
Based on the Mnuchin comments, my expectation had been for a relatively quick settlement of the lawsuits against the government for its handling of Fannie and Freddie in conservatorship, followed by a reform and recapitalization plan for the companies that would have provided them with regulatory and capitalization schemes designed to maximize their effectiveness as mortgage guarantors. Such a result would have been driven both by the interests of shareholders behind the lawsuits and the interests of Treasury, which holds warrants for 79.9 percent of the companies’ common shares, and would have been in the best interest of mortgage borrowers. While the large banks and the political opponents of Fannie and Freddie would have objected to keeping the companies alive, without a workable legislative alternative they would not have been able to prevent it.
On February 21, however, the U.S. Court of Appeals for the D.C. Circuit in the Perry Capital case unexpectedly (and inexplicably) held that plaintiffs’ statutory claims against the net worth sweep were barred by the anti-injunction provision of the Housing and Economic Recovery Act. Shortly afterwards two suits challenging the sweep in lower courts—Roberts in Illinois on March 20 and Saxton in Northern Iowa on March 27—were dismissed in opinions citing the Perry Capital decision. Still another lower court case, Collins in Texas, challenging not only the net worth sweep but also the constitutionality of the Federal Housing Finance Agency (FHFA) as a federal agency headed by a single director removable by the president only for cause, was dismissed on May 22.
The Perry Capital ruling and the subsequent dismissals of other net worth sweep cases in lower courts halted whatever near-term momentum administrative mortgage reform might have had. Treasury had no justification for initiating settlement of a case it so evidently was winning—and that was bringing over $15 billion per year into its coffers—and without resolution of the sweep Fannie and Freddie cannot be removed from conservatorship.
With administrative reform efforts stalled, the spotlight returned to the legislative side. On April 20 the Mortgage Bankers Association put out a white paper arguing (incorrectly, in my view) that legislation was essential to achieve the consensus objectives of “protecting taxpayers, attracting capital to Guarantors, and ensuring consumers and borrowers have access to affordable housing.” Then, on May 23, the American Bankers Association sent Secretary Mnuchin a paper (“Reforming the Housing Enterprises—Sustaining Homeownership and Protecting Taxpayers”) taking virtually the same position, while also advocating additional restrictions on credit guarantors and more benefits or flexibilities for primary market originators.
Yet while the focus of mortgage reform may have changed, what hasn’t changed are the relative degrees of difficulty of legislating something new and untested versus administratively fixing something that already exists and has been proven to work.
Legislative reform efforts never have been about devising a secondary market system that produces the lowest cost and most available mortgage financing for homebuyers; their core objective instead has been to remove or restrict two companies—Fannie and Freddie—whose operations have made it more difficult for large commercial and investment banks to exercise the control over and make the amount of money they wish to from the $10 trillion single-family residential mortgage market. For that reason proponents of legislative reform have as an unconditional requirement that Fannie and Freddie either be eliminated or altered to a degree that they no longer can operate as effectively and efficiently as they once did. Advocates for these changes may say publicly that they are remedies for a “failed business model,” but the reality is that they end up having to propose secondary market credit guaranty mechanisms that work less well than Fannie and Freddie now do, or have a risk of not working at all.
Legislating the replacement of the known and proven with the unknown and uncertain always is difficult, and there are four factors that make it even more so in the current environment. The first is the extreme partisanship and divisiveness in both houses of Congress today. Second, setbacks to attempts by the Trump administration to replace the Affordable Care Act and achieve consensus on an approach to tax reform further complicate the task of knitting together a coalition capable of agreeing on and passing reform legislation. Third, there are fundamental, and seemingly irreconcilable, philosophical differences between the Senate and the House on whether there should be an explicit government guaranty on securities issued by the envisioned successors to Fannie and Freddie: the Senate supports one, whereas a significant number of members in the House insist that the future secondary market be “fully private,” with no government support at all.
Finally, to put and keep the companies in conservatorship Treasury has had to single out their shareholders for unprecedentedly punitive treatment—forcing the companies into conservatorship, having FHFA add massive temporary or artificial accounting expenses to make them take unneeded and non-repayable senior preferred stock, and then, when the effects of the accounting expenses reversed, taking all of their net income in perpetuity. Advocates of “winding down and replacing” Fannie and Freddie through legislation seem to be wishing away the challenge of convincing investors to put up $150-$200 billion in capital for new and untested credit guarantors at the same time as the government is expropriating the capital previously invested in the two existing secondary market entities.
For these reasons I believe it is highly unlikely that mortgage reform legislation can pass before the 2018 midterm elections (beyond which time prediction is foolhardy because of possible changes in the political landscape). It is tempting to conclude that the status quo will continue indefinitely, since it will be favored by Congress—whose leaders see it as preferable to administrative reform preserving Fannie and Freddie—and it also benefits the administration, which can keep the companies’ net income while publicly exhorting Congress to end the legislative impasse. Ultimately, though, the lawsuits make the status quo unsustainable.
A number of cases related to the net worth sweep are still pending. There is the Jacobs-Hindes case in Delaware District Court, asserting that the sweep violates Delaware and Virginia law applicable to Fannie and Freddie and thus is void and unenforceable. An appellate court decision in favor of the plaintiffs in any one of four cases—Robinson in Kentucky, or Roberts, Saxton or Collins—would conflict with the finding of the D.C. District Court Appeals in Perry and trigger “a split in the circuit,” making it likely that the Supreme Court would hear and decide the issue. And just this past Thursday (June 1), a new suit challenging the constitutionality of FHFA was filed in the District Court in Western Michigan. While the timing on the final disposition of all of these cases is uncertain, and the appellate decision in Perry has reduced the odds of the sweep eventually being overturned, as long as any suit remains outstanding the government is at risk of losing it.
Moreover, if the net worth sweep is upheld across the board the government still must contend with the breach of contract claims remanded to the Lamberth court in the Perry Capital case, as well as the regulatory takings charges in the Federal Court of Claims under Judge Sweeney. Breach of contract and takings are constitutional claims, the remedy for which is monetary damages. In the absence of legislation eliminating Fannie and Freddie they will remain at the center of the secondary market and become increasingly profitable. Were plaintiffs to prevail in one of the constitutional cases, particularly the takings case, requested damages could be staggeringly (and appropriately) large.
I believe Secretary Mnuchin sees and understands this bigger picture. Even if he hadn’t already pledged to remove Fannie and Freddie from government control, he knows he has to take the initiative on mortgage reform while he still has some control over the outcome. With his path to administrative reform blocked for the moment by the Perry Capital decision, his only practical option is to work with industry leaders, lobbyists and members of Congress on the legislative efforts they now are pursuing. In doing so, however, he should and I think will set a high bar for what he deems to be an acceptable reform package. Treasury has a 79.9 percent stake in the two companies that have the best past record of secondary market performance and the best prospects for future success, but which Congress, under the influence of the banking lobby, is intent on phasing out or re-chartering. Politically motivated reform that replaces Fannie and Freddie with a less effective alternative would eliminate Treasury’s payments from the net worth sweep (for as long as they remain legal), make its warrants for the companies’ common stock worthless, and raise the cost and reduce the availability of mortgage credit for homebuyers. Those are not outcomes Mnuchin wants.
While Congress tinkers with legislative reform, therefore, Mnuchin will continue to assess his options for administrative reform. In this regard, a plan released late last week by the investment bank Moelis & Company, which describes itself as “financial advisers to certain non-litigating preferred stockholders of Fannie Mae and Freddie Mac,” may well gain traction. The Moelis plan, titled “Blueprint for Restoring Safety and Soundness to the GSEs,” relies on Treasury and FHFA’s existing authorities to set new capital standards for Fannie and Freddie, strengthen their regulation, and prepare them for exit from conservatorship following a series of equity issuances over a four-year period. Moelis contends that its plan also would net taxpayers $75 to $100 billion from sale of Fannie and Freddie stock acquired upon exercise of Treasury’s warrants.
I will have more to say about the Moelis plan in a future post; overall I find it to be very promising, but believe its fixed, bank-like capital standard needs to be refined in order to produce the business results Moelis is projecting, and to enable Fannie and Freddie to price their guarantees in a way that offers affordable financing to a broader range of borrowers. For now, though, the important point to make about the “Blueprint” is that it puts a concrete, third-party administrative proposal into the public domain for evaluation against the multitude of competing plans for legislative reform.
A significant weakness of the many legislative reform plans that have been offered over the last few years has been a lack of operational detail on how their proposed new credit guaranty mechanisms would work, and vagueness about the transition of $5 trillion in mortgage guarantees from the books of Fannie and Freddie to the envisioned new credit guaranty mechanisms or companies. The Moelis proposal, in contrast, uses an existing and proven infrastructure, includes detailed financial projections and a timeline for achieving its capitalization objectives and, in its words, “does not require a winding down of the existing GSEs, or use of market-destabilizing legal constructs like receivership, as envisioned by the MBA” that also would “[fail] to resolve existing shareholder litigation and would likely lead to new legal claims…that increase the prospect of a court-imposed solution rather than a policy-led solution.”
The president of the Mortgage Bankers Association, David Stevens, immediately responded to the Moelis plan by saying, “This proposal is clearly self-serving and designed to confuse unsuspecting, innocent taxpayers into supporting a plan that is intended to line the pockets of hedge funds who invested in Fannie and Freddie.” Tellingly, however, Stevens offered no specific criticism of the plan. Instead, he fairly begged critics of the MBA’s plan to respond by calling it “clearly self-serving and designed to confuse unsuspecting, innocent homebuyers into supporting a plan that is intended to line the pockets of banks who want the business of Fannie and Freddie.”
To date there has very little substance in the debate about what to do with Fannie and Freddie going forward. Together with the interest and participation of the Mnuchin Treasury, the Moelis proposal should help change that, by serving as a catalyst to shift the mortgage reform discussion in Washington from inaccuracies, political rhetoric and name-calling to a serious analysis of the competing plans on their merits. When and as that occurs—as I believe it will—the optimism in my “Economics Trumping Politics” post about a fact-based administrative reform process prevailing over a misinformation-based political process should again seem justified, although it will take longer to play out than I expected originally.
these really arent swings.
The big swings were back in the old days when the stock would gain/drop 1.00 in less than an hour.
No. Why would anyone expect any different. No other reason to go after the CFPB the way they have.
Getting tough with Wells Fargo while totally ignoring Fannie Mae and Freddie Mac.
I'm sure that his tweet means a lot!
Dear Judge Steele,
Tell your former colleagues to grow a set and do the right and lawful thing. The public reads these ridiculous rulings coming out of the courts which only lowers the abysmal opinions the public has about the current judicial system. To do so, you might have to grow a set yourself.
A downtrodden Fannie and Freddie shareholder
My optimism tanked yesterday and today sold over a 1/3. In attempt to keep up with my failure :-[... maybe get back in later
Meaning that they won't appeal?
e-mail reply from Delaware Case .....
*******************************************************
usnavycmdr@gmail.com> 6:41 AM (54 minutes ago) to Myron
Good Mornin' Judge Steele ...
What is Gary Hindes next move ? Appeal ?
Which pending Circuit Court Case stands a "better chance"
in prevailing against the HERA anit-injunction clause ?
Thanks ...
******************************************************
Steele, Myron T. <msteele@potteranderson.com>
7:31 AM (3 minutes ago) to me
If we appeal, it would be the 3rd
Sent from my iPad
300,000 share block trade. Someone is blasting out. Eject! Eject!
Loving the short!!!!
FNMAS HAS A HUUUUUUUUUUUGE GAPPPPPPP LOLOLOL
Mr. Thompson sent a similar letter to the Eighth Circuit today,
and a copy of that letter is attached to this e-mail message.
http://www.glenbradford.com/wp-content/uploads/2017/12/17-1727-0024.pdf
Mr. Thompson continued his letter writing campaign today
by telling the Fifth Circuit to follow Judge Brown’s reasoning,
and a copy of that letter is attached to this e-mail message.
http://www.glenbradford.com/wp-content/uploads/2017/12/17-20364-00514265203.pdf
David Thompson at Cooper & Kirk, representing the Roberts Plaintiffs,
tells the Seventh Circuit in a letter filed today that the Sixth Circuit
and Judge Sleet read HERA way too expansively.
“HERA confers on FHFA a limited set of enumerated powers . . . and
pillaging the Companies’ balance sheets is not among them,”
Mr. Thompson says.
Mr. Thompson urges the Seventh Circuit to tell
FHFA it’s gone too far and follow Judge Brown’s dissent.
ONAMA STOLE $500B FROM FNF!
Get what I'm saying?
Sure did and a very BIG CHUNK.
I think this is a base valuation. if you apply this numbers at freddie, the valuation is more high because there is less shares outstanding and the cushion for an hipotetical rescue is smallest. my bet is for freddie!!
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