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Hi lumpina,
Sweeney's court was established exclusively for such disputes. This is her case, no question.
Untouchable? Of course not. Unavoidable fits better here.
Hi, Potty,
don't worry, I hypnotized Sweeney back then by remote. But she wasn't supposed to fall asleep. Well, now she's awake again...
You're welcome, Doc,
Sweeney had even released the presidential documents. But her appeal court ordered against it.
No question: Sweeney will start the trial.
I want to see DeMarco and Geithner in front of Sweeney, explaining the "death spiral", stating F+F were broke due to accounting tricks.
GLTY
No more excuses. No more delays.
Sweeney is back. Harder. Better. Untouchable.
http://www.glenbradford.com/wp-content/uploads/2019/01/13-465-0432.pdf
GLTY
Hi Doc,
sorry for the late response.
Congress has authorized the UST to provide bailout funds for F+F - with the Charter Act.
If F+F would again need a bailout, which I doubt, Mnuchin would draw on the available funding remaining. This line of credit(LOC) is still about 114 billion dollars, available to Fannie, appropriated by Congress.
Maybe you can explain to me what you're getting at?
Hi YanksGhost,
the line of credit of the treasury is based on the Charters of F+F. That really is a mockery: Fannie Mae would have been entitled to the help of the Secretary of the Treasury at any time. The company would only have had to ask what it never did.
The following is written in Fannie Mae's original SPSPA on page 1:
"B. Purchaser is authorized to purchase obligations and other securities issued by Seller pursuant to Section 306(l) of the Federal Home Loan Mortgage Corporation Act, as amended (the “Charter Act”)."
GLTY
Hi brooge,
I'm convinced this is our year! And I am also ready for the Summertime Blues.
GLTY
Hi AllRightWamu,
Collins suggests 2 variants of a remedy:
1. eliminate SPS and return approx. 24 billion dollars to F+F.
2. preserve SPS and return approx. 130 billion dollars to F+F.
If we don't win in any court, there's most likely no money back.
GLTY
Hi Doc,
I understand your displeasure with the warrant. Its existence is an injustice that has no equal. Just imagine that at the time the warrant was issued it was not even known that Fannie would need any help at all. Nevertheless, giving 79.9% of the company up for a supposed rescue is an outrageous impertinence.
You question the sense and purpose of the warrant absolutely rightly! There I am fully with you. The mere fact that Hank Paulson officially confirmed at the time that the warrants would serve to protect the taxpayer speaks volumes.
Unfortunately, as long as no legal action is taken against it, the terms of the warrant certificate apply.
The warrant even has its good points. Imagine if we keep losing in court. Then Mnuchin would have to go for the SPS and would not have the warrant as an alternative. That would be even worse for us common shareholders.
Please bear in mind that Mnuchin cannot simply give away 190 billion SPS dollars - without compensation. It is politically unacceptable for Mnuchin to simply give up the SPS, while the Department of Justice successfully defends the integrity of the SPS in court.
And in a recapitalization it is certainly an advantage if Mnuchin shares our interest in maximizing the value of our shares.
Nevertheless, I do not rule out that the warrant will not be exercised in the end. There are indeed scenarios in which this is possible. So it remains exciting until the end.
GLTY
Hi robertus,
I think the en banc ruling will be close. This will then allow both parties to appeal to the Supreme Court to take over the case.
If Collins loses, he'll ask the Supreme Court, says his attorney Thompson.
Mnuchin leaves the defense to the Justice Department. That's the usual way he just took over. The Justice Department would most likely ask the Supreme Court to take over the case in the event of a defeat. Unless Mnuchin is running out of time...
I hope we go into the showdown with a win behind us. But it's going to be damn close. And maybe the final is off and the Supreme Court cancels the game.
GLTY
Hi friends,
this is my view of the current situation:
1. F+F should be preserved and leave the conservatorships. Trump has determined this with his memo. Otting and now Calabria have confirmed this. Calabria said during the interview with Hannah Lang that after his 5 years in office there will certainly be 2 companies named Fannie Mae and Freddie Mac. So unwinding is off the table. Also a merger of the two companies.
From Mnuchin we know from the beginning that he wants to end the conservatorships and thus the government control. Now it is up to him to present Trump with a timetable. This will probably be announced in the next few weeks. Because according to Trump it is urgent. And Calabria also feels "a sense of urgency".
2. The changes in the law desired by the government now only relate to the promotion of competition on the secondary housing market. For this, F+Fs charters would have to be revised or made accessible to other market participants.
I don't think Congress will agree on this, especially as it doesn't have much time for it. According to Mnuchin, the Housing Finance Reform should be completed within the next 6 months.
Serious competition definitely needs the same advantages that F+F enjoy thanks to their charters. But of course we shareholders would be happy if Fannie and Freddie kept the bosses in the ring.
3. A utility model with capped profits predefined by the FHFA is no longer being discussed at all. That's good for us. However, it cannot be ruled out that it will happen anyway. But that would mean a high degree of regulation and create a regulator (FHFA) that would have extraordinary powers. The Republicans don't like that after all.
4. Nobody talks about Recap and Release. But release is a done deal. It is obvious that F+F needs a lot of capital like any other financial company in the world.
Otting said 150-200 billion dollars.
Carson of the FHA said raising $150 billion would require creativity.
Calabria said the companies could keep their profits, but it was imperative that the Treasury consult with the FHFA to explore other ways to raise capital.
These are definitely remarks about the Recap! And the media are now supporting these considerations. Because everyone knows that the companies are now to be released and that they need capital for this.
Recent statements lead me to assume that there will probably be one or more capital raises. After all, it would take about 7 years for F+F to have sufficient capital by retaining its earnings.
Common shares and preferred shares can be issued. Everything else besides retained earnings does not belong to the core capital, which is decisive for compliance with the capital requirements. With the legally prescribed core capital, you can't trick; at the most, at the point in time when it is to apply.
Thus it would be possible to release Fannie Mae before it is adequately capitalized. This would have advantages over a Recap and Release. Investors would be protected from the excessive authorities of the FHFA, in particular Paragaph 4617(f), which prohibits legal interference in the operational processes of the FHFA. Outside the conservatorships, F+F would again be able to operate autonomously. They would continue to be protected by the remaining line of credit from Treasury, which is not tied to the conservatorship.
Recap and Release or Release and Recap? We will see...
While the issue of preferred shares would have the advantage that the amount raised would be known in advance, the disadvantage is to be seen in the future capital structure. This is because an excessive proportion of preferred shares burdens companies, especially in times of crisis. Therefore, there are worldwide considerations to transfer the guidelines for banks regarding the ratio of common and preferred equity to the entire financial sector.
In other words, Calabria would not be in line with the global trend if he were to recapitalize mainly by issuing preferred shares. But it would be possible by now. And beneficial, too.
Therefore, it is highly likely that new common shares will also be issued. But this is almost impossible as long as there are considerations to pass laws that would significantly reduce Fannie's footprint. Likewise the dissolving of the charters, which constitute the value of the 2 companies considerably.
New investors want clarity and security about the future of the companies. But as long as Congress is involved, this is not the case. Therefore it is not surprising to me that Mnuchin wants the matter off the table quickly - especially the legislative part.
But one thing should not be overlooked: Fannie is chartered "government sponsored". Changes to its charter are possible at any time - always! The last change was in 1992, if I remember right. In other words, there is simply no absolute security for investors and certainly not for GSEs. Fannie's Charter offers a maximum of security. But it can be changed by Congress at any time.
There are some indications that Fannie will be freed from the government's clutches during Trump's first term in office. But the fact that it is possible to release the companies and then recapitalize them gives Trump the opportunity to do without a $150 billion slam dunk that could jeopardize the whole process. Once released, even a future president will hardly be able to change the roadmap Trump initiated.
The HERA law describes 9 conditions that make it possible to put Fannie in conservatorship. In 2008 only one of these points was fulfilled: The approval of the Bord of Directors. And this approval was enforced. That was only possible at the time because the mood was one of doom and gloom.
Once released, Fannie can no longer be put into a conservatorship - unless the world ends again.
We common shareholders would welcome it if Fannie capitalized on retained earnings. Keyword: dilution. But it would be easy to get over it if preferred shares were issued. That would dilute profits, but lead to an earlier dividend payment. Our loss in value would be small.
Issuing common stock would be the worst solution for us, but the best solution for Fannie's capital structure. Nevertheless, if we only recapitalize by issuing common stock, I still believe that prices well above $10 per share are possible. But then 20 dollars will be very tight. In the teens (13-19), as Ackman said about 2 years ago. If Mnuchin deciedes to go for the warrants, we will get there.
The main danger for us common shareholders is and remains the SPS with its value of 120 billion dollars. These shares must disappear so that Fannie can meet its capital requirements, should these finally be determined. Because Fannies core capital is about minus 120 billion dollars, because the SPS is not included since it is cumulative.
In this way the SPS problem can be solved:
1. Mnuchin does without it and gives it back.
His reasoning: warrant increases in value, taxpayer compensated. Current "fair value" of the SPS amounts to approx. 80 billion(?) in the books of the Treasury. This would be offset by the increase in value of the warrant. Otherwise Mnuchin would be a secretary of the treasury, who would just give away securities in the value of 190 billion dollars (F+F). Au cheek. Hopefully en banc will help, he might think...
2. the SPS will be non-cumulative and also devalued so that it doesn't eat all the profits.
3. the SPS will be converted into common stock.
That's our worst case scenario. In this way, Mnuchin would be able to increase his stake in the company from 79.9% per warrant to over 99%. However, the companies would be worth less as the market prices in all risks. If, for example, the P/E ratio were to fall from 15 to 13 because we existing shareholders would have been deliberately and unnecessarily deprived of our stake, Mnuchin would not make more money and would force further lawsuits. So 99% can be worth less than 79.9%.
The SPS is non-convertible by contract, i.e. it cannot be converted into common stock. But the same contract leaves open the possibility that the parties involved can make changes to it together.
I don't think Mnuchin will choose this option. Destroying the value of the common shares would be delicate for the Secretary of the Treasury as long as there are other equivalent solutions. Such action would not only be questioned by the courts: The Secretary as Shortsellers best friend...
I hope that I was able to create some clarity and that I did not confuse any more. Unfortunately, a lot of things flow into the current process. At this point I will stop. As always, questions are welcome.
GLTA
Hi kthomp19,
here I've found an official statement from Treasury where Hank Paulson actually called the warrants protection for the taxpayer:
"With this agreement, Treasury receives senior preferred equity shares and warrants that protect taxpayers."
Unfortunately, there is nothing like that in the SPSPAs. Instead of "protection" or "collateral", the term "taxpayer compensation" is used.
Hank's rhetoric is again testimony to how the public was misled.
GLTY
kthomp19,
JPS holders should have seen by now that their contract rights have been put on ice. There is no doubt that contract rights are subordinate to the law.
Moreover, as trunkmonk has already said, any contract that violates existing law is null and void.
If Calabria doubts the contract with the treasury, Mnuchin can go home. Because then the SPSPA is no longer protected by HERA's anti-injunction provision.
Mnuchin can rely on the legality of the contract. And Calabria can counter that the independence of his FHFA has been suspended to such an extent that he cannot make the companies sound and solvent.
The question as to whether a credit line is to be regarded as capital is answered at the latest when Calabria explains how capital requirements are structured and what all counts towards core capital, which is needed to release them from consrvatorship.
And the SPSPA as a whole might get crushed if Calabria were to declare in court that an unnecessary change in accounting has led companies to pay more dividends to the Treasury than they had ever earned before.
And the SPS contract, which makes a repurchase of the SPS impossible without the approval of the Secretary of the Treasury, makes the adhesion contract perfect and eliminates the independence of the FHFA.
Calabria has the power now, nobody else. And he has the documents. However, I do not expect him to question the whole SPSPA. But Calabria will certainly keep an eye on the NWS. And if we common shareholders are very lucky and Calabria proves to be fair and courageous, he will also find an acceptable solution for the warrants.
Happy easter
MAY a LOAN SHALL be treated as CAPITAL...??
The misjudgments of the courts are indefensible. Calabria is right that the NWS violates HERA.
Here is the authoritative text passage in HERA:
‘‘SEC. 1313. DUTIES AND AUTHORITIES OF DIRECTOR.
‘‘(a) DUTIES.—
‘‘(1) PRINCIPAL DUTIES.—The principal duties of the Director shall be—
‘‘(A) to oversee the prudential operations of each regulated entity; and
‘‘(B) to ensure that—
‘‘(i) each regulated entity operates in a safe and sound manner, including maintenance of adequate capital and internal controls;
The law is crystal clear here. It does not allow two opinions. On the basis of this section we will win en banc. At the latest, however, at the Supreme Court.
If all courts disregard this section, the legal system is threatened with irreparable damage. The same applies to the authority of the government in insolvency law proceedings.
Hi doc,
Calabria was a major player in the creation of HERA. He also wrote a working paper in which he explains in detail why the NWS is against the law.
On the other hand, we have courts that say that the NWS is okay.
There are only 2 possibilities that can lead to this inconsistency:
Either Calabria is an idiot who didn't understand what he was writing - HERA or working paper.
Or the courts make wrong judgments for whatever reason.
If Calabria has character, he bends the matter straight again within the framework of his authority. Then he settles the NWS retroactively. But it also takes courage to defy court rulings.
The paradox: Calabria's name now stands for the defense of the NWS in court. What a mockery! I don't think he likes that.
Have a nice holiday
kthomp19,
the law is above contract rights.
If the FHFA is of the opinion that the NWS is standing in the way of its mandate to make the GSEs sound, it may bring an action against it and suspend it in the meantime.
If the FHFA thinks that the 2 warrants prevent the FHFA from doing its job of making the companies sound, it can also challenge them. The warrants give the treasury 79.9% ownership at the time of exercise. Capital raises are impossible as long as the 2 warrants are not exercised or amended.
If the FHFA considers that its performance of its obligations is jeopardised by the conditions of the SPSPAs, it may terminate the entire contract. In particular, if the FHFA sees its statutory independence at risk.
According to HERA, the FHFA is an independent institution with extensive powers. FHFA alone is responsible for controlling the conservatorships. The SPSPAs are extremely questionable in all respects. Calabria is in charge by law - not Mnuchin with his equity participation.
Hi kthomp19,
I'm so glad you're not a robot. That was your first typo I noticed:
I'm thinking about taking a Usa trip in the summer. I'll let you know...
Hi brooge,
when did you get in?
How do you feel about riding a Harley from LA to the Vegas board meeting? How high does the PPS have to go to make the meeting happen?
Hi schnabel,
Hi bcde,
yes, this is how the LOC works - inside or outside conservatorship. Fair modifications to the SPS would require a 4th amendment, as would an end to the NWS.
Hi bcde,
I didn't miss it. Takes time...
Scoop:
Just checked: Craig Phillips of the Treasury no longer follows "Mnuchindilutionsolution" on Twitter.
Hi kthomp19,
it is actually possible to maintain the treasury line of credit outside the conservatorships. In this regard, a release before recap is possible. This text passage of the 2018 10-K will certainly help you. On page 31 it says:
"Even if we are released from conservatorship, we remain subject to the terms of the senior preferred stock purchase agreement, senior preferred stock and warrant, which can only be canceled or modified with the consent of Treasury."
If the administration thinks that in many aspects it would be better to release the companies before recap, it will.
Personally, I assume the following steps:
1. final rule for capital requirements
2. capital restoration plan by board of directors
As long as housing finance reform is on the agenda, one can only protect the taxpayer by issuing preferred shares, as the eventual value of the companies is not yet known. This works better outside the conservatorship, but would also be feasible within it with a 4th amendment.
GLTY
Hi jog49,
maybe it'll comfort you a little that we're not just 9,000 shareholders. The exact number, though unknown, is much higher. I'm sure there are well over a hundred thousand shareholders and nearly one million citizens involved in Fanniegate. That is a lot of votes.
I would recommend Trump to have the shares of the GSEs converted into registered shares in such a way that not the bank or broker, but the real owners of these shares are deposited by name. More and more companies now do this. Then Trump could clear up the prejudice that a release would only enrich his hedge fund buddies. Hundreds of thousands of voters would benefit.
Here I have explained the matter. And that's written there:
Hi YanksGhost,
I hope I can help you a little with the interesting question about the number of GSE shareholders:
Hi FOFreddie,
everything on this site is just wrong. The best:
PPS $120
"Geode Capital Management, LLC: Total Holdings: 100.1M; Position Value: $12.0B"
GLTY
Hi Guido2,
I don't think they have any stock in Fannie and Freddie. That's probably a bug in CNN Buisness. It seemed weird to me that the numbers on both funds were the same. On the NASDAQ site there are no GSE shares in the potfolio of Capital Research. Everywhere I've looked, neither.
Hi RickNaga,
Freddie's already turned green.
Hi brooge,
could be a bombshell. I wrote this yesterday:
Josh Rosner shared a document on Twitter yesterday:
Contrary to urban legend, #GSE monies are not in @USTreasury general funds. It would be easy for @MickMulvaneyOMB @WhiteHouseCEA @stevenmnuchin1 to see if #Obama (Sperling, Geithner, Lew, Parrott) used #GSE PSPA3 monies for unappropriated purposes. https://t.co/dq3pkkgzQt
— joshua rosner (@JoshRosner) April 10, 2019
Hi bcde,
thank you for your extraordinarily astute observation. Great!
Hi navycmdr,
Fannie and Freddie undoubtedly provide for cheaper home loans. Even if it is only a few basis points in good times, the strength of the companies lies in providing liquidity in downturns.
In 2008, I had problems getting a loan for a property at all. We even have 40 year fixed mortgage rates in Germany. This is also available with the originate-to-hold model. But only in good times. And it is rare and only a few meet the criteria.
In Germany, there is a much stricter check as to whether you can afford the loan or not. And that is in everyone's interest.
I am sure that one of Calabria's main priorities will be to ensure that only those who can afford it are granted a mortgage loan.
GLTY
Hi brooge,
we should also be demonstrating at Cape Canaveral.
Our rocket should finally get the green light.
kthomp19,
Thanks kthomp19, for the info.
It is in fact law that the SPS may not be counted as core capital as long as it is of cumulative design. However, the Treasury can change this with the FHFA at any time, if I have researched correctly.
By the way, I do not see any investor concerns when buying non-cumulative preferred stock, as long as the company profits are far above the dividend payments. Suppose Fannie issues $100 billion worth of preferred stock and has to pay about $5 billion a year in dividends. With a net profit of $16 billion in 2018, there is no risk of dividend losses over the year. Quarterly dividend payments could lead to losses due to derivative losses.
GLTY
Hey kthomp19,
Probabilities are debatable. But your assertion that it is out of the question that F+F recapitalize without dilution of common stock is de facto false.
Hi FireMechanic,
I think that Fannie and Freddie can be relisted on the NYSE at any time, even during conservatorship.
“FHFA’s determination to direct each company to delist does not constitute any reflection on either Enterprise’s current performance or future direction, nor does delisting imply any other findings or determination on the part of FHFA as regulator or conservator,” FHFA Acting Director Edward DeMarco said in a statement."
"“A voluntary delisting at this time simply makes sense and fits with the goal of a conservatorship to preserve and conserve assets,” said DeMarco."
https://www.reuters.com/article/us-housing-fanniefreddie-delisting/fannie-mae-freddie-mac-to-delist-shares-on-nyse-idUSTRE65F3GR20100616
GLTY
The last game of a legend now: Thank you, Dirk!