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Fairholme Vows To Pursue Claims on Fannie Mae, Freddie Mac Profits
by Marie CaburalOctober 02, 2014, 8:11 am
Fairholme and other investors lost two cases related to their claims on the profits from the mortgage giants yesterday
Fairholme Capital Management LLC, the investment management firm headed by Bruce Berkowitz, vowed to pursue the rights of private shareholders to profits from Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC).
The investment management firm issued a statement reaffirming its commitment to pursue its claims after losing a legal battle against the United States government in connection with the bailout for the two mortgage giants.
“Litigation is a lengthy process. On behalf of hundreds of thousands of Fairholme Funds shareholders, we will vigorously pursue the enforcement of existing contractual claims and our inalienable rights of property ownership as guaranteed by the United States Constitution,” according to the statement of Fairholme through Sard Verbinnen & Co.
Berkowitz believed there is a “winning solution” for Fannie Mae
In an interview with Consuelo Mack on WealthTrack, Berkowitz said the government and private shareholders would ultimately reach “win-win” agreement regarding the case involving their rights to profits from Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC).
Berkowiz said, “There’s a winning solution for every constituency in Fannie Mae and Freddie Mac.”
Fairholme,other investors lost suits on Fannie Mae, Freddie Mac profits
Yesterday, Fairholme and other investors lost two cases related to their claims on the profits from the mortgage giants.
The investors filed a lawsuit against the government for breach of contract regarding the alleged promised dividends and liquidation preferences. Fairholme and his fellow investors argued the government made an “illegal taking” under the U.S. Constitution.
U.S. District Judge Royce Lamberth of the District of Columbia dismissed the claims of the investors. She pointed out that the government has the authority to sweep “nearly all” profits from Fannie Mae and Freddie Mac to the U.S. Treasury under Housing and Economic Recovery Act.
Lamberth said, “It is understandable [for the profit sweep] to raise eyebrows, or even engender a feeling of discomfort.” The judge added that the act and the language of the companies’ stock certificates compel “the dismissal of all of the plaintiffs’ claims.”
http://www.valuewalk.com/2014/10/fairholme-vows-to-pursue-claims-on-fannie-mae-profits/
As always that was an intelligent answer which was articulated nicely but sometimes there is no alternative to a well placed F word. LOL
Ex-Fannie CFO Howard on Fairholme's GSE Proposal video link
http://archive.courier-journal.com/VideoNetwork/2888461557001/Ex-Fannie-CFO-Howard-on-Fairholme-s-52-Billion-GSE-Proposal
“Investors Unite doubts that Congress ever intended for the conservatorship to lead to nationalization of the GSEs with no compensation for shareholders. We disagree with Judge Lamberth’s decision and we look forward to reviewing what comes out of discovery in the Fairholme trial.”
http://investorsunite.org/investors-unite-responds-judges-decision-shareholders-fannie-mae-freddie-mac-shareholder-lawsuit/
Yes sir, I hear you. We are being put through the ringer but I still feel confident that FnF will prevail
Could a moderator please sticky my last post about Investors Unite? I don't want it to get lost in a long line of posts and it is time sensitive.
investorsunite(MUST READ)live today see link The Government’s Path Out of Conservatorship for Fannie Mae and Freddie Mac
Live stream of the event will begin at 11:30 am on Thursday, October 2, 2014
To access audio of this event, please see below dial-in information:
Dial-In Number: 866-952-1908
Access Code: IU
Investors Unite Executive Director Tim Pagliara and Professor Clifford Rossi Invite You to a Panel Discussion:
“The Government’s Path Out of Conservatorship for Fannie Mae and Freddie Mac”
Thursday, October 2; 11:30 am to 1:00 pm EDT; Dirksen Senate Office Building – Room SD G-11
Clifford V. Rossi held senior risk management positions at Freddie Mac and Fannie Mae and brings a risk-management perspective to consideration of GSE reform. He was Managing Director and Chief Risk Officer for Citigroup’s Consumer Lending Group (intimately involved in Citi’s TARP and stress test activities) and, before that, was Chief Credit Officer at Washington Mutual and at Countrywide. He started his career during the thrift crisis at the U.S. Treasury’s Office of Domestic Finance and later at the Office of Thrift Supervision working on key policy issues affecting depositories.
For more information, email info@investorsunite.org.
SPEAKERS:
Tim PagliaraTim Pagliara is the Executive Director of Investors Unite and a shareholder invested in Fannie Mae and Freddie Mac.
Dr. Clifford V. Rossi is principal at Chesapeake Risk Advisors and Executive-in-Residence and Professor of the Practice at the Robert H. Smith School of Business, University of Maryland. Prior to entering academia, Dr. Rossi had nearly 25 years’ experience in banking and government, having held senior executive roles in risk management at several of the largest financial services companies.
WHEN:
Thursday, October 2;
11:30am -1:30pm EDT
WHERE:
Dirksen
Dirksen Senate Office Building – Room SD G-11
NOTE:
Please RSVP to media@investorsunite.org (mailto:media@investorsunite.org)
About Investors Unite: Formed by Tennessee activist investor and CapWealth Advisors Chairman and CEO, Tim Pagliara, Investors Unite is a coalition of private investors from all walks of life, committed to the preservation of shareholder rights for all invested in Fannie Mae and Freddie Mac. The coalition works to educate shareholders and lawmakers on the importance of adopting GSE reform that fully respects the legal rights of Fannie Mae and Freddie Mac shareholders and offers full restitution on investments.
P.O. Box 2591
Brentwood, TN 37024
http://investorsunite.org/resources/governments-path-conservatorship-fannie-mae-freddie-mac/
Investors Unite: We have not yet begun Fannie, Freddie fight
Appeals, other suits in play despite Lamberth ruling
Trey Garrison
The judicial dismissal of a lawsuit brought in District Court by Perry Capital and Fairholme Funds is definitely a setback, but the shareholders fighting against the federal government’s sweep of profits from the GSEs say they are down, but not out – by a long shot.
A separate suit by Fairholme is still in discovery in Federal Claims Court.
“While we are not surprised that the government won the Perry/Fairholme case, we think this case made a stronger legal argument than the theory in the Fairholme Federal Claims Court case, so we think today's decision is a bad sign for the Fairholme case,” said analysts for KBW Research.
The Perry/Fairholme decision effectively kicks the issue back to Congress.
"With this court ruling, it is clear that Congress must now take action to protect investors from the illegal actions carried out by Federal Housing Finance Agency and Treasury that strips all the profits from Fannie Mae and Freddie Mac and sweep it to the U.S. Treasury every quarter, in perpetuity,” Coalition for Mortgage Security Director Ken Blackwell said.
The likelihood of Congress passing and this president signing a GSE reform bill is close to zero, most agree. Most agree it will be after the next presidential election in 2016 before anything gets done.
“We continue to warm to the idea that, despite today's decision and legislation in Congress, Fannie and Freddie will survive in some form,” KBW analysts said.
A federal judge dismissed the suit, which argued that the Third Amendment to the GSEs' Preferred Stock Purchase Agreements violated Treasury's authority under the Housing and Economic Recovery Act of 2008, as well as administrative procedure laws.
“We disagree with Judge Lamberth's decision. Conservatorship should not mean unlimited power for the federal government to nationalize institutions and wipe out investors,” said Tim Pagliara, Executive Director of the activist investor coalition, Investors Unite. "We’re quite certain that Congress did not intend this interpretation of HERA, because that would be unconstitutional. Moreover, allowing the government to change the rules of the game will chill private capital participation in the mortgage market and in other government business, in general.”
Investors Unite was formed by Pagliara, a Tennessee activist investor and CapWealth Advisors Chairman and CEO. It is a coalition of nearly 1,000 private investors from all walks of life, committed to the preservation of shareholder rights for all invested in Fannie Mae and Freddie Mac.
Richard Epstein, the Laurence A. Tisch professor of Law at NYU, senior fellow at the Hoover Institution, and senior lecturer at the University of Chicago Law School, writes at Forbes.com a definitive and well-documented case on why Lamberth’s decision was not only “indefensible” and wrong on a number of counts, but just one more speed bump in a long road ahead for shareholders.
“Fortunately, Judge Lamberth does not represent the only game in town. Concurrently, litigation is also taking place in the Court of Federal Claims before Judge Margaret Sweeney, who has prudently refused to grant the government a summary judgment and has ordered discovery to take place on all the issues that are relevant to any proper resolution of this dispute,” he writes. “She has asked for information of whether Fannie and Freddie were profitable at the time of the Third Amendment’s dividend sweep, whether the government knew this information, and whether government officials introduced the sweep solely to deprive private shareholders of the value of their claims. As the discovery in that claim goes forward, Judge Lambeth’s sweeping decision will come to be seen for the massive judicial injustice that it surely is.”
A significant number of individual suits remain, and while it may be next summer before any action comes from an appeal, an appeal is coming, sources with Investors Unite tell HousingWire.
Meanwhile, KBW isn’t optimistic about their chances right now.
“We have been skeptical about the chances that litigation to overturn the Third Amendment to the PSPA would be successful because the plaintiff's argument that the Third Amendment constituted a new purchase of securities seemed weak and the court agreed,” analysts said. “We expect the plaintiffs will appeal, but our initial review of the decision leads us to believe that the government will win on appeal. The decision held that the HERA gives Treasury and FHFA wide latitude and we expect an appeals court will affirm that view.”
Effectively, observers say, Judge Lamberth kicked the issue of the GSEs back to Congress
http://www.housingwire.com/articles/31566-investors-unite-we-have-not-yet-begun-to-fight
Berkowitz Hit With Right Hook by Ruling in Fannie Mae Case
Wednesday, October 01, 2014
Oct. 1 (Bloomberg) -- The collapse of securities tied to Fannie Mae and Freddie Mac punished some of Wall Street’s best known money managers, with star investor Bruce Berkowitz’s main mutual fund losing more than $600 million.
The value of the $8 billion Fairholme Fund’s stakes in preferred and common shares of the U.S. mortgage-finance firms slid to less than $550 million today, from $1.2 billion at yesterday’s close, based on holdings disclosed as of May 31.
Berkowitz’s Fairholme Capital Management LLC lost a legal bid yesterday to force the bailed-out companies to share profits with private stockholders. Investors had sued the U.S. for breach of contract over allegedly promised dividends and liquidation preferences.
All told, investors today saw the market value of their preferred securities tumble by more than $6 billion, with the value of the common stock held by private investors losing more than $1.5 billion, according to data compiled by Bloomberg.
Common shares of Fannie Mae fell 37 percent to $1.70 in New York trading, and Freddie Mac dropped 38 percent to $1.65. Investors that have bet on the common or preferred equity have included Bill Ackman’s Pershing Square Capital Management LP, Perry Capital LLC, Paulson & Co. and Owl Creek Asset Management LP and units of private-equity firms Blackstone Group LP and Carlyle Group LP.
The court delivered a “right hook” to investors’ hopes, said Jeffrey Lewis, a senior portfolio manager at hedge-fund manager TIG Advisors LLC, which has invested in the preferred shares. He wouldn’t say whether his firm owns them now.
Being Aggressive
“He clearly went out of his way in terms of being aggressive in his language and in dismissing it now,” Lewis said about the judge who issued the ruling. “I don’t really understand how somebody could be in yesterday understanding what the process is, and out today. It’s not that people didn’t think there would be setbacks. A lot of people always thought this would be a question for the Supreme Court. The change in the probabilities are not commensurate with the change in values.”
Some Fannie Mae and Freddie Mac preferred securities tumbled by more than half. Berkowitz’s investments are focused on the preferreds. In a letter to investors dated July 29, Berkowitz said bets on Fannie Mae and Freddie Mac accounted for about 15 percent of the Fairholme Fund’s portfolio.
Piled In
Pershing Square was the largest private holder of the common shares as of March 31, according to data compiled by Bloomberg. In May, Ackman said Fannie Mae could be worth $23 to $47 a share over time.
Ackman’s lost more than $150 million today, according to data compiled by Bloomberg, based on his most recently disclosed stake of common shares. Carolyn Sargent, a spokeswoman for Pershing Square, declined to comment.
His firm in August also sued in a separate court, where Fairholme has a different case where the pretrial sharing of information has begun.
Other hedge funds including Perry, Paulson, Owl Creek and units of Blackstone and Carlyle had piled into the companies, with some lobbying lawmakers and regulators in Washington in a bid to have them shape the future of the $10 trillion mortgage- finance system in a way that would allow Fannie Mae and Freddie Mac to survive.
It’s unclear which firms still hold the securities. Spokesmen for Perry, Blackstone and Paulson declined to immediately comment or didn’t return a call and e-mail seeking a comment. Spokesman for Carlyle and Owl Creek declined to comment.
Billionaire hedge-fund manager David Tepper said he doesn’t hold a big position in Fannie Mae or Freddie Mac.
More Research
“I wish I didn’t have an investment,” Tepper said in an interview today on Bloomberg Television. “We’re going to do a little more research and see where we stand in different courts. You know there is a process for different lawsuits. You are done with this particular court, you have other courts you are involved in. You can appeal the last decision. That will go on and you want to see what exactly happened in this judge’s opinion right here.”
He added that “we may get a little more interested but we really do not have a position big enough to get involved in that fashion.”
U.S. District Judge Royce Lamberth rejected Berkowitz’s claims, finding that the government is allowed under a 2012 amendment to the companies’ bailout agreements to sweep “nearly all” profits from Fannie Mae and Freddie Mac to the U.S. Treasury.
‘True Gripe’
“The plaintiffs’ true gripe is with the language of a statute that enabled FHFA and, consequently, Treasury, to take unprecedented steps to salvage the largest players in the mortgage finance industry before their looming collapse triggered a systemic panic,” Lamberth wrote, referring to the Federal Housing Finance Agency.
Berkowitz, who was named Morningstar Inc.’s domestic stock manager of the decade for the 2000s, has profited by buying disliked and bailed-out firms. He accumulated the largest stake in American International Group Inc. after the U.S., when the insurer was rescued, and also wagered on Citigroup Inc. and Bank of America Corp.
“Our inclination remains to run from the popular and embrace the hated where prices tend to reflect such mistrust,” Berkowitz wrote in a 2011 report to investors. “Often, we are ahead of the crowd, too early, and appear wrong for a time.”
Volatile Returns
That’s made performance volatile at his Fairholme Fund. It’s returned an average 11.6 percent annually over the past five years before today, better than about three quarters of rivals. So far this year, Berkowitz’s fund is up 2.6 percent, trailing the Standard & Poor’s 500 Index.
“He’s still a very talented investor,” said Kevin McDevitt, an analyst at Morningstar Inc. “You make these kinds of bets and some of them aren’t going to work out.”
Today, Fairholme Capital affirmed its commitment to winning private shareholders’ rights to profits from Fannie Mae and Freddie Mac after losing the legal challenge.
“Litigation is a lengthy process,” Berkowitz’s firm said today in a statement through Sard Verbinnen & Co. “On behalf of hundreds of thousands of Fairholme Funds shareholders, we will vigorously pursue the enforcement of existing contractual claims and our inalienable rights of property ownership as guaranteed by the U.S. Constitution.”
http://www.garp.org/risk-news-and-resources/risk-headlines/story.aspx?newsId=119648
Robert J. Samuelson commentary: Could the Fed have saved Lehman Brothers?
The New York Times had a fascinating story the other day, which again raises a crucial historical question about the financial crisis: Did Lehman Brothers have to go bankrupt in September 2008? Lehman’s failure turned what had been a series of serious problems at financial institutions (Bear Stearns, Fannie Mae and Freddie Mac) into a full-blown panic. But did Lehman have to crash?
The answer from the then top-policy makers — Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke, and head of the New York Federal Reserve Bank, Timothy Geithner — has been that they lacked the legal authority to rescue Lehman. Under the law, they said, the Fed couldn’t lend to a financial institution with a negative net worth: its liabilities (what it owed) exceeding its assets (what it owned). This was the case with Lehman Brothers, they have contended.
At a congressional hearing in November 2008, Paulson said: “There was no authority, there was no law that would have let us save Lehman Brothers.”
Now comes The Times, in a story written by James B. Stewart and Peter Eavis, claiming that analysts at the New York Fed had concluded that “the government had the authority to throw Lehman Brothers a lifeline, even if the bank was nearly broke.” The analysts’ preliminary conclusion was that Lehman had a modest, positive net worth.
“It was a policy and political decision, not a legal decision,” the Times quotes one analyst as saying of the refusal to bail out Lehman. But for reasons the story never makes clear, the analysts’ conclusions didn’t work their way up the chain of command to Paulson, Bernanke and Geithner, who told The Times that they did not know about the analysis.
The real motive for not aiding Lehman was a desire not to be seen as favoring Wall Street, the story suggests. Paulson — the ex-head of Goldman Sachs — “had endured months of criticism for bailing out Bear Stearns in March 2008.” In a September statement to Congress, Bernanke did not mention the legal obstacles to aiding Lehman, The Times said. Only in early October did the legal rationale surface, it reported.
Even now, Lehman’s condition at bankruptcy is controversial. When it filed, Lehman listed assets of $626 billion and liabilities of $560 billion for a net worth of $66 billion, according to a study by economists William Cline and Joseph Gagnon of the Peterson Institute. If true, Lehman would have been solvent. But Cline and Gagnon say the firm’s assets were probably overstated and its liabilities understated. They estimated that Lehman had a negative net worth of at least $100 billion at bankruptcy. The fact that no other financial institution wanted to buy Lehman also suggests a negative net worth.
Regardless, Lehman’s collapse triggered a financial frenzy. No one knew which institutions, if any, the government might protect. Without a safety net, lenders pulled money from institutions that — like Lehman — might fail. Investors sold bonds whose values were in doubt.
Aside from its historical significance, the Lehman story has practical implications. The law that Paulson, Bernanke and Geithner say prevented aid to Lehman Brothers was section 13(3) of the Federal Reserve Act. It gave the Fed expansive power to lend “in unusual and exigent circumstances” as long as borrowers had a positive net worth. Though it wasn’t invoked for Lehman, 13(3) allowed the Fed to make hundreds of billions of dollars of loans that muffled the financial crisis.
The trouble is that, in the Dodd-Frank financial law, Congress has handcuffed 13(3) with a host of technical restrictions. They reflect an understandable reaction to unpopular financial rescues. This may make us feel better now, but it threatens havoc in any future crisis. For Lehman’s real lesson is that letting crucial financial institutions fail can backfire on us all.
http://www.dispatch.com/content/stories/editorials/2014/10/02/could-the-fed-have-saved-lehman-brothers.html
Fairholme ‘Disappointed’ By Fannie, Freddie Ruling
Oct 2 2014 | 7:01am ET
A major investor in Fannie Mae and Freddie Mac said it was “disappointed” by the failure of its lawsuit against the U.S. government—but didn’t say what its next steps would be.
Fairholme Capital Management was among a number of hedge funds to sue the U.S. Treasury after it moved in 2012 to seize all of the profits from the two government-backed mortgage giants, which required $187.5 billion in bailout money during the financial crisis. A federal judge this week dismissed Fairholme’s lawsuit—as well as suits filed by fellow preferred shareholders Perry Capital—ruling that the government had the right to change the terms of the companies’ bailout.
Fairholme said it would continue to “vigorously pursue the enforcement of existing contractual claims,” but did not say whether it would appeal the ruling.
“Although litigation is a lengthy process, shareholder-owned Fannie Mae and Freddie Mac remain vitally important and increasingly valuable to all constituents,” Fairholme said.
A similar lawsuit challenging the profit seizure filed by Pershing Square Capital Management remains intact. Pershing Square owns common shares of Fannie and Freddie, unlike Fairholme and Perry, who are preferred shareholders. U.S. District Judge Royce Lamberth specifically cited the terms of those preferred stock certificates in his dismissal.
https://www.finalternatives.com/node/28528
What The Fannie/Freddie Mess Says About Our Freedoms Slowly Slipping Away older but relevant
8:26 AM 09/01/2014
Former Ohio Secretary of State
Ken Blackwell
Ken Blackwell, a former U.S. ambassador to the U.N. Commission on Human Rights, is a member of the Becket Fund for Religious Liberty's board, a senior fellow at the Family Research Council, and Ohio's former secretary of state.
As Americans break for Labor Day and celebrate their hard work and the freedom to provide a life for their families, let’s hope they don’t spoil the holiday by pausing to consider whether government today is making their lives easier or more difficult.
To wit, the 2014 Index of Economic Freedom, published by the Wall Street Journal and the Heritage Foundation, which ranks countries based on four main factors – rule of law, limited government, regulatory efficiency, open markets – has the U.S. headed in the wrong direction. “The U.S. is the only country,” the survey states, “to have recorded a loss of economic freedom each of the past seven years.”
Say what you will about ordinary Americans, but as they in toil to put food on the table and provide, most “cling” to the idea that the highest aim of our leaders is to leave a legacy of greater freedom for their children, not less. Americans don’t believe in a monarchy, and they actually believe everyone should live by the same set of rules, not one set of rules for them and another set for the political class when circumstances or political arguments fail.
Needless to say, many Americans are outraged to see laws being re-written midstream, whether it’s in health care, taxes, or in government grants to political cronies. They would be discouraged to learn of the secret 2012 decision by the Treasury Department to confiscate the profits of the mortgage guarantors Fannie Mae and Freddie Mac. That decision, which thumbed its nose at transparency, flaunted basic rule of law and property rights, and burrows the government deeper into the mortgage market, moves our country in the opposite direction of where it should be headed.
Ordinary Americans understand that our system of freedom, bolstered by strong foundation of contract enforcement, property rights and rule of law works better than any other system in the world, but they also know those liberties cannot be taken for granted.
Working families, through their personal accounts, pension funds – including those managed on behalf of public employees – and retirement plans hold sizable investments in Fannie Mae and Freddie Mac. These large funds also often employ private professional money managers to make choices and take risks on their behalf, and through those managers ordinary Americans are invested in a broad swath of the economy, including Fannie and Freddie.
During the financial crisis, the U.S. government, after years of policies that promoted their excesses, chose to move the mortgage packaging giants into conservatorship to manage the entities on behalf of their investors. In doing so, they agreed to a 10 percent dividend, a figure reminiscent of White House confidant Warren Buffett’s deal with Goldman Sachs when it was running into trouble in 2008.
That was the deal, and it sent signals to the market at that time, including to foreign investors. Some investors held on as they had for years, some sold, some came in with new capital. But the Treasury Department then secretly changed the rules and started taking 100 percent, leaving those who stuck with their investment – or committed new capital to the market at a time when it was needed – with nothing.
The Wall Street Journal/Heritage study confirms the slow erosion of freedoms, however imperceptible to the modern liberal eye, that occurs bit-by-bit, with each instance of a grab for greater government power, crony capitalism, lack of transparency, and evidence of disdain for private property rights and rule of law. Whether it’s the NSA’s eavesdropping, the IRS’s political targeting, the EPA’s seemingly endless regulations, or the literal taking of money due investors in Fannie and Freddie, people sense their freedoms are slowly slipping away.
As Americans celebrate Labor Day and eventually head to the polls in November, we would do well to evaluate what our politicians believe about our standing in the world, how actions defending our freedoms relate to that, and how we should best display the courage of our convictions.
Ken Blackwell, a director of the Coalition for Mortgage Security, is a former Treasurer for the State of Ohio and former mayor of Cincinnati.
http://dailycaller.com/2014/09/01/labor-day-quandry-what-the-fanniefreddie-mess-says-about-our-freedoms-slowly-slipping-away/
Group Calls On Congress To End Treasury’s ‘Double-Crossing of Shareholders’
8:14 PM 10/01/2014
Peter Fricke
After a federal judge ruled that Congress gave the federal government authority to confiscate 100 percent of the profits earned by Fannie Mae and Freddie Mac, some conservatives are calling on Congress to protect investors.
The opinion was rendered during the dismissal of two lawsuits alleging that the Treasury Department had infringed on the property rights of investors by changing the terms of a 2008 bailout to require the government-sponsored enterprises (GSE’s) to continue forfeiting their profits to the government even after taxpayers are repaid. (RELATED: What the Fannie/Freddie Mess Says About Our Freedoms Slowly Slipping Away)
In dismissing the claims, “Judge Royce Lamberth said Congress had in effect given…the Treasury Department the power to take the companies’ profits as a provision of the Housing and Economic Recovery Act,” according to the Wall Street Journal.
Although similar lawsuits from other investment groups are still pending, the free-market Coalition for Mortgage Security (CMS), has responded to the ruling by calling on Congress to “take action to protect investors” by overturning the so-called “Third Amendment Sweep”.
“If leftists on the bench can’t get it right,” CMS Director Ken Blackwell explained to The Daily Caller News Foundation, “the elected representatives of the people have to do so.” (RELATED: Phony Fannie/Freddie Reform Empowers the Left)
In September, the Competitive Enterprise Institute sent a letter signed by 17 affiliated organizations to the House Financial Services Subcommittee on Oversight and Investigations, asking them to demand that the Treasury Department make public “any and all documents shedding light on the alleged need for and legal rationale justifying the Third Amendment.”
Blackwell told TheDCNF that the subcommittee has not yet responded to the letter, but emphasized that Tuesday’s ruling “puts a greater responsibility on Congress to do the right thing.”
Although the current Congress may not have an appetite to take up the issue, Blackwell said “a growing number of members, including Sen. Pat Toomey, believe it is important to protect property rights,” and predicted that, “this November’s elections will recalibrate the terrain.”
Blackwell noted that, “there is a left-right-center coalition emerging to oppose the Sweep,” as well as “a growing awareness among the American citizenry,” as the issue drags on. (RELATED: Fannie and Freddie Shareholders Want a Say in Mortgage Finance Reform)
In addition to protecting private property rights, Blackwell claimed overturning the Third Amendment Sweep would also be beneficial for the economy in general, and for the housing market in particular.
“There’s a reason why well over $2 trillion of capital is sitting on the fence,” he said, which is that “ham-handed moves by the government” are making investors uneasy.
http://dailycaller.com/2014/10/01/group-calls-on-congress-to-end-treasurys-double-crossing-of-shareholders/
Link to tim howard's latest post
http://timhoward717.com/
Why Fannie Mae and Freddie Mac Investors May Want to Wait to Sell
BY Dan Freed Follow |
10/01/14 - 03:38 PM EDT |
Updated from 12:16 p.m. EDT with fresh share price data and additional detail about New York University law professor Richard Epstein in 12th paragraph.
NEW YORK (TheStreet) -- Fannie Mae (FNMA) and Freddie Mac (FMCC) investors dumped their holdings of preferred and common shares on Wednesday following a legal decision both stunning in its speed and thoroughness. But some investment pros are suggesting that it might be wiser to hold on to the shares -- for now.
On Tuesday, a U.S. District Court judge threw out four lawsuits claiming the federal government illegally forced Fannie and Freddie to pay the Treasury nearly all of its profits, leaving regular shareholders with nothing. The lawsuits, brought by shareholders including Fairholme Funds and Perry Capital, contended that the so-called "sweep" was a violation of their Fifth Amendment rights against the seizure of private property for public use without just compensation.
But the judge disagreed, saying the government had been granted broad powers by Congress, which "parted the legal seas" to deal with the financial crisis. Both Fannie and Freddie, which are government-sponsored enterprises, or GSEs, received a $188 billion bailout from the government. The mortgage giants have repaid that money and are now very profitable.
As expected, both Fannie and Freddie shares plunged on Wednesday following the decision.
"I'm licking my wounds this morning," conceded David Tawil, president of hedge fund Maglan Capital, an investor in common shares of both Fannie and Freddie.
Tawil called the decision "extremely authoritative," though he said he would hold on to his investment.
The reason? The shares have fallen so far so quickly he saw little point in selling.
"At 50 cents a share, I'm not going to throw in the towel," he said, adding that the "option value" is pretty good. Tawil made his "50 cents a share" comment before the start of trading Wednesday, when shares were down some 60% in premarket trading.
Less than an hour before the close of trading Wednesday, Fannie Mae common shares were down 37.17% to $1.69, and Freddie Mac shares were lower by 38.26% to $1.63. Preferred shares in both entities, investments that had been favored by many hedge funds who saw them as a safer bet, were also down sharply. The Fannie Mae "S" series preferred shares were down more than 53.48% to $4.28.
http://www.thestreet.com/story/12898875/1/why-fannie-mae-and-freddie-mac-investors-may-want-to-wait-to-sell.html?cm_ven=RSSFeed
If I could write I would take a stab at this saga for a novel. I would include Judge Lamberth and his timely decision. Going back in time to the notebook found in the court room. I would include the railroading of Richard Hornesby, the former C.O.O. of FHFA and his firing and alleged threats against Ed Demarco former Director. Then back to Ed Demarco's resignation, then back to the proposal by Blackstone group to buy large stakes in the G.S.E.s along with their plan for reorganization and proof that FnF would soon be profitable, along with the proof that the proposal was pitched to the Treasury Department with no record of FHFA being at the meeting which proves that FHFA is doing the bidding of the Treasury Department and not acting alone as the conservator as they are required to do. With a little research I am sure that I could find all kinds of juicy bits of information. In the end I could just wait and see what the Fairholme discovery uncovers if the government is stupid enough to release the documents for public scrutiny. Even if the government cut a deal before the documents are released and they have egg on their faces things could obviously still get leaked. I wonder what Hornsby would like to say. He is disgruntled enough. Oh I could go on. Anybody else want to add to this not so far fetched work of fiction?
I do not know. Now you are making my head hurt.
There is truth to that. Treasury does not want to give up the cash cow.
The author is just reflecting on a statement that Judge Lamberth made that there could be a fourth or fifth amendment in the future. At least that is the way that I read it. The Judge was speculating that it could be possible.
Plans within plans. Circles within circles. This plays hell with my paranoid conspiratorial way of thinking. But I do like to say that just because I am paranoid does not mean that they are not out to get me.
Not just wrong but I believe illegal. I hope Judge (Judy) Sweeny sees it that way.
I will wait also but not gladly. In for the long haul. I picked up somebody's shares pretty cheap today just to make myself feel better.
It could . It is at the sole discretion of the conservator (FHFA) winkwink(when the treasury tells them to do it). It should be released because the remaining cases are strong regardless of current over reaction.
If I remember correctly, Perry holds preferred shares and Ackman holds commons. Perry case heard by Lamberth and Ackman case heard by Sweeny.
Bill Ackman, A Last-Ditch Effort For Freddie Mac And Fannie Mae Investors
Freddie Mac and Fannie Mae shares have been sinking after a US District Court dismissed claims over profit transfers to US authorities and the federal government.
Fannie Mae (FNMA) and Freddie Mac (FMCC) shares have slumped today, and even dipped below $1 a share in premarket hours, after allegations from investors that the government had unfairly treated shareholders after the financial crisis were thrown out.
The suit brought forward to the US District Court was dismissed over claims that US authorities and the federal government transferred almost all the profits generated by mortgage finance companies, Fannie Mae and Freddie Mac, to the US Treasury.
After the financial crisis, the companies received some $188 billion in aid from the government. In exchange, they paid the US Treasury around $218.7 billion in the form of dividends.
Both government-sponsored enterprises have seen tremendous growth as the housing markets recovered after the crisis, fueled by mortgage-backed securities – the majority of which were backed by mortgage giants, Fannie Mae and Freddie Mac.
The two were taken over by the US government following the financial crisis. After the takeover, shareholders remained with the companies; at the same time, however, the government received “senior preferred shares” in the company, which entitled it to receive 10% on those shares.
However, the Federal Housing Finance Agency and the Treasury altered the conditions of the bailout in August 2012, removing the dividend clause, but allowing the government to transfer all profits from both companies to the US Treasury.
Freddie Mac and Fannie Mae had attracted numerous investors who believed the US government was not authorized to alter the conditions of the bailout. However, when the Senate stalled its plans to replace both companies in the effort to rectify the broader housing–finance system, court cases against the authorities began to grow in number.
US District Court judge, Royce Lamberth, claimed that the dismissal was legitimate according to the 2008 Housing and Economic Recovery Act, which entitled the Treasury Department to take the companies’ profits.
He added that it acknowledged the resulting criticism from investors, but that it is also important to note that the conditions written on Fannie Mae and Freddie Mac’s stock certificates were indicative of the fact that claims made by them could be dismissed by the court.
However, there is no guarantee that the plaintiffs will contest the court’s dismissal. A spokesman for Perry Capital LLC could not be reached for comment, whereas a Fairholme Funds Inc spokesman declined to comment on the issue. Neither the Justice Department nor the Treasury volunteered information.
A number of lawsuits were initiated last summer by hedge funds Fairholme Funds and Perry Capital, headed by mutual-fund manager Bruce Berkowitz.
The federal government faces around 20 lawsuits from investors related to the treatment of preferred stock shareholders of Fannie Mae and Freddie Mac, of which the cases by Fairholme Funds and Perry Capital remain the relatively stronger ones.
In Comes Pershing Square and Bill Ackman
The latest dismissal did not take into account the Pershing Square Capital Management LP case , which also filed a lawsuit against US authorities.
Bill Ackman – who runs the $15 billion hedge fund Pershing Square Capital Management LP – is the largest private investor in Freddie Mac and Fannie Mae. He believes that Fannie Mae has great upside potential, and that its shares could be worth between $23 and $47 in the future. During the 19th Ira Sohn Conference, Ackman went to great lengths defending the mortgage giants in a 110-slide presentation, opposing the bill written by Tim Johnson (D-SD) and Mike Crappo (R-ID) that proposes to replace the GSEs with a new industry-financed agency.
Ackman disclosed a stake of more than 11% in both Freddie Mac and Fannie Mae earlier this year, up from 9.8% previously; the US government owns practically 80% of the two companies. The disclosure came a few weeks after the announcement of the Senate Banking Committee to wind down the GSEs. But Ackman sees the two mortgage giants as essential to the housing industry.
Fannie and Freddie provide liquidity in the 30-year fixed mortgage markets by buying mortgages in the form of securities packaged by lenders. In an interview with Bloomberg, Ackman said: “Preserving the 30-year pre-payable fixed-rate mortgage - it’s like the bedrock of the housing system - is critical. We think the only way to do it is by preserving Fannie and Freddie.”
He asserted that both GSEs should end their fixed-income arbitrage business, which had been affected the most during the housing industry crisis in 2008, causing their respective stock prices to plummet. He said that the mortgage financiers should “focus on guaranteeing middle class mortgages for credit worthy borrowers.”
there are two more pages if you click on the link.
http://www.bidnessetc.com/26599-bill-ackman-a-lastditch-effort-for-fannie-mae-and-freddie-mac-investors/
I thought so but there was speculation that 717 was an imposter some time back. Anyhow he writes in his latest blog that he is being called to D.C. today. That kind tickles my anticipation or imigination that there are some back room negotiations going on especially with the lack of response from remaining plaintiffs in other suits.
hey Rocco, do you or really anyone else also know if Tim Howard former chairman of the board of directors for fnma is also Tim howard717 blogger?
OBITERDICTUM seeking alpha article needs some explaining please.
please post links
Recent Updates from the Investors Unite Blog
Investors Unite Responds to Judge’s Decision Against Shareholders in Fannie Mae, Freddie Mac Shareholder Lawsuit
Wednesday, October 1st, 2014
FOR IMMEDIATE RELEASE
Contact: media@investorsunite.org
WASHINGTON, DC — In response to District Court Judge Royce Lamberth’s decision today to dismiss the Perry Capital and Fairholme Funds lawsuits against the U.S. Government for their illegal taking of Fannie and Freddie profits, Tim Pagliara, Executive Director of Investors Unite, issued the following statement:
“Investors Unite doubts that Congress ever intended for the conservatorship to lead to nationalization of the GSEs with no compensation for shareholders. We disagree with Judge Lamberth’s decision and we look forward to reviewing what comes out of discovery in the Fairholme trial.”
About Investors Unite: Formed by Tennessee investor and CapWealth Advisors Chairman and CEO, Tim Pagliara, Investors Unite (www.investorsunite.org) is a coalition of nearly 1,000 private investors from all walks of life, committed to the preservation of shareholder rights for all invested in Fannie Mae and Freddie Mac. The coalition works to educate shareholders and lawmakers on the importance of adopting GSE reform that fully respects the legal rights of Fannie Mae and Freddie Mac shareholders and offers full restitution on investments.
http://investorsunite.org/
Do you think that the author's claim that the warrants will be voided has merit?
OBIT or anyone please decipher and comment on this article
I know that it was previously posted but really no comments yet.
Fannie Mae Ruling Means Ackman's Valuation Is Now $100-$250
Oct. 1, 2014 8:49 AM ET | 22 comments | About: Fannie Mae (FNMA), FMCC
Disclosure: The author is long FNMA, FMCC. (
•The ruling revealed that the government is following all of its laws and will be revealing Fannie and Freddie to private shareholders.
•The government is signaling that the warrants are going to be cancelled for anyone who actually reads filings and understands what is going on.
•No takings have occurred yet. Another amendment is to follow. The entities are in conservatorship and not receivership. The stock continues to trade.
Have you been assuming that the Third Amendment will not be amended? Me too! That's why you need to read what I am about to say to make sense of what I am pointing out as the biggest win for common shareholders that I didn't know about until a few hours ago! The Third Amendment is a great thing! It ended the 10% interest payments!
“
Treasury agreed to a net worth sweep in exchange for
eliminating the cash dividend equivalent to 10% of the GSEs' liquidation preference
I would like to thank Frank Fosco for helping me write this article. He has shown me the light and the truth. This whole situation is absolutely straight forward for anyone reading court filings. The filing reads:
“
But, just as there was a Third Amendment, the Court cannot definitively say there will be no Fourth or Fifth Amendment
This is relevant in the context of:
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But the plaintiffs cannot overcome FHFA's sweeping congressional mandate with conclusory statements regarding the Third Amendment's effect on the plaintiffs' prospective-and not present-rights to dividends and liquidation preferences
Most importantly do not forget:
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A claim is not ripe for adjudication if it rests upon 'contingent future events that may not occur as anticipated, or indeed may not occur at all.'
The Warrants Will Be Voided
This is going to be crazy. This could be a 100-bagger from here in my lifetime. I do not know how I missed this. The truth is that if this went the other way, the stock would be worth $20-$50. This way is so much better for the commons!
Ackman's valuation with the warrants in play is $20-$50. If you back out the 80% dilution, you quickly get to $100-$250. Odds are that they will be recapitalized by way of some sort of dilutive offering on their way out of the gate instead of through earnings, but the monster upside is inescapable.
The Stock Continues to Trade
“
Indeed, GSE shares are traded daily on public over-the-counter (OTC) exchanges.
The court rules that it agrees that Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) are not in receivership. They are in conservatorship. The conservator has not breached its fiduciary duty as it has not paid back in excess of that which it has borrowed with interest. Therefore there is no grounds for a takings claim, yet. Now, that is obviously subject to change in the future in the event that they continue to not follow up with another amendment and the businesses do end up paying more than they borrowed.
As Richard Epstein points out eloquently and I find entirely agreeable:
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By the end of September 2014, it is possible that the payments under the August 2012 Third Amendment to the PSPAs will be in excess of the 10 percent annual dividend currently payable under the original agreement on the senior preferred. In other words, the takings by the government will exceed the $188 billion previously advanced by U.S. taxpayers to Fannie and Freddie. Within in a short period of time thereafter, the total payments are likely to exceed the amount of the advances plus interest. What happens next?
The Fourth Amendment Will Come
This means that there will be a Fourth Amendment that will follow the third that will change the flow of profits once the government is paid back from the government to private shareholders. The government is doing its job. I've been wrong all along in my wild accusations because I interpreted the Third Amendment as the end all be all. There will be a Fourth Amendment. The Fourth Amendment will be the driving force behind ending the conservatorship as the GSEs are returned back to stockholders.
Editor's Note: This article discusses one or more securities that do not trade on a major exchange. Please be aware of the risks associated with these stocks
http://seekingalpha.com/article/2533645-fannie-mae-ruling-means-ackmans-valuation-is-now-100-250
The End Of The Fannie And Freddie Stock Boom?
The quest to make a big score out of the securities of Fannie Mae and Freddie Mac, which has been joined by both big shot and retail investors, has been dealt a significant setback by a federal judge who tossed a group of lawsuits that was seen as key to the effort.
U.S. District Judge Royce Lamberth threw out on Tuesday lawsuits filed by Richard Perry’s hedge fund and Bruce Berkowitz’s Fairholme Funds that claimed the government acted illegally by getting Fannie Mae and Freddie Mac to pay the government nearly all of their massive profits in the form of dividends.
Shares of Fannie Mae fell by 36% to $1.72 in Wednesday morning trading and are now down by 73% since spiking to a 52-week high of $6.35 back in March. Shares of Freddie Mac tumbled by 32%. Shares of the government-sponsored enterprises trade on the Over The Counter Bulletin Board. Fannie Mae’s Series S preferred shares fell by 47%.
The Obama Administration wants to wind down the mortgage giants that have been operating in conservatorship since receiving $188 billion from the Treasury Department amid the financial crisis. But Fannie and Freddie paid the bailout out money back and are now hugely profitable. Perry and Berkowitz bought Fannie and Freddie junior preferred securities a long time ago in the hopes that some of those profits would eventually flow to them. Other investors, including Berkowitz and, more recently, William Ackman’s Pershing Square Capital Management, took positions in the common shares of the GSEs.
At first, the investors in Fannie Mae and Freddie Mac tried to win support in Washington for their quest. When that didn’t seem to work, they turned to the courts. Perry and Berkowitz were among the first to file lawsuits. Their biggest beef was that the Treasury Department acted improperly by implementing a so-called sweep amendment in August 2012 in which all of the profits of the GSEs would go to the Treasury’s senior preferred stock.
It was clear to some that the lawsuits were a long shot, but the legal actions helped push investor interest in the Fannie and Freddie shares. From the start, the problem for Perry and Berkowitz has been that the Housing and Economic Recovery Act that President George W. Bush signed into law gave the government extensive powers and authority to act in the face of a financial crisis. Judge Lamberth took note of this problem in deciding to dismiss the lawsuits filed by Perry and Berkowitz.
“It strikes this court as odd that a statute like HERA, through which Congress grants immense discretionary power to the conservator, and prohibits courts from interfering with the exercise of such power, would still house an implicit end-run around FHFA’s conservatorship authority by means of the shareholder derivative suits that the statute explicitly bars,” Judge Lamberth wrote. “The plaintiff’s grievance is really with Congress itself.”
It’s unclear where the players driving the Fannie Mae and Freddie Mac penny stock boom will go from here. No doubt they will continue to try to push their investment and legal cases forward. There are still several lawsuits filed against the government pending in federal court, including one from Ackman’s Pershing Square hedge fund. But Ackman’s lawsuit and the other lawsuits are still going to have to deal with HERA. It always seemed tough to convince a federal judge to go out on a limb and second-guess how the government reacted to a major financial crisis. Now, the investor plaintiffs will need to convince a judge, maybe an appeals court, or even Washington after the Lamberth ruling.
http://www.forbes.com/sites/nathanvardi/2014/10/01/the-end-of-the-fannie-and-freddie-stock-boom/
see my post
This will not be forgotten by the defendants (government)in any of the remaining lawsuits. Right or wrong they will try to use this decision as precedent setting.
No Cramer this time. Just saying that it is a shocking decision because Lamberth was supposed to be a favorable judge for the plaintiffs.
FnF on cnbc again
That ass Lamberth throws the case out and then immediately retires. The Fed. has some pictures of him doing something really bad or they (through big banks)gave him a big fat deposit in a Cayman account.
Cramer is just trashing FnF
Don't be mean, I did. Also bought this morning. FnF on cnbc now.