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Glenn - why do you assume that common shareholders do not understand the points you have been making over and over and over? Everyone understands the risks outlined in the CBO Scenarios - it really is a matter of risk v return. The SPS could get wiped or reduced by a Separation of Powers remedy or a political resolution and the UST can realize its equity via the warrants. We need to see how Rop, Collins and Bhatti play out to see what the final UST negotiating strength will be. Bottom line is that if the JB Admin wanted legal certainty to push the Utility Model they would write down the JPS and rely on their warrants - they could go forward with a cramdown but they would run the risk that the whole Admin action would fail because of a future SCOTUS ruling.
Sounds like a MQD Student Loan type lawsuit is brewing?
A new home buyer who had to pay more for their mortgage could sue under the Major Question Doctrine like the Student Loan cases before SCOTUS now? We probably should be expecting this suit in the next year or so which will be joined by the House GOP.
Exiting and restructuring the GSEs in the Utility Model Framework could insulate the Dems initiatives since they would be outside the realm of the FHFA administrative discretion.
Exit is the Answer
Thanks for the insight whomarjb - seems intuitively correct to me. Dont you think the House GOP has to make a choice between pushing for an exit and have some control over future housing policy vs just leaving control and the piggy bank with the JB Adm for the next 2 to 6 years potentially?
Hi Robert, Thank you for all your insight regarding this Amicus brief for the CFPB case. There does seem to a clear link and a lot of stakeholders analyzing the sequencing and precedence of the CFPB case before SCOTUS and the Appropriation clause issues with Collins before the 5th Circuit.
The judicial roadmap does seem to be narrowing and it is up to SCOTUS to start putting forks in the Road with the CFPB case and potentially Rop and Calcutt if it so chooses.
Thanks for pointing that out. It looks like he has been at the HPC for six years.
Do you think this is a nothingburger?
How about 9/16 odds which is the likely En Banc majority in the 5th Circuit.
DeMarco HPC Mission Statement:
https://www.housingpolicycouncil.org/mission
Excerpt:
HPC’s strategic plan covers a limited number of critical issues, including: restoring the private market to expand the level of private capital and introduce effective risk controls into the marketplace; modernizing the government agencies involved in housing finance, such as FHA, to expand each agency’s capacity to fulfill its mission and manage risk; reformulating Fannie Mae and Freddie Mac to remove the public-loss and private-gain model that added substantial risk to the housing finance system; developing a sustainable approach to expanding affordable housing opportunities that will reach historically underserved segments of our population; and cultivating a market environment that encourages and enables responsible innovation.
Jason Thomas Special Advisor to GWB at the NEC March 8, 2008 Memo:
https://fcic-static.law.stanford.edu/cdn_media/fcic-docs/2008-03-08_Treasury_Email_from_Hason_Thomas_to_Robert_Steel_Re_Source_document_for_Barrons_article_on_FNM.pdf
Excerpt:
Government Bailout Is Necessary, Likely, And Potentially Helpful
Fannie Mae is demonstrably a failed social experiment. A realistic assessment of its balance sheet shows
its net worth to be overstated by tens of billions of dollars and the company to be already insolvent.
Even with all its accounting legerdemain, Fannie's losses are an accelerating horror show, with
shareholders losing $1.5 billion in 07Q3 and $3.7 billion in 07Q4. Those losses are just the beginning.
As shareholder capital gets wiped, the government will have no choice but to seize the company and
place it in conservatorship or receivership. Importantly, mortgage-backed security holders guaranteed
by Fannie Mae will see no losses. The government will likely allow debt holders to fare okay, with either
no or token losses, perhaps 1%.
Shareholders, both common and preferred, are likely to be left with nothing. However, these
shareholder losses have already been locked in by the company's credit decisions over the past few
years and cannot be helped. It must be remembered that Fannie is the biggest mortgage risk holder in
the biggest mortgage crisis.
A fully government-owned guarantor of mortgage debt might be exactly what is called for given the
current housing crisis. While various proposals have been floated to expand the FHA to meet this role, it
has neither the infrastructure nor the expertise to address the broader mortgage market. A nationalized
Fannie Mae would be refocused to directly address the various problems of illiquidity, affordability, and
sustainability in the mortgage market. Without the need to satisfy a fiduciary duty to shareholders,
Fannie might finally be able to perform its affordable housing mission in a helpful and proactive manner.
Interesting that the Memo between the UST and NEC in the GWB Admin and DeMarco's Mission Statement are basically saying the same things except before 2008 it was a " failed social experiment" and now a structure where there is public loss and private gain.
DeMarco is testifying as President of the Housing Policy Council:
https://www.housingpolicycouncil.org/about
He is representing the policy of a mortgage industry trade group.
I would think this represents a material change in the political landscape. Sort of like the change in the position of David Stevens who was an BO Admin member and former CEO of the MBA?
The House GOP has a choice - push for Exit or allow the JB Admin to do what it wants. They have industry advocates pushing for Exit to give them political cover to retain their power of the purse
Thanks Vancmike - the record needs to be set straight especially now. The House GOP needs to know that the UST and NEC of the GWB Admin worked together to Nationalize the GSEs and used the evolving financial crisis arguably created by the GWB Admin to pass HERA and put the GSEs in Conservatorship. The plan was set six months before Sept 2008 and two months before the GSEs raised billions from unsuspecting public investors in newly issued JPS
March 8 2008 Memo from NEC to UST:
https://fcic-static.law.stanford.edu/cdn_media/fcic-docs/2008-03-08_Treasury_Email_from_Hason_Thomas_to_Robert_Steel_Re_Source_document_for_Barrons_article_on_FNM.pdf
WOW! This has to be really good for pushing for an exit. The GOP has to know they need to act to end Conservatorship - if De Marco is saying it then it would seem we have crossed the political Rubicon.
Thanks Navy!
Thanks Robert - interesting that the DEMS cited OFHEO in their CFPB Amicus
Calcutt was relisted for Conference on May 18th:
https://www.supremecourt.gov/docket/docketfiles/html/public/22-714.html
No decision regarding Cert today
Good Luck and See You in Vegas!
When will the UST announce the cramdown? Will it be day 1 of Admin Action that you have been discussing?
Hi tutt1126 - where do the Administrative and Legislative reform list you posted come from?
Jared Bernstein nomination moves to full US Senate on a party line 12-11 vote.
https://www.banking.senate.gov/newsroom/majority/brown-advances-cea-hud-treasury-nominees
Thanks Rodney5 - Glenn had mentioned a Consent Decree with a Cramdown which are both problematic and that is why I mentioned it.
Hi Glenn,
When are we going to know the details of the cramdown? In the Consent Decree do you think? Maybe they will have to put that out for comment also?
As Glenn has previously posted - Berstein to be voted out of Committee tomorrow morning for Confirmation by Senate
https://www.banking.senate.gov/hearings/05/04/2023/executive-session
Well there goes our MQD lawsuit - Maybe Major BAD IDEA - rather than MQD. Wonder if this portends Admin Action because they did not want the political noise regarding the inequity of this issue.
Hi skeptic7 Thanks for confirming market expectations.
Ralph Nader had it right in 2011 - rather than do the right thing we got the NWS in 2012.
https://nader.org/wp-content/uploads/2013/05/lew-5-18-13-11.pdf
Because Hank wanted to Nationalize the GSEs as early as March 2008 and he believed in the adage " dont let a crisis go to waste" to do so.
The policy of the NEC and UST of the GWB Admin as of March 2008 is clearly set out in this memo leaked to Barrons over the March 8 2008 weekend.
https://fcic-static.law.stanford.edu/cdn_media/fcic-docs/2008-03-08_Treasury_Email_from_Hason_Thomas_to_Robert_Steel_Re_Source_document_for_Barrons_article_on_FNM.pdf
Perhaps all wrong but some clear evidence. Also look at the contemporaneous email trail the Barrons article undermined a March bailout of the GSEs in the works at the Senate Banking Committee. Dan Mudd was raising money in Asia and the UST and NEC were leaking this Memo on the same weekend.
Perhaps Collins v Yellen was a big mistake by SCOTUS or perhaps SCOTUS wanted to give Congress and a new Admin time to reasonably resolve the issues regarding the GSES while making sure taxpayers and the US MBS market were protected?
Now it seems clear that Collins made several separation of powers issues ripe and relevant for adjudication and their are highly incentivized plaintiffs to push the Consitutional issues.
Also it seems clear that the Admin Estate has overreached and is infringing on the business prospects of major banks and financial concerns as evidenced in the CFPB policies of the JB Admin - perhaps this is why David Stevens has switched sides.
It is kind of now or never for SCOTUS to decided on the separation of powers issues raised as the result of the SCOTUS Collins v Yellen decision.
Perhaps Collins v Yellen was a big mistake by SCOTUS or perhaps SCOTUS wanted to give Congress and a new Admin time to reasonably resolve the issues regarding the GSES while making sure taxpayers and the US MBS market were protected?
Now it seems clear that Collins made several separation of powers issues ripe and relevant for adjudication and their are highly incentivized plaintiffs to push the Consitutional issues.
Also it seems clear that the Admin Estate has overreached and is infringing on the business prospects of major banks and financial concerns as evidenced in the CFPB policies of the JB Admin - perhaps this is why David Stevens has switched sides.
It is kind of now or never for SCOTUS to decided on the separation of powers issues raised as the result of the SCOTUS Collins v Yellen decision.
The DOJ Brief against granting Cert for Rop cited three separation of powers cases currently supporting the DOJ positions regarding the separation of powers issues and remedies.
Calcutt - up for Cert most likely on the 15th
Collins - currently waiting for a Hearing in the 5th Circuit and
Bhatti - currently waiting for a Hearing in the 8th Circuit
Mkt expectation is probably very low but first up is the decision for Calcutt for Cert. If Calcutt is granted Cert perhaps it portends Cert for Rop?
HI Glenn, Will the Conversion of SPS to comment be part of the expected Admin Action? Will it be in a Consent Decree?
Glenn reported that the Jared Bernstein nomination will go to vote in the Senate Banking Committee to be moved to the Senate for Confirmation. Not sure when the news came out but it was definitely expected.
Hi Glenn
Do you expect the cramdown of common via a conversion to be part of the proposed Admin Action you are expecting?
Senator Scott Letter to Thompson regarding LLPA
https://www.banking.senate.gov/imo/media/doc/fhfa_pricing_framework_letter.pdf
Hi Glenn,
Do you know anything about the proposed structure for the Admin Action?
Hi 5bagger,
There is nothing on conversion, JPS or R&R. My point was that she is the opposite of shareholder friendly.
I am hoping Glenn is right because any proposal is a good one since the GOP has taken a political interest in the policies and programs of the GSEs. A bad proposal will have political consequences and may become a campaign issue for 2024.
Thanks imbellish and Stockanalyze
It really doesnt matter what we think but what 4 Justices at SCOTUS think for Cert.
We should know by July.
Interesting that DOJ cited Calcutt - which is up for Conference on the 11th.
Fannie Heyyyy - SCOTUS will decide on Cert for Rop by July
DOJ will reply today oposing Cert.
https://www.scotusblog.com/case-files/cases/rop-v-federal-housing-finance-agency/
Hi Stockanalyze,
I am probably too optimistic that SCOTUS will do the right thing but at least we should know about Cert for Rop by July.
I am watching the Calcutt case which also has a separation of powers remedy component. We should know about Cert for Calcutt as early as the 15th since it is up for consideration at Conference on the 11th.
https://www.scotusblog.com/case-files/cases/calcutt-v-federal-deposit-insurance-corp/
Look at the Amicus briefs for Calcutt - seems like it is important especially with the Chamber of Commerce Amicus. There may be a real push at SCOTUS to consider and decide separation of powers issues and remedies for the 2023 Sitting.
Hi Skeptic - how do you know? I would like to see who files Amicus briefs for Cert for Rop.
Neera Tanden would figure out a way to take it if you did. Hope Glenn is right - would love to see the GSE Conservatorship as a campaign issue.
Probably new PM and also tax loss selling. Unfortunately our 529 for our kids was invested in The Growth Fund of America in 2008. I wished their PMs knew about the GWB Admin plan to "wipe shareholders" in March of 2008.
https://fcic-static.law.stanford.edu/cdn_media/fcic-docs/2008-03-08_Treasury_Email_from_Hason_Thomas_to_Robert_Steel_Re_Source_document_for_Barrons_article_on_FNM.pdf
You would think that GWB actually cared about the USG stuffing mutual funds with JPS at $ 25. I bought FNMAT at $ 25 in May 2008 also - lost both in my IRA and in our 529.
Hi Kthomp,
You are right on the Capital Reserve - I misread it.