Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Definitely feel your pain but I really appreciate that you keep on fighting the good fight.
I still believe that eventually the USG will be caught in a Constitutional corner where even wishy washy Judges will have to do the right thing.
I think your Constitutional instincts are right on in this respect.
Thanks again.
This is what happened the last TIME the USG raised money for Fannie Mae.
This Memo from Special Assistant to the President at the National Economic Council to the Undersecretary of the UST Treasury on March 8, 2008 - two months before I bought FNMAT at $ 25 for my wife's IRA.
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
None of the Underwriters knew of this or at least it was not disclosed by anyone.
Wonder what MEMO is out there now ?
Everyone should email their Representative and Senators.
We should not have to pay more because we cared about our credit! We teach our kids to sacrifice and only spend what they have to keep good credit and NOW they are going to get penalized to subsidize those who have not been responsible in most cases?
Its time to get Fannie and Freddie out of the hands of Government Control since it is clear they are getting used to win votes for the President and will be used for political gain by future Presidents!!!
Everyone should email their Representative and Senators.
We should not have to pay more because we cared about our credit! We teach our kids to sacrifice and only spend what they have to keep good credit and NOW they are going to get penalized to subsidize those who have not been responsible in most cases?
Its time to get Fannie and Freddie out of the hands of Government Control since it is clear they are getting used to win votes for the President and will be used for political gain by future Presidents!!!
Thanks Navy - there is apparently a 60 day comment period. This seems like the student loan issue doesnt it - making people with good credit habits subsidize those who dont?
MQD litigation?
Really good timing to expand the CFBP Appropriations Clause remedy to the FHFA.
Wow and Wow Robert!! Thanks for all your time and effort on behalf of the employees and shareholders of the GSEs!!
Thanks Guido and Robert for the link and catch!! This is potentially very powerful politically - should a hardworking middle class american who has worked hard to maintain a good credit score have to subsidize a homebuyer who has not worried about their credit score?
Seems really unfair doesn't it?
Kudlow is right - privatize Fannie and Freddie!!
MQD kind of issue isnt it? Should a FHFA Director use her power as a Conservator of the GSEs to penalize homeowners with good credit? Which State Attorney General is going to bring suit to protect homeowners with good credit in their State?
Hi Bostonsesco - Perhaps a large common shareholder will submit a new case if the UST tries a cramdown?
Hi Skeptic, Axon is definitely a 9-0 precedent? - is it relevant precedent - Maybe. If it is it will be picked up in all future Complaints and Responses. Kelly is due tomorrow. Plaintiff's response to Collins is in the near future. We will know the relevance of it in the next several months - A big thanks to ANO!!! No thanks to you.
This is interesting - Thanks Navy. My guess is we will have to see another Amended Complaint from Wazee - also I believe the Mike Kelly Amended Complaint is due tomorrow before Judge Davis. Wonder if Axon will be cited. The other litigation that could include this is Brydon Fisher's.
Senate Banking Committee Hearing on Housing Scheduled for 26th
https://www.banking.senate.gov/hearings/building-consensus-to-address-housing-challenges
Bernstein Nomination Hearing was held on the 18th. Did not see it earlier - not sure if the GSEs were mentioned
https://www.banking.senate.gov/hearings/04/11/2023/nomination-hearing
Rodney5,
I understand your concern and in the totality of all the shenanigans you have the right reaction but contractually there was consideration given and received and approved by the Board of Director's. All though there was no cash given there was consideration given because the UST agreed to provide up to $ 200bn additional funding at the time to calm the MBS markets. I believe this was increased to $ 300 bn later since there was a concern in the MBS markets that $ 200bn was not enough at the time. Personally I do not think this part of the SPS can be challenged but the increase of the Liquidation Preference as part of the 3rd Amendment can. Let the UST have $ 2 bn and NO MORE.
Personally I think your points about the Charter Act are good but I dont know how to assess the Statute of Limitations practice in the COFC that Brydon raised. Right now I think the best use of our focus is on the Mike Kelly fact pattern about what the NEC and UST did months before Conservatorship and the separation of powers Constitutional Remedies.
I am waiting to see what happens in the Mike Kelly litigation - right now it does not look good but perhaps we will be surprised. Our best hope is with the 5th Circuit but we still need to have SCOTUS uphold anything coming out of the 5th Circuit.
This is probably not what you want to hear but I think this is the reality and potentially overly optimistic. Familymang and Kthomp most likely dont agree with anything I am stating.
It makes no sense and that is why we need to see what the 5th Circuit does regarding separation of powers remedies. All shareholders - Common and JPS have Constitutional rights and at this point we need to wait for the end game. It doesnt really matter what the stock prices are now it is what they will be in a year from now - they could be higher or lower but we will know much more about the end game for Constitutional litigation regarding our rights.
Hi Rodney5
Here is an excerpt of the Mike Kelly Complaint:
"In September 2008, the Government destroyed these investment-backed
expectations when it coerced GSE management to “acquiesce” to a conservatorship under the
Housing and Economic Recovery Act of 2008 (“HERA”) and took for the benefit of the United
States the rights and protections that ownership of the preferred shares had guaranteed. The
Department of Treasury then obtained the exclusive right to decide when to terminate the
conservatorship and has in effect made the conservatorship perpetual. In fact, the conservatorship
continues today, almost 15 years later.
6. Through this forced “nationalization” of the GSEs, the GSEs stopped operating for
the benefit of their shareholders, and the Government took for a public use the rights, protections,
and duties that adhered to the ownership of the GSE preferred shares. As a result of this taking,
the stock price of the preferred shares plummeted and any investment of a bank’s Tier 1 Capital
vanished. The ultimate consequence of this Government action forced the FBOP Subsidiaries into
receivership. In short order, the Government took all of Plaintiffs’ assets. Plaintiffs demand just
compensation for this Government action under the takings clause of the Fifth Amendment to the
United States Constitution.
7. The FBOP Subsidiaries and River Capital also seek damages because the
Government breached the duties of good faith and fair dealing implied in the GSEs’ stock
certificates and bylaws. Implied in those contracts are promises that the GSEs would be operated
by fiduciaries who would manage the GSEs to increase shareholder value. By coercing the GSEs
into the conservatorship, ensuring that the conservatorships would be run perpetually for the
Case 1:21-cv-01949-KCD Document 25-1 Filed 03/06/23 Page 5 of 71
3
benefit of the United States, and taking actions to the detriment of the shareholders, the
Government was put in privity with the FBOP Subsidiaries and River Capital under the stock
certificates and bylaws. The Government breached the implied covenants by operating the GSEs
for the benefit of the United States and taking action that subordinated shareholder rights and
protections to the general public.
8. Finally, Plaintiffs seek damages for the Government’s breach of an implied
regulatory contract. The only reason the FBOP Subsidiaries and River Capital purchased the GSE
preferred shares was because the Government promised that those investments were a safe use of
Tier 1 Capital, that 100% of Tier 1 Capital could be used to purchase GSE preferred shares, and
that the dividends earned from ownership of the GSE preferred shares would enjoy beneficial tax
treatment. The Government made these promises as part of an offer for the banks to recapitalize
the GSEs. Implied in that offer and in those promises was that the Government would pass no law
or take no action that would render the value of the GSE preferred shares worthless, extinguish the
associated Tier 1 Capital, and result in the regulatory undercapitalization of the banks. By using
HERA and coercing the conservatorship, by allowing Treasury to decide when the conservatorship
ends (in effect, making it perpetual), and by the actions the conservator took, the Government
altered the regulatory landscape to such a degree that it could no longer perform its promise that
the investment in the GSEs’ preferred shares were a safe use of all of Plaintiffs’ Tier 1 Capital.
Because the Government took the actions that made its regulatory promises impossible to honor,
the Government bore the risk if it rendered its performance impossible. Plaintiffs accordingly seek
damages for the harm caused to them by the Government’s actions that made their GSE
investments a detrimental use of their Tier 1 Capital and an unsafe investment"
https://www.glenbradford.com/2023/03/fnma-fanniegate-1271/
Hi Rodney - the Mike Kelly lawsuit is challenging the Conservatorship and we will know soon if it can go forward.
Mike Kelly deserves his day in Court and if he has one - it will benefit all shareholders. While the GWB and BO Administration and the key players in both of this Administrations will probably never be held accountable as you said the transparency is what is important. Mike Kelly is suing for direct and derivative damages - a derivative win would in essence transfer the value of the UST claimed SPS position back to all shareholders.
Why should the USG make out with $ 224 bn when Mike Kelly lost everything by doing the right thing? The GWB Admin stood by and said nothing about the March 2008 Barrons Memo and their stealth Nationalization strategy while the GSEs were raising billions from unsuspecting public investors in the Spring of 2008. If not accountability - the facts surrounding the GWB Nationalization Strategy should be made public.
Kthomp is right about the JPS. Now is the opportunity for all shareholders to work together and advocate for common and JPS alike.
Is it "remotely" or no one? Seems like the stock should be going down rather than up - dont you think? Maybe some remote investors are buying today?
Yes - Familymang was right about this litigation going forward. The competing ruling out of the 2nd Circuit seems to have assured that the 5th Circuit will move forwards.
Hope you are right that it will be an En Banc Hearing.
The UST undervalues the warrants for the balance sheet items associated with the annual budget.
Option valuation includes the expected value of the net financing costs and is the "r" input in the Black Scholes model. The assumed volatility for valuation will determine the expected value of net financing costs.
The best valuation methodology for the warrants is to use the models set out in the CBO restructuring report.
In any event the warrant valuation by the UST is not relevant for determining a valuation except for the purposes of Budget since it is always an overly conservative valuation.
My apologies if you thought that I was saying any of this was fair or just. I was just referring to predictions about the outcome of the remaining litigation except for Lamberth.
You are right about Eaton Park. The founder of Eaton Park was Hank's former colleague.
https://en.wikipedia.org/wiki/Eton_Park_Capital_Management
Mike Kelly's lawsuit is our best chance to bring out the facts of the unjust enrichment of the UST and how the Conservatorship wiped out well intentioned investors who invested billions to support the mission of the GSEs.
Thanks again for the response.
I am relying on the 5th Circuit En Banc decision in CFPB v All American Check Cashing which was settled.
https://caselaw.findlaw.com/us-5th-circuit/2171726.html
The 5th will likely have to take another step forward with the FHFA analysis which I am assuming that Judge Jones will be able to convince 8 other Judges to do so. It should be a very interesting Hearing and Opinion if you are right about it being EnBanc.
Perhaps I am wrong but hopefully we will get an Opinion from the 5th Circuit this year.
Good Discussion Kthomp,
You make some great points regarding the mechanics of a remedy. I do not have a good counter argument at this time because I have not thought about you points enough.
Regarding a conversion - as we discussed earlier it would intuitively seem to be off the table unless the Plaintiff's asked for it in the hearing. I dont believe that Plaintiff's attorney's will ask for it because : (1) this would lead to the need to a lengthy discovery process with a focus on all the accounting issues you referenced and (2) would actually be a windfall for the UST giving them most of the equity of the GSEs for no new consideration.
Outside of HERA, the SPS would be a preference and would be voided since it is a voidable contract for no consideration agreed to by related parties and one of which with fiduciary duty as a common law conservator. I dont see the 5th Circuit leaving the UST in a better position that they would deserve in equity nor better than they were given at the imposition of the conservatorship.
Thanks for thoughtful responses.
I dont disagree with anything you stated in your response
The En Banc hearing makes sense and It would be good to have Collins heard En Banc - We will have to hope that Judge Duncan chooses the right side this time on the Constitutionality of the NWS and pray that the Ronald Regan Judges stay healthy.
Thanks again. Hope Tuesday brings good news as you may have suggested.
Ackman is most likely right.
We should know this year which way the 5th Circuit will rule on voiding the NWS and SPS Liquidation pref. It then is up to SCOTUS. Bhatti and Rop are still in play also.
If the NWS is voided, then common dilution will be the function of sequencing the exercise of the warrants and any consensual conversion of the JPS into CET1. Public common could be less that 20 pct but not the wipe out that is in some of the CBO scenarios.
Maybe reasonable posters should wait until the 5th Circuit rules before making bold predictions of a wipe out cram down? . Could happen but Collins seems like we have a 9/16 likelihood that the 5th will set aside the NWS and SPS Liquidation Pref.
We disagree on the prospects of the outstanding litigation. I believe that the NWS will be set aside as a remedy in the Collins case. It will be a 2-1 Panel or a 9-7 Enbanc ruling. I am not sure if the 5th will find that the invalidation is due to the removal or Appropriations clause violation. The 8th will have to decide to follow the 5th or oppose the 5th regarding the remedy for the removal separation of powers violation.
We also have Rop and whether or not it will be granted Cert. I think Kavanaugh will argue for Cert and ultimately Judge Thapar's dissent will prevail before SCOTUS.
Kelly is before Judge Davis who is a DJT appointee. Best case is that Kelly survives and Wazee is assigned to Judge Davis since Judge Sweeney has attained senior status.
What Calabria may or may not have discussed with McNuchin is not relevant nor is the valuation that the UST has assigned to the value of the warrants which is used in the balance sheet reconciliation part of the Presidents annual budget. A fair valuation for the warrants would have to reconcile option theory and the GSE valuation process.
I disagree with you on most things except I do appreciate the access to transparency that your website provides.
In any event - 2023 should be an important year to see who is most right and most wrong. Perhaps you will prove to be right but I would urge you to spend time understanding fundamentals of finance better.
Hi Bryndon,
Thank you for all the time and money have you given this effort on behalf of shareholders. A derivative suit would essentially accomplish the same as setting aside the NWS and returning the cash earnings rightfully owned by shareholders back to common shareholders.
Unless the Kelly suit is successful no one is challenging the Conservatorship and the only plaintiff that has before was Washington Mutual and they withdrew.
Only Congress will unwind the Warrants but your suit can return the capital to shareholders without any action by Congress.
Thanks again for all your efforts.
Looks like Quinn withdrew their case before Sweeney. Bradford has the headline but wrong text. The remaining litigation is narrowing.
Looks like Quinn withdrew their case before Sweeney. Bradford has the headline but wrong text. The remaining litigation is narrowing.
Hi Chessmaster315
I think it is good but not necessarily relevant. Remember this is the same Court that denied Cert in the Fairholme COFC Petitions. I wonder if you can be bullish about an opinion that Sotomayer and KBJ join the minority.
I am thinking the best catalyst we had recently was the 2nd Circuit CFPB case which caused the split with the 5th Circuit and differentiated the Collins appeal in the 5th Circuit. We have an 8-8 or 9-7 En Banc majority for the voiding of the NWS and SPS going into the case - thanks to DJT and Ronald Reagan appointees.
Near term the best tea leaves with SCOTUS will be to see if they grant Cert in Rop. If they dont then what do they really think about separation of powers issues?
Scott Statement on new Housing Framework for Legislation
No mention of GSE reform but a lot about oversight and free enterprise
https://www.banking.senate.gov/newsroom/minority/scott-announces-housing-framework
Warren Davidson who is the Chair of the subcommittee with GSE oversight is also at the event
Thank you Brydon for your time and all your efforts on behalf of COMMON AND JPS SHAREHOLDERS. Thank you Rodney for pushing the issues and Guido for your continuing statemanship on behalf of Shareholders
We will see what Judge Davis does in the Mike Kelly case - I believe it is a derivative action and Kelly is arguing that the Statute of Limitations were tolled as Wash Mutual litigated if I remember correctly.
Keep up the good fight as long as you can Brydon! May you be justly compensated some day!!
Except for the investors that do every day.
Thanks for the reply Kthomp,
I agree with you that a conversion remedy out of the 5th is a "long shot". Kimbrown seems to be right that it would require discovery and the most recent brief by Thompson just stresses that the Plaintiff's want to be put back in the position they would have been but for the Constitutional violation.
It will be interesting to see the sequencings of the Opinions of the 5th and 8th and SCOTUS Opinion on the CFPB and the Cert decision for Rop.
The 5th has added Judge Wilson (DJT) and Judge Douglass (JB) and lost Judge Costa who voted to uphold the NWS in 2019. We are now most likely 8-8 based on last votes and 9-7 if Judge Duncan switches his vote on retroactive relief for a Constitutional defect .
The CBO values the UST warrants between 110 bn and zero depending on the valuation parameters at Exit. The implied value of common by the CBO is between $ 27.5 bn and zero.
Here is the CBO discussion of the valuation parameters:
If investors required a 10 percent return on their capital, they would value the GSEs’ combined equity at $306 billion, CBO estimates. That equity valuation would be large enough to cover the expected capital shortfall of $172 billion and the $35 billion in outstanding junior preferred shares, leaving about $98 billion to pay the Treasury for its outstanding senior preferred stock.34 In that scenario, the Treasury could exercise its warrants for common stock, but it would receive very little value for them, CBO estimates, because of the projected dilution of existing shares.
Using the lowest values from the ranges for the GSEs’ capital requirement (3 percent) and investors’ return on capital (8 percent) and the highest annual growth rate for the GSEs’ earnings after recapitalization (8 percent) would reduce the amount of the GSEs’ capital requirement to $200 billion at the end of 2024 and increase their combined equity value to $434 billion (see Table 3, Scenario 1). In that scenario, recapitalization and repayment of the Treasury’s full stake would be much more feasible. CBO estimates that the Treasury would not only receive the full $190 billion for its senior preferred shares but also receive $110 billion from exercising its warrants.
Conversely, using the highest values from the ranges for the GSEs’ capital requirement (6 percent) and investors’ required return (12 percent) and the lowest value for earnings growth (zero) would make recapitalization and repayment difficult even with five years of retained earnings. In that scenario, the GSEs would have a capital shortfall of about $273 billion at the time of the common-stock sale and a total equity value of $242 billion, CBO estimates (see Table 3, Scenario 3). As a result, the GSEs could not raise enough from the sale to cover their capital shortfall, which suggests that they would remain in conservatorship or be put in receivership.
See Table 3: This paragraphs below are set out just below Table 3
https://www.cbo.gov/publication/56511#_idTextAnchor037
UST has always valued its warrant as a multiple of the stock price on the valuation date in the Admin Budget. The UST valuation understates the correct option valuation of a zero strike option because UST does not have to finance the value of the shares covered by their warrants. This undervaluation relative to stock price is most pronounced when a stock has high long term volatility and is trading near its strike of zero.
Hi Kthomp,
Willett, Jones, Smith, Elrod , Ho, Engelhart, and Oldham have ruled that 3rd Amendment is void. Wilson wrote the Opinion that ruled the CFPB violated the Appropriations clause. Duncan voted against voiding the 3rd Amendment in Collins v McNuchin but he is a DJT Appointee and seems like he could change his mind this time around. Remember he is the Judge who was shouted down by Stanford.
You are probably wrong about the SPS Liquidation Pref. It will probably by wiped by the 5th. Your arguments will most likely depend on SCOTUS overruling the 5th on both the Removal and Appropriations separation of powers remedies since Wilson has joined the Court and Duncan may switch his vote.
You are probably right Robert. It will be interesting to see when the oral arguments for the SCOTUS CFPB case happen and the opinion coming out of the 5th Circuit will be.