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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.
Will Collins case before the Fifth Circuit be decided by a Panel or En Banc. If it is a panel - here are the judges that voted for retrospective relief vacating the 3rd Amendment.
"In my view the proper remedy for a (removal separation of powers Constitutional violation) is to vacate the Third Amendment. I respectively dissent form the court's decision to instead grant a prospective remedy. "
Judge Willet joined by Jones, Smith, Elrod, Ho, Engelhardt, and Oldham.
Collins v McNuchin Case 17-20364 Date Filed 9/06/2019 Page 118
Correctamundo!
March 8, 2008 Memo From Jason Thomas of the NEC to Robert Steele Undersecretary of the UST
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.
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
Bryndon - can you comment on your suit?
In a derivative suit the damages would go to the GSEs and accrue to its balance sheet as retained earnings. There may be some accounting adjustments but it would be similar to just voiding the SPS Liquidation preference. Not a class action where payments would go to shareholders.
Thanks Barron4664 - I saw this earlier - it does not make sense to me either. I would like to see what the final Kelly Complaint looks like and what Brydon Fisher ends up doing. Bryndon Fisher is a class action I believe so any viable cause of action should be included I would think?
Thank you again for all your work.
Rodney5 - I appreciate your contribution to this Board as well.
I dont have a good answer for you but I think the Charter Act violation should be most appropriate in the two COFC taking cases challenging the Conservatorship itself. We are still waiting for final revised Complaints by Brydon Fisher and Mike Kelley.
I am not sure I understand the strategy of the other remaining COFC cases but wonder if this could be incorporated in the causes of action going forward.
For example, Wazee is now a class action on behalf of common and JPS for Unjust Enrichment and takings - seems like the plaintiffs are spending a lot of money on trying to get to discovery so why not bring all valid claims on behalf of common and JPS? I dont know what the answer is either.
My current position is I would like to see if the COFC claims survive and see how Collins progresses. I think our best hope now is Collins with potential a potential remedy capping or eliminating the SPS due to the Removal and Appropriations Clause violation. It seems like we have some time under the Statute of Limitations to see how this plays out in in 2023.
Thanks again for your efforts.
Good chance for investors to sell if they want. Personally - I think we have good chance having the SPS Liquidation preference wiped or written down significantly - most importantly the SPS Liquidation preference will be wiped or capped at a date in the past when one of the separation of powers remedies claimed in Collins, Bhatti or Rop became ripe.
Be prepared to wait a long time but it is a matter of when and not if. If the SPS Liquidation Pref is capped or wiped - time is on the side of common .
Again - I would urge all investors to consider the perspectives of Familymang because he may be right. I am basing my opinion primarily on the 2022 oral arguments for the All American and Collins En Banc proceedings in the 5th Circuit - so I could be wrong and investors could sell now at 40 cents.
The plaintiff's attorneys in Collins represent both common and JPS shareholders and are bound by legal ethics to fairly and equitably represent all their plaintiffs - common and JPS alike.
I would urge everyone to listen to Familymang's arguments to the contrary and consider selling your shares if you believe them but there may be solid reasons to disagree.
The potential remedy for the Appropriations clause separations of Powers claim in Collins could be only the Liquidation Preference at the imposition of Conservatorship which could be a max of $ 2 billion.
The remedy for the removal claim in Bhatti could be no more than the SPS liquidation claim as of January 2018 when DJT could have removed Director Watt. See Judge Jones discussion with David Thompson in the recording below regarding potential remedies.
Kimbrown seems right about the need for Discovery before a remedy most likely can be rendered unless the SPS Liquidation Preference is just wiped out.
Check out the dialogue between David Thompson, Judge Higginson, Judge Willet and Judge Jones during Thompson's oral argument in Collins at the January 2022 En Banc Hearing. The Judges who asked questions definitely have spent time understanding the facts around the conservatorship and what has transpired since Collins was originally filed.
https://www.ca5.uscourts.gov/OralArgRecordings/17/17-20364_1-19-2022.mp3
Thanks for all your work on this. I think you analysis regarding Breyer's questions and the takings issues are superb.
Like you I do not understand why the Charter Act has not been brought up but I believe it needs to be brought up in context of a challenge to the Conservator itself and not in litigation where the Conservatorship is not being challenged. I believe that currently only the Brydon Fisher and Mike Kelly complaints are challenging the Conservatorship.? Perhaps the Charter Act could also be brought up as part of the Unjust Enrichment claims in Wazee?
I disagree with you about the representation of the common shareholders by David Thompson and his firm. Thompson represents both Common and JPS in Collins and I believe it is the same in Bhatti and Rop. His firm is bound by legal ethics to represent all his plaintiffs but perhaps not the whole class of common like the Lamberth and now Wazee classes.
Finally - I would recommend that you listen to the Jan 22 En Banc oral arguments in the 5th Circuit - you may find the recording informative.
https://www.ca5.uscourts.gov/OralArgRecordings/17/17-20364_1-19-2022.mp3
There is a whole lot here and potential different rationales about litigation strategies to date. No one expected this Conservatorhip to drag on for so long but not many expected the GSEs to be profitable after 2008 either - I did and that is why I have been a shareholder since May 2008.
Thanks Robert - Familymang seems to have a lot of great insight and I really appreciate all the work he has done on his litigation calendar. I disagree with him on what the remedy will be if we are so lucky - seems like a lot of fair-minded Judges in the 5th Circuit. The good outcome this week is that we will have a decision from the 5th Circuit in 2023!
Thanks for your opinion Familymang. I am just pointing out what the requested remedy as stated - perhaps I am misreading this and if you say that the requested remedy in the trial court is what will be considered then I will defer to you. Everyone should know that Familymang believes that the 5th and 8th circuit will consider converting the SPS to common. Also they should know that you were right on Collins going forward so I will defer to you again. Just to be clear you believe that Cooper and Kirk will advocate for a remedy that will screw common.
I disagree and think the 5th in particular believe in justice and will choose the most equitable remedy. I am foolish enough to believe that the 5th Circuit panel will decide on an equitable remedy if we are so fortunate. Also - I am primarily a JPS investor and have been since May 2008. I believe investors should decide on their own risk and return and own both if they have the choice like Ackman has. That being said I am not dishonest and the reason I put question marks in my posts is to get the opinion of others. You believe that the remedy requested is in the Complaint at the District Ct - I will defer to you and that is why I had a question mark.
Hopefully we will see a ruling from the 5th Circuit some time this year. Lets not communicate as you suggest until that ruling and I will make the point that you were right! - if in fact you are. Best of luck to all JPS investors and common too. Also I really appreciate all the hard work of David Thompson and his team at Cooper Kirk.
Thanks Clarencebeaks - I dont know if it really meaningful at this point. Since the CFPB case is before SCOTUS perhaps the GSE shareholders could pick up support from the House and Senate Minority since it would support the foundation to find the CFPB unconstitutional. If the FHFA is found Constitutional, then perhaps the CFPB is also but if the FHFA is found Unconstitutional then there is more support to rule that the CFPB is also Unconstitutional. I the timing and sequencing of the FHFA cases before SCOTUS rules on the CFPB case is probably constructive to the GSE shareholders?
Bhatti appeal in the 8th is seeking a remedy for the Unconstitutional removal restrictions:
https://www.glenbradford.com/2023/03/fnma-fanniegate-1270/
Here is the remedy requested
From Page 18: " Here, Plaintiffs allege that FHFA exceeded its authority in maintaining the Net Worth Sweep and the attendant liquidation preference after President Trump was unconstitutionally barred from firing the Director. "
Last Paragraph – Page 56
"The restriction violated the Constitution and harmed Plaintiffs. Accordingly, Plaintiffs should be put in the position they would have been in but for the unconstitutional removal restriction"
There is no reference to a forced conversion of SPS to CET1. The remedy requested in be put in the same place as they should have been without the NWS Sweep and Liquidation Pref.
Again - common would be entitled to 20% of the MV of GSE CET1. JPS could do a consensual conversion but no forced conversion of common or JPS
Big Catalyst seems to be which Judges will be on the three Judge Panel for the Collins Appeal in the 5th ? Would you agree Familymang? If it is at least two Judges who concurred with Judge Jones on the All American En Banc or the Collins v McNuchin En Banc before SCOTUS Cert for Collins v Yellen then shareholders will have a good chance for a win in the 5th.
Here is the Collins v Yellen Appeal Complaint:
https://www.glenbradford.com/2023/02/fnma-fanniegate-1254/
Here is the remedy asked for:
Because FHFA lacked constitutional authority to act due to the Appropriations Clause violation, it follows that Section 4617(f) does not bar relief. See Collins, 141 S. Ct. at 1776. Plaintiffs have stated a claim that the FHFA’s self-funding structure violates Case: 22-20632 Document: 42 Page: 62 Date Filed: 02/01/2023 54 the Appropriations Clause and that the appropriate remedy for this constitutional violation is to vacate and set aside the Third Amendment. Here again, this Court should Plaintiffs in the position they would have been in but for the violation of the Constitution.
I did not see a requested remedy for conversion? If so if the Third Amenment is set aside the SPS Liquidation Preference is void. I would think would increase the CET1 for the GSEs and require the UST to rely on their warrants to monetize the market value of the UST position. Common would be entitled to the market value of 20% of CET1 before dilution from new IPO offerings and any potential JPS consensual exchanges. Isnt that right?
Thank you very much Clarencebeaks21. Do we know who may have filed an Amicus with the 5th Circuit before Cert up to SCOTUS? I think I remember the House Financial Services Committe doing that to keep the 5 year term of the FHFA Director.
Hi Robert,
Do you think we will see any Amicus briefs filed in the 5th Circuit Collins case? Didnt the House file one for the En Banc Collins case that went up to SCOTUS?
I am thinking that we could get some Amicus support and opposition regarding the FHFA Appropriations clause before SCOTUS rules on the CFPB case that will help our political support coming out of the SCOTUS CFPB decision in 2024.
Also - it would seem that the Bhatti appeal in the 8th Circuit will also move forward. The 5th and 8th Circuits should have opinions rendered in 2023 and possibly before SCOTUS hears the CFPB case.
What do you think?
Good Points. My hope is that the 5th sets aside the NWS and the SPS Liquidation Pref and SCOTUS rules that the CFPB violates the Appropriations Clause and then denies Cert on appeal from the FHFA/UST. This is the best case scenario which is in play for 2024. Maybe low prob but best outcome especially for common
Thanks Robert - I am assuming that if the proceedings were going to be stayed the FHFA and the UST would have moved to stay them rather than reply and ask for oral hearings. I think Familymang is right about this one. Also - the ruling by the 2nd circuit on the CFPB issue helps to separate the FHFA consideration from the CFPB which I think helps our cause because I am thinking that the 5th will rule that the FHFA also violates the Appropriations Clause. If shareholders win perhaps SCOTUS will take up Collins again as part of the CFPB cases ?
Also - I dont know if shareholders win with the 5th Circuit does it need to go back down for a remedy again?
Bottom line would seem to be that the Approprations issue will be most likely finally resolved in 2024 and possibly 2025 depending if SCOTUS considers and remands back to 5th Circuit to be in conformity with its ruling in the CFPB controversy between the 5th and 2nd Circuits.
Familymang was right! Collins is going forward and will not be stayed. The FHFA is asking for oral arguments!
https://www.glenbradford.com/2023/04/fnma-fanniegate-1280/
Good call Familymang!
Thanks Rodney5
The defense is just doing their job and most likely believe they are acting for the public good. They did not act improperly - but unfortunately key players in the GWB and BO Admins did. It will be up to SCOTUS to make the final decisions over the next 3 years.
Rodney5, Barron4664, Ace Trader and Iron Man
I am waiting for the remaining COFC cases to move forward and see how they develop. I think I can understand why Hume does challenge the fees required under the Conservatorship which are prohibited under the Charter Act but I dont understand why Bryndon Fisher and Mike Kelly do not make the Charter Act case in their complaints.
Rodney - you are exactly right but I dont have the time right now to get involved but perhaps in a couple months. I would like to see how the Collins case progresses and how the COFC cases with Judge Sweeney and Judge Davis progress - Kelly could be dismissed which would be a major bummer.
God bless you all and thank you for your patriotism. Lets keep this alive and do something by the end of 2023 depending on how things progress.
Exceptional forward thing as always Robert. This is going to be one of the primary policy differences between the JB Admin and the GOP House in 2024. Our case fits squarely in this Constitutional policy debate and it will be adjudicated by SCOTUS
I have got to believe SCOTUS will accept CERT in ROP also which will also bring the Appointments Clause into the mix.
Hi Familymang,
The operative word is "disproportionately" - not to hedge because the common is going be near worthless. Ackman makes sense and it really depends on what risk return investors have. Personally I think investors should own both and root for both like Ackman does.
By the way - next month should be a big month for USG replies. Do you think we should know by next week if Collins is going to be stayed or not?
You are right Kthomp - Ackman wants the UST to exercise the warrants which will most likely mean that common will own 20 pct of the GSE equity before any dilution. This is a good scenario for common and Ackman because he can maximize his profits on BOTH his JPS and common shares.
The question is whether the FHFA/UST will try to entice JPS to convert before dilution from the IPOS. This is a good reason to own JPS because this would have be authorized by a consensual vote of JPS and would need some conversion sweetner like a 25 pct discount to the IPO price?
If the SPS gets set aside the Common will benefit pari-passu with the UST on an 80/20 basis as net worth organically increases. Time is on the side of Common if the SPS is set aside or frozen.
Ackman position is really what we all should be talking about - owning and wishing for the best for all shareholders - JPS and Common
Here is what he said in Ace Traders Post:
We still prefer our investment in the common shares
because the government and taxpayers’ interests, as owners of 79.9% of the common stock of both companies, are
aligned with the interests of common shareholders. If housing reform is successful, we believe that both FNMA and
FMCC common and preferred stock will likely be worth multiples of their current share prices.
Familymang - I dont see the 5th facilitating a seperation of powers remedy that only favors JPS and screws common. I have listened to Judge Jones and others and believe that they are sophisicated and fair. Hopefully we will see soon!
Familymang - I dont see the 5th facilitating a seperation of powers remedy that only favors JPS. I have listened to Judge Jones and others and believe that they are sophisicated and fair. Hopefully we will see soon!
The biggest risk to the MV of the GSE stake is interest rate risk. The higher the rates go the higher the required rate of returns on new equity will be and the lower the market value of GSE equity will be. You can see this sensitivity in the CBO GSE Restructuring Paper Scenarios.
Thanks for the reply. Not to mention that we have to get out of Conservatorship also. We will see if you are right and Collins is not stayed - that would be great because we will hear the wisdom of Judge Jones again.