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Understood and agreed!
That was an idiotic statement made by Warner, IMO. Venture capitalists often invest in start-ups or under capitalized companies with the potential for growth. They do not invest in multi-billion dollar enterprises that prop up ~20% of the nation's economy. Different investment mechanisms should expect differing levels of return. Did Warner really expect a 6 trillion dollar return on the initial 200B (debatable value) investment?
Ha. No doubt!
News: OMB Projects Bigger Returns on Fannie and Freddie
By Nick Timiraos | March 10, 2014
http://stream.wsj.com/story/latest-headlines/SS-2-63399/SS-2-477104/
Fannie Mae and Freddie Mac would return nearly twice the amount of money they received from the U.S. Treasury if the bailout arrangement isn’t changed over the next decade, OMB says.
Fannie Mae and Freddie Mac would return nearly twice the amount of money they received from the U.S. Treasury if the current bailout arrangement isn’t changed over the next decade, according to the White House budget office.
By the end of March, the two mortgage-finance companies that were seized by the U.S. in 2008 will have returned $202.9 billion in dividend payments, after receiving $187.5 billion in federal support between 2008 and 2011. The budget projections released Monday by the White House Office of Management and Budget show that the companies could return an additional $163.8 billion through the 2024 fiscal year if the bailout arrangement remains in place.
By that tally, Fannie and Freddie would return $179.2 billion more to taxpayers than they were required to borrow. Last year, the budget showed that taxpayers faced a net gain of $51 billion through 2023.
Even though both companies will have soon sent more in dividends to the Treasury than the amounts they borrow, those dividends don’t reduce the $187.5 billion in stock held by the Treasury. The terms of their government support don’t provide a clear mechanism for them to redeem those shares, and the companies are currently required to send all of their profits to the Treasury as dividend payments.
The Treasury faces lawsuits from nearly 20 investors challenging the dividend terms, which were modified in 2012. They say the government’s collection of the firms’ entire profits amounts to an unconstitutional appropriation of assets and that the Treasury and the firms’ federal regulator engaged in illegal self-dealing when it made those changes. The government has filed motions to dismiss the suits, which they say are without merit.
Many of the aggrieved investors bought Fannie and Freddie stock—particularly the preferred shares, which was a form of senior equity—after the government bailout. The initial terms required Fannie and Freddie to pay a 10% dividend on the shares that the government held, and many investors bet that the companies would ultimately become profitable enough to make money even after paying those dividends.
In 2012, however, the government changed the terms and upended those bets by requiring all profits to be paid out as dividends to the government and eliminating the prospect that the companies would have any residual earnings for those shareholders.
Still, shares of Fannie and Freddie are trading more than 1600% above their levels of a year ago and in the past week touched levels last seen before they were seized by the U.S. in 2008.
Senate lawmakers are working to introduce bipartisan legislation that would overhaul the firms, but many analysts assign low odds to the prospect that a bill would pass Congress this year.
Some lawmakers have said taxpayers are entitled to generous returns because the government agreed to accept nearly unlimited losses during the crisis, nursing the companies back to health. “I was a venture capitalist for a lot longer than I’ve been a politician. If I had put $180 billion into Fannie and Freddie back in 2009, I’d expect more than a 1 to 1 return on that,” said Sen. Mark Warner (D., Va.) at a conference last fall. “So once I got a 30-to-1 return…talk to me about Fannie and Freddie making money.”
Absent a change in the Treasury’s support or a court ruling that forces the Treasury to revisit the current terms, the companies can’t keep most of their earnings, meaning that, unlike other bailed-out firms such as General Motors Co. or American International Group Inc., they won’t be returned to private control on their own.
Monday’s projections represent a simple snapshot based on a series of assumptions that are highly sensitive to changes in the economy and financial markets.
News: U.S. estimates Fannie, Freddie to repay $179.2 bln to taxpayers
WASHINGTON, March 10, 2014
http://www.brecorder.com/business-a-finance/industries-a-sectors/161676-us-estimates-fannie-freddie-to-repay-$1792bn-to-taxpayers.html
(Reuters) - U.S. government-owned mortgage financiers Fannie Mae and Freddie Mac could send about $179.2 billion in profits back to taxpayers over the next 10 years, the Office of Management and Budget said in a report released on Monday.
Fannie Mae and Freddie Mac have operated under federal conservatorship since 2008, and have returned to profitability as the housing market recovered.
So far, Fannie and Freddie have borrowed $187.5 billion from the Treasury, and by the end of March they will have had paid $202.9 billion in dividends.
Don't these writers see the irony in the last statement? They've already been paid back...why keep filling the government's coffers with private money?
News: Berkowitz: Treasury’s Rationale for Fannie Bailout Fix Is ‘Nonsense’
By NICK TIMIRAOS | March 10, 2014
http://blogs.wsj.com/moneybeat/2014/03/10/berkowitz-treasurys-rationale-for-fannie-bailout-fix-is-nonsense/
Bruce Berkowitz made clear in letters to the boards of Fannie MaeFNMA +4.50% and Freddie MacFMCC +3.50% two weeks ago that he believes the companies should be run for the benefit of private shareholders and not just the government.
But those letters raised an intriguing claim that received less attention: Mr. Berkowitz said the companies don’t need to pay the U.S. government its required dividend payments in cash and could instead do so with non-cash payments by issuing more stock to the government. This alternative, he said in an interview, undercuts the government’s entire rationale for controversial changes that it made in 2012 to the companies’ financial support.
First, a little background: The Treasury Department rescued the two mortgage companies from likely collapse during the financial crisis in 2008, agreeing to inject massive sums of aid and initially taking a 10% dividend on those stakes in exchange.
But the government changed those terms in 2012. The changes force the bailed-out firms to send all of their profits to the U.S. Treasury as dividend payments, replacing the fixed 10% dividend with this so-called profit “sweep.” Mr. Berkowitz’s Fairholme Funds has filed two different lawsuit challenging the legality of the sweep, joining more than a dozen other investors.
In legal filings last year, the Treasury said it made that change because of concerns that Fannie might ultimately exhaust the hundreds of billions in aid the government had pledged in order to pay the 10% dividend, which would trigger receivership. The 2012 amendment—the third such amendment to the government’s bailout terms—don’t require any dividend payments to be made when Fannie and Freddie lose money.
Projections from the Treasury show that as of August 2012, Fannie would exhaust the $125 billion in remaining government support by 2024 simply to make the dividend payments. The mere threat of receivership would have spooked bond investors long before that date was reached.
The government wasn’t alone in this view. Several Wall Street research reports in 2012 had raised similar concerns, in part because the dividend payments—almost $12 billion a year for Fannie and $7 billion a year for Freddie—exceeded the firms’ annual profits for most of their corporate lives. In an interview one week before the government amended the bailout, Fannie’s then-CFO, Susan McFarland, told the Journal that it was “hard for me to envision” that the company would “make enough every single quarter to cover the dividend payment.”
Of course, those fears turned out to be wrong. Rising home prices fueled huge profits at Fannie and Freddie last year of $84 billion and $48.7 billion, respectively.
This brings us back to Mr. Berkowitz’s latest argument. Even if the government’s projections hadn’t proven way off the mark, he says that the government’s initial 2008 backstops of the companies allowed for them to avoid paying the 10% cash dividend, and instead to pay a 12% stock dividend. Under that scenario, the government wouldn’t collect any cash, but it would increase its stake in Fannie or Freddie by a larger amount. (This Congressional Research Service report offers more background on the setup.)
Spokesmen for Freddie Mac, the Treasury Department and the Federal Housing Finance Agency, the firms’ regulator, declined to comment. Philip Laskawy, Fannie’s nonexecutive chairman, said in a statement last week that the FHFA had sole authority to decide how dividend payments were made.
In Fairholme’s view, if Fannie or Freddie stopped paying cash dividends, then the companies wouldn’t have faced any prospect of exhausting their Treasury support because they wouldn’t have had to take Treasury funds, which were finite, to pay the government the required dividends.
“The rationale that’s been given for the third amendment is total nonsense,” said Mr. Berkowitz. Either the government, together with the companies, weren’t aware of the non-cash alternative or “there’s some Machiavellian something going on,” he added. “I prefer the simpler reason that no one bothered to read the agreement.”
A third possibility is that Fairholme’s reading of the documents is different from the government’s, just as Fairholme’s argument that Fannie and Freddie should be run for private shareholders is at odds with the government’s view that, under federal law, the rights and powers of the companies transferred to the FHFA when the firms were placed into conservatorship.
Some officials may have viewed the non-cash dividend payment as a last resort, something to be exercised only in the event that the companies could not come up with the cash. The government’s stock certificate covering their investments in Fannie and Freddie say the non-cash payment would be exercised only in the event that the companies “failed to pay dividends in a timely manner as required by this certificate.”
Ultimately, the question is likely to end up before a judge. A separate lawsuit filed in federal court in Iowa last month by Continental Western Insurance Co., another Fannie and Freddie shareholder, raised the same argument put forward by Mr. Berkowitz. It argues that the companies weren’t required to pay cash dividends. Continental Western is being represented by Cooper & Kirk PLLC, which is also representing Fairholme in its lawsuit before the U.S. Court of Claims.
“The wording can be interpreted in different ways that people who drew up the document didn’t expect,” said David Felt, a lawyer in private practice who headed litigation for the FHFA until 2010.
“I can’t say that the Fairholme interpretation is wrong,” he added. “But even if you view [non-cash payments] as an option, was there a reason for paying a 10% dividend versus a 12% non-cash dividend? It’s pretty obvious that there is because one is cheaper.” Mr. Felt is informally advising some shareholders but isn’t involved in the Fairholme litigation.
News: What one big fund is saying about Fannie, Freddie
By Ruth Mantell, MarketWatch | March 10, 2014
Sorry if this has been posted. I have been busy all morning...
http://www.marketwatch.com/story/what-one-big-fund-is-saying-about-fannie-freddie-2014-03-10
WASHINGTON (MarketWatch) — It’s been more than five years since Fannie Mae and Freddie Mac were placed into conservatorship, but the reform process has been opaque and the stakes are too high to get it wrong, says the investment research director at the mutual fund that has taken big stakes in the housing finance giants.
Dan Schmerin is investment research director at Fairholme Capital Management, which owns more than 150 million common and preferred shares in Fannie and Freddie, and spoke to MarketWatch about the firms’ future.
Fairholme proposed a private recapitalization of Fannie and Freddie, but the Obama administration signaled that the plan was a no-go . Fairholme is also suing over a 2012 amendment to the government’s bailout agreement for Fannie and Freddie that forces the housing-finance giants to send all of their profits to the U.S. Treasury Department.
Fannie and Freddie’s futures remain unclear. U.S. lawmakers disagree over the role that the government should play in the U.S. housing-finance system. Also, with the recovery of the housing market, Fannie and Freddie have become cash cows , and some say the will to advance meaningful legislation is dimming.
Supported by political and legal hopes, investors have traded up Fannie FNMA +4.50% and Freddie’s FMCC +3.50% common shares more than 1,500% over the past 12 months. Meanwhile, the most heavily traded preferred shares of Fannie FNMAS -0.16% and Freddie FMCKJ -0.78% have each increased more than 500%.
This transcript has been edited for clarity and length.
MarketWatch : A U.S. Treasury official recently said Congress’s lack of progress on reforming the U.S. housing-finance system shouldn’t be “an excuse” to delay rebuilding the market for private-label mortgage securities. Has the administration given up on housing-finance reform?
Dan Schmerin, Fairholme’s director of investment research
Schmerin : It’s not entirely clear to us what the administration’s plan or strategy is with respect to reforming the GSEs. Aside from publishing a white paper in 2011, their thoughts, recommendations and viewpoints on GSE reform have really been few and far between. The president recently articulated, as you know, a few very high-level guiding principles, which are subject to significant interpretation and also subject to immediate disagreement from leaders within his own party.
MarketWatch : What does the lack of certainty and progress mean?
Schmerin : There is a growing recognition of the vital role that Fannie and Freddie play in our secondary mortgage market and the tremendous difficulties that our nation would face if one were to effectively abolish Fannie and Freddie with the hope of rebuilding other firms or a consortium of others firms to try and fill the void.
Our sense is that as more and more elected officials are examining the complexities inherent to this topic, they’ve realized that broad and sweeping reform, which may sound attractive, is actually very challenging to effectuate because the risks of getting it wrong are significant.
If you do away with Fannie and Freddie, congressional officials need to come forward and say: ‘We’re OK with doing away with affordable mortgages. We’re OK doing away with the 30-year fixed-rate mortgage and we believe our constituents will accept and understand that the availability and liquidity in the secondary mortgage market will be fundamentally different to their detriment going forward.’ Because those are the facts.
MarketWatch : Would it be such a bad thing if 30-year mortgages weren’t such a large share of the U.S. market?
Schmerin : An overwhelming majority of Americans demand the 30-year fixed rate. An overwhelming majority of Americans want the financial certainty that comes with fixed-rate payments and slow amortization over the lifetime of that mortgage.
We can certainly transition to a system that’s strictly adjustable-rate mortgages, but it’s not our sense that that is in the national interest.
Americans want, on a per capita basis, the highest quality homes, the largest availability of homes and, in terms of size, the largest square-footage homes. For all the perceived ills with our housing-finance system, we are all lucky in that in America we’ve achieved most of those objectives. That’s not to say that there aren’t high quality homes in other developed countries around the world. But they’re not as large, they’re not as easily available, on a per-capita basis, and most of them, frankly, aren’t as nice.
MarketWatch : Under what circumstances will Fairholme throw in the towel and sell its GSE stake?
Schmerin : I really couldn’t comment on that. I’m not the portfolio manager. I can also tell you that I don’t think that’s been contemplated.
MarketWatch : What’s the biggest misconception that Americans have about Fannie and Freddie stock?
Schmerin : There is a large gap in perception where many Americans believe these companies have been nationalized. Many Americans aren’t aware that there are private investors, shareholders, who still have a stake for 20.1% of the common equity and $33-plus billion of preferred stock.
These are not federal agencies and they are not wards of the state. They just happen to be unusual because of the charter that they have, the congressional charter, and some of the public mission element that was built into that charter. But at their core they are corporations.
MarketWatch : What does the White House not understand about the benefits of accepting a proposal like Fairholme’s?
Schmerin : We haven’t received a response from anyone in the government regarding our proposal or any other of the numerous proposals that are out there. So I’m not quite sure what to tell you other than we thought carefully about the prospects for reform and took into account some of the leading legislative proposals, took into account our sense of what private market participants would be willing to do and put forth one idea for how to transition going forward.
It was just one idea. There are many others, and to the extent that people have better ideas, we’d love to hear them.
It sounds like the administration has been having some private conversations with members of Congress, but we have yet to understand where that’s heading…The process has been very opaque.
MarketWatch : Would Fairholme be willing to negotiate with the government over its suit? And if so, what would the minimum settlement be?
Schmerin : I don’t think we’ve contemplated a minimum amount, per se. I think that’s really not the focus of our attention. We are open and optimistic that a consensual solution can be reached. It’s in the interest of the country. It’s in the interest of all taxpayers.
We are first and foremost taxpayers. The vast majority of our shareholders are taxpayers. The vast majority of owners of Fannie and Freddie are American taxpayers. So when we talk about who ought to see the benefits and the proceeds and the profits of Fannie and Freddie – taxpayers or shareholders -- we see that as a difference without a distinction.
MarketWatch : Is there anything you’d like to add?
Schmerin : The government has claimed in its responses…that imposing the net worth sweep was necessary because there was purported concern in the agency debt market about extinguishing the Treasury commitment to Fannie and Freddie as a result of this so-called mandatory 10% cash dividend obligation.
What that overlooks is the fact that in the preferred stock certificates, both Fannie and Freddie, if the board of directors did not declare a 10% cash dividend to Treasury, could simply pay a 12% stock dividend in lieu of that cash dividend.
We think that’s a really important point. It’s conspicuously absent from any of the explanations, justifications, memoranda, anything else that’s been produced to date in the administrative record.
MarketWatch : Is the 12% stock dividend going to be something that Fairholme emphasizes going forward in the litigation?
Schmerin : It’s a point that we are going to emphasize in multiple venues because we believe it’s a very important issue.
As Bruce [Berkowitz, Fairholme’s founder] said publicly, we actually think that that fact alone largely collapses the Justice Department’s case. We didn’t know it six months ago, but we know it now since they have responded to our complaints. And they have articulated that their primary justification for imposing the illegal net worth sweep was this concern around the ability of each company to continue paying the 10% cash dividend.
With each next step we have more unanswered questions than anything else. If I learned one thing from my time in Washington (I spent eight years there), it’s really not the initial action that causes as much consternation and upheaval as the potential cover up.
ARCA leading the charge early...
News: Uncle Sam is Treating Fannie and Freddie as it Should
http://online.wsj.com/news/articles/SB10001424052702303369904579421143244960198?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702303369904579421143244960198.html
Courtesy of CatBirdSeat on google groups
Posting from mobile device. Somebody please repost full article. Thanks!
I was parsing through some old documents on the FHFA website last night and found this one, which is relevant to the current legal/political atmosphere surrounding the GSEs. It's a letter from Ed DeMarco (former director of FHFA) written to the chairs of the House Financial Services Committee and Senate Banking Committee in Feb 2010 as an update to the conservatorships of Fannie/Freddie. This letter was written 2 years prior to the PSPA 3rd amendment "net worth sweep".
http://www.fhfa.gov/webfiles/15393/Conservatorship_Letter_2_2_10%5b1%5d.pdf
I've highlighted some interesting comments made by Mr. DeMarco:
"As conservator, FHFA has the powers of the management, boards, and shareholders of the
Enterprises. However, the Enterprises continue to operate as business corporations. For
example, they have chief executive officers and boards of directors, and must follow the laws
and regulations governing financial disclosure, including requirements of the Securities and
Exchange Commission. Like other corporate executives, the Enterprises' executive officers are
subject to the legal responsibility to use sound and prudent business judgment in their
stewardship of their companies."
--The FHFA, vi DeMarco, openly states that Enterprises must behave as companies governed by sound business practices and SEC regulations. If in fact FHFA assumes the powers of the board and management, then it should be held accountable to these same standards. Clearly the 3rd PSPA amendment is not in line with this logic.
"The Enterprises' operating in conservatorship cannot be a long-term solution. When the
conservatorships and Treasury's financial commitments were established in 2008, Secretary
Paulson described the arrangement as a "time-out" to allow policymakers to further consider the
role of the Federal government and the Enterprises in the future system of housing finance.
There are a variety of options available for post-conservatorship outcomes, but the only one that
FHFA may implement today under existing law is to reconstitute the two companies under their current charters."
--DeMarco states that under current law (assuming HERA 2008?) nothing can be done to the GSEs, except restore them in a solvent condition. To my knowledge, there has been no legislation passed that contradicts this statement. Therefore, what legal footing does Congress stand on regarding reform that diverges from anything but initial restoration?
These thoughts are my opinion only. It seems as though statements made by FHFA, Treasury, and the Administration are rife with conflict and inconsistency. I can only imagine the kinds of documents that will be unearthed in the discovery process.
My fault rekcusdoo. Good catch.
I am equating conservatorship with enactment of the 3rd SPSA amendment, which is completely incorrect.
The decision to enter cship was likely justified...however, it's overdue continuation and unilateral enactment of the net worth sweep was not.
Rekcusdoo. Thanks for your comments.
My first paragraph you refer to was tongue-in-cheek. I think the original post said something to the fact that the gov would not uplist during conservatorship because it may make them look bad and weaken their current case in court.
I was just saying that nothing would surprise me anymore, given their poor decision making process for placing them in conservatorship to begin with. I am definitely NOT saying that I agree with their prior actions. Hope that clears things up.
In any case, I agree with your sentiment: court/discovery will not be kind for Treasury/FHFA.
Why not? It appears they used the same illogical and haphazard decision making process when placing them into conservatorship to begin with.
The court mandated discovery process will be damning for the FHFA and Treasury. Either there will be documentation that demonstrates collusive undertaking or there will be next to zero documentation (which both parties basically already admit to) that demonstrates their negligence and poor ability to serve as conservator. IMO...
I suppose it's trash because you told me so? Therefore, forget the rest of the article which details the fraudulent activity of the administration regarding Fannie and Freddie.
If it's any consolation to you (and I'm sure it isn't) I'm not a republican. That said, the unilateral and collusive actions of the previous and current administration against FnF are rather clear and implicate wrongdoing. Was Obama directly aware of these misguided and illegal actions? One does not know. However, it is clear that there have been no attempts to repair or alleviate these misguided decisions. Perhaps they are forthcoming...
I'm not debating anything by posting an article. It's simply news. News that can make a stock go up or down. It is my intent to share with others on this board, as we are all investors with skin in the game.
News: Obama Administration's Lawlessness Finally Hits Home with Investors
http://www.forbes.com/sites/jeffreydorfman/2014/03/08/obama-administrations-lawlessness-finally-hits-home-with-investors/
Posting from my mobile device. Somebody kindly repost entire article. Thanks!
News: Maxine Waters reiterates the desire to keep the 30 year fixed mortgage.
As of now, it is not clear how she envisions to do so. Perhaps a more detailed article will surface in the coming days...
http://blog.al.com/spotnews/2014/03/immigration_gridlock_rick_perr.html
Posting from my mobile device, so I cannot paste the article.
I don't mean to be the grammar police, but that is the correct use of their. It would make no sense read as "they are" nor would it convey ownership...but alas...
I think it's a balanced article. The writer reports Paulson's slant and then blasts him at the end.
News: Paulson, the Ultimate Financial Meltdown Insider Is Worried… About Another One
By: Shah Gilani | Mar 07, 2014
Personal comment: Paulson's "facts" are certainly distorted and even rebutted by the author in the second half of the article.
http://www.marketoracle.co.uk/Article44730.html
Shah Gilani writes: Do you remember the financial crisis of 2008?
The one caused by a meltdown in mortgages... trillions of dollars of which were owned and "guaranteed" by government-sponsored enterprises Fannie Mae and Freddie Mac?
Do you remember that Fannie and Freddie had to be bailed out by the government - I mean taxpayers - so their total implosion wouldn't trigger a global depression?
Well, the man behind their bailout, former Treasury Secretary Henry Paulson, remembers, and vividly.
He's now going public with his recollections because Congress is blocking theirs out... reaping the profits... and setting the table for a repeat performance...
The "Deadbeat Duo" Is Still on the Loose
The Washington Times recently conducted an exclusive interview with Mr. Paulson, the architect of the Fannie and Freddie rescue.
That rescue put them into a government "conservatorship" before they destroyed the financial world.
As Paulson said, "Every financial crisis has its roots in flawed government policies that lead to excesses in the markets that build up and build up, and then you get a bubble and it bursts."
Thing is, he wasn't talking about then. He was talking about now.
The interview precedes the release in theaters this week of Hank: Five Years from the Brink, a documentary collaboration by Bloomberg BusinessWeek Films and award-winning director Joe Berlinger. It's about the drama and debacle of the mortgage meltdown.
Paulson used the interview to express his fear of the increased dominance of both Fannie and Freddie since the crisis and how their still massive size and subsequent profitability (yes, they're very, very profitable now) has crowded out private mortgage insurance operations and once again puts the country and taxpayers at risk.
Paulson cites Congress' failure to break up the leviathans and instead their support of them to reap the billions of dollars in profits they now feed the Treasury. He believes that's the reason they're still around and the reason he's worried about another crisis.
Paulson believes, "Political leaders and the public have not focused as much on their critical role in the housing debacle, perhaps because he stepped in and took control over the Goliath's before a crisis occurred, in what he views as his single biggest move to stem the crisis."
"We took action before they started to unravel, before there was a failed auction. The public never saw that horror show," he said. "People never focused on what their failure or near-failure would have done," he said.
He suggested the ensuing crisis would have been much bigger than the financial collapse in the wake of the Lehman bankruptcy. They [FHLMC & FNMA] were collectively nine times bigger than Lehman Brothers "and the massive damage to the housing and mortgage markets could have been many times worse."
Paulson said, "It perplexes me that nothing has been done and both parties seem content to just allow the housing market to drift through yet another era of government dependence and dominance that potentially is creating even bigger market distortions."
The problem, which Paulson doesn't go into in depth, is that as of this week, Fannie and Freddie have collectively paid the U.S. Treasury more than $187 billion in "dividends" from operations. It's an amount larger than what the government said they used to bail out the deadbeat duo, because the payments include interest.
The Real Story
While that sounds good, it's really shady. The Housing and Recovery Act (HERA), passed in July 2008, authorized the newly minted Federal Housing Finance Agency (FHFA) to put both Fannie and Freddie into a statutory conservatorship and required FHFA to manage the assets of both corporations to facilitate their orderly return into private hands upon repayment of the government advances.
Under terms of the agreement that governed the conservatorship, each corporation had to issue a new class of senior preferred stock to the United States, which bore interest at 10% per annum. That sum increased to 12% if Fannie and Freddie chose to conserve cash instead of paying dividends.
But the deal changed in August 2012. An amendment called for a "net worth sweep" whereby the FHFA and Treasury converted all the net receipts of Fannie and Freddie into "dividends" to be paid to the government.
Now the two corporations will never pay off their debts to the United States, no matter how much money they pay, because they're paying dividends and not principal. The Wall Street Journal rightly charged the federal government with "astonishingly duplicitous behavior."
Paulson intimates that Congress is happy to let the Duo do their thing because their payments reduce the deficit and facilitates spending.
Without an alternative to Fannie and Freddie guaranteeing mortgages and warehousing them (before the crisis, they owned or guaranteed more than half all mortgages in the United States, and according to Paulson, have "increased dramatically their dominance"), there would be far fewer mortgages made, grossly impacting the nascent housing recovery.
But what Paulson points out, and in fact is worried about, is that the dominance of the two Government Sponsored Conservatorships are prone to listing and potentially keeling over again if another mortgage missile misfires and hits them broadside.
If Hank Paulson is worried, we ought to be worried too...
Source : http://moneymorning.com/2014/03/07/ultimate-financial-meltdown-insider-worried-another-one/
Understood Obit. It's an opinion piece and should be taken as such, unless of course Bove has some information that is not publicly available yet (although, admittedly not likely).
News: Fannie Mae, Freddie Mac: Future May Lie With Congress, Not Courts
by VW Staff | Richard X Bove | March 07, 2014
Personal comment: Sounds like legislation is in the works to preserve shareholder equity!
http://www.valuewalk.com/2014/03/fannie-mae-freddie-mac-congress/
Bove argues that Congress will set the tone for what eventually happens with Fannie Mae, and that in the end, political considerations will win out
Rafferty Capital Markets’ Richard X. Bove comments on a recent development in the ongoing Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) tug-of-war between the government and shareholders.
Three Democrats from the Northeast in the House of Representatives are slated to introduce a bill this spring that might preserve the ownership rights of current investors in the Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC). They are John Delaney of Maryland, John Carney of Delaware, and Jim Hines of Connecticut.
Fannie Mae: Key provisions of the legislation
The key provisions of their legislation would be:
Expand the housing finance sector while the private sector accepts the risk.
Create incentives for the private capital in housing to grow.
Separate Fannie and Freddie from government backing.
Create funds for low-income housing.
The government would be involved as a reinsurer of risk. The first loss would be absorbed by private capital and the government would accept the next 95% of the risk in the new financial instruments.
Representative Carney will be focusing on preserving the 30-year fixed rate mortgage. There is an understanding that if Fannie and Freddie go so will this mortgage. There is also an understanding that without Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) there will be no low-income housing built in this country.
Slowly but surely as the saying goes, the Congress is beginning to understand what they and the Treasury have done. They are strangling housing by forcing a cutback in funds to the sector. Plus, they are forcing housing prices down for every American.
Problems to arise from the Congress
It has been my core belief in getting involved in these stocks that the resolution to Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) problems will not be in the courts but rather it will come from Congress. The Treasury may lose the court cases but this does not mean that it will accept the decisions of the courts.
Congress must set the tone for what is to happen with these companies and it will do so based on the pure political consideration that if Fannie Mae and Freddie Mac goes a new recession will begin.
Congress is beginning to get it. The press remains clueless but it will come around also. The stakes are simply too high to ignore.
News: A Chart You Should See: Fannie and Freddie
By Philip van Doorn | 03/07/14
http://www.thestreet.com/story/12521449/1/a-chart-you-should-see-fannie-and-freddie.html
NEW YORK (TheStreet) -- The saga of Fannie Mae (FNMA_) and Freddie Mac (FMCC_) is likely to go on for many years, but a good number of investors have already made killings on the government sponsored mortgage enterprises (GSEs).
Fannie Mae and Freddie Mac were taken under government conservatorship at the height of the U.S. housing market meltdown in September 2008. The GSEs common and preferred stocks remained publicly traded, but values plunged because dividends to non-government shareholders were suspended, and at that time, the outlook for the GSEs' long-term viability was grim.
The battle over Fannie and Freddie -- and the golden opportunity that was uncovered for institutional investors able to pony up significant cash and wait out a long battle, while assuming substantial risk -- was government's treatment of private investors. The GSEs were originally required to pay the U.S. Treasury 10% annual dividends on the government-held senior preferred shares, however, in August 2012, after the GSEs had returned to profitability and after they had stopped increasing their borrowings form the government, the bailout agreement was changed so that all GSE profits were paid to the government, in excess of minimal capital cushions.
There's no mechanism in place for Fannie or Freddie to repurchase any of the government-held preferred shares, and they can't rebuild capital anyway, because of the required dividend sweep.
Following their March dividend payments, Fannie and Freddie will have paid the government total dividends of $199 billion on government investments totaling $189.4 billion. Factoring in warrants that were handed to the government to acquire up to 79.9% of the GSEs common shares, Rafferty Capital Markets analyst Richard Bove on Tuesday estimated the government's return on its investment in Fannie and Freddie was $238 billion.
It's no wonder that so many investors holding common and/or junior preferred shares of Fannie and Freddie -- the most high-profile being Fairholme Funds, led by Bruce Berkowitz -- have sued the government demanding a seat at the table.
Please see Were Fannie, Freddie Negotiations Done in Good Faith?, for a full rundown of years of events leading to the current impasse over the GSEs.
In an interview with Dan Freed on Thursday, consumer advocate Ralph Nader - a GSE shareholder - discussed why he thought the Obama administration was likely to "just run out the clock to 2016," leaving the Fannie and Freddie battle unresolved, as the continued flow of dividends helped lower the federal budget deficit.
Other recent Fannie Mae and Freddie Mac coverage:
Fairholme Leans on Fannie and Freddie Directors
Fannie and Freddie Plaintiffs Eye FDIC Share Sales
Fannie Mae's common shares were up 0.9% in early trading Friday, to $5.50, while Freddie Mac's common shares were up 0.8% to $5.33. Shares of Fannie have risen more than 18-fold over the past year, while Freddie's common shares have risen more than 16-fold.
News: Mortgage-Backed Securities Decline After U.S. Jobs Data
By Al Yoon | March 7, 2014
http://online.wsj.com/article/BT-CO-20140307-704838.html
Mortgage-backed securities slumped after the stronger-than-expected U.S. employment report for February was released Friday.
Prices of the bonds, which together with Treasurys are purchased as part of the Federal Reserve's monetary stimulus program, fell after the Labor Department said U.S. non-farm payrolls increased by 175,000 last month.
The hiring was stronger than the 152,000 expected in a Dow Jones survey of economists, and fueled expectations that the Fed could continue paring its bond purchases as economic growth accelerates.
Fannie Mae's 3.5% mortgage bonds fell 16/32 after the jobs data, to 100-14/32, the lowest on a closing basis since Jan. 22, according to Tradeweb. But the bonds were slightly outperforming Treasurys, said Walter Schmidt, head of mortgage strategy at FTN Financial.
Write to Al Yoon at albert.yoon@dowjones.com
It is no wonder why Berkowitz is pushing for an NYSE uplist...no more of these OTC games, among other things.
News: Ralph Nader Discusses Fannie and Freddie Shareholder Fight
By Dan Freed | 03/06/14
My last post of the day...congrats to all the longs!
http://www.thestreet.com/story/12520616/1/ralph-nader-discusses-fannie-and-freddie-shareholder-fight.html
NEW YORK (TheStreet) --Storied consumer advocate and occasional third party presidential candidate Ralph Nader owns shares of Fannie Mae (FNMA_) and Freddie Mac (FMCC_), and has criticized the government for ignoring the rights of shareholders since putting the government sponsored enterprises into conservatorship in 2008. Along with deep-pocketed investors such as Perry Capital and Fairholme Funds, Nader has been arguing the government needs to recognize the rights of shareholders, instead of sending all the profits of the GSEs to the Treasury, aside from minimal capital buffers.
Nader spoke to TheStreet senior writer Dan Freed this week to elaborate on his position.
TheStreet: Shareholders of Fannie Mae and Freddie Mac have filed about 20 different lawsuits against the government. Have you?
Ralph Nader: No. We haven't. We've been on this GSE on different matters for over 25 years. The first interest was were they fulfilling their mission of advancing affordable housing for lower income people, which is one of the reasons why they were given a privileged position and their charter. And so we had maps of cities all over the country, redlining maps, and we concluded that they weren't doing what they were supposed to be doing or even what they were bragging about doing. That was the first.
The second entry subject was a little later when they messed around with the accounting to increase the stock options and compensation of their top executives, and their heavy-handed lobbying at Capital Hill.
And then the third was the whole 2008-2009 conservatorship.
TheStreet: So why haven't you joined all these other plaintiffs in this latest issue, you know, ignoring the shareholders in the wake of the conservatorship, or abusing them if you want to put it that way. I don't think that's too strong way to put it. Why aren't you suing them?
Nader: Well, first of all, others are and they found lawyers, or they could pay for lawyers. So we decided, you know, why duplicate it? There are plenty of lawsuits now, and [Gibson Dunne partner and former U.S. Solicitor General] Ted Olson's got a lot of credibility in the Supreme Court whereas we couldn't get any lawyers to take the case pro bono, you know, and we usually have to have pro bono lawyers.
TheStreet: I see. Olson has been much more out in front on this than [David] Boies [another high profile attorney representing GSE shareholders in a suit against the government] has. Any sense of why that is? They're both suing but it seems like Olson's been more vocal and you hosted a recent shareholder event http://www.thestreet.com/story/12311715/1/strange-bedfellows-say-let-fannie-and-freddie-live.html with Olson rather than Boies. Why is that?
Nader: I think part of it is Boies is in New York, Olson's in Washington. And Olson has the stronger case. Of all the cases filed, he has the stronger case. You know, that the Treasury revised its position in 2012 [by changing the terms of its investment in the GSEs so that instead of the GSEs owing a 10% dividend to the Treasury, the GSEs suddenly owed the Treasury all of their profits for an indefinite period, aside from minimal capital buffers.]
TheStreet: What do you think is going on here? Why do you think the Treasury did this amendment in 2012?
Nader: I think two reasons. One, they thought they could get away with it because they thought there's no history of law behind conservatorship like this. It's all behind bankruptcy. And so they thought they could write their own rules, just like they wrote their own conservatorship. And the second is, they sensed that this would help keep the deficit down -- that this huge Niagara of profits would --and they were right on that.
Oh by the way, there's a third reason. And they had already stripped the shareholders of any rights, you see, so they didn't have to worry about the shareholders. But they miscalculated that one, at least to the point where they're confronting lawsuits which they think they're going to win.
TheStreet: I feel like this is the kind of a thing where if ordinary Americans, more Americans were aware of what the government had done, that it could be a huge scandal for Obama. But I think people just aren't aware of it. I mean, it seems really brazen what his administration has done.
Nader: Well, it started with Bush, obviously, and it was the Bush administration that misled the Fannie and Freddie shareholders in 2008, starting with OFHEO's director [James Lockhart], and then followed by [Henry] Paulson, Secretary of Treasury, and then [Ben] Bernanke, Chairman of the Federal Reserve. And they all said the same thing, "Don't worry folks, these companies are well capitalized. There's nothing to worry about." And less than two months later they went over the brink. So the deception, which raises real equity remedies for shareholders. I mean, if corporate executives did that, even the slumbering SEC would have woken up and gone after them.
That was all done under Bush. The switcheroo, changing the rules and getting all the profits, that was done under Obama. But the problem is that by 2012 most of the big institutional shareholders had bailed out, so there wasn't a vested interest until about a year ago when the hedge funds started moving in. Now there's a vested interest of some magnitude.
TheStreet: Right. Talking about your criticism of the GSEs before the 2008 crisis, you recently wrote, "I was clear that their drive for profits could tempt them into murky legal waters. My opposition to their management compensation packages and questionable accounting practices were made plain." Why then, I wonder, did you buy shares in the GSEs?
Nader: Well, I bought them way before the crash.
TheStreet: Right. No. I know that. You were raising questions about the compensation packages and accounting practices before the crash, too.
Nader: Sure. But that's what shareholders should do. Instead of quitting, they should push. And you know, some people don't remember that Fannie and Freddie were promoted as the second safest investment in America, you know, after Treasuries. So there are a lot of people...
TheStreet: Yeah. So that's why you were an investor.
Nader: Yeah. So a lot of people put it away for their kids' education, you know, they put it in a lock box. And then, you know, they were severely deceived in 2008 and then wow, just in a matter of days, you know, it fell down, you know, from 30, 20, 10, five, four, three. You know, most individual shareholders don't react that fast even if they watch it in the papers. They can't believe it. And those are the people who were mistreated. We're not talking about day traders today.
TheStreet: Do you have any misgivings about the strong position that you've taken on the GSEs for this reason. I mean, your position is the right one, but do you ever feel like that, you know, geeze, I'm simply acting as the kind of acceptable poster boy or the front man for a bunch of hedge funds that are just going to get totally rich off this trade?
Nader: Well, we want tougher, we wanted tougher regulation prohibiting them from the kind of lobbying they're doing, this is all before 2008, making them meet the demands for affordable housing, the needs of affordable housing which they were ignoring because they were going for the easiest profits. And so, you know, it's like saying that someone who's been around for years, "These newcomers, aren't they tainting you?" No. I mean, you know, we're really well grounded in this. And they're raising interesting issues on the decision to grab all the profits. And if they're doing it and they've got lawyers to do it, well, that sort of helps us because we also agree that, that was an unlawful interpretation, changing the rules of the game unilaterally like that.
Just like they delisted. I mean, Demarco delisted from the New York Stock Exchange Freddie and Fannie when there was no reason to do it, and billions of dollars evaporated in a week. You know, you push them onto the pink sheets and the thing dropped, and when I tried to write them and demand an explanation, all he really could come up with was, "Well, it saves on legal fees. So like we better do it now, we'll get rid of it, won't have to pay legal fees." But I said, "But you're statutorily required to preserve the assets. How do you preserve the assets when you delist them before the New York Stock Exchange even indicated any warning?" Well, that's what they said.
So, you know, they're operating just like autocrats, total autocrats. But they were using the shareholders because they needed them to have 20 percent so that the government didn't have to put five trillion dollars of liabilities on their own books. So they were using the shareholders and abusing them at the same time. You know about that, don't you? The 80/20?
TheStreet: Yes. I do. [Nader is referring to the fact that when the government put the GSEs into conservatorship, it took a 79.9% stake, which is the maximum it could take without adding the debt to the federal budget. In this way, Nader, argues, shareholders were being used, because their minority stake prevented the official tally from increasing on the federal deficit .]
Nader: So, you know, there are real equitable issues here that are raised.
TheStreet: Aside from restoring the rights of shareholders, what would you like to see happen to Fannie and Freddie?
Nader: Well, I like a public utility model. You know, just turn them into regulated public utilities, limited rates of return, strong regulation. They could still have shareholders and all that, but I think that the alternative is real speculative chaos when you throw it open to all these sharks that would enter the field. And I'm not saying the realtors are terrified of Fannie and Freddie being dumped. That's why I don't think the Warner-Corker bill has a chance.
TheStreet: Say more. Why are the realtors terrified?
Nader: Well, because they see that the two, Fannie and Freddie, are the stable bedrocks of the housing mortgage market, and what's not to like, you know, from their point of view? So they're not moving into Congress because they know that Warner-Corker is going nowhere. And if it is starting to go, then you're going to see one hell of a powerful lobby. The real estate lobby, every district, you know, campaign contributions. They'd move in quickly and put an end to it.
TheStreet: Yeah. What do you think it will take for the Obama administration to say uncle in this battle with Ted Olson and others?
Nader: I think they'll just run out the clock to 2016, just like they're not really doing anything about restructuring. Well, because, you know, everything is going smoothly, you know, as far as the industry of housing, and they know they'll create a hornet's nest and have to expend capital, and why should they do that? You know, you know how politicians operate.
TheStreet: Yeah. But that internal memo that came out recently. You know, the memo to Tim Geithner where it says, you know, refers to their plan to be sure that shareholders get none of the profits, or whatever it said. I mean, if stuff like that keeps coming out, don't you think that can get pretty damaging?
Nader: No, because they'll come back and say, "Look, we wiped out GM (GM_) and Chrysler," and we say, "Well, you didn't wipe out Citigroup (C_) and AIG (AIG_)," and they said, "That's true but we haven't wiped out the shareholders yet and they're lucky to even be shareholders as we saved Fannie and Freddie." I mean, that's the short term political answer to all of that, that it could have been worse, you know? We could have done nothing. Well, nobody believes that because if they did nothing then it would have really been bad for everybody.
TheStreet: So you think the Obama administration will run out the clock, and then how does this ultimately get resolved? Through the courts eventually over time?
Nader: Yeah. I don't see it hitting the Supreme Court before two years, if that. I mean, you know, nobody can predict with great certainty anything, but you know, you ask, what's in it for them to make any changes? If they were real equitable, they would say "Okay, for the day traders we're not giving dividends but we're going to declare a special dividend since the tax payers have been paid back before the end of the year. We're going to declare a special dividend for shareholders who held shares before the collapse and still hold them." So for the old shareholders, they get a dividend, and the new ones, you know, they knew what they were getting into. They weren't deceived. It had already collapsed.
--Written by Dan Freed in New York
Ah. This Fairholme discovery request is from a different lawsuit in the DC District Court (as opposed to the news last week from the DC Court of Federal Claims).
Basically FHFA and Treasury admit that they did not keep an administrative record of their action to enact to the Net Worth Sweep. Uh oh...probably will not make the judge too happy.
http://www.valuewalk.com/2014/03/fairholme-likely-to-win-discovery-in-fannie-mae-case/
Why is Stegman publicly making comments about Watt's management of an independent FHFA? Is this not the same type of collusive nature that is fodder for all of the lawsuits?
News: Why Fairholme Is Likely To Win Discovery In Fannie Mae Case
by valueplaysMarch | 06, 2014
I highly suggest looking at the annotated Plaintiff's Motion and Proposed Order links at the bottom. They are a wealth of information from somebody who is clearly versed in legalese.
http://www.valuewalk.com/2014/03/fairholme-likely-to-win-discovery-in-fannie-mae-case/
This is pending in the DC District Court, Fairholme Fund (MUTF:FAIRX) has already won discovery in the DC Court of Federal Claims in the cases of Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) FANNIE MAE (OTCBB:FNMA)
As you read through this motion about Mortgage Assctn Fnni Me (OTCBB:FNMA) FANNIE MAE, it is really quite stunning. I’ve gone ahead and marked it up for you to make is easier…
FHFA produced 4300 pages for this case….only 25 were previously not public and they ADMIT they did not keep an administrative record in their actions here. This is unfathomable that a gov’t agency dealing with the issues it was dealing with kept no record……none.
If you throw out every other argument here, just this fact along give the Judge a reason to permit discovery
Further releasing only 25 previously non public documents is laughable. For the record, Treasury was better, releasing 205 of 4200 pages that were previously not public…..but it is still pathetic.
This is a slap in the face to the entire process and proof either the gov’t just assumes they will win, or has a hell of a lot to hide here. My guess it is a little of both.
The entire case from the gov’t still boils down to “we said we could do what we did so this case should be thrown out”. It’s absurd.
Plaintiffs claim that FHFA and Treasury worked together in placing the bet worth sweep in place and thus FHFA breached its fiduciary duty thus the sweep is invalid (boiled down to the most simple).
The gov’t response is “no we didn’t…case over”. They produced no documentation to back this claim at all……not anything. Check that, they produced one affidavit from a Mr. Ugoletti (council at FHFA) that states the action taken at FHFA were entirely appropriate. The only issue here is that this affidavit was dated two month AFTER the suit was filed….rendering is useless at best.
Fannie Mae – I fully expect Fairholme to be victorious here
Here is the motion for Fannie Mae and the proposed order:
Plaintiff's motion
Proposed order
Via: valueplays
That 5.30 wall is looking a little weaker this time around...
edited 30 seconds later: A LOT weaker....ha.
Freddie is already past its 5-year high and is holding nicely!
Beholden to his own public image, I'm sure. He wants to make it known that as chairman he did exactly what "he was supposed to do". Insight from new chairman Perry and Mel Watt should be very big in dialogue of FnF's future. IMO...
If I were a bank or other source of private capital, why would I feel comfortable at all investing billions of dollars in a system where the US government has already shown it has little regard for shareholders? In my opinion, the collusive actions that have transpired between the Administration, Treasury, and the FHFA in regards to Fannie and Freddie will be a bigger roadblock to bringing in private capital than the implicit guarantee that the GSEs benefit from. Perhaps if Treasury/FHFA extends an olive branch to FnF (of course, also making an extremely hefty profit themselves) by reinstating them to shareholders, they may regain some credibility in the eyes of future investors. Reform can then happen gradually by reducing taxpayer risk/enhancing oversight.
Thanks for the update TII!
If so, I'm sure Nick will alert us all in a nicely timed WSJ article.
News: Treasury Calls for Change in Private-Label Securities Markets
By Clea Benson and Jody Shenn | March 06, 2014
http://www.businessweek.com/news/2014-03-06/treasury-calls-for-change-in-private-label-securities-markets
Reforms to make private-label mortgage securities markets more standardized and transparent should begin immediately, the senior adviser to the U.S. Treasury on housing policy said.
Lack of trust between parties has caused the market for securities that aren’t backed by the U.S. to come to a “virtual stand-still,” Michael Stegman said in remarks prepared for a speech in New York today.
“The best time to do the heavy lifting required to re-start the PLS market is when other channels provide more favorable execution,” Stegman said in remarks prepared for a securitized products conference. “So that when the tide turns, the PLS market will be ready to intermediate between the originators of mortgage credit and those who want to invest in mortgage credit.”
While issuance of non-agency securities tied to new loans jumped to $13.4 billion last year from $3.5 billion in 2012, the sales collapsed after September, according to data compiled by Bloomberg. Less than $1 billion of the deals were completed from October through December, and less than $1 billion so far this year, the data show.
Banks’ demand for loans for their balance sheets and bond investors’ desire for higher yields after record defaults are helping to curb issuance along with a slump in new loan volume sparked by a plunge in refinancing amid higher interest rates.
Though standardization is desirable, the U.S. shouldn’t mandate it, Stegman said.
“We are not advocating a one-size-fits-all solution,” he said. “We recognize that mandating a single standard may discourage innovation down the road.”
To contact the reporter on this story: Clea Benson in Washington at cbenson20@bloomberg.net
To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net
News: Nick Timiraos from WSJ live tweeting about Stegman's (Treasury) stance on GSE conservatorship.
https://twitter.com/NickTimiraos
I got this courtesy of skibrian on google site:
https://groups.google.com/forum/#!topic/freddienfannie/bmoONYXqZ-M
Some good stuff in there guys...not sure where Stegman is speaking or to whom.
------------
Nick Timiraos ?@NickTimiraos 5m
Treasury's Stegman: Extended conservatorship is not good for the housing market. And it heavily discounts risks to taxpayers.
Nick Timiraos ?@NickTimiraos 7m
Treasury's Stegman is speaking on GSE reform to MBS investors but real audience feels like progressives who are uneasy to touch status quo
Nick Timiraos ?@NickTimiraos 12m
Just how much has GSE reform debate shifted? Treasury's Stegman speech today pushes back hard against idea it can be indefinitely deferred
Nick Timiraos ?@NickTimiraos 1h
MT @JedKolko Gains in asking prices started slowing down 10 months ago http://www.trulia.com/trends/2014/03/price-and-rent-monitors-feb-2014/ … …
Nick Timiraos ?@NickTimiraos 1h
6.5M owed more than their homes were worth at end of 2013 (13.3% of all mortgaged properties), down from 10.5M in 2012 via @corelogicecon
Nick Timiraos ?@NickTimiraos 1h
Ocwen Chairman Erbey defends mortgage servicer's business relationships $OCN http://on.wsj.com/MNwWJl via @andrewrjohnson
RSI currently at 83 on the daily chart. Still plenty of room to move upward.
I'm a bit nervous as this is when everything fell apart in May. Freddie hit 5.00 and down everything went... Although I must acknowledge that the political and financial landscape is MUCH different this time around.
Great job! So funny. You should send the link to Bill Maolni who writes the gse blog. I bet he would enjoy it...
Thanks for the clarification andydub. I see, so Olson is saying that the generation of senior preferred stock is a new security which violated the 2009 purchase deadline.
So, in that case, the exercise of warrants for common stock still stands. If so, how can a government hurting so badly for cash turn down the opportunity for 10000+-fold return on exercise of the warrants and selling of the stock at fair market value?
It's all a bit murky, but here is what I could find:
Here is the original warrant to purchase common stock issued by Lockhart (FHFA Conservator at the time) to the US Treasury.
http://www.treasury.gov/press-center/press-releases/Documents/warrantfnm3.pdf
I believe it is only a warrant to purchase. It states that Treasury has the right to purchase up to 79.9% of the common stock at a nominal price of $0.00001 per share. They can be purchased until Sep 7, 2028.
Ted Olson, the lawyer for Perry Capital, argues this:
"The Sweep Amendment directly undermines both the rules of conservatorship and Treasury's
statutory requirement for providing financial assistance to the companies as explicitly stated in
HERA. First, Treasury acted beyond its statutory authority because its authorization to purchase
securities of Fannie and Freddie and to set the "terms and conditions" of those purchases
expired on December 31, 2009. Because the Third Amendment fundamentally changes the
nature of the senior preferred stock to allow Treasury to recover all the net income of Fannie
and Freddie as long as they remain in operation, the agreement impermissibly altered the terms
and conditions of the securities and otherwise constituted a constructive purchase of a new
security in violation of this sunset provision."
http://images.politico.com/global/2013/07/07/treasury_suit_announcement.pdf