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Obama Shuts the Door on Housing Transparency
http://www.newsmax.com/johnberlau/cei-cfpb-dodd-frank-fannie-mae/2015/04/06/id/636608/
The Obama administration swept into office promising to be the “most transparent” in history. Since that time, even supporters say the administration has fallen short of that goal. And hammering home Obama’s penchant for secrecy was this recent bombshell: the Obama administration was judged by a major, mostly friendly, news service as least transparent of modern presidencies.
An analysis by the Associated Press found that “the Obama administration set a record again for censoring government files or outright denying access to them last year under the U.S. Freedom of Information Act.” The AP adds that the administration “also acknowledged in nearly 1 in 3 cases that its initial decisions to withhold or censor records were improper under the law — but only when it was challenged.”
But FOIA requests are just the tip of the iceberg for this administration’s secrecy, much of which has nothing to do with the legitimate exception of national security. In Dodd-Frank, the administration set up the Consumer Financial Protection Bureau and the Financial Oversight Council — the constitutionality of both of which are now subject to a lawsuit from the Competitive Enterprise Institute and other parties — to be exempt from many open meetings and (especially with FSOC) open records requests.
But probably the most egregious example of this administration’s secrecy practices concerns its management of the government-sponsored housing enterprises (GSEs) Fannie Mae and Freddie Mac. As important as the role Fannie and Freddie play in the housing market, and American Enterprise Institute financial scholar Peter Wallison’s new book "Hidden in Plain Sight" convincingly fingers them as the main culprits in the mortgage bust that led to the financial crisis, it is hard for anyone to argue that their actions somehow affect national security.
Yet when asked to produce documents in litigation by Fannie and Freddie’s shareholders, the Obama administration made the unbelievable claim of “executive privilege.”
According to New York Times financial columnist Gretchen Morgenson, “the government has invoked presidential privilege on 45 documents created either by officials at the Treasury or the F.H.F.A., the regulator charged with conserving Fannie and Freddie’s assets.”
Fannie and Freddie were chartered by Congress around 45 years ago as companies with private shareholders but lines of credit with the government. In September 2008, the Bush administration found that Fannie and Freddie were on the brink of failing.
Under new powers from the Housing and Economic Recovery Act passed two months earlier, it took them into a “conservatorship” in which the government took 79.9 percent of the entities’ stock in exchange for bailing them out, a conservatorship that continues into the Obama administration to this day.
The series of actions now being called “Fanniegate” began in August 2012, when then–Treasury Secretary Tim Geithner issued the “Third Amendment” to the GSE conservatorship. The Third Amendment, with no authorization from the HERA law, required all of the GSEs’ profits to be siphoned off to the U.S. Treasury Department in perpetuity — even after the GSEs paid back what they owed to taxpayers.
This arbitrary action has spawned more than 20 lawsuits from Fannie and Freddie’s private shareholders. The suits charge the administration with everything from violating the Administrative Procedures Act to unconstitutionally taking property without just compensation.
The Third Amendment has also raised concerns that the profit sweep is leaving Fannie and Freddie with very little capital reserves, furthering the chance for more taxpayer bailouts should something go awry with the housing market again.
Cato Institute Director of Financial Regulation Studies Mark Calabria and former FDIC General Counsel Michael Krimminger have written an excellent paper on this point. And Rep. Marsha Blackburn, R-Tenn., has just introduced a bill, H.R. 1673, to require Fannie and Freddie to put aside some revenues in a “secondary reserved fund” that the Treasury Department can’t touch.
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But the really amazing thing is that we know very little about what prompted Obama and Geithner to pursue this highly controversial policy, because according to The New York Times' Morgenson, the Obama administration “has fought every discovery request made by the Fannie and Freddie shareholders.”
Last year, one of these shareholder lawsuits — Fairholme v. United States — prompted Judge Margaret Sweeney to compel the administration to produce some of those documents in order to satisfy a discovery request from the mutual fund plaintiff.
And a coalition letter, coordinated by my organization the Competitive Enterprise Institute and signed by leaders of 17 conservative and free market organizations, calls for a key oversight subcommittee to spread a little sunshine by obtaining the documents and making them public.
In the letter sent last fall to leaders of the House Financial Services Subcommittee on Oversight and Investigations, we wrote: “Not only is this Third Amendment an unprecedented power grab that violates shareholder property rights, but the process used by the Treasury Department to develop the Amendment provided neither an opportunity for public comment nor the customary transparency safeguards that permit we the people to hold our government accountable. To this day, the Amendment's provenance remains secret.”
We asked the heads of the subcommittee to “demand greater transparency and accountability on this matter by requesting that the Treasury Department turn over to your committee, or otherwise make public, any and all documents shedding light on the alleged need for and legal rationale justifying the Third Amendment, as well as all documents detailing the Amendment's development and evolution, such as those customarily contained in the administrative docket for an agency rulemaking.”
My CEI colleagues and I have long advocated ending the risk posed by the GSEs to taxpayers and the economy through an elimination of the taxpayer guarantee or an orderly liquidation of their assets, with no government-backed entity to replace them. Our new pro-growth congressional agenda, “Free to Prosper,” puts forth options on the most practical ways to move forward on such a phase-out.
As CEI founder and chairman Fred Smith urged Congress in 2000 — to mostly deaf ears — policy makers should “develop a divestiture or breakup plan for Fannie and Freddie.” And in such a plan, as in traditional bankruptcies, the rights of both taxpayers and private investors should be sacrosanct.
But in order to have real reform, first we need transparency. It’s time for the administration that promised to be the most transparent in history to open the books on its management of the two government-sponsored entities that play such a dominant role in housing and the economy. And it’s high time for Congress to investigate the violations of the rule of law that festered in Fanniegate.
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John Berlau is director of the Center for Investors and Entrepreneurs at the Competitive Enterprise Institute. He is the author of the book “Eco-Freaks.”
It would be construed as a recommendation to buy which he does not want to do.
Looks like they originated a lot of loans with FnF in 2014. Buffett connection as well.
http://www.streetinsider.com/SEC+Filings/Form+8-K+LEUCADIA+NATIONAL+CORP+For%3A+Mar+02/10328227.html
Berkadia Commercial Mortgage
Berkadia, our 50/50 joint venture with Berkshire Hathaway, had another strong year in 2014. Despite a slow first quarter, Berkadia originated $12.8 billion in new financing for its clients, up nearly 23% over 2013. For 2014, Berkadia was the single largest originator for HUD ($1.5 billion), the second largest Freddie Mac originator ($4.4 billion) and the third largest originator for FNMA ($2.7 billion). Although Berkadia’s $4.1 billion of investment sales in 2014 were flat versus 2013, significant progress was made in the integration of the mortgage banking and investment sales teams. The combination of these capabilities allows us to better serve our clients and we expect it will lead to accelerated growth for the entire enterprise. With a large commercial real estate refinancing wave coming in 2015 and 2016, expectations are high for the future of Berkadia. Our relationship with Berkshire Hathaway remains outstanding and we look forward to continued success together. We also look forward to working with Justin and the Berkadia senior leadership team as they continue to grow Berkadia into the best full service mortgage banking firm in the industry.
Did you call in, or did you attend the hearing?
Suspicious activity continues this morning. I saw 100 shares come accross L2 @ $2.56 and now volume is showing 0 at yesterday's close.
$2.39's been holding well recently.
Hardly worth reporting. Of course the answer is no. They won't amend the 3rd ammendment without Sweeny telling them to.
I'm showing current price on L2 as $2.54 with a bid x ask of $2.51/$2.52. Strange in deed.
Sounds like they found a time in March to sit down and discuss the remaining discovery.
I find it interesting that the DOJ is concerned with 3rd party discovery of FnF and their auditing firms. To my knowledge, I have not heard of FnF and their auditors objecting to discovery. I'm starting to think that FnF's BOD and legal teams do not agree to how c-ship is being managed and are complying with Ackman's legal team on their requests in spite of the Treasury and FHFA. This was the feeling I got when reading the last status conference's transcripts. Why else would the DOJ be so concerned with the information that is being requested through 3rd parties?
This has been the Treasury's response all along. If they wanted to release and recapitalize them, they would have found a way in the past six years to do so. This comes as no surprise to me.
Smegman is talking out of both sides of his mouth here. How can he say that the PSPA's allow for confident market participation while then saying that the PSPA's create a monopolistic access to government support that puts tax payers at risk? I don't anyone is looking for the PSPA's to continue after c-ship.
Despite having only minimal retained capital levels at the GSEs, investors continue to have confidence in their securities due to the ongoing backstop the PSPAs provide each company. The substantial remaining capital support left under the PSPAs gives market participants the confidence to buy 30-year GSE securities on a day-in and day-out basis. This is despite the fact that the companies remain in conservatorship and have minimal capital levels.
However, as a result of the ongoing capital support through the PSPAs, taxpayers remain exposed to potential future losses at the GSEs. Let me remind you, both recapitalization of the GSEs and draws against the existing Treasury backstop due to potential future losses would come at taxpayers’ expense.
Allowing the GSEs to exit conservatorship within the existing framework that includes their flawed charters, conflicting missions, and virtual monopolistic access to a government support through the PSPAs exposes taxpayers to great risk and is irresponsible. As we have said repeatedly, the only way to responsibly end the conservatorship of the GSEs is through legislation that puts in place a sustainable housing finance system with private capital at risk ahead of taxpayers, while preserving access to mortgage credit during severe downturns.
You could read the new bill here: http://thomas.loc.gov/home/thomas.php
In the search box, check bill number and enter "hr 1036". The full text of the bill is not available yet, but will be updated once it is sent. It's usually updated a week or two after submitted.
Discovery allows the plaintiff to build their case, so I don't see how an extension of discovery would be perceived as bad news.
WHOOO. Closed at HOD.
Funny that no one was mentioning the "gap" when it was at $3.50.
10K says that FNMA has 42B in DTA's left. Would they have been able to exercise them if they wanted to?
http://biz.yahoo.com/e/150220/fnma10-k.html
The balance of our net deferred tax assets was $42.2 billion as of December 31, 2014, compared with net deferred tax assets of $47.6 billion as of December 31, 2013.
Is that what's left in your brokerage account?
We're through the $3.00 holla wall.
http://www.housingwire.com/articles/32946-the-government-really-doesnt-want-to-talk-about-fannie-freddie-profits
The Treasury Department really doesn’t want to talk about what it did with the Third Amendment sweep of GSE shareholder rights.
Gretchen Morgensen at the New York Times does, however.
Watching these profits pour into the Treasury, shareholders cried foul. Contending the sweep was unjust, one of those with large stakes in both Fannie and Freddie securities — the Fairholme Fund — sued the government in July 2013. From the outset, the government demanded extreme secrecy in the case. Lawyers at the Justice Department secured confidential treatment of almost all the 150,000 pages of documents submitted by the Treasury and F.H.F.A. by late January. Even the plaintiff bringing the case is barred from viewing these documents; only its lawyers can see them.
The government has also fought every discovery request made by the Fannie and Freddie shareholder. Officials at the Treasury and F.H.F.A. claim that disclosure of documents relating to their actions would destabilize the economy and financial markets and raise mortgage rates.
Really? The documents the judge has ordered the government to produce were created three to seven years ago. How could they unsettle the markets now?
Even more intriguing, though, is the Justice Department’s broad assertions that 669 of the documents it must produce are subject to various privileges and not to be disclosed. The government even claimed that privileges applied to documents it had not yet reviewed, court records show.
According to previously undisclosed logs filed as part of the case, most of the documents are said to be covered by attorney-client privilege or deliberative process privilege, which protects intragovernment communications before a final decision is made in a matter.
But the government has invoked presidential privilege on 45 documents created either by officials at the Treasury or the F.H.F.A., the regulator charged with conserving Fannie and Freddie’s assets and stabilizing the institutions “with the objective of returning the entities to normal business operations,” as its website states.
Read her full piece here.
Source: New York Times
It's FNMA trading on Stuttgart stock exchange in Germany.
Or the TSY covering their short.
I'd say 2.85-2.90.
Market is closed on Monday and volume is up today. Wondering if we're going to get a special President's Day surprise this weekend.
Didn't Ackman have a call today?
Peter Wallison: No, if we ever let them out of conservatorship, they would go back to the business that they were in before. I’m perfectly happy that government is taking all their profits, because it keeps them from gaining capital. If they had capital there would be tremendous pressure in Congress to release them. We have to come up with a new system, unfortunately we don’t know what such a system will look like. Once we come up with a new system, Fannie and Freddie will be gone.
S&P Report: The Status Quo May Continue For Fannie And Freddie
The following is a press release from Standard & Poor's: NEW YORK (Standard & Poor's) Feb. 11, 2015--Standard & Poor's Ratings Services expects Fannie Mae and Freddie Mac to be around for the foreseeable future in their current form, and we think the government will support them, Standard & Poor's said yesterday in a commentary published on RatingsDirect titled "Why The Status Quo Is Likely To Continue For Fannie Mae And Freddie Mac." Because of their significant role in the housing market, we believe the likelihood that Fannie and Freddie would receive extraordinary government support, if they were to need it, is almost certain within the current congressional and presidential terms. Therefore, our ratings and outlooks on senior debt issued by Fannie Mae or Freddie Mac will likely remain the same as those on U.S. government debt (AA+/Stable/A-1+). Ever since the steep decline in housing prices that precipitated the Great Recession, cries for reform of Fannie Mae and Freddie Mac have rung out. Of late, however, that clamor has diminished significantly with the rebound in the housing market, and it now seems likely that for the foreseeable future, the two government-related entities will continue to operate as they have. The report is available to subscribers of RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to research_request@standardandpoors.com.
Congress will reverse the 3rd ammendment before then. My estimates is 1 year max.
Has anyone seen transcripts from the status conference last week? Wasn't it delayed 7 days?
Didn't they say they were going to halt discovery until there was a ruling on the stay?
https://timhoward717.files.wordpress.com/2014/10/92814-defendants-motion-to-stay-proceedings-pending-appeal-of-the-district-court_s-september-30-2014-decision-in-perry-capital-llc-v-lew-et-al.pdf
"Should the Court conclude that a stay pending resolution of the D.C. Circuit appeals is not warranted, then we respectfully request that the Court temporarily stay proceedings to permit full briefing on the separate motion to dismiss we would file based on Judge Lamberth’s decision and its preclusive effects. The district court’s resolution of identical claims as matter of law militates in favor of, at the very least, temporarily halting discovery to consider the exact same dispositive legal issues here. "
And people were pumping the fact that he sold because he didn't disclose.
FNMA about to flip positive. 2.29x2.30 on L2.
The market identified it as a non event and is responding accordingly. OTC rookies selling in panic is what caused the drop. Expect the same sellers to become buyers when it flips green.
Continential case was dismissed. Pratt basically punted.
The market seems to be absorbing the news well. At least we're getting used to having the cases dismissed. FnF's future hangs in Sweeney's court. That's the only case that matters at this point IMO.
After conservatorship ends, it's up to the entities, correct?
Mr. Williams: “What is Treasury doing with money received from GSE’s?” Mr. Watt: “I don’t know. Treasury uses it as they decide. Should it be used against deficit or general fund, or used to buildup capital in GSE’s?”
How I feel after today's hearing.