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Thank your Rodney5 - this is really good. Please keep posting this. I need to read it again but first impulse is to share it with Hamish Hume. They are suppose to be representing shareholders and perhaps there may be an insight they have not thought about yet. It seems like the most recent filing focuses on changing the questioning regarding the PIK structure so it may be useful insight to Hamish Hume and his team. Of course they can ignore but this is our best shot because there may be some one on the jury with the same perspective as you and other shareholders. May be a long shot but this is our best shot right now.
Thank you very much clarencebeaks21. She covered SCOTUS for WaPo for several years - we need fair minded transparency - not quite sure about her yet.
Thank you Vancmike - not sure how we can make an impact but we need to have the arrows in the quiver to be able to when the time is right. Ultimately this will be a political resolution since there is too much money on the table to ignore forever.
Thank you for doing this on behalf of shareholders Vancmike
This is an excellent letter and seems ready to go. My comments below are probably not relevant for your Letter but I wanted to share these thoughts.
Since it is to Chair McHenry I wanted to share some of the perspectives I have on the House Financial Services Committee and potentially how they would react or how public opinion could shape their reaction to a potential Admin Action by Jared Bernstein and Lael Brainard:
The most informative source of information regarding the potential recapitalization of the GSEs is the August 2020 CBO Paper:
Effects of Recapitalizing Fannie Mae and Freddie Mac Through Administrative Actions | Congressional Budget Office (cbo.gov)
https://www.cbo.gov/publication/56511
As Kthomp pointed out this paper was requested by Chair McHenry when he was the Ranking Member of the House Financial Services Committee in the 116th Congress. Representative Ann Wagner was also a Member of the HFSC and she is now Chair of the Sub Committee with oversight of the GSES in her portfolio.
Here is the cite – mentioning that the Ranking Member of the HFSC requested the CBO Report of August 2020:
About This Document
This Congressional Budget Office report was prepared at the request of the Ranking Member of the House Committee on Financial Services. In keeping with CBO’s mandate to provide objective, impartial analysis, the report makes no recommendations
Here is the cite regarding the Members of the HFSC of the 116th Congress when the Report was written:
https://nlihc.org/resource/house-finalizes-committee-rosters-116th-congress
Here is excerpt for the last line of the second to last paragraph of the CBO Report and the last paragraph:
“The total impact of administrative or legislative actions to change the GSEs would depend on developments in the overall housing market, including effects on those other federally backed housing programs.
In addition, changing the federal government’s relationship with Fannie Mae and Freddie Mac might prompt an assessment of the government’s relationship with other government-sponsored enterprises that support mortgage lending. Those other GSEs include the Federal Home Loan Banks, which make low-cost loans to their member institutions (such as commercial banks, credit unions, and insurance companies), and the Farm Credit System, which provides financial assistance for rural mortgages and other loans guaranteed by the Department of Agriculture.”
I wanted to share these thoughts with you since you are going to reach out to Chair McHenry at this point in his tenure. If TH’s hunch is right we may see an Admin Action and if not we may see legislation with a new Administration or the 2nd Term of the JB Administration. I am of the opinion that if you screw shareholders you raise required rate of return for private capital and potentially screw other politically targeted geographical and commercial interests in the US. The strongest lobby we would have in Congress is probably the rural and farm lobby since both the Federal Home Banks and the Farm Credit System has a material impact on Rural America which is the stronghold of the GOP and has strong representation in the Senate.
If you screw GSE shareholders for Woke Housing – you set up a precedent to screw investors and stakeholders in the Federal Home Loan System and Farm Credit System to impose Woke Rural and Woke Farm policies on America.
New article on SCOTUS CFPB deliberations:
https://www.cnn.com/2023/02/17/politics/cfpb-supreme-court-john-roberts/index.html
Thanks Familymang - I understand and appreciate your perspective - the comment was meant to be a joust to a vigorous assertion.
Who is good for the last laugh? We will see.
Kthomp - you are entitled to your opinions with are well reasoned but many have opposing opinions. The issue will be decided by the 5th Circuit and SCOTUS if it wants to review the decision coming out of Collins.
You may be right that the SPSA is not voidable but it is just void - not sure what the right determination is for a Constitutional defect. It could be enforceable if the 5th allows it to stand
It would not be considered a contract outside of the Conservatorship because there was not consideration outside of the original liquidation preference of $ 1 bn each. If this was in Delaware Chancery Ct and US District Court there would be a class action for fraud and the SPSA would definitely be void.
Ano - is a great advocate for fairness and reasonableness. You are a great advocate for your position.
If the SPS is set aside - 20 pct of MV after dilution for new capital accrues to commons. Need to wait until Judge Jones and her colleagues rule and if SCOTUS reviews.
Thank you for all of your advocacy! Have a great weekend.
Agreed NeoSunTzu - it would be great to hear from Bryndon if it does not impact his case. He has been a tireless advocate for shareholders and a true patriot!
You are right chessmaster315
All classes of public equity should be treated fairly. JPS have a preference at PAR and common have a 20% ownership in the market value of the GSEs before dilution by new public capital required to meet cap requirements.
Very simple - not arbitrary - not capricious - simple to execute and come up with market valuations. Let the investment bankers see what the required rate of return is on new capital based on fair dealings with public shareholders.
The USG will make out handsomely or more accurately like a bandit but without long lasting damage to its credibility in the capital markets.
Thanks Familymang,
The Kelly complaint will resolve itself and it seems by March 6th. We will see. Otherwise it seems like Judge Sweeney have been given the job to wrap up and dismiss all the other cases before her. It does seem like a shame - perhaps she should have kept the direct and derivative claims alive which would have made it more difficult for the DC Circuit to reverse engineer and dismiss.
Thanks again for your contributions to this Board.
Thanks Familymang for the thoughts and the relevant dates:
Here is the latest that I know of in the Kelly litigation - looks like the plaintiff's brief is due on March 6.
https://www.glenbradford.com/2023/01/fnma-fanniegate-1250/
It is probably not worth spending too much time in speculation, but it seemed to me that the Kelly case generally challenged HERA itself. The other possible way to keep the lights on is the violation of Charter claim that Barron4664 has been discussing.
As you know Judge Davis was a DJT appointee so perhaps the Kelly lawyers could get some traction. Ruyak who is the DC attorney seems connected and likely a strong advocate for Mike Kelly. The Mike Kelly fact pattern is quite compelling - really a Bailey Savings and Loan sort of fact pattern.
In any event the likely scenario that all of this gets dismissed dont you think? By mid year?
Hi Rodney5
The Lamberth Plaintiffs have JPS and FMCC Common ownership info because they had to notify the Class with the option to opt out.
Not sure if they have info beyond nominee ownership.
Brydon Fischer Litigation at the point of dismissal
https://www.glenbradford.com/2023/02/fnma-fanniegate-1263/
This a one of several cases before Judge Sweeney trying to stay alive in the COFC.
Kelly should be filing their brief before Judge Davis in the COFC also.
Odds look tough to stay alive due to denial of Cert in the Fairholme DC Circuity litigation.
Thoughts?
Hank should have said - if we did not blow up the GSE recap in March 2008 - BS may have survived and Lehman may have survived and Wachovia may have survived and we may never had the GFC.
Exactly Skeptic7 - we need exposure and daylight going back to March 2008. Maybe there would have been no GFC and no Dodd Frank or CFPB or FHFA if the GSEs were recapped in March of 2008?
On a Saturday - March 8, 2008 - the Undersecretary of the UST receives an email from a NEC Member Advisor at 12:50 pm letting him know that a Nationalization Memo was going to be leaked to Barron's. At 3:59 pm on that same Saturday afternoon the same UST Undersecretary sends an email to the OFHEO Director Lockhart pushing a negotiation with members of the Senate Banking Committee about a bailout of the GSEs in March of 2008. Daniel Mudd was in HK raising capital for the March 2008 Bailout. The only ones who knew about the Nationalization Memo during all these negotiations was the NEC and the Undersecretary - perhaps more in the UST? It only took the Undersecretary 3 hours to set up the OFHEO Director knowing full well that the Barron's Story was going to break over the weekend.
https://fcic-static.law.stanford.edu/cdn_media/fcic-testimony/2007-2008_Fannie_Mae_Timeline_and_Supporting_Documents.pdf
Thanks Trunkmonk - the manipulation and deceit goes back to the UST and NEC and the set up of the Barron's Nationalization Memo. The US Senate Banking Committee was going to bail out the GSEs with a new capital raise that Daniel Mudd was working on in March of 2008.
Have you ever seen this FCIC Document? The emails are really interesting.
On a Saturday - March 8, 2008 - the Undersecretary of the UST receives an email from a NEC Member Advisor at 12:50 pm letting him know that a Nationalization Memo was going to be leaked to Barron's. At 3:59 pm on that same Saturday afternoon the same UST Undersecretary sends an email to the OFHEO Director Lockhart pushing a negotiation with members of the Senate Banking Committee about a bailout of the GSEs in March of 2008. Daniel Mudd was in HK raising capital for the March 2008 Bailout. The only ones who knew about the Nationalization Memo during all these negotiations was the NEC and the Undersecretary - perhaps more in the UST? It only took the Undersecretary 3 hours to set up the OFHEO Director knowing full well that the Barron's Story was going to break over the weekend.
https://fcic-static.law.stanford.edu/cdn_media/fcic-testimony/2007-2008_Fannie_Mae_Timeline_and_Supporting_Documents.pdf
Great Find Robert - it seems that any Admin Action that would hurt JPS OR COMMON would give shareholders standing to challenge the Admin Action under the MQD - dont you think.
Cant see why some one like Ackman would not challenge an Admin Action if it hurt commons or JPS. The best way forward for the JB Admin is to make both JPS and Commons happy and take the 80% they own via the warrants.
It will be interesting to see how SCOTUS handles these issues. Great Find!
Thanks NeoSunTzu . A well reasoned analysis. I have always wanted to give him the benefit of doubt primarily because he wrote the Conservatorship of Fannie Mae and Freddie Mac Paper at CATO. It is a great treatise regarding reasonable regulation and insolvency issues for regulated entities.
Your analysis seems well reasoned and makes criticism of his actions regarding the Cap ratios very fair and justified. Tim Howard seems to be well justified in his criticism
Hi NeoSunTzu
Love the reference to "political capital"
Why do you think Calabria proposed such high capital standards? The amount never made sense since they were working toward an IPO . I had thought that perhaps the Trump Admin wanted to show a hard line fiscal buffer first and then have Congress say it was too high. I not sure now because we have not had any transparency from Calabria regarding his reasoning.
Hi NeoSunTzu,
Great comments - dont you think the Capital Budget due on May 20th will reflect input by UST?
Hi Barron4664
Have you thought about raising the Charter violation issue with Howard on his blog. It seems to have a big following and he would probably have an opinion. Just a suggestion.
Hi Robert
Do you know what the ROA is at FNMA. As they add cash from earnings these amounts should be adding to the Net Interest Margin -shouldnt they?
Every $ 100 bn - $ 5 bn more in annual earnings?
Revolving Door is working still
Jim Parrott from Parrott Ryan Advisors
https://www.cnn.com/2021/10/27/perspectives/housing-shortage-congress-build-back-better/index.html
Ackman still holds over 131 million shares of FNMA outright and via the swap according to the last FNMA 10-K. After looking at the Footnote in further detail it seems like the swap info may be dated so we probably should just rely on the Pershing Annual Report.
https://www.fanniemae.com/media/46276/display
Thanks again LuLeVan
I was just focusing on the CET1 for FNMA which I believe has a PAR of $ 19 bn. Is FMCC JPS Par $ 14 bn plus?
Really appreciate the response and info.
Jared Bernstein and his friend talk housing 9 years ago.
I like Familymang's scenario if that works out because I think our best odds are in the 5th Circuit with Judge Edith Jones and her colleagues. Look for the Order on the 27th regarding Cert.
Thanks Familymang - that would be the best case scenario. I am expecting the DOJ to ask for a stay.
First up is the Order on Cert on the morning of the 27th?
Will depend on whether SCOTUS grants Cert for the CFPB case. If it does the Collins case could be stayed until SCOTUS decides the CFPB in the 2023 Term which would mean that the 5th would not even start the briefing process until the 2024 3Q - Decision from the 5th could be 4Q 2024.
If Cert is not granted the CFPB case that would be a big win since the 5th Decision would be precedent then we would have a good chance of a material victory by the end of 2023.
SCOTUS is expected to issue an Order on Cert for the CFPB case on Feb 27th.
Others may disagree - please chime in.
Thanks again for your reply and analysis LuLeVan.
Seems like we can use the reported Net Worth by FNMA of $ 60.3 bn as best case CET1 if the SPS is deemed void after Collins or Rop and/or SCOTUS. Investors can assign their own probabilities to this.
Unless the CET1 requirement is reduced as advocated by Layton - we need to get to $ 190bn for FNMA alone. Investors can decide if JPS will negotiate a conversion to common which I am assuming so with $ 19 bn PAR of FNMA JPS - I am at $ 80 bn with $ 110 to go. Thoughts - should we assume JPS will be converted to common?
What are you assuming is the MV of FNMA currently?
Hi Rodney5 - what is right matters and the Constitution matters as you said:
Have you ever seen this FCIC Document? The emails are really interesting.
On a Saturday - March 8, 2008 - the Undersecretary of the UST receives an email from a NEC Member Advisor at 12:50 pm letting him know that a Nationalization Memo was going to be leaked to Barron's. At 3:59 pm on that same Saturday afternoon the same UST Undersecretary sends an email to the OFHEO Director Lockhart pushing a negotiation with members of the Senate Banking Committee about a bailout of the GSEs in March of 2008. Daniel Mudd was in HK raising capital for the March 2008 Bailout. The only ones who knew about the Nationalization Memo during all these negotiations was the NEC and the Undersecretary - perhaps more in the UST? It only took the Undersecretary 3 hours to set up the OFHEO Director knowing full well that the Barron's Story was going to break over the weekend.
https://fcic-static.law.stanford.edu/cdn_media/fcic-testimony/2007-2008_Fannie_Mae_Timeline_and_Supporting_Documents.pdf
Jared Bernstein on Revolving Doors in Washington DC.
https://jaredbernsteinblog.com/not-every-door-is-a-revolving-door-housing-finance-gse-reform-and-the-nyt/
As predicted by TH - Brainard to Chair NEC and Jared Bernstein to Head Council of Economic Advisors:
https://www.msn.com/en-us/news/politics/biden-to-name-fed-s-lael-brainard-as-top-economic-adviser-source/ar-AA17s31l?OCID=ansmsnnews11
Good Morning LuLeVan,
Thank you for all of your informative posts: I wanted to reconcile your numbers and update the CET1 if the SPS Liquidation Preference was eliminated.
I saw in today's 10-K that the Liquidation Preference for the SPS will be $ 181.8 bn - is there an additional amount that has accrued to the SPS Equity account. You mentioned $ 191 bn in the post I am replying to.
FNMA is reporting Net Worth of $ 60.3 bn - what is your estimate of CET1 if the SPS was declared void and the Liquidation Preference eliminated?
Good Morning Barron4664 - the attorney for both Plaintiffs is Matthew Ricardi at Perkins Cole in NYC. The email is on the filings for both. It would seem that the best course of action regarding the Charter violation is to allow the Fairholme plaintiffs and opportunity to raise this issue and ask for consolidation with the Kelly case before Judge Davis who is a Trump Appointee.
Perhaps Josh Angel and Brydon Fisher may also be interested in the Charter violation cause of action. It may be considered a new claim but timing probably is imperative since some Plaintiffs don't quite want to go away after the Denial of Cert.
Thank you for all your efforts on this issue and my suggestions are just and with appreciation of you dedication to our cause.
Good Stuff Robert - the SPS is a bogus contract with no consideration to increase the Liquidation Preference. If the UST goes with the cramdown all of this comes into play on a challenge if the cramdown comes with an Admin Action. Every 100 bn of MV means that 20bn should go to common. There will be a lot of incentive to challenge an Admin Action if it comes with a cramdown - 40 bn of them - with a 200 bn MV.
Only in first lien secured claims. Otherwise they dont care and are incompetent. The SPSA is a voidable contract.