Good Stuff Robert - Cocran this year - any idea on the timing about a grant of Cert for the CFPB case ? If so - is it possible to be decided this year?

Terrible treatment of Michelle Cocran.

Skeptic7 - how will they do it? You obviously want people to sell or not buy shares of GSE common and/or JPS so please specify the basis for your opinion.

There are less than 2 years left so if you are right they need to do something? What will they do?

Hi FFF - understand your perspective - why be happy with a lost of market value at these levels?

Disappointed because:

-Even a small win today potentially helps in the ultimate resolution because of the credibility it may bring to our cause
- The denial of Cert is being used as a basis to dismiss the COFC cases and probably will be cited to dismiss Kelly
- Think the big win is derivative in nature because it forces the UST to keep the cash in the GSEs which will ultimately accrue to public common on a 20/80 basis. My hope with Kelly is a Derivative win rather than a cash win - probably will be easily dismissed now even under a Trump appointee in Judge Davis.

Thanks 955 and Robert. It is interesting that Prof. Hamberger was at UC with Eptein and BO before moving to Columbia. Seems consistent with Judge Jones discourse on the APA.

Ironic that GWB Admin was the root for a lot of this - first and Enron overreaction probably because Dick Cheney and GW were too close to Ken Lay. What happened to Authur Andersen was a travesty. Next was Hank running loose under GWB and all the mayhem he caused. Really did a lot of lasting damage from the GWB Admin - not to mention all the money,lives and limbs lost in Iraq and Afghanistan.

Hi Kthomp,

You mentioned that the CBO Recap report was requested by Patrick McHenry in August of 2020. Thanks for this insight - do you have a link to the source for this? Not doubting but want to understand the background for the request more.

Maybe so - dont you think now is a good time for the raid? Getting kind of late in the game for this Admin so it would seem like they should show their cards relatively soon. How exactly would this raid happen?

Hi Barron - again Thanks for your advocacy. Correct me if I am wrong but would it be proper to assume that the payment and repayment of the funds advanced by the UST and interest earned were in compliance with the FNMA Charter?

I am thinking that the issue is when the NWS was implemented to sweep funds from FNMA to the UST in the amount exceeding the amount of principal and interest due? I know of the estimated overpayment of approx $ 30 bn but dont know the timing of when the overpayment was. Do you know because that would be the date that actual cash was transferred out of FNMA for no consideration and could be the beginning of any statute of limitations tacking.

If we focus on cash transfers we can keep the grounds for challenge active so that any cramdown whereby cash proceeds from an IPO are transferred to the UST would also be subject to challenge. This could act as deterrent to a cramdown because it would be effective post conservatorship outside the legal construct of Collins.

Thoughts - again I am thinking I would like to object to the transfer of cash from FNMA to UST regarding the $ 1 that was in excess of the principal and interest due. Thoughts?

Good Stuff Robert - I had heard some discussion about Wilson but really did not appreciate how distinct of a philosophy it was regarding the Constitution. Seems like many young people with integrity are buying into a similar philosophy now. The judicial appointments were really one of the best legacies of DJT and to some extent McConnell's efforts. Oldham was Counsel to Abbott in Texas and clerked for Alioto. Not sure if we will get more pyrrhic victories or some real protections. I really think the Collins ramifications need to contained and refocused to protect the Constitution and I am hopeful that the 5th Circuit will help do that. Was dissappointed in the denial of Cert with the Fairholme DC Circuit cases.

I believe that the GSEs and FHFA are prohibited from any open market purchases under the current Letter Agreements. They should from a financial point of view but dont think they can.

Good Points Ace Trader - none of us knows how and when this plays out but it does seem like an untenable political position to pay one set of shareholders PAR while wiping out the other.

I am rooting for a good outcome for all shareholders - in my opinion, we should not be advocating for the demise of any shareholder even if it may help some conversion ratio for a JPS exchange into common. If a settlement involves the conversion of JPS into Common any potential dilution to common will be negligible vs a SPSA cramdown. I am assuming that some posters want to make sure Common does not have a short rally that would impact an average pricing period or just want to maintain long short pair trades? Dont understand all the time and energy to denigrate common otherwise it is a 50 cent stock after all.

My question is whether there are some big common holders out there besides Ackman? - did all of the Growth Fund of America position get distributed to retail or were there large buyers who will agitate at some point into the future.

Hi Robert, Have you ever seen this Fortune article regarding the collapse of Bear Stearns - March 6 and March 10 are big days. Also the week before March 8 was tough for Bear Stearns - makes you wonder why the UST would authorize the leak of a Nationalization Memo for the GSES to Barrons over the weekend.

https://web.archive.org/web/20080919002944/https://money.cnn.com/2008/03/28/magazines/fortune/boyd_bear.fortune/

Thanks ewtrader. Glen seems to be confusing "security" with preference in a liquidation. No equity has security but may have preference. The SPS has the highest preference in a liquidation, next the JPS and then common equity. If the USG really was out to "maximize" its return it would build up a large SPS Liquidation Preference and then execute a liquidation via a HERA Receivership compromising JPS PAR and wiping equity. That seems implausible in my perspective and so does a cramdown scenario leaving commons with less value than current prices. That does not mean there will be threats and negotiations but in the end it seems most likely that JPS will get PAR and Commons will achieve a value greater than current prices. How much more for common most likely will impacted by the resolution of the remaining litigation and whether POTUS moves forward with an Admin action in the near future.

Regarding the process for executing cramdowns - the common process for Delaware Corps centers around a process to determine fairness and impartiality under Delaware law. Perhaps all of this will be forgone due to HERA but the GSE Board will have to rely on a legal opinion to that effect. There may be issues raising capital unless a fairness process is followed because any new issue will most likely require compliance with the Securities Act of 1933. Under the 1933 Act there will be Underwriter Liability for the IPO Syndicate and the Underwriters probably will need indemnification from the FHFA and UST unless a fairness process is followed buttressed by legal opinions.

Usually a BOD appoints a Special Committee and the Special Committee retains its own counsel and in this case probably its own Advisor. A Fairness Opinion most likely will have to be issued and the whole Board will have to approve the cramdown. Ackman currently owns a large stake and you should expect any large shareholder at the time of the cramdown to be an activist and possibly initiate litigation.

Thats right Glen - one of the investment rationales for common is that the process and complexity of the FHFA executing a cramdown conversion of common justifies holding common at these prices. The other rationale that will most likely play itself out by the end of 2024 is the possibility that the Liquidation Preference or an increase in the Liquidation Preference will be deemed void as a Constitutional violation most likely from a decision out of the 5th Circuit. If the Liquidation Preference is voided or stayed then the retained earnings of the GSEs will be allocated or inure to common equity on an 80/20 basis which could be substantial if Exit is delayed. JPS Preference will stay at PAR but Common equity proration will increase and the potential from dilution in an IPO decreases over time as earnings are retained. As the CBO paper illustrates this is only one of three highlighted scenarios - 2 of which result in negligible value being attributed to common .

There is also the fact that his Undersecretary and fellow senior manager at GS leaked the nationalization memo to Barron's in March of 2008. This torpedoed bailout negotiations in the US Senate over a weekend that Daniel Mudd was in HK trying to raise capital and led to the failure of Bear Stearns the next Friday. Arguably the GSEs would have been bailed out by Congress in the Spring of 2008 and the GFC potentially avoided if Bear Stearns did not fail and the GSEs were provided USG support during the first half of 2008

https://fcic-static.law.stanford.edu/cdn_media/fcic-docs/2008-03-08_Treasury_Email_from_Hason_Thomas_to_Robert_Steel_Re_Source_document_for_Barrons_article_on_FNM.pdf

Very interesting Guido - probably the reason why there is all this negative banter about a 50 cent stock.

Great Points Barron - how much time do we have to file do you estimate? I probably can do it in a couple of months.

Glen - the last time any funds were advanced was in 2018. The Liquidation Preference is to structured to give the FHFA absolute control over any restructuring and was done before Collins. Collins just reinforced that control and was an unexpected ruling at the time of the last letter agreement executed by McNuchin.

The SPSA's have a waiver provision - this is from F-62 of the last 10-K

Waivers and Amendments
The senior preferred stock purchase agreement provides that most provisions of the agreement may be waived or amended by mutual written
agreement of the parties. No waiver or amendment of the agreement, however, may decrease Treasury’s aggregate funding commitment or add
conditions to Treasury’s funding commitment if the waiver or amendment would adversely affect in any material respect the holders of our debt
securities or guaranteed Fannie Mae MBS.

The UST may have justification to argue that they provided adequate consideration for the Liquidation Preference for funds actually advanced which I believe was about $ 120 bn but there is not consideration for any additional preference amounts. There will be grounds for new takings and constitutional challenges if the UST attempts a conversion. Alternatively the UST could exercise the warrants and use sales proceeds to pay down the $ 120 bn over time. The UST and existing common will be diluted by sales of new shares but there is no clear incentive to attempt a conversion before a public fundraising.

In the end the UST will waive all or part of the Liquidation Preference to get the deal done and in fact will probably maximize its value since it will reduced the required IRR required by new shareholders since such a waiver will be deemed fair and reasonable which is consistent with Calabria's perspective in his CATO paper.

The fantasy is the consideration for the Liquidation Preference. There is no value given to the Company for it. It is pure fiction.

Hi Glen - I will love to see that Fairness opinion. Some lawyer is going to have to advise the Special Committee that the Liquidation Preference is fair. Lots and lots of issues that you are extremely oversimplifying.

Glen - seriously - what does the UST provide in consideration for the Liquidation Preference? What is the consideration? It is a total fiction that one shareholder should have its senior preferred position increased by the profitability of a company? There is no consideration - it is pure fantasy accounting.

Thanks again Barron

I will rethink this in the next couple of weeks when I get time to think it through

Thanks for all your insight and contribution.

Definitely understand your point of view - probably right. The question is what will the other potential POTUS do with the GSEs?

Thanks stoxjock - as you know this has been a terrible investment for many years and there is no catalyst in sight . That being said the best framework is the CBO paper and the best scenario for common is Scenario 1 on Table 3 assuming a 2025 IPO. Scenario 1 implies a $27.5 bn value to public common (110/.8 = 137.5 -110) but the other two Scenarios have no value to the warrants which would mean common would not have value also. You would have to prorate the $ 27.5 and I would assume 40 /60 or 35/65 FMCC/FNMA . This would be $44.625 bn for FMCC divided by fully diluted shares. I think it is around 3.1 bn for FMCC? Please remember this probably is the best case scenario and there are two scenarios of near zero. You can see why JPS holders believe that JPS is the best risk/return. In addition there are lots of assumptions in the CBO paper and the numbers need to be updated which we can once we get full year results from the GSEs. I know there are many who believe that the UST are not entitled to the warrants and the initial SPS liquidation preference but I do not hold that opinion. The Lamberth Case has shown how difficult it will be to justify any big damage award and that is a long short in any remaining litigation.

Here is the CBO link:

https://www.cbo.gov/publication/56511

Maybe - there are only a few cases left to be resolved which probably will be by the end of 2024. Just in time for a new POTUS - we know where DJT stands. JB has to act in the next few months or we wait for DJT of DeSantis.

Rates are relatively low - the problem is that it costs too much to build houses where people want to live - Here is a long term chart of fixed mortgage rates

https://www.macrotrends.net/2604/30-year-fixed-mortgage-rate-chart

You are right that we had a big bump in rates but it is more of a function of the FED trying to maintain capital market credibility during a dramatic growth in the US deficit and spending. The FED needs to have bullets to cut rates again when the economy rolls over.

Housing and rent costs are a crisis for most. You may be out of touch with the pain of renters and those who want their own houses. A lot of young people cant make ends meet primarily because of rent which is tied into housing price appreciation.

Thanks again Barron

I will look into this - I am thinking the best timing will be if the FHFA agrees to a cramdown. There will have to be litigation around any cramdown - perhaps it will ultimately get dismissed but there should be political and legal consequences.

The warrants will be exercised and the SPSA Liquidation Preference will be void because the Liquidation Preference Amount is a fiction. You are right that the warrants will be exercised and common shareholders we be entitled to 20% of the equity pre-IPO subject to dilution from new equity. See CBO Paper Scenario 1

Many young and lower income voters who cant afford houses will disagree with you.

Hi Robert - One issue that needs to be worked out is the applicability of minority protection laws regarding a potential cramdown. It would be clear that the SPS would not be enforceable for an entity not controlled by HERA because the SPS Liquidation Preference is a fiction since there was no consideration given to any Preference outside of the initial SPS Preference at the time of Conservatorship.

Here is a cite of an article regarding the "fairness requirements under Delaware Law" -

Although there is no single recipe for an “entirely fair” controlling-shareholder transaction, the following are helpful guidelines:

controlled boards should establish a special committee of independent directors to negotiate the related-party transaction with the controlling shareholder,
the independent directors should hire their own independent legal and financial advisors,
any ties between the advisors and the controlling shareholder should be disclosed to the Board,
independent directors and their advisors should have access to current financials and projections,
independent directors should have the powers necessary to carry out their duties, including the “critical” power to say “no” to the controlling shareholder,
independent directors should preserve their independence by not sharing confidences with the controlling shareholder or allowing the controlling shareholder to participate in negotiations or deliberations, and
the company should fully disclose the negotiation process—not just to fulfill their disclosure obligations, but also to provide a strong record for a motion to dismiss.
Delaware courts also acknowledge the business reality that a “fair” controlling-shareholder deal is only an approximation of an arm’s-length transaction; it cannot be an exact replica. One important difference is that a majority shareholder cannot be compelled to sell his shares to another bidder. Independent directors considering a controlling shareholder’s buy-out offer therefore do not need to go through the “futile” exercise of seeking out alternative buyers.

While controlling shareholders initially bear the burden of proving entire fairness, that burden may shift to plaintiffs if the controlling shareholder can demonstrate that the conflict transaction was approved by a “well functioning committee of independent directors,” with “no compulsion” to reach an agreement. Unlike independent approval of related-party transactions that do not involve a controlling shareholder, however, the business-judgment rule still would not apply. Rather, independent-director or independent-shareholder review in the controlling-shareholder context only shifts the entire-fairness burden to plaintiffs (except in dual-approval control-shareholder mergers, discussed below). Shifting that burden does, however, correlate with court approval.

Here is the link: Note that Ackman is listed as the first Advisor on the Advisory Board

https://corpgov.law.harvard.edu/2017/08/30/controlling-shareholder-related-party-transactions-under-delaware-law/

Thanks FNMAstalker - Calabria is going to be on one of the Panels - Stegman also. Fireside Chat with ST.

Thanks for the reply No Name

I lost about 500K on the Conservatorship and have held JPS and a very little common since then. I am not here because this is the best investment but because I believe that investors have been extremely screwed and abused to date. I believe in fairness and reasonableness in financial market outcomes because these principles are the bedrock of our capital markets.

I have purchased assets from a Bankruptcy Estate and have been a creditor for a couple Chapter 7s and understand fundamentals of Bankruptcy and Insolvency laws. Although I do not practice I have passed a couple of Bar Exams, a Series 7 and and a Series 3.

I am here until the end however it may turn out. People have fought and died for fairness and justice in our daily life and our capital markets.

Thanks Familymang - you may be exactly correct but I can forsee a lot of political, regulatory , accounting issues. Also I would expect new takings litigation on conversion and also litigation involving the violations under the Charters and minority shareholder protections under Delaware and Virginia law.

Again thank you for your reasoned responses.

Hi Barron4664

Really interesting analysis and idea.

What about standing ? I owned common and preferred on the date of the Conservatorship but have to find the statements.

Can you elaborate as much as possible on standing?

How about FNMA vs FMCC Charters?

Thanks again!!

Thanks Familymang - the treatment of the various shareholders will be a political and regulatory decision process. Do you expect that a fairness opinion will have to be issued? How about a shareholder vote?

Hi Familymang

Here is the right answer from former Director Calabria in my opinion:

Calabria Quote:

" If Treasury and FHFA can conduct the conservatorships of the
Companies to strip out any value and prevent the restoration of regulatory and market capital
despite their obligations under HERA, this manipulation of the process will dramatically affect
public confidence in the fairness and predictability of government’s participation in insolvency
proceedings."

Page 51 - last paragraph

https://www.cato.org/sites/cato.org/files/pubs/pdf/working-paper-26_1.pdf

Its Friday lets have some fun!

From the best President of my lifetime -

https://assets.realclear.com/files/2021/11/1921_trump_letter_to_rand_paul.pdf

We know what to expect from this Presidental candidate - not sure about DeSantis?

What do you think Donot? POTUS JB has a certain two years - will he act now?

Fair points and I understand the frustration regarding the Capital Rules. That being said I respect Calabria especially for the opinions he advocated when he was at CATO. One of the few who stood up for shareholder rights at the time and I appreciate his advocacy.

I am of the opinion that the Common and JPS are in this together and we need to be advocating for fairness and just outcomes for all shareholders.

Hi Glen,

Since there is an active Class Action regarding the Lamberth case there must be a shareholder list for the FMCC Commons? Do the guys you talk to know who are are the big common holders?

Personally I am amazed that the Growth Fund of America stake was sold into the market when the stock was hovering around $ 1 because it did not go down more than it did as this block was sold. GFA held 15% of the float at one time. Do you think all of that was taken up by a disperse retail base or are there some large Common holders out there that the market does not know about?

In the Class Action they have to know who the nominee holding entities are and if there has been any recent changes? It seems like your opinion is that the Common is worthless or should be close to your 10cent objective so you would probably agree that Common is overvalued in comparison to JPS right now. Who is supporting the Common overvaluation?

Good point Rodney5

No Name how exactly will your cramdown work?

Does ST have the unilateral power to just say that the UST is entitled to 99.5% ownership?

How does Delaware and Virginia law apply? Wont there have to be a shareholder vote to approve the conversion?

Doesnt there have to be a fairness opinion rendered to determine if it is fair?

You have a lot of experience in this area so can you please explain all the steps and issues justifying your position?