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FMCC Common are part of the Lamberth Class Action aren't they? Judge Jones seemed to care about common shareholders in some of her comments on the En Banc remand hearing - Plaintiffs would not be wise to try to screw common in the explanation for the Prayer of Relief in the 5th if we are so lucky.
What is the amount of the liquidation preference that the Plaintiffs are asking to convert? If they win in the 5th - isnt the liquidation preferred capped at the present time or perhaps at the initial $ 1 bn?
Hi Achillles - Do you have any thoughts about how the retained capital will affect future earnings and valuation for FNMA and FMCC?
The retained earnings are real cash and should be earning a ROA? If we get to $ 200 bn at 4 % that is 8 bn additional earnings?
How about future valuation with $ 200 bn of retained earnings - how does that affect the valuation of the enterprises. The extra retained cash should increase valuations unless the ROA is below the new investor required rate of return?
Is there a link for the 95% consolidation threshold?
Thanks Familymang - I have heard that before but all I see is in the Prayer for relief is a conversion of the existing Senior preference but it is not clear if it just means the initial $ 1 billion or the liquidation preference before the 3rd Amendment. If you look at Paragraphs 116,122,136,144,151 and Prayer for the relief you will see over and over that the Plaintiffs are seeking that the NWS and the UST liquidation preference be set aside.
Here is the link for the Collins Complaint before Judge Ellison:
https://www.glenbradford.com/2022/06/fnma-fanniegate-1144/
Hi Glen, Dont you think your analysis around the SPSA conversion is premature until we see the final resolution of the Separation of Power Cases - isnt it possible that the SPSA will be deemed unenforceable due to a Separation of Power violation?
Also - are you assuming that the UST could sell new equity in the GSEs without any additional spread for the potential of a new Conservatorship. With the denial of Cert of the DC Circuit cases there is nothing stopping the UST treating new common equity any different than all the JPS they sold during 2008 right before Conservatorship. Why buy GSE equity with a 3 pct div yield when you can buy equity in a FDIC regulated entity with a 3 pct div yield. There has to be a risk premium in a rational market?
Once the UST starts the cram down process doesnt this raise the obvious consolidation issues with the rating agencies? The UST will claim more than 80 pct economic control via the SPSA and there should be a consolidation? Thoughts?
Hi Glen, Who do you think will be new Chair of the NEC? Jared Bernstein ?
Agree! - Dont you think the money will be too tempting for JB or future POTUS's? We just need to stop them from future thievery to stop the dilution going forward. If JB and Jared Bernstein believe in affordable housing now is the time to cut a deal.
That is good news and well deserved. Judge Schiltz is a law school professor who cites the Wizard of Oz in his opinions. He would not acknowledge Senator Rand Paul but just called him a "politician". He also had a real doozy of reasoning to go lenient on the guy who burned down the police station in Minneapolis.
Hvp123 - it seems like the COFC Derivative claims will be dismissed based on today's denial of Cert of the Barrett Derivative claim? Thoughts.
Thank you very much Hvp123
Thanks Robert! Another disappointing act by SCOTUS - wonder what the impact on the cost of equity for future public private partnerships will be. Farmer Mac - Utilities - Farm Credit System - new GSE equity? Doesnt the DC Circuit decision precedent wreak " Caveat Emptor"?
Playbook - USG manufacture a crisis - pass crisis legislation - take private property. Watch out Farmers! The Farm Credit system could be next for a woke conservatorship!
Thanks for the Kavanaugh Cite Regarding Rop - does anyone have a link to the full order regarding the Extension
Kelly is before Judge Davis in the COFC. They are in the process of retaining new Counsel and there has been no action at all taken to date since the case was stayed. Tomorrow is the DC Circuit Cert Petitions.
This is the most recent post from GlenBradford.com on Dec. 29 , 2022
https://www.glenbradford.com/2022/12/fnma-fanniegate-1244/
Many thanks to whoever is maintaining the website!
Hi Glen, regarding your previous reply to jeddiemack - The Kelly lawsuit and I believe Bryndon Fisher are challenging the Conservatorship itself. As you know these cases are still before the COFC:
Here is the Count I excerpt from the Kelly Complaint:
108. In imposing the conservatorships over the GSEs and in taking and/or illegally
exacting more than 1 billion shares of the common stock and approximately 597 million shares of
the preferred stock of Fannie Mae (with a redemption value of approximately $21 billion) and
approximately 650 million shares of the common stock and approximately 464.1 million shares of
the preferred stock of Freddie Mac (with a redemption value of approximately $14 billion) without
just compensation, the Government destroyed the rights and value of the property interests tied to
the common and preferred stock of the GSEs held by Plaintiffs, nullified their reasonable,
investment-backed expectations, and violated the fundamental principles of the Due Process and
Takings Clauses of the United States Constitution.
109. In taking private property, the Government is required to adhere to due process of
law and to respect the legal rights of affected parties.
110. The Government violated the statutory, contractual, and constitutional rights of
Plaintiffs in taking and/or illegally exacting virtually all the value of the above referenced preferred
shares of both Fannie Mae and Freddie Mac that they owned, without providing just compensation.
111. The conservatorships were not lawfully imposed. The conditions required for
conservatorship delineated in HERA were not satisfied. Specifically: (A) both GSEs were solvent
as of September 6, 2008; (B) the GSEs had not experienced any substantial dissipation in their
assets or earnings due to any legal violations or unsafe or unsound practices; (C) the GSEs were
not transacting business under unsafe or unsound conditions; (D) the GSEs had not committed any
violations of a cease and desist order; (E) the GSEs had not concealed any records from the FHFA;
(F) the GSEs were likely to be able to pay their obligations and meet the demands of their creditors;
(G) the GSEs had not and were not likely to incur losses that would have depleted their capital;
(H) the GSEs had not committed any violation of any law or used any unsafe practice likely to
Case 1:21-cv-01949-KCD Document 1 Filed 10/01/21 Page 38 of 45
- 36 -
cause insolvency or weaken the companies’ condition; (J) the GSEs were not undercapitalized
without the prospect of becoming adequately capitalized; (K) the GSEs were not critically
undercapitalized; and (L) the GSEs had not committed money laundering.
112. The GSEs did not validly consent to the conservatorships. The Government falsely
informed the GSEs that they had no choice but to consent or the Government would impose
conservatorship regardless. Government officials did not give the boards any meaningful notice.
Furthermore, they suggested that the board members would face personal reputational risk if they
did not consent. As the boards’ consent was based on false information, coercion, and improper
threats, it was not a legally valid basis on which to impose a conservatorship.
113. As a holder of $898,448,392 of preferred shares in both GSEs, FBOP Subsidiaries
had the right to dividend payments. FBOP Subsidiaries also had voting rights to protect those
dividend rights. FBOP Subsidiaries had a property interest in these rights, as well as in the value
of the shares themselves. As a holder of approximately $40 million of GSE preferred shares the
FBOP wholly-owned non-bank subsidiary, River Capital, had the right to dividend payments.
River Capital also had voting rights to protect those dividend rights. River Capital had a property
interest in these rights, as well as in the value of the shares themselves.
114. Through the conservatorship, in violation of the Fifth Amendment, the Government
seized the rights attached to the shares and rendered the shares effectively worthless. The FBOP
Subsidiaries and River Capital were thereby deprived of all use and benefit of their shares. As the
shares had been rendered worthless, the FBOP Subsidiaries and River Capital could no longer
make economically beneficial use of the shares; their sale value was negligible, particularly since
they no longer had voting or dividend rights attached to the shares.
Jared Bernstein on the GSE Utility Model:
Thanks Patswil for the detailed information on the SCOTUS Conference on this Friday!
DC Circuit Shareholder Cert Petitions up for consideration at the Jan 6th SCOTUS Conference
https://www.scotusblog.com/case-files/petitions-were-watching/
Hi Kthomp,
If the Charter is hard to change and you are saying that the USG will dilute common equity to "zilch" - how can the USG sell new common equity under the same Charters? Why would new investors take the risk that they could be the next victims of a future USG nationalization under HERA as interpreted by Collins?
Jared Bernstein is likely to become the new NEC Director. He has been an advocate for affordable housing and the Calhoun utility model for the GSE's. The new Hindes letter also touches on these issues.
Understand your perspective but I dont see a scenario where shareholders dont get compensated - it is a matter of time. JPS will get paid in par and the resolution of the SPS will determine the ultimate value of common.
Thanks Lumpina - Definitely understand your point of view. You made the right call and moved on. There are always consequences for malfeasance - there is no way the USG will be able to sell its stake with the current rules - new investors will need new protections under the law and the treatment of existing common will at least be highlighted. It is a risk that will demand a return and protections in the market place going forward.
Ralph Nader had it right a long time ago -
https://nader.org/wp-content/uploads/2013/05/lew-5-18-13-11.pdf
What is the "milk" that the USG is benefiting from? Why would the JB administration not try to turn the USG into a political win before 2024?
Perhaps you are right - you definitely have been in 2022. I believe in fairness and justice and eventually Congress and/or the Administration will have to act. The USG can defend an unjust position fairly easily because the legal system assumes the USG will act in the best interest of the public. The Constitution is most effective when the USG wants to reallocate property and extinguish a right inherent in the Constitution. We will see what 2023 will bring.
Happy New Year Amelia! Sherrod Brown who is an affordable housing advocate has two more years before he is up for reelection. He is also a big proponent of the CFPB. Do you think he push for legislation on one or both of these issues in the next two years? It is hard to imagine that the GSE legal issues will be fully resolved without a political or legal compromise if Sherrod Brown wants to resolve either of these issues. Do you think Sherrod Brown can get relected in Ohio in 2024?
No problem and thanks for the reply. The Kelly case is currently before Judge Davis at the COFC and the plaintiffs have just asked for an extension to reply to the USG filing since they are substituting counsel. I am interested in who the new counsel will be. I believe the Brydon Fischer litigation also challenges the Conservatorship itself and is still pending in the COFC
Skeptic7 - Here is Count I of the Kelly Suit :
108. In imposing the conservatorships over the GSEs and in taking and/or illegally
exacting more than 1 billion shares of the common stock and approximately 597 million shares of
the preferred stock of Fannie Mae (with a redemption value of approximately $21 billion) and
approximately 650 million shares of the common stock and approximately 464.1 million shares of
the preferred stock of Freddie Mac (with a redemption value of approximately $14 billion) without
just compensation, the Government destroyed the rights and value of the property interests tied to
the common and preferred stock of the GSEs held by Plaintiffs, nullified their reasonable,
investment-backed expectations, and violated the fundamental principles of the Due Process and
Takings Clauses of the United States Constitution.
109. In taking private property, the Government is required to adhere to due process of
law and to respect the legal rights of affected parties.
110. The Government violated the statutory, contractual, and constitutional rights of
Plaintiffs in taking and/or illegally exacting virtually all the value of the above referenced preferred
shares of both Fannie Mae and Freddie Mac that they owned, without providing just compensation.
111. The conservatorships were not lawfully imposed. The conditions required for
conservatorship delineated in HERA were not satisfied. Specifically: (A) both GSEs were solvent
as of September 6, 2008; (B) the GSEs had not experienced any substantial dissipation in their
assets or earnings due to any legal violations or unsafe or unsound practices; (C) the GSEs were
not transacting business under unsafe or unsound conditions; (D) the GSEs had not committed any
violations of a cease and desist order; (E) the GSEs had not concealed any records from the FHFA;
(F) the GSEs were likely to be able to pay their obligations and meet the demands of their creditors;
(G) the GSEs had not and were not likely to incur losses that would have depleted their capital;
(H) the GSEs had not committed any violation of any law or used any unsafe practice likely to
Case 1:21-cv-01949-KCD Document 1 Filed 10/01/21 Page 38 of 45
- 36 -
cause insolvency or weaken the companies’ condition; (J) the GSEs were not undercapitalized
without the prospect of becoming adequately capitalized; (K) the GSEs were not critically
undercapitalized; and (L) the GSEs had not committed money laundering.
112. The GSEs did not validly consent to the conservatorships. The Government falsely
informed the GSEs that they had no choice but to consent or the Government would impose
conservatorship regardless. Government officials did not give the boards any meaningful notice.
Furthermore, they suggested that the board members would face personal reputational risk if they
did not consent. As the boards’ consent was based on false information, coercion, and improper
threats, it was not a legally valid basis on which to impose a conservatorship.
113. As a holder of $898,448,392 of preferred shares in both GSEs, FBOP Subsidiaries
had the right to dividend payments. FBOP Subsidiaries also had voting rights to protect those
dividend rights. FBOP Subsidiaries had a property interest in these rights, as well as in the value
of the shares themselves. As a holder of approximately $40 million of GSE preferred shares the
FBOP wholly-owned non-bank subsidiary, River Capital, had the right to dividend payments.
River Capital also had voting rights to protect those dividend rights. River Capital had a property
interest in these rights, as well as in the value of the shares themselves.
114. Through the conservatorship, in violation of the Fifth Amendment, the Government
seized the rights attached to the shares and rendered the shares effectively worthless. The FBOP
Subsidiaries and River Capital were thereby deprived of all use and benefit of their shares. As the
shares had been rendered worthless, the FBOP Subsidiaries and River Capital could no longer
make economically beneficial use of the shares; their sale value was negligible, particularly since
they no longer had voting or dividend rights attached to the shares.
What are the Kelly and Brydon Fisher lawsuits about?
Thanks again Robert. I will look at it - we will see when SCOTUS decides on the Cert petition for the CFPB case. We definitely have good odds in the 5th regarding the Collins appeal.
The National Economic Council and Hank's right hand guy at UST were planning to nationalize the GSEs in 2008
From Page 12 of from the March 8 2008 Memo:
"As shareholder capital gets wiped, the government will have no choice but to seize the company and place it in conservatorship or receivership. Importantly, mortgage-backed security holders guaranteed by Fannie Mae will see no losses. The government will likely allow debt holders to fare okay, with either no or token losses, perhaps 1%. Shareholders, both common and preferred, are likely to be left with nothing. As shareholder capital gets wiped, the government will have no choice but to seize the company and place it in conservatorship or receivership. Importantly, mortgage-backed security holders guaranteed by Fannie Mae will see no losses. The government will likely allow debt holders to fare okay, with either no or token losses, perhaps 1%. Shareholders, both common and preferred, are likely to be left with nothing"
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
Thanks Robert - Interesting article on the 5th Circuit Court of Appeals. Collins and CFPB cases are discussed
https://www.vox.com/policy-and-politics/2022/12/27/23496264/supreme-court-fifth-circuit-trump-court-immigration-housing-sexual-harrassment
Happy New Year Skeptic7! So you are saying that SCOTUS will not grant Cert to the DC Court of Appeals cases to be considered in the next conference?
Great Points Rodney5,
Have you read the Kelly Complaint before Judge Davis - the Kelly Plaintiffs did have the same counsel as Washington Federal but they will soon unveil new counsel and respond to the USG's motion to dismiss.
https://www.glenbradford.com/wp-content/uploads/2021/10/21-cv-01949-0001.pdf
Really compelling fact pattern for a derivative claim.
Merry Christmas - Happy Holidays Amelia!
Here is a little Holiday Day Yule of Law Tide Cheer From Judge Edith Jones!
Merry Christmas or Happy Holidays and Happy New Year to All! May Common and JPS shareholders alike be blessed with Justice and Fairness in the New Year!
Thank You!
Happy Holidays!!
I am wondering if the Plaintiffs can make the case that future preference of cash flows under the operation of the SPS to be void since it is prospective. This line of reasoning should also stop the reimposition of the NWS. The FHFA may maintain custody but not reallocate or reprioritize the assets and earnings of the Conservatorship Estate.
I also find it interesting that the DOJ settled the All American Case after it was remanded to the District Court:
https://www.consumerfinancemonitor.com/2022/11/14/cfpb-lawsuit-against-all-american-check-cashing-ends-in-settlement/
The All American CEO can continue in the business - you would think they would not have settled if the DOJ could have barred him prospectively.
Wishing you and all others of good will the best PROSPECTIVELY!! for the NEW YEAR AND HOLIDAY SEASON
Really appreciate your contributions!!
Can the Plaintiffs request a bench decision this time? Can the Plaintiffs appeal the limited potential damages before proceeding to trial or are they locked in?
Happy Holidays Skeptic7! You have been the most correct on this Board but someday the brilliance of the Constitution will win out.
If SCOTUS rules against the JB Admin in the CFPB case the open issue is whether the FHFA is just as unconstitutionally structured as the CFPB. Will SCOTUS handle this in the CFPB case or will the 5th Circuit rule on the REMAND of the Collins case leaving SCOTUS the decision to grant Cert or not. Unless SCOTUS definitively decides - the future preferences of the GSE cash flows most likely will be invalid. Congress did not have the power to structure the FHFA in a way to violate the Appropriations clause and the FHFA does not have the power to increase the liquidation preference under the SPSA and possibly a new NWS. This is different from Collins because the issue is the Congressional power of the purse and not the Unitary power of the President. Nothing may happen until it matters but for sure the JB Admin wont be able to pursue an Admin action. Otherwise as time passes - common shareholders will have more incentive to challenge the future operation of the SPSA since there are billions more that should be allocated to shareholders and not the UST.
Thanks Clarencebeaks21 and Robert.
Schiltz made a factual determination with no opportunity to argue the facts on whether Trump could have replaced Watt. Remember the DC Circuit overturned Kavanaugh and a three judge panel En Banc and ruled that the CFPB WAS CONSTITUTIONAL in January of 2018. It took Seila to give Trump the power to remove Kraninger who was openly competing against Mulvaney when Corduray resigned. Warren and other members of the Senate were openly challenging Trumps ability to appoint Mulvaney. Schiltz is clearly wrong on the facts - sad to think that this guy is going to be Chief Judge.
See the link on the DC Circuit PHH En Banc Decision:
https://orlans.com/en-banc-panel-surprises-phh-v-cfpb-decision/