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You can do that when you have a flux capacitor.
If the FHFA and Treasury are determined to keep the companies in perpetual conservatorship pay the Shareholders fair market value compensation. The Treasury has been paid in full plus interest. Between the two companies over $301 billion has been sent to the Treasury. I do not think it's about money they own the printing press with the power to create as much as they want.
Why are these people so determined to wipeout the Shareholders?
I have heard for years the Companies could never pay down the Liquidation Preference and redeem the SPS. That statement is not true.
The problem is the FHFA / Treasury appointed CEO's do not work for the shareholders. The money sent to the Treasury pays down the LP and the SPS should be redeemed with such payments. $301 billion sent to the Treasury.
So why go through the charade of asking Fannie and Freddie raise additional capital to pay off the senior preferred in full when it has already been paid.
The mechanism is there as clear as day in the stock certificates and the repurchase option set out is fully consistent with the view that the government advances were, if possible, only a short-term backstop that Fannie and Freddie could refinance at any time with private capital.
Quote: “Section 3 then, set outs “Optional Pay Down of Liquidation Preference” that specifies that “[f]ollowing termination of the commitment” of the Treasury to make further advances of cash for new senior preferred shares, “the Company may pay down the Liquidation Preference of all outstanding shares of the senior preferred stock pro rata, at any time, in whole or in part, out of funds legally available therefore.” Since there are no unpaid cash dividends all, these payments immediately go to reduce the amount of the liquidation preference.
With or without the Third Amendment, the Treasury’s commitment to make further advances remains, even if no such advance has been made since the beginning of 2012. But that commitment is of little if any value now that further advances from Treasury are no longer needed. Most critically, Section 4 addresses “Mandatory Pay Down of Liquidation Preference Upon Issuance of Capital Stock.”
Its exact provisions need to be quoted to grasp the full legal position. This section comes into play “if the Company shall issue any shares of capital stock (including without limitation common stock or any series of preferred stock) in exchange for cash at any time while the Senior Preferred Stock is outstanding.” Note that this provision does not require the consent of that “the holders of record of the outstanding shares of the Senior Preferred Stock” (which need not be the US Treasury). These shareholders receive full protection because Fannie and Freddie are obligated to “use the proceeds of such issuance . . . to pay down the Liquidation Preference of all outstanding shares of Senior Preferred Stock pro rata, out of funds legally available therefor. . .”
In sum, Section 4, of the senior preferred stock certificate in essence allows the trustees of Fannie and Freddie to go to the market at any time to raise new capital, including new capital with lower dividend coupons, to buy back the Treasury’s senior preferred. Any loyal conservator of Fannie and Freddie would take advantage of this refinancing option to end the bailout arrangement, by paying off the senior preferred in full once Fannie and Freddie have sufficient capital to resume normal market operations. At this point, it is a fair inference that the Treasury commitment would end once that recapitalization is complete. In light of this arrangement, it seems incorrect to argue, as does Goodman, that “the GSEs were never provided with a mechanism to emerge from conservatorship because it was never expected they would do so.” The mechanism is there as clear as day in the stock certificates and the repurchase option set out is fully consistent with the view that the government advances were, if possible, only a short-term backstop that Fannie and Freddie could refinance at any time with private capital. Furthermore, FHFA would also refinance the expensive 10 percent preferred for cheaper preferred or common, once it became clear, as it is now, that these are healthy companies (in which case cheaper financing is available).
At this point, the Third Amendment cannot be used to wipe out the 10 and 12 percent dividend rates in the initial stock certificates. Once the Third Amendment is declared illegal, as it should be, the extra payments to Treasury must be treated first as though they were a return of capital that calls for a dollar-for-dollar redemption of the senior preferred, thereby reducing the Treasury’s liquidation preference. Once all those shares are redeemed, the remainder of the money paid over to Treasury should be treated as excess payments that must be repaid in full to Fannie and Freddie with interest.
Nothing else makes sense. Suppose the government sought to just repay the extra money to Fannie and Freddie in order to reinstate the above-market 10 percent dividend. It still could not reasonably prevent Fannie and Freddie from exercising the mandatory repurchase under Section 4 So why go through the charade of asking Fannie and Freddie raise additional capital to pay off the senior preferred in full when it has already been paid. Read together, Sections 3 and 4 make it impossible for the government to keep the highly favorable 10 percent dividend in place when it is no longer warranted by market conditions.” End of Quote
https://www.forbes.com/sites/richardepstein/2014/09/10/what-happens-if-the-government-loses-on-the-third-amendment-the-senior-preferred-stock-certificates-spell-nothing-but-trouble-for-the-government/?sh=50886006a393
https://www.fhfa.gov/Conservatorship/Documents/Senior-Preferred-Stock-Agree/FNM/SPSPA-amends/FNM-Fourth-Amended-Restated-Certificate-04-13-21.pdf
Richard A. Epstein is the Laurence A. Tisch professor of Law at NYU, senior fellow at the Hoover Institution, and senior lecturer at the University of Chicago Law School.
Quote: “In closing, there is a simple test by which to measure the probity of the combined actions of FHFA and Treasury. If FHFA were replaced by a private trustee, and Treasury were replaced by a private supplier of fresh debt or equity capital, both parties would end up in jail if they concocted a scheme that resembled the NWS. Everyone would cut through the various smokescreens to see that the excess dividends were a naked raid on the interests of the other shareholders as happened here. The great tragedy of the majority opinion is it follows the all-too-common practice of giving the government a free pass when its own motives are as corrupt, or more so, than comparable private parties in similar roles and with similar legal duties. From the time that I started to work on this issue, I always said that litigating against the government is like playing craps with loaded dice.” End of Quote
Link: https://www.forbes.com/sites/richardepstein/2017/03/03/d-c-circuit-refuses-to-see-limits-to-government-power-and-inexcusably-upholds-the-net-worth-sweep/?utm_source=yahoo&utm_medium=partner&utm_campaign=yahootix&partner=yahootix&yptr=yahoo&sh=1c4704c74167
You and I will not agree on this, so let's agree to disagree. This is an endless maze that has no ending. It is wrong for the FHFA / Treasury to take my investment away!
Best Regards.
The Senior Preferred Stock held by the Treasury was not a perpetual equity investment in Fannie and Freddie at the moment in time when the companies were put in conservatorship. The pay down option of the Liquidation Preference and cancel of the SPS was worded in the documentation between the Treasury and the Companies at the time when Fannie and Freddie were put in conservatorship, this wording remains unchanged today.
Not a perpetual investment when the companies have the right to pay it off.
Pay down option of the Liquidation Preference,
option
option
option ... Get it? they have the option. The Net Worth Sweep takes all the money that could have been used to pay off the SPS.
The quote from ROLG does not make you right either. He knows just like I know it is so wrong to make the companies pay.
The SPS has been paid in full plus 10%. And you want the FHFA to allow the Treasury to convert to Common Stock diluting the value of our shares to nothing. That is so wrong in every way.
History of how the FHFA / Treasury have treated Fannie and Freddie. The Jury has a right to know. This treatment is proof the takeover of the companies was intended to wipeout the shareholders. Take all the Net Worth.
So, again you think the Companies should pay any claim coming out of the trial. Same discussion over at Tim's place.
Quote: "ruleoflawguy
AUGUST 24, 2022 AT 4:33 PM
@gd
I would take that case. FHFA found liable for improperly “conserving GSEs”, then FHFA makes GSEs pay. dont think so" End of Quote
Comments section: https://howardonmortgagefinance.com/2022/08/08/mind-the-gap/#comments
So, you think the Common Shareholders should pay with all their Net Worth by paying two times.
Again, if the SPS were to be converted to Common Stock the terms of the contract would have to be voided. That is wrong in every way.
What I posted has everything to do with the case. The Jury needs to know the history of Fannie and Freddie leading up to the Net Worth Sweep. Get it? The Truth will not go away.
Sweeping all the Net Worth.
You ask about dividends? Yes, before the Third Amendment 10 percent now it's all the Net Worth. Interest / dividend it's all the same. Not playing on words.
According to Professor Richard Epstein
Quote “The conflict of interest took a more ominous turn with the adoption of the Third Amendment between FHFA and Treasury nearly four years later. At that time, the market had quieted down, and the GSEs were making timely dividend payments on Treasury’s preferred stock. Nonetheless, FHFA and Treasury ripped up the old agreement, and substituted in its place a new deal that created a “net worth sweep” whereby all of the funds received by the GSEs were paid over to Treasury as a dividend, even in amounts far in excess of the original 10 percent dividend. The consequences have been huge. Without the Third Amendment, virtually all the senior-preferred stock would have been redeemed. With the Third Amendment, about $128 billion that could have been used to redeem the preferred shares has been reclassified as a dividend payment, rather than a return of capital.” End of Quote
Please Note: “Without the Third Amendment, virtually all the senior-preferred stock would have been redeemed.”
Link: https://ricochet.com/326448/fannie-freddie-fiasco/
I recommend incorporating the below information in the presentation to the Jury.
The taking of private property in violation of the 5th Amendment of the United States Constitution.
Premeditated Eaton Park
Counterfeiting
The Take Down
Deferred Tax Assets
Do the Math
The subject of the 'Deferred Tax Assets' should be explained in simplicity, so simple that a Juror with no knowledge of finance could easily understand.
SCOTUS Quote: “If you do the math, the government's been paid back in toto plus 10 percent interest and there's 29.5 billion dollars left over.” End of Quote... This was dated back in 2021. Since more money has been paid to the Treasury. I would have the math done to the exact amount up to date as of this date in time.
COUNTERFEITING
INFORMATION FROM: U.S. Securities and Exchange Commission web site.
The counterfeiting of U.S. assets. Theft from pension funds, State employee retirement accounts, and U.S. Citizens. The counterfeiting of shares of Fannie Mae and Freddie Mac. Where are our regulators and who are they protecting?
Quote: “Without the counterfeiting of the GSEs shares and the concerted effort to manipulate the stock prices, the GSEs potential to raise significant capital would have been much greater and it is unlikely that the U.S. Taxpayers would be the conservators of these companies at this time. This report shows why this is true and that illegal sellers of the shares of the two GSEs made a vast sum of money taking down these companies to the detriment of the U.S. Citizens. This report names who the key market participants are in the trading of the GSEs.” End of Quote.
Link: https://www.sec.gov/comments/s7-08-09/s70809-407a.pdf#:~:text=Fannie%20Mae%20and%20Freddie%20Mac%20are%20publicly%20traded,was%20occurring%20in%20the%20trading%20of%20the%20GSEs
THE TAKE DOWN
The Market-Makers Naked Short of Fannie Mae stock into oblivion, created the sense the company was bankrupt too big to fail and would destroy the U.S. Economy if something was not done. Afterwards, forced the company into a takeover (nationalization) making the company write off the deferred tax assets creating a huge loss to further the appearance the company to be bankrupt in an attempt to never ever allow Fannie Mae to return to profitability ever.
EVIDENCE
Mr. Howard Quote, “Convincing evidence exists that the conservatorships of Fannie Mae and Freddie Mac were planned well in advance, and that they were intended to remove the companies permanently from private ownership.” End of Quote
Quote, “On July 11, the New York Times published a front-page article saying, “Senior Bush administration officials are considering a plan to have the government take over one or both of [Fannie Mae and Freddie Mac] and place them in a conservatorship if their problems worsen.”Shares of the companies plunged, and in response Paulson publicly pledged support for them on July 13, saying, “Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies.”Yet he had a very different private message for Wall Street insiders. As reported by Bloomberg in November of 2011, Paulson met with a select group of hedge fund managers at Eaton Park Capital Management on July 21, where he told them that Treasury was considering a plan to put Fannie Mae and Freddie Mac into conservatorship, which would effectively wipe out common and preferred shareholders.This, of course, is precisely what happened six weeks later. End of Quote, From “Treasury, the Conservatorships, and Mortgage Reform” January 11, 2015
Treasury, however, lacked authority to put the two companies into conservatorship; only the new regulator, FHFA, could do that. And Treasury had kept neither the old OFHEO nor the new FHFA apprised of its nationalization intentions. Paulson was unaware that the FHFA had sent both Fannie Mae and Freddie Mac letters saying the companies were safe and sound and exceeded their regulatory capital requirements. Paulson told Lockhart that he had to change his agency’s posture on the two companies, and FHFA did exactly that. FHFA sent each company an extremely harsh mid-year review letter, and two days later, Paulson, Lockhart and Fed chairman Bernanke met with the companies’ CEOs and directors to tell them they had no choice but to agree to conservatorship.
When Paulson met with the directors of Fannie Mae and Freddie Mac to inform them of his intent to take over their companies, neither entity met any of the twelve conditions for conservatorship spelled out in the newly passed HERA legislation. Paulson since has admitted he took the companies over by threat. This fact has been stated in the Washington Federal Lawsuit filed against the government.
Page 30-31 Twelve Conditions
Link: https://docs.google.com/file/d/0BxUYhg0cYUOTbkZYVVJkaGtoS1E/edit?resourcekey=0-gU6I5hW3ndG5E3uY2VEyGA
Deferred Tax Assets
The deferred tax assets, Treasury forced the companies to write down and record these non-cash expenses making the companies appear bankrupted. Keep in mind deferred tax ‘ASSETS’...
Mr. Howard
Quote: “Between the time Fannie and Freddie were put into conservatorship and the end of 2011, well over $300 billion in non-cash accounting expenses were recorded on their income statements. These non-cash expenses, most of which were discretionary, eliminated all of the Companies’ capital and forced them, together, to take $187 billion from Treasury. But because accelerated or exaggerated expenses cause losses that are only temporary, Fannie’s and Freddie’s non-cash losses began to reverse themselves in 2012. Coupled with profits resulting from a rebounding housing market, the reversal of these losses enabled both Companies to report in August 2012 sufficient second quarter income to not only pay their dividends to Treasury but also retain a total of $3.9 billion in capital. As soon as it became apparent that a large percentage of the non-cash accounting losses booked during the previous four years was about to come back into income, Treasury and FHFA entered into the Third Amendment to the PSPA. The Third Amendment substituted for the fixed dividend payment a requirement that all future earnings—including reversals of accounting-related expenses incurred earlier—be remitted to Treasury. From the time the Third Amendment took effect through the end of 2014, Fannie and Freddie paid Treasury $170 billion, $133 billion more than they would have owed absent the Amendment.” End of Quote
SCOTUS
Again, the below information was dated back in 2021. Since more money has been paid to the Treasury. I would have the math done to the exact amount up to date as of this date in time.
SCOTUS Quote:
“MR. THOMPSON: Number 1, we're seeking prospective relief so that in your hypothetical the Senate confirmed director would be enjoined from making any future sweep dividend, approving any future sweep dividend payment; and, number 2, we're asking to go back and have the overpayments, over and above the $18.9 billion, to be treated as a pay down of principal. And that would essentially deem the government paid back.
We calculate
those overpayments to be 124 billion dollars,
and each one of those overpayments was an
implementation of the Net Worth Sweep.
So, if there had not been a Net Worth
Sweep, there would be 124 billion dollars of
capital on the balance sheet today.
And if you do the math, the government's been paid back in toto plus 10 percent interest and there's 29.5 billion dollars left over.” End of Quote
https://www.supremecourt.gov/oral_arguments/argument_transcripts/2020/19-422_3e04.pdf
According to Professor Richard Epstein
The Senior Preferred Stock would have been redeemed.
FOURTH AMENDED AND RESTATED CERTIFICATE OF DESIGNATION OF TERMS OF VARIABLE LIQUIDATION PREFERENCE SENIOR PREFERRED STOCK, SERIES 2008-2
FACT: The Senior Preferred Stock cannot be converted to common stock.
No 6 and No 7
Quote “No Conversion or Exchange Rights
The holders of shares of the Senior Preferred Stock shall not have any right to convert such shares into or exchange such shares for any other class or series of stock or obligations of the Company.
No Preemptive Rights
No holder of the Senior Preferred Stock shall as such holder have any preemptive right to purchase or subscribe for any other shares, rights, options or other securities of any class of the Company which at any time may be sold or offered for sale by the Company.” End of Quote
https://www.fhfa.gov/Conservatorship/Documents/Senior-Preferred-Stock-Agree/FNM/SPSPA-amends/FNM-Fourth-Amended-Restated-Certificate-04-13-21.pdf
According to Professor Richard Epstein
The Senior Preferred Stock would have been redeemed.
Quote “The conflict of interest took a more ominous turn with the adoption of the Third Amendment between FHFA and Treasury nearly four years later. At that time, the market had quieted down, and the GSEs were making timely dividend payments on Treasury’s preferred stock. Nonetheless, FHFA and Treasury ripped up the old agreement, and substituted in its place a new deal that created a “net worth sweep” whereby all of the funds received by the GSEs were paid over to Treasury as a dividend, even in amounts far in excess of the original 10 percent dividend. The consequences have been huge. Without the Third Amendment, virtually all the senior-preferred stock would have been redeemed. With the Third Amendment, about $128 billion that could have been used to redeem the preferred shares has been reclassified as a dividend payment, rather than a return of capital.” End of Quote
Please Note: “Without the Third Amendment, virtually all the senior-preferred stock would have been redeemed.”
Link: https://ricochet.com/326448/fannie-freddie-fiasco/
Mr. Howard said
Quote: "First, Treasury and FHFA must agree to cancel the net worth sweep, and eliminate Treasury’s liquidation preference. Fannie and Freddie already have repaid their senior preferred stock, with 10 percent interest. And Treasury should not require that the companies’ senior preferred be converted to common. To do so would be to require them to repay their indebtedness to Treasury twice, which is unjustifiable, and blatantly unfair. Without the senior preferred, Fannie and Freddie’s combined March 31, 2022 capital shortfall of $441 billion would be cut to $248 billion, or by 44 percent." End of Quote.
https://howardonmortgagefinance.com/2022/05/23/a-capital-reality-check/
If the Treasury required the companies to convert the senior preferred to common stock the contract would have to be voided the way it is written.
FOURTH AMENDED AND RESTATED CERTIFICATE OF DESIGNATION OF TERMS OF VARIABLE LIQUIDATION PREFERENCE SENIOR PREFERRED STOCK, SERIES 2008-2
FACT: The Senior Preferred Stock cannot be converted to common stock.
No 6 and No 7
Quote “No Conversion or Exchange Rights
The holders of shares of the Senior Preferred Stock shall not have any right to convert such shares into or exchange such shares for any other class or series of stock or obligations of the Company.
No Preemptive Rights
No holder of the Senior Preferred Stock shall as such holder have any preemptive right to purchase or subscribe for any other shares, rights, options or other securities of any class of the Company which at any time may be sold or offered for sale by the Company.” End of Quote
https://www.fhfa.gov/Conservatorship/Documents/Senior-Preferred-Stock-Agree/FNM/SPSPA-amends/FNM-Fourth-Amended-Restated-Certificate-04-13-21.pdf
Grand Theft Treasury
By: Richard A. Epstein
Quote: "To call that money a “dividend” relies on a profound public misunderstanding of the complex transactions that generated this ill-begotten Treasury bonanza." End of Quote.
Quote: "It takes no special acumen to realize that the 2012 transaction was completely one-sided; FHFA and Treasury used a fancy set of legal maneuvers to strip both corporations of their assets for the sole benefit of the government. Generally, senior preferred shareholders are entitled to recover their principal and interest in full, after which their shares are cancelled. In this case, the government did precisely the opposite. It treated Fannie and Freddie as gifts that keep on giving, wiping out all shareholder profits." End of Quote
Link: https://www.hoover.org/research/grand-theft-treasury#:~:text=Grand%20Theft%20Treasury%20The%20U.S.%20government%20has%20unconstitutionally,full%20of%20good%20news%20for%20the%20body%20politic.
The Market Cap of the Common Stock would reflect the value of the companies earnings power in price per share if the Treasury would get out of the way. The share price as of today’s trading has absolutely nothing to do with the VALUE of Fannie and Freddie. The question, how big of a slice will the Treasury get away with?
Without the Warrants
Earnings Power of the Business
A multiple of 14 is not unreasonable
Fannie Mae
07/29/2022
Reports $4.7 Billion for Second Quarter 2022
EARNINGS POWER OF THE BUSINESS
Market Cap $263 Billion
Fannie Mae’s common stock outstanding 1,158,087,567
$4.7 billion net income for the second quarter of 2022.
Fannie Mae’s net earnings $4.7 billion per quarter, a projection of $18.8 billion net per year.
$18.8 billion net / 1,158,087,567 = $16.23 per share of earnings
PE Ratio of 14 x $16.23 = $227.22 per share Intrinsic Value
Even if we calculate a lower multiple the Earnings Power of Fannie Maes business is incredible. The below example of a secondary offering to raise the capital required by the FHFA and remove the Treasury out of our business is not hard to do.
If the FHFA would adopt the suggestion from Mr Howard, at 2.5 percent capitalization requirement this would open up, and facilitate, a path for the companies out of conservatorship.
If the Treasury would deem the liquidation preference paid and the Senior Preferred Stock canceled the company's common stock could be relisted on the NYSE and trade at fair value, this could happen only if the Treasury would assure the market that the company has been returned to shareholders as a for profit publicly traded company. The company could still function for the purpose of its charter.
Example of a Secondary Offering IPO calculated for Fannie Mae.
From 2nd Quarter 10Q 2022,
Quote: “Fannie Mae is a leading source of financing for mortgages in the United States, with $4.3 trillion in assets as of June 30, 2022.” End of Quote.
$4.3 trillion x 2.5 percent = $107.5 billion of total assets minus $56.4 billion company's net worth = $51.1 billion amount in a secondary offering to adequate capitalization.
Secondary Offering IPO would add Equity (cash) to the balance sheet, the secondary offering contributes the necessary capital to satisfy the FHFA requirement under the set capital rule. Keep in mind, new investors are buying earnings power of the business, the Shareholders are not giving away the company in a secondary IPO without a price; Investors are doing just that buying into the company.
Fair Market Value of the Earnings Power of the business $45.64 per share. (this calculation includes the 79.9% warrants converted to common stock). How much of a discount of the fair value the company would have to give up to attract new investors to participate in such a secondary offering I am not sure. The below example I will use a 15 percent discount.
Fannie Mae
07/29/2022
Reports $4.7 Billion for Second Quarter 2022
EARNINGS POWER OF THE BUSINESS
Market Cap $263 Billion
Fannie Mae’s common stock outstanding 1,158,087,567
$4.7 billion net income for the second quarter of 2022.
Fannie Mae’s net earnings $4.7 billion per quarter, a projection of $18.8 billion net per year.
With the WARRANTS: Fannie Mae’s common stock outstanding 1,158,087,567 diluted by the warrants at 79.9 percent adds a total of 5,761,629,686 shares outstanding…
$18.8 billion net / 5,761,629,686 = $3.26 per share of earnings,
PE Ratio of 14 x $3.26 = $45.64 per share intrinsic value,
Market Cap 263 billion / 5,761,629,686 billion shares = $45.64 per share intrinsic value.
Example: If the company is required an additional $51.1 billion as a capital requirement to reach the $107.5 billion of the 2.5 percent of total assets, and to make the secondary offering attractive the price per share could be at extreme discount of 15 percent and in this case the secondary offering would price at $38.79 per share;
$45.64 Per Share Intrinsic Value minus 15 percent = $38.79
$51.1 billion secondary IPO / $38.79 = 1,317,349,832 billion new shares.
After the secondary offering a total of 7,078,979,518 billion common shares outstanding.
Market Cap 263 billion / 7,078,979,518 billion shares = $37.15 per share intrinsic value.
FROM A PRIVATE INVESTOR POINT OF VIEW:
Example with Warrants:
Estimated Net income per year $18.8 billion / 7,078,979,518 billion shares total after secondary offering = $2.65 per share net income per year; amount of net profits Fannie generates per year per share.
Secondary Offering priced at $38.79 per share minus $37.15 per share Intrinsic Value after secondary offering = $1.64; the new equity owners are buying $1.01 per share net earnings per year for $1.64 per share; $2.65 minus $1.64 = $1.01 per share.
Again, new investors are buying earnings power of the business, shareholders are not giving away the company in a secondary IPO without a price, Investors are doing just that buying into the company.
Market Cap 263 billion / 7,078,979,518 billion shares = $37.15 Per Share Intrinsic Value.
Treasury holds 4,603,542,119 billion shares x $37.15 = $171 billion.
Common Shareholders 2,475,437,399 billion shares x $37.15 = $92 billion.
Individual shareholders multiply number of shares x $37.15 = intrinsic value of your holding.
In my calculation no amount of dividends were added for the JPS. The JPS are on the books at a small amount of company equity in the amount of 19.1 billion. The JPS are not due any amount of accumulated backward dividends, every issue of JPS are Non Cumulative.
The advantage of the JPS is in a receivership; And receivership is not in discussion any longer.
Conclusion, the GSEs business model, simply there’s no better. So, Fannie Mae can issue, at a later date in time (no rush), Non Cumulative Preferred Stock replacing the higher dividend payment to the existing JPS at a lower payout rate. The JPS Shareholders receive Par Value with a New offering.
Intrinsic Value of the Earnings Power of Fannie Mae.
If the Treasury would deem the liquidation preference paid and the Senior Preferred Stock canceled the company's common stock could be relisted on the NYSE and trade at fair value, this could happen only if the Treasury would assure the market that the company has been returned to shareholders as a for profit publicly traded company.
Fannie Mae
07/29/2022
Reports $4.7 Billion for Second Quarter 2022
EARNINGS POWER OF THE BUSINESS
Market Cap $263 Billion
Fannie Mae’s common stock outstanding 1,158,087,567
$4.7 billion net income for the second quarter of 2022.
Fannie Mae’s net earnings $4.7 billion per quarter, a projection of $18.8 billion net per year.
With the WARRANTS: Fannie Mae’s common stock outstanding 1,158,087,567 diluted by the warrants at 79.9 percent adds a total of 5,761,629,686 shares outstanding…
$18.8 billion net / 5,761,629,686 = $3.26 per share of earnings,
PE Ratio of 14 x $3.26 = $45.64 per share intrinsic value,
Market Cap 263 billion / 5,761,629,686 billion shares = $45.64 per share intrinsic value.
Stop with the SPS Conversion.
Senior Preferred Stock cannot be converted to Common Stock or any class of Stock UNDER THE TERMS of THE AGREEMENT.
FOURTH AMENDED AND RESTATED CERTIFICATE OF DESIGNATION OF TERMS OF VARIABLE LIQUIDATION PREFERENCE SENIOR PREFERRED STOCK, SERIES 2008-2
FACT: The Senior Preferred Stock cannot be converted to common stock.
No 6 and No 7
Quote “No Conversion or Exchange Rights
The holders of shares of the Senior Preferred Stock shall not have any right to convert such shares into or exchange such shares for any other class or series of stock or obligations of the Company.
No Preemptive Rights
No holder of the Senior Preferred Stock shall as such holder have any preemptive right to purchase or subscribe for any other shares, rights, options or other securities of any class of the Company which at any time may be sold or offered for sale by the Company.” End of Quote
https://www.fhfa.gov/Conservatorship/Documents/Senior-Preferred-Stock-Agree/FNM/SPSPA-amends/FNM-Fourth-Amended-Restated-Certificate-04-13-21.pdf
Comments Section
Quote: "Thank you, Washington Post, for finally presenting the shareholders side of this huge mess. As will be proven in the courts, this massive fraud never needed to happen in the first place. Fannie and Freddie had more than enough capital to survive the 2008 financial crisis. And while hindsight is 20-20 vision, the fact is that the GSEs were in no danger, none whatsoever, when Paulson threatened the boards and coerced them into giving the government control. Paulson could have waited to see whether government assistance was needed. But he wasn't about to let a good crisis go to waste.
Why would Paulson do this? Because for two decades FM Watch, funded by Wall Street banks and investment firms, had lobbied for the ending of the GSEs. Without Fannie and Freddie, Wall Street would securitize all the mortgages, and make all the money, and mortgages would become much more expensive. The GSEs were so efficient Wall Street couldn't compete. Without the GSEs, Wall Street would reap untold billions in profits in the mortgage securitization business.
There never was a liquidity crisis at Fannie and Freddie, like at Bear Stearns, Lehman Brothers, Merrill Lynch, Morgan Stanley, AIG, GM, etc. They were never undercapitalized until Paulson changed the rules in 2008 and declared them undercapitalized. There was never an infusion of cash; the books were changed to reflect additional capital received from the government. But there was no need for the additional capital. If Fannie and Freddie had received a line of credit from the government, instead of a paper infusion of capital, they would never have had to borrow a penny.
In fact, the GSEs did have a line of credit from the government, on much better terms. But Paulson refused to let them access that line of credit.
Paulson wanted the GSEs gone, for good. But he couldn't do it directly, so he tried to do it indirectly through a fake conservatorship. It's a bet he lost, but he certainly took the shareholders down with him." End of Quote...
Quote: "Weeks before the companies were placed into conservatorship, on July 8, 2008, James Lockhart, director of the Office of Federal Housing Enterprise, had this to say on CNBC "Both of these companies are adequately capitalized, which is our highest criteria..." Other Treasury officials and an independent analysis of F&F's financial stability confirmed the same. During the same interview, Lockhart stated "An accounting change should not drive a capital change."
Fannie Mae had $47 billion in regulatory capital and was in full compliance with all of its statutory capital requirements on the day it was put into conservatorship and the senior preferred stock agreement was signed. But that was irrelevant. Treasury had long believed the company’s capital was inadequate, and they finally had the power to make their view the only one that counted.
During the following 18 months, Fannie Mae’s actual credit-related losses—its loan charge-offs and foreclosed property expense—were just $16 billion. Virtually all the rest of its losses were accounting changes made by the company’s conservator, FHFA, that pulled into Fannie Mae’s 2008 and 2009 financial statements over $100 billion in "expenses" that, as it turns out, never occurred.
FHFA took a $21 billion charge to set up a reserve against the company’s deferred tax assets, arguing that it would not earn enough in the future to realize their full value, and gave a similar reason for writing off $8 billion in low-income housing tax credits. FHFA also took $17 billion in impairments on the company’s private-label security holdings and put $56 billion into its reserve for future loan losses, increasing that to $66 billion on December 31, 2009.
FHFA and Treasury engineered these large and early losses deliberately. But without these engineered losses, Fannie Mae would never have run out of capital, and would have survived the financial crisis stronger than ever." End of Quote.
Link: https://www.washingtonpost.com/business/did-the-us-shortchange-investors-27-billion/2022/09/21/12aaec36-396b-11ed-b8af-0a04e5dc3db6_story.html
At the start of the conservatorship, there were many (not all) JPS Holders calling for receivership, throwing the Common Shareholders under the bus! Well, it backfired, the Net Worth Sweep took place, (wipeout both common and preferred) The ‘Mistake’ instead of filling lawsuit against the entire conservatorship from the beginning the Collins lawsuit challenged the 3rd amendment NWS only. If we return to the Collins case which came in front of the SCOTUS it was asked by one of the Justices, why didn’t the Plaintiffs challenge the conservatorship as a whole instead of the Net Worth Sweep only. It’s called greed my friend.
Barron4664 said, Quote: " In fact, none of our court cases will work because they are focused on the language within the contract” End of Quote
I disagree, the Plaintiffs can win with the contract written just the way it is...
FOURTH AMENDED AND RESTATED CERTIFICATE OF DESIGNATION OF TERMS OF VARIABLE LIQUIDATION PREFERENCE SENIOR PREFERRED STOCK, SERIES 2008-2
FACTS: Optional Pay Down of Liquidation Preference 3 (b)
Quote: “In the event the Company shall pay down of the Liquidation Preference of the Senior Preferred Stock as aforesaid, notice of such pay down shall be given by the Company by first class mail, postage prepaid, mailed neither less than 10 nor more than 45 days preceding the date fixed for the payment, to each holder of record of the shares of the Senior Preferred Stock, at such holder’s address as the same appears in the books and records of the Company. Each such notice shall state the amount by which the Liquidation Preference of each share shall be reduced and the pay down date.” End of Quote
No one from the company has sent a letter to the Treasury stating the Liquidation Preference has been paid in full and the Senior Preferred Stock canceled. Instructions are written in the contract to do so. Reason, Treasury appointed CEOs work for the Treasury and not the companies.
WRITTEN IN THE CONTRACT STATES THE MONEY SENT TO THE TREASURY PAYS DOWN THE LIQUIDATION PREFERENCE AND WITH THIS PAY DOWN THE SPS REDEEMED
https://www.fhfa.gov/Conservatorship/Documents/Senior-Preferred-Stock-Agree/FNM/SPSPA-amends/FNM-Fourth-Amended-Restated-Certificate-04-13-21.pdf
More than enough money has been collected by the Treasury to deem the SPS redeemed. The commitment could be replaced easily with funding from Wall Street. The below was dated back in 2021. Since more money has been paid to the Treasury.
SCOTUS Quote:
“MR. THOMPSON: Number 1, we're seeking prospective relief so that in your hypothetical the Senate confirmed director would be enjoined from making any future sweep dividend, approving any future sweep dividend payment; and, number 2, we're asking to go back and have the overpayments, over and above the $18.9 billion, to be treated as a pay down of principal. And that would essentially deem the government paid back.
We calculate
those overpayments to be 124 billion dollars,
and each one of those overpayments was an
implementation of the Net Worth Sweep.
So, if there had not been a Net Worth
Sweep, there would be 124 billion dollars of
capital on the balance sheet today.
And if you do the math, the government's been paid back in toto plus 10 percent interest and there's 29.5 billion dollars left over.” End of Quote
https://www.supremecourt.gov/oral_arguments/argument_transcripts/2020/19-422_3e04.pdf
Barron4664 said, Quote: " In fact, none of our court cases will work because they are focused on the language within the contract and conflate that with the powers granted FHFA through HERA." End of Quote.
The FHFA had no right to take over the companies under the Law of HERA.
When Paulson met with the directors of Fannie Mae and Freddie Mac to inform them of his intent to take over their companies, neither entity met any of the twelve conditions for conservatorship spelled out in the newly passed HERA legislation. Paulson since has admitted he took the companies over by threat. This fact has been stated in the Washington Federal Lawsuit filed against the government.
Page 30-31 Twelve Conditions
Link: https://docs.google.com/file/d/0BxUYhg0cYUOTbkZYVVJkaGtoS1E/edit?resourcekey=0-gU6I5hW3ndG5E3uY2VEyGA
More than enough money has been collected by the Treasury to deem the SPS redeemed. The commitment could be replaced easily with funding from Wall Street. The below was dated back in 2021. Since more money has been paid to the Treasury.
SCOTUS Quote:
“MR. THOMPSON: Number 1, we're seeking prospective relief so that in your hypothetical the Senate confirmed director would be enjoined from making any future sweep dividend, approving any future sweep dividend payment; and, number 2, we're asking to go back and have the overpayments, over and above the $18.9 billion, to be treated as a pay down of principal. And that would essentially deem the government paid back.
We calculate
those overpayments to be 124 billion dollars,
and each one of those overpayments was an
implementation of the Net Worth Sweep.
So, if there had not been a Net Worth
Sweep, there would be 124 billion dollars of
capital on the balance sheet today.
And if you do the math, the government's been paid back in toto plus 10 percent interest and there's 29.5 billion dollars left over.” End of Quote
https://www.supremecourt.gov/oral_arguments/argument_transcripts/2020/19-422_3e04.pdf
The funding commitment cannot be terminated when all the NET WORTH IS TAKEN AWAY FROM THE COMPANIES, NO MONEY TO REDEEM THE SPS!
You can continue this endless maze of confusion by playing on words.
FACTS! OVER $301 BILLION HAS BEEN SENT TO THE TREASURY.
Ha, the liquidation has not been paid in full. That is right. When all the Net Worth is swept into the dark hole of the Treasury no money left over to pay down the LP.
Richard A. Epstein is the Laurence A. Tisch professor of Law at NYU, senior fellow at the Hoover Institution, and senior lecturer at the University of Chicago Law School. AND YOU STATE THE PROFESSOR IS WRONG. you are the one wrong.
Charles Potato said it best,
“You really have to admire these lawmakers, they come up with some great terminology. Net Worth Sweep, think about that for a minute. Sweeping all of your net worth.”
"It was the darnedest thing. I paid off my car and went to pick up the title at the bank. They told me the car belonged to them even though I made all the payments. They said my payments were swept into the dealers bank account and none of the money went to paying off the car. They said if I want to keep driving the car I need to keep making the payments. I asked them when I would have the car paid off and they said never, I have to just keep paying. They told me I must maintain the car and keep it in good working order, and they might come over to my house and set it on fire one day, but they are not sure when." End of Quote
Oh, my goodness! Shall, playing on words!
Read it, under the heading
Optional Pay Down of Liquidation Preference 3 (b)
You ask me to show the sentence?
FOURTH AMENDED AND RESTATED CERTIFICATE OF DESIGNATION OF TERMS OF VARIABLE LIQUIDATION PREFERENCE SENIOR PREFERRED STOCK, SERIES 2008-2
FACTS: Optional Pay Down of Liquidation Preference 3 (b)
Quote: “In the event the Company shall pay down of the Liquidation Preference of the Senior Preferred Stock as aforesaid, notice of such pay down shall be given by the Company by first class mail, postage prepaid, mailed neither less than 10 nor more than 45 days preceding the date fixed for the payment, to each holder of record of the shares of the Senior Preferred Stock, at such holder’s address as the same appears in the books and records of the Company. Each such notice shall state the amount by which the Liquidation Preference of each share shall be reduced and the pay down date.” End of Quote
No one from the company has sent a letter to the Treasury stating the Liquidation Preference has been paid in full and the Senior Preferred Stock canceled. Instructions are written in the contract to do so. Reason, Treasury appointed CEOs work for the Treasury and not the companies.
WRITTEN IN THE CONTRACT STATES THE MONEY SENT TO THE TREASURY PAYS DOWN THE LIQUIDATION PREFERENCE AND WITH THIS PAY DOWN THE SPS REDEEMED
Link: https://www.fhfa.gov/Conservatorship/Documents/Senior-Preferred-Stock-Agree/FNM/SPSPA-amends/FNM-Fourth-Amended-Restated-Certificate-04-13-21.pdf
According to Professor Richard Epstein
The Senior Preferred Stock would have been redeemed.
Quote “The conflict of interest took a more ominous turn with the adoption of the Third Amendment between FHFA and Treasury nearly four years later. At that time, the market had quieted down, and the GSEs were making timely dividend payments on Treasury’s preferred stock. Nonetheless, FHFA and Treasury ripped up the old agreement, and substituted in its place a new deal that created a “net worth sweep” whereby all of the funds received by the GSEs were paid over to Treasury as a dividend, even in amounts far in excess of the original 10 percent dividend. The consequences have been huge. Without the Third Amendment, virtually all the senior-preferred stock would have been redeemed. With the Third Amendment, about $128 billion that could have been used to redeem the preferred shares has been reclassified as a dividend payment, rather than a return of capital.” End of Quote
Please Note: “Without the Third Amendment, virtually all the senior-preferred stock would have been redeemed.”
Link: https://ricochet.com/326448/fannie-freddie-fiasco/
Optional Pay Down of Liquidation Preference
Optional Pay Down of Liquidation Preference
Optional Pay Down of Liquidation Preference
Get it? What do you mean “ never have had the ability to pay down the seniors any time they wanted to.”
The Net Worth Sweep took all the money! The SPS would be redeemed today if it had not been for the NWS.
Professor Epstein is not wrong you are wrong.
Professor Epstein stated the SPS would have been redeemed.
The Senior Preferred Stock held by the Treasury was not a perpetual equity investment in Fannie and Freddie at the moment in time when the companies were put in conservatorship. The pay down option of the Liquidation Preference and cancel of the SPS was worded in the documentation between the Treasury and the Companies at the time when Fannie and Freddie were put in conservatorship, this wording remains unchanged today.
Optional Pay Down of Liquidation Preference Following termination of the Commitment.
The companies cannot terminate the commitment WHEN ALL THE NET WORTH IS SWEEP INTO THE TREASURY.
FHFA and Treasury ripped up the old agreement and substituted in its place a new deal that created a “Net Worth Sweep” whereby all of the funds received by the GSEs were paid over to Treasury as a dividend, even in amounts far in excess of the original 10 percent dividend. When this took place all the money above the 10 percent dividend was not retained by the companies no money left to accumulate to terminate the commitment, to pay off the liquidation preference and cancel the SPS.
Quote “Without the Third Amendment, virtually all the senior-preferred stock would have been redeemed. With the Third Amendment, about $128 billion that could have been used to redeem the preferred shares has been reclassified as a dividend payment, rather than a return of capital.” End of Quote
The above statement was made by Professor Epstein on April 5, 2016. Since that time the Fannie and Freddie has sent to the Treasury $301 billion.
Richard A. Epstein is the Laurence A. Tisch professor of Law at NYU, senior fellow at the Hoover Institution, and senior lecturer at the University of Chicago Law School.
Senior Preferred Stock cannot be converted to Common Stock or any class of Stock UNDER THE TERMS of THE AGREEMENT.
FOURTH AMENDED AND RESTATED CERTIFICATE OF DESIGNATION OF TERMS OF VARIABLE LIQUIDATION PREFERENCE SENIOR PREFERRED STOCK, SERIES 2008-2
FACT: The Senior Preferred Stock cannot be converted to common stock.
No 6 and No 7
Quote “No Conversion or Exchange Rights
The holders of shares of the Senior Preferred Stock shall not have any right to convert such shares into or exchange such shares for any other class or series of stock or obligations of the Company.
No Preemptive Rights
No holder of the Senior Preferred Stock shall as such holder have any preemptive right to purchase or subscribe for any other shares, rights, options or other securities of any class of the Company which at any time may be sold or offered for sale by the Company.” End of Quote
https://www.fhfa.gov/Conservatorship/Documents/Senior-Preferred-Stock-Agree/FNM/SPSPA-amends/FNM-Fourth-Amended-Restated-Certificate-04-13-21.pdf
Get the Market-Makers to Naked Short Fannie Mae stock into oblivion, creating the sense the company is bankrupt, Too Big to Fail, (TBTF), and will destroy the U.S. Economy if something is not done. After, forcing the company into a takeover, (nationalization), make Fannie Mae write off all of the future Deferred Tax Asset creating a huge onetime loss-making sure Fannie Mae will never ever return to profitability ever. After the take down divide the company up with all the banker friends.
The Treasury Secretary holds a meeting with a group of Wall Street Managers, many former Goldman Sachs employees with the intent to reveal his plan to take over Fannie Mae and Freddie Mac wiping out the common stock and preferred shares.
Quote: “Bloomberg Markets reports that in July 2008 then-Treasury Secretary Hank Paulson told a meeting of big investors, including several fellow Goldman Sachs alumni, how he would nationalize Fannie and Freddie and wipe out shareholders, leaving little doubt that the Treasury Department would carry out the plan, according to Bloomberg's source.” End of Quote.
RESERVES FANNIE MAE NEVER NEEDED
James Lockhart
Congressman Alan Grayson Discusses Fannie Mae's use of Derivatives with James Lockhart of the FHFA. Hearing on June 3, 2009.
Time 5:00: Mr. Alan Grayson, Quote: “If those losses are only 192 million dollars how could 192-million-dollar loss result in a 100 billion dollar plus loss to the Taxpayer how is that possible?” End of Quote.
Mr. Lockhart of the FHFA answers, “Had to put up reserves, ooh ooh aha aha ooh aha, reserves, ooh ooh aha ooh, put up reserves for loans, aha aha aha ooh, if you think you cannot recover and loans aha aha ooh and that's what happened.” Reserves... (not an exact word for word quote of Mr. Lockhart).
Note: “If you think you cannot recover.” (Mr. Lockhart).
Time 5:55: Follow up question; Mr. Alan Grayson, Quote: “I still don't have a clear understanding from you about how a relative tiny amount like a 192 million dollar of unpaid mortgage interest on what is a trillion-dollar portfolio how that could possibly lead to Taxpayer shell out a 100 billion dollars plus.” End of Quote.
Mr. Lockhart attempts to explain the need to build up reserves... reserves... reserves...
Reserves Fannie Mae never needed.
Link:
The Jury needs to hear this fact.
When Paulson met with the directors of Fannie Mae and Freddie Mac to inform them of his intent to take over their companies, neither entity met any of the twelve conditions for conservatorship spelled out in the newly passed HERA legislation. Paulson since has admitted he took the companies over by threat. This fact has been stated in the Washington Federal Lawsuit filed against the government.
Page 30-31 Twelve Conditions
Someone said HERA is the Law, yes that is true. FHFA / Treasury did not follow the Law.
Link: https://gselinks.com/Court_Filings/Washington_Federal/13-385-0001.pdf
The money was swept into the dark hole of the Treasury.
Not sure of the exact amount but it was a lot. What stands out the GSE's did not cause the 2008 market crash.
bobstruths did the research several years back, posting what he found:
Quote: "bobstruths
Here is bank settlements I put together from info obtained from Reuters. It is only current thru 2016:
Enjoy!
When you read that the housing bubble was caused by FnF lowering their lending standards, keep in mind that settlements by those who misrepresented the quality of their mortgages were the ones who paid settlements for overstating the quality of the mortgages they sent to FnF. That list is long:
Lawsuits filed against those who misrepresented the quality of the mortgages sold to FnF totaled about $192 billion and settlements on those suits was about $42 billion. The checks were sent to FnF then the money was swept to Treasury with the quarterly Net Worth Sweep. In most cases, FHFA accepted settlements at about 15-20 cents on the dollar of the base amounts listed in the suit. Plus, some of the listed had multiple suits.
1. Ally Financial $52 million settlement on a $6 billion suit
2. Bank of America $16.65 billion settlement on a $57.45 billion suit
3. Barclays Bank PLC $280 million settlement on a $4.9 billion suit
4. Citigroup, Inc $7 billion settlement on a $? billion suit
5. Countrywide Financial see Bank of America
6. Credit Suisse $885 million settlement on a $14.1 billion suit
7. Deutsche Bank $1.92 billion settlement on a $14.2 billion suit
8. First Horizon National $110 million settlement on a $883 million suit
9. General Electric $550 million check payable to FnF settlement on a $550 million suit
10. Goldman Sachs $3.15 billion settlement on a $11.1 billion suit
11. HSBC North America Holdings, Inc. $550 million settlement on a $6.2 billion suit
12. JPMorgan Chase & Co. $4 billion settlement on $33 billion suit
13. Merrill Lynch see B of America
14. Morgan Stanley ? Suit was for $11.58 billion
15. Nomura Holding $839 million settlement on a $2 billion suit
16. The Royal Bank of Scotland $5.5 billion settlement on a $30.4 billion suit
17. Société Générale $122 million settlement on a $1.3 billion suit
That is a lot of money and FnF did not get to keep it.
In suing, "the FHFA was not looking for repurchases, but rather was looking to retrieve losses on Fannie and Freddie’s loan portfolios". These losses were not born by the US Government, but were losses experienced by FnF and FnF shareholders! Nonetheless, Treasury and the Obama Administration took all the settlements." End of Quote
Yes, HERA was law, Paulson did not follow the law.
When Paulson met with the directors of Fannie Mae and Freddie Mac to inform them of his intent to take over their companies, neither entity met any of the twelve conditions for conservatorship spelled out in the newly passed HERA legislation. Paulson since has admitted he took the companies over by threat. This fact has been stated in the Washington Federal Lawsuit filed against the government.
Page 30-31 Twelve Conditions
Link: https://docs.google.com/file/d/0BxUYhg0cYUOTbkZYVVJkaGtoS1E/edit?resourcekey=0-gU6I5hW3ndG5E3uY2VEyGA