Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
The website for the Southern District of Texas lists Nancy Atlas as (Inactive Senior Status) since April 2021. Looks like a new judge on the REMAND?
https://www.txs.uscourts.gov/page/history-district-judges
The problem is that she heavily relied on Lamberth in her first opinion. We will really be helped if the 5th Circuit grants Declaratory Relief for the Plaintiffs in the All American case. The All American plaintiffs are arguing that the Article III separation of powers Constitutional defect invalidates the ability of the CPFB to continue with the suit and regulatory actions by the CFPB.
Maybe I got this all wrong but we should find out in the next few months. The All American decision should come out before the decision on the REMAND.
I think you will find that the 5th Circuit disagrees. Justice Jones definitely does.
I think the 5th Circuit and the DC Circuit are following two different playbooks and SCOTUS will have to ultimately decide on the remedy for the Article I & III Constitutional Defects for the CPFB and for the Appointments and Article III defects pertaining to the FHFA. The DC Circuit Court of Appeals probably issued its opinion so the DOJ can site it in is Motion for Summary Judgement. Problem is that the DC Circuit relied on the 5th Circuit regarding the separation of powers remedy - they did not deal with the DJT Letter. Maybe you will have reason to have a LOFL as you said but maybe you need to be more reasoned in your skepticism. There are still jurist who believe in the Rule of Law - maybe not a lot of them in the Swamp but there are still jurist who believe in the Constitution.
Agreed - it is a surprise - especially since the 5th Circuit has not decided the retroactive relief issues in the CPFB v All American case yet.
Did you see this Notice from Arnold & Porter on the 3rd?
http://www.glenbradford.com/2022/03/fnma-fanniegate-1106/
The 5th Circuit issued the REMAND the very next day even though 5 Judges wanted Declaratory Relief in favor of the FHFA
Disagree - this quote is from the guy who wrote the Constitution:
“There are more instances of the abridgment of the freedom of the people by gradual and silent encroachments of those in power than by violent and sudden usurpations.”
James Madison
You are right in that the common assumption is that the Constitution does not matter but the skeptical position is that is does
Just listened to the CFPB v All American Check Cashing that was also heard in En Banc at the Fifth Circuit on Jan 19th. 5th Circuit hearings are on You Tube organized by month in chronological order.
Collins is mentioned several times and the separation of powers remedy was discussed several times. All American is looking to get an enforcement action dismissed for separation of powers defect and an Article I appropriations defect. Seems like this decision would influence the Collins deliberations on REMAND to the District Court.
Still dont understand why the DC Circuit Court of Appeals based their decision on the separation of powers remedy based off a ruling by the 5th Circuit that has not happened and probably will not happen. Perhaps the DC Circuit is referring to the Collins judgement before SCOTUS but that does not make sense.
Any thoughts?
Hi Kthomp - Has the Fifth Circuit decided that shareholders been afforded the only possible remedy available for the separation of powers violation?
What is weird is that Arnold and Porter notifies the Fifth Circuit of the COFC Appeals Decision on March 3 and on the very next day the 5th Remands to the District Court.
Thanks to Glen - here is the link for the March 3 email to the Fifth Circuit highlighting the separation of powers discussion in Feb Court of Appeals decision:
http://www.glenbradford.com/2022/03/fnma-fanniegate-1106/
Here is the last paragraph of that Decision:
Given all these realities, especially the Supreme Court's description of the extreme limits on the possible relief available to similarly situated shareholders, we agree with the Fifth Circuit that the shareholders have already been afforded the only possible remedy available for Barrett's alleged separation-of-powers violation. We thus conclude that Barrett no longer can assert such a claim on which relief can be granted and that his separation-of-powers claim must also be dismissed under Rule 12(b)(6)
Seems like they are relying on the 5th Circuit to dismiss the separation of powers claim but it seems like the 5th has not done so and has REMANDED?
Thoughts:
Isnt this grounds for Appeal by to the En Banc for the Court of Claims?
Seems weird that the very next day the 5th REMANDED to figure out damages if any and the COFC Court of Appeals is stating that the 5th already decided there were none - the Minority wanted a Declaratory Judgement to that effect but that was clearly rejected - right?
First of all Thanks!! for all you do on this Board for fairness.
My concern is that we need to survive the Motion For Summary Judgement and I am concerned about the rationale that was used to overturn Sweeney's Derivative claims holding at the COFC. Otherwise the REMAND is good just because it will give more time for all the outstanding litigation to develop while we expect UST to come up with some report or possibly a proposal to move forward with the Calhoun white paper affordable housing subsidiary.
Also - under the Capital Planning regs which were just published in the CFR - the FHFA needs to come up with a Capital Budget that moves the GSEs towards meeting it required risk capital levels.
Perhaps Glen knows what the plans are but if a proposal from UST is going to have a chance it needs to happen soon. JB is approaching 1.5 years into his term and faces losing control of the House and Senate. The Senate Banking Committee could be chaired by Tim Scott in the next Congress.
I am thinking this devolves into a political issue and hopefully DJT will raise the JB UST proposal as nationalization and socialism many times as it evolves.
Good Question FnF - Glen can you elaborate! Also - any thoughts on the Thompson Nomination moving to the Senate floor?
Thank God for the appointments of DJT to the 5th Circuit!!
Looks like two Judges - Southwick and Higginson who thought the NWS was authorized by HERA joined with the Majority to REMAND. We did not get a ruling on the burden of proof like ROLG wanted but this case will probably be outstanding pass the time that Lamberth has to decide the Motion for Summary Judgement and it also will be outstanding during some of the court calendar for the other cases like ROPP. Thoughts?
Thanks for the cite MannSinger regarding Judge Brown's statement. It was interesting to see that even George Will saw the corrupt nature of things in 2016. He wrote an Opinion piece that was also cited in the Washington Post cite.
You called it Louie! No real discussion about the housing affordability or housing inflation except for one small statement. Inflation is going to eat up new homebuyers and renters if nothing is done.
No mention of the new FHFA Capital Rule which will require the FHFA to come up with a capital budget in May and every year thereafter.
No mention of Senator's Toomey's call for Housing Reform legislation
No mention of Mike Calhoun's White Paper or the discussion at last week Brooking's Seminar.
No mention regarding the duration risk that taxpayers will take until the regulatory capital is raised. If interest rates rise, it will be harder to sell stock to raise equity capital and the value of the UST stake will decrease significantly.
No Mention that DJT II will mean a definite exit starting in 2.75 years.
Here is what Mike Calhoun thinks of the situation. Transcript from last week's Brookings Event - Feb 23, 2022 :
MR. CALHOUN: By locking in a lot of the extraordinary authorities that the
conservator has in –– the director of FHFA has in conservatorship that FHFA has. And just
as an example, the fact that the GSEs step in with the deferral mods that Director Calabria
ordered, the estimates were the cost of that and the advancing –– covering advances from services was north of $15 billion. You have to build those kinds of resiliency and market
support, as well as individual borrower support into the system. And this does this. And the
hook, if you will, is right now Treasury in essence holds all the cards there. They've got the
GSEs in a debt trap that the payday lenders, as one judge said might admire, in that they
can never pay off the debt. The GSEs need a backing most believe, and I do, from the
Treasury to satisfy secondary market participants who want that backing.
And so those hooks provide extraordinary tools to set a new –– within
HERRA –– still provide the tools to set the regime –– much of what we have now and even
build further on it. There are some challenges we'll talk about here about how to not only put
that in place, but to make it durable where it's in place so it couldn't be easily reversed if, for
example, there's a change in administration in the future, which there will be at some point.
Agreed Louie - I would recommend that everyone listens to or reads Calhoun's comments at last week's Brookings seminar - he actually quoted the "payday lender" comparison.
The big issue for fairness now is whether or not the Lamberth litigation survives summary judgement and what the 5th Circuit does. The 5th Circuit also has to reconcile the All American Seila related case so that may help or hurt us.
Do you think Biden will mention the GSE restructuring at the State of the Union address. Seems like he needs a win - fast?
Otherwise DJT II is only 2.5 years away - and we know what he thinks of the situation!!
Tim Howard was Vice Chairman of FNMA and has been proposing a restructuring of the GSEs for years. Here is what he said nearly 6 years ago - you should ask him why he would say something different today than what he said 6 years ago rather than just state something that is contrary to the public record. Also Check out who also made statements at this Urban Institute event.
https://www.urban.org/policy-centers/housing-finance-policy-center/projects/housing-finance-reform-incubator/tim-howard-fixing-what-works
This is the excerpt from the lower part of the link-
Affordable housing. Fannie and Freddie’s role in supporting affordable housing is limited by the fact that they only can purchase or guarantee the loans lenders originate. Despite this, FHFA should set affordable housing goals for the companies. FHFA also should have the power to impose penalties for failing to meet those goals, but only if the percentage of affordable business Fannie or Freddie does fall short of the percentage originated by lenders that year.
FHFA should not increase the amount it requires Fannie and Freddie to contribute to affording housing funds beyond the 4.2 basis points mandated by legislation. Fees for affordable housing imposed only on the companies are an excise tax on the secondary market. Should Congress wish to increase support for affordable housing through additional fees, it should levy them on all mortgages. This would raise more money—or raise the same amount at a lower fee rate—and not favor primary market over secondary market financing.
Implementation. The above changes could be effectuated through administrative action, as were the 2008 Preferred Stock Purchase Agreement and its amendments. With the written consent of the boards of directors of Fannie and Freddie, FHFA as conservator would make binding commitments on behalf of the companies, and Treasury and FHFA would make binding commitments on behalf of the government.
Before these reforms could take effect, the government would need to settle all of the lawsuits against it for its treatment of Fannie and Freddie before and during the conservatorships. It likely will take rulings adverse to the government’s current position to trigger that settlement. Assuming such rulings are forthcoming, Treasury should cancel the warrants it holds for 79.9 percent of the companies’ common stock, allow them to use proceeds from the reversal of the net worth sweep to repay their senior preferred stock, and retroactively replace the 10 percent dividend on that stock with a more reasonable 1 percent markup over the cost of the funds Treasury borrowed to give the companies the $187 billion they did not need.
Treasury is prohibited by the “Jumpstart GSE” legislation from liquidating Fannie and Freddie’s senior preferred stock before January 2018. Until then, FHFA should stop paying dividends on it, and notionally credit the companies with the amount of capital they will have when the stock is repaid, to assist them in planning for their recapitalization.
________________________________________
Timothy Howard is former vice chairman and chief financial officer at Fannie Mae. After six years as senior financial economist for Wells Fargo Bank in San Francisco, Howard joined Fannie Mae as chief economist in 1982 and soon became involved with the financial management of the company. He was given responsibility for Fannie Mae’s largest business in 1987 and became the company’s chief financial officer in 1990. He became chief risk officer in 2000 and was named vice chairman of the board in 2003. When he left Fannie Mae in 2004, it was safely and profitably financing more than 25 percent of all US home loans.
Which Court is this? Who is O'Malley?
http://uscfc.uscourts.gov/judicial-officers
Here is from Pages 44 and 45 of the Ropp Complaint:
All of this publicly available information is confirmed by former President
Trump’s statement. He stressed that he would have “sold the government’s common
stock in these companies at a huge profit.” Letter from Donald Trump to Sen. Rand
Paul, supra (emphasis added). President Trump’s reference to the government
Case: 20-2071 Document: 31 Filed: 12/21/2021 Page: 52
45
profiting from common stock reveals how his administration planned to change the
Companies’ capital structures; if Treasury’s senior preferred shares remained
outstanding with a multi-billion-dollar liquidation preference, no economic value
could ever be realized by Treasury through the sale of common stock it obtained after
exercising its warrants. Thus, this reference necessarily implies that the Net Worth
Sweep would be ended and the liquidation preference on the Treasury’s senior
preferred stock would be reduced to zero.
Dont see why JPM and MS would be working on a cram down under the Direction of Calabria?
Appreciate the reply - I lost over 500k prior to the Conservatorship and think the most important thing is fairness to common and preferred. We should all be fighting for the same fair outcome.
The only way I see a cramdown happening near term is if it is part of an act of Congress - maybe I am wrong so I am just probing the assumptions being made.
So the FHFA and UST agree to the largest cramdown in the history of finance?
Then what - do they have to publish the plan in the Federal Register for public comment?
Or will Thompson just tell the FNMA and FMCC BODs to issue the new shares and be done with it? No new Registration Statement needed for the newly issued shares?
According to the Ropp Complaint - Trump wanted to write down the SPS to zero? Do you think Calabria told them to work on the cram down plan?
Who is going to advise FHFA on this cramdown? Do you think the FHFA will come up with this plan in house?
Have JPM and MS been working on this plan?
Thanks for the reply - just wanted to see where you were coming from.
Perhaps Kthomp wants to chime in but it is my understanding that no investment bank or financial advisory firm has done a restructuring under HERA?
Dont think any state insolvency law or the US Bankruptcy Code would apply to the GSEs while they are in Conservatorship or otherwise because of HERA and their Charters otherwise.
The Lamberth case is looking to Delaware law for the implied covenant of good faith but dont think any restructuring would be governed by Delaware Law while in Conservatorship. Seems like Collins gives this power to the FHFA and the FHFA would have to negotiate with UST?
Looks like the FHFA would have to require the FNMA and FMCC BODs to issue the new shares since there is only 1.308 bn FNMA shares issued and 0.725 bn FMCC shares issued. Not a big deal but not sure if a SEC registration statement would have to be filed with the SEC? Would love to see the Risks Factors and Litigation disclosure for that.
It seems like it would be difficult to get the cramdown done in the next 2.5 years unless they start real soon. Best case seems to be a cramdown as part of a new Housing Reform legislation?
Do you think Toomey and other Republicans would vote for a cramdown of common as part of GSE Reform bill?
Can you explain how the restructuring will happen?
Chapter 11 of the US Bankruptcy Code?
What corporate law?
Do you believe that the SPS will be converted into newly issued common shares?
Howard is right 79.9 pct of a clear road towards 230 bn is a much more prudent road for the UST rather than trying to cram down based on a structure that was self-dealt with no consideration.
If this goes the political route - Farm State Senator's and Representatives should be very concerned on how egregious the US Government actions are. The final paragraph of the CBO report makes it clear that any restructuring will serve as precedent including the Farm Credit System.
"In addition, changing the federal government’s relationship with Fannie Mae and Freddie Mac might prompt an assessment of the government’s relationship with other government-sponsored enterprises that support mortgage lending. Those other GSEs include the Federal Home Loan Banks, which make low-cost loans to their member institutions (such as commercial banks, credit unions, and insurance companies), and the Farm Credit System, which provides financial assistance for rural mortgages and other loans guaranteed by the Department of Agriculture."
Wait for a crisis - force a bailout - then go crazy woke on America's farmers and rural communities.
Hi Robert - did you see that Toomey is calling for GSE Reform Legislation?
https://www.banking.senate.gov/newsroom/minority/toomey-urges-biden-administration-to-engage-in-bipartisan-housing-finance-reform
Toomey is not running again so conceivably he could vote for a Bill that he would support. I am thinking this could be a lame duck piece of legislation if McConnell does not stop it from coming to a vote. Perhaps that is why GB thinks next week's Brooking's conference is important because it could be a basis for a Bill?
Great Points guys. The question I have is whether or not there were attempts to slow down the GSE shareholder rights efforts in the early days of the Trump Administration. It is clear now that the NEC at the GWB Whitehouse wanted to Nationalize the GSEs as what was detailed in the "For Your Eyes Only" Nationalization Memo that was sent by the Special Assistant to the President for Domestic Finance which was part of the GWB NEC - this Memo was the subtext for the March 10, 2008 Barron's Article and talked about how the shareholders would be "wiped" and how Daniel Mudd had committed fraud even though he was at the time trying to raise capital for the GSEs and had no idea about the NEC actions. Jim Parrott was part of the BO NEC when the NWS was concocted. Gary Cohn who worked with Hank ran the NEC for DJT until he left under the guise or as a result of the Charlottesville fall out. Did the DJT NEC under Cohn really want the GSEs to exit Conservatorship? Could it be that the NWS was a good way to hide the actions of the NEC during the GWB Admin? Check out who were the visitors at UST on 2/24/2011 - there were two meetings.
https://www.treasury.gov/initiatives/wsr/Pages/dfa2_11.aspx
One meeting was with Cohn who was then the COO of Hank's old firm and one meeting with with a group that included Parrott from the BO NEC and his current partner Ryan who was then at HUD. Chamber of Commerce guys were also there with Parrott and Ryan. You got to think Cohn came into the DJT Administration with his own views on the GSEs if he was meeting directly with UST - were they shareholder friendly -status quo - or were they aligned with what Calabria was writing when he was part of Cato?
Maybe this is all coincidence - maybe not but we know where we are today and it makes no economic sense and it would not have happened unless HERA was enacted before the GFC blew up everything.
Hi Guido - Have you seen this?
https://www.banking.senate.gov/newsroom/minority/toomey-urges-biden-administration-to-engage-in-bipartisan-housing-finance-reform
The date says Feb 10th but I did not see it earlier this week when I looked at the Minority Press Releases. Looks like a lame duck piece of legislation to me - nothing before the election but get it done after the vote.
Hi Glen, Do you have any thoughts on why Susan Thompson's nomination has not made it out of the Senate Banking Committee yet? Sen. Toomey seems to be objecting to Raskin and Fed nominees but has been totally silent on Thompson since the hearing.
Hi Guido,
I am not sure if you noticed it but the Freddie 10K referenced a new Capital Planning Rule that will be done with Comment in the next couple of weeks.
The plan requires FNMA and FMCC to come up with a 5 year capital plan to meet capital requirements by May 20th of each year for fiscal years starting in Oct of each year.
It is on pages 8 to 10 of the cited rule:
https://www.fhfa.gov/SupervisionRegulation/Rules/RuleDocuments/Enterprise%20Capital%20Planning%20NPR%2012-15-21%20to%20Fed%20Reg_Website.pdf
This seems to mean that we will see planned capital raises as part of Capital Plans that need to be updated each year.
Not sure if that is what BO wanted. I wonder if he knew about the "For Your Eyes Only" March 2008 Nationalization plan when he signed off on everything. The NEC guys may have known and the NWS was just a way to cover up the NEC Nationalization plans that were never disclosed to Congress before HERA was enacted. BO seems like a guy who has opinions but is honest otherwise he would have never survived Chicago politics. Maybe Jim Parrot can clear this up about whether the 2012 NEC crowd knew what the 2008 NEC did and how they undercut the bailout negotiations going on with Congress in March 2008. Jared Bernstein and others like Austin Goolsbee left the NEC and Administration with Larry Summers in 2011 so there was a new crowd that came in and devised the NWS. BO was in a jam because the Republicans wanted to use the debt limit negotiations to kill Obamacare and the NWS was a way around so not sure if BO really wanted to screw shareholders or screw the Republicans and preserver Obamacare. Maybe Parrot can write an op-Ed and clarify who knew what but BO in 2012 was not a socialist. He did mention that he did see all the Fannie lobbying and thought that should stop. If he knew that Hank and GWB had tried to Nationalize the GSEs in 2008 it probably would have come out in the Romney election since Romney had lots of Wall Street connections. The public did not know about the "For Your Eyes Only" Memo until the FCIC docs were released in 2016. The GS guys definitely knew Hank was trying to bring the GSEs down but I dont think they knew it was a concerted effort coming out of the NEC. Also - no one thought that things would get so out of control after Lehman.
Thanks Robert - it looks like the FHFA will have to publish its capital raising plans sometime in 2022 under the new rules out for comment:
On December 16, 2021, FHFA issued a notice of proposed rulemaking that would require Freddie Mac and Fannie Mae to
develop, maintain, and submit annual capital plans to FHFA. Under the proposed rule the Enterprises' capital plans would be
required to include the following:
n An assessment of the expected sources and uses of capital over the planning horizon;
n Estimates of projected revenues, expenses, losses, reserves, and pro forma capital levels under a range of the Enterprise's
internal scenarios, as well as under FHFA's scenarios;
n A description of all planned capital actions over the planning horizon;
n A discussion of how the Enterprise will, under expected and stressful conditions, maintain capital commensurate with its
business risks and continue to serve the housing market; and
n A discussion of any expected changes to the Enterprise's business plan that are likely to have a material impact on the
Enterprise's capital adequacy or liquidity.
At least one of them was a RINO and was shorting the stock - see Palagria's book.
That is what the Mike Kelly - First Bank of Oak Park suit before the COFC is all about. He lost $ 1 billion in his JPS portfolio and all his community banks failed or were sold. The Community Bank of Lemont was one of the FBOP subs and was providing credit to the poor South Side suburbs is one notable example. He is challenging the Conservatorship and is represented by the same firm that is representing Washington Federal. The FBOP fact pattern is very compelling but we are waiting on a ruling from Judge Schwartz post Collins.
Hey Money Robot,
Personally I think the JPS get paid out with divs from 2012 so 150 to 175% of PAR. What I think is dangerous is the slippery slope where it is ok where one class can get screwed where the other class gets what is fair.
DJT will make any deal an issue and if the commons get screwed he will make political hay out of saying that JB is siding with the RINO and lib dem hedge fund guys. Also if they can screw the FMCC shareholders they can screw the Farmer Mac and other GSE entity investors in the future. Just a bad precedent - there is enough money here for the UST to make a humongous return and where all the shareholders are treated fairly.
Check out the last paragraph of the CBO report regarding Farmer Mac if you are interested.
Hi Glen,
Just checking if you agree with No Name on the Ropp case and how that can result with the 3rd Amendment being set aside? Just to be clear Thompson thinks DJT meant that the SPSA Liquidation Preference should be set to zero- are you aware of that?
Here is an excerpt from Page 45 and 46 from the Ropp Complaint:
All of this publicly available information is confirmed by former President
Trump’s statement. He stressed that he would have “sold the government’s common
stock in these companies at a huge profit.” Letter from Donald Trump to Sen. Rand
Paul, supra (emphasis added). President Trump’s reference to the government
Case: 20-2071 Document: 31 Filed: 12/21/2021 Page: 52
45
profiting from common stock reveals how his administration planned to change the
Companies’ capital structures; if Treasury’s senior preferred shares remained
outstanding with a multi-billion-dollar liquidation preference, no economic value
could ever be realized by Treasury through the sale of common stock it obtained after
exercising its warrants. Thus, this reference necessarily implies that the Net Worth
Sweep would be ended and the liquidation preference on the Treasury’s senior
preferred stock would be reduced to zero.
Do you disagree about what DJT meant in his Letter to Rand Paul? I would think that any deal that JB and Sandra Thompson might want to do wont be good enough for DJT? The Complaint is very clear here - "...the liquidation preference on the Treasury's senior preferred stock would be reduced to zero."
Also - any idea if the Banking Committee will try to vote Thompson out as long as Lujan in in the hospital?
There is a motion for summary judgement coming up with Lamberth. If the implied covenant claim survives we will have a trial in 2022. The jury will have to decide if the 3rd Amendment violated the implied covenant of good faith if it goes to trial. This is a lot of progress.