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From Delaney-Carney-Hines proposed legislation:
"Winding Down Fannie and Freddie
• The Director of the FHFA will oversee the discontinuance of the Enterprises’ ability to issue, guarantee, or purchase any mortgage-backed securities.
• After the Ginnie Mae platform is established, the Enterprises will operate as one of the several anticipated monoline insurers and one of the several anticipated private reinsurers for a five year period.
• By the end of the five year period, the FHFA Director will ensure that the total market share of mortgage-backed securities insured by the Enterprises in either of these capacities will not exceed 30 percent of the total market share. "
I'd be quite happy with shares in companies retaining 30% of a $5 trillion business.
Here's the attachment on Bloomberg, as per John Deere's original post.
http://www.bloomberg.com/article/2014-01-16/aKBXVzL0Zk6Q.html
For Immediate Release: January 16, 2014
Contacts:
Will McDonald (Delaney) 202-225-2721
Sheila Grant (Carney) 202-225-4165
Elizabeth Kerr (Himes) 202-225-5541
Delaney, Carney, and Himes Announce Housing Finance Reform Proposal, Plan to Introduce Legislation this Spring
Disciplined approach will increase availability of capital in mortgage market, combining private-sector risk pricing and government guarantee
Washington, D.C.—Representatives John K. Delaney (MD-6), John Carney (DE-AL), and Jim Himes (CT-4) today outlined a housing finance reform proposal that uses private sector market forces to appropriately price risk while putting the scale and security of a government guarantee behind the program. They plan to introduce legislation this spring to create a housing finance system that is fair for borrowers, lenders, and taxpayers.
Key elements of Delaney-Carney-Himes Housing Finance Proposal
• Housing reform legislation allows the government to expand the capacity of housing finance while allowing the private sector to price all of the risk
• Creates incentives for private capital’s market share in housing to grow over time;
• Creates a path for Fannie Mae and Freddie Mac to be sold as independent companies without any government support or monopoly status
• Creates additional funds for low income housing
The Delaney-Carney-Himes housing finance proposal creates a structure that enables the government to significantly expand the availability of capital in the insurance market, while ensuring the mortgage market is open and efficient – with private capital participating in the market and pricing all of the risk. The plan adds discipline to the mortgage market, creates meaningful paths and incentives for private capital to flow into the mortgage market, and ensures that the mortgage market benefits from the liquidity provided by government participation.
This structure creates a unique public-private partnership mechanism whereby private “first loss” capital of up to 5% is required in all mortgage securitizations, and the government – acting through Ginne Mae – in partnership with private capital will provide reinsurance of up to 95% of any mortgage securitization. Specifically, Ginnie Mae will provide reinsurance and prospectively contract with private reinsurance companies to share in the government’s reinsurance policy. Both the private reinsurance carrier and the government will receive the exact same pricing and bear the exact same risk.
“We are excited to begin the roll out of this idea and believe this legislation will be an important addition to housing finance reform discussion,” said Congressman Delaney. “To ensure a stable housing finance system, we must move past the current state to a new system that engages more private sector capital and private sector pricing of risk in partnership with an explicit government role in the provision of stabilizing liquidity to the market – this bill does that. Chairman Hensarling has shined an important spotlight on housing reform and understands, deeply, how important this debate is to the economy and our fiscal future. For decades, Ranking Member Waters has led on affordable housing issues and I look forward to her forthcoming legislation as well. Senators Warner and Corker have shown similar leadership with their proposed legislation and we look forward to deep collaboration with these truly outstanding Senators as well. We hope our legislation will complement these efforts.”
“I’m looking forward to working with Mr. Himes and Mr. Delaney to advance our ideas around housing finance reform,” said Congressman Carney. “My priority in developing this proposal is to preserve the thirty-year fixed rate mortgage while protecting taxpayer dollars. Getting this effort right is critical to the success of our economy. Absent a smart, sensible solution, affording a home will become more expensive for families across the country, and taxpayers will remain on the hook in the event of another downturn in the housing market. There are a lot of good ideas out there -- I think this one strikes the right balance between public and private sector involvement in the housing market.”
“I’m excited to join this effort to merge the efficiency of markets with the scale of government to create a safer, more liquid housing market that will help make housing more affordable while reining in the risk to our economy,” Himes said. “I look forward to gathering input from housing experts across the spectrum and am particularly interested in working to improve the availability of multi-family housing.”
Set forth below is a summary of concept:
Key Components of Delaney, Carney, Himes Housing Reform Proposal
This bill establishes a system of government reinsurance for eligible mortgage backed securities, marrying the government’s ability to provide the necessary capacity to accommodate the size of the United States housing market and the private sector’s ability to better price risk. A government guarantee under this system will be explicit, but taxpayer money will be protected through adequate private sector capital and accurate pricing of government reinsurance.
Under this system, issuers will be required to secure 5% private sector capital (standing in a first loss position) provided by adequately capitalized monoline insurance companies. After securing this minimum level of private capital, issuers may securitize their mortgages through Ginnie Mae. Separately, private insurers will prospectively contract with Ginnie Mae and share the reinsurance pricing and risk, with the private insurer assuming a minimum 10 percent on a pari passu basis.
By leveraging the government’s capacity and the market’s ability to price risk, you strike the correct balance between public and private participation in the U.S. housing market.
Private Capital and Extraordinary Government Guarantee
• Private monoline insurers would be required to hold a first-loss position on an eligible government security of no less than 5%.
• A mortgage reinsurance system would be supported by Ginnie Mae and carry the full faith and credit of the United States Government, but with private sector directed pricing.
• 95% of the senior risk will be shared between Ginnie Mae and private reinsurance companies (on a 90% to 10% split).
Private Sector Pricing of Risk
• Ginnie Mae will prospectively contract with private reinsurers to lock rates based on private sector assessment of market risk.
• Ginnie Mae and the private reinsurers will receive the same terms and the same price for the risk that they share.
• Any loss on the remaining 95% will be shared equally between Ginnie Mae and the private reinsurer based on their market share of the security (90% to 10%).
Small Lender Access
• Fannie and Freddie may remain as aggregators of mortgage loans for smaller entities such as credit unions and community banks that do not have the sufficient volume to pool and create these new securities with their mortgage loans alone
Issuing Platform
• Ginnie Mae will securitize and reinsure each mortgage-backed security. Ginnie Mae will stand behind the 5% private capital once it is exhausted.
• The platform will allow for standardized securities thus creating a single security and creating a deeper and more liquid TBA market which will reduce the cost of mortgage credit for consumers.
Standardized Mortgages, Servicing, and Capital Requirements
• Transition FHA regulation to Ginnie Mae with oversight over the secondary mortgage market
• The FHFA and the Federal Reserve will collaboratively regulate the new secondary market
• FHFA will be funded through assessments of the entities it regulates
Winding Down Fannie and Freddie
• The Director of the FHFA will oversee the discontinuance of the Enterprises’ ability to issue, guarantee, or purchase any mortgage-backed securities.
• After the Ginnie Mae platform is established, the Enterprises will operate as one of the several anticipated monoline insurers and one of the several anticipated private reinsurers for a five year period.
• By the end of the five year period, the FHFA Director will ensure that the total market share of mortgage-backed securities insured by the Enterprises in either of these capacities will not exceed 30 percent of the total market share.
Affordable Housing
• Ginnie Mae will charge a fee for the insurance that they provide for these securities.
• The fees charged will range between 5-10 basis points of the total principal balance of these mortgages.
• The monies acquired will be allocated to strengthening affordable housing programs facilitated by the federal government. The funds received will be allocated to the Department of Housing and Urban Development (Housing Trust Fund) and the Department of Treasury (Capital Management Fund).
Multifamily Housing
• Create a structure for multi-family housing financing that follows this public-private model and provides the government backing necessary to create a fluid market.
Well-functioning TBA Market
• Investors will receive timely principle and interest payments through Ginnie Mae.
• This model will also ensure that the one standardized security is delivered to the TBA Market. This will increase liquidity and limit disruptions to the secondary mortgage market, which will ultimately benefit consumers.
##
Shhhh....it's all about perception and media spin. Let it work in our favor for once. ;)
News. U.S. Posts December Budget Surplus of $53.22 Billion
Fannie Mae, Freddie Mac Payments to Treasury Further Narrowing Deficit in Quarter
By JEFFREY SPARSHOTT CONNECT
Jan. 13, 2014 2:00 p.m. ET
WASHINGTON—The federal government posted a budget surplus in December after mortgage giants Fannie Mae FNMA -2.88% and Freddie Mac FMCC -2.32% posted big payments to the Treasury, further narrowing the deficit in the first quarter of the fiscal year.
Revenues outpaced spending by $53.22 billion in December, the first surplus for the month since the 2007 fiscal year and the biggest on record. Economists surveyed by Dow Jones had forecast a $44.5 billion surplus.
Federal finances have been improving steadily as spending remains contained and revenues rise.
The U.S. government's deficit for October through December totaled $173.60 billion, down 41% from the $293.30 billion shortfall during the same period a year earlier, the Treasury Department said Monday in its monthly report. The 2014 fiscal year started on Oct. 1.
Federal revenue climbed by 8% to $664.60 billion in the first three months of the latest fiscal year. Individual income and payroll taxes accounted for the bulk of the increase, largely a result of higher tax rates that kicked in during the 2013 calendar year.
Spending fell 8% in the first quarter to $838.20 billion, in large part because of improving finances at Fannie Mae and Freddie Mac. The two companies paid $39.57 billion to the Treasury at the end of last year. Because of the way the government accounts for the funds, they are deducted from spending, rather than included in revenues.
The latest budget figures follow trends from 2013, when the deficit fell below $1 trillion for the first time in five years. The $680.28 billion shortfall for the full year was down by more than one-third from 2012 as a slowly recovering economy and higher tax rates boosted receipts.
U.S. lawmakers in December negotiated a two-year budget deal, setting a $1.012 trillion spending ceiling for the 2014 fiscal year, which ends Sept. 30.
But Congress is likely to miss a Wednesday deadline for passing legislation to appropriate those funds. A stopgap bill will likely extend the deadline until Jan. 18.
http://online.wsj.com/news/articles/SB10001424052702303595404579318742766736128
Big News. Federal government runs December surplus of $53.2B.
Federal government sees big December surplus of $53.2 billion, pushing yearly deficit down
Associated Press By Martin Crutsinger, AP Economics Writer
WASHINGTON (AP) -- The U.S. government ran a $53.2 billion surplus in December, signaling further improvement in the nation's finances.
The surplus was the largest since September and a record for the month of December. It was boosted by nearly $40 billion in payments from mortgage giants Fannie Mae and Freddie Mac.
For the first three months of the budget year, which began on Oct. 1, the Treasury has run a deficit of $173.6 billion. That's 40.8 percent below the $293.3 billion deficit run during the same period last year.
An improving economy and higher tax revenues trimmed the 2013 deficit to $680 billion. That followed four consecutive years of $1 trillion-plus deficits.
Rising tax revenues and government spending constraints are expected to trim this year's deficit to around $600 billion.
http://finance.yahoo.com/news/federal-government-runs-december-surplus-190135989.html
News. Fannie Mae begins marketing second risk-sharing MBS -sources.
http://finance.yahoo.com/news/fannie-mae-begins-marketing-second-160651579.html
By Adam Tempkin
NEW YORK, Jan 13 (IFR) - Fannie Mae has begun marketing its second risk-transfer mortgage-bond, the USD750m Connecticut Avenue Securities (CAS) 2014-C01, investors said on Monday.
The deal is expected to price on either Tuesday or Wednesday via lead placement agents Bank of America Merrill Lynch and Barclays. Bank of America is the structuring lead.
The deal includes two mezzanine tranches. Price whisper talk on the M1 (mezzanine) tranche has been set at one-month Libor plus high-100s basis points, and one-month Libor plus mid-400s basis points for the M2 tranche, the investors said.
Each tranche is expected to be USD375m in size. The M1 tranche is rated Baa2/BBB- by Moody's and Fitch respectively.
"It's premature to discuss any further details, but we look forward to reducing our risk and encouraging private capital to return to the market through additional transactions in 2014," said Callie Dosberg, a Fannie Mae spokeswoman.
Fannie priced its inaugural credit risk sharing transaction, 2013-C01, in mid-October, and has been expected to build on that success for some time.
The USD675m deal from October shared the risk on a large and diverse reference pool of more than 112,000 single family mortgage loans with an outstanding unpaid principal balance of USD27bn.
I agree with everything you say stockprofiter, except "congressional embarrassment". Did you not witness the recent government shutdown? Clearly, avoiding embarrassment is not a top priority. :)
Here's what little bit of info I could dig up on Bob Ryan in relation to his stance on GSE reform. This comes from the Securities Industry and Financial Markets Association (SIFMA) website, with text quoted from a housing reform forum co-hosted by Bipartisan Policy Center and Zillow on 10/24/2013.
While Eric Stein prefers the mutual option, Bob Ryan prefers a shareholder approach. At least we have evened out the viewpoint on that issue.
video link: http://www.zillow.com/education/HousingForum/
text link to quotes: http://www.sifma.org/members/hearings.aspx?id=8589945900
"Timiraos then asked what in the system is broken and should be addressed first. Bob Ryan, Wells Fargo, said he would operate on the premise that some things do not need to be fixed, noting that the qualified mortgage (QM) rules have done a lot to constrain “out of control underwriting” and improve credit standards. The problem during the crisis, he said, was that there was not enough capital to absorb losses, and suggested that minimum capital requirements be determined by regulators not through legislative actions. He added that “more completion” should be introduced into the market by forming a single security and that a regulator should be allowed to charter other guarantors."
...
When asked if new guarantor entities should be owned by private shareholders or arranged in a mutual or co-op structure, Ryan said he preferred the shareholder option, while Pollock said there is “something to think about” in a mutually owned structure.
On the problem of capitalizing issuers and guarantors, Ryan said that it is “not clear” who will come in and provide capital thus making the transition period to any new system critical. Gold followed up saying that this problem of not knowing where the capital will come from is more reason to reform the current structure which has been in place for 70 years, rather than create an entirely new system."
Nice, thank you John Deere1. Here's the article in full for those who are interested.
Fannie Mae Is Political Dynamite: Bove
by Saul GriffithJanuary 13, 2014
It’s a difficult choice.
Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) continue to haunt America’s political leadership with the prospect, however remote, of a repeat of the housing crisis that led to their conservatorship. Taken together, the two GSEs support 90% of the country’s housing mortgages, and politicians such as President Obama, and Senators Bob Corker (R-TN) and Mark Warner (D-VA), have been vociferously advocating the need to wind them down to eliminate the possibility of another shock to taxpayers.
Fannie Mae FHFA
But the uncomfortable reality is that the two institutions have been instrumental in providing that bedrock of American home finance – the 30-year fixed rate mortgage, a facility that allows citizens to affordably own a home.
Throwing the baby out with the bath water?
“The elimination of Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) means the elimination of fixed rate mortgages with durations of 20 to 30 years. These instruments will be replaced with 10 or 15 year adjustable rate mortgages. This means higher monthly costs; lower housing prices; and reduced home equity for all Americans. Thus, the desire to get rid of the GSEs would create instant slums and cut the wealth of every American household who owns his/her own home,” says Richard X Bove, banking analyst and V.P. Equity Research at Rafferty Capital Markets, in his research note “Fannie Mae: Shifting Politics.”
The implications of such a situation (“political dynamite”) are now being grasped by politicians, who are “now rethinking their views concerning the longevity of Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA),” says Bove.
Bove observes that politicians now appear to be turning down the volume on winding up Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA), as evidenced by President Obama’s recent appointment of ex-Congressman Mel Watt as director of the FHFA, the overseer for Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and Fannie Mae, and the more conciliatory attitude of Senator Corker. “Statements made by Senator Corker (R. TN) suggest that he may no longer be supporting his bill to eliminate the company. He is willing to discuss the Fairholme proposals to solve Fannie Mae’s problems,” says Bove.
Last week, stocks of the two GSE’s shot up after deliberations at a meeting of the Financial Services Round Table stoked hope that Congress would consider the interests of private investors when winding them down.
In November, Fairholme Capital’s Bruce Berkowitz proposed to purchase the insurance businesses of the two GSEs, a proposal that was turned down by the White House. Consumer activist Ralph Nader has also protested that as a shareholder of Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA), he’s being ‘used and abused’ because of the government’s policy to draw out all of the GSEs profits through dividends, thereby preventing a growth in their reserves.
Housing reform: the realities can’t be wished away
According to Bove, the politicians would have to face up to the compulsions of the housing market and be forced to maintain Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA)’s role in it. That brings along with it the uncomfortable reality that Fannie’s debt becomes the country’s debt if private shareholders are eliminated.
“Thus, I continue to believe that the realities of housing in this country will force the politicians to reinstate Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) to its old position. This will be very positive for its current shareholders,” concludes Bove. “This stock is a high risk investment. The risk reward calculation is now moving more to reward than risk.”
Malebaboon, I think you provide an excellent dose of realism concerning the ultimate fate of FnF. One that is unbiased against your current position as a shareholder. Do any of us from a shareholder perspective want FnF to become a mutual? That answer is certainly no. However, recognizing the major flaw in a stock-motivated housing market is insightful. While too big to fail banks did push bad loans on FnF, the GSEs were not without any wrongdoing. They may not have originated the loans, but they also did not hesitate to question underwriting standards and sudden housing bubble. Likewise, they were quick to push that bad debt onto pension funds, etc. A mutual partially removes temptations for loan originators to be less than thorough to appease shareholder driven growth.
That being said, I think the other viable alternative is to let the mortgage industry remain as is, driven by shareholder cash flow. However, let's say 5% of revenue is directed toward an emergency relief fund to protect against inevitable cyclical housing downturns. Because let's face it, when the mortgage market is 25% of the economy! the gov will always rescue that industry in times of crisis. To do otherwise would be catastrophic.
Just my two cents, which is ironically worth less than that. :)
Eric Stein seems supportive of reform rather than abolishment of FnF. However, he appears to not be supportive of a stock/shareholder based approach, but prefers a mutual instead.
http://cnycn.org/wp-content/uploads/2013/09/Moving-Forward-on-Housing-Finance-Reform-A-Policy-Brief-from-the-Center-for-NYC-Neighborhoods.pdf
We need an independent opinion. Where's riskychick? She's our resident gapologist. ;)
Fannie hit its head perfectly on the trendline demonstrated in Claytraders recent video. Let's hope the 3.10 support area holds and we see a bounce.
Agree with you jarenawer, my money is in the commons. It's risk/reward at this point...today, the market likes the prefs.
The jr preferred shares (i.e. FNMAS) are perceived as being less risky than common because they are in line to be paid out first in event of liquidation. The caveat is that they have a capped PPS at around $25, while the commons do not have this limitation. Thus, this could explain the discrepancy in PPS movement between the two...more bets on the "guaranteed" money.
A question for all of you number crunchers, assuming a deal similar to the Berkowitz would be implemented:
"Under Berkowitz's November proposal, Fairholme's suit against the government would be dropped, and the new companies would be capitalized with $34.6 billion from the conversion of junior preferred stock in the entities to common shares. At least another $17.3 billion of new capital would be raised from the junior preferred stockholders in a rights offering. The GSEs' book of investments and insurance would be wound down and the proceeds would be used to fully repay the Treasury and provide a profit to taxpayers. Any proceeds remaining would go to common shareholders."
What kind of estimated value in terms of PPS would commons be left with?
Very nice news. Now let's hope that they consider ALL classes of shareholders in a potential wind down, if that even comes to fruition.
Agreed. This 3.25 wall is purely psychological. There is no technical resistance now until 3.37. It may take a few tries and some time, but I wouldn't be surprised to see it eventually break 3.25 and run again.
It was sarcasm directed at MonestHind. The truth is, neither of us or anyone else here has any idea what's going to happen with FnF. Just randomly posting something about knowing what's going to happen without any substance is ludicrous. Par for the course around here, I guess...
Is this a mini short squeeze from the dropoff yesterday or something bigger in the works?
I'm glad to see that it went right through that 2.92 that was heavy resistance in Nov and Dec.
WHOOOOOOOOOO! :)
If we can get up over this 3.06, looks like blue skies until 3.50...
Isn't the earnings report evidence enough that Fannie was on the road to financial recovery? I know an earnings report is somewhat speculative and forward-looking, but the analysis was backed by positive data.
http://www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-esults/2012/q22012_release.pdf
Filed on August 8, 2012. The PSPA 3rd Amendment wasn't filed until August 17, 2012.
'WASHINGTON, DC – Fannie Mae (FNMA/OTC) today reported net income of $5.1 billion in the second quarter of 2012, compared with net income of $2.7 billion in the first quarter of 2012. Combined with first-quarter results, the company has reported $7.8 billion in net income for the first half of 2012. The company’s continued improvement in financial results in the second quarter of 2012 was almost entirely due to credit-related income, resulting primarily from an improvement in home prices, improved sales prices on the company’s real-estate owned (“REO”) properties, and a decline in the company’s single-family serious delinquency rate. The company’s comprehensive income of $5.4 billion in the second quarter of 2012 is sufficient to pay its second-quarter dividend of $2.9 billion to the Department of the Treasury.
“Better market conditions and our actions to strengthen Fannie Mae’s new business and limit losses from the company’s legacy business contributed to positive second-quarter results,” said Timothy J. Mayopoulos, president and chief executive officer. “While it is too early to declare a national housing recovery, and our results for the second half of 2012 may not be as strong as the first half, we expect our financial results in 2012 to be substantially better than the past few years. With our high-quality new book of business and diminishing legacy expenses, Fannie Mae has strong potential earnings power that can deliver considerable value to taxpayers over the long term.”'
Hey obit. Thanks again for your analysis.
The Perry Capital v Lew case is attempting to debase the PSPA 3rd Amendment and seeks not to determine liability, is that correct? It is really challenging the Constitutionality of the dividend sweep and not assign particular agency blame?
I thank you again on behalf of the entire board for your expertise.
rosen,
It will be somewhat difficult to determine whether FHFA adequately knew about FnF's sudden return to profitability, unless (1) a paper trail indicates such or (2) personal testimony is given stating so.
What I do find interesting, is that the FHFA is basically saying that the Treasury was not intended to profit handsomely from the 3rd PSPA. Therefore, would it not be logical to repeal the net worth sweep and fall back to a 10% dividend as per the PSPA 2nd amendment?
I think there's a distinct difference between admitting intentional guilt and admitting inappropriate ongoing policy. IMO, the first will be more difficult to prove, the latter less so.
rosen62, thanks for posting all of these docs.
I find this passage interesting (found in the 2nd link of rosen's post):
Testimony by Mario Ugoletti, Special Advisor to the Office of the Director of the FHFA.
19. These changes in structure [enactment of the 3rd Amendment] did not change the underlying economics of the PSPAs. It was my belief at this time, given the size and importance of the Treasury commitment, that through the liquidation preference, fixed dividends, and the market value of the PCF, Treasury would receive as much from the Enterprises under the Second Amendment as it would under the Third Amendment. Thus, the intention of the Third Amendment was not to increase compensation to the Treasury -- the Amendment would not do that -- but to protect the Enterprises from the erosion of the Treasury commitment that was threatened by the fixed dividend. The Third Amendment was therefore consistent with the intent of the original PSPAs to (1) fully compensate Treasury for the value of its financial support, without which the Enterprises would have been forced into receivership and (2) protect the Enterprises and the national housing market.
20. At the time of negotiation and execution of the Third Amendment, the Conservator and the Enterprises had not yet begun to discuss whether or when the Enterprises would be able to recognize any value to their deferred tax assets. Thus, neither the Conservator nor Treasury envisioned at the time of the Third Amendment that Fannie Mae's valuation allowance on its deferred tax assets would be reversed in early 2013, resulting in a sudden and substantial increase in Fannie Mae's net worth, which was paid to Treasury in mid-2013 by virtue of the net worth dividend.
--signed Dec. 17, 2013
Seemingly, FHFA is admitting the 3rd Amendment was enacted to keep FnF solvent and to secure their initial investment. Once this has been returned in full (as early as Feb?), the Amendment should be repealed as its objective has been met. They also seem to indicate that compensation according to the PSPA 2nd Amendment is more appropriate. Of course, all IMO and the only person's interpretation that matters is the presiding judge.
Chessmaster, there appears to be some confusion with Zep's post. He is referencing the Perry Capital vs Lew case, response due Dec 20 (not Fairholme vs USA). As far as the Fairholme vs USA case goes, the gov did respond by Dec 9th by asking for a motion to dismiss, largely on technical legalities.
It's confusing to keep the details straight with so many similar suits out there!
I see your point SurrealPhoton. I took that statement as, "they are only solvent because of our help! Therefore, suing us seems ungrateful/inappropriate." or something along those lines.
To my knowledge, there is no stature stated by the FHFA that explicitly defines a solvent condition. Solvent is solvent, regardless of the mechanism.
All IMO, of course...
Hey all, I'm not sure if this really means anything or can be used as a legality but I was looking through the motion to dismiss issued by the gov in response to Fairholme. I found this passage:
"In August 2012, FHFA, acting as conservator for the Enterprises, entered into the Third Amendment to the Stock Agreements. See Compl. ¶¶ 10, 63-64, 73. The amendment was critical because of a longstanding concern that the Enterprises – though presently maintained in a solvent condition due to Treasury’s assistance – failed to generate enough revenue to fund the 10-percent dividend obligation."
If we apply that logic to this statement made by the FHFA:
Is a conservatorship temporary or permanent?
"There is no inherent duration in a conservatorship. The organic statute or order creating the conservatorship defines its goals, operations, and conditions for existence, differing from the FDIC receivership context, which does not anticipate a return to business. In this case, the Federal Housing Finance Agency has stated that the conservatorship will terminated upon successful completion of its plan to restore the companies to safe and solvent condition (“Fact Sheet – Questions and Answers on Conservatorship”.
http://www.fhfa.gov/webfiles/35/FHFACONSERVQA.pdf)
...then can we logically conclude that the Gov has admitted that the GSEs are in a sound and solvent condition and therefore the conservatorship displays merit to be terminated?
Obit, sincere thanks for the thorough analysis as always.
Many of us here are not as legally-inclined as yourself. I have a few quick questions:
1) What is the average response time back from the court to either dismiss or move forward? Days, weeks, months? Is it highly variable on a case-per-case basis?
2) How strong of a defense is an attack largely based on technicalities as opposed to fact? Do you think that the defense claims have merit?
3) Do you feel somewhat uneasy that the very judge seeking appointment by the Senate (i.e. Obama's nominee), Robert L Wilkins, is the same judge presiding over this case? Is this at all considered a confounding factor or conflict of interest? It just seems very coincidental to me, but maybe it's simply that and nothing more.
As always, thanks in advance!
SurrealPhoton, yes, I believe you are correct. Unfortunately, I have no information on the timeline of the non-consolidated cases. However, they were due to put together some preliminary information to provide to the court outlining their similar claims. According to the source posted, that was due on December 6. So, I wouldn't expect to hear much of anything until the new year.
However, there is also a pending case submitted by shareholders against the USA and FNMA. See the details of that here:
https://docs.google.com/viewer?a=v&pid=forums&srcid=MDUxNDQwNjExMTIwMzQzNjc3NDIBMTE2OTE2ODE0MzY2NzEzOTcxMTIBWEt4X3lNaW9Nc3dKATQBAXYy
The United State's response to that case is due on Thurs, Dec 19.
Sure thing! But take my interpretation with a grain of salt. This is not my expertise.
So, it appears that Fairholme has 2 lawsuits: one of which is against the USA and the other is against the FHFA.
Fairholme vs USA (1:13-cv-00465)
Fairholme vs FHFA (1:13-cv-01053-RLW)
There is also the Perry Capital vs Lew/FHFA case (1:13-cv-01025-RLW)
I think the Fairholme vs USA case was consolidated with a bunch of other similar cases. However, the Fairholme vs FHFA and Perry Capital vs Lew cases were not consolidated and will be tried individually.
"The parties in the three non-consolidated actions (Perry Capital LLC v. Lew, et al., No. 13-cv-1025 (RLW), Fairholme Funds, Inc., et al. v. Federal Housing Finance Agency, et al., No. 13-cv-1053 (RLW), and Arrowood Indemnity Co., et al. v. Federal National Mortgage Association, et al., No. 13-cv-1439 (RLW)) shall meet and confer amongst each other and with defendants in an attempt to establish a protocol for submitting a joint brief pursuant to the above schedule.The purpose of the meet and confer is to allow the Court to receive one set of papers pertaining to the non-consolidated actions, if at all possible.
The parties in the non-consolidated actions shall submit a joint status report by no later than December 6, 2013, setting forth the agreed upon protocol (including proposed page limits).
To the extent that the parties fail to reach an agreement on some or all of the pertinent issues, the joint status report shall include competing proposals by the parties. "
https://groups.google.com/forum/#!msg/freddienfannie/7qmG0jHm9Bg/EM-R21XdGUgJ
The gov may or may not have appropriate legal recourse to request a motion to dismiss. We shall see how this is interpreted by a judge.
By reading the document, it appears to me that this suit may get tossed out on the grounds that there is 1) no defendable claim to taking and 2) the lack of appropriate court jurisdiction.
1) The defense argues that since the lawsuit specifically relates takings with liquidation preference rights and dividend rights of junior preferred shareholders, there is no valid takings. Because liquidation pref and dividends are based on future financials of Freddie/Fannie, no explicit value can be currently assigned to these financial instruments. The gov argues that takings cannot be executed on something that doesn't exist.
2) The gov also points out that they have no direct involvement in executing the SPSA 3rd amendment sweep since this agreement was between Treasury and the FHFA. FHFA acted on behalf of the gov, but according to the "Tucker Act", the gov is not held responsible for a governmental regulator's actions during a conservatorship. The gov is careful not to question the validity or legal ramifications of the 3rd amendment sweep. In my opinion, the gov is basically saying you can't sue us on these grounds, but go after the FHFA if you want.
These are my 2 cents. Somebody like Obi is probably better equipped to parse the document with more legal acumen.
I think that the lawsuit to really look out for is the Perry Capital vs. Lew/FHFA which challenges enactment of the PSPA 3rd amendment sweep.
News. Mel Watt Senate vote update.
http://www.forextv.com/forex-news-story/us-senate-begins-series-of-votes-to-reconsider-watt-nomination
Market News International | December 10 2013 10:29 EST
--Senate Will Hold Three Votes To Reconsider Watt Nomination
--After Three Senate Votes, Debate On Watt Could Extend Three Hours
By John Shaw
WASHINGTON (MNI) - The Senate began Tuesday a series of three votes to
reconsider the nomination of Congressman Melvin Watt to be the head of the
Federal Housing Finance Agency.
At the conclusion of the third vote, the Senate will still have up to eight
hours to debate the Watt nomination.
It seems likely that the final vote to confirm Watt will occur later this
week, possibly Wednesday.
Senate Republicans blocked Watt's nomination Oct. 31, but Senate Majority
Leader Harry Reid decided to push the nomination again in the aftermath of the
Senate's recent change of rules making filibusters more difficult to execute.
--MNI Washington Bureau; tel: +1 202-371-2121; email: jshaw@mni-news.com
News. Govt files motion to dismiss Fairholme Funds vs USA
According to restorefanniemae.us, as of last night the government has filed a motion to dismiss in the Fairholme Funds vs. United States case. Docket proceedings have not yet been obtained.
see: http://www.restorefanniemae.us/calendar
I have no background in law or the financial sector, but a request to dismiss could be due to several reasons: presentation of evidence in which the defense feels that the prosecution cannot win, procedural errors committed by the prosecution that prevents a fair hearing, or prior settlement out of court.
We should all be following this closely. Could be big news either way for the PPS. I'll reiterate this is only a motion to dismiss and will have to be ruled by the presiding judge. It however does suggest that the government is not simply giving up without a fight. It could be very interesting, considering the judge assigned to this case is Robert L Wilkins, one of Obama's appointees trying to be voted in by the Senate to the DC court. We shall see where his political and judicial allegiances lie.
http://finance.yahoo.com/news/senate-dems-push-obama-nominees-130606459.html
Perhaps the most solid evidence that the Berkowitz offer wasn't considered lucrative enough for the government.
I've tried to copy verbatim, but it's slightly paraphrased….
Near the 1:10:50s mark:
Senator Corker talking to Mark Zandi:
I noticed that in the last few weeks we had an offer from Berkowitz, in Florida, to buy the credit portion, remnants of Fannie and Freddie. And while the offer will likely be rejected because of the amount and talking with people that are related to that type of offer, in many ways does that not give us hope that there are people out there willing to invest in the credit risk portion only? It's really just a matter of getting the economics right. It does show there is interest out there for investors to participate in the new system, is that correct?
It seems to me that the offer that was made was exactly in line with 1217 (the Corker-Warner housing reform proposal). We would need to have something like 1217 passed to have a modular system for that type of offer to even work. It seems to me that what we're already seeing is that hedge funds, private equity, etc. are willing to re-capitalize this system to make it modular and competitive.
http://www.banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=43c24d50-cb8c-4aff-8bed-7f1ab8038f18
News: Does The Government Recognize The Validity Of Fairholme / Perry Offer?
http://www.thestreet.com/story/12133366/1/does-the-government-recognize-the-validity-of-fairholme-perry-offer.html?puc=yahoo&cm_ven=YAHOO
The U.S. government might be beginning to recognize the validity of Fairholme and Perry's offer to take over Fannie Mae / Federal National Mortgage Association OTCBB:FNMA and Freddie Mac / Federal Home Loan Mortgage Corp OTCBB:FMCC, points out Rafferty Capital.
Richard X. Bove of Rafferty Capital argues that Jonathan Laing's recent column in Barron's has some omissions.
Last month, Bruce Berkowitz-led Fairholme Capital Management had offered to buy the insurance businesses of Fannie Mae / Federal National Mortgage Association OTCBB:FNMA and Freddie Mac / Federal Home Loan Mortgage Corp OTCBB:FMCC by infusing $52 billion of fresh capital in the GSEs. Fairholme indicated it would lead a group of private investors that included Perry Capital.
This week, Jonathan Laing wrote an outraged column in Barron's concerning the offer made by Perry Capital and Fairholme Capital to take over the GSEs by injecting $17 billion into the companies.
Richard X. Bove of Rafferty points out that Jonathan Laing could be echoing the views of the government.
Omissions in Laing's article
Richard argues that Mr. Laing attempted to make it apparent that the government laid out $187 billion to save the GSEs and never got anything back. However, Richard points out that the fact of the matter is that by the first quarter of 2014, the government will have gotten all of this money and more back.
Richard also points out that Mr. Laing failed to note that the maintenance of the GSEs saved the U.S. housing industry, as 90% of the mortgages purchased in the secondary market in the recent years were made by these two giants and the activities of the FHA. He emphasizes that if the GSEs had been put into bankruptcy in September 2008, there would have been no secondary market, no fixed rate mortgages, and no 20 to 30 year terms on mortgages.
Richard X. Bove of Rafferty Capital also points out that the Perry / Fairholme proposal is virtually the same in all major respects as the Corker / Warner Bill.
Richard concludes that it may be that the government is beginning to recognize the validity in some of the Perry / Fairholme thrusts and Jonathan Laing might just be echoing the views of the government.
Interestingly, Holman W. Jenkins Jr. of The Wall Street Journal points out in his recent blog post that super investors such as Fairholme and Perry believe both political parties are blowing smoke when they claim they intend to put Fannie and Freddie out of business.
-By Mani