"Treasury had the warrants issued to them in 2008. Nobody who bought shares after that date has any leg to stand on, legally or morally, in challenging them."

I'd agree, unless someone challenges the conservatorship itself. I based my investment on the likelihood of warrant exercise. I don't think it's right given the return Treasury has reaped, but I'm prepared for that adverse outcome.

The SPS LP increase for free I don't think is on the same legal footing IMO.

We can keep going back & forth on this topic too, but I'll refrain. I'll give you my perspective and then I'll move on.

"the 2012 NWS completely extinguished the possibility of any future economic gains for common and junior preferred shareholders."
If this were true, neither you nor I should be invested in common or JPS.

"you would have to show that those letter agreements caused shareholders harm beyond the harm done by the 2012 NWS"
This is not true. You would have to show that the agreement violates the implied covenant of the shareholder agreement. There is no criteria to compare it to any other harm.

If I had an employee who earns 2% of the company profit, and I decide to temporarily give away all the profit, the employee can sue me for breach of implied contract. While not explicitly stated, it's implied that I will continue running a For-Profit business. Once I pay them the settlement, I cannot do the same thing again next year or the year after, stating "well the employee knew this was possible after it happened the first time." The contract and expectations that the business is still running for-profit has not changed.

"For an investor contract, the time of contracting for the purposes of the implied covenant inquiry must be the time of the most recent change in contract—whether by amendment or change in law."

Yes, completely agree with this. This is about change in contract, and laws at the time. A contracting party can't claim exemption because they didn't expect it. So what amendment or law went into effect that states a government agency can take over a company, give all the profits to another government agency, and not compensate the owners of the property? Answer: none.

Therefore, the reasonable expectation STILL EXISTS that a shareholder can and should be able to reap in the rewards of the company. Implementing the NWS (or anything else that needlessly attacks shareholder rights) is a breach of implied contract, doesn't matter if it's the first time they try, 2nd time, or Nth time. At no point has there been any law that says shareholders can expect the government to take all their profits in perpetuity for no consideration in return. It's either a Taking or it's not. The courts have dismissed the takings claims. So that means these are still private enterprises, with normal shareholder agreements. The contract has not changed.

"At that point the LP will stop increasing. Your sentence suggests they would have to pay both."

They would need to pay the 10% annual dividend rate (or NWS whichever is lower), and then they still need to pay off the SPS LP by dilution (according to you and others). Is that not paying both a higher dividend AND the higher LP amount itself? Prior to the NWS in cash, and the NWS in LP, they would just pay 10% of a smaller LP amount.

The 2.5% quarterly on the growing LP could in fact be larger than all the quarterly profit earned. It's a worse situation than if the NWS didn't happen. So you can claim all these efforts are "helping" the GSEs but I think that's just an ignorant stance. Not a single entity, corporation, or person would think this helps their financial situation.

"It should be blindingly obvious by now that what any of us thinks should happen has no bearing at all on what actually will happen."

I agree. So why do you keep telling people to file their own lawsuit? We know that's what *should* happen, but obviously not something that *will* happen. Just let the people talk....

"You're telling me what to do by saying that I should not tell other people what to do. Hypocrite."

LOL! So you don't like it when someone does it to you? At least I gave you an "or" option after that.

I agree with you about the politics, and I don't engage in those discussions. Although sometimes politics could impact "future expectations of share prices for FnF juniors and commons" MORE than you telling someone to "shut up or file your own lawsuit."

I think your replies don't fit your own criteria.

Unfortunately have to agree. It's the percentage of the pie they are stealing, doesn't matter how many slices there are or how much each indiv slice is worth.

Which is why the focus should be on - why is Treasury allowed to steal any of the pie? 80% is ok, but 99% is bad?

Sarcastic font:
Because taking the company's money for no consideration and then not reporting it correctly in the financials is in the best interest of the Agency? Sounds totally legal, and supported by the SCOTUS.

That's fine. I just didn't know if you knew of an actual answer to Wiseman's conspiracy. I don't pretend to understand most of what he's saying, but I think he's totally correct on the financial statements not being legit.

Oh, I'm not disagreeing that's not the way it should be. I'm just looking at a FNMA balance sheet on Marketwatch site and there are lines for:
- Preferred Stock (Carrying Value)
- Redeemable Preferred Stock
- Non-Redeemable Preferred Stock

It's only the "non-redeemable" that holds a 139.97B entry. I have no idea how accurate the balance sheets are on any of these sites. It could be that there are several lines wrong on them. Regardless, the real point is - where is the liquidation preference? If it's just in a bucket of shareholder equity with no reference to the fact the LP is far above senior's par value, then it's shenanigans.

So with the retained capital increasing, is the liability listed under the "Non-Redeemable Preferred Stock", or does it go to Shareholder Equity? Shouldn't there be a separate line item for Liquidation Preference that Treasury can demand redemption? If redeemed, that wipes out all of the shareholder equity.

ASC 505-10-50-4 - "An entity that issues preferred stock (or other senior stock) that has a preference in
involuntary liquidation considerably in excess of the par or stated value of the shares shall
disclose the liquidation preference of the stock (the relationship between the preference in
liquidation and the par or stated value of the shares). 3 That disclosure shall be made in the
equity section of the statement of financial position in the aggregate, either parenthetically or “in
short,” rather than on a per-share basis or through disclosure in the notes"

I'm no financial expert, but I'm calling shenanigans on FnF balance sheets.

@Bradford - I'm curious about your take on the "off balance sheet" SPS increase. If it's not accounting fraud, how is accounted for? Other than the $1B, where is the rest hiding?

"Until and unless a lawsuit is brought, your question is irrelevant."

You keep saying things like this. It makes me wonder. Do you understand the purpose of this board? It is not to bring forth lawsuits. It's to have a discussion. So quit telling people their discussion points or questions are irrelevant. They fit precisely into the purpose of of the discussion board.

Or just keep doubling down on your coping mechanism when you hear points you don't agree with.

"Constant talk about what should happen is useless."

I disagree 100000% on this point. If we all followed this advice, most of us would be speaking German.

It's actually WORSE today! Not only do the GSEs need to pay the deferred NWS - the entirety of their profits, they will be paying 10% on that amount until the LP is paid down, which can't be done until some date far off in the future!

"because the 3rd Amendment was done in bad faith and unfair dealing, and removed ALL economic value to the shareholders, the 4th Amendment, by transferring a Liquidation Preference to the US Treasury each quarter equal to the shareholders profits doesn't hurt the shareholders "

The answer to this should be obvious. Any previous bad action does not absolve anyone from future bad action. Just because a company gives away all it's profits once, doesn't mean - "oh well then the shareholders don't have any reasonable expectations that it won't happen again." This is not how the breach of implied covenant works. If one party takes action that prevents the other party from realizing the fruits of their side of the contract, then there is a breach of (implied) contract. This isn't about a person's expectations, it's about contractual obligations. The stock contracts between shareholders and FnF are not updated to reflect that as of xxx date, they can no longer be expected to receive a share of profits. It's implied in the shareholder agreement that as part owner, you are entitled to the rise/fall of the rewards of the company. To give all the profits away is a breach as it invalidates the commitment to shareholders. No matter if it's the first time, second time, or 4th amendment.

Everything seems to keep coming back to : "Ps Illegality claim looks like a guaranteed loss, because the NWS was legislatively authorized (per SCOTUS)."

The NWS being legal does not mean nothing illegal happened. The SCOTUS found that FHFA was within it's authority to make such an agreement. It is true that there is nothing illegal about the NWS itself. Just like there would be nothing illegal about a company giving some or all of its profits to charity. However, the implementation of an otherwise legal act can result in an ILLEGAL breach of contract.

Here's another anecdote:
I hire Hunter Biden as my spokesperson for DaJester's Mystery Oil. He will get 10% of all the profits I get for selling my Mystery Oil, and we put that in the contract. Hunter makes commercials for me. I later decide to sign a contract with the Ukraine to provide all my Mystery Oil to the Ukraine for free, as a charity contribution. Hunter would get no royalties or profit sharing since the price was set to zero. Hunter sues me for breach of implied contract. While not explicitly stated in the contract, the assumption is that the product would be sold for a profit, so that he may gain benefits of a percentage of those profits. Hunter wins. I have to pay him $600M in damages for the money he otherwise may have collected from the oil being sent to the Ukraine. Sometimes the remedy for a breach of contract includes a contract remedy, but in this case, the jury simply awards monetary damages.

So my contract with Hunter remains intact. I keep manufacturing Mystery Oil. Starting in 2024, I decide to ship my oil to Israel. If I try to use the same contract terms and ship it all for free (which is perfectly legal for me to do), what happens with my Hunter contract? Am I allowed to continue the obvious (and now jury certified) breach of implied contract? Since I already paid the damages, I should be good according to your stance?

Maybe to avoid the obvious re-breach, instead I decide to write a new contract and get a new spokesperson. This time I get Donald Trump to be my spokesperson, he makes some huugely successful commercials for me. Can I use the same language in the new contract to pay him 10% of the profits? Yes. Can I sign a contract with Israel to provide all the oil for free? Technically yes. Would that still be a breach of implied contract? Yes! Would it be easier for Trump to win this in court? Absolutely.

So the fact that there is no direct remedy requiring FHFA to cancel the contract with Treasury doesn't not mean there isn't some serious maneuvering needed to avoid another obvious contract breach and pay more damages.

"While these contracts were breached by the FHFA's implementation of the NWS, the jury's verdict does not invalidate either the NWS or the PSPA."

The jury verdict in fact solidifies that the NWS language agreed to by the FHFA breached the implied covenant with shareholders. Therefore it would be illogical to allow the FHFA to continue to use any NWS language in current or future agreement or amendments. It is now a known fact, and soon to be certified by a court of law that the NWS language was/is an effort to undermine the shareholders ability to realize benefits they are contractually allowed to gain.

"This means:
- Stock buybacks
- Dividends
- New JPS issuance
- IPO new shares"

You forgot the between the lines **unless it benefits Treasury**... They can send dividends all they want to Treasury apparently. Nothing illegal to see here.

"so you quoting my sentence there means you were also talking about 6.12. Perhaps unknowingly?"

I think this means you brought it up first, and I was just responding. Not that it matters. Not that any of these postings matter. :)

Happy Holidays!

Yep, all shareholders (except FNMA common as they were not party to the suit)
:)

This was meant to be a joke - it's not like any of this will happen, and I don't need KT throwing it back in my face later.

"You are the one who brought 6.12 into the discussion."

Ummm. LOL, no... I never mentioned "6.12" anywhere in this particular thread/reply stream. I believe that was you. I'm not trying to score points, just have a discussion from a contrary position. I don't happen to see the same black/white lines you do, and I think that should be ok.

"For example, you have yet to answer the question in this post, where I asked you exactly who it is that would force FHFA and Treasury to alter the contract."

I'll keep this brief - "Forced" is probably not the right term. If FHFA acting on behalf of the GSEs wants to ensure that the contracts no longer breach the implied covenant, then the FHFA will need to remove language that causes an implied covenant breach. In order to do that, Treasury will necessarily be involved. I'm tired of this circular discussion so I'll just leave it at that.

I wish you well. I'll say Happy Holidays to you and to others on the board. I hope we all get some good news this year but if not, there is always next year. :)

"The effectiveness is not measured in preventing speech but in highlighting hypocrisy."

Yes, kind of like when you argue with me that Treasury thinks a write down is illegal, yet you highlight a clause that Treasury can use to wipe the LP? I am also highlighting hypocrisy, I just do it directly.

Neither you nor I are likely to affect court cases. That doesn't mean we can't discuss it. :)

You know full-well that people on this board are highly unlikely to file their own suit, so you use that as a shield to try to invalidate a point. IMO- it doesn't work.

I'm ok if it never gets paid and keeps accruing for the next 15 years at the same rate. Let's draft a contract that the GSEs can NEVER pay us the award amount and it will just keep growing larger.

But starting Jan next year, they will have to start paying us 10% as a dividend, while still unable to pay down the accrued amount. And since the 10% dividend is coming from the GSE coffers, that dividend amount paid also needs to get added to the accrued IOU amount because they need to replace the shareholder's money they are taking to pay the dividend.

Sound like a fair compromise?

"4) I said "The verdict did NOT say that anything at all was illegal or unenforceable."
5) You responded with This is simply not true.""

Sorry KT, I'm not going to play the word games with you. You expect me to be accurate with phrasing at the same time you throw out implications that nothing illegal happened. Which I'll say again, is simply not true.

"In other words, the implied covenant can only be violated if the allegedly breaching action was worse for the shareholders than what was in place the day before the action happened."

No, this is not true either. The implied covenant breach is something that prevents the other party from realizing the benefits of their side of the contract. One party cannot actively take action (even a legal one) that prevents the other party the fruits of the contract. There is no stipulation that it is "worse than" something that happened previously. By that rationale, a malicious actor should always implement the most egregious action first, because that will absolve them of all the lessor violations later. Nonsense.

"We are now firmly into "first line of my signature" territory"

It's funny that you consistently refer to your first signature line instead of directly telling people to "shut up." Does this passive aggressive method work better for you?

I personally don't think it's effective. I don't plan on filing a lawsuit at this time. And no, I will not shut up. Thanks.

I'm surprised there are no predictions on whether we get halted tomorrow for various conspiracy reasons.

Here's an analogy using a fictitious character named KT.

KT is under contract to work for The Twins Widget factory. KT is a great worker, every day he comes in and makes MBS widgets and gets bonus on each widget, paid in cash daily. These are very valuable, KT earns about $15B per year.

One day, The Twins get taken over (by coercion) by Uncle Suggy. Uncle Suggy doesn't like that KT is making so much money, so he puts a booth at the parking lot and starts charging a fee to exit the parking lot. The parking charge is whatever bonus money each worker got paid that day, and workers must pay in cash. Now, since it's not illegal to install the booth and have parking fee, Uncle Suggy says he's within his rights.

KT and others don't like this so they decide to start a class action and sue. Because he is getting sued, Uncle Suggy stops collection parking fees in cash and instead defers the parking fee by collecting an IOU for whatever KT got paid that day. At some later point, KT will start owing 10% interest on this IOU amount.

At trial, a jury of 8 peers decides that while Uncle Suggy can charge parking fees, it violates the implied agreement between workers and The Twins Widget Factory. It does not allow workers like KT to benefit from their side of the contract. KT wins his day in court, unfortunately there was a bad judge who only allowed a fraction of his money to be recovered. Uncle Suggy makes it clear he will drag his feet and doesn't plan to pay the jury award for at least a year.

In the meantime, KT goes back to work. When he arrives, there are 3 possible scenarios. 1.) The parking booth is still there and collecting cash. 2.) The parking booth is still there and collecting IOUs (since it wasn't part of the lawsuit). or 3.) Uncle Suggy learned his lesson and removed the parking booth or reduced the fee to an amount that would not breach the implied employment contract.

While my bet is on scenario 2 to be the most likely outcome, I think this sets up further action to take place as the breach is more obvious the second time around. The correct result should be #3. Uncle Suggy can't just pay the fine and continue the illegal contract breach behavior.

Oh boy, here we go again..

"There is a huge, huge difference between saying that the NWS illegally violated the implied covenant of good faith and fair dealing, and saying that the NWS itself is illegal. Just like there is a huge difference between saying that FHFA and FnF acted in bad faith (which the jury did NOT find) and saying that they violated the implied covenant of good faith and fair dealing (which the jury DID find), which is a mistake you made in the past."

Agreed, to an extent. The action of FHFA in putting the NWS into the agreement violated the contract rights and fair expectations of shareholders. The NWS as an action independent of anything is not illegal. Just like if the govt decided to confiscate all of the new B-21 stealth bombers in the interest of national security, that step could be legal. But it could also violate a contract with Northrop Grumman if it was not in good faith. Northrop could claim a contract violation even from a LEGAL action. Both can be true at the same time. And no, I did not make a "mistake" on the bad faith language, as I explained it's just easier to type and I should have been more clear since you like to nitpick the specific language people use and miss the core point they are trying to make.

"Read the beginning of the second paragraph on page 13 of Lamberth's opinion regarding defendants' Motion for Summary Judgment:"

I suggest you read the third paragraph that follows.

Lamberth does not destroy my argument because I'm not saying the NWS is an illegal act. I'm saying FHFA cannot implement it into any agreements because it violates shareholder rights. With your level of attention to detail, I don't know how you are missing this point. You can keep saying the NWS is not illegal until you are blue in the face and you'd be right. That doesn't mean the FHFA can continue to use that language in the contracts moving forward.

"The verdict did NOT say that anything at all was illegal or unenforceable."

This is simply not true. I think you are overly focused on the Compensatory damages that are being awarded as the end result. But in order for those damages to exist, there MUST have been illegal action by the defendant (FHFA), in violating a clause in a contract. That clause is the "Implied Covenant of Good Faith and Fair Dealing" that is part of the Uniform Commercial code and exists in all contracts. It is there because the parties cannot possibly put into writing every possible scenario or action that the other party may take. It is therefore assumed that neither party will conduct itself in a manner that denies the other party the benefits of their side of the contract. It is illegal to violate this code. Full stop.

Now, you are correct in that Treasury was not a defendant. But that does not mean that FHFA can continue to behave in ways that are now deemed illegal between the FHFA and the shareholders. The remedy for implied covenant breach is typically a contract remedy and not always monetary damages. But in this case, there was compensatory damages because the plaintiffs showed that there was economic loss as a result of the breach. The loss should have been larger, and/or there could have been punitive damages as well, but I'll take the win for what it is. It is confirmation of ILLEGAL ACTIVITY on the part of FHFA. Again, full stop.

If you think the FHFA can continue using the same practices that have been deemed illegal, you are mistaken.

You are right, this isn't very hard.

"The part I bolded says that Treasury may unwind the SPSPAs if any part is found to be illegal or unenforceable, but the unwinding is not at all automatic like you said"

So you bolded the part that says it's NOT ILLEGAL for the Treasury to write down or otherwise obliterate the SPS LP? Should we ask Calabria to put that quote in his book as an addendum?

"Patent and other laws have been misused to inhibit or delay for years and sometimes even decades competition for generic drugs and biosimilars"

Well then change/fix the laws you bureaucratic dummies! Same with FnF, if the Charter Act needs to be updated, then get Congress to do it. It doesn't mean sweep in with the 4th branch and circumvent the laws.

Granted, but I'm more thinking what will happen for the future state - lessor of 10% of the LP or NWS. And unlike 2012, there's no real or fake rationale for "saving the mortgage industry" that necessitates a sweep. I seriously doubt they will use the same lever to drain money as the one they just lost in court. That would be new damages, IMO. I believe they will need to amend the agreements to avoid this.

I realize this was likely to be read as a tongue-in-cheek comment, but no I'm serious. It would be easy to gloss over that little detail rather than own it, knowing full well that people will take it as a reason you are bashing commons.

I can disagree with your reasoning, but I'm not questioning your transparency.

"That, in turn, means that the verdict should not in any way affect your expected probability that Treasury converts the seniors to commons"

This is a false assumption. If either party is forced to alter the contract due to a legal violation, BOTH parties will need to come back to the negotiation table. They both need to sign the new agreement.

Relevant to what? I wasn't even talking to you...

"I agree with this statement, but I don't see it as being relevant."

KT, I commend you for being honest about being short FNMA.

"You have said all along that Treasury could take certain actions (such as writing down the LP) as a result of the verdict, and I explained why that's wrong. Now you're talking about FHFA."

All the circular talk is perhaps confusing, I get it. Let me state simply: The agreements are between FHFA and Treasury. Anything amending or creating agreements will need both parties. The LP resides with Treasury. However an agreement may change the calculation or future growth of the LP. Current or future Directors of the Treasury at the guidance of the political administration in power, can resolve the LP in whichever way they see fit. This may include ways in which were touted in a book to be illegal, but in fact are likely to be perfectly legal.

If you have further questions, I'm sorry. That's about as simple as I can make it.

"Where on earth did you get the idea that shareholders need to agree to warrant exercise?! Neither the juniors nor commons will have any say when it comes to the warrants."

I didn't say Treasury needs shareholders to vote or anything. I'm just saying IMO, the majority of shareholders would be ok with warrants exercised if they state the LP is written down. May prevent a few current or future lawsuits from evolving if release is coming. I'd say Treasury can have 80% if we get a release.

Yes, I know - it could be higher 99.9% dilution solution, AIG precedent, they "almost" did something in the past, blah blah.