I'd probably wait a little longer. I think this Ukraine business is gonna fuck us for a while.

"For your health!"

~Dr. Brule

FNMAT back at even on the day.

Ask him if the pushback toward his appointment as FHFA director was the result of disagreements on matters of policy, or if the Biden admin just doesn't like him. Lol.

Thanks. I'm trying to find a timeline for this capital plan. Seems like the following, but let me know if I'm wrong:

So next checkpoint is in May?


https://www.fhfa.gov/SupervisionRegulation/Rules/RuleDocuments/Enterprise%20Capital%20Planning%20NPR%2012-15-21%20to%20Fed%20Reg_Website.pdf

This is a pretty good summary.

Tbh I think the Collins lawsuit is going nowhere. SCOTUS deviated from standard principles when addressing remedy, and plaintiffs will have an uphill battle linking the removal provision to NWS harm.

Lol. I don't always agree with Amelia, but this post is so accurate. We're all here pounding rocks together trying to make fire for the last 14 years, and most of us just complain about how the other guy's rocks are bad.

No one cares about our silly board. And there's no grand conspiracy to badmouth your rocks xD

Yarp.

Interesting points. More interesting coming from Lockhart. I can't get a consistent feel for this guy's intentions after all these years.

These companies are not getting recapped before midterms. That said, this administration can basically order recap at any time in the next two years (my timeline), and they don't need Congress to do it.

I downplayed today's CRT statement, but it actually seems pretty significant, because you're seeing the companies focused on building a realistic risk profile. Also, it's clear someone in FHFA actually cares about preserving capital, after so many years of throwing it out the door.

Sandra Thompson's extolment of the CRT program was very disconcerting at first glance, but if they're planning on pricing them in a way that reflects the actual risk, then I'm very much in favor of it.

Looks like they're still on board with the CRT program, but it's good that they're ditching the ones that aren't economically viable.

Clarence, quick question on this. I know courts seem to think this is a derivative suit, but assuming there are direct takings claims for dividend and liquidation rights, how can the CFC provide "complete relief" if the NWS is still in effect? (I know SCOTUS thinks the NWS is gone, but the SPS liquidation build still has the same effect).

The NWS effectively removes the rights to future dividends and liquidation for other shareholders. So while they could pay us missed dividends and 6% interest, wouldn't there need to be injunctive relief as well for direct claims? Otherwise no future dividends or liquidation would ever be recoverable.

Or are these direct takings claims misplaced, and belong with the breach of contract rights addressed in Lamberth's court?

Grazie

I'm a glass half-full kind of guy. Let's look at what SCOTUS did:

They clarified that the FHFA is a government actor, and acting in the best interests of itself/the public.

They verified that is a governmental taking rather than an illegal exaction.

Both of these comments are very useful to Fairholme's other lawsuits. It's a blessing that SCOTUS included the language "or the public it serves," because you can directly compare the the 5th amendment: "nor shall private property be taken for public use, without just compensation."

While I don't think that SCOTUS got the APA claims right, I believe they are setting us up for a takings win. It's lazy on their part because they didn't want to get involved with second-guessing FHFA"s decision-making. But they are ensuring that there will be consequences for FHFA's actions.

Worth noting that in oral arguments, one judge even says "then why did you not bring a takings claim? Plaintiffs say they have. SCOTUS knows how this is going to end.

I felt like listening to the Fairholme oral arguments in the CAFC again. Much of the oral arguments focused on direct/derivative claims.

I think most judges believe that there was a taking of private property, they're just trying to figure out A) if plaintiffs claims are direct or derivative (i.e. - harm to corporation), and B) does the succession clause bar them from making claims?

First quote is at ~1:05:00 of the recording. Second is at 44:00 (actually came first). Basically, the court is saying if plaintiffs have derivative claims, and if the succession clause bars derivative claims, has Congress effectively barred constitutional claims in this case? Defense agrees. Plaintiffs would likely have the opportunity to address the due process problem if this were the case.

I don’t think a succession clause can deny constitutional claims, since the succession clause was taken from FIRREA, which consistently permits derivative actions during conservatorships when there is a manifest conflict of interest. I don’t think there’s any doubt that FHFA faces a conflict of interest here.

I believe that there are both direct and derivative claims. I think the defense did a good job of explaining the direct claims:



It gets really hairy when you’re talking about if all harm is all derived from harm to the corporation. I think it helps to look at two cases: 1) FHFA gives away all its money, but splits all the money between shareholders, vs 2) FHFA gives all of its money to a single shareholder. The injury to FHFA is the same in both cases. But in case 1, private shareholders have effectively been eliminated them from the capital structure. I think these claims survive, because the pecking order has fundamentally changed.

I think it also helps to understand dividends vs dividend RIGHTS. The courts can award us unpaid dividends, but that does nothing to restore shareholder rights to future dividends or liquidation preference. I think direct claims can only be remedied by eliminating the NWS, though I’m not sure what actions the USCFC is permitted to take.

The amicus brief takes the position that all claims are derivative, but says the succession clause doesn't bar constitutional claims when there is a manifest conflict of interest. Definitely worth reading.

In either case, I feel pretty good about this lawsuit.

Lol. I feel you, bud. This has been a crash course in why not to invest in anything with a political component. A good lesson tho.



I agree. I'm very optimistic about this year, including Lamberth's trial and its implications for settling other cases. Also the stress capital buffer:



These might give us some insight into what the plan ultimately is.



Agreed, and I don't think it'll be much longer. Thanks for your candor on this board and for the work you put into your articles.

I think F&F are only tangentially related to housing supply. I think it's a reach to interpret this comment as having to do with F&F, recap, or housing finance reform.

Glen, you seem like a pretty self-aware guy, and you've shown in the past that you have no problem taking responsibility for your mistakes. In this case, the game may be rigged to some degree, but we've gotten into this position--pun intended--because of the choices we've made. And those aren't the fault of the government, but a fault in our analysis.

I have a lot of respect for you and the way that you think involving investing. I've watched some of your old videos and I think that you and I share a similar philosophy. I also think that this investment will work out...eventually.

That said, I believe it would benefit you to understand the Kelly Criterion and betting odds. Because even if you're very smart, making oversized bets is a great way to go broke.

Conviction is important, but keep an open mind stay nimble in case your thesis proves invalid. Best of luck.

I think the Trump letter kind of forced their hand on this one. The letter states rather explicitly that Trump would have "sold the government's common stock in these companies at a huge profit." So hypothetically, whatever maximizes the value of the gov'ts commons is the relief that they should seek. It seems to be that a conversion plus warrant exercise maximizes quantity and profit of gov't commons.

I could be wrong though. Also worth noting that I think this case is a joke--along with CFPB. I would find it very funny if we finally receive damages from a technicality like this, instead of the myriad cases that explicitly demonstrated harm from government overreach.

Agreed. It's ok to get frustrated--even I do sometimes--but it's not ok to unload your woe-is-me story on the message board every day.

If you don't believe the investment thesis anymore and if you think there are better places for your money, why spend your time here?

I mean, she basically said the same shit that Calabria did. That's how you get confirmed, guys.

Please link to plaintiff statement. My understanding was that none of the plaintiffs own FNMA, so there is no need to include. Also, my understanding is that this is an implied breach of contract. Hence it doesn't matter whether the clause is included, only if it's explicitly excluded.

Someone correct me if I'm wrong here.

People who say this overlook the fact that Treasury can't get any money out of the GSE's until they're recapped.

The government will need to recap the companies before Nov 2024 or risk handing $100B+ over to a Republican administration.

The government will need to recap before 2028 or the warrants will expire.

The government will have to provide value for existing shareholders in order to raise capital AND in order to realize any value from its warrants and preferred shares.

Follow the money, guys. This is going to happen in the next couple years.




P.S. - There's also the incentive to avoid holding the bag for if another housing crisis occurs. Imagine your administration getting blasted for riding this conservatorship from one recession to another.

Thanks. I was getting '08 flashbacks when they started buying larger mortgages. This makes me feel better.

I believe commons do have some contractual rights to dividends. As such, it would be very peculiar for JPS to receive remedy but not commons.

Really? There's very little that would surprise me at this point. The gov't dragging their ass on a resolution would be the least surprising thing ever.

I was under the impression that we've used 190B of the 254B. Someone correct me if I'm wrong.

Doesn't treasury still have a funding commitment that the GSE's haven't yet exhausted? Just zero out the seniors and treat future draws like current draws, just not with 190B that's unserviceable.

I thought planning rule wasn't coming till Q3? At any rate, I honestly don't expect them to do anything at all until after the Lamberth trial in July, and possibly even after the ruling; who knows when that would be?

Finally got around to listening to yesterday's oral arguments. Seems like the judges don't want any part in deciding remedy. It'll get punted back to lower court (again) and everyone will twiddle their thumbs (again), appeal this thing into oblivion (again), and try to buy time till Lamberth's trial in July, when they'll all be praying for a settlement so that they don't have to ruffle any feathers.

Basically, courts are completely dickless.

I know the SCOTUS ruling was idiotic, but if they're forcing you to evaluate a counterfactual, either DO IT, or openly challenge the ruling. It's this court's responsibility to sort out the shit pile.

Personally, I think this case is stupid, I think the CFPB case was stupid, and I think SCOTUS is totally backwards on which parts of this case have merit. They should have just nuked the whole thing and left us with our takings and breach of contract claims.

Listening to this junk is just exhausting at this point.

Thanks kthomp. Is there a reason that the most recent liquidation increases don't show up on the company's balance sheet?

From when? Now till recap?

As an investor, why would I want to buy new commons (or even JPS) if Treasury has $100B of SPS that's going to be eating into earnings every quarter through dividends?

What is currently $69B?

If I'm the one looking at this, only reasonable harm I see is two years of earnings should be paid back, but liquidation preference would also build on SPS.

Trump didn't do shit about release, despite his letter; he only retained earnings under Calabria, so max damages is two years of retained earnings. Since liquidation preference was allowed to build under Trump, I imagine it will go up proportionately as well.

Only silver lining is the courts are so dumb, that they denied forward relief for the NWS. Basically the courts see NWS as effectively CANCELED, despite the build, so they might figure Trump actually made progress toward release.

Would be nice to catch the courts in their own bullshit. That said, my expectations are low for anything other than the takings and beach of contract cases.

They lied, conspired, and committed accounting fraud for the first $300B. They absolutely care about the money. Money will be the only driving force behind resolution.

I think the companies are making it out at some point regardless of what happens. Either the courts do it for us or the gov't does it to get their $150B or whatever. Right now Treasury is getting no money from the GSE's, and a bet on gov't greed is a pretty safe bet, imo.

I also don't think the entire housing finance system will be replaced any time soon. My primary concern is that we're probably at the end of an economic cycle, and I expect housing prices to come back down to earth in the next couple years. I just want the companies to recap before there's a housing downturn. I know what the stress tests say, but I'm still a little worried, tbh.

I haven't seen a single rational scenario where JPS would go to zero while common still have value. Care to share one?

Lol. It's not even that.

Many people on this board are foaming at the mouth and treat this investment like a moral crusade against the government. Moral high ground doesn't matter if you're bankrupt.

What they should be looking at are probabilities of success and how much money they should invest to maximize return and avoid bankruptcy.

If you're investing based on probabilities, you are able to make logical arguments and re-evaluate your position over time. If you're in it to fuck over the government or make a statement, you're gonna make decisions on emotion and hold till you're broke.

Most posters here--including myself--weren't even invested in 2012 when the NWS occurred. To act as if a great injustice has befallen you, after picking up shares years later, seems silly to me.

We're all greedy bastards who are in this to make money. I know I am. I'd like to see more people investing with their brains instead of their hearts here. If you're investing with the latter, then I'm happy when we don't share exactly the same thesis.

I am actually invested in both as well, but probably 90/10 JPS vs common. As far as I'm concerned, commons are higher risk/reward. I like the upside play, but I don't need $150 pps to be satisfied with my investment.

I never try to convince anyone to invest in one class over another. But when common holders make claims about JPS going to zero, I can't help but laugh. If JPS are worthless, then commons are most certainly worthless. The inverse is not necessarily true. Frankly, I wouldn't be wishing for either.