Well this sets up the Omnipotence Paradox (immovable object vs unstoppable force) if Trump gets elected.

1.) Some people say Trump will release the twins
2.) Some of those same people say Bradford is never right

Hmmm.....

Eh... I'm not sure on this. If the LP on my JPS were growing to astronomical levels, I think I'd be bragging about it. Doesn't have to be in cash to get me excited. :) Especially if I can calculate how much the dividends will contribute to future cash flow (dividends being integral to my retirement plan).

With the cash sweep paused, Treasury could tout the growing LP and future dividends as the "solution" to the implied backing. But they don't because it would bring unwanted attention to the situation. Their silence says a lot about the situation. IMHO.

"For the government, "getting more out of their investment" is something to brag about"

I don't hear them bragging about the current excessive amounts they've received above the GSE draws? I don't hear them bragging about the SPS LP ballooning and the potential windfall the 10% dividend on that will be when it turns back on in the future.

Usually when the government does something shady, it will do it silently or with a distraction so you don't see it directly.

That is one of the possibilities. It's also possible they decide to eat both the common and preferred and s&*t on their carcasses.

I don't know if the government is capable of looking for win-win-win situations, but there are ways to resolve this issue where common, preferred and Treasury have a decent outcome.

This is why I think write-off is at the very least possible. Assuming your math on conversion followed by delusion <sp> nets the govt ~$100B vs ~$80B for warrants alone... You are acknowledging that the difference between write-off and SPS conversion is just an extra $20B in the Treasury's pocket?

That's some serious effort and bad political optics for not a lot of additional gain for Treasury, IMO. If they use "waiving" the SPS as a bargaining chip they can likely get shareholder to agree to warrant exercise and let the commons climb to $20 and JPS to par.

"if you actually want to help FnF contribute to the capital raise you should buy some JPS."

How does whether or not I buy JPS impact the $32B? I don't think your metaphoric Thanksgiving table gets an additional helping for each buyer.

"The companies were the primary defendants in the lawsuits. They are the ones who breached the implied covenant in the contracts that only the companies and shareholders (not FHFA or Treasury) are party to. The only reason FHFA was even involved is because they are the ones who made the decision as conservator to sign the NWS."

Well no kidding... Can those companies unilaterally stop harming shareholders now or in the future? Or is it the conservator who makes all the decisions on behalf of the companies?

Whatever happens - write off, cram-down, NWS 2.0, receivership, it won't be the companies decision. The FHFA will be the one who is "obligated" to take the action. If you think there is only 1 action they are likely to take, that's fine. I'm open to other possibilities.

"See above as for why this is also wrong. The dividends can never even eat into FnF's capital buffers, let alone their base regulatory capital."

So by "harm" you only mean something that reduces their regulatory capital? There is no other type of financial harm? If the 10% of the LP is so large that it requires payment of their entire net income or very near it, I would say that is harmful to the organizations. Can a zero income, fully capitalized organization function? Yes. Does that mean it hasn't been harmed? No.

"Pursuing credibility as a goal is counterproductive anyway. Cart before the horse. It is a byproduct."

Yet you are asking me to provide credibility. Me thinks you just like to argue.

Compared to paying $6500 for the ability to convert to 1060 common shares?

$6500/1060.3329 = $6.13 per common share.

So if you wanted the common shares, FNMFO makes no financial sense. If you want it for the $105K preferred redemption price, that would be the reason to buy it.

I'd just say buy the common at the low price. If you need JPS as additional security, I'd buy it separately.

Horrible advice.
"The only JPS maybe possibly worth holding is FNMFO because it is convertible to common at a conversion price of $94.31."

If you properly read the agreement:
"The preferred shares are convertible any time at the holder's option into 1060.3329 common shares"

The initial conversion price it was based on is irrelevant. If you want a preferred that can be converted to 1060.3329 common shares, you would get the common shares and whatever price they are currently at. Could be more than $94, and clearly it could be less.

"There is no reason why haven't wrote them off already other than the fact they consider this act illegal or they will use the SPS and their LP as leverage when time comes for a capital restructuring."

That's certainly possible. Either way - write down, or capital restructuring, or combination of both. The answer is the same - it hasn't happened because they don't feel compelled to do it yet. Only when they are being released is any of this relevant.

"Let's take your position that it isn't illegal for Treasury to write off the SPS. Okay, then why haven't they done it already? "

Treasury has had no vested interest in releasing the twins. They had a cash cow and no legal repercussions. IF they do a write down (I'm not saying it's guaranteed action), it will likely have to do with politics and the optics of the situation based on whichever Administration is in place. On top of the billions overpaid, it's hard to justify the amount of time and additional money siphoned to the Treasury. The LP could reach half a trillion by the time they are released. That may very well feel like a taking, and there is already evidence of good faith breach. Makes it easier to highlight and fight as gross government overreach.

"why did Treasury amend the SPS to increase the LP in lockstep with net worth?"
This started before the jury verdict obviously. When it was 10%, any dividend not paid would go to increase the LP. Then it switched to NWS so the "not paid" part of the contract was moot. But then when FnF were allowed to retain earnings, the entire income amount that would have been paid in cash now falls into the dividends "not paid" category, so it gets added to the LP. Essentially the NWS is still there, just as an IOU.

The preferred I own are mostly $50 based on lower cost basis vs par. The dividend % makes a difference only if the dividends get turned back on as opposed to retiring the shares.

"Treasury was not found to have violated the implied covenant because that covenant was only between the companies and the shareholders; why would they either choose to or be forced to take any action at all regarding the LP in light of the jury verdict?"

The only way for FHFA to prevent the continuation of the clause that was in violation would be to remove or amend the agreement with that clause. Treasury is obviously the other party in the agreement. It's really not complicated.

Good gravy... Where to start with this rubbish. You are so good at cherry picking things to mean something that they don't.

"The Supreme Court said that it's okay for FHFA to take actions that hurt the companies as long as those actions benefit "the Agency and, by extension, the public it serves" which contradicts your argument."

Yes, the Supreme Court said the FHFA was acting within its powers. Best interests, yadda yadda. Taking action that is harmful to a company or an individual is not the same thing as not compensating someone for that harm. By your logic, the jury got the decision wrong on the implied covenant because the Supreme Court said the FHFA could do whatever harm it wants. How can they be on the hook for ANY harm?

"Nobody has ever filed a lawsuit based on that argument"

This is just illogical. The Charter Act is the actual law, regardless if someone files suit or not. My opinion/theory is that the periodic commitment fee has never been charged, because it is too blatant of a violation of the law.

"Remember, they stopped siphoning actual money almost 4.5 years ago. The ballooning liquidation preference doesn't hurt the companies at all."

What the actual F*&#? If any company or person on the planet had their entire net income matched 1:1 into an "IOU" Liquidation Preference, that would later trigger a 10% dividend that IOU amount, you don't think that is harmful? Especially if this is allowed to grow over years and kept hidden on the Balance Sheet. The 10% amount will be more than future earnings, requiring a bankruptcy or restructuring to resolve. That does NOT sound very helpful. Only someone hoping for a restructuring would think so.

" If Treasury based its contention in late 2020 that writing off the seniors was illegal on a certain law or set of laws, and those laws don't change, then it isn't reasonable to expect Treasury's contention to either. "

And you still refuse to consider that there may not have been a law in 2020 nor today that makes the write off illegal. Unbelievable that you can only apply your logic in one direction.

"the ones to whom you need to justify yourself to are those who read your posts and perhaps give you an undeserved amount of credibility"

Unlike you, I don't need anyone to find me credible. I can like whatever posts I want even if they aren't 100% factually accurate. I can disagree with any fortune telling posts by know-it-alls. Time is all I need to know who was right (or lucky).

Thanks Wiseman. My post was in response to a hypothetical "what if they had paid in-kind rather than with cash". And I was just stating that it would not increase the number of senior shares or common shares, just an increase in LP. They are doing the same thing any time a dividend is not received and instead is retained as capital, or when they are just initially gifting themselves, as you are pointing out.

I also agree with you on the overall shadiness of the accounting practices on the balance sheet. Whether this indicates a secret escrow account somewhere, I guess we will see.

"might there be a paragraph - near bye - ? that speaks to the ability to pay in shares of stock"

Not that I'm aware of. I do remember seeing the "in kind" language in the CBO report from Aug 2020. Bolded for emphasis.

"Originally, the Treasury was supposed to receive a fixed annual dividend equal to 10 percent of its outstanding share balance (12 percent if the dividend was paid in kind, with additional preferred shares, rather than in cash). In August 2012, the payment agreement was amended to require Fannie Mae and Freddie Mac to pay the Treasury essentially all of their profits (referred to as an income sweep)."

But I don't think this is correct based on the SPS Amendment language. I think the CBO was mistaking the method of accrual if the dividends were not paid in cash, or it's just sloppy language. It wasn't in more shares, just the increased LP of those shares. With the future dividend amount based on a percentage of the increased LP. Until the NWS happened anyway...

Here's the language from the SPS terms:

"To the extent not paid pursuant to Section 2(a) above, dividends on the Senior Preferred Stock shall accrue
and shall be added to the Liquidation Preference pursuant to Section 8, whether or not there are funds legally available for
the payment of such dividends and whether or not dividends are declared."

"For each Dividend Period from the date of the initial issuance of the Senior Preferred Stock through and
including December 31, 2012, “Dividend Rate” means 10.0%; provided, however, that if at any time the Company shall have for any reason failed to pay dividends in cash in a timely manner as required by this Certificate, then immediately following such failure and for all Dividend Periods thereafter until
the Dividend Period following the date on which the Company shall have paid in cash full cumulative dividends (including
any unpaid dividends added to the Liquidation Preference pursuant to Section 8) the “Dividend Rate” shall mean 12.0%."

The dividend percentages are all based on LP amounts, and unpaid dividends are added to the LP. No additional shares issued.

The current state is that the NWS is still in place, but now considered "unpaid dividends" which is why the LP grows by the entire net worth amount dollar for dollar. It's the same mechanism as above- in lieu of cash, the unpaid amount increases the LP.

I should also mention that because the NWS was deemed a breach of good faith & fair dealing, that the current unpaid NWS dividend that is increasing the LP may need to be adjusted downward to 10% or 12%.

"why did F and F -- FHFA - ever on its own voluntarily pay with cash as the agreement allowed for in-kind stock payments. Imagine the cash capital F and F would have if it paid ZERO in cash. Yes more shares but how many?"

I'm not sure it's additional shares in lieu of paying in cash. I think it's just an increase in the LP for the unpaid dividend amount and triggers an uptick to an ongoing 12% dividend rate vs 10. Still same number of shares - SPS/JPS/Common. It's just a LP IOU - FnF would still need to pay the full cumulative dividends in cash at a later date. I suppose they could have used the 12% LP addition and avoided the draws to pay the lower 10% amount, which would have ruined the circular draw argument. But I can't fault them for wanting to pay the lower dividend percentage.

It's a similar situation today as the LP grows for the "privilege" of retained earnings. Although growing the LP by 12% of the SPS may have been better than the current 1:1 increase in LP for every dollar retained. Too late now that the 3rd and 4th Amendments are in place.

I asked the magic-8ball.com and it said "My sources say no".

"Given how the original SPSPAs were structured the answer to every question is yes. The 10% dividend rate and non-repayability of the seniors were in the original SPSPAs from 2008."

I would argue that the non-repayability of the SPS and the current increases in the LP were clearly in the best interest of Treasury but not the GSEs. Imagine a world where FnF could pay the 10% dividend of the original SPS and used any excess profits to pay down those Seniors or retain capital. That seems more fitting for the preserve and conserve mission, and would have resulted in release much sooner. Why didn't this happen? Because the negotiations between FHFA and Treasury were one-sided, and FHFA agreed to terms that were detrimental to the GSEs and shareholders, as evidenced by the continued conservatorship and the mountain of profit moved to Treasury - with yet more to come.

"There are separate fee considerations in the SPSPAs, like the commitment fee (which has never been charged but could be negotiated to turn on in the future)."

Never charged because it would be illegal per the Charter Act? I don't see a path for Treasury and FHFA to negotiate any commitment fee without Congressional intervention. This entire charade is a loophole to the illegality of government fees. Treasury has successfully (thus far) found the way to siphon the money regardless.

There may only be one verdict stating the obvious so far, but who knows what the future holds.

"It seems that semantics are all you have to fall back on. Instead of "mind", use the word "stance" in the opinion."

Uh no... I'm not going to pretend that Treasury has an official stance when it does not. When/if Treasury does communicate its stance, I expect it to be based on the facts and circumstances at that time, not what someone may have misconstrued in the past. You are free to believe any future secretary of the Treasury is incapable of independent thought or any sort of legal fact-finding. Or that they won't take a stance based on political winds at the time. That's your prerogative.

"You have enough information to give an estimate, and if you refuse to then any valuation technique you use for the commons is severely, severely flawed."

Agreed. I have enough information, and I don't feel obligated to give you any estimates. I've said repeatedly that everyone's model on this board is equally worthless. I'm not trying to convince anyone that my model is "more correct" than someone else's. Why would you want details of a valuation that doesn't mean anything? I have my methods, you have yours. I don't need to justify anything to you, sorry to say.

So we need to get this trending on Reddit to squeeze it up! ;) Or if prior to the official FHFA/Treasury announcement, if something is said by Congress, Presidential candidate or other newsworthy source, it could trend before they can act.

Yep, I get ya. Personally I think it will halt regardless if the news is positive or negative. All bets would need to be in before the halt.

"It will never be halted for things such as "release" "re-list" or "re-cap"."

I don't think this is true. A stock can be halted for news - aka "T1" halt for relevant news that is material to investors. This may happen if there is a recap/release announcement, or a receivership/cramdown announcement. This is why it's important to hold shares now if you believe release is coming, and to avoid the common shares if you believe the cramdown is imminent.

There can also be automatic halts triggered due to volatility. FNMA and FMCC are Tier 2 securities. The automatic halts are based on closing share price from previous day. If closed under .75 the halt points are the lessor of 15 cents or 75%. If we close over .75 (but under $3), the auto halts are set at 20%. There's some other rules I'm sure I'm missing. But bottom line is that it can halt on the way up or on the way down, or pending news.

"The offer was made to selected large shareholders, not to the public. Nobody cares what Joe Sixpack thinks with his three shares."

Then it wasn't an "offer" in the sense of an official ability to convert shares. It was a "proposal" to gauge interest and see if they had even a remote chance of getting a voting majority. Clearly that wasn't the case.

"What is your estimate of the probability that Treasury will change its mind as to its opinion of the illegality of writing off the seniors?"

I guess I'll say it one last time. "Treasury" does not have a mind nor an opinion. Individuals do, so there is no answer to your question. What is the probability that Mnuchin will change his mind? Irrelevant.

"The JPS holders rejected this offer in 2020"

I was a JPS holder in 2020, why don't I recall getting this offer?

"the government is free to convert only part of its liquidation preference and write off the rest"

You should mention this to KThomp. Maybe he will listen if you are the one saying it's NOT illegal for the write-off to occur. :)

Yeah, my will power isn't strong enough yet, but I'm working on it. It's so hard to ignore when he's missing the obvious.

"Since Fannie has enough capital to meet the requirements and buffers, the dividend kicks in. 10% per annum is 2.5% per quarter, and 2.5% of the $300B of LP is $7.5B. The dividend is the lesser of that number and Fannie's income, so Fannie pays Treasury $5B"

I'm not in disagreement here, other than I think the $300B will continue to grow so the numbers for the NWS amount will potentially increase to even more ridiculous levels. Essentially what happens in this scenario is that Treasury still gets ALL the profits because of the dollar-for-dollar sweep into the LP. The profits are not likely to be high enough, nor the LP be low enough for FnF to retain additional capital for many years post-release.

Does that sound like fair-dealing to you? Was that the original intent of the conservatorship? Was it the direction that was given? To structure the GSEs so that Treasury can reap billions every quarter in perpetuity? Shareholders still get nothing, including JPS? Heck, they are forbidden by law to charge any fees, so this is a great work-around! Just call it a dividend on an equity stake and move along, nothing to see here.

"Again, we're not talking about can here. It's whether or not Treasury will change their mind. This can't be known for certain but that doesn't prevent one from assigning a probability. "

Ok, how about I try to simplify this. The probability is higher that FHFA and Treasury will claim something is legal when it isn't, rather than the inverse (which is what you are assigning a 75% probability).

Yeah, maybe I'll exercise some self control on his next round of replies. :)

"You never did answer my question: What is your estimate of the probability that Treasury will change its mind as to its opinion of the illegality of writing off the seniors?"

This is an impossible question to answer. "Treasury" doesn't have a mind. Whomever is in charge of Treasury may have an informed or uninformed opinion, and I think opinions can change as leadership changes. There is no way to assign a probability that someone changes their mind as they review the situation and examine the facts. Even if their opinion changes, they may continue stating a position simply to maintain a façade or political stance.

The real question is - what is the probability that there is in fact, legal statutes that prevent Treasury & FHFA from doing any/all of the following: writing down the LP amount, retroactively restating contracts or agreements, adjusting the LP based on removal of NWS language, allowing the pay-down of the SPS, or any other updates that impact the amount of the SPS or LP now or in the future?

I'm no legal expert, but IMO - the probability is zero.

"Since Treasury does not expect the conservatorships to be permanent, they can avoid consolidating FnF's balance sheets onto the government's. This has absolutely nothing to do with how many common shares Treasury owns. FnF have been under government control since 2008 so the control aspect by itself does not trigger consolidation."

HAHAHAHA!!! Not only Treasury didn't expect the conservatorship to be permanent, neither did all the Administrations that have come and gone, Shareholders, the public, even the FHFA itself. Yet here we are...

I agree that the control has nothing to do with the consolidation. That's why there is the continued illusion of private common ownership.

So you are saying that after SPS conversion, warrants, etc. and Treasury owns 99.99% of the GSEs common stock, that it's just another AIG situation and nothing gets consolidated on the books? They would still qualify as "quasi-governmental and/or financially independent entities?" Disregarding for now that the funding structure of FHFA may be unconstitutional.

"Again, the violation of the implied covenant does not actually change any terms of the agreement. Nothing needs to be "fixed" as a result of the verdict."

Well then. We shall see what happens when the lower of the 10% dividend on LP or NWS kicks back in. I'm on record saying if the GSEs can't pay the 10% and the NWS kicks back in, the FHFA will lose another court battle. This time, MUCH swifter and more decisive. No reasonable person or entity would continue a practice that was deemed a breach of good faith and fair dealing. That clause in current and future contracts is moot.

If you think nothing needs to change in the contract language. I will disagree with that.

"Some administration might think it's better to get the cash now and spend it rather than let someone 2-3 presidential terms ahead do it."

This same situation has been true for 10+ years. Yet there has been no mention of exercising warrants since this fiasco started. And only some backroom consideration of SPS conversion, which never happened.

If the govt wanted it done, it would be done. Inertia is powerful in Washington. They aren't going to start jumping through hoops just because it secures your interest in JPS.