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Nationalizing!?!?! Riddle me this batman, why are the warrants for 79.9% and not 80%? Why such an elaborate perma conservatorship scheme? Because if the government owns 80% then they own it under law, and have to account for FNMA/FMCC debt.... Yeah, so if we nationalize, then our national debt goes up 5 trillion or so.... 20-25% increase in national debt overnight... Dollar is screwed.
"Administration believes that reform can and should proceed, and pending legislation, it will continue to support the administrative actions described in the plans. Any reform of the housing system likely will impact 2021 Budget projections in ways that cannot be estimated at this time." (pg 248)
https://www.whitehouse.gov/wp-content/uploads/2020/02/spec_fy21.pdf
WASHINGTON FEDERAL is your coercion case. You are right that in a 5ht amendment taking case the conservatorship would not be "unwound." However, if they do find a taking in violation of the 5th amendment a jury gets to decide the value of what was taken. The claims are derivative, and the damages would go back to the company. If any of these cases see a jury, the gov is in trouble.
IMHO. Many on this board have complained about the structure of the current letter agreement and the increase in liquidation preference. However, in order to protect the taxpayers (and FNMA's credit score) the commitment must be fully "drawn" to ensure the treasury is not on the hook, and capital needs to be raised to protect FNMA's credit rating.
A few months back i noticed an interesting addition to the FHFA website:
https://www.fhfa.gov/Conservatorship/Pages/History-of-Fannie-Mae--Freddie-Conservatorships.aspx
If you scroll to the bottom of the page you will notice a 2008 letter from the department of justice to Treasury Secretary Paulson regarding the US governments obligation to MBS purchasers. Despite being from 2008 THIS WAS NOT PUBLISHED ON THIS SITE A YEAR AGO. Don't believe me check web archives. https://web.archive.org/
More than half of the total 5 trillion MBS were purchased AFTER this letter. If the government were to forgive the outstanding preferred shares there would no longer providing a line of credit (per the terms of the agreement). Without capital or the explicit government backing, the outstanding MBS would lose at least some market value. Even a slight change, caused by the government, to over 2.5 trillion in MBS, would result in the loss of billions. Coupled with the DOJ opinion, it is likely that the government, and Fannie would be on the hook.
Side note, you shouldn't ignore the power of the 5 trillion debt in an industry that is 15% ish of our GDP. This is a weapon that can be manipulated to undermine FED policies, and devalue currency. In a trade war where countries are devaluing and manipulating currency there might not be a rush to give this up.
It is about power not money. We are set to average a deficit of 1.2 trillion a year for the next 10 years. Sorry, but even 50 billion a year in offset GSE profits is like throwing a hot dog down a hall way. But, the power to manipulate the economy, in the hands of the executive branch.... worth a hell of a lot more. Keep this in mind, president might want this power, but does he want to give it to the next guy? keep that in mind.
With all of that, i am long long, like 10 years +. A federal register search of related rule changes in the last year, and other gov documents show that release is being worked towards. Lawsuits are another big piece. The complexity of the whole thing is hard to grasp and it is going to be interesting.
Exactly. A sudden removal of the government backing will trigger lawsuits from the MBS holders. That is unless they continue doing what they are currently doing and exhaust the government line of credit. Once the line of credit is exhausted the government could then consider the senior pref shares repaid, thus free of the explicit backing.
1. it was not a loan. 2. purchase was not made by the federal reserve, thus federal reserve act does not apply. 3. the spspa does not consider the warrant a form of collateral.
I think we win for other reasons, it is just not analogous to AIG.
I'm sorry i must have missed the convertible option in the preferred stock terms. The writing is on the wall, the twins will be released subject to a capital restoration plan. Since, there is no obligation for the board to declare a dividend, and conversion does not raise capital, thus there is no rush to convert, injunctions/lawsuits for breach of fiduciary duty will follow.
Look, when the government, (even independent agencies) are sued this is where the money comes from:
https://fiscal.treasury.gov/judgment-fund/
Believe what you want.
FHFA cannot "charge" the twins in order to pay a settlement. FHFA is not being sued in their capacity as conservator, but as regulator. The united states government has a special pot of money to pay court claims and settlements, not from their operational funding sources. Are you working for Bloomberg today?
This is the one that needs to get to a jury:
https://www.docketbird.com/court-cases/WASHINGTON-FEDERAL-et-al-v-USA/cofc-1:2013-cv-00385
Here is the full docket:
https://www.supremecourt.gov/search.aspx?filename=/docket/docketfiles/html/public/19-7.html
I am quoting:
"Motion of United States House of Representatives for leave to file amicus brief submitted."
Read the last 2, 04October2019 filings. decide for yourself.
"On September 17, 2019, the CFPB notified Speaker of the House Nancy Pelosi and undersigned Counsel pursuant to 28 U.S.C. § 530D that the CFPB would no longer defend the constitutionality of 12 U.S.C.
§ 5491(c)(3), which provides that the CFPB’s Director may be removed by the President only for “inefficiency, neglect of duty, or malfeasance in office.”
"On the same day that the House received the CFPB’s Section 530D letter, the Department of Justice—which had not represented the CFPB in the court of appeals—filed a brief in this Court for the CFPB as respondent, arguing that this for-cause removal restriction “violates the Constitution’s separation of powers.”
"The Solicitor General has decided not to defend this Act of Congress, and the House should be allowed to do so as an amicus."
They someone DOES NOT WANT SCOTUS to hear the Collins case, thus dropping CFPB so there is not split circuits. Something is getting teed up, pay attention!
Must read if you missed it. Looks like the Nancy and the house want to defend the constitutionality of the CFPB, cause after Collins NO ONE ELSE WILL! Can't wait to see how this one plays out.
Now this is getting interesting. If you are not following Seila Law LLC, Petitioner v. Consumer Financial Protection Bureau you are missing out this one, posted on friday is a MUST Read:
http://www.supremecourt.gov/DocketPDF/19/19-7/118139/20191004131659452_19-7acUnitedStatesHouseOfRepresentatives.pdf
Complete SCOTUS docket file:
https://www.supremecourt.gov/search.aspx?filename=/docket/docketfiles/html/public/19-7.html
That is why the SPS would be considered "repaid." keep in mind, a court order changes everything... the Judgement Fund:
"The Judgment Fund was established to pay court judgments and Justice Department compromise settlements of actual or imminent lawsuits against the government. ... The Judgment Fund is a permanent, indefinite appropriation available to pay judicially and administratively ordered monetary awards against the United States."
Agree. This is the whole enchilada, also the most secretive/under seal. Just like the En Banc prior to the ruling, no one reporting on it.
In 10 years the only question will be what % of the company we own.
Agree. That is why retained earnings will be the bulk of the recap.
FNMAS $13.67 to par $25 = 182%
FNMA $3.87 @182% gain = $7.07
Smart money knows which one will happen first.
There will be no IPO without resolving 1) Senior Preferred and 2) Warrants. Exercising warrants will lead to another round of litigation that will create uncertainty in an IPO offering. New money wont touch with SP 10% dividend. A class of preferred stock could be used but NO DIVIDENDS in conservatorship. Out of conservatorship, the board of directors will determine the best course of action for raising capital, and it will not be an IPO of common shares. Even at 79.9% dilution this is a buy.
I personally think that F&F will be released as a "severely undercapitalized" enterprise, subject to an approved capital restoration plan. This restoration plan will include a substantial Credit Risk Transfer (CRT) program that will reduce as capital is built. An ongoing g-fee will be paid to the government, and the SPS will balance will be considered repaid (with an assist from the courts). Once capital is built the board will continue to raise capital in order to repurchase the warrants at a discount (giving $ to gov and possibly avoiding litigation).
No. They were a great buy at 2-3 a share. Don't drink the instant recap all IPO BS. Retained earnings is more likely. At 50% of Par, and dividends are at least 5 years away i wouldn't touch them. I sold all of my pref in FEB, 100% common.
The lotto ticket, the dream for all longs of all classes goes by the name "Washington Federal v. USA"
It is worth another read in light of the en banc decision.
https://www.docketbird.com/court-cases/WASHINGTON-FEDERAL-et-al-v-USA/cofc-1:2013-cv-00385
I strongly disagree. I personally think that F&F will be released as a "severely undercapitalized" enterprise, subject to an approved capital restoration plan. This restoration plan will include a substantial Credit Risk Transfer (CRT) program that will reduce as capital is built. An ongoing g-fee will be paid to the government, and the SPS will balance will be considered repaid (with an assist from the courts). Once capital is built the board will continue to raise capital in order to repurchase the warrants.
Given these higher priorities, i wouldn't expect a dividend for several years, and at 50% of par value i'll take the commons.
** $187B drag on core capital.
They are a drag, just not a drag on core capital. The are NOT DEBT!
My previous post was in response to the assertion that an en banc win would mean dilution doomsday for common shares.
Interesting perspective. I think it is unlikely. In fact I actually think this En Banc win/remedy should scare the preferreds much more. Might be the best solution for the administration. Crazy talk? Let's play what if…. En Banc win.
1) The board (FHFA) gets a say. The money on the 'overpayments' would have to go back to the company. Look at it this way, if the NWS did not happen and 10% continued, what would the board (FHFA conservator) do with the additional $..... BUILD CAPITAL!
2) F&F are Capitalized. An en banc win, and all $ goes back to company. Fannie is capitalized as this money is retained earnings.
3) Gov Warrants and $120 B in Preferred shares exist, terms and conditions without third amendment.
4) Release from conservatorship. Yeah, why not? they would be capitalized. The gov senior preferred stock is not debt. Why not let the board of directors figure a way out of the senior preferred. Gov can sit on the warrants for another 10 years, maximizing value, and still get dividends/slow payoff. FHFA regulates, congress can reform.
5) Boards got to fix it. How? Use your imagination. Negotiate treasury reduced coupon/noncumulative? Issue new preferred, senior to jr. pref, cumulative?
6) Commons not an option. Why? warrants exist.
Bottom line, if F&F has capital no IPO or necessary. Change Senior preferreds to non-cumulative, coupon of 5%, eliminate line of credit, hold warrants, and walk away. slowly dispose of warrants....
Staying long....
"Finally, my third priority is to prepare Freddie Mac for a potential end to conservatorship. Nobody knows exactly what the future holds, but the conversation in Washington and the expected release of the Administration’s Housing Finance Reform Plan demand that we be ready to follow the path set by that plan and the milestones established by the FHFA director. And make no mistake, we will be ready."
http://www.freddiemac.com/perspectives/david_brickman/20190731_financial_results_2q2019.page?
- budget debt ceiling deal must go through. Read the text carefully and look at how CBO/White house account for GSE Dividends this year and next. CBO budget is baseline, OMB will make calculations to reduce direct spending. CBO accounts for Fannie and Freddie as an expense, after FY19. FY19 dividends are already spent.
https://www.cbo.gov/publication/54475
https://www.congress.gov/bill/116th-congress/house-bill/3877/text
https://www.cbo.gov/system/files/2019-05/55151-budget_update_0.pdf
-"g. Cash payments from Fannie Mae and Freddie Mac to the Treasury are recorded as offsetting receipts in 2018 and 2019. Beginning in 2020, CBO’s estimates reflect the net lifetime costs—that is, the subsidy costs adjusted for market risk—of the guarantees that those entities will issue and of the
loans that they will hold. CBO counts those costs as federal outlays in the year of issuance." - translation, they are accounting for it as an expense.
- I am wondering if 5th Cir is waiting for the SCOTUS to grant cert, either way it is worth following: https://www.scotusblog.com/case-files/cases/seila-law-llc-v-consumer-financial-protection-bureau/
- seila case may have caused the flip flop in collins. good article: https://www.ballardspahr.com/alertspublications/legalalerts/2019-07-25-mortgage-banking-update
- "The Temporary GSE QM loan category—also known as the GSE Patch—is scheduled to expire when the GSEs exit conservatorship or on January 10, 2021, whichever comes first." I feel like a lot of news articles left this part out.
https://www.federalregister.gov/documents/2019/07/31/2019-16298/qualified-mortgage-definition-under-the-truth-in-lending-act-regulation-z#footnote-89-p37162
The bread crumbs are there, the conditions are being set.
I am going to disagree with you on this one. The SPSPA is a CONTRACT and not a statute or regulation. As such, the wording definition act 2010 and the supreme court case are actually bared by the parol evidence rule. The court "must" look to the four conners of the document first. If shall means "may" or "maybe" then "shall pay to Purchaser quarterly" means the payment of dividends is also optional!
I DID NOT PROVE YOUR POINT!
1) HERA is NOT the Senior stock purchase agreement. Congress DID NOT WRITE this.
2) the court CAN invalidate! They can say that the NON Severability clause itself (the clause you are quoting) is itself not enforceable.
This is like writing a contract for a hitman and including a clause that says "the court cannot find this contract to kill my wife unenforceable unless i say so."
AGAIN the court CAN/Could/MAY and might find the Non-Severability clause Unenforceable.
This is not an opinion this is fact. The court has this power.
1) HERA states: Sec. 1117. Temporary authority for purchase of obligations of regulated entities by Secretary of Treasury. “….Treasury is authorized to purchase any obligations and other securities issued by the corporation under any section of this Act, on such terms and conditions as the Secretary may determine and in such amounts as the Secretary may determine…”
‘‘(2) RIGHTS; SALE OF OBLIGATIONS AND SECURITIES.— ‘‘(A) EXERCISE OF RIGHTS.—The Secretary of the Treasury may, at any time, exercise any rights received in connection with such purchases.”
- HERA only gave Treasury the ability to purchase securities and exercise the rights of those securities.
2) SPSPA - “6.12. Non-Severability. In the event that any provision of this Agreement, the Senior Preferred Stock or the Warrant is determined to be illegal or unenforceable, then Purchaser may, in its sole discretion, by written notice to Conservator and Seller, declare this Agreement null and void, whereupon all transfers hereunder…”
- This is a CONTRACT, and contract law applies. Parties are Treasury and Fannie Mae with Conservator as authorized by HERA, agent.
Court, if so inclined, can find any part of the contract unenforceable, in part entirety, whatever, including the "Non-Severability" clause itself. And the law that applies will just depend.
HERA does not say purchaser is the only one that can deem it void.
Fun Fact - Treasury can dispose of the securities as it is a "right" that can be exercised.
I don't think a "combined" company will happen. It would take a change the charters, and Congress would have to agree. Also, Freddie was created to be competition to Fannie. Trump supports more competition and additional charters, so why would he want to combine the two?
My favorite daydream. Something, anything, is illegal or unenforceable. Then this:
"6.12. Non-Severability. Each of the provisions of this Agreement is integrated with and integral to the whole and shall not be severable from the remainder of the Agreement. In the event
that any provision of this Agreement, the Senior Preferred Stock or the Warrant is determined to
be illegal or unenforceable, then Purchaser may, in its sole discretion, by written notice to Conservator and Seller, declare this Agreement null and void, whereupon all transfers hereunder (including the issuance of the Senior Preferred Stock and the Warrant and any funding of the Commitment) shall be rescinded and unwound and all obligations of the parties (other than to effectuate such rescission and unwind) shall immediately and automatically terminate."
Boom! Recap/Release complete.
I am not sure we will see a RFP for this. feel free to disagree on this one.
If, big if, the SPS is "repaid" and warrants canceled then treasury might be out of the picture.
If FHFA in charge of the recap without treasury involvement they would be hiring the advisors. Since they are an independent agency that does not use appropriated funds there would be no public RFP. The FAR only applies to executive agencies using appropriated funds. Check out Fedbizopps, notice that FHFA, has never posted. It would just happen if it hasn't already.
Agree to disagree. If you are right that would be really cool, i just don't see it. Don't forget half of all lawyers are wrong. I see Colins and Fairholme as the last viable suits until warrants are exercised. If the warrants are exercised a new round of litigation will happen. I have been long for about 4 years and gonna hold tight. I am betting that the trump admin will do something and congress will do nothing. Only think there is a slight chance that the courts will help us. I like our odds that we will make money. So i will hold tight.
I apologize, i was referring to the "Criminal RICO," not the "Civil RICO." They are not "Charges" it is a civil remedy. However, i still don't think there is a viable RICO option. Here are the elements of a CIVIL RICO action." A plaintiff must show:
Criminal Activity. You must show that the defendant committed one of the enumerated RICO crimes, which include the broad crimes of mail and wire fraud. If you bring a claim on a fraud basis, however, the court will apply strict scrutiny.
Pattern of Criminal Activity. One crime is not enough. You have to show a pattern of at least two crimes. A pattern requires the crimes be related in some way—same victim, same methods, same participants—or continuous, meaning it was conducted over at least a year.
Within the Statute of Limitations. The Supreme Court held that RICO has a four-year statute of limitations, which begins tolling from the time the victim discovers his or her damages.
How can you get over the statute of limitations issue? I believe contract law is the better approach.
There is NO such thing as a "RICO" option!
RICO is CRIMINAL (See 18 U.S.C. §§ 1961–1968) ONLY a federal prosecutor can bring charges. Even ignoring obvious statute of limitations issues, it is still never gonna happen, like never. Like winning the lotto, and the zombie apocalypse happening on the same day.
Other legal:
FAIRHOLME - i thought this one was still alive? Last i saw was the Sep 18 partial dismissal, really liked the "good faith" argument here.
The real "last chance" to challenge will be if the warrants are exercised (becoming "RIPE") claims at that time my include implied "good faith and fair dealing" as it applies to their "institutional conflict of interest." This is the last chance to challenge the whole thing from 2009.
Charlie is a more avid short than you are! I am glad that you feel the same way about his credibility.
FYSA, according to the 5th circuit website: "We release opinions twice a day, at 12:10pm and 6:10pm Central Time."
$59.2 Billion for FNMA and $44.2 Billion for FMCC.
Page 98, OIG audit.
https://www.treasury.gov/about/organizational-structure/ig/Audit%20Reports%20and%20Testimonies/OIG-19-016.pdf