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I am not following the Lamberth filings so I cannot say what the exact status is. But I think Navy previously posted a copy of an email from the plaintiff counsel saying they expected the USG to file an appeal, despite the verdict. I would agree with that thinking. I would estimate the whole Shebang could take another 12-24 months.
“I do not think SCOTUS ruled on this specifically.”
The reason that specific part of Alito’s rationale is precedential is because it is necessary to the court’s explanation that supports its opinion. That is a basic concept of law.
Assuming that case in the link was never heard en banc, and that it remained a two-person panel majority, their opinion was simply superseded by Collins.
Future lower court decisions are duty-bound to follow Collins, not a conflicting decision in any federal circuit at any level.
The assertion that the NWS was not validated as legal or illegal is false or misleading or both.
If by “illegal” you mean ultra vires or arbitrary or capricious, you are incorrect. In Collins, SCOTUS quite plainly reviewed the plaintiffs’ APA 702 claims and held —unanimously —that the Agency acted within its powers and functions.
If by “illegal” you mean something else, you are guilty of the fallacy of non-sequitur because SCOTUS cannot fail to decide on something it is not considering.
Skeptic, to me, is suggesting that Collins stands for a proposition: if FHFA survived one challenge under the APA, then it could use the same legal standard to survive another similar challenge. And that is correct.
To understand why, reread pages 14-15 of Collins. To survive an APA 706(2)(A) challenge, the standard is that an agency only needs to provide a reasonable basis in the record for their decision. In Collins, Alito failed to expressly list this standard, but he did explain its application to the facts and how FHFA *met the standard*:
“Whether or not this new arrangement was in the best interests of the companies or their shareholders, the FHFA could have ***reasonably concluded*** that it was in the best interests of …the public…” (emphasis added)
So altogether, in Collins, SCOTUS *does* decide the legality under the APA of FHFA’s decision, and Collins stands for the proposition that Conservator decisions that elevate the interest of the public over that of the companies or shareholders, only need a reasonable basis for doing so. A reasonable basis may arguably be a low bar, but it is not no bar at all.
Sure, here is the Collins v Yellen link as requested.
https://www.supremecourt.gov/opinions/20pdf/19-422_k537.pdf
You’re confusing the law with its case-specific application to facts. I was only discussing the former because the original poster made the assertion that actions of the conservator could not be questioned, which is a false statement.
Again, and as I said twice before, read page 12 of Collins and you’ll see every circuit ***to review*** 4617f agreed with the statement of law I posted.
To your first question, no, Lamberth said FHFA acted within its powers and functions, but in doing so it breached the implied covenant of good faith and fair dealing anyway. This seems odd, but Lamberth explains that the alleged APA violation and contractual violation are very different claims and have different legal elements. FHFA violated only the latter.
But to your second question, yes.
Every appeals court to review the anti-injunction clause held that relief was allowed if FHFA exceeded its authority. Again, refer for this to Collins on page 12. Something to read, indeed.
The assertion that “4617f bars courts from questioning the actions of a conservator” is a false statement.
As background, 4617f is the so-called anti-injunction clause.
I suggest reading Collins v Yellen, particularly published pages 12-15 in Justice Alito’s opinion. Alito expressly states that “where the FHFA does not exercise but instead exceeds those powers or functions, the anti-injunction clause imposes no restrictions. With that understanding in mind, ***we must decide whether the FHFA was exercising its powers or functions as a conservator***” (emphasis added).
After analyzing statutory construction and reviewing the Agency’s actions, Alito concludes in the last sentence of page 14 that “the FHFA could have reasonably concluded that (the Third Amendment) was in the best interests of the … public. The Recovery Act therefore authorized the Agency to choose this option.” So, not only is your assertion false, its converse is true:
Courts first are duty-bound to decide whether the FHFA exceeded its authorized powers or functions as conservator. Only if this review (i.e., in your words—questioning the conservator) shows that FHFA did not exceed its powers or functions, is 4617f then triggered.
Whether or not some lower courts had the correct understanding before Collins, the approach in Collins is the law. We would all be wise to understand it.
Link: https://www.supremecourt.gov/opinions/20pdf/19-422_k537.pdf
Roger, Roger
“…Administrative Procedures Act... None of the litigation made any claims of violation of these acts.”
But the Collins plaintiffs brought at least three different APA claims.
On page 13 of the published Collins v Mnuchin en banc decision, the court explains that Counts I, II, and III were all brought under various parts of the Administrative Procedures Act. Count I survived, and SCOTUS later reviewed it.
On page 13 the court specifies that Count I was brought under the APA, specifically 5 U.S.C. 706(2)(C) et seq., “…because FHFA exceeded its statutory conservator authority…”.
Freddie here is just matching FNMA. FNMA announced the same thing Jan 24.
Robert I listened to the Relentless argument live. Not yet to Loper.
My favorite exchange was Gorsuch’s retort to the Solicitor General:
“Solicitor General Elizabeth Prelogar, who defended Chevron before the court Wednesday, said the Supreme Court could issue a ruling in Relentless that spares Chevron and requires lower courts to spend more time questioning whether laws are unclear.
“Haven’t we done that already?” Justice Neil Gorsuch asked Prelogar.
“Lower court judges, even here in this rather prosaic case, can’t figure out what Chevron means,” he said.
—from Politico (https://www.eenews.net/articles/supreme-court-appears-ready-to-erode-chevron-doctrine/)
Another link, this one to the Natl Association of Homebuilders who submitted an Amicus brief in the cases:
https://www.nahb.org/blog/2024/01/chevron-case-impact-builders
Robert, thanks. Looking forward to it.
A decision can be expected from sometime in April through early July, when they break for summer. They don’t necessarily issue decisions in the order cases are heard. Oral arguments were held 10/2/23. The case is CFPB v CFSA.
Great point. Agree.
“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.”
Whether an implied breach of the covenant of good faith and fair dealing might be found for a subsequent amendment is a separate question from whether the NWS alone first rendered the SPSA illegal or unenforceable. I discussed only the latter, not the former. I never denied the former, and so while to reply by proclaiming its possibility is normally a straw man, I’ll give you the benefit of the doubt. You just misunderstood, evidently.
One key thing I agree that you pick up on is “if a court finds any part of the contract illegal (or unenforceable)”. There, the SPSA by its own terms requires a court to make a legal finding of an illegal or unenforceable contract. Unless and until such a claim, which is *usually a defense*, is fully litigated, this whole discussion is just academic.
(And note FHFA has no reason to raise an illegal contract defense at the 11th hour, because FHFA is not being sued by the Treasury, so such a defense cannot apply).
But for the sake of discussion (emphasis, academic) I would add:
One, I suppose a stock holder might use the Lamberth evidence (whatever it was) to file a third party claim demanding FHFA sue UST to litigate the NWS as contractually illegal or unenforceable. Assuming derivative standing was granted (not barred by the succession clause), Ps remedy demand would then need to be injunctive in nature, and thus wouldn’t it be barred by the anti-injunction clause?
Two, still let’s ignore HERA’s bars, momentarily. Can we then explain and apply the state substantive contract law on Ps side such that the P could persuade a court they’ve stated a claim upon which relief can be granted?:
Ps Illegality claim looks like a guaranteed loss, because the NWS was legislatively authorized (per SCOTUS).
Ps Unenforceability claim is slightly less black & white, but, how can Ps persuasively argue that the NWS contravened public policy when in fact (per SCOTUS) the NWS served “the public”?
In the end, I get you that if Lamberth’s facts are more aggravated from what SCOTUS saw (I don’t know), then that might be potentially helpful to a future claimant. But here again, a simple breach does not an illegality make. So . . . I think, as-is, your ready-made outcome is not quite as ready as you might like. But it’s a novel approach so GL with it.
I laughed out loud at this. Good for you!
“The NWS …was ultra vires because it [potentially] violated the basic concepts of common contract law.”
First, the Supreme Court’s holding in Collins found that the NWS was NOT ultra vires. The DC District court is duty-bound to follow that precedent. And Lamberth has already expressly done this on remand, which undercuts your premise.
Second, your premise appears to be: all breaches of the implied covenant of good faith and fair dealing, are necessarily also ultra vires. This is a false assertion, and is a fallacy of equivalency.
Some acts that are not ultra vires can still breach the implied covenant.
For example, Lamberth’s opinion before the 2nd trial explains that the NWS was *not* ultra vires, yet might still breach the implied covenant. Judge Lamberth cites to Collins and follows it, rejecting defendants’ own false equivalency assertions, while quipping politely ‘this is not the knock out punch defendants were hoping for.’
“Therefore the NWS … violate(s) common contract law and cannot continue.”
The Lamberth jury awarded damages, but no injunctive relief was requested or awarded. Nor does the precedent in this instance compel a different expectation. (To then attempt to extend the same misunderstanding to a different contract’s context is to simply repeat the error.)
“I believe this is what the judgment delay is all about.”
You are free to believe what you wish, but those theories would be better were they not undercut by Lamberth’s own opinions.
But DJT is an owner in the primary RE market, not a competitor with GSEs in the MBS secondary market. He is not a lender or credit risk aggregator. You’re comparing Apples & oranges, friend.
On the contrary, DJT would benefit if he can get better terms from GSE multifamily compared to bank or NDFI portfolio (e.g., Axos Financial). If the banks or NDFIs are worse, he benefits. If the GSEs are worse, why would he care? The best bid wins, and even the Donald can understand than having different levels of bidders are better than having parity & homogeneity.
My 2 cents: according to Fifth Circuit rules of appellate procedure (FRAP 35 and 40) the time for filing a petition for an en banc hearing after a panel decision is normally 14 days, however, that time may be 45 days *if one party is the US, a US agency or a US officer*.
http://www.ca5.uscourts.gov/docs/default-source/forms-and-documents---clerks-office/rules/federalrulesofappellateprocedure
So in Collins v UST, if in fact an entry of judgment was made in Dec 2023, find that exact date and add 45 days.
Actually StockA’s logic connecting the two different contracts is not wrong. But in asking his question he made an assumption: he assumed that the Third Amendment somehow is “illegal or unenforceable” via Lamberth’s verdict on it violating the shareholders implied covenant. But as I indicated, I don’t believe that is true.
Regarding an appeal, I don’t know if Ps will appeal. But if they do, yes almost certainly damages will be their main focus. We shall see.
The terms “illegal” or “unenforceable” have very specific meanings at contract law, and they carry equitable remedies, not monetary.
Lamberth’s verdict for breach of implied covenant of good faith and fair dealing does not fit either term’s meaning, and was for a monetary remedy, to boot.
Agree on both your points.
Exactly.
Agree. I assume the rate is slightly higher than average. That’s one thing none of the news articles or product websites mention. Post-GFC, sellers generally need the blessing of a Qualified Mortgage (QM), one of whose parameters is a limit on interest rate premium. So there are guardrails now to protect the borrower, but enough price leeway on the highway to afford this niche offering.
Two MI companies I can recall went into run-off specifically due to the GFC: PMI (regulated by state of AZ) and Triad (regulated by state of IL). The industry founder MGIC survived, as did others, and also new competitors arose, most notably Essent and NMI. I believe Essent is now the market share leader.
IMHO in the lead up to the GFC all the legacy MI companies joined in the race to the bottom, instead of acting as gate keepers. But oversight today is stronger, not just by state regulators, but also by FHFA (via FnF) implementing the Private Mortgage Insurer Eligibility Requirements (‘PMIERs’).
Regarding Rocket’s buy back ability, the non-bank financial institutions (NBFIs) are now regulated by the CFPB. So to even begin to think about your question I would have to start with research at the CFPB into its regulatory system for the NBFIs. I have to concede ignorance on that front.
Borrowers with only 1% skin in the game seems risky to me as well, but FnF already buys low-skin in the game LMI loans by accepting 50 different states’ HFA LMI programs—many which marry a 1% DP to a grant or community second. So FnF buying ‘One+’ by Rocket is maybe not as large a step as it may first appear. We shall see how it turns out!
Yeah you’re right the GSEs are not taking on more than their statutory 80 max. That hasn’t changed. As always, PMI stands in first loss position.
One can also favorably compare the 1% programs to FnF’s state housing finance agency (HFA) programs which allow a 0% borrower down payment provided the 3% comes from a bona fide government nonprofit (often a state bond or community second); and with HFAs the FICO likewise has been permitted to go under 680 —with an automated approval. So again the enterprises have decades of experience with these kinds of layered risk programs.
What stands out to me about the 1% programs is two things:
One, there is the ubiquitous ‘profit motive’ incentive that nonprofits do not have.
Two, Rocket’s program somehow can afford both the 2% and *also covers the PMI*, and Rocket’s website says the PMI cost is *not* passed along to the borrower. To me that’s fascinating (!) because how can the lender afford it? My guess is they negotiated a discounted single-pay execution with one or more of the MI companies. But even so, this seems to be a true pilot scenario as I can’t recall an analogous PMI-free feature in the market going back 25 years.
We’ll have to wait and see how well these loans perform over a year or two, and they started around 3/2023 so it’s still very early. I don’t disagree with you. There’s no FnF giveaway. There are always unknowns in the layering of incentive & risks at the leading edge of product innovation. That’s what this is.
“link to 1% down with FnF”
Here you go. According to this article Rocket and United Wholesale Mortgage are competing, both using 2% lender grants plus the Borrower 1% down, for those with income under 80% of area median, and selling these loans to FnF under their flagship affordable housing programs, FNMA HomeReady and Freddie HomePossible.
https://www.bankrate.com/mortgages/1-percent-down-mortgage/
I am of the mind that cross-subsidization can be an economic net positive; Tim Howard thinks so.
I do think the nature of the ‘thumb on the scale’ is now more politicized than ever, in part because of Collins v Mnuchin.
But even so, the increase I am imagining might not be subjected to a cross-subsidy. It could turn out that a bp hike is simply added to its matching risk bucket.
In the end, FnF are supposed to compete. I hope they are free to adjust their prices on the fly to match risk, without a constant meddling thumb on the scale. We’ll see.
“If Sandra remains the FHFA Conservator for the next 5 years, Fannie Mae and Freddie Mac will get more deeply involved with funding initiatives at the expense of the GSES balance sheets to fund benefits for their targeted political voter base.”
Politics aside, the FnF book of business does reflect risk booked directly via FHFA goals , though FnF can price for it, too. An example of FHFA involvement is the goals in the 2022-24 Duty to Serve program for manufactured homes and rural low income housing. That’s just one example. And the more risk FnF book, the more there will be upward pressure on their LLPAs. Imagine if one enterprise reports for Q4 2023 that it booked more risk than was modeled earlier in ‘23 for the new FHFA-designed matrixes (the ones that garnered so much public criticism); in that case a LLPA price hike would be more likely to happen sooner rather than later. How much and where? My guess: in the affordable housing/LMI buckets, but how much is anyone’s guess. But even 1 basis point matters.
Robert,
I do think we should get a feel for the majority leanings on 1/17, the Loper oral argument date, though I wouldn’t expect a decision for at least 3 months thereafter.
FWIW, SCOTUS has refused to cite to Chevron v NRDC in its statutory review opinions for 6 years. Chevron is a dead doctrine walking. It’s just a question of when.
You asked “how is it legal to do a distribution by companies in conservatorship?”
Kthomp has explained this before. And I think this explanation is correct.
Although HERA restricts distribution of capital during conservatorship, that restriction is dependent on capital classifications. But shortly after the conservatorship was announced, the Director suspended capital classifications. And the suspension remains in place.
https://www.fhfa.gov/SupervisionRegulation/FannieMaeandFreddieMac/Pages/Capital-Requirements.aspx
This is news, but somewhat dated. On October 10 SCOTUS agreed to hear oral argument in January 2024 for Relentless v. Department of Commerce. This second Chevron case follows SCOTUS’ May announcement that it would hear Loper Bright Enterprises v. Raimondo. The two cases are factually identical. Both will evidently be heard in January 2024. The reason SCOTUS appears to be fast-tracking Relentless is that Justice Jackson is recusing herself from Loper Bright Enterprises. This will allow the full court to consider the Chevron question.
“Did you see Kthomp's reply regarding whether or not the authority of the Conservator to "preserve and conserve" applies only to assets rather than equity?”
Yes. And I think Kthomp is correct.
“Is there a challenge regarding the equity v assets angle?”
I doubt it.
The verbiage in 12 USC 4617 (b)(2)(B) authorizes the FHFA as conservator to “preserve and conserve the assets and property of the regulated entity”.
I doubt that shareholder equity can be considered an asset (accounting 101).
The statutory meaning and purpose of “property” is less obvious to me; but perhaps it means subsidiaries? In any case, I cannot think of a path for equity to be within either statutory term. My two cents.
FOFreddie, I am answering your prior question #3 here (before #2 …which I am
Still examining).
“3. Doesn"t this part of the Collins Opinion directly conflict with the District Court Opinion in Bhatti regarding the scope of 4617(f)?”
For clarity the two cases discussed here are
(1) the Fifth Circuit appellate panel case in Collins v Yellen on 10/12/23, and
(2) the US District Court case in Minnesota cited as Bhatti v. FHFA, 646 F. Supp. 3d 1003, 1010–11 (D. Minn. 2022).
Both cases were decided after Collins v Yellen 2021 at SCOTUS.
The Fifth Circuit appellate panel court in Collins on 10/12/23 did weigh in explicitly on the scope of 4617(f). But It’s important to note that they did so after accepting the constitutional claims as-is (note: the two courts’ conflict truly lies here), and also because 4617(f) was a point of contention between the parties. That is, the USG had raised 4617(f) as a defense to all claims, and the shareholder plaintiffs had rebutted. The Collins panel then at this point was obliged to evaluate 4617(f). The evaluation invoked USSC precedent, some nicely analogous Fifth Circuit precedent, and reading Collins v Yellen 2021 (SCOTUS) in context; all that considered, the court held (to the surprise of few I think) that 4617(f) does not bar the court house doors to constitutional claims.
In contrast, the Bhatti District court over in the Eighth Circuit (in MN) never actually reached the question of whether 4617(f) bars constitutional claims, because the Court opined first that Removal claims can only be pursued as APA claims. In this rather novel claim scenario (it would be a true case of first impression) there is nothing unlawful about the powers exercised, thus 4617(f) could surely bar those APA claims.
If you are also wondering whether Bhatti plaintiffs might ultimately have some success on an appeal (because of the Bhatti’s court unusual reliance on Thomas’ concurrence from SCOTUS) I would say I humbly doubt it. Why? Because the MN US district court took pains to stake out alternative reasons for dismissal: (1) failure to state a claim, and alternatively (2) failure to show harm — thus not surviving a motion to dismiss. The latter aligns with the basis for dismissal in Collins on appeal 10/12/23: both courts opined that the claims were simply too speculative. So any appeal that would find a Bhatti error (in the recasting of the Removal claims as APA claims) would IMO likely be harmless non-reversible error.
To wit, here is part of the Bhatti alternative rationale verbiage:
“Even if the type of claim that Collins seems to contemplate is properly considered a constitutional claim, plaintiffs have failed to state such a claim. . .Finally, the Court notes that, even if plaintiffs had stated the type of claim contemplated in Collins, the nature of their claim is far too speculative to survive a motion to dismiss.”
This is very similar to the closing remarks chosen by the Fifth Circuit panel in the Collins Removal claim (Section IV):
“ That level of uncertainty and speculation cannot survive a motion to dismiss, so the dismissal of plaintiffs' removal claims was proper.”
That’s pretty much it for your question - I hope I covered it.
Hi FOFreddie
Thanks for your thoughts. I am going to answer the 3 questions in 3 separate posts as best as I can get to them.
“1. Can common shareholders bring a Constitutional takings suit against the FHFA if the cramdown is implemented since it would be arguably outside the Conservator's power to "preserve and conserve"?”
I think you’ve proposed not a takings claim but rather an illegal exaction claim, but let me take them both separately and in that order.
(1) All takings claims current and future are presently neutered by the holding 2/22/22 in Fairholme Funds v US. So let’s say cramdown is announced today 10/31/23: if you file a Takings claim in the Court of Federal Claims tomorrow it will eventually be dismissed for failure to state a claim under rule 12(b)6, just as the Takings claim was in Fairholme Funds.
One caveat: Fisher/Shipmon/Reid are appealing to the CAFC to overrule Fairholme Funds based on SCOTUS’ 2023 decision in Tyler v Hennepin County. So Fisher’s is the one to watch for any remaining life in takings. But IMO it’s on life support and looking like it will take a Hail Mary to survive.
(2) If you style your claim not as a Takings but instead as an illegal exaction (as Barrett did in Fairholme Funds), I think there are two linked, pivotal questions: whether “preserve and conserve” is in fact a statutory duty, but, even if so, whether Collins has carved out an exception.
I recall courts have opined differently on the duty aspect. So let’s just assume that it IS a duty. Even so, doesn’t Collins allow the Incidental Powers of the Agency “and by extension the public it serves” to act as an exception to that duty? One might read the outcome of Barrett’s shareholder NWS illegal exaction that exact way: on pages 46-48 of Fairholme, the CAFC cites to Collins to defeat the exaction because of the public interest. Ostensibly, the USA will predetermine some rational public interest in which to clothe a cram down, thus shielding it by Collins. GLTA.
SCOTUS didn’t say that in a court opinion.
Rather, it was phrased as a question asked during the Collins v Yellen oral argument, and it was a single question, asked by a single justice who has now since retired (Breyer). SCOTUS then decided Collins v Yellen (“our last case” as you put it) in 2021.
The CAFC decided Fairholme Funds 2/22/22, and SCOTUS *declined Writ of Cert for the Fairholme Funds Takings claim*. No cognizable property, thus nothing taken.
There is a mistake, but not mine: one must understand that Shareholders are bound by the court opinion, not mine or yours.