Replies to post #578749 on Mr Cooper Group Inc fka COOP

[Large Green]

Dmdmd2020, simply outstanding factual based work with links and provable sources to back your numbers as well as a easy to follow explanation.

This is some of the best work I have ever witnessed concerning the huge former conglomerate named WaMu!

[Large Green]

Dmdmd2020, the following article has a perfect tie in with your studies - The following is some of the bullet points from the link

Structuring Special Purpose Entities: Separateness, Bankruptcy Remoteness and True Sales

http://media.straffordpub.com/products/structuring-special-purpose-entities-separateness-bankruptcy-remoteness-and-true-sales-2017-09-12/presentation.pdf


Separation of Asset Risk From Entity Risk

The sine qua non of structured financing is the effort to separate the credit quality of the assets being securitized from the credit risk of any entity involved in the financing.

• The requisite legal separation is achieved by two structuring techniques:

• True Sales/Contributions: This transfer is structured so that it is “absolute” in the sense that the original owner retains no legal/equitable interest in the assets following the transfer. The objective is to remove the assets from the bankruptcy estate of the transferor and isolate them in a Special Purpose Vehicle (SPV), also referred to as a Special Purpose Entity (SPE).

• Bankruptcy Remote Vehicle: The SPV is structured so that (i) it is unlikely to become the subject of a bankruptcy case and (ii) its assets are unlikely to be considered part of the transferor’s bankruptcy estate.

Separation of Asset Risk From Entity Risk – The True Sale

The principal method of transferring assets to an SPV is a “true sale.” The transfer is intended to have the effect of removing the assets transferred from the transferor’s estate under Bankruptcy Code section 541. The law governing the transfer is applicable non-bankruptcy law. In structuring true sales, the following issues must be considered:

• Intent of the Parties
• Economic Consequences of the Transaction
• Recourse and Risk of Loss
• Fixed Purchase Price
• Right to Redemption
• Right to Surplus
• Administration and Collection of Payments
• Accounting Treatment
• Reduction in Interest in Loans and Participations
• Physical Possession of Documents: Reflection of Sale on Books and Records
• The Buyer as a Subsidiary of the Seller

True Sale – Intent of the Parties

The threshold issue in a true sale analysis is whether the parties intended that the transaction constitute a sale rather than a financing. “Where the parties intention is clearly and unambiguously set forth in the agreement, effect must be given to the expressed intent.” Granite Partners, L.P. v. Bear, Stearns & Co., 17 F. Supp. 2d 275, 300 (S.D.N.Y. 1998).

• None of the transactional documentation pertaining or referring to the transfer from the originator should be inconsistent with an absolute transfer.

• Transfer should be evidenced by a formal instrument of transfer (bill of sale).

• Intent generally given effect without regard to extrinsic evidence, but where rights of third parties or equities may require, courts have looked beyond the form of agreement to the conduct of the parties.

The True Sale – Economic Consequences of the Transaction Recourse and Risk of Loss

• One of the most important factors.
• Both the nature and extent of recourse must be evaluated.
• complete recourse will likely be characterized as a secured loan
• limited recourse will not preclude a transfer from being classified as a true sale
• Examples of direct and indirect recourse include:
• warranties as to collectability
• adjustments to the purchase price
• guarantees by the transferor
• collateral security from the transferor
• obligations to repurchase, or substitute for, under-performing receivables.

The True Sale – Economic Consequences of the Transaction

Fixed Purchase Price

• Primary feature of a purchase transaction.
• Right to Redemption
• Right of the transferor to redeem or repurchase the transferred property.
• Right to Surplus
• Does the seller retain the right to retain excess collections?
• A transaction will be determined to be a secured loan where the transferee is obligated to account to the transferor for any surplus received from the assignment over the amount of the debt or investment, plus an agreed return to the lender.
• Administration and Collection of Payments
• Factors that would favor characterizing a transaction as a sale include notification by the transferee of account debtors and control by the transferee over the collection of the accounts.
The True Sale – Economic Consequences of the Transaction
Accounting Treatment
• The assets transferred should not be reflected on the books and records of the transferor as being owned by it.
• The transferred assets should be treated as having been sold under GAAP.
• If the SPV’s financial statements are consolidated with the transferor’s financial statements, the SPV’s ownership of the assets should be specifically stated in notes to the statements so that its ownership is not concealed by the consolidated presentation.
• Reduction in Interest in Loans and Participations
• Courts will consider whether the transferee acknowledges that his rights in the transferred property would be extinguished if the money owed were paid through another source.
• Physical Possession of Documents; Reflection of Sale on Books and Records
The Buyer as a Subsidiary of the Seller
• Corporate law does not prevent a seller from selling an asset to a subsidiary.
• Absent application of a doctrine such as fraudulent conveyance, substantive consolidation, alter ego, instrumentality or a similar doctrine or of a specific federal or state statute, a court normally will:
• not disregard transactions between a seller and its subsidiary, and
• will recognize and uphold the separate existence of the subsidiary so long as the transactions between them are at arm’s length and on commercially reasonable terms.
Structuring a Bankruptcy Remote SPV – Introduction
Structured financing is premised on the ability to separate the assets to be financed from any entity credit risk and the related bankruptcy risk. This has two facets:
• Structuring the SPV to be “bankruptcy remote” so that it is unlikely to commence, or have commenced against it, a bankruptcy case.
• Structuring the SPV so that it is unlikely to be affected by the bankruptcy of the transferor or any of its affiliates.
Structuring a Bankruptcy Remote SPV – Introduction
Structuring a “VALID” bankruptcy remote SPV generally involves attention to at least five areas:
• Voluntary • Activities • Liens • Involuntary bankruptcy • Debts
Structuring a Bankruptcy Remote SPV – Voluntary Bankruptcy
Advance restrictions against filing a voluntary bankruptcy case pursuant to an agreement between a debtor and a creditor have been held to be void as against public policy.

• No conclusive way to deprive an SPV of the legal right to commence bankruptcy.

• Structuring is directed towards the corporate governance of the SPV.
• Applicable non-bankruptcy law governs who has the authority to make an entity’s decision to commence bankruptcy proceedings.
• Where the SPV is owned by the originator, the SPV may be structured so that:
• one or more directors are independent, and
• a super-majority vote, including all or at least one of the independent directors, is required in order for the BOD to approve a voluntary bankruptcy.

BUT . . . See General Growth Properties, Inc., 409 B.R. 43, 64-65 (Bankr. S.D.N.Y. 2009):
• “If Movants believed that an ‘independent’ manager can serve on a board solely for the purpose of voting ‘no’ to a bankruptcy filing because of the desires of a secured creditors, they were mistaken. As the Delaware cases stress, directors and managers owe their duties to the corporation and, ordinarily, to the shareholders.”
Del. Code tit. 6 § 18-1101:
• (c) To the extent that, at law or in equity, a member or manager or other person has duties (including fiduciary duties) to a limited liability company or to another member or manager or to another person that is party to or is otherwise bound by a limited liability company agreement, the member’s or manager’s or other person’s duties may be expanded or restricted or eliminated by provisions in the limited liability company agreement; provided, that the limited liability company agreement may not eliminate the implied contractual covenant of good faith and fair dealing.

An SPV is a newly created entity with no prior business activities that could have given rise to preexisting creditors, or other claims (tort, environmental, etc.…)

• An SPV activities are restricted to those necessary or incidental to the financing which is accomplished by:
• restrictions being placed in the charter and by-laws of the corporate SPV
• restrictions placed in the trust instrument establishing trust SPVs
• restrictions placed in the transactional documents
• drafting protection against amendments into the foregoing documents
• Type of assets that can be acquired by the SPV in the future must be clearly defined.
• An SPV can acquire assets of more than one originator and issue separate series of ABS relating to the assets acquired from each originator.

[Juschilln]

That equates to about $107/U escrow!!! WOW! I'm definitely retiring early. Thanks DMd!

[ron_66271]

WMB sold $500 Billion,

to Fannie Mae + Freddie Mac according to the FDIC.

WMB securitized $2 Trillion RMBS according to the FDIC.

[Dmdmd2020]

What did the Underwriters know in 2012??

Per an article published by the New York Times on July 23, 2017:

https://www.nytimes.com/2017/07/23/business/fannie-freddie-treasury-lawsuit.html

“U.S. Foresaw Better Return in Seizing Fannie and Freddie Profits

By Gretchen Morgenson
July 23, 2017

In August 2012, the federal government abruptly changed the terms of the bailout provided to Fannie Mae and Freddie Mac, the mortgage finance giants that had been devastated by the financial crisis. Instead of continuing to receive payments on the taxpayer assistance, Treasury officials decided to begin seizing all the profits both companies generated every quarter.

It was an unusual move, given that the companies still had public shareholders. But it was necessary, the Treasury said, to protect taxpayers from likely future losses in their operations. Justice Department lawyers have reiterated this view in court, saying that the bailout terms were modified because the companies were in a death spiral.

But newly unsealed documents show that as early as December 2011, high-level Treasury officials knew that Fannie and Freddie would soon become profitable again. The materials also show that government officials involved in the decision to divert the profits knew the change would most likely generate more money for Treasury than the original rescue terms, which required the companies to pay taxpayers 10 percent annually on the bailout assistance they had received.

A December 2011 information memo to Timothy F. Geithner, the former Treasury secretary, is among the newly released documents. The 17-page memo from Mary John Miller, assistant secretary for financial markets, shows that the idea to extract all of Fannie’s and Freddie’s profits coincided with their anticipated turnaround.

Ms. Miller outlined “restructuring and transition options” for Fannie and Freddie in the memo, saying the No. 1 option was changing the terms of the bailout to “replace the current 10 percent fixed dividend with a permanent ‘net worth sweep.’” The memo noted that Freddie Mac was “expected to be net income positive by the end of 2012 and Fannie by the end of 2013.”

Another unsealed document, a draft memorandum circulated before the profit sweep, shows that federal officials recognized it would generate more money than the original bailout terms. Net income generated by Fannie and Freddie and paid to the government “will likely exceed the amount that would have been paid if the 10 percent was still in effect,” it stated.

Ms. Miller, who left Treasury in 2014 and sits on the board of the SVB Financial Group, the parent of Silicon Valley Bank, did not respond to an email seeking comment, nor did a Treasury spokeswoman.

The documents, released under a court order, emerged in a lawsuit against the government by Fannie and Freddie shareholders, who contend that the profits — now totaling in the tens of billions of dollars — rightfully belong to them. The plaintiffs argue that the move was a taking of private property without remuneration.
The Treasury’s policy of diverting the profits seemed to further its stated goal of winding down the companies, an outcome that some contend could eventually put the housing finance system on a sounder footing. But legal experts say pursuing that goal while the companies were under a form of government control called conservatorship flouted the law that led to the rescue, the Housing and Economic Recovery Act of 2008.

Passed by Congress that July, the law set up the Federal Housing Finance Agency as a new regulator for the companies and directed the agency, as their conservator, to preserve their assets so they could operate independently again in the future. Unlike a receivership, in which a company’s assets are sold and its operations wound down, the conservatorship was supposed to be a temporary solution until Fannie and Freddie got back on their feet.

Instead, the Treasury and the housing finance agency depleted the companies’ assets by instigating the profit sweep. Fannie and Freddie currently operate their multitrillion-dollar businesses on almost no capital.

After they were taken into conservatorship in September 2008, the government advanced $187.5 billion to the two companies. But since their operations began to turn around in 2012, Fannie and Freddie have returned $270.9 billion to the government, $83.4 billion more than they drew.

A calculation by plaintiffs in another case against the government involving the profit sweep states that Fannie and Freddie have paid $130 billion more to the government than they would have under the original rescue plan.

Altogether, some 3,500 documents were recently unsealed in the case, pending before Judge Margaret M. Sweeney in the United States Court of Federal Claims.

Fairholme Funds, a mutual fund that owns shares in Fannie and Freddie, is the main plaintiff in the case. Bruce R. Berkowitz, president of Fairholme, said in a statement that the unsealed documents “prove that senior officials in the previous administration knowingly violated their statutory authorities and deliberately fabricated a tale to justify their unlawful actions.”

From the outset, the government demanded unusual secrecy in the litigation, withholding more than 11,000 documents and asserting that they were protected by various privileges. In a rare move, the government asserted presidential privilege on 45 documents.

The Obama administration argued that disclosure of the documents would roil the financial markets.

But it has been almost nine years since the government took over Fannie and Freddie in the face of a growing mortgage mess. The companies remain in conservatorship and are essentially the last piece of unfinished business from the crisis.

The document stating that the profit sweep would probably generate more money to the government than the previous arrangement also contradicts court testimony from another housing official, Mario Ugoletti, a former special adviser to the director of the housing finance agency.

Mr. Ugoletti swore in a 2013 declaration that by mid-2012, the amounts owed by Fannie and Freddie under the original rescue had grown so large that “it appeared unlikely that either of the enterprises would be able to meet that amount consistently without drawing additional funds from Treasury.”

The intention of the change “was not to increase compensation to Treasury,” he stated.

Mr. Ugoletti could not be reached for comment for this article.

Two years ago, The New York Times intervened in the case, arguing that unsealing some of the documents would “enable the public to understand more fully the decisions the government has made in the public’s name and to assess the wisdom and effect of those decisions.”

_______________________

IMO...my conclusions as of July 02, 2019:

1) From 2000-2008 WMI subsidiaries securitized and sold $504.5 billion MBS to Fannie and Freddie

2) Per my previous calculations, WMI retained approximately 14.73% of all securitized loans

Therefore: $504.4 billion x 14.73% = $74.312 billion (not including annual interest)

3) “After they [Fannie and Freddie] were taken into conservatorship in September 2008, the government advanced $187.5 billion to the two companies. But since their operations began to turn around in 2012, Fannie and Freddie have returned $270.9 billion to the government, $83.4 billion more than they drew.

A calculation by plaintiffs in another case against the government involving the profit sweep states that Fannie and Freddie have paid $130 billion more to the government than they would have under the original rescue plan.”

Therefore:

Minimum Return On Investment (ROI) = $83.4 billion / $187.5 billion = 44.48% in four years
Thus : 44.48% / 4 years = 11.12% annualized ROI

Maximum Return On Investment (ROI) = $130 billion / $187.5 billion = 69.33% in four years
Thus : 69.33% / 4 years = 17.33% annualized ROI

4) extrapolating only MBS sold to Fannie and Freddie:

WMI retained assets = $74.312 billion x 11.12% x 11 years = $237.0137 billion minimum

WMI retained assets = $74.312 billion x 17.33% x 11 years = $367.4088 billion maximum

5) On August 2012, the Treasury changed the terms of their agreement to Fannie and Freddie because they knew the MBS Trusts were going to be profitable.

Is it possible the Underwriters knew the same information in August 2012 or before?

IMO...the Underwriters knew all that information and prompted them to walk away from a $24 million Class 18 (capped) creditor claim and settled for a $72 million Class 19 (uncapped) equity claim!

Draw your own conclusions!!