Replies to post #670815 on Fannie Mae-No Politics (FNMA)

[FOFreddie]

Perhaps the UST should be enjoined from exercising any rights with the SPS because the do not have "clean hands" under the general principals of Equity.

They definitely contributed to the crisis in the MBS market that was the pretext for Conservatorship by their conversations with MBS market participants and the plant of the Barrons article which was the pretext for nationalization and HERA on March 8, 2008.

It is a open question whether Bear Stearns or Wachovia would have had to be bailed out if it was not for the industry conversations and the Barron's plant the week before Bear failed.

Would the sale of the common and JPS been completed if the market knew UST was advocating a nationalization and had planted the Barron's article?

Would Sheila Bair allowed the UST official who was intimately involved in the nationalization efforts become Chairman of Wachovia if she knew about the Barrons plant and UST memo?

[Guido2]

No dividends can be paid while they are under capitalized. Under the old rules, they were not under capitalized in 2012 once the paper losses were reversed.

Our discussion began because of your post:

https://investorshub.advfn.com/boards/read_msg.aspx?message_id=162729564

I corrected you here:

https://investorshub.advfn.com/boards/read_msg.aspx?message_id=162730338

You responded:

https://investorshub.advfn.com/boards/replies.aspx?msg=162730338

Once again, I corrected you:

https://investorshub.advfn.com/boards/replies.aspx?msg=162730615

You countered with Gary Hindes' erroneous analysis that all preferreds get back dividends. You can continue with your erroneous posts. Just going to ignore them going forward.

[kthomp19]

I still haven't quite wrapped my head around how this would work, but according to David Thomposon, via Tim Howard, "damages in the claim of breach of implied covenant of good faith and fair dealing now before judge Lamberth would, if granted, be payable by the government to the current holders of Fannie and Freddie’s junior preferred securities."

That case is unique in part because it names the companies themselves as defendants, as opposed to direct claims in the USCFC which don't involve the companies directly and derivative claims in which the companies are the nominal plaintiffs. This makes Perry a must-settle case in order for recap and release to move forward (nobody will buy new shares when the companies themselves face legal liability of an unknown size), so those plaintiffs will have to be appeased.

I don't read anything through from the Perry case to any others in terms of damages, though.

My guess is that SPS were paid in full about two years ago.

The 10% moment was crossed by Freddie in Q2 2017 and Fannie in Q3 2018. Each are a little over $14B past that, meaning that if the Supreme Court (in contravention of the original SPSPAs) gives the plaintiffs their desired remedy of treating past after-10%-dividend payments as paying down the seniors, each of Fannie and Freddie would be owed $14B. That benefits Freddie more because $14B represents a larger portion of its capital standard.

HERA allows for SPS repayment in installments.

No. FnF have never had the ability to pay down the seniors any time they wanted. See Section 3(a) on page 4 of the senior preferred stock certificate. Make sure to ignore the part at the beginning that says "Following termination of the Commitment" because the Commitment is and always has been in place. The important part is in the middle:

Prior to termination of the Commitment, and subject to any limitations which may be imposed by law and the provisions below, the Company may pay down the Liquidation Preference of all outstanding shares of the Senior Preferred Stock pro rata, at any time, out of funds legally available therefor, but only to the extent of (i) accrued and unpaid dividends previously added to the Liquidation Preference pursuant to Section 8 below and not repaid by any prior pay down of Liquidation Preference and (ii) Periodic Commitment Fees previously added to the Liquidation Preference pursuant to Section 8 below and not repaid by any prior pay down of Liquidation Preference.

Neither (i) nor (ii) apply because all increases in the senior pref liquidation preference were due to draws, not missed or incomplete dividend or commitment fee payments.

This is an important point that bears repeating: FnF NEVER had the ability to pay down the seniors any time they wanted. This is why Gary Hindes calls the seniors a "concrete life preserver". That's why I don't think the Supreme Court will wipe out the seniors; such a remedy would contravene the original agreement that the plaintiffs are not challenging or seeking to have overturn or changed in any way.