Replies to post #729412 on Fannie Mae-No Politics (FNMA)

[Robert from yahoo bd]

Instruction # 29: "Although the Housing and Economic Recovery Act (“HERA”) gave the FHFA discretion
to act in the best interests of the GSEs, the FHFA, or the public, that does not mean that the FHFA
could do whatever it wanted. As explained above, the Implied Covenant of Good Faith and Fair
Dealing required the FHFA to refrain from exercising its discretion arbitrarily or unreasonably in
a way that prevented Plaintiffs from receiving the benefits of their bargain under the contracts. To
prevail, Plaintiffs must prove by a preponderance of the evidence that in agreeing to the Net Worth
Sweep, Defendants exercised their discretion under HERA and the contracts arbitrarily or
unreasonably in a way that destroyed or injured Plaintiffs’ rights to receive the benefits of their
contracts with the GSEs."

[Wise Man]

The attorneys don't understand anything. FnF don't pay interests to begin with, but dividends. AND DIVIDENDS ARE RESTRICTED!
A dividend is a capital distribution. A concept in Finance but also it's written in the definition of capital distribution in the FHEFSSA, just in case you are a lawyer without knowledge in Finance.
There is a Restriction on Capital Distributions in the Law, when FnF are undercapitalized, because that capital (Retained Earnings) is used to build capital (Recapitalization). Also pursuant to the conservator's power: put FnF in a sound condition.
Soundness is related to the capital level and it's completed once they are Adequately Capitalized.
Finally,

Had there been no Net Worth Sweep, the GSES would have fully repaid Treasury, with interest many years ago.

This is false. Because the NWS dividend aimed to stop the death spiral when the prior 10% dividend was the reason for the losses and subsequent draw requests to UST with their corresponding SPS (obligations) increased to reflect the compromise of repayment on this debenture.
Thus, a 10% dividend would have increased their losses and SPS to the infinite. The Deferred Tax Assets (DTA) that had a valuation allowance in the 3Q2009 of $21.4B in FNMA, wouldn't have been recognized in the 2Q2013 ($50.6B in FNMA), that was the reason that FNMA paid a whopping $59.4B dividend to UST, that now the lawyers claim it helps to repay the SPS. Because for the same reason that there was a DTA valuation allowance (no prospect of DTA being utilized with profits in the foreseeable future), with the 10% dividend there wouldn't have been prospect of returning to profitability in the foreseeable future, the reason why the DTA was recognized again (DTA reduce its taxable income in the future.)
It's obvious that the attorneys lack financial knowledge and try any idea to see if it sticks.
But covering up the statutory provision Restriction on Capital Distributions and that a SPS pays dividends, which is a capital distribution, is a crime of Making False Statements, carrying a prison sentence of 10 years.

As of today and had there been no Net Worth Sweep dividend, FnF would have had $500B worth of SPS in their Balance Sheets or more, after 14 years posting losses due to the 10% dividend. No DTA would have been recognized.

The truth is that the dividend amount is being held in escrow at the Treasury Department, just like the FHLBanks' "separate account" in their 1989 bailout scheme.
This is why the shareholders love the NWS.

[Donotunderstand]

Show the numbers

I assume - an assumption - you are treating the investment (so defined by all accountants) as a decreasing balance loan ?

But it was not