Replies to post #769272 on Fannie Mae-No Politics (FNMA)

[Rodney5]

Quote:” That doesn't apply because FHFA has suspended capital classifications during conservatorship”. WRONG

FHFA and its Director are executive branch entities. They can not make changes to federal laws. Only Congress can change the law. And certainly cannot negotiate the law away.

[Rodney5]

Kthomp, your argument has been the CONTRACT SPSPA doesn’t allow the pay down of the Liquidation Preference with the cancellation of the SPS. That maybe so under the terms of the contract but the Law does. The FHFA Director doesn’t need the Treasury approval.

Congress

HOUSING AND ECONOMIC RECOVERY ACT OF 2008

The Treasury did not take a Perpetual Equity Investment in the enterprises, the government said so themselves, temporary investment period!

Cumulative Senior Preferred Stock with a 10% coupon that’s redeemable. The money sent to the Treasury above 10% pays down the Liquidation Preference and the SPS cancelled by LAW!

The lawyers are stuck on the Senior Preferred Stock Purchase Agreement. APPLY THE LAW!

THE LAW allows the trustees of Fannie and Freddie to go to the market at any time to raise new capital, including new capital with lower dividend coupons, to buy back the Treasury’s senior preferred. Any loyal conservator of Fannie and Freddie would take advantage of this refinancing option to end the bailout arrangement, by paying off the senior preferred in full.

HOUSING AND ECONOMIC RECOVERY ACT OF 2008

Quote: “Page 2732

EXCEPTION.—Notwithstanding paragraph (1), the Director may permit a regulated entity, to the extent appropriate or applicable, to repurchase, redeem, retire, or otherwise acquire shares or ownership interests if the repurchase, redemption, retirement, or other acquisition— ‘‘(A) is made in connection with the issuance of additional shares or obligations of the regulated entity in at least an equivalent amount; and ‘‘(B) will reduce the financial obligations of the regulated entity or otherwise improve the financial condition of the entity.’’.

NOTE: REPURCHASE, REDEEM, RETIRE...

WILL REDUCE THE FINANCIAL OBLIGATIONS OF THE REGULATED ENTITY.

Link: https://www.congress.gov/110/plaws/publ289/PLAW-110publ289.pdf

[MannSinger]

If any part of HERA is invalidated by the court then whole thing is illegal.

Once Judge Lamberth certifies the verdict of jury then entire NWS needs to be unbound. Thereore,Gov may force Lamberth to delay certification and Gov will preemptly unbound NWS to avoid ruling.

All this argument about capital distribution is useless.

[Wise Man]

kthomp19 posts the U.S.Code §4614(e) but lefts out its exception: to reduce the SPS.

He just focuses on the preface to claim that "undercapitalized" is the Capital Classification Undercapitalized 12 USC 4614(a)(2), when that's not what the lawmaker wrote. It just says "undercapitalized" and it begins with "IN GENERAL", which is also during a conservatorship established for Critically Undercapitalized enterprises.
Then, he flags the same Restriction on Capital Distributions but the made-up version by the FHFA in the Final Rule of July 20, 2011, the CFR 1237.12 that rose everybody's eyebrows because it, surprisingly, added up as an exception to the Restriction on Capital Distributions meant for the recapitalization of enterprises (Retained Earnings thanks to the suspension of dividends) no other thing than the recapitalization itself, which is a Separate Account wording right there (deplete capital "to meet the Risk-Based capital and Minimum Leverage capital requirements". WTF?)



The other exceptions added up, like "in the public interests" can't contravene the main restriction in the law, as expressly written in the same CFR 1237.12 part (c) that kthompt19 conveniently left out:

(c) This section is intended to supplement and shall not replace or affect any other restriction on capital distributions imposed by statute or regulation.

So, you can't break the U.S.Code §4614(e) arguing "in the public interests".
The public interest necessarily is the restriction itself for their recapitalization.

The suspension of Capital Classifications by the FHFA has more to do with the reporting, which isn't a big deal during a conservatorship, knowing that there is a Mandatory release Undercapitalized (Capital Classification: core capital > Minimum (Leverage) capital requirement), in the prior law struck by HERA, but it's still a milestone.
It allows the FHFA to carry out a Separate Account plan without having to inform about the Capital Classification each time, like an upgrade to Significantly Undercapitalized, or the latest Adequately Capitalized under the Separate Account plan, when the FHFA goal was to keep on building capital until FnF reach a level suitable for the redemption of the JPS (core capital), which, in the case of Fannie Mae, it's achieved this 3Q2023 ($1 billion Tier 1 Capital shortfall over Leverage capital requirement as of end of June, 2023). Freddie Mac holds an outsized Capital Buffer but, again, it was necessary to keep it secret until Fannie Mae catches up.
FHFA and UST didn't want to keep "captives" (the existing Equity holders) upon announcement of a Housing Finance System revamp. The suspension of the Capital Classifications is an essential measure in the Separate Account plan.