Replies to post #781526 on Fannie Mae-No Politics (FNMA)

[Rodney5]

The SCOTUS upholding the NWS does not change the fact the liquidation preference can be paid down, and the Senior Preferred Stock redeemed under the terms written in HERA. The SCOTUS stated the FHFA has the right to Sweep the Net Worth, the LAW DOES NOT ALLOW THE FHFA / TREASURY TO KEEP THE NET WORTH THAT HAS BEEN SWEPT.

Now if the Lawyers will apply the LAW written in HERA

The Treasury has confiscated over $301 billion from Fannie and Fredde!

It’s bad faith and unfair dealing when the Regulator is authorized to pay down the Senior Preferred Stock and sent the Net Worth without the pay down option. The FHFA Director doesn’t need the Treasury approval to pay down the Senior Preferred Stock the Director has the authority from Congress written in HERA:

HOUSING AND ECONOMIC RECOVERY ACT OF 2008

RESTRICTION ON CAPITAL DISTRIBUTIONS.— page 2731
‘‘(1) IN GENERAL.—A regulated entity shall make no capital distribution if, after making the distribution, the regulated entity would be undercapitalized. The exception.

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

In essence 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. The Treasury did not take a Perpetual Equity Investment in the enterprises, the Treasury stated a temporary investment period!

The calculation of the pay down of the liquidation preference of the Senior Preferred Stock.

Link to the calculation

https://drive.google.com/file/d/15978NWfDcTtuClMBnwgWFmoPnwK94vWn/view

The liquidation preference has been paid and the Senior Preferred Stock should be canceled.

[DaJester]

Everything seems to keep coming back to : "Ps Illegality claim looks like a guaranteed loss, because the NWS was legislatively authorized (per SCOTUS)."

The NWS being legal does not mean nothing illegal happened. The SCOTUS found that FHFA was within it's authority to make such an agreement. It is true that there is nothing illegal about the NWS itself. Just like there would be nothing illegal about a company giving some or all of its profits to charity. However, the implementation of an otherwise legal act can result in an ILLEGAL breach of contract.

Here's another anecdote:
I hire Hunter Biden as my spokesperson for DaJester's Mystery Oil. He will get 10% of all the profits I get for selling my Mystery Oil, and we put that in the contract. Hunter makes commercials for me. I later decide to sign a contract with the Ukraine to provide all my Mystery Oil to the Ukraine for free, as a charity contribution. Hunter would get no royalties or profit sharing since the price was set to zero. Hunter sues me for breach of implied contract. While not explicitly stated in the contract, the assumption is that the product would be sold for a profit, so that he may gain benefits of a percentage of those profits. Hunter wins. I have to pay him $600M in damages for the money he otherwise may have collected from the oil being sent to the Ukraine. Sometimes the remedy for a breach of contract includes a contract remedy, but in this case, the jury simply awards monetary damages.

So my contract with Hunter remains intact. I keep manufacturing Mystery Oil. Starting in 2024, I decide to ship my oil to Israel. If I try to use the same contract terms and ship it all for free (which is perfectly legal for me to do), what happens with my Hunter contract? Am I allowed to continue the obvious (and now jury certified) breach of implied contract? Since I already paid the damages, I should be good according to your stance?

Maybe to avoid the obvious re-breach, instead I decide to write a new contract and get a new spokesperson. This time I get Donald Trump to be my spokesperson, he makes some huugely successful commercials for me. Can I use the same language in the new contract to pay him 10% of the profits? Yes. Can I sign a contract with Israel to provide all the oil for free? Technically yes. Would that still be a breach of implied contract? Yes! Would it be easier for Trump to win this in court? Absolutely.

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.

[Barron4664]

Thanks Clarence,

What you describe in your academic analysis is way too complicated because your analysis falls into the trap of fighting the actions of a conservator that has been granted the benefit of “presumption of correctness” as codified with a judicial bar in HERA. No thank you. My academic premise would be to avoid the FHFA-C completely and any legal precedents such as the Supreme court ruling. Any shareholder of the GSEs could file a Little-Tucker act claim in their home US district court seeking illegal exaction against the Department of Treasury and FHFA as regulator for alleged violations of the GSE Charter acts, and the Safety and Soundness Act of 1992 as amended by HERA with sought damages kept under $10,000. There doesn’t seem to be a reason why the jury verdict couldnt be a part of this claim and ask the court to nullify the SPSPA based on that verdict even if the other alleged violations are dismissed. There may also be a conspiracy to deny constitutional rights aspect as well. The meeting minutes of FSAB potentially demonstrates a conspiracy of individuals to keep from consolidating the GSEs onto the nations books thereby violating the chief executive officers act and Section 4 of the 14th amendment rights of all citizens. This has been my premise. With the jury verdict available now, I believe that this strategy looks more plausible.

[Wise Man]

Quit saying "NWS" instead of "NWS dividend", will ya.
And that it was authorized by the SCOTUS, without elaborating more.

because the NWS was legislatively authorized (per SCOTUS)

You and your other 20 aliases on this board.
Dividends are restricted. A capital distribution.
Separate Account plan.
The NWS dividend is authorized, even an infinite dividend on SPS with the second UST backup of FnF in the Charter Act and the felony of "SPS increased" instead of issued, because, for this 2nd UST backup, there is still a deadline on a TEMPORARY authority of UST to purchase obligations on December 31, 2009.

The exception to this deadline #3-FUNDING, is about how the UST funds the purchases with Public Debt, and the rogue UST and FHFA made us think that it's the Funding Commitment. This is why the SPSPA was amended one week before the deadline, December 24, 2009 (2nd PA amendment) "with new formulaic commitments" that simply meant to put on paper what we already knew, that the amount of funding commitment is drained and not a fixed amount every quarter.
The preps to later switch to the NWS dividend, arguing that it's useful to avoid the death spiral that was depleting the Funding Commitment with the 10% dividend. Which is 100% correct.

A felony with these SPS LP "increased" (it's only allowed when the dividend is added to the LP, but not in the case of new funds/obligations, for which is necessary new issuances, as, in this world, all the securities must be dated and attached to a new certificate), jointly with other 7 Securities Law violations, for which we request a compensation for Punitive Damages.

A 2nd UST backup of FnF useful to update the outdated $2.25B original UST backup of FnF at rates similar to Treasuries, established more than 60 years ago when the debt outstanding of Fannie Mae was $800 million.

Lawful for a Separate Account plan that must "rehabilitate FnF" as the prerequisite laid out by the Supreme Court.

At some point, it would be unwound in order to comply with:
- The original UST backup: it's been estimated a weighted-average 1.8% dividend rate on the cumulative dividend of the SPS, applying a 0.5% spread over "Treasury yields as of the end of the month preceding the purchase" (For instance, it was a 0.299% spread over Treasuries in the 1989 bailout of the FHLBanks. GAO report) until they were fully repaid (end of 2013 and 2014, in FMCC/FNMA, resp.). It's netted out with the interests on the $150.9B owed to FnF.

- The exceptions to the Restriction on Capital Distributions: reduce the SPS and, later on, for their recapitalization. That is, necessarily the Common Equity is held in escrow (The same occurs later with the SPS LP increased for free: another capital distribution that, this time, we apply towards the recapitalization. Effect easily seen through the offset (reduction of Retained Earnings) attached to these gifted SPS (Once it's unwound, the Retained Earnings is back up), had these SPS and the offset been posted on-balance sheet, another Securities Law violation (Financial Statement fraud).

- The FHFA-C's Rehab Power: Put FnF in a sound and solvent condition (Recap and reduce the SPS, resp.)

[kthomp19]

I appreciate the detailed analysis here, but unfortunately it's moot.

Section 6.12 of the original SPSPAs reads (emphasis added):

6.12. Non-Severability. Each of the provisions of this Agreement is integrated with and integral to the
whole and shall not be severable from the remainder of the Agreement. In the event that any provision of
this Agreement, the Senior Preferred Stock or the Warrant is determined to be illegal or unenforceable,
then Purchaser may, in its sole discretion, by written notice to Conservator and Seller, declare this
Agreement null and void, whereupon all transfers hereunder (including the issuance of the Senior Preferred
Stock and the Warrant and any funding of the Commitment) shall be rescinded and unwound and all
obligations of the parties (other than to effectuate such rescission and unwind) shall immediately and
automatically terminate.

In order for 6.12 to ever matter, we would have to have two things:

1) part of the Agreement, Senior Preferred Stock, or Warrant would have to be determined to be illegal or unenforceable
2) Treasury would choose to declare the Agreement null and void

Your post was an excellent breakdown showing that #1 has never happened and is unlikely to ever happen.

However, #2 is the real reason 6.12 is irrelevant. Even if part of the Agreement, Senior Preferred Stock, or Warrant is determined to be illegal or unenforceable, why on earth would Treasury choose to unwind the whole Agreement?

That choice would involve them sending FnF hundreds of billions of dollars in cash on top of writing assets they value at over $220B (the senior prefs and warrants) down to zero, along with losing veto power over FnF's exit from conservatorship among other things. All for absolutely nothing in return.

I have yet to hear any reasonable explanation for why Treasury would choose to do this.

As such, the inevitable conclusion is that Section 6.12 of the SPSPAs is a complete nothingburger. There is no reason to believe it will ever be invoked.