Replies to post #163661 on Fannie Mae-No Politics (FNMA)

[Demar]

Wow, thanks for taking the time to post this!

[bmp152]

rosen62, thanks for posting all of these docs.

I find this passage interesting (found in the 2nd link of rosen's post):

Testimony by Mario Ugoletti, Special Advisor to the Office of the Director of the FHFA.

19. These changes in structure [enactment of the 3rd Amendment] did not change the underlying economics of the PSPAs. It was my belief at this time, given the size and importance of the Treasury commitment, that through the liquidation preference, fixed dividends, and the market value of the PCF, Treasury would receive as much from the Enterprises under the Second Amendment as it would under the Third Amendment. Thus, the intention of the Third Amendment was not to increase compensation to the Treasury -- the Amendment would not do that -- but to protect the Enterprises from the erosion of the Treasury commitment that was threatened by the fixed dividend. The Third Amendment was therefore consistent with the intent of the original PSPAs to (1) fully compensate Treasury for the value of its financial support, without which the Enterprises would have been forced into receivership and (2) protect the Enterprises and the national housing market.

20. At the time of negotiation and execution of the Third Amendment, the Conservator and the Enterprises had not yet begun to discuss whether or when the Enterprises would be able to recognize any value to their deferred tax assets. Thus, neither the Conservator nor Treasury envisioned at the time of the Third Amendment that Fannie Mae's valuation allowance on its deferred tax assets would be reversed in early 2013, resulting in a sudden and substantial increase in Fannie Mae's net worth, which was paid to Treasury in mid-2013 by virtue of the net worth dividend.

--signed Dec. 17, 2013

Seemingly, FHFA is admitting the 3rd Amendment was enacted to keep FnF solvent and to secure their initial investment. Once this has been returned in full (as early as Feb?), the Amendment should be repealed as its objective has been met. They also seem to indicate that compensation according to the PSPA 2nd Amendment is more appropriate. Of course, all IMO and the only person's interpretation that matters is the presiding judge.

[obiterdictum]

Thanks rosen62. I will get to it later tonight. Appointments and meetings...

Went through the US Treasury submission of non-privileged information and it seems to me the US Treasury is in trouble if what is submitted is all that there is regarding the decision to form, approve and execute the Third Amendment. The decisional paper trail made by agency actors towards the Third Amendment found in the non-privileged information is scant.

This trouble is fully given in the August 15, 2012 action memorandum written by Counselor Michael Stegman. Under his name and apparent authorship, the Third Amendment was justified, presented to Secretary Geithner and recommended for an approval. It is clearly seen that Sec. 1117 (g)(1)(C)(iii-vi) of HERA 2008 was explicitly not considered in the formation and justification of the Third Amendment prior to approval. Importantly, there are no administrative record documents submitted by the US Treasury that consider the GSEs plan for orderly resumption of private market funding or capital market access or the need to maintain the GSEs' status as private shareholder-owned companies. The opposite is planned and only the taxpayer is considered. The Plaintiff allegations are on target and the US Treasury is without defense using these non-privileged materials alone.

See: https://docs.google.com/file/d/0Bw1bECfaOy48YmxldGRIbHdEZHc/edit - see page 448.

Sec. 1117 (g)(1)(C) (iii-vi)
(C) CONSIDERATIONS- To protect the taxpayers, the Secretary of the Treasury shall take into consideration the following in connection with exercising the authority contained in this paragraph:

‘(i) The need for preferences or priorities regarding payments to the Government.

‘(ii) Limits on maturity or disposition of obligations or securities to be purchased.

‘(iii) The corporation’s plan for the orderly resumption of private market funding or capital market access.

‘(iv) The probability of the corporation fulfilling the terms of any such obligation or other security, including repayment.

‘(v) The need to maintain the corporation’s status as a private shareholder-owned company.

‘(vi) Restrictions on the use of corporation resources, including limitations on the payment of dividends and executive compensation and any such other terms and conditions as appropriate for those purposes.

[obiterdictum]

Hi rosen62, that was a long look through several thousand pages of mainly public reports from 2008 to 2012.

As far as an administrative record goes, there is very little in it that can be used to overcome the allegations made by the Plaintiffs. The record is almost entirely of publicly available information and data and DeMarco's statements and testimony that is exclusively concerned with the "taxpayer."

In fact, the submission of this compendium of public filler does not relate well to the decisional paper trail leading to the formation, adoption and execution of the Third Amendment to the PSPAs. The post hoc argument presented in the beginning does not perfectly jibe with the US Treasury account of what the Third Amendment is about. Also, highlight certain sections of Moody's December 2012 analysis, is another attempt to justify the Third Amendment in a post hoc manner.

More importantly, the gross misjudgment of the GSEs increasing profitability as found in the 10-Qs of the first two quarters of 2012 and the lack of draws by Fannie in the first quarter of 2012 and both GSEs in the 2nd quarter 2012, should have alerted the US Treasury and FHFA that the GSEs could pay the dividends as originally contracted at 10%. There was no need or justification to amend the PSPAs for a third time. The reasons why the third amending was done are shown by their own records to be faulty and unnecessary. And so, it should be vacated on that account alone. It was simply a bad move and the easy way out is to vacate the Third Amendment and rescind all that was done by its adoption and execution.

So the assertion that they needed to amend the PSPAs for a third time to protect the GSEs solvency is very poor decision-making and contractual policy as demonstrated by enormous total payments made to the US Treasury made in 2012 and 2013.

Apparently, these administrative records, presented as is by the FHFA (and the US Treasury), can be used to support and prove the Plaintiffs allegations and not as a defense against them.

Of course, there may be privileged information not included in these records. However, that can only be found out later and it is highly unlikely that it will be supportive of their defense if this administrative record is used as front running material.

[44centsAKAchoccake]

I haven't been able to open and save 27.9. It may be a flaw in the PDF that was filed.