Midas79

Depends on how they settle them. A conversion to common offer at a generous ratio can get it done with no cash cost at all, but it would also take an end to the NWS, a recap plan, resolution to the warrants, etc. for the juniors to accept. Cash is much cleaner and quicker (though much more expensive).

(Edit: Royce, not Hensarling) said this in his anti-FnF tirade at the end of Wertheimer's portion of the hearing. He talked for several minutes about FnF's past evils and not allowing them out of conservatorship in their prior form. I don't remember him saying "senior management of the GSEs" specifically, but he did mention that there are ongoing lobbying efforts to recap and release the companies, presumably by the companies themselves. If I remember right, Wertheimer then said that the companies are not allowed to lobby at this time.

The bipartisan part isn't good. Once Trump gets his own FHFA director in place, any administrative reform would only be by one party, no? Funny that Mnuchin saying that he wants the companies out of government control caused share prices to skyrocket on 11/30/16 but hardly causes a blip today. Is just over 2 years too short a time to actually accomplish this goal? As in actually have the companies released (and presumably recapped) before Trump's term ends.

Thanks for posting this. Shocking to hear the word nationalization said so many times. Too bad Maria didn't ask Hank why they allowed shares to continue trading. Hank says that FnF were a "flawed business model", and then seconds later says that they "work so well". Which is it? If the latter is true then why not allow the companies to recap and then release them? Couldn't FHFA act in such a way to make the reforms it has enacted as conservator permanent? Like no lobbying, minimal retained portfolio, even caps on returns to prevent shareholder value maximization being the primary focus of the companies.

10% moment soon for Fannie, but already happened for Freddie, no? Yes, according to this. https://ethercalc.org/r9ddbdfjw46x Freddie passed it with Q2 2017's dividend.

This is definitely the fear, and the source of much of the risk that keeps share prices low. Cause for optimism exists with the retirements of Hensarling and Corker, two very outspoken GSE bashers with powerful positions in their respective chambers. If they get replaced by Waters and Toomey, respectively, then we could see a drastic shift in Congressional sentiment towards FnF. However, Congressional action is both still unlikely in that case and fraught with uncertainty in any case, at least from a shareholder's point of view. What we're missing is how Trump feels about the situation. If he wants Treasury to do something specific then it will be done, whether that is sitting on its hands (as has been the case until now) or actually implementing adminsitrative reform. Trump's choice for Watt's successor will be very telling.

It would be just another strange chapter, though bad for us shareholders (due to a further dragging out of the saga), if the FnF saga got swept up into a larger wave of anti-independent agency sentiment.

No surprise here, naturally. Treasury has had control of the situation dating back to 2008. I wonder if and whether Trump can pick a nominee soon to get the confirmation process going so that he or she could be confirmed soon after Watt's term ends.

no clue. probably rumor mongering on the less reputable boards Shoot, if that's all it took commons would be over $30 by now. I am stuggling somewhat to find a rational explanation though. The statute of limitations thing seems more like a negative to me, if the current lawsuits all fail then no more will be forthcoming.

as I recall hotel California was willett, who ruled for Ps I agree this question is out of left field. the whole P claim is that the bar to relief (whether just injunctive or to damages as well) does not apply to fhfa actions that are ultra vires, as is NWS. either one or more judges don't understand P claim, or they just think it best to get an unbriefed question answered. Is there any in-between room possible, where the court can say that they can't issue injunctive relief due to 4617(f) but can find a way to award damages, under the theory that an outflow of money from Treasury would not "restrain or affect the exercise of powers or functions of the Agency as a conservator or a receiver"? If this court somehow rules that even damages cannot be awarded due to the 4617(f) bar then the lawsuits are in a ton of trouble.

Good point. If I understand (relevant part of) the SCOTUS Lucia case correctly, plaintiffs have the right to expect some sort of remedy on top of the courts just fixing the agency's structure to make it consitutional. If All American's desires are taken into account, hopefully Collins's wish for the NWS to be unwound is as well. https://howardonmortgagefinance.com/2018/07/10/some-pre-comment-comments/#comment-7492 why do we care about the gov't getting paid back on a deal that they negotiated between itself and itself based on lies to everyone? I have a hard time caring. Because Treasury basically holds all the cards here. They have to approve a release from conservatorship and would be the ones that would be giving up the senior liquidation preference and NWS dividends in any administrative reform scenario. Treasury being able to claim victory per the original bailout terms (10%) could be an important point from a political optics perspective. It seems grossly unfair that Treasury has collected over $280B in dividends (almost $100B more than they advanced to FnF), has $193B in liquidation preference, and the right to buy 79.9% of common shares for a pittance. But that's where we stand. Treasury is negotiating from a position of extreme strength, so making it seem like they're winning is the only way to get them to the table. That or a court victory that has so far eluded us.

Good point. If I understand (relevant part of) the SCOTUS Lucia case correctly, plaintiffs have the right to expect some sort of remedy on top of the courts just fixing the agency's structure to make it consitutional. If All American's desires are taken into account, hopefully Collins's wish for the NWS to be unwound is as well.

@cherzeca So as not to clutter up Tim Howard's blog, I'll ask my question about your recent post there regarding the unopposed en banc request in the All American case. Collins will likely ask for a review of the NWS claim that was dismissed in addition to the Article II claim, and FHFA will surely oppose the NWS part of it. In your opinion, how likely is it that the 5th Circuit grants en banc on the NWS claims? I take it a review of the Article II claim can be separated from a review of the NWS claim, as in either separately or both could be reviewed without regard to the other.

Basically this. The original SPSPA dividends were based on the senior pref liquidation preference, and the NWS dividends seem to be tied to their existence. Cancelling the seniors, deeming them repaid, or converting them to common (this last one is fraught because it might force the government to consolidate FnF's balance sheets onto their own, a nonstarter in my opinion due to it technically skyrocketing the national debt by $5.3T overnight) will mean no more NWS dividends, so the lawsuits should become moot. I agree with allnatural, that the Moelis plan is more than what the litigants are asking for, so I believe they would drop their lawsuits in exchange for Moelis, though they would likely want something binding in writing from FHFA and Treasury. Dropping lawsuits before that, especially after next week when the statute of limiations expires for the NWS, is not a good idea.

I just had a daydream about how this could have gone down in oral arguments, complete with expansive hand and arm gestures, incredulous voicing at the proper spots, the whole works. Thompson: The defendants have argued, successfully in other courts, that the word "may" in section 1367(b)(2)(D) is merely permissive in nature and not exclusionary. But this very court found the opposite to be true in McAllister vs RTC. In that case, this court said that a conservator, quote, 'only', let me repeat only, 'has the power to take actions necessary to restore a financially troubled institution to solvency. Expenses of liquidation cannot be incurred by a conservator as a matter of law, as', and I emphasize here, 'liquidation is not a function of the conservator.' Allow me to read the relevant section in HERA. 'The Agency may, as conservator, take such action as may be-- ‘(i) necessary to put the regulated entity in a sound and solvent condition; and' (I emphasize and) ' ‘(ii) appropriate to carry on the business of the regulated entity and preserve and conserve the assets and property of the regulated entity.' Given these things, that FHFA's powers as conservator only, as stated by this court, allow it to take actions to restore the companies to solvency, and that HERA requires FHFA to take both parts of section 1367(b)(2)(D) into account, how can the Net Worth Sweep be anything other than ultra vires? The Net Worth Sweep does the opposite of (i) because it endangers, rather than promotes, the financial soundness of the companies, and it also does the opposite of (ii) because it, rather than preserving and conserving the assets of the companies, instead gives them away to Treasury in perpetuity. As a clearly ultra vires act, the Net Worth Sweep is thus reviewable by this court and the bar of judicial review found in section 4617(f) does not apply. Thank you, your honors. Alas, the opportunity has likely passed by. The 5th Circuit McAllister vs RTC opinion references RTC vs United Trust Corp. in the 11th Circuit. That opinion, found here: https://caselaw.findlaw.com/us-11th-circuit/1225205.html, says: They used the 8th Circuit's CedarMinn case as part of an opinion. Does that bind the 11th Circuit? Has a NWS case been brought before the 11th Circuit yet?

The date on the Moelis comment is August 1. If MBA was going to speak out against it, we would have heard it by now.

An encouraging pricing sign: while pref share prices aren't moving a whole lot, there are relatively large orders (1000 shares and up) on the bid of nearly every series I follow. Perhaps someone is trying to get into the prefs at a good price, but isn't particular about which series.

Good stuff. I read through their presentation late last week. It's very thorough, though I think Tim Howard will disagree with much of it because he thinks that FHFA's numbers are far too conservative and will lead to unreasonably high g-fees to ensure a competitive return on capital, while Moelis largely supports FHFA's numbers as-is. Moelis references Basel III requirements extensively. If the GSEs are designated as SIFIs post-release (a good chance in my mind given their enormous size), they will be subject to stringent capital requirements, at least partially based on those Basel III standards. This quote on page 28 has me somewhat confused: Is the $33B of combined junior pref equity going to be too much? If so, will the companies selectively redeem some series, redeem them all, or offer a conversion to common? All of which could be followed by issuing new (junior) prefs to fine-tune the ratio. It would also be nice if we hear about Moelis meeting with Treasury. Anything Moelis proposes requires Treasury to agree and help move things forward.

I would rebut as follows: 1) The statute has "and", not "or", so actions taken by a conservator must conform to both (i) and (ii). 2) The argument for the companies continuing as going concerns can justify the original SPSPA, but the NWS makes it more difficult for the companies going foward due to the inability to build capital. Treasury's funding commitment, while large, is finite. I fully agree with the last part, and Willett's dissent (if I am remembering the correct source) said the same, that agencies formed by Congress can only do what Congress specifically allowed. Like the Constitution, you don't start with the assumption of unlimited power and subtract from there, you start with the assumption of no power and only what's specifically added is allowed. I agree. The CedarMinn argument seemed a bit flimsy on closer inspection actually.

That's a darn good read. One reference was to McAllister vs RTC, found at http://www.ca5.uscourts.gov/opinions/pub/98/98-50471.CV0.wpd.pdf. The top of page 18 has the money quote. This was a prior 5th Circuit opinion. Isn't that binding on the court? Or did the Collins plaintiffs just bark up the wrong tree at the beginning? saw that Midas. this is the predecessor statute on which HERA was based, and it says: (D) Powers as conservator The Corporation may, as conservator, take such action as may be— (i) necessary to put the insured depository institution in a sound and solvent condition; and (ii) appropriate to carry on the business of the institution and preserve and conserve the assets and property of the institution. you will notice that the word "only" is not in the statute, although a fair reading of the statute would assume so. McAllister court inserts the word only into its opinion, per your page 18 quote. wonder why this case was central to Ps argument? Good catch, I hadn't noticed the court adding "only" in its interpretation. I just saw that the FIRREA and HERA wordings were essentially identical (only changing "corporation" to "agency" and "insured depository institution" to "regulated entity"). If the 5th Circuit interpreted the "may" as exclusionary in the past, i.e. that FHFA as conservator can't do anything other than those two things, why would they not be bound to continue doing so? Under that interpretation the NWS is clearly ultra vires since it does the opposite of both (i) and (ii). I'm just afraid that I have my wires crossed: the different cases and the arguments in them are mixing together in my mind, so I don't remember if the Collins plaintiffs tried to challenge the NWS on these grounds at all.

That's a darn good read. One reference was to McAllister vs RTC, found at http://www.ca5.uscourts.gov/opinions/pub/98/98-50471.CV0.wpd.pdf. The top of page 18 has the money quote. This was a prior 5th Circuit opinion. Isn't that binding on the court? Or did the Collins plaintiffs just bark up the wrong tree at the beginning?

This was plausible when Trump was elected, but with 18 months of inaction and only vague promises from Mnuchin that keep getting pushed back, Occam's razor would point to this theory not being true. It would ring kind of hollow at this point to use this to bash Obama this far into his term.

Watt is really pushing the limits of that 4617(f) clause... :P

He was right, the companies stayed in conservatorship throughout his tenure. I still find it silly that HERA capped the compensation packages for the CEOs but didn't bother with the rest of upper management.

It makes me wonder what brilliant Treasury staffer read that statute and said "wait, we could make a case that a four-corners reading allows a conservator to do anything!"