Midas79

I am not seeing the similarities here. The Collins Ps just want the NWS struck down, but All American wants the entirety of CFPA gone. The Ps can't, at this point, up the ante and ask for all of HERA (relating to the creation and function of FHFA) to be struck down too, can they? Or perhaps a new case would be filed against FHFA if the All American Ps actually get what they want?

Thanks. That what I get for just using Google!

The logic goes like this: a) CedarMinn holds that conservators MUST preserve and conserve assets b) The NWS does exactly the opposite c) Thus the NWS is not the act of a conservator d) Therefore the 4617(f) bar does not apply Disagreeing with the first line is how Lamberth and others circumvented this line of reasoning (because they are not bound by the 8th Circuit's previous decisions), and the CedarMinn precedent in this court doesn't allow that dodge. The Saxton lower court opinion actually disagreed with the third line, along with other courts, saying that conservators can do whatever they damn well please. But I don't see how that holds up if the first line is taken to be true. Still, you're right that almost nothing has made sense so far. Lamberth, Ginsburg, and Sleet would get a round of appluase from Rold Gold the way they have contorted law and logic to arrive at their conclusions. Why should another round of it surprise us at this point? Perhaps we are misunderstanding exactly what the CedarMinn precedent is? The Saxton lower court opinion (http://gselinks.com/Court_Filings/Saxton/17-1727-0018.pdf) only refers to CedarMinn as mandating that a conservator maintain the company's status as a going concern, while not mentioning having to preserve and conserve assets. I am having a devil of a time finding the actual CedarMinn 8th Circuit opinion from 1992, perhaps because I don't have access to PACER. The 8th Circuit's website only goes back to 1995. FindLaw (https://caselaw.findlaw.com/court/us-8th-circuit) doesn't go back that far either; it shows no results for calendar 1992. Edit: a footnote from Willett's dissent in the Collins appeal has the quote The "and" between "institution" and "preserve" seems to leave no wiggle room.

A very high chance if you ask me. I have read On the Brink. Tim Howard is exactly right: the companies were not bailed out, they were seized and decapitalized for ideological and policy reasons.

I would hope that the judges rule that unintentional ultra vires actions are still ultra vires, removing the need to think about intent or competence. The Ps shouldn't have to argue that there is no room for incompetence, just that there isn't nearly enough to justify an antithetical action like the NWS.

Trying to unwind all of FHFA's decisions since its inception is an extremely complicated process, one I cannot blame the judges for not wanting to touch. Unwinding the NWS, though, is mostly just an exercise in accounting. Given that it is what the Ps wanted, that SCOTUS has said that Ps deserve to get some sort of remedy if their seperation of powers challenge is successful (thanks to cherzeca from last page), and that unwinding the NWS and declaring the seniors repaid is a pretty easy fix, I find it very disappointing that the majority didn't do so.

If only we could have gotten Willett and Brown on the same appeals panel!

No clue. I have noticed that the dividend/price correlation has been weakning over the last few months. FNMAT in particular has gotten very weak compared to the rest of the prefs. Either a large position is being slowly unloaded, or a slice of the market is believing more in the possibility of a redemption or conversion that doesn't take stated dividend rates into account. The FMCC/FNMA gap has opened back up after getting close to closing completely yesterday, but the strength gap between the Freddie and Fannie prefs remains small, the weakness of FNMAT notwithstanding. My model doesn't include FNMAS or FMCKJ due to their liquidity premiums.

Bartiromo: "There's been a conversation on Twitter and has been for a long time that President Obama needed money for Obamacare and he would take from all the agencies and he took from Fannie and Freddie. Is that true?" Mnuchin: "It's true. They used the profits of Fannie and Freddie to pay for other parts of the government while they kept taxpayers at risk." The obvious followup question was "Then what does the Trump administration plan on doing with those profits?" It appears that this administration isn't so different after all.

I hear you, but how does the NWS stay intact if the conservatorship ends? Mnuchin has been very vocal about ending the conservatorship on his watch, as has Watt, and the White House (if we're to believe the Mulvaney report). Yes, it is possible that all of them are lying or change their minds. Edit: I didn't word that carefully enough. Watt hasn't said he wants conservatorship ended on his watch, but he has said it can't last forever. I can't see the conservatorships being ended with the seniors still intact, let alone with the NWS still in place. Treasury can block any release, and Mnuchin wants the companies to be safe and for taxpayers to be protected. I think the companies will have to be either fully capitalized or on a path there (perhaps with a declining Treasury commitment) before release can happen.

Yeah, that's garbage. Watt's capital recommendation would have been easily enough to withstand the 2008 crisis. Not only that, if the $181B somehow isn't enough for the next crisis, the government could always do another NWS and recoup its money. Taxpayer money really isn't at risk when any losses can be covered thusly.

Who here is familiar with how the Citi bailout and reorganization went? I'm just now starting to read up on this, wondering if FnF's reorg will be even remotely similar. All I know so far is that the preferred shareholders were offered a generous ratio to convert to common, but I don't know yet how many actually did, and how the different options fared (convert vs not convert). There were also privately placed versus publicly held preferred shares, that were evidently treated differently. The privately placed shares seem to have been convertible anyway, while the public ones weren't per the terms of the circular. Citigroup capital structure realignment terms: https://www.citigroup.com/citi/news/2009/090227a.pdf Series AA preferred stock prospectus: https://www.sec.gov/Archives/edgar/data/831001/000095012308000747/y46539be424b2.htm Illustrative example: https://www.citibank.com/citi/investor/data/p090227a.pdf

If people really understood what was going on and the $25s had a 60%-of-par valuation, this investment wouldn't be nearly so contrarian. Right?

Thanks, I didn't know about that. The text reads: Technically, Watt not issuing the capital standards that he is by statute required to do is neither a "classification" nor an "action", is it? Or does an inaction legally count as an action? Would a court order forcing Watt to come up with enforceable capital standards, and following the statute when they are not met, be considered as the court "affect[ing], review[ing], modify[ing], suspend[ing], terminat[ing], or set[ting] aside" some classification or action? I know it sounds like I'm being pedantic. I'm just trying to understand the laws better and how violations and challenges tend to work in practice. It kind of rankles that one section of a law could be used to prevent review of a violation of another part of the law. While claims against the NWS haven't had any clear statute of HERA that is violated, Watt's refusal to do what he is obligated to does directly violate 1361(a)(1). I'm not sure how much that matters. Edit: Earlier in section 4623 is this: 4623(d) only applies to things not covered in (b). Refusing to fulfill a statuory obligation - in this case setting capital requirements in 1361(a)(1) - seems like it is "not in accordance with applicable laws."

Wow, shots fired. I wonder why nobody has tried a lawsuit challenging these aspects of Watt and FHFA's behavior without going after the NWS itself, so as to not get the case consolidated with others. Since this is a duty of the Director, and not the Conservator, the 4617(f) bar cannot apply. Even then I would love to hear a Congressional committee ask Watt directly why he has chosen to suspend capital standards when he has no statutory authority to do so. The idea that Treasury's backstop can substitute for capital is indefensible, and points to some level of hypocrisy given FHFA's use of the statutes to defend their choices in the capital requirements paper. Heck, the capital standards paper from yesterday should have been done long ago. And not just that, the standards need to be enforced. It's in HERA section 1361(a)(1): (emphasis added) These requirements trigger specific other duties by FHFA and the companies as the levels are breached. Since maintaining sufficient capital is a "shall", then doesn't every NWS payment violate this section, especially since not having capital requirements isn't a statutorially (sp?) authorized option? Especially because the SPSPAs cannot override HERA. Let's go further. Section 1313(a)(1)(B)(i): (emphasis added) Hard to square NWS payments with the maintenance of adequate capital. Unless you decide that zero capital is adequate? Or that if no capital standards exist, neither does the notion of "adequate capital"?

Good point, but every NWS dividend sent out makes things worse. Unless one expects Treasury to send back overpayments past the 10% moment (I don't), time is still working against Mnuchin. Our best hope now, perhaps, is another letter agreement upping the capital reserve to $12B or so per company to account for the rest of 2018's earnings, assuming Mnuchin really does want to wait out the current Congress. Mnuchin has said he wants to work with Watt's successor, but Josh Rosner makes a good point that given how slow the Senate has been to confirm appointments, Watt won't necessarily be stepping down immediately in January 2019.

The Moelis plan does involve Treasury's backstop declining over time as the companies' capital reserves increase. The problem here is that if getting out of the backstop is Treasury's incentive for deeming the seniors repaid, continuing to provide a backstop undermines the argument. Every year that Treasury's backstop exists - while the companies are undercapitalized - increases the risk of another bailout. It all depends on whether Mnuchin is willing to have Treasury still on the hook past Trump's term (albeit with an end in sight), or if he instead wants the backstop completely gone by the end of 2020. The former allows for retained earnings to increase core capital for longer, reducing dilution to commons. The original Moelis plan was scheduled to basically have the companies out of conservatorship by the end of 2020, coinciding with Mnuchin's timeline. Mnuchin's delays, though, have sown the seeds of a conflict between staying on the timeline and not having to move too fast.

Yes, this is what I meant earlier: the companies will be held to the highest capital standard to be considered adequately capitalized. The numbers I used were for both companies combined, while yours are Fannie only. And because I can't write a post without writing a short essay... This passage at the bottom of page 21 explains some of it. I believe I was wrong in my initial impression: the undercapitalization levels imply that risk-based capital is never less than minimum capital; there is no provision for meeting the risk-based standard but not the minimum. Though I suppose it's possible (though quite unlikely) they could be the same if the risk profile of the companies changes enough (all assets are cash?). It's also important to note the difference between core capital, which is defined on page 255-256 as and total capital as defined earlier on page 21 The minimum capital requirement of $139.5B or $103.5B (still using numbers for the combined companies) can only be met with core capital, while the higher risk-based capital requirement of $180.9B can include many other things as defined above. This still means that the companies are at least $97.5B short of the minimum in terms of core capital. That enormous accumulated deficit really hurts. Though as I said in a previous post, I think Treasury really will just cancel the seniors or deem them repaid because what they get in return is freedom from the backstop, which in turn would remove $187.5B of the deficit, nearly eliminating it. I think the SPSPAs themselves will have to go. Attracting new capital would be nearly impossible with a $193B liquidation preference overhang, even if the dividends are halted permanently.

I will take a closer look. I could very well be wrong.

The proposed rules specifically state this is not an attempt to recap and that FHFA steps aside leaving exiting the conservatorship to Congress/Admin. Also, is it the sum of the risk-based and leverage ratio the total capital required? That would be north of $300 bill. I can't read the 200 + pages. I believe the required capital is the greater of the risk-based capital number and the minimum capital number. So right now it would be the risk-based number ($180.9B), which is greater than the minimum number ($139.5B or $103.5B, depending on the Alternative chosen). The point of the two numbers is that if the companies start de-risking themselves (holding less risky assets on the balance sheet), the $180.9B number could go down, but the other number (the minimum) wouldn't. FHFA (rightly) says that both are needed: the risk-based number is needed to actually calibrate the capital requirement to the actual state of the companies, and the minimum number is needed to prevent gaming of the system. As for the statement about not wanting this to be construed as support for recap and release, well, Watt has been saying that all along. I just hope at some point he realizes (and is willing to take a stand on) the fact that nothing he does can restrain Congress's powers anyway, and they haven't shown any unified enough political will to do big reforms.

From the dividend and draw tables kept by FHFA, found here: https://www.fhfa.gov/DataTools/Downloads/Documents/Market-Data/Table_1.pdf https://www.fhfa.gov/DataTools/Downloads/Documents/Market-Data/Table_2.pdf I finally went through and calculated how much the seniors would have been paid down if the NWS hadn't been implemented, if FnF had been willing (and able, by direction of FHFA) to put all dividends towards paying down the seniors, and of course if the seniors had actually been allowed to be repaid. If one column is off by a quarter it affects things, but not significantly at the end. Quarter Year Freddie bal 2.5% int Div paid New bal Fannie bal 2.5% int Div paid New bal 2 2012 71.336 1.783 1.808 71.311 116.149 2.904 2.931 116.122 3 2012 71.311 1.783 1.808 71.286 116.122 2.903 2.929 116.096 4 2012 71.286 1.782 1.808 71.26 116.096 2.902 2.929 116.069 1 2013 71.26 1.782 5.826 67.216 116.069 2.902 4.224 114.747 2 2013 67.216 1.68 6.971 61.925 114.747 2.869 59.368 58.248 3 2013 61.925 1.548 4.357 59.116 58.248 1.456 10.243 49.461 4 2013 59.116 1.478 30.436 30.158 49.461 1.237 8.617 42.08 1 2014 30.158 0.754 10.435 20.477 42.08 1.052 7.192 35.94 2 2014 20.477 0.512 4.499 16.49 35.94 0.899 5.692 31.147 3 2014 16.49 0.412 1.89 15.012 31.147 0.779 3.712 28.213 4 2014 15.012 0.375 2.786 12.602 28.213 0.705 3.999 24.92 1 2015 12.602 0.315 0.851 12.066 24.92 0.623 1.92 23.623 2 2015 12.066 0.302 0.746 11.621 23.623 0.591 1.796 22.417 3 2015 11.621 0.291 3.913 7.999 22.417 0.56 4.359 18.619 4 2015 7.999 0.2 0 8.199 18.619 0.465 2.202 16.882 1 2016 8.199 0.205 1.74 6.664 16.882 0.422 2.859 14.445 2 2016 6.664 0.167 0 6.831 14.445 0.361 0.919 13.887 3 2016 6.831 0.171 0.933 6.068 13.887 0.347 2.869 11.366 4 2016 6.068 0.152 2.3 3.92 11.366 0.284 2.976 8.674 1 2017 3.92 0.098 4.476 0* 8.674 0.217 5.471 3.42 2 2017 0 0 2.234 0 3.42 0.085 2.779 0.726 3 2017 0 0 1.985 0 0.726 0.018 3.117 0** 4 2017 0 0 2.249 0 0 0 0.648 0 * At this point Freddie's balance hits zero and there was an overpayment of $458M in Q1 2017. ** At this point Fannie's balance hits zero and there was an overpayment of $2.373B in Q3 2017. (I left out Q1 2018 because FnF did not pay dividends) What I believe this means is that absent the NWS (and if repaying the seniors was allowed), Fannie would have $3.021B in capital (the overpayment in Q3 2017 plus the dividend from Q4 2017) plus the $2.4B they were allowed to keep in Q4 2017 due to the letter agreement, for a total of $5.421B pre-DTA writedown. For Freddie it's even better, $6.926B in extra payments plus $2.4B in capital buffer is $9.326B, enough to overcome the DTA writedown completely. Fannie would not have fared so well: they would have had to get money somewhere in Q1 2018 because (in this alternate universe) once the seniors were repaid, Treasury's funding commitment would disappear and Fannie would have to tap private markets. Of course, I don't think they would have any trouble raising the $4.5B difference between the $9.9B writedown and the $5.421B in capital they would have had. But it's still a potential arrow in Treasury's quiver in the court cases. I don't think any of this explains the recent reversal in Fannie and Freddie stock prices: this information has been known for at least 6 months. Speaking of the funding commitment, I think that is key to the fate of the seniors. Many people, myself included, believe that Treasury doesn't do things out of the goodness of its heart: it wants recompense for everything given. Hence the $3B increase in liquidation preference in the letter agreement, for example. So why would Treasury just make the seniors go poof? Because they can declare victory on the bailout (which only happened in Q4 2017 once Fannie passed the 10% moment), but more importantly they could then get out from under the funding agreement in the SPSPAs, the primary source of taxpayer risk. By the terms of the SPSPAs, if Fannie or Freddie have a net worth deficit and they ask Treasury for money, Treasury must provide it. Eliminating the backstop both provides a ton of taxpayer protection (they would be on the hook for nothing rather than $212.5B as it stands) and sets the stage for a release from conservatorship. Mnuchin has also said many times that he wants the companies to be safe, so a recapitalization would be needed, lest another recession hit and Treasury is forced to either bail them out or let them fail. Since the companies have such little capital, and recessions can be rather sudden (and since Mnuchin said he wants all this done before Trump's term ends), the recap would have to happen quickly. Retained earnings by themselves would not be enough. Still, I don't expect Treasury to send back the "overpayments" on the 10% that no longer applies, so Freddie would be disproportinally hurt. Mnuchin has another reason to have all this done before Trump's term ends: his successor (Trump's re-election chances are already looking grim) could undo anything in progress if the release hasn't happened by January 2021, while if it's all wrapped up by then, the successor would have a very hard time trying to re-establish what is now the status quo.

Looks like we would have been golden before the sweep. Not really. The proceeds from the exercise of the warrants is the number of shares (around 7.2B) times the exercise price ($0.00001, or 1/1000 of a cent). That comes out to around $72,000. If Treasury raises the exercise price (strike price) of the warrants, this could add up to extra money that would technically go to FnF but come right back to pay down the seniors. This is one way Treasury can take the seniors out, because that is a prerequisite for any release from conservatorship. But raising the exercise price is not easy because it has to stay below the market price (which Treasury cannot directly control) for the number of issued shares to be a positive number. https://investorshub.advfn.com/boards/read_msg.aspx?message_id=141371252

I don’t get what Freddie/Fannie receivership and affordable housing have to do with each either. They are two separate issues. On the contrary, I think they are closely related. My view of the situation is that those Republicans that want FnF dead for ideological reasons (Hensarling is the most vocal) is because they think government should not be involved in affordable housing. More specifically, they think that government money should not be involved. See Hensarling going off the rails when Watt had FnF contribute to affordable housing funds in Q1 2018 even as they were taking a draw from Treasury due to DTA writedowns. Affordable housing mandates are in FnF's charters, and a run through receivership would allow Congress to draft new charters for the companies, probably conforming to those of full private-sector companies with no duty to serve low-income people seeking housing.

What you said (in bold) and what the presentation said (in bold) are actually opposites. The presentation's words make it seem that there will be no major changes in the near term, which fits with Mnuchin's statements that he doesn't expect anything to happen in 2018. IMO only a court ruling in favor of shareholders will prod Treasury into action earlier, and Freddie Mac can't anticipate that.

The problem with Jerome Corsi is his association with Alex Jones (infowars) who runs an online store selling whey protein products and other supplements. Looks to me infowars is after eyeballs anyway they can get them as that traffic can be turned into leads: protein shakes or other products. Stirring the pot does lead to more eyeballs ($$). I thought the problem with Corsi is that his FnF predictions have all been proven false so far. I don't even know how much access he has. Does anyone who matters actually pay attention to him? This telling word in that last tweet is "please". He's not claiming to have inside information, instead he's asking the administration to stop the sweep.