Wiggins

In the Lamberth case, Plaintiffs and defendants both agree all current stockholders are parties to the case, so Lamberth will likely certify those classes. Perhaps this will give comfort to those wishing to buy. This has been a disappointingly protracted process but I think we can all agree the GSEs are building capital, receivership is in the rear view mirror, and they're here to stay. I feel good about it, just a question of time and timing. On another note, this reminds me a bit of a distressed debt picture where you have shareholders opining that a corporation should buy back corporate debt for pennies on the dollar. That almost never happens (but occasionally does). The GSEs could be buying back preferred shares for pennies on the dollar and retiring them. It would be a smart move but I seriously doubt they're doing it. http://www.glenbradford.com/2021/10/fnma-fanniegate-1080/

Been adding since the SCOTUS decision. It's a steal here.. crazy.

Survival of claims is good. I haven't seen any indication that Biden would do anything and DOJ continues to stupidly fight in court. But the fact the administration had the cojones to get out of a losing war has given me a sliver of hope. The conservatorships are similarly the product of multiple administrations and the way forward really couldn't be clearer particularly with the just published stress tests. They also got an infrastructure bill passed. So maybe they can focus on this.

I listened to the oral argument today and agree with the comment posted by Tim Howard on his blog today. I am not encouraged at all and felt the Judges were trying every stupid argument imaginable to find the exits. Thumbs on the scales of justice. I hope allnatural's analysis is correct, but I could believe anything now. Looking forward to Lamberth

But your analysis is all hindsight as well, including characterizing in retrospect whether we are dealing with a bear or bull market. I think the securities were oversold. Any good news or even neutral news out of Lamberth's court and we'll double from here irrespective of whether the thesis ultimately prevails. My reasoning in the short term is that skittish investors have forgotten there are other trials and/or have just become fatigued but news from Lamberth and/or Schwartz will be a reminder that there are other ongoing trials which have a decent chance. Part of the recent uptick I think was folks saw that some big institutions increased their holdings after SCOTUS. You're on record as saying the bottom is not in. I say we're there and time to load up. We'll see who's correct soon enough.

Thank you it's an excellent resource. I'm not much on technical analysis, but I think a lot of the selling is over. Volume has dropped and prices are beginning to go sideways and/or inch up. I think the next catalyst could be happenings in Lamberth's court, and prices could move accordingly.

thank you this is an excellent resource

Thank you! If I didn't have bad luck I wouldn't have any at all. ha

I agree with your last two posts. You may be right and I might lose, but I like my odds at 6% of par. If we recovered 75% of par and it took a few years that's still a massive return. This feels like distressed debt investing to me, which is not for everyone. It sucks, it's uncomfortable, it's unnerving... and then you win. And in those situations the time to buy is when people are panicking. Yes, it doesn't always work out but I believe this one will... I would like to see more analysis on Lamberth and on Schwartz. That's where the action is IMO.

It's exactly like eminent domain. Under certain situations the government may take your house (e.g. to build a highway that must go through your property), but they cannot do so without compensating you fairly for property taken. The first part is perfectly legal; the second part is a completely separate issue. SCOTUS said FHFA can enact the NWS (it's legal), but they said nothing whatsoever about the second part. The above is also why you can't say things like "what we've learned over the past 9 years".. The past is irrelevant since court cases have all been procedural and none have looked at the facts. I think Gary Hindes has it right. Now, it's only a matter of how much recovery there is. I think when the facts come out it will be very bad for the government given the officials involved in this case who have lied, as well as the accounting which will come to light. They GSEs are not AIG. They were profitable the whole time.

The answer to this question is best stated by Baron Rothschild: "the time to buy is when there's blood in the streets."

Because that's not what SCOTUS said. SCOTUS said they could take (what you call steal), but they didn't say it wasn't a taking and they made no mention of "impunity". In fact, David Thompson was asked "why not bring this up in the court of claims?" Lamberth also said as much, but went further in proposing that even if HERA does allow the NWS it still may violate covenants. Your post perfectly encapsulates the mismatch between market participants understanding of the situation and the reality in courts, and hence why there is such a great opportunity at present.

Most people are selling and very pessimistic, but I am buying. What part of "contrarian" about that scenario is unclear?

Disagree; I am buying. Throwing out someone's name as justification for any type of investment decision is weak. If you're following the herd this looks like a bad investment. This is a contrarian investment and that couldn't be clearer now.

Sunrider, when Lamberth writes "the court will look to Hera to determine what investors' reasonable expectations should have been", I believe he is merely introducing the topic before discussing it immediately below in the same document. I don't think he is referring to some future trial or something else, because he goes on to answer the question. allnatural references part of it in his post subsequent to yours. In sum, he concludes that if the facts plaintiffs allege are true, then FHFA/GSEs DID violate the implied covenant. The only purpose of the trial is to assess facts and damages. At the stage Lamberth wrote this document, he was dealing with the law (not facts or damages), and his conclusion is firm that the law supports plaintiffs here.

I don't see how the GSEs could be released in any form similar to before conservatorship after that ruling. SCOTUS has defined HERA to be highly averse to investors. Who would invest? There are two huge problems: 1) your capital is not safe and 2) the director is now a politician. I see the only way to save anything like the old system, utility or otherwise, is new legislation that changes HERA. That's obviously a hard lift. Fortunately there are still lawsuits, so some hope.

It's easy to be pessimistic at times like these. The law most certainly does matter. SCOTUS did not rule that the plaintiffs' weren't screwed. Rather the opposite, they serve up moral hazard on a silver platter to Lamberth's court.

The SCOTUS ruling is obviously terrible but the "implied covenant" claim in Lamberth's court is still alive, it applies to preferred shares, rights travel with shares when bought/sold, and it is a class action.

Thanks for the suggestion. So if I understand you correctly, you're saying it's hopeful because the textualists will follow the text which favors our side; and precedent -also on our side- will be brought into the discussion by Kavanaugh? That's hopeful. Now we just have to hope they don't revive something dumb like the "may vs shall" debate, or "hide an elephant in a mouse hole."

Is anyone here (besides Midas) following the controversy over Borden vs United states: https://howardonmortgagefinance.com/2021/05/24/fhfas-crt-report/#comment-23502 ? I've read Kagan's plurality opinion and Kavanaugh's dissent. I agree with Kavanaugh and after reading the plurality's opinion it worries me a bit more about an adverse outcome. I do still cling to the idea that precedent is not needed for a win in Collins though given the plain language of the text. But, curious if others have thought about this.

Tim Howard's correction (and answer to your question): [4:30 pm correction] A holder of the companies’ junior preferred stock called my attention to a fall 2018 conference call with David Thompson, counsel to plaintiffs in the Perry Capital case (and other cases), in which David made clear that damages in the claim of breach of implied covenant of good faith and fair dealing now before judge Lamberth would, if granted, be payable by the government to the current holders of Fannie and Freddie’s junior preferred securities. I do not know if the same would be the case in the event of a favorable ruling for plaintiffs in the Court of Federal Claims. I withdraw the statement I made about damages here and in the comment above (and apologize for the error).

My impression is the Lamberth Trial was not going to start until the end of 2022 but if hindes is correct will be sooner. Getting summary judgement seems the quickest/best way to go. Nice to see Tim Howard weigh in jtimothyhoward MARCH 13, 2021 AT 11:20 AM I generally don’t comment on the investment aspects of the potential resolution of Fannie and Freddie’s 12-year conservatorships–the focus of this blog instead has been on making the case for using facts as the basis for releasing the companies in a form that maximizes their value to ALL stakeholders, not just investors–but in this piece I thought Gary made a compelling case for Fannie and Freddie junior preferred stock as an investment.

Welcome back to the trade. I think the general consensus of the rank order of possible outcomes for the SCOTUS decision is as follows: 1) FHFA unconstitutionally structured, no backward relief; NWS violates APA with remand for remedy back to lower court. 2) FHFA unconstitutionally structured, backward relief; (APA ruling doesn't matter in this scenario) 3) FHFA constitutionally structured, NWS legal I view this as very positive. I would expect JPS to retest highs since 2008 in either scenario 1 or 2. I would be very interested in other views, particularly if anyone is considering the possibility that SCOTUS somehow rules on direct claims for shareholders who held at the time of the NWS. Michael Kao obliquely made reference to this in one of recent tweet threads although I believe he puts it at low probability.

@mrswanky https://uk.practicallaw.thomsonreuters.com/8-383-9148?transitionType=Default&contextData=(sc.Default)&firstPage=true A fulcrum is also a physics term for example the center support under a seesaw. Equity gets squashed on one end but the fulcrum is unharmed. The other side (eg secured debt) goes up and is safe but there's little value there. The reason you want to find the fulcrum is that's where the value is. It's the lowest part of the cap structure that does well. Agree with cherzeca although the legal special situation you refer to doesn't provide good guidance on restructuring whereas it seems a distressed debt picture does, right? So I guess I don't really understand the comment. I view the lawsuits as the tow truck pulling the car out of the ditch but the restructuring experts are the ones that will steer it.

What is the impetus to make the gov act post SCOTUS if the ruling is favorable? If it seems the gov will end up paying no matter what why wont they just drag things along? Best case is a SJ as cherzeca has said. The is the language at the end of the last agreement to address treasury's stake but at this point Im not sure thats anything more then a deadline that will come and go. The impetuses are: 1) *lobbyists of representative industries that stand to gain are happy 2) stability to the housing market making many other stakeholders (smaller industry players, housing groups, voters) happy 3) warrants, funds to Treasury 4) *underwriters make money 5) *new investors make a ton of money 6) Yellen and Biden get bragging rights Think about it in the reverse: what impetus does the gov't have now that NWS is not flowing to NOT do anything? Nothing, it just adds risk to the system and makes them look foolish *note, many of these activities directly or indirectly lead to grift for politicians I'm sure there is more to add.