FNMA and FMCC preferreds. In search of the elusive 10 bagger.

[doughishere]

A lot of it has to do with the actions after December 2009 and the 3rd amendment that was undertaken in August 2012.

 

Under 12 U.S.C. §§ 1455(l)(4) -  Termination of authority The authority under this subsection (l), with the exception of paragraphs (2) and (3) of this subsection, shall expire December 31, 2009.

 

Paragraphs 2 and 3 basically say that the treasury can sell the securities it owns and where it can get the funding from.

 

Now had 12 U.S.C. §§ 1455(l)(4) included paragraph (1)....then yes they could modify the agreement after December 31st. 2009.

 

I think you need to take 12 U.S.C. §§ 1455(l) in its whole....yes they could have unilaterally "Considered" the shareholders[ie 12 U.S.C. §§ 1455(l)(1)©(iii), (v)] and tossed them out but they had no authoity after Dec. 31st.

 

So Perry claims that not only did they not have the authority to do so but they provided no "documentation" that they had considered the shareholders...in fact the takings happens after it is abundantly clear that they will be profitable again.

 

 

 

 

[doughishere]

Washington Federal's Response 12/16/13 - Attached.

WashingtonFederalResponse12162013.pdf

[merkhet]

Favorite part of the reading so far:

 

Bizarrely, the Government chides Plaintiffs both for waiting to file suit and for filing too soon.

[doughishere]

First paragraph

 

“conservator,” it was such in name only. In reality, it has been a shill for using the Companies to

 

accomplish whatever the Government wanted.

[JRH]

From Fairholme's website - transcript of a discussion with Richard Epstein regarding the Fannie/Freddie cases:

 

http://fairholmefunds.com/pdf.js-master/web/viewer.php?file=http://fairholmefunds.com/sites/default/files/Richard%20Epstein%20-%20Transcript.pdf

 

Highlights:

- Not impressed with the Government's briefs for the Washington Federal or Fairholme cases:

"And frankly, they’re very bad briefs... They’re sloppy.  They don’t give you particular statutory language.  They cherry-pick facts.  They argue questions of fact that are highly refuted on a motion to dismiss where those things are not to be allowed.  They are, in effect, briefs which communicate the following message: We don’t take this case very seriously because we’re not really trying to sit down and figure out strong and coherent theories."

 

- Maybe not quite as confident as Berkowitz? ;)

"When you get to the Supreme Court, frankly my dear, it is an open crapshoot."

 

Tons more good stuff in there, too.

[merkhet]

JRH, do you happen to have a copy? The link seems to be broken.

[JRH]

I tried everything I could to get it out of my browser cache, but the content was rendered in such a way that trying to save or print it gave me only the first four pages (probably less than 10% of the whole thing). Couldn't even figure out how to view the page source in Safari to figure out where/what form the content was really in.

 

Bizarre that they took it back down. Maybe a little Christmas present. Hopefully it surfaces again before long.

[merkhet]

It's back up again -- attached in case anyone else ran into the same problem I did...

Richard+Epstein+-+Transcript.pdf

[Grenville]

It's back up again -- attached in case anyone else ran into the same problem I did...

 

Thanks for uploading. I just tried to view it off the Fairholme site and it didn't work for me.

[merkhet]

I just started reading the transcript, and I realized what bothers me slightly about Epstein.

 

When it comes to law professors (especially at the top schools) there is a strong sense of "The World According to (insert professor name here)" -- where they've spent their entire academic life "branding" themselves with a particular framework approach to [Con Law/Property/IP/etc.] -- and they are flabbergasted that others cannot see their brilliance.  This then leads them to also be flabbergasted if and when certain court rulings go against them.  I have a sense that Epstein falls in this category.

[constructive]

I just started reading the transcript, and I realized what bothers me slightly about Epstein.

 

When it comes to law professors (especially at the top schools) there is a strong sense of "The World According to (insert professor name here)" -- where they've spent their entire academic life "branding" themselves with a particular framework approach to [Con Law/Property/IP/etc.] -- and they are flabbergasted that others cannot see their brilliance.  This then leads them to also be flabbergasted if and when certain court rulings go against them.  I have a sense that Epstein falls in this category.

 

This in particular:

 

"And [the potential Fairholme judges] do not have the kind of muscular judicial review strategy that has characterized my view for the last thirty odd years, ever since the mid-80s I declared the New Deal unconstitutional as a matter of first principal in my takings book."

 

So he is a fair distance from mainstream political/judicial philosophy. I wonder what his analytical performance record looks like.

[JRH]

So he is a fair distance from mainstream political/judicial philosophy. I wonder what his analytical performance record looks like.

 

 

Early in the transcript he makes it sound like the cases against the 2008 bailout have a rocky path, while the 2012 third amendment should be more straightforward.

 

 

Having said that, I had a hard time following which of the two (if not both) he was referring to at certain points throughout the rest of the transcript, including but not limited to his comments regarding the likelihood of them going to the Supreme Court.

[merkhet]

Now that I've read this a few times, I think that Professor Epstein's view of the case is extremely colored by normative beliefs as opposed to the actual legal positioning.  It's clear that he finds the entire 2008 situation and the 2012 Amendment reprehensible on a basic level (as do many of our posters here), but it looks as if even he's softening a little in respect to his position on the cases.

 

There's a perfect example of what I mean on page 6:

 

So where does it leave you?  On the normative side, this case with respect to the amendment should be toast and it’s difficult with respect to the 2008 reorganization.  Given the current law, what one has to remember is that there is always a strong government finger on the scale.

 

And what that does is it means that basically whenever you litigate against the government, the stronger your case may be, the more powerful you may think it to be, getting yourself over better than even money on winning that thing is extremely difficult.  It is hard for people to realize what the extent of the deference is that is given to government.  And if you don’t get yourself within the contract or the regulatory or the occupational sides that I’ve talked about, then the case is over.

 

Notably, this seems to be a bit of an about face in what he was saying at the earlier conference at NYU where he said that these were "winning cases" or something to that effect.  If memory serves me correctly, one of the panelists says "You have a pretty good case on [whatever]." and Epstein replies "A winning case." to some laughter in the audience.

 

And ultimately, let’s put it this way.  If the government win down below, I think there’s still, since the case is so big, a chance that the Supreme Court will take it.  But I can guarantee you, if the Solicitor General shows up and says, you know, there’s just been a government judgment entered into against us for about $120 billion, cert granted.  That's all they have to say.  They don’t have to write up a petition.  They don't even have to send a live body into the Supreme Court in order to get it.

 

The Solicitor General has an enormous advantage in big cases in essentially commanding the attention of the Supreme Court, at least with the courtesy of a hearing.  So I think in the end, this thing is likely to be resolved by the Supreme Court.  And on that particular point, it’s actually not as clear as one might think.  Remember, Winship was done six or so years ago.  And there were several liberal Democrats, I think it was Souter in particular, who sided with the bank.

 

This was fairly interesting to me given that the balance of the court has shifted slightly to the right in the last few years (though I can't seem to find the Winship case that he's referencing to figure out which remaining Justices voted which way...)

 

It's also notable to me that basically if the government loses in the lower courts, it's likely not going to be resolved until it gets all the way to the Supreme Court -- which is a good way to gauge a timeline for this stuff...

[fareastwarriors]

Fannie/Freddie: price and principle

 

http://www.ft.com/intl/cms/s/3/91562730-73d6-11e3-a0c0-00144feabdc0.html#axzz2peR8ivRx

 

 

 

It is easy to have principles in the abstract. The test comes when those principles have unpleasant repercussions. One widely held principle since the financial crisis is that the US mortgage market needs more “private” capital.

 

 

 

Fannie Mae and Freddie Mac, the mortgage guarantors that are now wards of the US government, announced plans in December to increase fees for some of the mortgages they back, hoping to replicate what private insurers would charge. These increases will flow through to mortgage rates, just on the heels of already rising interest rates. A more rational and stable housing sector will, inevitably, be a smaller one. But housing has also led the US economic recovery, making solid principles painful to honour.

 

The Federal Housing Finance Agency said in December that it would raise the guarantee fees it assesses on home loans and, additionally, raise fees for borrowers making smaller downpayments or those with lower credit scores. It is estimated that the increase in those fees could raise mortgage rates by 0.4 per cent. Current rates are about 4.5 per cent – historically low, but up about 1 per cent in the past year. The new FHFA head, Mel Watt, installed just after the rules were announced, however delayed their implementation for further study (and further lobbying by the property industry). In the meantime, the housing recovery continues but at a more measured pace.

 

The privatisation debate has been focused on the mechanics. Regardless of form, the crucial outcome is that private capital is more expensive capital and, thus, borrowing rates will be higher. And with an unsubsidised housing finance market investment will ostensibly flow to other worthy sectors. Either with the introduction of private capital or its tenets we will find out soon enough.

[fareastwarriors]

US senators push for Fannie and Freddie wind-down

 

 

 

http://www.ft.com/intl/cms/s/0/a6f86c3e-7876-11e3-831c-00144feabdc0.html?siteedition=intl#axzz2peR8ivRx

 

 

US senators Bob Corker and Mark Warner on Wednesday made another push for their legislation to wind down Fannie Mae and Freddie Mac, saying the opportunity to resolve the ownership of the mortgage finance giants bailed out during the financial crisis should not be squandered.

 

Their statements at a Financial Services Roundtable discussion on housing finance reform comes as the Senate gears up in the coming weeks to present a revised plan on Fannie and Freddie, which is aimed at pleasing both Republicans and Democrats.

 

 

The Senate Banking Committee’s top Democrat and Republican, Senators Tim Johnson and Mike Crapo, are in the advanced stages of putting together a compromise bill that borrows some aspects of the Corker-Warner legislation.

 

The debate over what to do with Fannie and Freddie had a new twist after Bruce Berkowitz’s Fairholme Funds in November proposed taking over operations of the bulk of the mortgage finance companies.

 

Mr Corker, a Republican, on Wednesday reiterated that the Fairholme plan proves there is an appetite for risk from the private sector, an issue that drew scepticism from critics of the Corker-Warner bill. White House officials have rejected the hedge fund proposal.

 

Mr Warner, a Democrat, said a strong bipartisan bill that garners the most support was the best path toward success, hinting that the final outcome could be a combination of proposals. He added that those advocating for the status quo for Fannie and Freddie, which are under government conservatorship, were pushing for the wrong outcome.

 

There has been a growing chorus, particularly among some hedge funds, to leave Fannie and Freddie as they are since they are performing well amid rising home prices and improving loan quality.

 

By the end of 2013, the mortgage finance companies were on track to pay a total of $185.3bn in dividends to the US government, which injected $188bn into Fannie and Freddie in 2008. But Fannie and Freddie cannot technically repay the government because that option was not in their agreement.

 

Mr Corker has said profits from Fannie and Freddie are due to the government guarantee for mortgages, and that taxpayers could still be on the hook for another bailout if there is a crisis.

 

The Corker-Warner bill envisions a limited government role that would maintain a government guarantee and wind down Fannie and Freddie over five years. Critics say that timeframe is too hasty to plug the hole that Fannie and Freddie would leave.

 

The legislation would also create the Federal Mortgage Insurance Corporation, which is partly modelled on the Federal Deposit Insurance Corporation for banks, while private capital would have to take the first 10 per cent loss on credit risk.

 

While there has been renewed urgency to tackle one of the last remnants of the financial crisis, it is unclear whether the Senate can come up with a bill that can draw wide support.

 

Lawmakers especially want to ensure that any changes to Fannie and Freddie preserve affordable mortgages, including the 30-year fixed-rate housing loan. Politicians are also gearing up for the midterm elections in November, which could also stall legislation.

[Grenville]

US senators push for Fannie and Freddie wind-down

 

http://www.ft.com/intl/cms/s/0/a6f86c3e-7876-11e3-831c-00144feabdc0.html?siteedition=intl#axzz2peR8ivRx

 

 

Thanks! I was wondering what was driving the prefs today.

[doughishere]

Letter from Ralph Nader.

 

https://docs.google.com/viewer?a=v&pid=forums&srcid=MDUxNDQwNjExMTIwMzQzNjc3NDIBMTM4NDkwNDg5NzQ1NzQwNTI5MjgBb0xrYVFvbk5ZaDRKATQBAXYy

[Grenville]

This was also released today:

 

"FHFA Directs Fannie Mae and Freddie Mac To Delay Guarantee Fee Changes"

http://www.fhfa.gov/webfiles/25937/GFeeDelay010814.pdf

[Guest valueInv]

Now, thats something:

 

http://www.bloomberg.com/news/2014-01-13/u-s-posts-record-december-budget-surplus-on-fannie-mae-payments.html

[Grenville]

Via Twitter:

Bob Pisani ‏@BobPisani 1h

Fannie Mae $FNMA, Freddie Mac $FMCC spiking on reports House Democratic leaders unveiling plan for both to be sold as independent companies

[Grenville]

Via Twitter:

Bob Pisani ‏@BobPisani 1h

Fannie Mae $FNMA, Freddie Mac $FMCC spiking on reports House Democratic leaders unveiling plan for both to be sold as independent companies

 

Not sure if this story is true, haven't been able to find any verification.

[brker_guy]

http://www.ft.com/intl/cms/s/0/7f0588f2-7eec-11e3-8642-00144feabdc0.html#axzz2qbMB5bZP

[Grenville]

Thanks Brker_guy!

[Grenville]

Here are the details of the plan:

 

Delaney, Carney, and Himes Announce Housing Finance Reform Proposal, Plan to Introduce Legislation this Spring

http://delaney.house.gov/media-center/press-releases/delaney-carney-and-himes-announce-housing-finance-reform-proposal-plan

[doughishere]

This is starting to remind me about how ggp went down back in the day. First theres no deal that can possibly be made, no way anything but utter failure is possible. Then someone throws out a shitty plan that just ruins everyone. Then the plans get progressively better and better. By no means is common and prefs out of the woods yet but it is looking better. Honestly and everyone knows this but it does rest on the court cases.