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

[merkhet]

"immeasurable loss to the rule of law"

 

these kinds of statements irk me a bit because its largely just rhetoric and should have no bearing on the investment decision. will the government actually start trampling over shareholders left and right if they win these lawsuits? of course not. it sets a bad precedent for sure, and yes it justifies indignation and outrage, but cmon, we're all just trying to make a buck here

 

Yes, I sort of agree on rhetoric -- but I think the point is that if the holding ends up being that preferred shareholders can bilaterally, with the agreement of management, decide that they will transform their preferred shares into new common shares that are above the rest of the capital structure, that's going to be bad for the stability of companies in general.

 

Theoretically, the very next day, I would go out and start picking up preferred shares and contacting management to carve up companies 50-50. (Change my preferred dividends to a full sweep, and I will vote to increase your pay by a ton!) A few unscrupulous management teams will probably go for it!

 

except its not exactly like that, bc there would be no anti injunction provision that shields management from legal challenges on grounds that they neglected their fiduciary duty to common shareholders

 

You're mixing and matching arguments (probably unintentionally).

 

If the NWS gets upheld because of the anti-injunction provision, then it is upheld procedurally rather than substantively, and I would agree with you. In that case, no one ever considers the substantive question of whether the NWS is legal or not.

 

If, however, the anti-injunction provision is found not to be a procedural bar to plaintiffs' case, then the court will move on to discussing the substantive question of whether the NWS is legal or not. In that case, if the NWS is upheld, then we would be in the weird world I described above.

[merkhet]

I'm not sure this was an offer that could be refused

As an example tell me why Wells Fargo didn't refuse their bailout? They clearly didn't need it

 

Why does Bernake testify to congress that the GSEs are well capitalized weeks before

 

In 2012 there was no reason to activate a net worth sweep. They were about to turn profitable. And the treasury had the option of taking "in kind" rather than cash dividends. No independent conservator would have approved this deal seeing that the market was turning and that there were other options to pay dividends

 

Here's the truth.  They chose the wrong dividend rate.  To kill them they should have chose 20%. But they chose 10%.  They screwed up.  And in 2012 by the time they realized it they needed to get creative. 

 

 

Got it, so the question is, if there was no bailout how exactly was FNMA supposed to fund themselves and at what rates?  I recall them having to shove preferred stock at 8% down the throats of poor retail investors in late 2008.  Isn't it more reflexive than just accounting losses when FNMA had access to a cheaper cost of capital from the not-100%-implicit government backstop?  So 5% versus 10% or NWS versus no-NWS ignores the hidden costs to the government from having the prior arrangement? 

 

In some sense, decades of private investors benefited from the arrangement until 2009.  Those unlucky investors in FNMA/FMCC got shafted but it was going to happen at some point, no? 

 

As far as the questionable nature of the bailout, it happened and no one fought against it then?  Where was all the private capital that could have bid a higher price, etc?  The losses ended up being a lot of the "accounting" type only because of what the government had to do to step in.  In some sense it was like taking risk across a whole portfolio (banks, AIG, FNMA, etc) and there were certain parts that were harder to leave untouched.  The overall result has been fantastic (maybe not for the zerohedge guys) but that wasn't a guaranteed outcome.  Despite all the injections, there was still risk that was taken on.

 

Anyway just trying to understand this a bit better and maybe my thought process is all off.

 

I guess what I'm struggling with (because I get your points to a certain extent) is that this is all being done with the benefit of hindsight.  I think that once the bailout deal was made before the NWS, pretty much anything could be put on the table.  We might live in the United States of America, but there are hundreds of thousands of people in jail or whatever who can tell you that the system isn't always fair, for various reasons.  We shouldn't be waterboarding or torturing people but it happens anyway because the pain of a few is seen as better than pain for millions.  A very, very large amount of people are benefiting from the fact that FNMA guys got "screwed" (hey at least there's still *some* value left for the equity/preferred) but the price had to be paid somewhere.  IMO, I feel terrible for the investors who gobbled up all these preferred ahead of the bailout.  I remember working at a large sell-side firm that was stuffing tons of retail accounts because they were getting paid 3% to do it and rates were so low that it was an easy sell.  As soon as they started trading, they dropped 5 points.  It was a sucker deal.

 

I'm oddly a tad sympathetic to your point here, Picasso -- even though I also think that Fannie & Freddie did not actually require a bailout back in 2008. I know Eddie Lampert is often persona non grata here at CoBF, but if anyone knows about selling off pieces of the company to fund operations for much longer than anyone expected... it's ESL.

 

http://searsholdings.com/invest/chairmans-letters/february-2009

 

For those who are sophisticated in finance, neither Fannie Mae nor Freddie Mac had a “funding” problem. Because each GSE’s balance sheet was comprised of highly liquid Mortgage Backed Securities (MBS) that pay off on a monthly basis, it should have been easy for either to pledge securities to raise money or to shrink their balance sheet and meet their financial obligations as they came due. The logical explanation for the boards of directors giving consent rests with the presumption that if they did not consent, there was some other threat that would have been even worse for those directors. As for the shareholders the directors represented, it is hard to imagine anything worse than having their investment effectively wiped out, and they had no vote on the matter.

 

Regardless, though, I'm willing to give actions that were taken in the fog of war, so to speak, a bit of leeway. The main focus is that the companies were solidly profitable by the time the NWS came around, and it's a bit like a company going through pre-pack w/ bondholders four years prior and then going back and trying to get even more equity when it turns out that the initial projections of the companies' profitability happened to be way too low.

[Luke 532]

The main focus is that the companies were solidly profitable by the time the NWS came around, and it's a bit like a company going through pre-pack w/ bondholders four years prior and then going back and trying to get even more equity when it turns out that the initial projections of the companies' profitability happened to be way too low.

 

Bingo.

[merkhet]

i dont see how the fnma common gets a 3x bump and the pref gets a 5-6x bump.  while the 5-6x might be right for pref, common should have a greater multiplier. i say that for a number of reasons.

 

first, the common is more leveraged than the pref, and both are non dividend paying for the foreseeable future, so they are really a senior and junior tranche of common.  if the equity gets good news, typically the more leveraged junior tranche does better than the more senior tranche.

 

second, while the effect of any recap is hard to predict, i dont see it being more onerous on the common than pref.  i think new capital will come from retained earnings and new pref senior to the junior, but who knows for sure. and i think recap considerations will not come into play very quickly

 

third, i think berk and perry (pref) will be very weak holders after any litigation win, and sell very quickly, while ack (common) is more likely to hold.  ack might even call the fnma common a platform holding.  i was in mbi when it was litigating against bac, and when that settled, berk blew out about $500MM in four hours.  i think the pref is not as liquid as common, and selling in the pref will have more adverse effect than selling in common.

 

fourth, i think you will start to see people comment that the GSEs are suddenly investable again, and you are going to see much more interest from the buy side, and i think this buying will naturally gravitate to the common.  the preferred will no longer have appeal to someone who believes that the GSEs will live on.

 

I disagree on a fundamental basis. I have no clue where the shares trade in the short term though.

 

At the end of the day, the common is more levered than the senior tranche ceteris paribus. However, all else isn't equal. In a situation where the NWS is invalidated and (A) the cash is used to pay off as much of the government preferred as possible or (B) returned to the companies without paying off the government preferred, then you still have a very serious undercapitalization problem which is reflected first and foremost by the value of the common. Common is levered because it's at the bottom of the capital stack, and that's usually a bad thing for an undercapitalized company.

 

Moreover, any recap that happens will have to deal with the junior preferred before the common. My guess is that the junior preferred will either (A) get paid off (unlikely) or (B) get switched over to new common (probably at par). It's currently very difficult for me to know what happens on the way from changing old common to new common.

 

I don't know about Perry, but I think Fairholme is in for the long haul. If he's to be taken at face value, he's thinking about this in the AIG manner, and my guess is he's making a big bet on the coming wave of new household formation that's going to hit in the next few years. I would be surprised if he blew out of the stock immediately after litigation and/or recap. (Remember, he blew out of MBIA because he wanted to be invested in Fannie & Freddie.)

 

As a side note, I'm not sure that we get to a ruling on any of the cases we're all waiting on right now. (Btw, this probably incorporates some personal biases and/or endowment effect from being long so dock it for some optimism.) If the motion to compel goes FUBAR for the government or the oral arguments in the Delaware case or Perry appeal start to go poorly, my guess is that the government comes to the table. It's going to look really bad in an election year for the Democratic Party to be on the side of nationalization (and lose the case! Edit: Actually, it might be bad for them to win the case too!) when Bernie has pushed Hillary further to the left than she is comfortable being. Do you really want to screw around when the alternative is a Trump presidency? God, I hope not.

 

Ergo, it's not just about the bump that occurs post-litigation. It's also about what any possible settlement might look like pre-ruling -- and I know that's an unpopular thought because many people here are pretty set that there is no way the government will ever settle.

[Luke 532]

It's also about what any possible settlement might look like pre-ruling -- and I know that's an unpopular thought because many people here are pretty set that there is no way the government will ever settle.

 

If the government loses on any motion to dismiss, something on the settlement front could be wrapped up rather quickly.

[Guest cherzeca]

Chris H

 

What's your view (and that of those having offered numbers) on the prefs being held as a dividend investment. On some of them, albeit only once full payments start (a few years out?), you'd be getting a 30 - 40% yield on current purchase price. This may be attractive even to Berkowitz?

 

Of course against that we have to hold the fact that management would likely try to refinance those prefs asap--- but I see that the ones Berkowitz holds most of can only be repaid at certain points in time (e.g. Next in 2020). So perhaps on balance it will depend on how close to par they trade upon legal resolution?

 

Thanks.

 

@sunrider

 

your question nicely tees up the question i have about the preferreds:  who are you going to sell to if you hold them and NWS is invalidated?  prefs will clearly jump for a nice return, but how far short of par is the question, and i wonder if w/o dividend in pay mode and no accumulation of dividends, no institution will buy them, and if you have a new class of investors who are saying, hey the GSEs just became investable, they are likely to gravitate to the common, for greater liquidity and more theoretical upside.

 

that is just my sense of the market dynamics. also, i dont think this analysis is tantamount to querying whether god has a handlebar mustache, as i think it is appropriate to the investment decision going in, as well as judging what you do in the event [spits 3 times] NWS is invalidated and you are trying to read the market as to sell or hold

[merkhet]

Haha, my handlebar mustache comment was a bit facetious.

 

Everyone has a view of where things trade in the short-term. It's hard not to have one. We're almost biologically primed for it. My point is that one shouldn't be too attached to it because it's seldom more than a guess. Figuring out the voting machine is much more difficult than figuring out the weighing machine.

[Sunrider]

I think your "Who to sell to?" point is a very important one ... which would clearly also limit the potential appreciation to par, if any large holder was selling into that. So I suppose for all of us who may be willing to hold for some time post a legal victory, the more pertinent question is really as to how much capital is needed and when there would be an expectation of dividend payments?

 

 

Chris H

 

What's your view (and that of those having offered numbers) on the prefs being held as a dividend investment. On some of them, albeit only once full payments start (a few years out?), you'd be getting a 30 - 40% yield on current purchase price. This may be attractive even to Berkowitz?

 

Of course against that we have to hold the fact that management would likely try to refinance those prefs asap--- but I see that the ones Berkowitz holds most of can only be repaid at certain points in time (e.g. Next in 2020). So perhaps on balance it will depend on how close to par they trade upon legal resolution?

 

Thanks.

 

@sunrider

 

your question nicely tees up the question i have about the preferreds:  who are you going to sell to if you hold them and NWS is invalidated?  prefs will clearly jump for a nice return, but how far short of par is the question, and i wonder if w/o dividend in pay mode and no accumulation of dividends, no institution will buy them, and if you have a new class of investors who are saying, hey the GSEs just became investable, they are likely to gravitate to the common, for greater liquidity and more theoretical upside.

 

that is just my sense of the market dynamics. also, i dont think this analysis is tantamount to querying whether god has a handlebar mustache, as i think it is appropriate to the investment decision going in, as well as judging what you do in the event [spits 3 times] NWS is invalidated and you are trying to read the market as to sell or hold

[Guest cherzeca]

i dont see how the fnma common gets a 3x bump and the pref gets a 5-6x bump.  while the 5-6x might be right for pref, common should have a greater multiplier. i say that for a number of reasons.

 

first, the common is more leveraged than the pref, and both are non dividend paying for the foreseeable future, so they are really a senior and junior tranche of common.  if the equity gets good news, typically the more leveraged junior tranche does better than the more senior tranche.

 

second, while the effect of any recap is hard to predict, i dont see it being more onerous on the common than pref.  i think new capital will come from retained earnings and new pref senior to the junior, but who knows for sure. and i think recap considerations will not come into play very quickly

 

third, i think berk and perry (pref) will be very weak holders after any litigation win, and sell very quickly, while ack (common) is more likely to hold.  ack might even call the fnma common a platform holding.  i was in mbi when it was litigating against bac, and when that settled, berk blew out about $500MM in four hours.  i think the pref is not as liquid as common, and selling in the pref will have more adverse effect than selling in common.

 

fourth, i think you will start to see people comment that the GSEs are suddenly investable again, and you are going to see much more interest from the buy side, and i think this buying will naturally gravitate to the common.  the preferred will no longer have appeal to someone who believes that the GSEs will live on.

 

I disagree on a fundamental basis. I have no clue where the shares trade in the short term though.

 

At the end of the day, the common is more levered than the senior tranche ceteris paribus. However, all else isn't equal. In a situation where the NWS is invalidated and (A) the cash is used to pay off as much of the government preferred as possible or (B) returned to the companies without paying off the government preferred, then you still have a very serious undercapitalization problem which is reflected first and foremost by the value of the common. Common is levered because it's at the bottom of the capital stack, and that's usually a bad thing for an undercapitalized company.

 

Moreover, any recap that happens will have to deal with the junior preferred before the common. My guess is that the junior preferred will either (A) get paid off (unlikely) or (B) get switched over to new common (probably at par). It's currently very difficult for me to know what happens on the way from changing old common to new common.

 

I don't know about Perry, but I think Fairholme is in for the long haul. If he's to be taken at face value, he's thinking about this in the AIG manner, and my guess is he's making a big bet on the coming wave of new household formation that's going to hit in the next few years. I would be surprised if he blew out of the stock immediately after litigation and/or recap. (Remember, he blew out of MBIA because he wanted to be invested in Fannie & Freddie.)

 

As a side note, I'm not sure that we get to a ruling on any of the cases we're all waiting on right now. (Btw, this probably incorporates some personal biases and/or endowment effect from being long so dock it for some optimism.) If the motion to compel goes FUBAR for the government or the oral arguments in the Delaware case or Perry appeal start to go poorly, my guess is that the government comes to the table. It's going to look really bad in an election year for the Democratic Party to be on the side of nationalization (and lose the case!) when Bernie has pushed Hillary further to the left than she is comfortable being. Do you really want to screw around when the alternative is a Trump presidency? God, I hope not.

 

Ergo, it's not just about the bump that occurs post-litigation. It's also about what any possible settlement might look like pre-ruling -- and I know that's an unpopular thought because many people here are pretty set that there is no way the government will ever settle.

 

@merkhet

 

thanks for your thoughts.  i happen to believe that if there is a settlement pre-judicial decision, the junior pref may very well do better than common.  you will recall the infamous geithner memo that expressed animus to common, even though the NWS seeks to kill both common and pref.  but if treasury is to settle, it will want to settle with everyone, and so ack will be at table repping the common. why would govt settle with perry/berk (pref) and not ack (common)?

 

i think the dilution from recapping is real and as i have said before affects both pref and common.  but i think recapping could be quite a length of time down the road, given that i am sure corker will want to be involved and there are many parties and moving parts.  so personally, i dont think my sell/hold decision in the short term after NWS invalidation [spits 3 times] will be much affected by that.

 

btw, i dont see any money coming back.  govt wont do that.  they would agree to  lower senior pref amount.

 

as for whether GSEs are mbi or aig for berk, fair enough, who knows and maybe he is thinking that one through himself.  it is just my sense that if there is a hedge fund hotel at GSEs, it is more likely the prefs than common, and to quote a grateful dead song, watch out when they blow.

[hardincap]

@merkhet nws was upheld procedurally by lamberth and im speaking to the scenario that we lose other cases on similar grounds. then the hypothetical of well any company can issue preferreds with nws terms is not really correct because they have fiduciary duty to uphold, whereas fhfa (according to lamberth's ruling) was exempted via 4617f

[merkhet]

I don't think the issue is whether the government would settle with the junior preferreds and not the common stock -- that is so unlikely as to be a zero percent chance in my book.

 

My main issue is that during any possible settlement, the people who are going to get diluted are the common shareholders. Let's say that the companies can, on a combined basis, make $14 billion after-tax, and that it deserves a 15x multiple. (We can quibble w/ those numbers, but this is just a conceptual exercise.) Then the GSEs are worth $210 billion -- but they're not worth that amount without capital!

 

So there's, what, $7 billion of capital left in the GSEs? They need somewhere in the $150 to $200 billion range. (Maybe that's an overestimate, but whatever.) So if the NWS payouts net out the full amount of the liquidation for the government preferred, then that means the first $7 billion accrue to the junior preferreds. As do the next $27 billion!

 

It would take years to internally generate the capital necessary to get fully capitalized and the first two years would go all to the junior preferred. No way that's allowed to happen. So that means raising capital and changing the junior preferred over to new common. And the old common over to new common. So my guess is that you get a par or darn close to it for changing the junior preferred to new common -- in exchange for going lower in the capital structure -- and then you raise a bunch of capital. That's bad for the upside of the old common.

[Guest cherzeca]

@merkhet nws was upheld procedurally by lamberth and im speaking to the scenario that we lose other cases on similar grounds. then the hypothetical of well any company can issue preferreds with nws terms is not really correct because they have fiduciary duty to uphold, whereas fhfa (according to lamberth's ruling) was exempted via 4617f

 

@merkhet and hardincap

 

while i am still thinking this through, if you read the perry class plaintiffs briefs (breach of K and fid duty) against the perry institutional briefs (APA violation for exceeding statutory authority under HERA), it seems to me that the class P case would go on even if the appeals ct upholds lamberth on the anti-injunction provision of HERA.  you could have remand to try class P case and award money damages to class P from GSEs under conservatorship (which is not a fed instrumentality and need not be sued in fed ct claims)

[merkhet]

@merkhet nws was upheld procedurally by lamberth and im speaking to the scenario that we lose other cases on similar grounds. then the hypothetical of well any company can issue preferreds with nws terms is not really correct because they have fiduciary duty to uphold, whereas fhfa (according to lamberth's ruling) was exempted via 4617f

 

Yea, and we're in agreement on that part. We're really talking past each other in terms of lexicon. When I say NWS is upheld, I mean substantively upheld and therefore, implicitly, the injunction was not upheld.

 

And sorry to nitpick, but I wouldn't say that FHFA was exempted from its fiduciary duty to uphold because of 4617(f), but rather that there is no mechanism to enforce FHFA to exercise its fiduciary duty. I know it looks the same output wise to the layman, but input wise it is very, very different. It's not as if FHFA doesn't have a fiduciary duty anymore -- it still does! -- but if it decides not to enforce it, there's no way for someone else to force them to do it.

[merkhet]

@merkhet nws was upheld procedurally by lamberth and im speaking to the scenario that we lose other cases on similar grounds. then the hypothetical of well any company can issue preferreds with nws terms is not really correct because they have fiduciary duty to uphold, whereas fhfa (according to lamberth's ruling) was exempted via 4617f

 

@merkhet and hardincap

 

while i am still thinking this through, if you read the perry class plaintiffs briefs (breach of K and fid duty) against the perry institutional briefs (APA violation for exceeding statutory authority under HERA), it seems to me that the class P case would go on even if the appeals ct upholds lamberth on the anti-injunction provision of HERA.  you could have remand to try class P case and award money damages to class P from GSEs under conservatorship (which is not a fed instrumentality and need not be sued in fed ct claims)

 

Yes, that's my read of it as well. 4617(f) specifically states "no court may take any action to restrain or affect the exercise of powers or functions of the Agency as a conservator or a receiver," and as Steele correctly pointed out (IMO), it does not restrain courts from providing monetary relief to the extent that there is a path towards monetary relief.

[Guest cherzeca]

final redacted perry institutional P brief attached

 

should learn soon who will be on cir ct appeals merits panel

perry_final_inst_P_brief.pdf

[hardincap]

@merkhet nws was upheld procedurally by lamberth and im speaking to the scenario that we lose other cases on similar grounds. then the hypothetical of well any company can issue preferreds with nws terms is not really correct because they have fiduciary duty to uphold, whereas fhfa (according to lamberth's ruling) was exempted via 4617f

 

Yea, and we're in agreement on that part. We're really talking past each other in terms of lexicon. When I say NWS is upheld, I mean substantively upheld and therefore, implicitly, the injunction was not upheld.

 

And sorry to nitpick, but I wouldn't say that FHFA was exempted from its fiduciary duty to uphold because of 4617(f), but rather that there is no mechanism to enforce FHFA to exercise its fiduciary duty. I know it looks the same output wise to the layman, but input wise it is very, very different. It's not as if FHFA doesn't have a fiduciary duty anymore -- it still does! -- but if it decides not to enforce it, there's no way for someone else to force them to do it.

 

even if the nws is upheld substantively and nws stock is ruled technically permissible under dcgl, corporate management would still be prevented from attempting such a scheme because it would violate their fiduciary duty to common shareholders, correct?

 

yes, i hesitated to use the word "exempted", but they basically are in effect (according to lamberth)

[Guest cherzeca]

"even if the nws is upheld substantively and nws stock is ruled technically permissible under dcgl, corporate management would still be prevented from attempting such a scheme because it would violate their fiduciary duty to common shareholders, correct?

 

yes, i hesitated to use the word "exempted", but they basically are in effect"

 

fhfa/treasury argue that they owe no fid duty to shareholders.  if cts find that NWS is valid, they will likely hold no fid duty imo

 

[merkhet]

even if the nws is upheld substantively and nws stock is ruled technically permissible under dcgl, corporate management would still be prevented from attempting such a scheme because it would violate their fiduciary duty to common shareholders, correct?

 

No. Because in order for the NWS to be upheld, it would also have to pass through the fiduciary duty claims that have been leveled against it. (See the initial complaint in Jacobs.) Unless there was some way for them to say that under conservatorship fiduciary duty goes out the window -- which... is difficult because most laws dealing w/ conservatorship require the conservator to be a fiduciary, and I don't see anything to the contrary in HERA.

[Guest cherzeca]

much of the final perry briefing for both Ps and Ds was a reiteration of prior opening briefs, but the institutional Ps did add this paragraph at p.23 which i thought needed to be said:

 

"Both Treasury and FHFA argue that Plaintiffs’ allegations “boil[] down to a

disagreement over the manner in which FHFA executed its duties as conservator,”

Treasury Br. 27, or simply that FHFA “did a bad job,” FHFA Br. 33. Not so. A “bad

job” implies that FHFA intended to discharge its statutory duties to preserve and

conserve assets and to rehabilitate the Companies to a sound and solvent state, but

that its actions ultimately failed. But, when entering into the Net Worth Sweep,

FHFA understood and intended that the Sweep would convey the entirety of the

Companies’ future net worth in a self-dealing transaction that would render

rehabilitation or long-term solvency impossible. These are features of the Net

Worth Sweep, not unexpected results. And these features are facially irreconcilable

with FHFA’s statutory authority. See Cnty. of Sonoma, 710 F.3d at 992.

 

sonoma is the leading 9th cir opinion which says that the HERA anti-injunction provision doesnt prohibit judicial review if conservator acts beyond authority

[maverick]

 

 

I'm oddly a tad sympathetic to your point here, Picasso -- even though I also think that Fannie & Freddie did not actually require a bailout back in 2008. I know Eddie Lampert is often persona non grata here at CoBF, but if anyone knows about selling off pieces of the company to fund operations for much longer than anyone expected... it's ESL.

 

 

I am not so sure about the assertion that Fannie & Freddie did not actually require a bailout back in 2008. For an entity that is leveraged 40-50x, all it takes is a mere 2%-3% decline in the value of assets to completely wipe off the equity. Asset prices declined much more than 2%-3%.

 

They were able to borrow very cheaply in the debt markets because there was always this implicit government guarantee. Could they have continued to borrow cheaply while being insolvent at those low rates without the government backstop. No, they would not have. They would have experienced the same fate as did Bear, Lehman, and MF Global.

[merkhet]

I don't want to get too into the weeds on this, because I think only Washington Federal is taking on this battle. And it's not what's most important in the immediate future.

 

I would separate the difference between funding and capital.

 

Fannie & Freddie could continue to fund their financial obligations coming due via the methods that ESL points out. I believe the three situations you've pointed out failed because of the inability to meet short-term obligations as they came due but I could be wrong and just going off memory.

 

As for the capital issues, which I think you're referencing, you should take a look at the 2007 10-K:

 

Our total capital base is used to meet our risk-based capital requirement. Total capital is defined by statute as the sum of our core capital plus the total allowance for loan losses and reserve for guaranty losses in connection with Fannie Mae MBS, less the specific loss allowance (that is, the allowance required on individually-impaired loans).

 

Again, working off memory, much of the losses came from two sources: (1) non-cash charges concerning tax asset valuation allowances and (2) increased credit provisioning. I think the latter was over $100 billion worth -- which wouldn't have impacted total capital.

[orthopa]

FWIW and Im catching up here but I think the preferred is trading based on whether or not it will pay a div after. (I have no idea or strong feeling if they will or will not). I base this on the fact that those preferreds with a higher original dividend are trading at a clear premium to those that had a variable or lower div.  Liquidity as in the case of FNMAS supports some premium too but doesn't explain the clear difference based on original yield.

[Guest cherzeca]

law prof on implications of aurora loans:  http://dailycaller.com/2016/03/11/ninth-circuit-provides-new-ammunition-to-fannie-and-freddie-shareholders/

 

she misses one big point when she keeps on saying the fnma shareholders can sue bd of dir...and that is fhfa stepped into their shoes, so the suit is really against fhfa for breach of fiduciary duty...and to void a NWS stock issuance that the bd of directors would have had no power to consummate

[muscleman]

law prof on implications of aurora loans:  http://dailycaller.com/2016/03/11/ninth-circuit-provides-new-ammunition-to-fannie-and-freddie-shareholders/

 

she misses one big point when she keeps on saying the fnma shareholders can sue bd of dir...and that is fhfa stepped into their shoes, so the suit is really against fhfa for breach of fiduciary duty...and to void a NWS stock issuance that the bd of directors would have had no power to consummate

 

In the Aurora Loan case, the judge ruled in favor of the government. Is it possible that in the Jacob Hinde's case, the judge also rules in favor of the US government?  ::)

The judge said: "As we have

previously held, just because an entity is considered a federal

instrumentality for one purpose does not mean that the same

entity is a federal instrumentality for another purpose. "

 

So can judge Sleet rule "for the purpose of defeating the hedge funds" that FNMA is a federal instrumentality?

 

Of course the language won't be that obvious, but if he wanted to rule for this purpose, he could come up with some Lamberth like language. Can he?  ::)

[Guest cherzeca]

@MM

 

yes. 9th cir case is not binding in 3rd cir where sleet sits, and he could do the goose/gander switch.  but district ct judges are essentially looking for pathways...except lamberth, who cut through the jungle with a machete.  so sleet "should" find aurora loans "helpful"