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

[investorG]

ok.  i guess they could simply provide the same remedy as the PHH case, have the president be able to fire watt (or go to a multi commissioner independent structure)

 

but lets assume you're right --- could the perry appeals court invalidate hera or rather would a fresh lawsuit need to be started?  the latter?

[Guest cherzeca]

ok.  i guess they could simply provide the same remedy as the PHH case, have the president be able to fire watt (or go to a multi commissioner independent structure)

 

but lets assume you're right --- could the perry appeals court invalidate hera or rather would a fresh lawsuit need to be started?  the latter?

 

that's the whole point about severability!!! the reason that judge kavanaugh thought he could sever the unconst provision from dodd frank is that congress wrote in dodd frank that it was its intent that if any one provision was found to be unconst, then the rest of the act should be enforced.  there is no such provision (that i have found) in HERA.  so you are completely missing the whole point, G.

 

if remanded, Ps could always amend the complaint to add this argument

[investorG]

understood now -- it's not as easy as a fix under HERA.  thank you.

 

if HERA is unfixable, what happens as it relates the forward looking capital stucture? no senior preferred, no 80pct warrants?

 

[Guest cherzeca]

understood now -- it's not as easy as a fix under HERA.  thank you.

 

if HERA is unfixable, what happens as it relates the forward looking capital stucture? no senior preferred, no 80pct warrants?

 

good questions. yes, in theory, the 2008 financing should be subject to inquiry under this argument.

 

of course, a court (such as lamberth on remand if the complaint is amended with this argument) could presume congress's intent to sever even though there is no severability clause that evidences this intent.  this is called judicial legislating from the bench.

 

should not be an easy intent to presume or infer.  there is a provision in HERA that fhfa shall not be subject to any other agency.  this evidences the sort of independence that "should" make it hard for a judge to presume that congress would have wanted fhfa to be subject to POTUS without a finding of cause, where they specified otherwise.

[deadspace]

But wasn't DeMarco fired by the president to install Watt a few years back?  How could DeMarco have been removed if there was similarly no mechanism to do so?

 

 

 

understood now -- it's not as easy as a fix under HERA.  thank you.

 

if HERA is unfixable, what happens as it relates the forward looking capital stucture? no senior preferred, no 80pct warrants?

 

 

[Guest cherzeca]

But wasn't DeMarco fired by the president to install Watt a few years back?  How could DeMarco have been removed if there was similarly no mechanism to do so?

 

 

 

understood now -- it's not as easy as a fix under HERA.  thank you.

 

if HERA is unfixable, what happens as it relates the forward looking capital stucture? no senior preferred, no 80pct warrants?

 

http://www.fhfa.gov/Media/PublicAffairs/PublicAffairsDocuments/DeMarcoAnnouncement32414.pdf

https://www.propublica.org/article/are-white-house-housing-plans-really-stymied-by-the-regulator-for-freddie-a

("The White House can't simply fire DeMarco.")

 

EDIT: it would appear that fhfa's independence under HERA played out just as congress wanted it to play out re demarco.  wasn't easy to replace him, because the issue that raised all of the hackles, principal reductions, was a controversial issue that split congress.  so the debate ensued over whether demarco was right or just a stick in the mud...and HERA "worked as intended"

[doughishere]

http://www.wsj.com/articles/the-unconstitutional-mr-cordray-1476227389

 

http://www.theatlantic.com/business/archive/2016/10/court-rules-consumer-financial-protection-bureaus-structure-is-unconstitutional/503660/

[merkhet]

It would seem that if we get a remand, the plaintiffs should amend the complaint to include a claim that the FHFA/HERA is unconstitutional based on the CFPB ruling. At the very least, this threatens the government's warrants and might help bring them to the table for a negotiation.

[Sunrider]

Merkhet - what do you think the negotiation would like? I just don't see a 'negotiation' as this would involve some give and take. The assertion of the plaintiffs is that shareholders got screwed and that the NWS needs to be undone, what short of this would you see the P being happy with and the government being able to offer (politically)?

 

Thank you.

 

It would seem that if we get a remand, the plaintiffs should amend the complaint to include a claim that the FHFA/HERA is unconstitutional based on the CFPB ruling. At the very least, this threatens the government's warrants and might help bring them to the table for a negotiation.

[merkhet]

Merkhet - what do you think the negotiation would like? I just don't see a 'negotiation' as this would involve some give and take. The assertion of the plaintiffs is that shareholders got screwed and that the NWS needs to be undone, what short of this would you see the P being happy with and the government being able to offer (politically)?

 

Thank you.

 

It would seem that if we get a remand, the plaintiffs should amend the complaint to include a claim that the FHFA/HERA is unconstitutional based on the CFPB ruling. At the very least, this threatens the government's warrants and might help bring them to the table for a negotiation.

 

If the warrants and the 2008 bailout end up being in question because of the CFPB ruling, then the give and take would be that the government keeps its warrants, but it unwinds the NWS and/or pays off the preferred shareholders and/or common shareholders.

[Guest cherzeca]

Merkhet - what do you think the negotiation would like? I just don't see a 'negotiation' as this would involve some give and take. The assertion of the plaintiffs is that shareholders got screwed and that the NWS needs to be undone, what short of this would you see the P being happy with and the government being able to offer (politically)?

 

Thank you.

 

It would seem that if we get a remand, the plaintiffs should amend the complaint to include a claim that the FHFA/HERA is unconstitutional based on the CFPB ruling. At the very least, this threatens the government's warrants and might help bring them to the table for a negotiation.

 

If the warrants and the 2008 bailout end up being in question because of the CFPB ruling, then the give and take would be that the government keeps its warrants, but it unwinds the NWS and/or pays off the preferred shareholders and/or common shareholders.

 

while we are speculating, i think sunrider's question raises the notion that in order for the govt to negotiate in a way that Ps would take seriously, the govt would have to accept the prospect of the GSEs continuing with the opportunity to rebuild capital. 

 

i suspect that this is still a conceptual hurdle for govt, but once it crosses that rubicon, then the next question will be how best to rebuild capital.  i think the govt would be wise for all concerned to give up on some of its warrant position, in order for GSEs to raise more equity capital.  the senior preferred deemed to be outstanding after recalculating dividends at 10% on a declining principal balance can be easily refinanced. 

 

then the Cship can be terminated, though i would think some guidelines going forward (see the real tim howard's work on a capped return) would also be part of the discussion.

[merkhet]

Another alternative is for the government to raise their strike price for the warrants as a method to fund capital. Then the government can sell off its stake similar to AIG. This might be more likely than giving up its warrants as it allows the government to capture more of the upside.

[Guest cherzeca]

Another alternative is for the government to raise their strike price for the warrants as a method to fund capital. Then the government can sell off its stake similar to AIG. This might be more likely than giving up its warrants as it allows the government to capture more of the upside.

 

+1

[muscleman]

Merkhet - what do you think the negotiation would like? I just don't see a 'negotiation' as this would involve some give and take. The assertion of the plaintiffs is that shareholders got screwed and that the NWS needs to be undone, what short of this would you see the P being happy with and the government being able to offer (politically)?

 

Thank you.

 

It would seem that if we get a remand, the plaintiffs should amend the complaint to include a claim that the FHFA/HERA is unconstitutional based on the CFPB ruling. At the very least, this threatens the government's warrants and might help bring them to the table for a negotiation.

 

Is this a standard procedure of that court?

[Guest cherzeca]

Merkhet - what do you think the negotiation would like? I just don't see a 'negotiation' as this would involve some give and take. The assertion of the plaintiffs is that shareholders got screwed and that the NWS needs to be undone, what short of this would you see the P being happy with and the government being able to offer (politically)?

 

Thank you.

 

It would seem that if we get a remand, the plaintiffs should amend the complaint to include a claim that the FHFA/HERA is unconstitutional based on the CFPB ruling. At the very least, this threatens the government's warrants and might help bring them to the table for a negotiation.

 

Is this a standard procedure of that court?

 

usually courts allow Ps to amend a complaint if there is no prejudice to D (like amending after D has answered and started discovery and motion practice).  here there should be no prejudice since the complaint was dismissed at the earliest possible stage by lamberth.

[Sunrider]

In addition to Christian's point in response to this - I think I'm also just wondering whether this is really within the government's gift and that of the plaintiffs. Of course the current parties can agree to what you say but that does not prevent any other shareholder to promptly go back and re-sue if they feel that this is not a fair deal (I'm not positing that this is sensible or likely - I'm merely trying to make the point that this notion of a 'settlement' just doesn't seem quite right in the typical sense of the word.

 

Merkhet - what do you think the negotiation would like? I just don't see a 'negotiation' as this would involve some give and take. The assertion of the plaintiffs is that shareholders got screwed and that the NWS needs to be undone, what short of this would you see the P being happy with and the government being able to offer (politically)?

 

Thank you.

 

It would seem that if we get a remand, the plaintiffs should amend the complaint to include a claim that the FHFA/HERA is unconstitutional based on the CFPB ruling. At the very least, this threatens the government's warrants and might help bring them to the table for a negotiation.

 

If the warrants and the 2008 bailout end up being in question because of the CFPB ruling, then the give and take would be that the government keeps its warrants, but it unwinds the NWS and/or pays off the preferred shareholders and/or common shareholders.

[Eye4Valu]

A settlement is a real possibility with the next administration. Remember that the GSEs run out of capital in 2018. 2017 is likely to be a year of potential reform and/or settlement with regard to the GSEs. If there is no settlement, the cases will obviously wind on. What would make the government want to settle? I think: (i) adverse court rulings; (ii) unsealing of damaging documents to the public, not just plaintiff's attorneys; (iii) downturn in housing or the general economy; (iv) recognition that there is no substitute in terms of capital adequacy; (v) recognition that 7-8 years into a tepid recovery is no time to experiment with housing finance; and (vi) why reinvent the wheel. I'm sure there are some others I'm not thinking of. I certainly wouldn't rule out a settlement, but wouldn't count on it either.

[Sunrider]

I'm not sure what you mean by settlement = the word means 'an office agreement intended to resolve a dispute or a conflict' that means that you need two parties that are able to bind themselves to that agreement to resolve the conflict permanently. Why would the government 'settle' with the P? What does that look like/what does the settlement say? Best case: We the government unwind the NWS, you the P drop your suit (which in any event a not relevant anymore if government voluntarily unwinds the NWS).

 

That's what you think it would be, correct?

 

1. So if you're the government, why would you do that? You have to unwind the NWS as a pre-condition, all the ways people list that end up with the NWS voluntarily unwound lead to that road. There is no need to tie this into a settlement - no need to engage with the P at all. (They are not questioning the warrants, etc. and I also don't think that the hedgies would engage in conversations/settlement that involves them putting in more cash to the GSE). There is no need to the government to 'settle'.

 

2. Ordinarily you settle because that resolves a dispute permanently - what keeps any other shareholder from bringing a new suit because they feel the 'settlement' wasn't fair?

 

... just food for thought. I don't think this will end up in a settlement.

 

A settlement is a real possibility with the next administration. Remember that the GSEs run out of capital in 2018. 2017 is likely to be a year of potential reform and/or settlement with regard to the GSEs. If there is no settlement, the cases will obviously wind on. What would make the government want to settle? I think: (i) adverse court rulings; (ii) unsealing of damaging documents to the public, not just plaintiff's attorneys; (iii) downturn in housing or the general economy; (iv) recognition that there is no substitute in terms of capital adequacy; (v) recognition that 7-8 years into a tepid recovery is no time to experiment with housing finance; and (vi) why reinvent the wheel. I'm sure there are some others I'm not thinking of. I certainly wouldn't rule out a settlement, but wouldn't count on it either.

[merkhet]

I think it would be easier to settle with the preferred shareholders than w/ the common shareholders -- though there are ways to deal with this. (Think class action lawsuits -- they aren't interminable for a reason.)

 

Easier to settle w/ preferred shareholders though because you'd just give them their par to go away.

[Sunrider]

True - fair point.

Question then is incentive - when do you care for us prefs to go away?

 

I think it would be easier to settle with the preferred shareholders than w/ the common shareholders -- though there are ways to deal with this. (Think class action lawsuits -- they aren't interminable for a reason.)

 

Easier to settle w/ preferred shareholders though because you'd just give them their par to go away.

[Luke 532]

True - fair point.

Question then is incentive - when do you care for us prefs to go away?

 

 

If you mean "why" instead of "when" the answer would be the Perry and Fairholme cases, and everything that goes along with those cases, would no longer exist.  That is a major incentive to settle.

 

If you mean "when" the answer is probably before more documents become public.

[Luke 532]

PWC/Edwards settled...

 

Judge Moreno entered the Order attached to this post this afternoon denying as moot all pending motions in Edwards v. PwC.  In accordance with yesterday's Notice, the case has indeed been settled and the settlement papers should be filed next week.

 

EdwardsPWC_10-13-2016.pdf

[Guest cherzeca]

settlement is feasible since 1) we have class actions in perry...they havent been certified yet, but they can be icw any settlement, so that binds all Ps who dont opt out, and 2) if berko, perry and ackman also all settle, that's most of the P economic interest to worry about.  i dont expect these guys to settle for a deal everyone else thinks is not also acceptable.  the only wild card is that "perhaps" the warrants are in play with the PHH analysis...and i could see a warrant exercise price bump as merk suggested as part of settlement to ward that off.

 

all this assumes remand.  if affirmance or reversal, more litigation...

[Sunrider]

Not sure Luke. The government does not worry about legal costs and time it takes for things to happen or not. I think the only thing that it may care about is whether some people look good or bad - but that brings me back to my original point. A settlement cannot assure that what ever reputation-damaging things stay unexplored by the settlement remain so, because the settlement can't bar other shareholders to promptly take up a new suit.

 

True - fair point.

Question then is incentive - when do you care for us prefs to go away?

 

 

If you mean "why" instead of "when" the answer would be the Perry and Fairholme cases, and everything that goes along with those cases, would no longer exist.  That is a major incentive to settle.

 

If you mean "when" the answer is probably before more documents become public.

[merkhet]

If the government takes away your cause of action (i.e. reversing the NWS) then there's nothing to sue on -- you'd never get to discovery if you can't survive a motion to dismiss. I think you're assuming a settlement would necessarily keep the NWS in place.

 

Moreover, you could probably still keep the NWS in place while coming to a settlement with existing parties that precludes others from "promptly tak[ing] up a new suit." For instance, if the government were to pay off preferred shareholders @ par while carving off 1/5 of the company to give to non-government common, then it'd be difficult to find a future cause of action, etc.

 

There's a lot of room to be creative here.