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

[merkhet]

That's me.

[onyx1]

That's me.

 

Well done Merket!

 

In reading Carney's responses to your tweets, I get the feeling he is in contact with Gov't attorneys.  His arguments seem circular and inconsistent.  Journalists frequently get intoxicated from direct access to power and he likely understands that his continued access is dependent on the reporting of information that reflects favorably on his sources.

 

Either way, your arguments are both consistent and well reasoned.  You got your moneys worth from law school! 

[merkhet]

http://www.ft.com/intl/cms/s/0/ad13e938-4290-11e4-847d-00144feabdc0.html#axzz3E5qCSECw

[merkhet]

http://online.wsj.com/articles/u-s-government-puts-points-on-board-in-fannie-fight-heard-on-the-street-1411496516

 

Interesting that this came out today given that he and I have already had a discussion no why the Jackson case is not applicable. *shrug*

[merkhet]

Although, to be fair, he only says that it may turn on a similar issue. Not that this is necessarily precedent.

[nkp007]

He gets an intense reaction/publicity from his F+F articles. It's all about the eyeballs, not necessarily dissecting the nuances.

[Guest wellmont]

he's nothing but a shill for US Gov position.

[Mephistopheles]

John Carney strikes again. This time he linked a case of a foreclosed borrower suing FNMA on the basis that they deserved Fifth Amendment Due Process prior to eviction because FNMA is a state actor. The court threw out the case. I am not a lawyer but I don't see how this relates to the shareholder suits, maybe Merkhet you can chime in? The shares are down 10% today, and it might be because of this.

 

https://twitter.com/carney/status/516950179728343040

[merkhet]

I really wish people would stop filing frivolous lawsuits that have the danger of putting up stupid precedent. The opinion is attached.

 

Moreover, we would reach this same conclusion even without reliance on Mik. Under Supreme Court precedent, a necessary condition precedent for a conclusion that a once-private entity is a state actor is that the government’s control over the entity is permanent. Lebron, 513 U.S. at 399. Under HERA, Congress, by statute, empowered the FHFA to become conservator for Fannie Mae for the limited purpose of “reorganizing, rehabilitating, or winding up [its] affairs.” 12 U.S.C. § 4617(a)(2). This is an inherently temporary purpose. Accordingly, even if we had not previously decided Mik, we would reach the same conclusion: that following FHFA’s conservatorship, Fannie Mae is not a state actor.

 

I think there are a number of replies to this, including:

 

(1) Fannie Mae may not be a government actor, but FHFA is a government actor. Here, FHFA did not evict the homeowners, it was Fannie & Freddie. (The distinction is legally important though practically not.) In the Perry, Fairholme and Ackman cases, they're suing for things FHFA did not things Fannie Mae did.

 

(2) This is judicial dicta -- meaning, it's not binding precedent even in its own court -- much less the District Court of the District of Columbia or the Court of Federal Claims.

 

(3) Additionally, I don't think that the Court realizes that the Conservatorship is actually, so far, not a temporary thing -- the companies have been profitable for two years and there is no indication that the conservatorship will stop. The government has indicated that they view this as a strong part of their case given their inclusion of it against the Fairholme case (indicating that the claims are not ripe for review) but it stretches the boundaries of common sense.

ilanit_rubin_v._fannie_mae.pdf

[Mephistopheles]

Well, looks like Lamberth ruled in favor of the Government...

 

http://timhoward717.com/2014/09/30/memorandum-opinion-and-orders-perry-injunction/

 

What sort of precedent does this set for the other Fairholme case?

[valuecfa]

Well, looks like Lamberth ruled in favor of the Government...

 

http://timhoward717.com/2014/09/30/memorandum-opinion-and-orders-perry-injunction/

 

What sort of precedent does this set for the other Fairholme case?

 

Yup. The district court case (the injunction) was dismissed. We still have the federal claims court case that is well into discovery. A blow nonetheless. Would have been nice to wrap this one up more quickly if injunction was in our favor.

[Mephistopheles]

The Government is probably going to use Lamberth's brief to throw a wrench in the Federal Claims Court case I feel like. He basically said that HERA allows the FHFA and Treasury to do whatever the hell they want to do.

 

"It was Congress, after all, that parted the legal

seas so that FHFA and Treasury could effectively do whatever they thought was needed to

stabilize and, if necessary, liquidate, the GSEs. Recognizing its role in the constitutional system,

this Court does not seek to evaluate the merits of whether the Third Amendment is sound

financial--or even moral-policy. The Court does, however, find that HERA's unambiguous

statutory provisions, coupled with the unequivocal language of the plaintiffs' original GSE stock

certificates, compels the dismissal of all of the plaintiffs' claims. "

[valuecfa]

The Government is probably going to use Lamberth's brief to throw a wrench in the Federal Claims Court case I feel like. He basically said that HERA allows the FHFA and Treasury to do whatever the hell they want to do.

 

"It was Congress, after all, that parted the legal

seas so that FHFA and Treasury could effectively do whatever they thought was needed to

stabilize and, if necessary, liquidate, the GSEs. Recognizing its role in the constitutional system,

this Court does not seek to evaluate the merits of whether the Third Amendment is sound

financial--or even moral-policy. The Court does, however, find that HERA's unambiguous

statutory provisions, coupled with the unequivocal language of the plaintiffs' original GSE stock

certificates, compels the dismissal of all of the plaintiffs' claims. "

 

There are different arguments in the Federal claims case, and of course there will be an appeal of the district court case. But, yes i'm sure the gov will reference certain particulars in the district court decision to Judge Sweeney.

[nkp007]

Even though Sweeney's case is currently in some sort of discovery...can she file a similar ruling or must that wait until discovery is over?

[valuecfa]

Even though Sweeney's case is currently in some sort of discovery...can she file a similar ruling or must that wait until discovery is over?

 

Last time the government tried to argue something similar Judge Sweeney said -

 

With respect to defendant’s claim that the court lacks the authority to affect the exercise of the FHFA’s powers or functions, the court agrees with the case law of the United States Court of Appeals for the Ninth Circuit, which states that the “FHFA cannot evade judicial review

. . . simply by invoking its authority as conservator.” County of Sonoma v. Fed. Hous. Fin. Agency, 710 F.3d 987, 994 (9th Cir. 2013); Leon County v. Fed. Hous. Fin. Agency, 700 F.3d 1273, 1278 (11th Cir. 2012) (“The FHFA cannot evade judicial scrutiny by merely labeling its actions with a conservator stamp.”). Thus, rather than turning a blind eye to a case and immediately dismissing it from its docket merely because the case concerns the FHFA, the proper approach is for a court to examine the factual underpinnings and legal contentions presented by the complaint, in order to determine whether the exercise of its jurisdiction is proper. County of Sonoma, 710 F.3d at 994 (“Analysis of any challenged action is necessary to determine whether the action falls within the broad, but not infinite, conservator authority.”). Indeed, “Congress did not intend that the nature of the FHFA’s actions would be determined based upon the FHFA’s self-declarations . . . .” Leon County, 700 F.3d at 1278. For purposes of the instant motion, there is no request by plaintiffs that would potentially restrain or affect the exercise of powers or functions of the FHFA as conservator. Consequently, blanket assertions concerning the court’s ability to conduct these proceedings, especially as they pertain to a discovery matter related to the question of jurisdiction, hold no merit.

 

 

In other words, I believe Judge Sweeney will take this all the way to trial, and see what discovery brings up.

 

[TwoCitiesCapital]

1) can someone break down in layman's terms Lamberth's reasoning? I've read through both Epstein and Howard's analysis and am still fuzzy on this. Might just need to read it a few times.

2) how does the Fairholme trial differ from the Perry injunction? It was my understanding that they made similar arguments but one was requesting an immediate stop to the third amendment while the other was suing for government taking.

3) How should we be adjusting our potential for success now that one of the big cases has been thrown out

[Mephistopheles]

Why are the preferreds getting killed so much more than the common? I'm thinking of taking the tax loss on the common and switching over to preferred.

[TwoCitiesCapital]

Why are the preferreds getting killed so much more than the common? I'm thinking of taking the tax loss on the common and switching over to preferred.

 

Probably because they're less liquid. I bought more of.both today - still a small position while I tru to grasp an understanding of all this.

[merkhet]

Zach,

 

(1) You should read the opinion itself. It's better to go direct to the source.

(2) Your understanding of the differences is correct.

(3) The first catalyst has gone against us, but I don't know that it affects the probabilities of in the Sweeney case -- she's not bound by precedent set in the District Court of DC

 

The strange thing is that the Lamberth decision rests largely on Section 4617(f) barring any relief to the plaintiffs, but valuecfa is correct to point out that Sweeney does not seem to hold the same view.

 

Surprisingly, Lamberth dismissed the APA Claims because there was not a preponderance of the evidence to show that the FHFA acted improperly -- except FHFA specifically did not compile a record to allow for the exposition of evidence in the first place.

 

This is, of course, why Sweeney asked for discovery, because she said she can't make a decision until the evidence is completely out there. Looking forward and reasoning back, the fact that the government refused to provide an administrative record in the first place and then tried to put up roadblocks in the Sweeney case in the second place seem to indicate that something is rotten in the state of Denmark. Otherwise, they'd have just produced the record and been done with it.

 

I wonder if anything precludes Perry from filing its APA case in the Court of Federal Claims to the extent that the Sweeney case uncovers good evidence.

[merkhet]

I would expect the government to respond to the Ackman case by October 28th, 2014, and probably sooner, with a motion to dismiss, since the Ackman case is also in the District Court of the District of Columbia and would be bound by the precedent set by Judge Lamberth.

[bmichaud]

What are thoughts on Carney's comments that Sweeney holds Lamberth in high intellectual regard? Interesting.

 

Also - what are the chances the govt simply cancels the existing common and pref equity capital structure, including the Senior Pref, then IPOs F&F to the market with all proceeds going directly toward recapitalizing F&F's balance sheet?

[Picasso]

What are thoughts on Carney's comments that Sweeney holds Lamberth in high intellectual regard? Interesting.

 

Also - what are the chances the govt simply cancels the existing common and pref equity capital structure, including the Senior Pref, then IPOs F&F to the market with all proceeds going directly toward recapitalizing F&F's balance sheet?

 

Shhh, don't give Ackman a heart attack.

 

That has always made the most sense to me from the governments point of view.  Reminds me of when my mom used to say "I gave you life, I can take it away too."  She was dead serious at times.

 

I'm no lawyer so I don't understand all the lingo here.  I suppose I should look at the other proposals to judge how they compare against a new F&F.  While some people will say they will never invest in F&F if that happens, I suspect people will have rather short memories and capitalize it anyway.  I mean new GM stock seems to have done just fine.

 

This is outside my circle of competence.  Ignore what I said  ;D

[Grenville]

 

Also - what are the chances the govt simply cancels the existing common and pref equity capital structure, including the Senior Pref, then IPOs F&F to the market with all proceeds going directly toward recapitalizing F&F's balance sheet?

 

my two cents, if they wipe out existing shareholders then why would anyone reinvest in the entities. The same thing could happen again since F&F don't exist without the govt backstop.

[merkhet]

I'd be interested to know where Carney sourced the quote from Sweeney, but I doubt she'll halt discovery in the middle of the process just because of the Judge Lamberth ruling.

 

If there's action at all, I wouldn't expect Congress to move on Fannie & Freddie until after the mid-term elections. I agree with Grenville, though, that the notion of canceling the existing common and preferred equity capital structure would seriously chill investment in the new entities and highly disrupt the current functioning of the mortgage market.

[bmichaud]

So in the case of AIG, the govt provided a massive loan and took an 80% fully diluted stake in the common. Existing common participated alongside govt, but just on a fully diluted basis. I don't remember what the preferred structure was, but to my knowledge, no securities were outright cancelled. No?

 

With GM, I don't remember specifically. Didn't the govt loan get converted into common? Or was most of the common stake obtained via warrant?

 

What is the upside to canceling the warrant and simply returning to the private sector?

 

Is it not in the govt's best interest to maximize the value of the warrant? Ya they can sit here and collect the profits, but given the 80% ownership, govt could capitalize 80% of those profits at 15 or 20 times, bringing forward years worth of net worth sweep proceeds. No?