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

[investorG]

hello everyone, I hope you're having a nice summer outside of the disappointing FnF share price action.

 

the clips from last week's hearing made it sound like mnuchin knows what he wants to try to do, preferably through the next congress but also with a less comprehensive backup administrative plan in mind. 

 

If possible to get through Congress, he likely supports most or all of Mulvaney's proposal from a few weeks back.  If it's administrative, he likely wont get a government guarantee and perhaps would focus on FnF explicitly paying the Tsy for a backstop (committment fee).  Either way, they need capital and the sooner the better.

 

i'd expect him to become less reserved about his intentions after either the elections or the new year.

 

[DRValue]

I feel like the commitment fee would pay for a guarantee but not make the government increase its liabilities.

Doubt it would be an explicit guarantee but it would be paid for.

[rros]

I feel like the commitment fee would pay for a guarantee but not make the government increase its liabilities.

Doubt it would be an explicit guarantee but it would be paid for.

Commitment fee is for the unused part of the credit line. A paid-for guarantee fee, if narrow, would be for specific mbs guaranteeing interest payments on loans. They are different and they can co-exist.

[DRValue]

Anyone have a link to the latest mnuchin hearing? Or just the gse bits? I have no idea what the hearing was titled.

[allnatural]

https://www.c-span.org/video/?448021-1/treasury-secretary-mnuchin-testifies-international-financial-system

 

Anyone have a link to the latest mnuchin hearing? Or just the gse bits? I have no idea what the hearing was titled.

[DRValue]

https://www.c-span.org/video/?448021-1/treasury-secretary-mnuchin-testifies-international-financial-system

 

Anyone have a link to the latest mnuchin hearing? Or just the gse bits? I have no idea what the hearing was titled.

 

Thanks bud

[Luke 532]

Collins... FHFA is unconstitutionally structured, but NWS upheld.

[Luke 532]

Collins... FHFA is unconstitutionally structured, but NWS upheld.

 

GSE's solvent in 2008 (attached)

[Luke 532]

Collins... FHFA is unconstitutionally structured, but NWS upheld.

 

Full opinion attached.

Collins.pdf

[Guest cherzeca]

in collins, 5th circuit granted relief on the constitutional claim limited to striking for cause removal prospectively.  this even though HERA doesn't have a separability clause.  So NWS not stricken on constitutional claim.  But this opinion on the constitutional claim likely to be appealed by fhfa, and the APA claim denial and the denial of invalidation of NWS as relief for the constitutional claim also likely to be appealed by Ps, and I think scotus takes case. 

 

question is whether scotus reviews APA claim (both dc and 5th circuits had one judge dissenting) denial or only the separation of powers claim.  assuming Kavanaugh is confirmed, he is a solid vote for upholding the unconstitutionally structured argument, but he called for severing the for cause provision in his cfpb case (PHH).  however, the cfpb statute had a severability clause in the statute and HERA does not, and Lucia now stands for the proposition that in a separation of powers case (appointments clause), relief should be granted that encourages Ps to bring challenges.

 

so thin gruel, but gruel nonetheless.  up to now, we have been grueless, just like Oliver Twist.

 

rolg

[investorG]

does this change mnuchin's apparent timeline of a) working with congress first in 2019 and b) if that fails do something administratively?  thank you

[Guest cherzeca]

does this change mnuchin's apparent timeline of a) working with congress first in 2019 and b) if that fails do something administratively?  thank you

 

depends on whether appealed.  I would think fhfa has to appeal, and Ps certainly will.  if the appeal is taken by scotus, my guess is that administration may hold fire.  just a guess

[investorG]

does this change mnuchin's apparent timeline of a) working with congress first in 2019 and b) if that fails do something administratively?  thank you

 

depends on whether appealed.  I would think fhfa has to appeal, and Ps certainly will.  if the appeal is taken by scotus, my guess is that administration may hold fire.  just a guess

 

 

thank you.  unlike many investors, mnuchin can easily sit back and wait 4-6 months to get a better sense of how things stand - he's already given himself the time cushion.  but some of these cases seem to be drifting to 2019-2020 and so at some point (hopefully after midterms) perhaps he needs to just get going on a plan without perfect info from the courts. 

 

 

could this ruling help in any other pending court cases like the perry remand, Sweeney, Delaware, or saxton?  thank you

[Guest cherzeca]

does this change mnuchin's apparent timeline of a) working with congress first in 2019 and b) if that fails do something administratively?  thank you

 

depends on whether appealed.  I would think fhfa has to appeal, and Ps certainly will.  if the appeal is taken by scotus, my guess is that administration may hold fire.  just a guess

 

 

 

 

thank you.  unlike many investors, mnuchin can easily sit back and wait 4-6 months to get a better sense of how things stand - he's already given himself the time cushion.  but some of these cases seem to be drifting to 2019-2020 and so at some point (hopefully after midterms) perhaps he needs to just get going on a plan without perfect info from the courts. 

 

 

could this ruling help in any other pending court cases like the perry remand, Sweeney, Delaware, or saxton?  thank you

 

the collins analysis is directly usable by bhatti in an 8th circuit appeal.  not in fairholme nor Delaware.  saxton has already been argued, but I am sure Ps will be filing the collins opinion with the Saxton court as a supplemental authority, and adding where it didn't go far enough.

[rros]

Could someone (Chris) explain this line in the opinion "We are satisfied that the Shareholders’ injury is fairly traceable to the FHFA’s unconstitutional structure" or "the Shareholders’ injury stems from the continued harm caused by the FHFA’s ongoing conservatorship without executive oversight" and then ruling "We leave intact the remainder of HERA and the FHFA’s past actions— including the Third Amendment. In striking the offending provision from HERA, the FHFA survives as a properly supervised executive agency".

 

What happened to our injury?

[Guest cherzeca]

Could someone (Chris) explain this line in the opinion "We are satisfied that the Shareholders’ injury is fairly traceable to the FHFA’s unconstitutional structure" or "the Shareholders’ injury stems from the continued harm caused by the FHFA’s ongoing conservatorship without executive oversight" and then ruling "We leave intact the remainder of HERA and the FHFA’s past actions— including the Third Amendment. In striking the offending provision from HERA, the FHFA survives as a properly supervised executive agency".

 

What happened to our injury?

 

nice close reading rros

 

first point is that Ps had standing to make constitutional claim, that they were injured sufficient to present a controversy...something judge schlitz in bhatti mangled.  yes Ps have been injured and at least the court got that right. 

 

second, notice that this opinion was a three way split, with no one judge agreeing to all pieces of the APA/constitutional claims analysis.  so, something of a committee horse looking like a camel.

 

third, however, the remedy doesn't redress the injury, and this is where I think the female judge said this was as far as she could go.  I think it is important that HERA does not have a severability clause, so that this is not a case where congress has preauthorized a court to excise some term it finds unconstitutional and then reinstate the "cured" statute. also, the court likely saw judge kavanaugh in PHH merits panel decision declare cfpb unconstitutionally structured but also remove the for cause provision prospectively...but there is a big difference in the cases.  in PHH Kavanaugh found that cfpb also violated the statute, so the constitutional claim was icing on the cake, and the constitutional retrospective remedy not necessary.  here, the APA claim was denied, so the constitutional remedy "should" have been applied...especially after scotus in Lucia said Ps should receive remedies that encourage them to make constitutional separation of powers challenges

[investorG]

Could someone (Chris) explain this line in the opinion "We are satisfied that the Shareholders’ injury is fairly traceable to the FHFA’s unconstitutional structure" or "the Shareholders’ injury stems from the continued harm caused by the FHFA’s ongoing conservatorship without executive oversight" and then ruling "We leave intact the remainder of HERA and the FHFA’s past actions— including the Third Amendment. In striking the offending provision from HERA, the FHFA survives as a properly supervised executive agency".

 

What happened to our injury?

 

I'm grateful for Judge Haynes to write about all of the shareholder injuries etc.  But to say that getting rid of the NWS wouldnt fully remedy the plaintiffs' constiutional injury, and instead they would be satisfied that going forward the FHFA guy can be removed at will is shocking.

 

[investorG]

Could someone (Chris) explain this line in the opinion "We are satisfied that the Shareholders’ injury is fairly traceable to the FHFA’s unconstitutional structure" or "the Shareholders’ injury stems from the continued harm caused by the FHFA’s ongoing conservatorship without executive oversight" and then ruling "We leave intact the remainder of HERA and the FHFA’s past actions— including the Third Amendment. In striking the offending provision from HERA, the FHFA survives as a properly supervised executive agency".

 

What happened to our injury?

 

nice close reading rros

 

first point is that Ps had standing to make constitutional claim, that they were injured sufficient to present a controversy...something judge schlitz in bhatti mangled.  yes Ps have been injured and at least the court got that right. 

 

second, notice that this opinion was a three way split, with no one judge agreeing to all pieces of the APA/constitutional claims analysis.  so, something of a committee horse looking like a camel.

 

third, however, the remedy doesn't redress the injury, and this is where I think the female judge said this was as far as she could go.  I think it is important that HERA does not have a severability clause, so that this is not a case where congress has preauthorized a court to excise some term it finds unconstitutional and then reinstate the "cured" statute. also, the court likely saw judge kavanaugh in PHH merits panel decision declare cfpb unconstitutionally structured but also remove the for cause provision prospectively...but there is a big difference in the cases.  in PHH Kavanaugh found that cfpb also violated the statute, so the constitutional claim was icing on the cake, and the constitutional retrospective remedy not necessary.  here, the APA claim was denied, so the constitutional remedy "should" have been applied...especially after scotus in Lucia said Ps should receive remedies that encourage them to make constitutional separation of powers challenges

 

 

cherzeca, i'm not sure on the timelines of some of these cases and appeals but i guess it's possible some could last well into 2019, and perhaps go to the SC.  How does Mnuchin / Congress potentially make a law in 2019 without knowing the resolution of the cases? 

 

[allnatural]

Simple, any resolution on GSE reform will have to strike down the NWS in its place as to settle/resolve all litigation overhang before new private capital is introduced. I think Mnuchin would like to see a policy driven resolution to housing reform, not be forced into court imposed solution. Timing is difficult, I don't believe this was the cover needed for Mnuchin, but its a positive development nonetheless. Hopefully the Saxton case goes better on the APA claims (and the judges there read both Judge Brown and Willets dissents carefully). I thought oral argument went better than Collins and we should expect a decision in the Fall.

 

 

cherzeca, i'm not sure on the timelines of some of these cases and appeals but i guess it's possible some could last well into 2019, and perhaps go to the SC.  How does Mnuchin / Congress potentially make a law in 2019 without knowing the resolution of the cases?

[rros]

Thank you, Chris.

 

Just conjecture... it is apparent no judge wants to rule in a way that will lead to a windfall for us. Even if one judge does, it becomes background noise to mute the effect. This could become the greatest hurdle.

[rros]

This is the biggest win for shareholders. The president now just have to tweet something like "I have directed Mulvaney to take over FHFA effective today after the court ruling and have directed him to suspend all FHFA programs until further review".

 

We all know that NWS is wrong on any front. Once Mulavney straightens things out, lawsuits will be gone too.

I am sorry, Emily. But I am having a hard time connecting the dots... who do you think wants to keep the nws, Treasury or Watt? And who would like to see it gone among both? And how does this ruling affect that?

[Midas79]

If only we could have gotten Willett and Brown on the same appeals panel!

[SnarkyPuppy]

Lol at the securities prices being flat/down today.  Starting to think I need to consider the risk that the thesis plays out and nobody notices

[Luke 532]

Lol at the securities prices being flat/down today.  Starting to think I need to consider the risk that the thesis plays out and nobody notices

 

The market hasn't been paying attention to this situation for a pretty long time.  That is one reason I encourage people to ignore price action and instead focus on whether or not the thesis is playing out.

[Luke 532]

Tim Howard on the Collins ruling...

I’ve just finished reading the decision (and no, I’m not that slow a reader; it took me a while to get to it….) and was struck by the extreme contrast in how the majority addressed the two issues before it: the APA claims and the constitutionality of FHFA as an independent agency.

 

I found the discussion on the constitutionality question accessible, informative and lucid. I learned a lot from reading it, and after doing so found the majority’s decision to be persuasive (and Judge Stewart’s dissent less so).

 

The majority’s decision on the APA claims was another matter entirely. It said, “The Shareholders’ statutory [APA] claims mirror the claims made against the FHFA that the D.C., Sixth, and Seventh Circuits have all rejected. We reject the Shareholders’ statutory claims on the same well-reasoned basis common to those courts’ opinions.” That might have be a defensible position, had it not been for the stinging dissent authored by Judge Willett amended to the majority decision, to which the majority obviously had access.

 

Willett begins by stating, “This case concerns whether the net worth sweep falls within the scope of the FHFA’s statutory authority as conservator. To answer the question before us, we need only look at HERA’s plain text. I won’t attempt to summarize or excerpt from Willet’s argument–readers should read it for themselves (it begins on page 58)–but I find it very hard to understand how the other two judges (Chief Judge Haynes and Judge Stewart) could have read Willet’s dissent and said, “Sorry, we don’t agree with any of that; we read HERA as being free of the judicial history of the FIRREA statute upon which it is based, and that HERA allows FHFA to blur the distinction between conservator and receiver in whatever manner it chooses, with no judicial review permitted.”

 

On the silver lining side, in addition to the likelihood of SCOTUS accepting cert on the constitutional aspects of the decision (assuming FHFA appeals it), the Collins appellate judges finding that, “Divesting the Shareholders’ property rights caused a direct injury [to shareholders]” is a very good one for the regulatory takings claims now being pursued (with “all deliberate speed”) in Judge Sweeney’s court.