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

[Guest cherzeca]

Mildly interesting from court today. Don't know if this reporting is accurate.

http://www.twitlonger.com/show/n_1sqlab7

 

video/audio not yet posted

[rros]

http://www2.ca3.uscourts.gov/oralargument/audio/17-3794DavidJacobsv.FederalHousingFinanceAgency.mp3

 

 

Mildly interesting from court today. Don't know if this reporting is accurate.

http://www.twitlonger.com/show/n_1sqlab7

 

video/audio not yet posted

Thank you for the link.

 

Interesting to hear bewildered judges in search of an explanation that seems to forever escape them just when they are about to reach the right conclusion. I'd say these 3 judges will raise their eyebrows the Lamberth way and write a 3-0. Then, go home with a clear conscience that at least they felt deeply shocked by FHFA/Treasury's actions.

[allnatural]

Great to hear the 1 judge question in what world this was fair for shareholders post 2012. Gee thanks. Agree with your take seems like a 3-0.

 

http://www2.ca3.uscourts.gov/oralargument/audio/17-3794DavidJacobsv.FederalHousingFinanceAgency.mp3

 

 

Mildly interesting from court today. Don't know if this reporting is accurate.

http://www.twitlonger.com/show/n_1sqlab7

 

video/audio not yet posted

Thank you for the link.

 

Interesting to hear bewildered judges in search of an explanation that seems to forever escape them just when they are about to arrive to the right conclusion. I'd say these 3 judges will raise their eyebrows the Lamberth way and write a 3-0. Then, go home with a clear conscience that at least they felt deeply shocked by FHFA/Treasury's actions.

[rros]

I found it interesting how in Bhatti's appeal Cooper explains the court that vacating the 3rd amendment would mean changing nothing from the operational side, and would only represent a change in accounting with no transfer of funds. I also found reassuring how he explained that by September 30th (or no later than 9/28) or the end of 3Q, both companies may have fully redeemed the Srs. had the excess on the dividend payments been allowed (as in no nws imposed ever). That wording is probably easier on a layperson to understand than saying Treasury reaches their IRR by 3Q 2018.

 

If this appeal has any chance and if judges' fears subside that they won't be touching Treasury's coffers, they may feel more at ease in making the 3rd go away. But then, they will also have to accept they are implicitly deciding taxpayers have been fully repaid. And that would be a Treasury decision.

 

Thank you for the link, Chris (in TH's blog).

 

Just a reminder since we tend to lose focus. The only thing we need to see some value in the preferreds is the removal of the Srs. A change in the capital structure. And in any reform or change of the status quo the Srs. are the greatest impediment, not the warrants. The sweep will not exist if not for the Srs.

[Guest cherzeca]

I found it interesting how in Bhatti's appeal Cooper explains the court that vacating the 3rd amendment would mean changing nothing from the operational side, and would only represent a change in accounting with no transfer of funds. I also found reassuring how he explained that by September 30th (or no later than 9/28) or the end of 3Q, both companies may have fully redeemed the Srs. had the excess on the dividend payments been allowed (as in no nws imposed ever). That wording is probably easier on a layperson to understand than saying Treasury reaches their IRR by 3Q 2018.

 

If this appeal has any chance and if judges' fears subside that they won't be touching Treasury's coffers, they may feel more at ease in making the 3rd go away. But then, they will also have to accept they are implicitly deciding taxpayers have been fully repaid. And that would be a Treasury decision.

 

Thank you for the link, Chris (in TH's blog).

 

Just a reminder since we tend to lose focus. The only thing we need to see some value in the preferreds is the removal of the Srs. A change in the capital structure. And in any reform or change of the status quo the Srs. are the greatest impediment, not the warrants. The sweep will not exist if not for the Srs.

 

as well, brief pointed out that even after accounting adjustment, treasury owned 79.9% of company.  I would have preferred brief to have put an estimated value on that position, but so it goes

[rros]

I found it interesting how in Bhatti's appeal Cooper explains the court that vacating the 3rd amendment would mean changing nothing from the operational side, and would only represent a change in accounting with no transfer of funds. I also found reassuring how he explained that by September 30th (or no later than 9/28) or the end of 3Q, both companies may have fully redeemed the Srs. had the excess on the dividend payments been allowed (as in no nws imposed ever). That wording is probably easier on a layperson to understand than saying Treasury reaches their IRR by 3Q 2018.

 

If this appeal has any chance and if judges' fears subside that they won't be touching Treasury's coffers, they may feel more at ease in making the 3rd go away. But then, they will also have to accept they are implicitly deciding taxpayers have been fully repaid. And that would be a Treasury decision.

 

Thank you for the link, Chris (in TH's blog).

 

Just a reminder since we tend to lose focus. The only thing we need to see some value in the preferreds is the removal of the Srs. A change in the capital structure. And in any reform or change of the status quo the Srs. are the greatest impediment, not the warrants. The sweep will not exist if not for the Srs.

 

as well, brief pointed out that even after accounting adjustment, treasury owned 79.9% of company.  I would have preferred brief to have put an estimated value on that position, but so it goes

That is a great point, Chris. If the purpose here is to remove the natural fear of the judges to have to deal with a 122 billion hot potato and by none other than the Treasury department convincing the court that the Srs removal will only help increase taxpayers' stake by at least 100 billion would have been also favorable.

 

At some point, it makes you wonder if all these defeats have been really based on a correct interpretation of the law or have been the result of judges' inability and refusal to deal with the money issue while tweaking interpretations for a convenient exit.

[rros]

“CHLA does so in its capacity as the only national association exclusively representing independent mortgage bankers (IMBs), which currently originate over half of all new GSE loans.”

 

ICBA and CHLA appears to be in majority when combined , not sure why MBA has a louder voice.

 

This is a very powerful letter only if it carries weight.

 

http://communitylender.org/chla-letter-to-fhfa-re-capital-requirements-for-fannie-mae-and-freddie-mac-9518/

Thank you, emily. I re-read this a few times. If chla's members are really issuing more than 50% of all loans bought by Fannie and Freddie that are being securitized, that is a beast. I thought they were a nobody but the opposite appears to be true. Three important dates are approaching: 9/28 would be paid-back date for taxpayers had there been no nws. A month and a half later, Watt closes the public commenting scheme and within the same time frame or just a few more weeks the name of a new FHFA Director should make the rounds. What will come out of this nobody can tell. Hopefully, neither Hernsanling, DeMarco are considered for that post. And I am not sure about Craig Phillips and Calabria. At least, the latter authored and amicus brief with Krimminger that aligned better with Willet's dissent.

[Luke 532]

We may be underestimating the role of Brian Brooks.

 

At some point, his name made the circles as one possible Under Secretary of Treasury. According to Joe Light, he has actually become an unofficial emissary spearheading a specific housing goal straight from the inside. And we already know he is a Mnuchin's man.

 

Even if JL/Bloomberg aim is to undermine administrative action by exposing illegal lobbying, how likely are they to succeed when the most important congress actors are hitting the exit door and the appetite for a new, more stringent Jumpstart is probably missing? If Brian Brooks has really been knocking doors for months now maybe there is some sense of urgency somewhere in the administration. As in "no need to wait for another Congress".

 

"One GSE watcher..." Hah!  Might as well be me, but it wasn't.  Still funny how the narrative at IMF (i.e. David Stevens) has dramatically changed in recent months.  Brooks as CEO?  Yes, please.  Even if it doesn't happen the fact that IMF (Stevens) is testing the waters with this kind of stuff seems like a positive.

 

https://www.insidemortgagefinance.com/imfnews/1_1422/daily/-1000047236-1.html

One GSE watcher told us that Brian Brooks, who currently serves as Fannie Mae’s EVP, general counsel and corporate secretary, would make a good successor to departing company CEO Timothy Mayopoulos. However, this observer added: “He’s not going to take a pay cut.” Congress capped GSE CEO pay at roughly $600,000 per year. Before joining Fannie in November 2014, Brooks was vice chairman of OneWest Bank, a bank Treasury Secretary Steve Mnuchin once owned a stake in.

 

Brian Brooks for White House Counsel?

https://www.axios.com/donald-trump-white-house-counsel-hire-mcgahn-79e7fe74-7891-4c6e-bb86-b4cc619b1986.html

 

-But Axios has learned that Trump is now seriously considering Brooks, a low-profile member of Washington's high-powered legal community.

 

-Brooks has been recommended by Treasury Secretary Steven Mnuchin, a friend from working together at OneWest, a California bank. Brooks was considered for deputy at Treasury, but withdrew from consideration for reasons that are still unclear.

 

-No decision is likely for a few weeks, one of those sources said.

[investorG]

fairly pathetic securities prices at the moment.  hopefully someone in power realizes this is America, relatively soon, and takes an appropriately fair course of action that benefits all parties.

[allnatural]

https://www.cnbc.com/video/2018/09/11/former-fannie-mae-ceo-financial-crisis-mortgage-housing-crash-freddie-mac-mortgage-backed-securities-subprime.html

 

"They need to be set back into the hands of their shareholders with the appropriate capital requirements and allowed to function. They're still the back bone of our housing system. They're still operating and very profitably. They never had a cash flow deficit in any year. So i think at some point well get past the politics and get to the practical and say these institutions are here to stay in one form or another. Let's recapitalize them at the appropriate risk based level and have them continue to serve the service the public service role that they had, perhaps without the large on balance sheet mortgages. But the guarantee business is the heart of the service they provide to the American homeowner.

 

Well said.

 

[locutusoftexas]

I have lost the train of thought on this board regarding the cases before Sweeney. Do the claims have a realistic chance of succeeding or will the court go the way of all previous cases and support the de facto nationalization of FnF? In the world that I thought existed, this question would not be necessary. I don't see how the private shares could be ignored or invalidated. Clearly the companies do not have funds to buy them back and Treasury does not want to add the debt to the federal deficit.

 

However, the political opposition to FnF might simply be too powerful, and the federal courts might be too timid. Also, the inertia in government might be too great without some triggering event or crisis. Opinions appreciated.

[rros]

I have lost the train of thought on this board regarding the cases before Sweeney. Do the claims have a realistic chance of succeeding or will the court go the way of all previous cases and support the de facto nationalization of FnF? In the world that I thought existed, this question would not be necessary. I don't see how the private shares could be ignored or invalidated. Clearly the companies do not have funds to buy them back and Treasury does not want to add the debt to the federal deficit.

 

However, the political opposition to FnF might simply be too powerful, and the federal courts might be too timid. Also, the inertia in government might be too great without some triggering event or crisis. Opinions appreciated.

Your last sentence is the most concise and precise statement of what appears to be happening. Thank you. What will it take to break the status quo it is not clear.

 

While we wait, some distraction. I did not know about Gary Hindes. Doesn't look like he is the type that quits.

 

"Inside the FDIC:  Thirty Years of Bank Failures, Bailouts, and Regulatory Battles", chapter six deals with the closure of Meritor Savings Bank, whose main asset was the 176-year-old Philadelphia Savings Fund Society ("PSFS"), the first thrift institution founded in the U.S.  Meritor was seized by the FDIC on December 11, 1992, after the FDIC reneged on an earlier contract it had entered into with PSFS by which PSFS assumed the liabilities of an ailing competitor whose depositors would have otherwise have had to have been been paid by the FDIC.  After Meritor was closed and placed into receivership, Hindes and Frank Slattery, a member of its board of directors, sued the FDIC for breach of contract.  After a 20-year legal battle, the FDIC was ordered to pay the bank's shareholders $276 million in 2012.

[Midas79]

However, the political opposition to FnF might simply be too powerful, and the federal courts might be too timid. Also, the inertia in government might be too great without some triggering event or crisis. Opinions appreciated.

 

This is definitely the fear, and the source of much of the risk that keeps share prices low.

 

Cause for optimism exists with the retirements of Hensarling and Corker, two very outspoken GSE bashers with powerful positions in their respective chambers. If they get replaced by Waters and Toomey, respectively, then we could see a drastic shift in Congressional sentiment towards FnF.

 

However, Congressional action is both still unlikely in that case and fraught with uncertainty in any case, at least from a shareholder's point of view. What we're missing is how Trump feels about the situation. If he wants Treasury to do something specific then it will be done, whether that is sitting on its hands (as has been the case until now) or actually implementing adminsitrative reform. Trump's choice for Watt's successor will be very telling.

[rros]

However, the political opposition to FnF might simply be too powerful, and the federal courts might be too timid. Also, the inertia in government might be too great without some triggering event or crisis. Opinions appreciated.

 

This is definitely the fear, and the source of much of the risk that keeps share prices low.

 

Cause for optimism exists with the retirements of Hensarling and Corker, two very outspoken GSE bashers with powerful positions in their respective chambers. If they get replaced by Waters and Toomey, respectively, then we could see a drastic shift in Congressional sentiment towards FnF.

 

However, Congressional action is both still unlikely in that case and fraught with uncertainty in any case, at least from a shareholder's point of view. What we're missing is how Trump feels about the situation. If he wants Treasury to do something specific then it will be done, whether that is sitting on its hands (as has been the case until now) or actually implementing adminsitrative reform. Trump's choice for Watt's successor will be very telling.

We may be overestimating Trump's ability to maneuver, here.

 

Common sense is that the Administration gives the new Congress at least 1 chance. Even then, if Trump moves to admin reform aggressively Congress, new or not, could react. The Fannie and Freddie Maxime Waters may envision is probably closer to Watts', a utility. Nothing like Moelis'. Before, we had Corker's Jumpstart. Will we have a Water's Jumpstart if D's regain the House and Admin goes the Moelis way? Both politics and lawsuits call for Mnuchin/Trump to be overly cautious, if not to stand still. Anything can backfire.

 

While this gets disentangled, a move by either Treasury or FHFA towards recapitalization would be good news. Something as simple as Watt requesting FF to come up with a capital restoration plan or Treasury with another letter of agreement modifying terms. This may not jeopardize relations. Shareholder-friendly recommendations for both companies and the FHFA may also help remove some fog. So there are a few simple things that may give us a breather in a couple of months.

 

But even with favorable names in place and a move towards recapitalization, it is unlikely Trump will want to show his hand with lawsuits running. The fact that Hindes fought for 20 years in a somewhat similar case -in spite of the obvious differences- indicates his and most lawsuits will have to reach an across-the-board agreement/settlement before anything definite happens. Just dropping them will not work. Government will want a written reassurance everything has been settled. So will anyone who has filed settle for nothing?

[undervalued]

However, the political opposition to FnF might simply be too powerful, and the federal courts might be too timid. Also, the inertia in government might be too great without some triggering event or crisis. Opinions appreciated.

 

This is definitely the fear, and the source of much of the risk that keeps share prices low.

 

Cause for optimism exists with the retirements of Hensarling and Corker, two very outspoken GSE bashers with powerful positions in their respective chambers. If they get replaced by Waters and Toomey, respectively, then we could see a drastic shift in Congressional sentiment towards FnF.

 

However, Congressional action is both still unlikely in that case and fraught with uncertainty in any case, at least from a shareholder's point of view. What we're missing is how Trump feels about the situation. If he wants Treasury to do something specific then it will be done, whether that is sitting on its hands (as has been the case until now) or actually implementing adminsitrative reform. Trump's choice for Watt's successor will be very telling.

We may be overestimating Trumps ability to maneuver, here.

 

Common sense is that the Administration gives the new Congress at least 1 chance. Even then, if Trump moves to admin reform aggressively Congress, new or not, could react. The Fannie and Freddie Maxime Waters may envision is probably closer to Watts', a utility. Nothing like Moelis'. Before, we had Corker's Jumpstart. Will we have a Water's Jumpstart if D's regain the House and Admin goes the Moelis way? Both politics and lawsuits call for Mnuchin/Trump to be overly cautious, if not to stand still. Anything can backfire.

 

While this gets disentangled, a move by either Treasury or FHFA towards recapitalization would be good news. Something as simple as Watt requesting FF to come up with a capital restoration plan or Treasury with another letter of agreement modifying terms. This may not jeopardize relations. Shareholder-friendly recommendations for both companies and the FHFA may also help remove some fog. So there are a few simple things that may give us a breather in a couple of months.

 

But even with favorable names in place and a move towards recapitalization, it is unlikely Trump will want to show his hand with lawsuits running. The fact that Hindes fought for 20 years in a somewhat similar case -in spite of the obvious differences- indicates his and most lawsuits will have to reach an across-the-board agreement/settlement before anything definite happens. Just dropping them will not work. Government will want a written reassurance everything has been settled. So will anyone who has filed settle for nothing?

 

In what type of scenarios do we run for the door as fast as we can and not look back?

[allnatural]

If Mnuchin steps down and we lose takings case.

 

In other news, Phillips spoke at an  event today.

 

FANNIE-FREDDIE FIX IS FRONT OF THE DOCKET FOR MNUCHIN: PHILLIPS (Bloomberg)

[rros]

If Mnuchin steps down and we lose takings case.

 

In other news, Phillips spoke at an  event today.

 

FANNIE-FREDDIE FIX IS FRONT OF THE DOCKET FOR MNUCHIN: PHILLIPS (Bloomberg)

Losing the takings case will not be a run-for-the-exits scenario, in my view. A DeMarco FHFA appointment might be.

[beaufort]

If Mnuchin steps down and we lose takings case.

 

In other news, Phillips spoke at an  event today.

 

FANNIE-FREDDIE FIX IS FRONT OF THE DOCKET FOR MNUCHIN: PHILLIPS (Bloomberg)

 

Link?

[allnatural]

I meant if we lost both Mnuchin (our admin path) and sweeney (our legal path) simultaneously it would appear most doors shut in our face. Agreed if Demarco (or Hensarling) was tapped for FHFA head it would be not so great...

 

The bloomberg reference was just a headline no further details unfortunately.

[rros]

If Mnuchin steps down and we lose takings case.

 

In other news, Phillips spoke at an  event today.

 

FANNIE-FREDDIE FIX IS FRONT OF THE DOCKET FOR MNUCHIN: PHILLIPS (Bloomberg)

 

Link?

It was a luncheon at the Exchequer Club. I emailed them to see if there is any transcript. I will come back to the thread if there is. No webcast and nothing recorded.

[Wiggins]

I'd be interested to hear thoughts on how Sweeney could be lost. AIG was ruled as a taking but with no restitution to shareholders since the shares were deemed worthless at the time of taking. However, it is pretty clear that AIG had a liquidity crisis at the time of the taking; it's pretty clear that Fannie and Freddie did not. The 5th circuit court of appeals majority has stated this. And of course we have all seen the independent forensic accounting. At no time during the takings, which still continue, did Fannie and Freddie face a liquidity crisis. The capital infusion from Treasury was based on balance sheet manipulation, not a liquidity problem. So I do not see how shareholders lose this case. Could it be statute of limitations? Or judicial corruption? I just don't see the loss, thus would like to hear any disconfirming thesis.

[Guest cherzeca]

I'd be interested to hear thoughts on how Sweeney could be lost. AIG was ruled as a taking but with no restitution to shareholders since the shares were deemed worthless at the time of taking. However, it is pretty clear that AIG had a liquidity crisis at the time of the taking; it's pretty clear that Fannie and Freddie did not. The 5th circuit court of appeals majority has stated this. And of course we have all seen the independent forensic accounting. At no time during the takings, which still continue, did Fannie and Freddie face a liquidity crisis. The capital infusion from Treasury was based on balance sheet manipulation, not a liquidity problem. So I do not see how shareholders lose this case. Could it be statute of limitations? Or judicial corruption? I just don't see the loss, thus would like to hear any disconfirming thesis.

 

I would tend to agree and have nothing to add other than if you think that the takings case is your sole avenue to recovery then you should be in preferred rather than common

[allnatural]

Just to clarify unlike the AIG case, this case has nothing to do with the original bailout terms, and everything to do with the net worth sweep. The action of the net worth sweep itself was the takings here (it was a nationalization). Therefore, a judge should be asking if there was expected value for shareholders at the time of the imposition of the net worth sweep (if there was any doubt, the evidence uncovered throughout the discovery process makes this clear as day), and not at the time of the original bailout terms (10% dividend + 79.99% equity via warrants), which shareholders ARE NOT disputing .

 

I'd be interested to hear thoughts on how Sweeney could be lost. AIG was ruled as a taking but with no restitution to shareholders since the shares were deemed worthless at the time of taking. However, it is pretty clear that AIG had a liquidity crisis at the time of the taking; it's pretty clear that Fannie and Freddie did not. The 5th circuit court of appeals majority has stated this. And of course we have all seen the independent forensic accounting. At no time during the takings, which still continue, did Fannie and Freddie face a liquidity crisis. The capital infusion from Treasury was based on balance sheet manipulation, not a liquidity problem. So I do not see how shareholders lose this case. Could it be statute of limitations? Or judicial corruption? I just don't see the loss, thus would like to hear any disconfirming thesis.

[Wiggins]

 

 

 

 

Just to clarify unlike the AIG case, this case has nothing to do with the original bailout terms, and everything to do with the net worth sweep. The action of the net worth sweep itself was the takings here (it was a nationalization). Therefore, a judge should be asking if there was expected value for shareholders at the time of the imposition of the net worth sweep (if there was any doubt, the evidence uncovered throughout the discovery process makes this clear as day), and not at the time of the original bailout terms (10% dividend + 79.99% equity via warrants), which shareholders ARE NOT disputing .

 

I'd be interested to hear thoughts on how Sweeney could be lost. AIG was ruled as a taking but with no restitution to shareholders since the shares were deemed worthless at the time of taking. However, it is pretty clear that AIG had a liquidity crisis at the time of the taking; it's pretty clear that Fannie and Freddie did not. The 5th circuit court of appeals majority has stated this. And of course we have all seen the independent forensic accounting. At no time during the takings, which still continue, did Fannie and Freddie face a liquidity crisis. The capital infusion from Treasury was based on balance sheet manipulation, not a liquidity problem. So I do not see how shareholders lose this case. Could it be statute of limitations? Or judicial corruption? I just don't see the loss, thus would like to hear any disconfirming thesis.

 

Yes the taking took place with the NWS, that's where the confiscation began. But the thought being that given the NWS has been deemed legal, Sweeney rules it was the original bailout/HERA authorization where the taking took place since that was the legislation responsible for creating the power to enact the NWS and the taking. And the statute of limitations has run out on challenging HERA. Just wondering if anyone else considered that possibility. I'm just trying to figure out a way a judge could (again) royally screw something up that is so f-ing obvious.

 

If everyone believes that the taking is a slam-dunk and the preferreds are the way to go then why not back up the truck? I guess the only question then is how much is awarded?

[rros]

 

 

 

 

Just to clarify unlike the AIG case, this case has nothing to do with the original bailout terms, and everything to do with the net worth sweep. The action of the net worth sweep itself was the takings here (it was a nationalization). Therefore, a judge should be asking if there was expected value for shareholders at the time of the imposition of the net worth sweep (if there was any doubt, the evidence uncovered throughout the discovery process makes this clear as day), and not at the time of the original bailout terms (10% dividend + 79.99% equity via warrants), which shareholders ARE NOT disputing .

 

I'd be interested to hear thoughts on how Sweeney could be lost. AIG was ruled as a taking but with no restitution to shareholders since the shares were deemed worthless at the time of taking. However, it is pretty clear that AIG had a liquidity crisis at the time of the taking; it's pretty clear that Fannie and Freddie did not. The 5th circuit court of appeals majority has stated this. And of course we have all seen the independent forensic accounting. At no time during the takings, which still continue, did Fannie and Freddie face a liquidity crisis. The capital infusion from Treasury was based on balance sheet manipulation, not a liquidity problem. So I do not see how shareholders lose this case. Could it be statute of limitations? Or judicial corruption? I just don't see the loss, thus would like to hear any disconfirming thesis.

 

Yes the taking took place with the NWS, that's where the confiscation began. But the thought being that given the NWS has been deemed legal, Sweeney rules it was the original bailout/HERA authorization where the taking took place since that was the legislation responsible for creating the power to enact the NWS and the taking. And the statute of limitations has run out on challenging HERA. Just wondering if anyone else considered that possibility. I'm just trying to figure out a way a judge could (again) royally screw something up that is so f-ing obvious.

 

If everyone believes that the taking is a slam-dunk and the preferreds are the way to go then why not back up the truck? I guess the only question then is how much is awarded?

Doesn't a takings take place when the actual action occurs? In our case, 8/17/12.