Wise Man
10 minutes ago
Attention to the Defendant's response to the almighty D.Thompson.
Focus on the signatures in the brief scheduled for next Monday. It's important to see whether there is a signature by the DOJ in addition to the FHFA's, like occurred in a prior brief in this case Wazee II in a district court of Pennsylvania that was previously handled by the attorney Hamish Hume.
A DOJ attorney's signature is unprecedented in a District court, where it's a shadow Defendant (Like in the Lamberth court) in order to conceal that a case against the government in a District Court is ill-conceived, because the CFC was created just for that.
The unprecedented DOJ's signature pointed out, spooked him and he immediately let the attorney David Thompson seize control of this case Wazee II, and also he voluntarily dismissed Wazee I in the Court of Federal Claims with judge Sweeney, two days before the scheduled appeal.
Why?
Because in an amended complaint in Wazee I, a Class Action, the attorney Hamish Hume challenged correctly the ongoing NWS 2.0 brought to you by the Trump Administration (SPS LP increased for free in an amount equal to the Net Worth increase in the quarter):
The Net Worth increases, provided that 100% of that increase is owned solely by the UST.
He was echoing this adjusted table that I post regularly, exposing the Financial Statement fraud in FnF that are reluctant to post the gifted SPS and its offset.
We see how FnF are building SPS, not regulatory capital.
Not like Berkowitz's attorney, David Thompson, who praised the NWS 2.0 in the Collins case, seeking "constitutional damages" as an excuse to get back dividends on Berko's non-cumulative dividend JPS, portraying it as Wonderland: the UST gets rich and, at the same time, FnF are being recapitalized, based on the Financial Statement fraud in FnF shown in the image, and helped by other peddlers of this flaw, like Bill Ackman and Sandra Thompson: "FnF continue to build capital through retained earnings".
Those posting that the EPS in FnF is $3.8, $4, ... when the actual EPS is always $0,
have the same objective of concealing the Common Equity Sweep brought to you by the Trump Administration, the same effect on the shareholders as the NWS dividend that Trump called: A scam, a travesty brought to you by the Obama/Biden Adminstration. A government stealing money from its citizens is socialism. A sham.
Both operations (cash dividend and gifted SPS) are debited from the same account: the Retained Earnings account (Common Equity and CET1), which affects the JPS as well, in the sense that the dividend resumption and par-value valuation won't be reached until FnF meet the threshold 25% of Prescribed Capital Buffer (CET1 > 4.5% of RWA, plus capital buffer): Table 8 of the Capital Rule. Worse than before that was only the Adequately Capitalized threshold. The JPS aren't immune to a distressed financial condition in FnF. Hello?
One operation is a distribution of Earnings and the other is a charge on the Retained Earnings account (in this world, there is nothing "for free"). Regardless that the with the second compensation, FnF get to keep the cash momentarily, until the gifted SPS are redeemed for cash at some point in the future.
Cash is for the liquidity risk in FnF (eligible Assets for liquidity, valued at fair value, not in a HTM portfolio) and FnF have tonnes of Liquidity in their Contingency Portfolios. Cash isn't Equity (soundness) and, what really matters, not regulatory capital.
Where is the "Cash Equity" guy of the board, also known as Hello? Kitty?
The attorney Hamish Hume's take sounded the alarm at the DOJ that sent the attorney for Fairholme's Berkowitz, David Thompson, to take care of him.
This attorney is known for seizing control of other 4 cases (Bhatti, Rop, Collins, Robinson), besides Fairholme, in order to control the narrative, that ends up with the "Equity restructuring" rant: massive issuance of common stocks across the board (Warrant, capital raise, swap SPS for Cs after a haircut).
At least we take comfort in watching the JPS wiped out: Net Worth $132B, but $325B SPS LP outstanding.
Pray for Hume.
PS. The screenshots with the signatures and others, can be seen here.
TightCoil
52 minutes ago
From August 17, 2023 - Let's not forget
The GSEs and the Net Worth Sweep: Federal Judge Rules Against the FHFA and Treasury
https://www.americanactionforum.org/insight/the-gses-and-the-net-worth-sweep-federal-judge-rules-against-the-fhfa-and-treasury/
After 15 years seeking redress via the courts, this week shareholders of mortgage giants and government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac were awarded $612 million as a federal court ruled that the Federal Housing Finance Agency (FHFA) had acted in breach of contract by locking them out of future earnings in perpetuity.
The decision stems from the FHFA’s 2012 amendment of the contractual agreement establishing “temporary” conservatorship of Fannie and Freddie, which directed the companies to return nearly all of their profits back to the Treasury, in what came to be known as the “net worth sweep.”
This is a small victory for the GSEs’ shareholders, however: The $612 million represents an extremely small fraction of the billions of dollars in profit the GSEs have subsequently sent to the federal government, and it is likely the FHFA will appeal the court’s decision.
Context and the Net Worth Sweep
In the wake of the 2008 financial collapse, the federal government created regulatory bodies to oversee aspects of the financial services industry, most notably the Federal Housing Finance Agency (FHFA) and the Consumer Financial Protection Bureau (CFPB). Congress passed the Housing and Economic Recovery Act of 2008 (HERA), and in so doing, created the FHFA as a brand-new supervisory agency to regulate the housing market. HERA was designed to prevent the collapse of mortgage giants and government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, but just six weeks after HERA was signed the FHFA made both wards of the state via conservatorship.
The federal government became the financial managers of the GSEs in exchange for a Senior Preferred Stock Purchase Agreement that would pay back the billions of taxpayer dollars used to ensure their solvency during the crisis. Under the terms of the deal, the Department of the Treasury offered the GSEs up to $200 billion in capital support in exchange for warrants of over 79.9 percent of common stock together with some preferred stock. Initially, the support carried a 10 percent cash dividend. This assumption was initially envisioned as a temporary measure to help the GSEs return to their normal business operations of providing liquidity, stability, and affordability to the housing market, as mandated by their government charter.
Four years later, there were few signs that the conservatorship of the GSEs was ending. Conversely, the government had realized the unprecedented control that effective nationalization of the mortgage giants gave them over housing markets. This was only one of the key benefits of retaining the GSE conservatorship; it has been subsequently alleged that key government figures were aware that the GSEs stood to turn a tidy profit. Against this backdrop, Treasury and the FHFA doubled down on the conservatorship, creating what came to be known as the “net worth sweep.” The Senior Preferred Stock Purchase Agreements were amended to direct the GSEs to return all profits generated to Treasury, excluding the bare minimum required to keep them afloat, canceling the 10 percent dividend and essentially locking shareholders out of receiving dividends from their investments in perpetuity.
Berkley Insurance Co. v. FHFA
For 15 years, shareholders of the GSEs have petitioned the courts in a variety of cases for lost financial gains in relation to the financial arrangement made on their behalf between the GSEs and Treasury. In the most significant of these cases, Collins v. Yellen, the Supreme Court ruled that while the organizational structure of the FHFA was unconstitutional (in that it is led by a single director who can only be fired for cause, following a similar decision against CFPB leadership in Seila Law v. the CFPB) the FHFA had acted within the scope of its powers in creating the net worth sweep. A previous case, more specifically on the net worth sweep in October, resulted in a hung jury, after the Fifth Court of Appeals had found in 2018 that the net worth sweep was within the FHFA’s powers and in 2019 that it wasn’t. The Supreme Court declined to hear the issue in January 2023 and had the case sent back to the lower court.
In Berkley Insurance Co. v. FHFA shareholders asserted that the FHFA had “shortchanged them $27 billion” and that the net worth sweep represented a breach of contract. The plaintiffs sought $1.6 billion in damages related specifically to the drop in value of their stocks. After an eight-hour deliberation, jurors found that the FHFA had breached an implied covenant of good faith and that its actions had harmed shareholders. The jury awarded Freddie Mac shareholders $312 million and Fannie Mae shareholders $299 million for a combined $612 million in damages in the first court case to decide in favor of the GSEs’ shareholders.
Conclusions
While there is an argument that the GSEs profits were “owed” to the federal government given the emergency bailout the GSEs received in 2008, that money has been returned and then some. Even without the creation of the net worth sweep, the federal government stood to make a profit on its investment. The net worth sweep gave Treasury and the FHFA access to all profits of the GSEs in perpetuity, and there is little reason to justify this even if it weren’t a fairly clear breach in contract by removing the dividend owed to shareholders.
This is a small victory, however, as the $612 million represents an extremely small fraction of the billions in dollars in profit the GSEs have subsequently sent to the government. The question of whether the GSEs’ shareholders are entitled to redress has also had a surprisingly tortured case history, with the court’s decision seemingly antithetical to the view of the Supreme Court in Collins v. Yellen. It is likely the FHFA will appeal.
Under the Fifth Amendment, private property cannot be taken for public use by the government without just compensation. Berkley v. FHFA represents the first steps taken in 15 years to provide some financial redress for shareholders. More important, it represents the first time the courts have recognized that the net worth sweep represented a breach of contract that amounted to little more than government seizure of property. If only the same progress could be seen in unwinding the GSE conservatorships.
Wise Man
1 day ago
Fairholme asked about the existence of the Separate Account plan.
In a question addressed to the Treasury Department, seeking documents that gave response to the question RFP 12:
Whether Treasury dividends were to advance taxpayers interests and/or prioritize Treasury's financial interest.
In other words, whether the dividend payments were in reality assessments sent to UST applied towards the reduction of the SPS, and/or just dividends as we were told.
Obviously, Fairholme's Berkowitz knew that the reduction of SPS is an exception to the Restriction on Capital Distributions (U.S. Code 4614(e)) that he has covered up in court, like all other plaintiffs. This is why he asked about it, in order to legalize the capital distribution (dividend) that went through, despite the restriction, thanks to the FHFA-C's Incidental Power "any action authorized by this section,..."
But in August 2021, his attorney, the controversial David Thompson, withdrew this motion.
The Capital Rule had an effective date February 2021 and, although in the same Capital Rule it's stated that it must be kept secret till January 2022, the companies gave us a broad number of capital requirement with their first quarter 2021 earnings reports.
Not only Fairholme's Berkowitz realized that, even under the Separate Account plan, Fannie Mae won't resume the dividend payments until the end of 2022, and it's when the JPS's fair value fetches its par value (JPS's fair value chart), but also, presumably, he was told by the FHFA that we are going to overtime in the conservatorship, seeking "Membership cleansing", and it would take at least one year more for the public announcement of a Separate Account all along.
Taking into account that the JPS, without a dividend, trade at a discount to par value (estimated at 6% discount rate: a fixed-income security without a "coupon" payment), this was devastating for him.
Then, they agreed to keep the Separate Account plan secret until the end, and, in exchange, not only the FHFA will help the JPS holders to try to get back dividends colluding in the Lamberth court with the fiction of "implied contract" claim (the damage of a one-day share price drop, plus interests), but also they will go full con mode and try the "Equity restructuring" slogan, because it'd be easy to draw the DOJ into their cause, avoiding a backlash with the Separate Account plan.
Judge Lamberth is here to help, and he has already stated that the plaintiffs were certain to receive dividends while FnF remain undercapitalized, disregarding the Restriction on Capital Distribution.
No genuine dispute remains on the fact of harm on the theory of plaintiffs were denied dividends that they otherwise were reasonably certain to receive.
Wise Man
1 day ago
The Table 8 (Payout ratio) of the Capital Rule has been used for the assertion that the dividend rate on the cumulative SPS has yet to be assessed (commented here), despite that the SPS corresponding to the draws from the UST ($191B) were fully repaid in December 2014 (Freddie Mac one year earlier).
Payout ratio, refers to the amount of Earnings distributed to the Equity holders as dividend (Changes in Equity operation), which includes the Treasury Department as holder of SPS.
A capital distribution restricted.
The slogan "dividend obligation" by Justice Alito, plaintiffs, FHFA and the former Fannie Mae CEO (screenshots) thinking of interest payments, doesn't exist in this world: to begin with, you need surplus Retained Earnings account beforehand, in order to proceed with the disbursement. Then, there is a restriction on capital distributions by law when FnF are undercapitalized, which is meant for the recapitalizaton. Finally, the Table 8 that depends on Capital Buffers.
Certainly, the overtime in the Conservatorship in order to satisfy the FHFA's desire of "Membership cleansing" (best interests provision) beginning with the JPS holders in any event, and, maybe, the existing common shareholders, FHLB-style in a 2016 Final Rule that got rid of the unwanted "captive insurers" ("5 years to wind down their affairs with them"), has affected the UST with a delay in the payment of the cumulative dividend that no longer accrues. But, because it also owes interests to FnF on the $152B due, it's hedged for this overtime, as it's been determined that both amounts will be netted out.
jog49
1 day ago
Unfortunately, it's all talk until it happens. We can't do it and neither can Millstein. Trump, if elected, can force action to be taken to end the fiasco but I'm not fully convinced F&F are on his mind or a constantly echoed topic by his aides and confidants.
I'm getting older, as are many of you, and this shit needs to end. I bought these stocks for dividends. Since they have become grossly profitable, 2013 to present, the denial of dividends has cost me, literally, millions of dollars.
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