Wise Man
3 hours ago
Why do people want the Charter Act, when everyone is a Charter-hater?
-The slogan of "implicit government guarantee on MBS" has the purpose to conceal the reality of a UST backup of the enterprises in the Charter Act as a last resort and at rates similar to Treasuries, in exchage for their Public Mission (section Purposes) that makes them take on credit risk not properly compensated, at least, it was before, because they no longer subsidize the g-fee in the process that leads to a Privatized Housing Finance System chosen by the UST for the release.
In this world, we aren't ruled by "implicit" rules, which are those not written anywhere. That is, a convenient fiction.
Continuing with the Purposes:
The Duty to Serve geographical markets is obsolete.
The Countercyclical role is only in financial crises, related to step up in crisis with secondary market operations (MBS) (Purpose of the Charter Act) buying more mortgage loans, not about refinancings and loan modifications as stated by renowned investors.
-The Credit Enhancement clause is being violated on a regular basis. It began with the PLMBSs that didn't have one of the enumerated credit enhancement operations and the mispricing of PLMBS caused the conservatorships, and instead, a small portion was covered by bond insurance, like today's ACIS in Freddie Mac, an unauthorized CRT.
Today, it's also prohibited their CRT operations with risk-sharing deals: STACR and CAC, in Freddie Mac and Fannie Mae, respectively.
-The clause Fee Limitation of the United States, was first violated with the 4.2 bps on new acquisitions sent to two Affordable Housing funds managed by the UST and HUD, contemplated in the amendment of the FHEFSSA by HERA.
Then, the 10 bps guarantee fee funneled to the UST quarterly in the TCCA of 2012, called TCCA fees. Once it expired after 10 years, it was renamed BBB fee, so it can continue nowadays.
Likely, the CRT operations is more money sent to UST under Mnuchin's slongan: "the taxpayer be appropriately compensated". That is, another fee sent to the UST despite the PROHIBITION. He might be referring to a different Charter Act.
Only the UST can do risk-sharing deals with its portion (35%) of the 4.2 bps mentioned before allocated to the Capital Magnet Fund, according the statutory provision. Suspended till December 2014, they might have thought that the UST needed more money and that's why they came out with the deceitful CRT market, CRT symposiums,...
This is Mark Calabria, promoting the CRT as a "GSE reform", as in "Look! I'm making up a new Charter Act on my own":
-No one has mentioned their Charters during the court proceedings: the Supreme Court, plaintiffs, etc. Only the SCOTUS-appointed amicus, law professor Nielson: "FnF are not ordinary businesses", who also spotted the original UST backup of the enterprises, subsection (b) redeemable obligations (c) any, such as SPS (obligations in respect of capital stock. Preferred stocks are permanent securities by redeemable at the option of the issuer).
-Calabria recently refuted that their MBS are guaranteed by the government, but he wasn't capable of naming the statutory provision in the Charter Act that says so:
No one likes the Charter Act, yet they want to keep it. Huh?
The reason has more to do with their desire of secured deals provided by FnF with the sale of loans and REO inventory to investors and interest groups.
For instance, PIMCO has been the winner for 3 years in a row, of the last 10 sales of RPL in Fannie Mae. Those loans should have been bundled into MBS again and sold to the market.
For instance, it isn't a coincidence that Millstein picked Fannie Mae as the one in charge of buying construction loans (despite the prohibition in the Charter Act, another example of Charter-hater), when Freddie Mac has better prospects just watching its amount of Deferred Income in comparison to Fannie Mae ($41B vs $19B).
They want at least to keep one of the GSEs for their secured deals.
Wise Man
4 hours ago
A "cattle market-style" negotiation today to unwind Fanniegate, that I refuted yesterday in my 3 replies to DaJester, is the longstanding take by the plotters with: "the Treasury has already been repaid", referring to the 10% dividend, instead of being part of the same scheme as the NWS dividend, of "assessments" sent to a Separate Account, FHLB-style ("to ensure repayment of principal"), to ensure the redemption of the SPS. The assessment is applied in full towards the reduction of SPS, as dividends are restricted, unlike the FHLBs that had to pay first an annuity of $300mll in interests (a rate with a 0.299% spread over Treasuries). The rule is the spread, not the resulting interest rate that depends on the market rates at the time. It's not our fault that ST tapped the maximum legal amount of $30B when she arrived at the FDIC in 1991, when the Treasury yields were 10% for a similar obligation with a 40-year maturity. To make things worse, the FHLB used their Separate Account to pay the 40 years of interest-only in their REFCorp bond sooner, instead of repaying the principal of the bond sooner, as set forth in the law.
The last person to peddle this proposal was the plaintiff and attorney, Bryndon Fisher, in a Google Drive document shared throughout the social media and reposted by the usual suspects, Guido and Co.
During the last months, it was the pro se plaintiff Joshua Angel the one in charge of posting the link to the document repeatedly on this board, with one of his more than 50 different aliases that he uses here, and who looks like is behind DaJester. He simply added on his own the theme of "reclassification" of each dividend payment in the past and then, back to the future.
It's very important to know who said what and why, because these Fanniegate attorneys are acting under the orders of bigger players, directly working for Wall Street firms or for their celebrities on Twitter, and all of them face crippling liabilities for peddling the government theft story in formal documents, like a court brief or a corporate document.
This is why they seek a resolution accommodated to what they've previously pointed out, which was based on the cover-up of many statutory provisions:
-Restriction on Capital distributions: Dividends, today's SPS LP increased for free and the Lamberth rebate.
-FHFA-C's rehab power, is about the recapitalization of the enterprises and reduction of SPS. Their financial condition as seen on the Balance Sheets, not in External Positions, measured with Capital and Debt ratios. Recapitalization means to build regulatory capital, not Net Worth, not "Capital Reserve" which is how the SPSPA calls the Net Worth, not SPS.
-The original rate on the UST backup of the enterprises, similar to Treasuries.
-The Fee Limitation of the United States except the prior rate mentioned, also in the Charter Act, just to give a sense about what the Charter is about, for those that think that the Treasury can make profits with FnF.
For instance, with "reclassification" of the dividend, they want to transmit the idea that approving the dividend was just fine during conservatorship and they did it right by not challenging it, and it just needs to be reclassified.
First of all, you can't reclassify something that has already happened in the past.
The dividend was unlawful because it's prohibited in the Restriction on Capital Distributions that they have covered up, along with the breach of the FHFA-C's Rehab power, and thus, the only resolution possible is to legalize it, contending that the FHFA has misled and it has sent assessments to the Treasury in the form of capital distribution, under the guise of dividend payment, applied towards the exceptions to the restriction on capital distributions: Reduce the SPS (U.S. Code 4614(e)) and, later on, the recapitalization (CFR 1237.12).
DCBill
7 hours ago
With my employment history, despite that I've been gone for over 20 years, I believe I understand how the GSE game is played. I never would engage in those stock hijinks and I resent the suggestion.
I stated my political opinion and I thought I made that clear. Whether you buy or sell, either company, that's your call not mine.
If you can find my previous IH posts, from past years, going back to when I published a blog (with similar thoughts there as well), you'll see similar statements.
kthomp19
8 hours ago
If the government decides to put a road through my yard and I take them to court, will the road get reversed or taken out? No, because that action is not illegal. However, I will get monetary damages.
That would be a classic example of a taking. All of the NWS takings cases are completely dead, so your example contradicts the point you're trying to make rather than confirming it.
Did the NWS result in monetary damages granted to Shareholders? YEP.
For reasons entirely unrelated to takings.
(from another post)
Treasury may win. There may be no additional lawsuit wins. But that has nothing to do with the SCOTUS "blessing" the NWS.
The Collins opinion has already had an effect on potential future lawsuit wins: it has prevented at least two major lawsuits (which would have been funded by major junior pref shareholders) from even being filed due to how difficult it is now perceived to get a win against Treasury.
That is not what happened. If it had, the Lamberth jury decision would be overturned.
If the NWS, which directly contradicted FHFA's duty to preserve and conserve assets and maintaining adequate capital, was not ultra vires it's hard to imagine something they could realistically do in the future that is. Certainly not something as simple (and helpful to the companies!) as the LP ratchet.
kthomp19
8 hours ago
In consideration for keeping $1, you will owe us $1 in liquidation preference, and you will pay us 10% dividend on it at a time we determine, and until we say otherwise.
I think you are underestimating the value that being able to keep their earnings has to FnF. It drastically reduces (or even virtually eliminates, according to the stress tests) the possibility that FnF will have to draw on Treasury's funding commitment and potentially exhaust it, triggering mandatory receivership.
Does that not sound like a breach of good faith and fair dealing?
No, because the cash NWS removed all economic value from the junior pref and common shares. It isn't possible for any future deal to remove more value than that, therefore a further breach isn't really possible.
Sounds AWEFULLY similar to the last breach which was you make a $1 you owe us $1....
The companies have already been found to have violated the implied covenant by signing an agreement (the NWS) that removed all economic value from the privately held shares. That breach was fully compensated for by the jury's verdict. Ordering the companies to pay even more for (at worst!) merely continuing that same breach sounds AWFULLY like double jeopardy.
kthomp19
8 hours ago
In that case, why hasn't the commitment fee ever been decided or implemented?
From 2008 to 2012 FnF were paying 10% cash dividends, and from 2012 to 2019 they were paying total net worth cash dividends. There was no need for a commitment fee because FnF were already forking over boatloads of cash.
The whole purpose of the SPS dividends is to circumvent the restriction on fees. Make it look like something else, so it can't be challenged as a fee. I'm not going to post a link to the Charter Act, I'm sure you are familiar enough to know better.
This is a direct reference to Barron's legal analysis. He has already refused to file his own lawsuit (evidence of his own hypocrisy) and nobody else has chosen to file one on this basis either, so I see no reason to continue arguing over how many angels fit on the head of that particular pin. If FHFA really did violate the terms of the Charter Act with the original SPSPAs and/or NWS, but nobody ever challenges it in court, then it's legal by your own admission.
kthomp19
8 hours ago
Treasury, nor any representation of Treasury has officially made any such claim
Again this is about probabilities, not possibilities. Given all the evidence we have, including the reporting we have from Calabria, what are the chances Treasury converts the SPS compared to a writedown?
All you are arguing is that Calabria's reporting can't lead to a 100% chance on a conversion. I agree there. Our disagreement comes from the weight we put on Calabria's reporting. I think it is highly credible and relevant while you refuse to believe that it is either of those.
And the evidentiary standard you are applying here is ridiculous when extended to everything else. For example, do you demand official word from every source that is ever mentioned in a news article before believing it? If so, how are you able to stay informed at all? If not, why apply this standard to Treasury and not everyone?
You and I both know the logical fallacy you are making.
Since you claim to "know" this, you shouldn't have a hard time picking it out from this list.
kthomp19
8 hours ago
This depends greatly on what happens later. If Treasury gets 10% dividend on the LP for an unknown amount of time, and they later get to redeem the original $1, then clearly they are getting more than the $1 in cash.
Redemption of the LP can only happen upon liquidation, so discounting that value is difficult because you have to take probability of redemption (liquidation), timing, and discount rate into account.
Liquidation preference absolutely has value (to the market) outside of liquidation, as evidenced by Treasury's own valuation of the LP and the fact that different div rates did not totally determine the prices of the juniors before conservatorship.
I'm pretty sure I'm the one who keeps saying this is a unique situation.
You said "Trust us - we're from the Government... We'll let you keep a dollar if you owe us a dollar in the future. Brilliant! Let's just do that with every American company and watch our National Debt melt away like magic!" as if it would be possible for the government to do what they did to FnF to any other company. That isn't possible because the conservatorships and "self-dealing" SPSPAs/amendments were only allowed by the GSE Act and HERA, which only apply to FnF.
I'm not the one comparing it to AIG or Citi
While the specific situation FnF are in is unique, the resolution of it doesn't have to be. That's the difference. Citi and AIG went through restructurings, and a restructuring of the SPS is necessary for FnF to hit their regulatory capital requirements before roughly 2040.
kthomp19
8 hours ago
Let's get to 5:0+ so Kthomp will join us in Common!
Why would that help you? I'm still bearish in the long term on the commons versus the juniors at these prices. The only purpose of rotating some juniors into commons would be to rotate back once the FNMAS:FNMA ratio goes back under its normal average of around 3.5:1.
If divvys are resumed, I will be in the 90-100% dividend yield range (vs cost basis) and will hold them for that reason.
I would hold them for the same reason, though I would take some off the table for diversification purposes. My cash-on-cash dividend yield would be somewhat higher (around 15%) but that's more a reflection of my cost basis.
Winning is relative to what else I could be doing with my money. My goal is to double my money every 4 years (18%), minimum performance expectation is 7 years (10.5%).
Your goals are far more reasonable and pragmatic than just about any common (and several preferred) shareholder I have seen on this board. Kudos.
I have found that there is a lot of overlap between the common shareholder base on this board and other classic bagholder traps like MMTLP and LEHNQ. I'm glad I never got caught in those.
I originally got into FNMA in 2013, but exited that same year as I didn't like my forecasts. Decided to come back in 2018 as I thought release was more imminent. Clearly it wasn't.
You managed to avoid two of the three big legal landmines that have cratered the stock prices: Lamberth's original dismissal in October 2014, the appeals court upholding nearly every part of that dismissal in February 2017, and the Supreme Court's Collins opinion in June 2021.