Here is a glimpse of a dream I had of Mr. Cooper deposing the former FHFA Directors, James B. Lockhart under oath.
[First and foremost, these are NOT questions being used at any deposition. I’m only painting a small picture of a dream after reading the most recent Status Conference Transcript. I’m sure plaintiff attorneys have access to enough public, private, and protective information rather than waiting for resolution of privilege log information to formulate deposition questions as they expedite and seek justice in Federal Claims Court.]
One can only imagine and speculate on the answers to the following questions.
For the record, Mr. Lockhart, please state your name, prior and present occupation.
Sir, for the record, were you the Director of FHFA in 2008?
Mr. Lockhart, how would you characterize and/or describe your working and personal relationship with Treasury Secretary, Henry Paulson and Federal Reserve Chairman, Ben Bernanke in 2008?
Sir, yes or no, would you say that they are good friends, excellent partners or colleagues to work with, even possibly as mentors, someone whom you could look up to, report to and even follow direction?
To be clear, you know that the Federal Housing Finance Regulatory Reform Act of 2008 basically established Federal Housing Finance Agency or what is commonly referred as FHFA?
On the day that the law was signed, do you recall stating the follow:
“For more than two years as Director of OFHEO I have worked to help create FHFA so that this new GSE regulator has far greater authorities than its predecessors. As Director of FHFA, I commit that we will use these authorities to ensure that the housing GSEs provide stability and liquidity to the mortgage market, support affordable housing and operate safely and soundly.”?
Mr. Lockhart, do you recall issuing this press release on September 7, 2008 titled “Statement of FHFA Director James B. Lockhart at News Conference Announcing Conservatorship of Fannie Mae and Freddie Mac”
In that press release, do you recall the following statement?
[After this exhaustive review, I have determined that the companies cannot continue to operate safely and soundly and fulfill their critical public mission, without significant action to address our concerns, which are:
- the safety and soundness issues I mentioned, including current capitalization;
- current market conditions;
- the financial performance and condition of each company;
- the inability of the companies to fund themselves according to normal practices and prices; and
- the critical importance each company has in supporting the residential mortgage market in this country,
Therefore, in order to restore the balance between safety and soundness and mission, FHFA has placed Fannie Mae and Freddie Mac into conservatorship. That is a statutory process designed to stabilize a troubled institution with the objective of returning the entities to normal business operations. FHFA will act as the conservator to operate the Enterprises until they are stabilized.]
Mr. James B. Lockhart, prior to September 7, 2008, could you please identify and describe all of the analyses, reports, assumptions, compelling evidence that were part of your “exhaustive review” as well as identify the passage under the HERA Statute that authorized you to place the GSEs into Conservatorship?
Sir, as a former SVP of Finance at National Reinsurance, I’m sure you could clearly provide the definition of the “Deferred Tax Assets” account and easily describe the purpose of this account and how it is used in financial accounting.
Mr. Lockhart, within the same press release, do you recall the following paragraph?
[During the conservatorship period, FHFA will continue to work expeditiously on the many regulations needed to implement the new law. Some of the key regulations will be minimum capital standards, prudential safety and soundness standards and portfolio limits. It is critical to complete these regulations so that any new investor will understand the investment proposition.]
For clarity, could you explain what you mean about implementing the new law?
Mr. Lockhart, are you well aware of the key points in the HERA Statute specifically, 4617(b) Powers and Duties of the Agency as Conservator or Receiver?
Mr. Lockhart, do you recall issuing a document titled “Questions and Answers on Conservatorship”?
Mr. Lockhart, could you please read the following questions and answers from the document?
[Q: What are the goals of this conservatorship?
A: The purpose of appointing the Conservator is to preserve and conserve the Company’s assets and property and to put the Company in a sound and solvent condition. The goals of the conservatorship are to help restore confidence in the Company, enhance its capacity to fulfill its mission, and mitigate the systemic risk that has contributed directly to the instability in the current market.
There is no reason for concern regarding the ongoing operations of the Company. The Company’s operation will not be impaired and business will continue without interruption.
Q: When will the conservatorship period end?
A: Upon the Director’s determination that the Conservator’s plan to restore the Company to a safe and solvent condition has been completed successfully, the Director will issue an order terminating the conservatorship. At present, there is no exact time frame that can be given as to when this conservatorship may end.
Q: What are the powers of the Conservator?
A: The FHFA, as Conservator, may take all actions necessary and appropriate to (1) put the Company in a sound and solvent condition and (2) carry on the Company’s business and preserve and conserve the assets and property of the Company.]
Alright Sir, is it or is it not basically defined in the HERA Statute under 4617 (b) Powers and Duties of the Agency as Conservator or Receiver?
Mr. Lockhart, you stated that upon the Director’s determination that the Conservator’s plan to restore the Company to a safe and solvent condition has been completed successfully, the Director will issue an order terminating the conservatorship. How would you describe a safe and solvent condition and what was your plan to achieve safe and solvent condition while working within the restriction of the PSPA?
Mr. Lockhart, the Questions and Answers on Conservatorship document was dated on September 7, 2008 with an embargo time of 11am, correct?
Sir, do you recall the PSPA Factsheet issued and released by the U.S. TREASURY DEPARTMENT OFFICE OF PUBLIC AFFAIRS titled “FACT SHEET: TREASURY SENIOR PREFERRED STOCK PURCHASE AGREEMENT”?
Mr. Lockhart, the PSPA Factsheet document was dated on September 7, 2008 with an embargo time of 11am, correct?
Mr. Lockhart, could you please read each Covenants and describe or translate their meaning from the fact sheet?
[The following covenants apply to the GSEs as part of the agreements.
- Without the prior consent of the Treasury, theGSEs shall not:
- Make any payment to purchase or redeem its capital stock, or pay any dividends, including preferred dividends (other than dividends on the senior preferred stock)
- Issue capital stock of any kind
- Enter into any new or adjust any existing compensation agreements with “named executive officers” without consulting with Treasury
- ***Terminate conservatorship other than in connection with receivership**
- Sell, convey or transfer any of its assets outside the ordinary course of business except as necessary to meet their obligation under the agreements to reduce their portfolio of retained mortgages and mortgage-backed securities
- Increase its debt to more than 110% of its debt as of June 30, 2008
- Acquire or consolidate with, or merge into, another entity.]
Mr. Lockhart, just to be clear who drafted, established, updated and provided the written content in the Purchase Senior Preferred Agreement and were you involved in the establishment of the agreement as Regulator or Conservator?
Sir, when you help drafted the agreement, what were your thoughts between the PSPA agreement and HERA Statute and also could you please refresh my memory in terms of your capacity as Regulator or Conservator at the time?
Lets move forward and look at the Purchase Senior Preferred Agreement, section 5, Covenants. Mr. Lockhart, as Conservator, you know you may take all actions necessary and appropriate to put the Entities in a sound and solvent condition and carry on the Entities’ business and preserve and conserve the assets and property of the Entities. Please explain how each of the paragraph in section 5 under Covenants is considered fair, necessary and/or appropriate to put the Entities in a sound and solvent condition coupled with preserving and conserving Entities’ assets when section 5 within the PSPA appears to override the HERA statute specifically, 4617(b) Powers and Duties of the Agency as Conservator or Receiver.
Sir, I want to completely understand, please tell us as Conservator, who do you hold your fiduciary responsibility or duty to; Treasury, Federal Reserve, the President, taxpayers or shareholders.
Mr Lockhart, when specifically, date and time was the first time you either help crafted, participated or have knowledge of the content of the PSPA? It was clearly prior to you placing the GSEs into Conservatorship, pre-planned with your involvement, correct?
As Vice Chairman of large investment firm, would you as a seller, agree to the same terms, conditions and covenants of this agreement on behalf of your investment firm and why?
Mr. Lockhart, do you recall saying “Taking over Fannie Mae and Freddie Mac was a very painful and tough decision, and I really had strong support from Secretary Paulson and Chairman Bernanke,” to a Washington Post Staff Writer?
Sir, please describe and characterize your meaning of “strong support from Secretary Paulson and Chairman Bernanke”?
Mr. Lockhart, let’s go back to the week preceding Labor Day holiday weekend in 2008. Please describe what happened at the intensive meeting you had with Treasury Secretary, Henry Paulson and Fed Chairman, Ben Bernanke when all parties helped hammered out the language and documents that would allow you, Mr. Paulson and Mr. Bernanke to make the move to place Fannie Mae and Freddie Mac into conservatorship?
Sir, do you feel the same and agree with Treasury Secretary, Hank Paulson when he stated that we had to ambush Fannie Mae and Freddie Mac and give them no room to maneuver, please explain why?
Mr. Lockhart, were you in full agreement with Hank Paulson when he said that, we couldn’t very well go to Daniel Mudd at Fannie Mae or Richard Syron at Freddie Mac and say: “Here’s our idea for how to save you. Why don’t we just take you over and throw you out of your jobs, and do it in a way that protects the taxpayer to the disadvantage of your shareholders?”
In your personal belief and opinion, do you think the Entities should be wound down to protect the taxpayer and if so, do you think you did everything possible within your role, responsibility and authority including but not limited to work closely with Treasury to craft the PSPA in such a way to help wind down the Entities to protect the taxpayer by neutralizing 4617(b) Powers and Duties of the Agency as Conservator or Receiver?
Mr. Lockhart, in your role and responsibility as Director of FHFA, do you agree that taxpayers should be protected while moving ahead and disadvantage the shareholders by creating a PSPA with such terms, conditions and covenants?
By the way, do you agree with Melvin Watt, current Director of FHFA whom recently testified that the PSPA trumped HERA?
Sir, whats your thoughts on the current FHFA Director starting to fund the Affordable Housing Trust Fund because he believe that the GSEs are in a safe and solvent condition while he can’t preserve and/or conserve assets?
Mr. Lockhart, are you aware that the current FHFA Director is restricted from releasing the GSEs from Conservatorship because of the restriction from the PSPA regardless of power and authority provided in HERA?
Sir, this is very confusing but I just want to understand clearly, who did you hold your fiduciary responsibility when you acted as the Conservator and Regulator?
Mr. Lockhart, do you recall you stated; “The purpose of appointing the Conservator is to preserve and conserve the Company’s assets and property and to put the Company in a sound and solvent condition.” Please explain actions you took when you acted as Conservator to fulfill the purpose?
Sir, if the GSEs met their sound and solvent condition, please explain why FHFA director can’t release the GSEs from Conservatorship?