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#FannieGate, $fmcc, $fnma, DOJ, Fannie Mae, FHFA, FHFAOIG, Freddie Mac, HERA, Investors Unite, Melvin Watt, Third Amendment Sweep, Treasury
Independence Day is near but the Really Big Firework could happen in August or September. If Judge Sweeney “GRANTS” all of the Motions to Remove the Protected Information Designation, I hope we see a full Media Blitz from all angles!
Fannie, Freddie CEOs to Get $3.4 Million Raises
Firms’ regulator approves increase over objection of White House and some lawmakers
In a statement, Mr. Watt said that the new pay packages are “consistent with FHFA’s statutory responsibilities to ensure safety and soundness and a liquid national housing finance market.” He added that the structure of the identical pay packages, which include deferred salary of $3.25 million, would “promote CEO retention, allow reliable succession planning and ensure the continuity, efficiency and stability of Enterprise operations.”
http://www.wsj.com/articles/fannie-freddie-ceos-to-get-big-pay-raises-1435760279
Mr. Watt seems to be acting out of character when he approved raises for the GSEs’ CEOs .
Is it possible he’s trying to show the courts that he is acting independently from Treasury and White House? (yes)
Is it possible he’s is preparing to set the stage for a resolution with Treasury in case of a court order or settlement? (not likely but possible)
Why would Mr. Watt take such action now? (Timing is everything. With Discovery moving forward in favor of Plaintiffs coupled with very telling deposition and potential unsealing protected information, it might be time to set the stage to do the right thing to save face and legacy before it hit the fan.)
New York Times is dead serious about investigating the story behind the Government takeover of the GSEs. They filed a Motion to Intervene in the Fairholme vs USA Federal Claims Court case to gather the truth. This filing is huge since it is coming from a non-plaintiff and widely known news agency. If the deposition is as telling as speculated, it going to be burn baby burn!
http://investorsunite.org/wp-content/uploads/2015/06/NYT-Motion-to-Intervene.pdf
More Motions to remove the “Protected Information” filed. Response due dates were extended to July 13, 2015. Is it possible that defendants are running out of arguments or excuses and citations? (It is possible but we shall know more after defendants file responses and Judge Sweeney rules.) This is going to be another huge order especially for unsealing Deloitte and PWC documents.
| Date Filed | # | Docket Text |
| 06/26/2015 | 169 | **SEALED** MOTION to Remove the “Protected Information” Designation from Certain Unredacted Information in Documents Produced by Deloitte , filed by All Plaintiffs.Response due by 7/13/2015. (Attachments: # 1 Appendix)(Cooper, Charles) (Entered: 06/26/2015) |
| 06/26/2015 | 170 | **SEALED** MOTION to Remove the “Protected Information” Designation from Certain Unredacted Information in Documents Produced by Fannie Mae , filed by All Plaintiffs.Response due by 7/13/2015. (Attachments: # 1 Appendix)(Cooper, Charles) (Entered: 06/26/2015) |
| 06/26/2015 | 171 | **SEALED** MOTION to Remove the “Protected Information” Designation from Certain Unredacted Information in Documents Produced by Freddie Mac , filed by All Plaintiffs.Response due by 7/13/2015. (Attachments: # 1 Appendix)(Cooper, Charles) (Entered: 06/26/2015) |
| 06/26/2015 | 172 | **SEALED** MOTION to Remove the “Protected Information” Designation from Certain Unredacted Information in Documents Produced by PricewaterhouseCoopers , filed by All Plaintiffs.Response due by 7/13/2015. (Attachments: # 1 Appendix)(Cooper, Charles) (Entered: 06/26/2015) |
Logan Beirne is a Lecturer in Law and Fellow, Information Society Project, at Yale Law School. He is also the chief executive officer of Matterhorn Transactions, Inc. He wrote this article in The National Law Review:
Saxton v. FHFA – Have FHFA and the Treasury Exceeded Their Limited Authority under HERA? posted on: Friday, June 26, 2015
This is how the Government manipulated the accounting numbers to justify placing GSEs under Conservatorship and borrowing from Treasury using the Three-card Monte accounting trick. Note: Documents produced by Deloitte and PWC if unsealed could support Adam Spittler’s allegations of the three-card Monte accounting Fannie and Freddie.
The three-card Monte accounting of Fannie, Freddie conservatorship Admittedly partisan study raises troubling questions
The full 27-page report, which can be read here, is from two activist investors involved in the FannieGate controversy with extensive legal and business backgrounds, Adam Spittler CPA, MS and Mike Ciklin JD, MBA, MRE. See Link Below
Perry Capital’s Appeals Court Brief Filing:
http://online.wsj.com/public/resources/documents/perryappealbrief0629.pdf
Food for Thought from a section of HERA
4617 (b)(15) Fraudulent transfers
(A) In general
The Agency, as conservator or receiver, may avoid a transfer of any interest of an entity-affiliated party, or any person determined by the conservator or receiver to be a debtor of the regulated entity, in property, or any obligation incurred by such party or person, that was made within 5 years of the date on which the Agency was appointed conservator or receiver, if such party or person voluntarily or involuntarily made such transfer or incurred such liability with the intent to hinder, delay, or defraud the regulated entity, the Agency, the conservator, or receiver.
(B) Right of recovery
To the extent a transfer is avoided under subparagraph (A), the conservator or receiver may recover, for the benefit of the regulated entity, the property transferred, or, if a court so orders, the value of such property (at the time of such transfer) from—
(i) the initial transferee of such transfer or the entity-affiliated party or person for whose benefit such transfer was made; or
(ii) any immediate or mediate transferee of any such initial transferee.
(C) Rights of transferee or obligee
The conservator or receiver may not recover under subparagraph (B) from
(i) any transferee that takes for value, including satisfaction or securing of a present or antecedent debt, in good faith; or
(ii) any immediate or mediate good faith transferee of such transferee.
(D) Rights under this paragraph
The rights under this paragraph of the conservator or receiver described under subparagraph (A) shall be superior to any rights of a trustee or any other party (other than any party which is a Federal agency) under title 11.
Reference these past posts. Link below
TH717 
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AIG ruling was helpful, says major Fannie, Freddie investor
By Ruth Mantell
Published: July 6, 2015 11:34 a.m. ET
WASHINGTON (MarketWatch) — The seventh anniversary of the federal conservatorship of housing-finance giants Fannie Mae and Freddie Mac is approaching, and the firms remain embroiled in uncertainty.
The two companies, which together back about half of new mortgages for homes, are still standing, years after the housing market’s meltdown. The government sponsored enterprises are at the center of investor suits about whether the government has unfairly taken private capital, overreaching in the years since stepping in to shore up the housing market after the bubble burst.
Investment manager Fairholme is suing the government over a deal that forces Fannie and Freddie to send almost all of their profits to the U.S. Treasury Department, preventing them from building capital. The stakes are high. Among Fairholme’s three mutual funds, which make up about 70% of the firm’s $9 billion in managed assets, the manager has invested in about 16 million common shares of Fannie and 16 million common shares of Freddie, according to a disclosure form filed earlier this year. The funds also own a combined total of about 72 million preferred Fannie shares and 68 million preferred Freddie shares.
Common shares of the companies got a boost last month after a court ruled against the government in a separate case. In that ruling, a judge said that the U.S. government ran afoul of the law when it took over American International Group in 2008. Fannie and Freddie shareholders had hoped that the opinion could set a precedent to help them recover some of their investment.
But the future remain unclear for suits against Fannie and Freddie, the companies themselves and shareholders. Daniel Schmerin, investment research director at Fairholme Capital Management, spoke with MarketWatch about all things Fannie and Freddie.
Dan Schmerin
This transcript has been edited for clarity and length.
MarketWatch: Since the AIG ruling, common shares of Fannie FNMA, -1.09% and Freddie FMCC, -0.91% have dropped about 7%. Meanwhile, the most heavily traded preferred shares of Fannie FNMAS, -0.53% and Freddie FMCKJ, -1.82% have dropped about 5%. Why is the market wrong?
Schmerin: The judge’s ruling was quite instructive and rather helpful because it demonstrated to us that even when the government is acting in a time of financial crisis, it can exceed its authority. It can overreach. It can overstep.
That’s an important precedent. Everyone tends to assume that the courts will grant the government tremendous deference in the fog of financial war.
There is no question that Fannie and Freddie’s claims-paying ability was intact throughout all relevant times. [FHFA and Treasury] required the companies to take excessive loan-loss provisions. When you are massively over-provisioned…you are going to have to reverse a lot of those accounting losses because you are not going to realize those losses.
MarketWatch: There’s notable passion among Fannie and Freddie shareholders. What do you make of the #FannieGate crowd on Twitter?
Schmerin: It is utterly surprising to any observer that our government, the federal government of the United States, would engage in any action that so blatantly expropriated property and de facto nationalized the two largest financial institutions in the nation, and that they’ve done this under the guise of a conservatorship.
MarketWatch: It’s unclear whether Mel Watt will serve the entire five-year term as director of Fannie and Freddie’s regulator, the Federal Housing Finance Agency. Who should replace him?
Schmerin: It’s increasingly clear to us that Director Watt understands what it is in the best interests of the country and the vital role that Fannie and Freddie play in our secondary mortgage market, and the severe consequences that low- and middle-income Americans would be subject to if Fannie and Freddie were abolished.
He very clearly understands the importance of maintaining accessibility and affordability for all socioeconomic groups, both in good times and in bad. That counter-cyclical feature cannot be easily replicated by the big banks.
MarketWatch: It’s fair to say that the chances of a GSE-reform bill passing this Congress are close to zero. What’s the No. 1 step U.S. lawmakers can take today to support the companies?
Schmerin: The No. 1 step lawmakers can take is to support FHFA’s efforts to promote safety and soundness by having the companies prudently rebuild capital, and avoid another unnecessary draw from the Treasury Department simply because of mark-to-market fluctuations in their derivatives portfolio.
There is no need for any further support. Their guarantee book is pristine. If legislators want to do something that shows particular support for putting some space between taxpayers and the companies, the way to do that is to allow the companies to build a capital buffer.
http://www.marketwatch.com/story/aig-ruling-was-helpful-says-major-fannie-freddie-investor-2015-07-06
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Civil Rights Group Calls for Recapitalizing GSEs
A coalition of labor unions, civil rights, religious and progressive groups is urging the Obama administration to reconsider its approach to housing finance reform and shore up the affordable housing trust fund before it leaves office in January 2017.
The Leadership Conference on Civil and Human Rights floated a proposal in June that would recapitalize Fannie Mae and Freddie Mac as well as provide permanent financing for the affordable housing trust fund.
The plan calls on the Treasury Department to negotiate a settlement with Fannie and Freddie shareholders who claim they were harmed by the government’s takeover of the two government-sponsored enterprises and the sweep of all the GSEs’ profits into U.S. coffers.
“We believe a settlement could be reached in a way that a) would involve no payment to shareholders or harmful admissions by the government, b) could deliver substantial value to communities in need of support, and c) could be structured, packaged and announced in a way that makes it a political win for this administration rather than a problem left for the next one,” the coalition wrote in a paper entitled “Housing Finance Recommendations.”
Under the group’s plan, the GSEs’ shareholders and Treasury would make stock contributions to the housing trust fund, thus ensuring it receives a source of money.
“If the administration were to contribute a portion or all of the warrants to affordable housing that would ensure funding assistance to our communities for a generation,” according to the proposal. The GSEs’ profits “above capped rates of return” would also go toward affordable housing.
The Leadership Conference is a coalition of more than 200 national organizations that promote and protect civil and human rights.
The coalition sent its plan to the White House economic council on June 4. But it is unlikely to prevail on the Obama administration.
Rewarding GSE shareholders remains repugnant to many members of Congress from both political parties. The Treasury Department also appears unwilling to give up revenues it currently receives from the GSEs, according to several observers.
The settlement proposal surfaced at a time when legislative efforts to restructure the GSEs are stalled and Washington insiders are becoming increasingly skeptical about Congress’ ability to pass housing finance reform legislation.
The Obama administration remains committed to a legislative solution to GSE reform, however, and keeping Fannie and Freddie in conservatorship until that process is completed. At a recent congressional hearing, Treasury Secretary Jack Lew poured cold water on the idea of ending the conservatorships or returning the GSEs to the control of the shareholders.
“I think the right thing to do is GSE reform and get on with to a new restructured system. But it is not the right time to be talking about ending the conservatorships and paying dividends,” Lew said on June 17.
Lew did not suggest, however, the Obama administration is planning to advance any proposal to resolve the deadlock over GSE reform. It backed bipartisan efforts in the Senate last year which ultimately failed after several progressives suggested it didn’t do enough to boost affordable housing.
Some question whether the White House will make another attempt at GSE reform.
“Are they are they going to do anything or will they just ride it out?” one source said.
One lobbyist supportive of the Leadership Conference’s plan said the administration could fall back on the idea as Obama’s term comes to a close.
The coalition’s proposal points out that Treasury controls warrants on 80% of Fannie and Freddie common stock and the value of the warrants could exceed $100 billion. And it appears of the interests of GSE shareholders and affordable housing advocates are also converging.
But GSE shareholders have been frustrated in getting federal judges to recognize their claims against the U.S. government.
For its part, the Leadership Conference is alarmed by the falling homeownership rates and the small percentage of African-Americans and Hispanics that are currently qualifying for loans guaranteed by Fannie and Freddie.
The Leadership Conference is not surprised the proposal has run into resistance since it would involve settlements of ongoing lawsuits with GSE shareholders, according to the conference’s senior counsel Rob Randhava.
“We’re going to continue making the case that this is the best option,” he said.
Investors Unite Chairman Tim Pagliara, who represents shareholders in their suit against the government, said he views the Leadership Conference’s proposal as a way to start a dialogue.
“This proposal provides a framework for a dialogue to resolve the issue,” he said in an interview. “Any resolution outside of litigation is preferable for the parties. It is better for them to come to an agreement. No one gets what they want typically in a court outcome.”
Pagliara also said the Leadership Conference’s proposal recognizes the “tremendous value” of the warrants. “This is a huge taxpayer asset that could be used to bolster affordable housing and many other things,” he said.
However, the warrants are worthless until Fannie and Freddie are recapitalized and profitable.
Congress authorized the creation of an Affordable Housing Trust Fund in 2008. So far it has gone unfunded, but Fannie and Freddie are set to make their first contributions to the trust fund in January. It could equal between $300 million to $400 million, analysts say.
However, there are doubts about Fannie and Freddie’ earnings power longer term. The two GSEs might have to fall back on U.S. Treasury again for additional draws because they are not allowed to build capital. The conference warns an earnings shortfall would give Republican lawmakers an opportunity to shut down the housing trust fund.
“Our communities will be at risk from this eventuality, so Fannie and Freddie should be allowed to rebuild capital to protect both our people and the administration,” according to the conference’s GSE proposal.
The coalition claims that most of its plan could be implemented without further legislation from Congress.
However they want the settlement agreement to include a cap on the GSEs’ profits. All profits “above capped rates of return” would go to affordable housing, they said.
“I don’t see how Treasury can do that without legislation,” said Jim Carr, senior fellow at the Center for American Progress, and a former executive at Fannie.
Carr also warned that the proposal “opens the door for Fannie and Freddie to regain market dominance, which the Leadership Conference’s says it doesn’t want.”
http://www.nationalmortgagenews.com/news/regulation/civil-rights-group-calls-for-recapitalizing-gses-1055017-1.html
http://investorsunite.org/
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Dick Bove Discusses Fannie Mae (FNMA) Conspiracy Theory; Says GSEs Were Never Insolvent
Rafferty Capital’s Dick Bove doesn’t necessary believe the conspiracy theory on Fannie Mae (OTC: FNMA). However, he doesn’t believe that the companies were insolvent at the time of the government takeover and said ‘accounting gimmickry’ was used to show they were.
Bove:
> Adam Spittler CPA, MS, and Mike Ciklin JD, MBA, MRE have done some forensic accounting analysis on Fannie Mae’s financial statements. Spittler is a Senior Associate at KPMG and Ciklin is an investor in a number of start-up digitally based companies. The result of their work is a conspiracy theory concerning the government takeover of Fannie Mae in which the public has been lied to concerning Fannie Mae’s financial condition in 2008 and in subsequent years.
> The arguments are presented in three monographs entitled A Forensic Look at the Fannie Mae Bailout: Scrubbing the Tricky Accounting of Conservatorship; A Follow Up To The Forensic Look … ; and Deloitte! Restate Thou Must!!
Click to access A-Forensic-Look-at-the-Fannie-Mae-Bailout-Parts-I-II-III-FINAL-20150616.pdf
> The basic argument is that in 2008 when the financial system was crumbling, the Treasury and the Federal Reserve made the decision to take over the two government sponsored agencies (GSEs). These companies were needed to pump money into the big banks in order to prevent them from failing. The GSEs pumped the money in by purchasing distressed mortgages at par.
> They got the money to do this from the Treasury. This money, which was supposedly to be used to bailout the GSEs, was not needed for that purpose because the two GSEs were cash flow positive. However, to get the money into and out of the GSEs the Treasury had to prove that the GSEs were insolvent. This was accomplished by accounting manipulation.
> The two authors use extensive quotes from the books written by Henry Paulson and Timothy Geithner as well as selected hearings to prove their point. Since I am not a conspiratalist thinker, I am unable to argue whether this theory is correct or not. I am not even willing to argue that if this was done the two officials who did it were acting against the public interest. They were doing what they thought was correct to solve a formidable problem – and they solved the problem.
> I am willing to argue, however, that the forensic argument that was presented concerning the GSE balance sheet and income statements is correct since I have believed this all along. To me it has always been clear that accounting gimmickry was the basis of arguing that these two companies were insolvent. They were not and recent history proves this.
http://www.streetinsider.com/Analyst+Comments/Dick+Bove+Discusses+Fannie+Mae+%28FNMA%29+Conspiracy+Theory%3B+Says+GSEs+Were+Never+Insolvent/10697056.html
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