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A Government Motion to Dismiss that Should Be Dismissed
Wednesday, November 18th, 2015
Is the federal government running out of arguments to knock down lawsuits stemming from the Third Amendment Sweep of the revenues of Fannie Mae and Freddie Mac?
Investors Gary Hindes and David Jacobs filed suit in U.S. District Court in Delaware over the summer alleging illegal action by Treasury and focusing on the narrow issue of applicable state corporate law. Late last week the government filed a motion to dismiss the case, making broad assertions about sovereign immunity, federal power over the states and the wide latitude the Housing and Economic Recovery Act (HERA) provides the Federal Housing Finance Agency (FHFA) in acting as conservator of the GSEs. The motion also clings to the increasingly dubious idea that Fannie and Freddie needed a savior and makes an inaccurate assertion about the number of similar suits that have been tossed out.
In a call with over 200 investors and reporters Tuesday, former Delaware Supreme Court Chief Justice Myron Steele, who is representing Hindes and Jacobs, said there was nothing in the government’s motion that came as a surprise. Without delving into the details of what will be filed in response to the government’s motion early next year, Steele assured that none of the points the government made are “incapable of being countered.” A recording of the call is available here.
Steele noted that an underlying principle in such a proceeding is for the court to accept as fact points made in a complaint. In this case, Hindes and Jacobs stipulate that no bailout was needed for the GSEs. However, in the motion to dismiss the government clearly does not accept this premise and details its assessment of the uncertain condition of the GSEs that justified the government’s conduct during the conservatorship, including the Sweep. It will be interesting to see how Hindes and Jacobs tackle the government’s inconsistency in the response brief due January 16.
While the government insists the GSEs’ condition justified its actions, the government’s motion at least backs away from the assertion that Fannie and Freddie were in a “death spiral.” Remember this was part of the argument the government made in convincing U.S District Judge Royce Lamberth to dismiss shareholders’ claims in the Perry Capital suit last year.
With the suit brought by Hindes and Jacobs there is a chance to make something clear for once and for all: Treasury and FHFA were not really saviors of the GSEs. These entities did not need saving. There was never any threat that Fannie and Freddie would become insolvent by virtue of making cash dividend payments. That is because the dividends could be paid with stock and also because state law prohibits the payment of dividends if there was a chance these payments could lead to insolvency.
More importantly, the confiscation of the GSEs revenues and depletion of their capital buffers has actually put them in a more vulnerable position than they would have been in had the government done nothing. In an amicus brief filed on behalf of Investors United in support of Perry Capital’s case, Michael Krimminger, a former Federal Deposit Insurance Corporation General Counsel, spells out precisely how the Sweep is in direct opposition to HERA’s mandate for FHFA to return the GSEs to a “sound and solvent” condition.
While the government might have finally concluded it could not use the “death spiral” argument with a straight face, it nonetheless pats itself on the back for actions taken in the fall of 2008 to stem a potential emergency and reiterates how $187.5 billion worth of taxpayer money was made available to prevent the GSEs from slipping into receivership. However, the brief ignores the fact that the $187.5 billion has not only been paid back but also that the GSEs’ revenues have provided the Treasury with an additional $50 billion.
Another leg of the government’s motion to dismiss that is wobbly is the call for the judge to glom onto “eleven nearly identical lawsuits” that have been dismissed. First of all, the number is completely wrong. In fact, not even two investor lawsuits have been dismissed by federal judges. The most notable of these rulings, Lamberth’s in the Perry case, relied on a broad comparison of FHFA’s role with that of the FDIC during the savings and loan crisis of 1989 to grant the government broad discretion as GSE conservator. A key phrase asserting that the discretion of the government in the S&L crisis “applies with equal force to the mortgage finance crisis of 2008,” was in a footnote. And let’s not forget that Judge Lamberth did not seem entirely comfortable with the Sweep on substantive grounds, conceding in his opinion that the Sweep may “raise eyebrows, or even engender a feeling of discomfort.”
The other case the government cites in its motion to dismiss is a ruling by U.S. District Court Judge Robert Pratt in Iowa in a suit brought by Continental Western Insurance Company. But Pratt’s ruling earlier this year hardly shut the door on future cases. It was a very narrow ruling based on the technical consideration that Continental Western’s parent corporation is involved in the Perry Capital case. Pratt reasoned that it made sense for the substance of the case to be resolved in the appeals process rather than opening a new front.
Even if several more judges had thrown out the suits, it would not be reason to dismiss this one. In essence, two judges sheepishly acknowledged that the government might have crossed the line in misapplying HERA but then concluded that things like this happen: Unless there is a blatant abuse of power, give the government a little room. That is hardly an overwhelming precedent to justify dismissing the Delaware suit. Let’s hope the judge in this case decides to look at the substance of the complaint rather than ducking based on a handful of highly nuanced rulings to dismiss other shareholder cases.
Meanwhile, Treasury’s assertion of sovereign immunity has become a rather flimsy argument amid the many questions about whether the government acted in good faith. Federal Claims Court Judge Margaret Sweeney has shifted the burden back to the government to produce documents related to its rationale for the Sweep stemming from a petition by the New York Times to learn more about FHFA’s supposed independence from Treasury in the months leading up to and after the Sweep. So long as the government works so hard to shield from public view documents at the heart of the Sweep, it is hard to see how a federal judge would want to cave into the assertion of sovereign immunity.
Finally, as former Justice Steele noted, the government gave “very short shrift” to the specific points related to Delaware’s corporate law – no more than page in the motion to dismiss. He speculated that the government might be banking on a judge not getting to the meat of case if the sovereign immunity and federal prerogative arguments prevail. But Steele assured plaintiffs will be ready to argue those narrow points of state law.
In its latest move, it is clear the government continues to see itself as the savior of the GSEs and the protector of taxpayers. Let’s hope the judge rejects the arguments for dismissal and provides an opportunity for shareholders to show the government’s actions were, in fact, harmful to the GSEs and their shareholders as well as taxpayers.
Read more Investors Unite blogs here
Researcher said:
Important Plaintiffs Argument:
In a letter opinion to Treasury, the Justice Department further strengthened this commitment by indicating that sovereign immunity had been waived to allow lawsuits against Treasury by Enterprise bond and MBS holders should Treasury fail to make good on this commitment.
September 26, 2008
LETTER OPINION FOR THE SECRETARY OF THE TREASURY
Accordingly, the Court of Federal Claims generally would have jurisdiction under this provision of the Tucker Act to hear such claims by Holders. Because the Tucker Act constitutes express statutory consent to the award of monetary relief against the United States, the sovereign immunity of the United States would not be a bar to any such claim. See United States v. Mitchell, 463 U.S. 206, 212 (1983) (“[T]he Tucker Act constitutes a waiver of sovereign immunity.”); Adair v. United States, 497 F.3d 1244, 1250 (Fed. Cir. 2007) (Tucker Act “waives the government’s sovereign immunity for these claims”).
We therefore conclude that the Agreements, according to their terms, would create rights enforceable through actions brought in the Court of Federal Claims in accordance with the ordinary rules and procedures governing litigation in that Court.
STEVEN G. BRADBURY Principal Deputy Assistant Attorney General
Click to access treasury-gse-ltr-opinion.pdf
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JOINT MOTION FOR ENLARGEMENT OF TIME TO FILE JOINT STATUS REPORT
Pursuant to Rules 6(b) and 6.1 of the Rules of the United States Court of Federal Claims (RCFC), the parties respectfully request a 7-day enlargement of time, to and including January 28, 2016, within which to file a joint status report suggesting future proceedings in this case as directed by the Court in its order dated September 4, 2015 (ECF No. 240). The joint status report is currently due on January 21, 2016.
Good cause exists to grant the requested enlargement of time. Although the Court’s December 31, 2015 deadline for the completion of jurisdictional discovery has passed, to accommodate witnesses’ schedules, depositions that plaintiffs had originally noticed in December were conducted on January 14 and January 20, 2016.
In addition, the parties have been engaged in briefing plaintiffs’ motion to compel, which was filed on November 23, 2015. The Government’s response to plaintiffs’ motion will be filed on January 21, 2016. These events have required significant attention by counsel from both parties. The requested enlargement will provide counsel with the necessary time to confer regarding the schedule of future proceedings and the content of the joint status report.
For these reasons, the parties request that the Court extend the deadline for the joint status report by 7 days, to and including January 28, 2016.
Click to access 13-465-0282.pdf
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Hines and Jacobs Ask for Virginia & Delaware Supreme Court Opinion
Hines and Jacobs are asking the Delaware District Court to certify the following questions and send them to the Virginia and Delaware Supreme Courts for an answer. There is no debate needed as the questions are simple fact related to the law. It does not challenge HERA or the Conservatorship or actions under the conservatorship. They are simply asking if the Senior Preferred stock created by the NWS is legal under the law. If it isn’t, then case over in all courts.
They are not claiming HERA or the Conservatorship does not grant the parties the right to enter into an agreement. They are just claiming the security created violates the law.
I said when these cases were first filed this might be the big one that ends all this well before everyone thinks it will. Should the courts rule it is illegal, the government will of course appeal but the course of this litigation is then done as plaintiffs will then file for damages in every court.
1. Does Delaware law permit preferred stock of a corporation to have a cumulative dividend right equal to the entire net worth of the corporation, payable quarterly in perpetuity, as provided in Section 2 of Fannie Mae’s Amended and Restated Certificate of Designation of Terms of Variable Liquidation Preference Senior Preferred Stock, Series 2008-2, dated September 27, 2012 (which is attached hereto as Exhibit A)?
2. Does Virginia law permit preferred stock of a corporation to have a cumulative dividend right equal to the entire net worth of the corporation, payable quarterly in perpetuity, as provided in Section 2 of Freddie Mac’s Amended and Restated Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions of Variable Liquidation Preference Senior Preferred Stock (Par Value $1.00 Per Share), dated September 27, 2012 (which is attached hereto as Exhibit B)?
Certification of these state law questions of first impression presents the opportunity to potentially resolve this litigation between Plaintiffs and Defendants Federal Housing Finance Agency (“FHFA”), in its capacity as conservator of the Companies, and the United States Department of the Treasury (“Treasury”), as well as decide important matters of Delaware and Virginia policy that broadly impact the corporations organized under the laws of those states.
The facts relevant to answering these questions are not capable of dispute.
Specifically they state the law says:
Under Delaware and Virginia corporate law, the “Net Worth Sweep” is invalid, void, and unenforceable. The corporate laws of those States do not permit preferred stock to have a dividend right equal to the entire net worth of the corporation, payable quarterly, forever, to the necessary exclusion of any dividends ever being paid on junior stock. Because the Net Worth Sweep purports to do this, it is invalid, void, and unenforceable.
Specifically, Section 151 of the General Corporation Law of the State of Delaware (“DGCL”) allows preferred stockholders to receive dividends “at such rates, on such conditions and at such times as shall be stated in the certificate of incorporation or in the [board] resolution . . . .” 8 Del. C. § 151(c) (emphasis added). Preferred stock dividends must be made “payable in preference to, or in . . . relation to, the dividends payable on any other class or classes or ofany other series of stock[.]” Id. (emphasis added). Section 151 does not permit a provision requiring that a series of preferred stock receive a quarterly dividend equal to the entire net worth of a corporation to the necessary exclusion (in perpetuity) of any dividends ever being paid on junior stock.
Because the Net Worth Sweep diverts, in perpetuity, all of the net worth of Fannie Mae to Treasury, it neither is paid at a “rate” nor is it payable “in preference to” or “in relation to” the dividends payable to other classes or series of stock. The Net Worth Sweep is not paid at a “rate” because Treasury’s participation in corporate earnings growth is unlimited, absolute, and perpetual. The Net Worth Sweep is not payable “in preference to” or “in relation to” the dividends payable to other classes or series of stock because it is payable to the absolute, permanent exclusion of dividends to other stockholders. Once the Net Worth Sweep is paid each quarter, there necessarily will be no assets remaining in the Company that would ever be available for the payment of dividends on any other classes or series of stock regardless of how valuable the Company may become in the future. Accordingly, the Net Worth Sweep is invalid under Section 151(c) of the DGCL and is void ab initio and unenforceable.
Similarly, the Virginia Stock Corporation Act (“VSCA”) provides that a corporation may authorize “one or more classes or series of shares that . . . have preference over any other class or series of shares with respect to distributions [such as dividends].” Va. Code § 13.1-638 (emphasis added). Virginia law does not permit corporations to establish a dividend preference that operates to preclude all other classes of stockholders from the potential to receive dividends in perpetuity. Accordingly, the Net Worth Sweep is invalid under the VSCA and is void ab initio and unenforceable.
Finally, and this has some serious implications (in bold) beyond these cases and may be the reason the Court rule for Hines/Jacobs
While Plaintiffs respectfully submit that the invalidity of the Net Worth Sweep under Delaware and Virginia law is clear, this issue has never before been decided by courts of those states. It therefore is a novel issue of Delaware and Virginia law appropriate for certification to those states’ highest courts. Furthermore, resolution of this issue is important and urgent, as the issue implicates important matters of Delaware and Virginia policy and will have a broad impact on the corporations organized under the laws of those states.
Were the Net Worth Sweep to be upheld as permissible under Delaware and Virginia law, a very troubling precedent would be set for those states’ corporate laws, for stockholders of corporations of those states, and for the mergers and acquisitions community as a whole, because such precedent would appear to extend equally to corporations not under conservatorship and without the federal government as their senior preferred stockholder, and thereby permit the directors of a Delaware or Virginia corporation unilaterally to contract away all of the net worth and profits of the corporation for all time to a single preferred stockholder.
Certifying the question now to the Delaware and Virginia Supreme Courts will allow those courts to provide guidance on this important issue of Delaware and Virginia corporate law, which is the central issue in this litigation, and provide needed certainty to corporations and their directors, officers, and stockholders.
Additionally, certification of this issue will serve the interests of judicial economy in this case, because the answer could resolve the dispute between Plaintiffs and Defendants at the threshold stage.
http://www.valueplays.net/2016/01/19/hines-and-jacobs-ask-for-virginia-delaware-supreme-court-opinion/
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Latest Order from Sweeney’s Court
On December 24, 2015, defendant in the above-captioned case filed a second motion to enlarge the deadline for responding to plaintiffs’ motion to compel certain documents withheld for privilege. Defendant requests a ten-day enlargement of time due to the effect that the holiday season is having on its ability to coordinate among multiple agencies and conduct an internal review, and represents that plaintiffs oppose its motion.
For good cause shown, defendant’s motion is GRANTED. Defendant shall file its response to plaintiff’s motion to compel by no later than Thursday, January 21, 2016.
IT IS SO ORDERED.
s/ Margaret M. Sweeney MARGARET M. SWEENEY Judge
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Fannie Mae CEO: Achieved things no one thought possible
http://video.cnbc.com/gallery/?video=3000467303
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Federal National Mortgage Association FNMA:OTCBB – OTCQB
Josh Rosner, Housing Policy Experts Call For Recapping and Reforming Fannie and Freddie, Oppose Jumpstart GSE Reform Language in Omnibus
PR Newswire 3:37 PM ET
Joshua Rosner, Managing Director of Graham Fisher & Co., was joined by several housing finance policy experts Tuesday in calling for recapitalizing Fannie Mae and Freddie Mac as the first step to reforming the secondary mortgage companies.
In a conference call, he announced the release of his paper, “GSE Reform: Something Old, Something New, And Something Borrowed.” The paper summarizes the historic role the government sponsored enterprises have played in facilitating homeownership, the policy changes that put the enterprises at the center of the 2007-8 financial crisis and the steps needed to create a better mortgage finance system.
Rosner was joined by Center for Responsible Lending (CRL) President Mike Calhoun; Community Mortgage Lenders of America (CMLA) Executive Director Glen Corso; National Community Reinvestment Coalition (NCRC) President and CEO John Taylor and Director of Policy & Government Affairs Gerron Levi; and Community Home Lenders Association (CHLA) Executive Director Scott Olson.
They echoed the view that Fannie and Freddie have played critical roles in promoting access to homeownership and affordable housing for many decades. They agreed that reforms are needed and that the GSEs should be required to build and retain capital. They also opposed actions that could delay reforms, notably the Jumpstart GSE Reform bill, elements of which have been added to an omnibus spending bill Congress is set to vote on by the end of the week. The Jumpstart language only serves to delay necessary reforms and places the public at risk.
Rosner and others dismissed an opinion piece in the New York Times published this week, “Fixing Fannie and Freddie for Good,” which asserted that advocates of recapitalizing Fannie Mae and Freddie Mac simply want to “go back to the system we just bailed out.” Rosner said it was “intellectually dishonest” to suggest he and others advocated returning to the housing finance system that existed leading up to the financial crisis.
The Housing and Economic Recovery Act of 2008 (HERA) made sweeping oversight changes to Fannie and Freddie and required the GSEs’ regulator to return the companies to a “sound and solvent” condition. Rosner said dismantling Fannie and Freddie, as many advocate, is unnecessary and possibly risky, comparing it to building an entirely new automobile assembly plant in response to a minor traffic accident.
Rosner summarized his paper explaining that history has shown the “the best way to serve the public interest is to recapitalize Fannie Mae and Freddie Mac and make certain they perform their historic mission as countercyclical sources of secondary-market capital capable of providing stability to the home finance market.” The paper recommends that the Federal Housing Finance Agency (FHFA) should fulfill its Congressionally-given mandate to restore the financial soundness of the GSEs and undertake reforms so that the entities could function in a manner similar to a public utility, sustaining a liquid and stable secondary mortgage market. His paper dispels several false myths that have shaped several GSE reform efforts to date, such as the assumption that private capital can replace what Fannie and Freddie provide the market or that the GSEs need competition in the traditional market sense given their unique role. Among the reforms the paper recommends is making government backstop clearer and more narrowly tailored and Continuing to implement the improved regulatory oversight of the GSEs required by the Housing and Economic Recovery Act of 2008.
An audio replay of the call is available:
Telephone: (USA) (800) 475-6701(International) (320) 365-3844Access Code: 378848
Contact: events@graham-fisher.com
To view the original version on PR Newswire, visit:
http://www.prnewswire.com/news-releases/josh-rosner-housing-policy-experts-call-for-recapping-and-reforming-fannie-and-freddie-oppose-jumpstart-gse-reform-language-in-omnibus-300194035.html
SOURCE Graham Fisher
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Researcher said:
Investors Unite: Jumpstart Does Not Prevent Settlement with Shareholders
Investors Unite Founder Tim Pagliara released the following statement on the inclusion of the so-called “Jumpstart GSE Reform” amendment to the omnibus spending bill:
“The so-called “Jumpstart GSE Reform” amendment does not stop or affect in any way the ongoing litigation by shareholders over the illegal net worth sweep, and we look forward to seeing what discovery brings. Moreover, this provision in the omnibus spending bill does not prevent the Administration from reaching a settlement with shareholders.”
“We welcome Congress’ leadership in immediately passing legislation that requires the Federal Housing Finance Agency to retain capital in Fannie and Freddie. This would protect the taxpayer from the risk that has been created by Treasury’s illegal net worth sweep, which deprives Fannie and Freddie of any real capital base. We encourage Congress to simultaneously engage in a robust oversight investigation of Treasury’s violation of the Housing and Economic Recovery Act, which remains the statute that governs the conservatorship of these companies.”
http://investorsunite.org/investors-unite-jumpstart-does-not-prevent-settlement-with-shareholders/
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Researcher said:
Investors Unite Members,
As you may be aware, members of Congress continue to negotiate a year-end “omnibus” spending bill which must be completed this week. Because these omnibus bills are so large, Congressmen with ulterior political motivations frequently use them as opportunities to sneak in unrelated legislative language.
This year is no different, and some members in the House and Senate want to use the omnibus to entrap Fannie Mae and Freddie Mac in Conservatorship forever. This will ensure that the illegal Third Amendment Sweep continues indefinitely. As a result, homeownership will suffer, taxpayers will remain on the hook, and investors’ rights will continue to be trampled.
TODAY! Call your senator and tell them to vote against any measure that would include the Jumpstart Amendment!
https://www.opencongress.org/people/zipcodelookup
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Why Hindes/Jacobs Plaintiffs Will Prevail In The Fannie Mae And Freddie Mac Delaware Litigation (Part II)
Summary
Hindes/Jacobs Plaintiffs allege that FHFA as Conservator did not have the power to cause the GSEs to issue preferred stock with a net worth sweep dividend (NWS) under Delaware law.
This has forced FHFA to “double down” its reliance upon HERA’s anti-injunction provision, arguing that FHFA’s power to manage GSEs’ business insulates judicial review of all FHFA “managerial” action.
FHFA’s “double down” litigation strategy requires FHFA to assert that it has “plenary’ (or unlimited) managerial power as Conservator, which is an unreasonable reading of the HERA anti-injunction provision.
The “plenary power” doctrine operates solely in areas of law, such as immigration, that implicate serious national security and sovereignty concerns. This legal doctrine enables serious governmental civil rights abuses.
It is inappropriate and dangerous to extend the doctrine of unlimited or plenary executive governmental power to a Conservator charged with a fiduciary duty to rehabilitate private financial institutions.
http://seekingalpha.com/article/3759176-why-hindes-jacobs-plaintiffs-will-prevail-in-the-fannie-mae-and-freddie-mac-delaware-litigation-part-ii
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Researcher said:
Fannie and Freddie’s Government Rescue Has Come With Claws – The New York Times
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Anonymous said:
Fannie Mae: What Happened to Greg Schwind????
“Please be advised that the Government inadvertently provided plaintiffs several documents it considers privileged.”
http://www.valuewalk.com/2015/12/fannie-mae-happened-greg-schwind/
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Researcher said:
Watt Says Tells Congress Conservatorship “Not Sustainable”
December 9, 2015
When the Congressionally-empowered conservator of Fannie Mae and Freddie Mac tells Congress the conservatorship is not sustainable lawmakers should believe him – and so should his colleagues in the Administration.
“We’ve been in conservatorship, Fannie and Freddie, for eight years. It is the longest conservatorship that has ever occurred under government control,” Federal Housing Finance Agency Director Mel Watt told members of the House Financial Services Committee Tuesday.
He added that Congress “should act” to address matter, according to Bloomberg.
He might be accused of merely stating the obvious. But senior officials of the Administration of which Watt is part do not share his sense of urgency. White House and Treasury official have repeatedly said the decades-old role of the secondary mortgage market giants needed a major overhaul and recommended winding them down. But in over seven years there has been no action taken and no blueprint offered.
The Housing and Economic Recovery Act, the 2008 law that put the entities under FHFA’s stewardship, anticipated a short-term measure arrangement. It gave Watt and other officials a wide berth to fulfill the law’s mandate to put Fannie and Freddie back on sound and solvent footing.
Instead the Administration has paid some of the government’s bills with the GSEs’ revenues since 2012 with the Third Amendment Sweep and kicked the issue back to Congress, which, conveniently, has not been able to design a plan that has attracted sufficient support. In October, Treasury Secretary Jack Lew and other officials dug their heels deeper in opposition to recapitalizing and releasing the government sponsored entities. This practically guarantees that Watt will end his tenure with the GSEs’ fate still in limbo – his apparent frustration notwithstanding.
Watt may well prefer it were otherwise. He has met with our members on a few occasions and listened politely to investors’ concerns. He served 12 years on the committee before which he testified Tuesday and has extensive experience in housing policy. He has acknowledged that a perpetual conservatorship is not a great arrangement but indicated his hands are tied. This has proven to be true, at least politically.
Nonetheless, there have been limited steps at creating a larger role for private capital, but Watt indicated the experience to date has not revealed a viable alternative.
“We’ve tried out a number of risk sharing methods. We are concerned that the private sector, the capacity of the private sector, to take on this risk, particularly in an economic downturn and a distress situation would concern us greatly,” he said. “If the entire system were converted to the private sector you would have that risk of not having a backstop during a downturn and you’d have that risk of increased cost to borrowers, both of which would need to be evaluated by Congress as they evaluate how to move forward.”
Indeed, as former FDIC Chairman William Isaac and others have noted, no one explained where the vast amounts of capital necessary to sustain liquidity on a scale Fannie and Freddie now make possible would come from if they did not exist.
Last week, in a commentary in Quartz, author Bethany McLean quoted an unnamed analyst who provided a perfect metaphor.
“Say you have a little pool by the edge of an ocean,” her source said. “You’re draining cups of water from the ocean into the pool. Are you making progress getting rid of the ocean? Sure! But you’ll never get there.”
Watt indicated his agency has weathered the stormy period that followed the 2008 financial crisis but important work remains, which the agency and GSEs must complete with limited resources.
“While the risk of the work that we are doing is much, much less now than it was at the onset of the meltdown, staying in conservatorship is just not sustainable. You have a high risk of losing the most qualified people to the private sector,” he said.
This is likely true and major banks would be probably considering hiring them.
To find more Investors Unite blogs click here
http://investorsunite.org/watt-says-tells-congress-conservatorship-not-sustainable/
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Researcher said:
Dear Shareholder,
An article by Gretchen Morgenson published on the front page of the New York Times on Monday, December 7, 2015, sheds light on a surreptitious campaign spearheaded by the “Too Big To Fail” banks to assume control over the mortgage market and usurp the assets of Fannie Mae and Freddie Mac.
During the 2008 financial crisis, Fannie and Freddie helped save America’s home mortgage system and resuscitated our national economy by continuing to provide liquidity when credit markets froze. In the process, the big banks, lobbying groups, and individuals exposed in Ms. Morgenson’s article seized the opportunity to falsely blame Fannie and Freddie for the misdeeds of others. Record legal settlements – exceeding $18 billion to date – paid to Fannie and Freddie validate the wrongdoing by those big banks.
For years, competitors and adversaries of Fannie and Freddie have conducted an unprecedented disinformation campaign, largely carried out through the mainstream media, in which they disseminated deliberately inaccurate information mischaracterizing Fannie and Freddie’s insurance businesses, exaggerating their risks, and understating their benefits. These pervasive false narratives have been particularly effective given that Fannie and Freddie were forced into conservatorship in 2008 and forbidden to speak for themselves.
We wrote in an earlier letter to shareholders that, “…some in government apparently want their friends in the mortgage-industrial complex to take for free what you, the shareholders of these companies, paid for with cash.” Based on the investigation by the New York Times additional evidence has emerged about the small cabal of government officials who have deliberately debilitated Fannie and Freddie in order to benefit the Too Big To Fail banks.
We encourage you to read more at: http://www.nytimes.com/2015/12/07/business/a-revolving-door-helps-big-banks-quiet-campaign-to-muscle-out-fannie-and-freddie.html
Kind regards,
Fairholme
Fairholme Funds, Inc.
4400 Biscayne Blvd.
9th Floor
Miami, FL 33137
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Researcher said:
$FNMA #FANNIEGATE the uncover the coverup legal docs
Posted on December 7, 2015 by Glen Bradford
13-465-0272
13-465-0272-1
13-465-0272-2
13-465-0272-3
13-465-0272-4
http://www.glenbradford.com/2015/12/fnma-fanniegate-the-uncover-the-coverup-legal-docs/
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A Revolving Door Helps Big Banks’ Quiet Campaign to Muscle Out Fannie and Freddie
A behind-the-scenes effort of Wall Street banks to take over the mortgage market is driven by advocates who switch between roles in Washington and the private sector.
By GRETCHEN MORGENSONDEC. 7, 2015
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Researcher said:
The depressing reason Obama and Congress have failed to fix Fannie Mae and Freddie Mac
Written by: Bethany McLean
December 02, 2015
http://qz.com/557781/the-depressing-reason-obama-and-congress-have-failed-to-fix-fannie-mae-and-freddie-mac/
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Why Hindes/Jacobs Plaintiffs Will Prevail In The Fannie Mae And Freddie Mac Delaware Litigation
Summary
This article assesses FHFA’s recently-filed motion to dismiss papers in the Hindes/Jacobs Delaware Federal District Court case, and Hindes/Jacobs Plaintiffs likely arguments in their reply brief, due January 16, 2016.
The Hindes/Jacobs Delaware case will proceed on a similar timeline as the appeal of the Perry case, which was dismissed in the DC federal district court.
This article will explain why, even if the Hindes/Jacobs Delaware court follows the analytic framework used by Judge Lamberth to dismiss the Perry case, Hindes/Jacobs Plaintiffs should still prevail.
If Hindes/Jacobs prevails at district court or Perry obtains reversal or remand on appeal, FNMA/FMCC stock valuation should appreciate significantly. If not, then shareholders may lose their entire investment.
http://seekingalpha.com/article/3723466-why-hindes-jacobs-plaintiffs-will-prevail-in-the-fannie-mae-and-freddie-mac-delaware-litigation
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Anonymous said:
Did Uncle Sam Steal $130 Billion of Shareholders’ Money?
How Uncle Sam Nationalized Two Fortune 50 Companies
http://fortune.com/2015/11/13/fannie-mae-freddie-mac-nationalize-housing-finance/
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Researcher said:
Amid Delays In Fannie Mae, Freddie Mac Reform, Frustration And Litigation Flourish by: Amanda Maher
http://www.valuewalk.com/2015/11/fannie-mae-reform-fortune/
Fannie Mae and Freddie Mac were the focus of much debate again over this past week. Writing for Fortune, Roger Parloff got the conversation started with his provocative article “How Uncle Sam Nationalized Two Fortune 50 Companies”. Shortly thereafter, a number of advocates criticized the White House for its lack of housing finance reform.
Parloff’s article is particularly instructive for those who are new to GSE reform. He lays out years of policy changes for readers, and provides a clear timeline from 2008 through today, albeit with his own tone and opinion injected.
Referencing the profit sweep, Parloff writes:
Instead of a 10% annual dividend on all the bailout funds drawn – a dividend that came to $4.7 billion per quarter – the dividend was now to be set at 100% of each GSE’s net worth. One hundred percent. That is to say, any and all profits they posted. And this would be so in perpetuity. For all practical purposes, the GSEs’ shareholders were wiped out. The two firms, on their way back to health, were effectively nationalized.
The profit sweep is nothing short of un-American, he says, before getting into the lawsuits companies have filed against Fannie Mae and Freddie Mac since the policy took effect.
While others have expressed similar frustration with the profit sweep policy, few have laid out the constitutionality of the policy as clearly as Parloff does here—comparing the “nationalization” of the corporations to Truman’s attempt to nationalize steel mills during the Korean War.
Then Parloff describes how “nationalization” is not only filling Uncle Sam’s pocketbook, but how wealthy fund managers are using this as an opportunity to invest in GSE securities at deeply discounted rates. These same fund managers are among the most vocal advocates for the “recap and release” of the GSEs, which would send shares to sky-high levels.
“Their conflicts are breathtaking,” Parloff writes. “What a strange way we’ve hit upon to make policy in our county. Fund managers identify an investment opportunity, then retroactively construct self-serving arguments for why the nation will be a better place if their bets are allowed to hit the jackpot.”
An unintended impact is the wedge the Fannie Mae and Freddie Mac debate has created amongst conservatives. Bipartisan bills aimed at initiating meaningful GSE reform has all but stalled as a result.
Wade Henderson, President and CEO of the Leadership Conference on Civil and Human Rights, acknowledged his dismay with Congress’s inaction on GSE reform this past week. “[The House] hasn’t shown it can handle any other complex policy issue – especially one that ought to be bipartisan,” said Henderson. “Putting the future of our nation’s housing finance system in the hands of this House, while refusing to do what can be done under existing law, shows a level of naiveté and seeming indifference to the consequences of the status quo that is truly disturbing,” Henderson stated in his scathing attack on the Obama Administration.
In the meantime, litigation continues.
On Nov. 17th, Investors Unite held a conference call in which it brought members up to speed on the latest legal development affecting Fannie Mae and Freddie Mac shareholders. One point of discussion was the lawsuit recently filed by Chief Justice Myron T. Steele in Delaware on behalf of Fannie Mae shareholders. The lawsuit argues that the profit sweep is illegal under Delaware law, where Fannie Mae is incorporated.
There remains no clear pathway forward for Fannie Mae and Freddie Mac reform. In the meantime, with sides waging war against each other regarding the legality of the pay sweep and need to (or not to) release Fannie Mae and Freddie Mac, the only uniting factor is the level of frustration everyone is feeling—which only continues to grow.
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Hindes Asserts White House Cover-up Regarding Fannie Mae/Freddie Mac
Calling it “arguably the most egregious example of attempted government secrecy since the Watergate scandal of the 1970s”, Gary E. Hindes, chairman of The Delaware Bay Company, LLC and former chairman of the Delaware Democratic Party, asserts in a report published today on his firm’s website ( http://delawarebayllc.com/images/The_Mystery_Witness.pdf )that the Obama Administration may have tried to cover up its effort to block a key witness from testifying in one of the many lawsuits filed against it in connection with its de-facto ‘nationalization’ of Federal National Mortgage Association and Federal Mortgage Insurance Corporation. The two government chartered, but privately owned, mortgage insurance companies were placed into conservatorship by the Bush Administration during the height of the financial crisis in September 2008 and were subsequently the recipients of $187 billion in government aid – since repaid with an additional $54 billion profit to t he government.
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Fairholme Sweeney Case Schedule
Plaintiffs’ Jurisdictional Discovery shall be completed by Thursday, December 31, 2015.
The parties shall file a joint status report suggesting future proceedings by no later than Thursday, January 21, 2016.
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Delaware Case Schedule
Plaintiffs’ answering briefs shall be due on or before January 16, 2016
Defendants’ reply briefs shall be due on or before February 16, 2016
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The following is the revised Appeals Court briefing schedule:
Appellees’ Brief(s) – December 21, 2015
Appellants’ Reply Brief(s) – February 2, 2016
Deferred Appendix – February 16, 2016
Final Briefs – March 8, 2016
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Government’s Actions “Bizarre” and “Un-American” in Fortune’s Survey of GSE Saga
November 20, 2015
A comprehensive look at the long and ongoing conservatorship of Fannie Mae and Freddie Mac published by Fortune and written by Roger Parloff sheds needed new light on how the government continues to harm average investors and fails to provide a convincing rationale for its actions.
In essence, the story explains how investors large and small, who saw a legitimate investment opportunity in buying inexpensive shares of stocks with solid prospects, continue to be abused by federal government officials who have their own dubious agenda. The Third Amendment Sweep and obfuscation by the government is an affront to the rule of law and market principles, so the article should raise the ire of Fortune’s discerning readership and resonate broadly with average Americans.
The story, which will appear in the December 1 print edition of Fortune, recalls how, when the housing market was starting to collapse in the spring of 2008, James Lockhart, Fannie and Freddie’s chief regulator, signaled the GSEs were fine and even allowed them to issue new shares to the public. He dismissed talk of them needing a bailout as “nonsense.”
Therefore, when Fannie issued $7.4 billion in preferred stock a few months later, retired police officer Jim Vreeland and his wife Pandora purchased $65,000 worth of the GSE’s stock for about $25 a share to provide additional retirement income security.
In September 2008, when Congress and Treasury officials saw a wider systemic collapse as a real possibility, the Housing and Economic Recovery Act (HERA) went into effect and with terms that are now well known: Fannie and Freed issued senior preferred stock to the Treasury. This would allow them to draw cash in an emergency. With the interest of taxpayers in mind, Fannie and Freddie would owe a 10% dividend on whatever money they needed to draw. Plus, Treasury received warrants to buy 79.9% of each GSE’s common stock at a nominal price.
It was a dramatic move but it seemed like a win for all parties concerned. The GSEs, long the centerpiece of a stable, liquid secondary mortgage market, would get back on their feet. Shareholders, who took as solid the government’s commitment to preserve the GSEs, would eventually see their investment pay off. Prospective homebuyers would be able to continue securing mortgages. Taxpayer losses would be minimized and, last but not least, the government would have potentially lucrative warrants.
Investors Unite President Tim Pagliara was interviewed for the story and spoke for many investors in acknowledging he felt like the government’s reaction was “overblown.” (Indeed, we now know the “death spiral” narrative the government has long relied on to justify its actions was hyperbolic.) Nonetheless, the government’s unprecedented actions to shore up Fannie and Freddie gave him and others ample reason to believe the government would recapitalize and release the GSEs to perform their time-honored market functions. That is, after all, what the law required.
But that is not how the law was followed. In August 2012, when the GSEs were again generating profits and “soundness and safety” were in reach, Treasury imposed the Third Amendment Sweep, denying the GSEs their capital, shareholders their rights and taxpayers their confidence in believing they would not have to subsidize another bailout. The article concludes this was “superfluous, if not downright bizarre.”
Bizarre and very harmful to average investors who unloaded shares at a loss or who continue to wait. The value of the shares is a tiny fraction of the purchase price and shareholders remain in limbo. “It was a big loss to a small guy,” Jim Vreeland is quoted as saying. “That was the money I was supposed to live on.”
Bethany McLean, author of “Shaky Ground: The Strange Saga of the U.S. Mortgage Giants,” conceded in the story that the conservatorship might have made sense in the tumult of the fall of 2008, but what has happened in the interim is hard to fathom.
“I have a hard time arguing with things done in the fog of war,” she is quoted in the story. “But morally, the third amendment was done in a calm and happy time. It was calculated. The reason that has been articulated for it does not make sense, and it’s pretty clearly not true. That’s incredibly unpleasant for anybody that cares about the abuse of government power.”
Parloff sums up the saga at the start of the piece in a comment that says it all.
“If this strikes you as, well, un-American, you’re not alone,” he wrote.
http://investorsunite.org/governments-actions-bizarre-and-un-american-in-fortunes-survey-of-gse-saga/
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