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#FannieGate, $fmcc, $fnma, Fannie Mae, FHFA, Freddie Mac, Treasury
Unsealed Saxton Amended Complaint.
Peter A. Chapman wrote:
At the Saxton Plaintiffs’ behest, Magistrate Scoles released the shareholders’ Amended Complaint from seal yesterday. Copies of the Saxton Plaintiffs’ Motion (Doc. 84), Magistrate Scoles’ Order (Doc. 85), and the now-unsealed Amended Complaint (Doc. 61), are attached.
Story behind the Amended Complaint:
Fannie and Freddie are two of the largest privately owned financial institutions in the world. They insure trillions of dollars of mortgages and provide essential liquidity to the residential mortgage market. The Companies operate for profit, and their debt and equity securities are privately owned and publicly traded. The Companies’ shareholders include community banks, charitable foundations, mutual funds, insurance companies, pension funds, and countless individuals, including Plaintiffs.
Throughout the financial crisis, Fannie and Freddie were capable of meeting all of their obligations to insureds and creditors and were capable of absorbing any losses that they might reasonably incur as a result of the downturn in the financial markets. As mortgage insurers, Fannie and Freddie are designed to generate ample cash to cover their operating expenses—and indeed this was the case for the Companies throughout the financial crisis. In contrast to the nation’s largest banks, the Companies took a relatively conservative approach to investing in mortgages during the national run up in home prices from 2004 to 2007. As a result, the Companies (i) experienced substantially lower mark-to-market credit losses during the financial crisis than other mortgage insurers, (ii) were never in financial distress, and (iii) remained in a comparatively strong financial condition. Indeed, the Companies’ ability to pay any outstanding claims—a fundamental principle for all insurers—was never in doubt. Despite the Companies’ relative financial health, the Department of the Treasury (“Treasury”) implemented a deliberate strategy to seize the Companies and operate them for the exclusive benefit of the federal government.
At Treasury’s urging, in July 2008, Congress enacted the Housing and Economic Recovery Act of 2008 (“HERA”). HERA created the Federal Housing Finance Agency (“FHFA”) (Treasury and FHFA are sometimes collectively referred to herein as the “Agencies”) to replace Fannie’s and Freddie’s prior regulator and authorized FHFA to appoint itself as conservator or receiver of the Companies in certain statutorily specified circumstances. As conservator, HERA charges FHFA to rehabilitate Fannie and Freddie by taking action to put the Companies in a sound and solvent condition while preserving and conserving their assets. Only as receiver does HERA authorize FHFA to wind up the affairs of Fannie and Freddie and liquidate them. HERA’s distinctions between the authorities granted to conservators and receivers are consistent with longstanding laws and practices of financial regulation.
HERA also granted Treasury temporary authority to invest in the Companies’ stock until December 31, 2009. Congress made clear that in exercising this authority Treasury was required to consider the need for Fannie and Freddie to remain private, shareholder-owned companies.
These limitations on FHFA’s and Treasury’s authority make clear that Congress did not intend for the Agencies to operate Fannie and Freddie in perpetuity, and certainly not for the exclusive financial benefit of the federal government.
On September 6, 2008—despite both Agencies’ prior public statements assuring investors that the Companies were in sound financial shape—FHFA, at Treasury’s urging, abruptly forced Fannie and Freddie into conservatorship. Under HERA, and as acknowledged by FHFA at the time, the purpose of the conservatorship was to restore confidence in and stabilize the Companies with the objective of returning them to normal business operations. As FHFA confirmed in its public statements, conservatorship is necessarily temporary, and FHFA may only act as conservator for the Companies until they are stabilized. At the time, neither of the Companies was experiencing a liquidity crisis, nor did they suffer from a short-term fall in operating revenue. Moreover, the Companies had access to separate credit facilities at the Federal Reserve and at the Treasury, and the Companies held hundreds of billions of dollars in unencumbered assets that could be pledged as collateral if necessary. Nevertheless, Treasury instead coerced the Companies into conservatorship to further the government’s unspoken policy objectives. Indeed, a receivership that sold all of the Companies’ assets and liabilities would have more economic value to the private shareholders than the conservatorship as it was structured and operated in practice. And in any event, Treasury had definitively concluded that the Companies would not be placed into receivership at that time.
Immediately after the Companies were forced into conservatorship, Treasury exercised its temporary authority under HERA to enter into agreements with FHFA to purchase securities of Fannie and Freddie (“Preferred Stock Purchase Agreements” or “PSPAs”). Under these PSPAs, Treasury committed to purchase a newly created class of securities in the companies, known as Senior Preferred Stock (“Government Stock”). In return for its commitment to purchase Government Stock, Treasury received $1 billion of Government Stock in each Company and warrants to acquire 79.9% of the common stock of the Companies at a nominal price.
The Government Stock entitled Treasury to dividends at an annualized rate of 10% if paid in cash or 12% if paid in kind. The Government Stock was entitled to receive cash dividends from the Companies only to the extent declared by the Board of Directors “in its sole discretion, from funds legally available therefor.” If the Companies did not wish to—or legally could not—pay a cash dividend, the unpaid dividends on the Government Stock could be capitalized (or paid “in kind”) by increasing the liquidation preference of the outstanding Government Stock—an option Treasury publicly acknowledged in the fact sheet it released upon entry into the PSPAs. Therefore, the Companies were never required to pay cash dividends on Government Stock. There was never any threat that the Companies would become insolvent by virtue of making cash dividend payments, both because dividends could be paid with stock and because state law prohibits the payment of dividends if it would render a company insolvent. Indeed, unlike most preferred stock that imposes temporal limits on a company’s ability to exercise a payment in kind option, the PSPAs specifically allowed the Companies to utilize this mechanism throughout the life of the agreement, thereby foreclosing any possibility that they would exhaust Treasury’s funding commitment because of a need to make a dividend payment to Treasury.
The Government Stock diluted, but did not eliminate, the economic interests of the Companies’ private shareholders. The warrants to purchase 79.9% of the Companies’ common stock gave Treasury “upside” via economic participation in the Companies’ profitability, but this upside would be shared with preferred shareholders (who had to be paid before any payment could be made on common stock purchased with Treasury’s warrants) and common shareholders (who retained rights to 20.1% of the Companies’ residual value). James Lockhart, the Director of FHFA, accordingly assured Congress shortly after imposition of the conservatorship that Fannie’s and Freddie’s “shareholders are still in place; both the preferred and common shareholders have an economic interest in the companies” and that “going forward there may be some value” in that interest.
Under FHFA’s supervision—and, on information and belief, at the insistence and direction of Treasury—the companies were forced to excessively write down the value of their assets, primarily due to FHFA’s wildly pessimistic assumptions about potential future losses. Despite the Companies’ concerns, FHFA caused the Companies to incur substantial non-cash accounting losses in the form of loan loss provisions. To be clear, tens of billions of dollars of these provisions—recognized by the Companies as expenses—were completely unnecessary since the potential loan losses never materialized into actual losses. Nonetheless, by June 2012, the Agencies had forced Fannie and Freddie to issue $161 billion in Government Stock to make up for the balance-sheet deficits caused by the Agencies’ unrealistic and overly pessimistic accounting decisions, even though there was no indication that the Companies’ actual cash expenses could not be met by their cash receipts. The Companies were further forced to issue an additional $26 billion of Government Stock so that Fannie and Freddie would be able to pay cash dividends to Treasury even though, as explained above, the Companies were never required to pay cash dividends. Finally, because (i) the Companies were forced to issue Government Stock to Treasury that they did not need to continue operations and (ii) the structure of Treasury’s financial support did not permit the Companies to repay and redeem the Government Stock outstanding, the amount of the dividends owed on the Government Stock was artificially—and permanently—inflated.
As a result of these transactions, Treasury amassed a total of $189 billion in Government Stock. But based on the Companies’ performance in the second quarter of 2012, it was apparent that there was still value in the Companies’ private shares. Treasury’s attempt to drown the Companies by extending a concrete “life preserver” had failed. By that time, the Companies were thriving and paying 10% annualized cash dividends on the Government Stock without drawing additional capital from Treasury. And based on the improving housing market and the high quality of the newer loans backed by the Companies, it was apparent that they had returned to stable profitability. This return to profitability made it inevitable that the Companies would be reversing many of the non-cash accounting losses they had incurred under FHFA’s supervision, and the reversal of those paper losses would result in massive profits. Indeed, the Agencies had specific information from the Companies demonstrating that such reversals would take place soon. Given this information and the broad-based recovery in the housing industry that had occurred by the middle of 2012, the Agencies fully understood that the Companies were on the precipice of generating huge profits, far in excess of the dividends owed on the Government Stock. Moreover, when the Net Worth Sweep was suddenly imposed on the Companies in August 2012, the financial crisis had clearly passed and there was absolutely no need for “drastic emergency action” by the Agencies.
Treasury, however, was not content to share the value of the Companies with private shareholders and was committed to ensuring that the Companies were operated for the exclusive benefit of the federal government. Indeed, unbeknownst to the public, Treasury had secretly resolved “to ensure existing common equity holders will not have access to any positive earnings from the [Companies] in the future.” By the middle of 2012, however, it was apparent that even the large amount of Government Stock outstanding—the proverbial “concrete life preserver”—would not achieve this unlawful policy goal for Treasury.
Therefore, on August 17, 2012, just days after the Companies announced their robust second quarter earnings, the Agencies unilaterally imposed the Net Worth Sweep to expropriate for the federal government the value of Fannie and Freddie shares held by private investors. Treasury itself said that the Net Worth Sweep was intended to ensure that “every dollar of earnings that Fannie Mae and Freddie Mac generate will benefit taxpayers.” With the stroke of a pen, the Agencies had nationalized the Companies and taken all the value of the Companies for the government, thereby depriving the private shareholders of all their economic rights, well in excess of the authority granted to the FHFA as conservator. The Companies received no incremental investment by Treasury or other meaningful consideration in return for the Net Worth Sweep. All of this was in blatant violation “the path laid out under HERA,” which, as even Treasury acknowledged internally, was for Fannie and Freddie to “become adequately capitalized” and “exit conservatorship as private companies.”
In attempting to defend the Agencies’ naked expropriation of private property rights against claims by injured shareholders, the government has insisted that the Net Worth Sweep was necessary to prevent the Companies from entering a “death spiral” due to their existing dividend obligations to Treasury. This argument is facially implausible for at least two reasons: first, the timing of the Net Worth Sweep belies this explanation. The Agencies did not impose the Net Worth Sweep at a time when Fannie and Freddie were struggling to earn enough money to pay cash dividends to Treasury, but rather imposed it mere days after the Companies announced that they had earned several billion dollars more than necessary to make such payments. What is more, these earnings, coupled with an improving housing market and the improving quality of loans guaranteed by Fannie and Freddie, made clear that the Companies would soon be considering reversal of the non-cash accounting losses they had been forced to take while in conservatorship, which would generate extraordinary gains commensurate with those losses. Second, Treasury’s Government Stock certificates never could cause the Companies to enter a death spiral, because by their plain terms they provided a mechanism for Fannie and Freddie to pay dividends in-kind rather than in cash.
In light of these facts, there were only two possible explanations for the death spiral rationale: incompetence on the part of the Agencies at the time of the Net Worth Sweep or inaccuracy in describing the Agencies’ reasons for taking action. Discovery in the Court of Federal Claims has ruled out incompetence. Indeed, that discovery has made clear that the reason the Net Worth Sweep was adopted when it was is precisely the opposite of a concern that the Companies’ earnings were going to be too low. Rather, the concern was that the Companies’ earnings would be too high and thus would complicate the Agencies’ plans to keep Fannie and Freddie in perpetual conservatorship and to prevent their private shareholders from seeing any return on their investments.
There is a wealth of evidence that supports this conclusion, and much of it is detailed below. But the most striking evidence relates to a meeting that occurred on August 9, 2012, between senior Treasury officials, including Under Secretary Mary Miller, and Fannie’s executive management team. The Agencies knew in advance of that meeting that the company was likely entering a period of “golden years” of earnings. Indeed, in July 2012 the minutes of a Fannie executive management meeting during which that precise sentiment was expressed were circulated broadly within FHFA, including to Acting Director Edward DeMarco. Projections attached to those minutes showed that Fannie expected that its dividend payments to Treasury would exceed its draws under the PSPAs by 2020 and, more importantly for the “death spiral” narrative, that over $115 billion of Treasury’s commitment would remain after 2022.
Fannie’s projections did not account for reversal of the Company’s massive deferred tax assets valuation allowance. That item alone would add over $50 billion dollars to Fannie’s balance sheet. Treasury was keenly aware of this impending addition to earnings. Indeed, by late May 2012 Treasury was discussing with its consultant the topic of returning the deferred tax asset to Fannie’s and Freddie’s balance sheets, and a key item on Treasury’s agenda for the August 9 meeting was how quickly Fannie forecasted releasing its reserves. At the August 9 meeting, in addition to being presented with projections similar to those provided to FHFA in July, Treasury was given very specific information about the Company’s deferred tax assets: Fannie CFO Susan McFarland has testified that she told Under Secretary Miller that release of the valuation allowance likely would happen in mid-2013 and that it likely would be in the range of $50 billion—a prediction that proved remarkably accurate. It thus is no surprise that Ms. McFarland also has testified that she did not think that Fannie was in a death spiral in mid-August 2012.
The Net Worth Sweep was imposed only days after Treasury’s meeting with Fannie—and email traffic indicates that Treasury was making a “renewed push” to finalize the Net Worth Sweep that very day. In light of all of this, it is wholly implausible for the Agencies to claim that there was any imminent concern of a “death spiral.” Indeed, in an internal document authored the day before the sweep, Treasury specifically identified the Companies’ improving operating performance and the potential for near-term earnings to exceed the 10% dividend as reasons for imposing the Net Worth Sweep.
Treasury’s knowledge of Fannie’s expectations for its deferred tax assets also wholly discredits the declaration FHFA submitted to the public record in another district court asserting that “neither the Conservator nor Treasury envisioned at the time of the Third Amendment that Fannie Mae’s valuation allowance on its deferred tax assets would be reversed in early 2013, resulting in a sudden and substantial increase in Fannie Mae’s net worth, which was paid to Treasury in mid-2013 by virtue of the net worth dividend.” That declaration was signed under penalty of perjury by Mario Ugoletti, who participated in the creation and implementation of the PSPAs while at Treasury, later moved to FHFA, and at the time of the Net Worth Sweep served as the principal liaison with Treasury concerning the PSPAs. And in his deposition, Mr. Ugoletti expressly disclaimed any knowledge of Treasury’s understanding of the deferred tax asset issue, and he also denied knowing what anyone else at FHFA thought about the issue.
The Net Worth Sweep has resulted in a massive and unprecedented financial windfall for the federal government. From the fourth quarter of 2012, the first fiscal quarter subject to the Net Worth Sweep, through the second quarter of 2015, the most recently completed fiscal quarter, Fannie and Freddie generated nearly $180 billion in net income. But rather than using those profits to prudently build capital reserves and prepare to exit conservatorship, Fannie and Freddie instead have been forced to pay $186 billion in “dividends” to the federal government under the Net Worth Sweep (funded by that net income and draining prior retained earnings)—nearly $130 billion more than the government would have received under the original PSPAs. Adding Net Worth Sweep dividends to the dividends Fannie and Freddie had already paid, Treasury has now recouped $54 billion more than it invested in the Companies. Yet, according to Treasury, the amount of outstanding Government Stock remains firmly fixed at $189 billion, and Treasury continues to insist that it has the right to all of Fannie’s and Freddie’s future earnings in perpetuity. At the time of the Net Worth Sweep, the Agencies knew that it would result in a massive financial windfall.
The Net Worth Sweep blatantly transgresses the limits Congress placed on FHFA’s and Treasury’s authority. As conservator of Fannie and Freddie, FHFA is charged with rehabilitating the Companies with a view to returning them to private control. The Net Worth Sweep guarantees that this can never be accomplished. Indeed, contrary to its statutory requirements and statements that it made when the conservatorship was initiated, FHFA has now indicated that it will operate Fannie and Freddie for the exclusive benefit of the government until Congress passes housing finance legislation. Holding the Companies hostage in a perpetual conservatorship while awaiting potential legislative action was never an option for FHFA contemplated under HERA. And Treasury’s decision to exchange its existing equity stake in the Companies for the new and different equity stake granted to it by the Net Worth Sweep years after its temporary authority to acquire the Companies’ stock had expired is a direct affront to HERA’s plain requirements. What is more, on information and belief Treasury compelled FHFA to agree to the Net Worth Sweep despite Congress’s express direction that FHFA exercise its conservatorship authority independently.
By entering the Net Worth Sweep, FHFA violated HERA in at least five ways. First, FHFA failed to act as a “conservator”—indeed it has acted as an anti-conservator—because conservators are not allowed to use the companies under their care as ATM machines. Second, FHFA is required to put Fannie and Freddie in a sound and solvent condition, but the Net Worth Sweep forces the Companies to operate on the edge of insolvency by stripping the capital out of the Companies on a quarterly basis. Third, FHFA is required to conserve and preserve Fannie’s and Freddie’s assets, but the Net Worth Sweep requires the dissipation of assets by forcing the Companies to pay their net worth to Treasury on a quarterly basis. Fourth, FHFA is charged with rehabilitating Fannie and Freddie and seeking to return them to private control, but the Net Worth Sweep is designed to make any such outcome impossible. Finally, FHFA as conservator cannot be subject to the direction and supervision of any other government agency, but, on information and belief, FHFA entered the Net Worth Sweep at the direction and supervision of Treasury.
Treasury’s violation of HERA is straightforward: the Net Worth Sweep, by changing the fundamental economic characteristics of Treasury’s investment, created new securities, and HERA explicitly prohibited Treasury from acquiring Fannie and Freddie securities in 2012.
References and Resources Below
New unsealed court documents from Fannie & Freddie Secrets
Feel free to post informative comments while the other blog is unavailable but please don’t post any non-public, sealed or protected information that could negatively affect plaintiffs cases.
TH717 
Pingback: June 2016 - GSE Links
Why is no one posting here?
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KTF
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KTF!!!!
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New filing in the Voacolo case, click here to view.
Peter Chapman writes, “The Clerk issues summonses to FHFA and Treasury today.”
Click to access 16-01324-0003.pdf
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FHFA As GSE’s Conservator, Regulator, Receiver, Part Of The Government And Not All At The Same Time
Jul. 1, 2016 5:00 PM ET|==Glen Bradford
http://seekingalpha.com/article/3985841-fannie-mae-freddie-mac-plaintiffs-allege-companies-treated-like-government-atm-machines?app=1&auth_param=qicp:1bndkn4:6639b1e96f6053b866453121abc3b4d1#alt2
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Fannie Mae:
Brilliant 9 page Response by Attorney Robert Craig representing Plaintiff Arnetia J Robinson vs FHFA. Kentucky
Thank you glen bradford for this link
http://www.glenbradford.com/wp-content/uploads/2016/06/063016-Robinson-
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Link doesn’t work for me
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The Novel Procedural Complexities in Perry Capital v. Lew
The Novel Procedural Complexities in Perry Capital v. Lew
Neither lack of subject-matter jurisdiction, sovereign immunity, nor administrative deference impairs Perry Capital’s substantive claims
On April 15, 2015, the Court of Appeals for the District of Columbia Circuit heard oral argument in Perry Capital LLC v. Lew, in which Perry Capital challenged the Net Worth Sweep (NWS) put into place by the Third Amendment to the Senior Preferred Stock Purchase Agreements (SPSPA) of August 17, 2012. Those agreements were made between the Federal Housing Financial Agency (FHFA) and the Department of the Treasury. On September 30, 2014, District Court Judge Royce Lamberth roiled the market when, unexpectedly, he granted FHFA and Treasury’s motion for summary judgment on the merits. In anticipation that the Circuit Court would soon decide the case, I published on June 15, 2016, an analysis of the oral argument, intended to explain why the Net Worth Sweep (NWS) gave the government a huge windfall that under every conceivable future scenario sucked dry all the value in the junior preferred and common stock held by the private shareholders in two government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.
The D.C. Circuit’s Questions
During the oral argument before Judge Lamberth, the lawyers for both sides addressed only the substantive issues in the case. Then, without warning, on June 21, 2016, the Circuit Court on its own motion issued an order addressing key issues of subject-matter jurisdiction and sovereign immunity that had previously been glossed over in the case. The order reads as follows:
The D.C. Circuit seeks supplemental briefing on the following questions:
(i) Regarding the ‘class plaintiffs’ claim against Treasury for breach of fiduciary duty, is there a grant of subject matter jurisdiction and a waiver of sovereign immunity that is not the Federal Tort Claims Act?
(ii) Regarding all the class plaintiffs’ other claims:
Is each defendant subject to suit absent a waiver of sovereign immunity and, if not, is there such a waiver? The answer to this question should include a discussion of whether the FHFA’s challenged actions were taken solely in the agency’s capacity as conservator for Fannie Mae and Freddie Mac, or whether they were taken in whole or in part in a regulatory capacity
What is the source of subject matter jurisdiction over the claims?
Before turning to these specific queries, we should ask, why this order at this time? Clearly, Judges Millett and Brown and Senior Judge Ginsburg had ample time to moot the underlying substantive questions. If they thought that Judge Lamberth was correct, they could have issued an opinion that tracked his reasoning without further briefing. The surprise request from the panel suggests, at the very least, that the judges do not think that the substantive issues are cut and dry in favor of the government. So what should the answers be to their queries?
As usual, I answer these questions in my role as an advisor to several institutional investors. The simplest way to deal with this question is to start with the jurisdictional issues; thereafter I shall turn to the sovereign immunity questions, which pose greater difficulties, and finally to the question of whether any judicial deference is owed FHFA and Treasury in this contractual dispute. The basic inquiry must take into account that FHFA is an independent agency, while the Department of the Treasury is part of the United States to which different rules apply. The matter is still more complex because the correct answers depend in part on the underlying nature of the claim: what relief is sought, and for what reason.
Subject matter jurisdiction
Subject matter jurisdiction is governed in part by 28 U.S.C. § 1331, which provides simply that:
The district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States.
It is hard to think of any reason why the action for breach of duty against FHFA does not fall under this provision. In each case, the plaintiffs rely on the substantive provisions of the Housing and Economic Recovery Act of 2008 (HERA) to advance claims that FHFA entered into agreements in violation of its duties as conservators of the Enterprises, which required it to uphold its fiduciary responsibilities to preserve and conserve assets, to allow the GSEs to return in sound and solvent condition into the private marketplace. 12 U.S.C. § 4617(b)(2)(D). Any cause of action that pursues this claim arises under the laws of the United States. The plaintiffs further allege that FHFA was in violation of its duties as trustee when it entered into the Third Amendment after December 31, 2009, when it had no power to give away the assets of the private GSE shareholders under 12 U.S.C. §§ 1455 (l)(1(A), 1719(g)(1)(B). Section 6.4 of each SPSPA contains an explicit reference to federal law as the primary source of authority: “This Agreement and the Warrant shall be governed by, and construed in accordance with, the federal law of the United States of America if and to the extent such federal law is applicable, and otherwise in accordance with the laws of the State of New York.” Similarly, the stock certificates for the senior preferred stock provide, in the case of Fannie Mae, that “the respective rights and obligations of the Company and the holders of the Senior Preferred Stock with respect to such Senior Preferred Stock shall be construed in accordance with and government by the laws of the United States, provide that the law of the State of Delaware shall serve as the federal rule of decision in all instances except where such law is inconsistent with the Company’s enabling legislation, its public purposes and any provision of this Certificate.” The analogous provisions for Freddie Mac specify the laws of Virginia instead of Delaware. In both cases, the content of state law is adopted as part of federal law, which again shows how this dispute necessarily arises under the laws of the United States.
There’s more follow this link
http://www.forbes.com/sites/richardepstein/2016/06/30/the-novel-procedural-complexities-in-perry-capital-v-lew/
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Judge Steele is awaiting response from Delaware and Virginia courts. Soooon
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are you sure.?
i thought he was waiting to get on the docket.
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Since Counts I and II are not eligible to be “dismissed”, the Plaintiffs were able to move forward with the Application for Certification to the Delaware and Virginia Supreme Courts. These documents were submitted June 8th, and are available for public viewing.
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Judge Sleet
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Naked Short Report – Thu 6/30/16
———————-
The volume of Naked Shorting today was 29% of total $FNMA volume at 400,000 shares. Yesterday’s volume was 24% and 500,000 shares.
Highest %: 58% on 5/18/16
Highest Shares: 15,900,000 on 4/13/16
Shares for May: 49,700,000
Shares for June: 25,600,000
Week ending 6/17: 5,000,000
Week ending 6/24: 5,000,000
———————–
The total shares of Naked Shorting for $FNMA for the month of June was 25,600,000.
The reduced amount over last month was more likely due to low volatility as a result of less news. The MDL panel victory caused a quick rise but the request for more information by the Appeals Court caused some confusion as weather is was a positive or negative.
Yesterday and today were a prime opportunity to press the price down but the entity behind this seems to be quite satisfied to have the share price hover around $2/shr.
———————–
http://otcshortreport.com/index.php?index=FNMA&action=view
The Naked short data does NOT include regular Equity Shorting.
———————-
“Naked short selling is selling stock that you haven’t even borrowed: You sell stock on the exchange, don’t deliver it, and when your broker demands that you deliver it you hang up on him. That’s illegal.”
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Tim D, do you know why timhoward717 is private/closed???
Someone has to know about this………..Thx
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I haven’t seen anything on Twitter. TH has posted a couple times on Twitter since his blog went private but did not mention his blog.
This happened once before when his blog was hacked. Took a while to get it restored. I don’t know if that is the case here or not.
No one in the know is talking. It was getting a bit confrontational and bogged down in politics. It is also no fun administering a blog of that magnitude.
Maybe he’s taking a well deserved break.
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Maybe TH717 and Judge Sweeney are reviewing the sealed and protected documents. TH717 is busy and doesn’t have time to support that site. Accidently TH717 can openly give you secret, sealed and protected information. You will become rich buying shares. Just my thought …hahahahah
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anybody know the price of gas in Rio?
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Judge Brown (one of the judges in Perry Case) issued a ruling on April 29 overturning Congress a second time. After the first time SCOTUS sent the case back to the DC Circuit. Judge Brown, Williams and Sentelle unanimously ruled to overturn the statute, at least in part.
The discussion of due process is really interesting. You see how Judge Brown framed the issue in that case. here is how Brown lays out the due process/fairness issue:
The specific fairness question we face here is whether an
economically self-interested entity may exercise regulatory
authority over its rivals….
We agree with the freight operators. Our view of this
case can be reduced to a neat syllogism: if giving a self interested entity regulatory authority over its competitors
violates due process (major premise); and PRIIA gives a self interested entity regulatory authority over its competitors
(minor premise); then PRIIA violates due process.
— the court is concerned with providing regulatory authority to an entity that has a conflict of interest/self interest. Of course we’re not talking about the exact same type of conflict of interest, but we still are making a case where the Treasury is not acting in the interest of Fannie/Freddie or even the taxpayers, but in its own interest. And if that is the case, at least there should be an opportunity to litigate… because you can’t have a statute that carves out basic due process of the law.
Click to access 12-5204-1611061.pdf
[audio src="https://www.cadc.uscourts.gov/recordings/recordings2016.nsf/2B982C8DC02DDF0885257EF900635959/$file/12-5204.mp3" /]
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Audio:
[audio src="https://www.cadc.uscourts.gov/recordings/recordings2016.nsf/2B982C8DC02DDF0885257EF900635959/$file/12-5204.mp3" /]
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Judge Sweeney and CJ Steele keeping the faith that we shall see victory very soon, God willing!
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What happens if the Fairholme case settles? Judge Sweeney doesn’t rule anymore, correct? Where does it leave the rest of the cases? Would it be better to own common or preferred?
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Great question for the legal minds!
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Whether or not Fairholme case settles, I would think the other cases remain intact because they are based on different actions taken by the Conservator and Treasury, and they are argued differently. A good example is the Delaware case where the arguments are all about different classes of stockholders.
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That’s correct, Thom. There are many cases in different venues with different arguments. In fact, our two cases in the Court of Federal Claims (CFC) are derivative actions that are requesting the court to order the U.S. Treasury to return all the NWS money to the companies. Also, the Washington Federal case is contesting the legality of both conservatorships (also in the CFC).
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Any settles don’t leave 3rd amendment(sweep) stand ,it’s basically all the argument.
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what about paying back the sweep money, or the 80% diluting of the shares, plenty of other and further settlements/arguments. A settle would stop the sweep but if i had to guess thats all the govt will be willing to come to the table with….. and where do we project that will take us?
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Bruce B will get the best deal possible. I’m glad to be on his side of the table.
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From Federalcharges.com (see Fraud Punishment below)
Government Fraud Laws & Charges + Statute of Limitations
There are various types of fraud that can be punished under federal law. Generally speaking, fraud refers to intentional deception that has an element of personal gain or that can damage another person. Federal government fraud refers not only to fraud perpetrated by members of the federal government, but fraud committed by other private individuals in connection with the federal government. For example, government contractors may commit fraud in connection with their official duties, while those receiving benefits or other considerations from the federal government may also commit fraud.
Fraud Laws
Federal fraud laws are defined in U.S. Code Chapter 47. A large number of different types of statements, documents, and transactions related to the federal government can be treated as matters of fraud. Fraud can consist of written documents as well as statements. One of the defining elements of fraud is intent: In general, it is not possible to commit fraud by accident or through negligence. Although it is possible to take a course of action with results similar to fraud without intent, it is generally not possible to prosecute in such matters.
Fraud Crimes & Charges
Federal fraud laws encompass an unusually vast number of different potential crimes. In the broadest sense, they include both written and oral statements, no matter the medium, intended to defraud or confer benefit. Although relative statutes provide for forty different examples, some of the most relevant are as follows:
Possession of false papers to defraud the United States through counterfeited or falsified documents of any kind.
Using counterfeit documents of any kind to obtain shares of any public stocks of the United States, or to transfer, assign, or sell annuities, dividends, wages, or other assets of the United States.
Using documents or false statements of any kind to defraud the Federal Deposit Insurance Corporation or to obtain unlawful benefits from any Federal Deposit Insurance Corporation transaction.
Fraudulent title records or other records pertaining to property rightfully owned, possessed, leased, or under the custodianship or protection of the United States for the purpose of transferring or ameliorating ownership in any way.
Generally speaking, a charge of fraud may be possible in any case where any falsified or counterfeit document was willfully used to abridge the United States’ ownership in any tangible asset to the benefit of the defrauding party. Because there are so many different types of fraud, the specifics of sentencing may be different for each one.
Fraud Punishment
Punishment for fraud depends in large part upon the amount of material benefit that the defrauding individual gained as a result of their activities. Generally speaking, the focus of fraud prosecution is to make equitable restitution, which includes the complete seizure of any assets or properties that were secured by fraud. Federal fraud prosecution can include such expedients as garnishing wages or compelling the sale of assets in order to recover losses.
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Can anyone tell us why timhoward717 website is now “private” and we cant view anything??
Thx
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i’d like to know that myself..
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Fannie Mae, Freddie Mac look for more ways to share credit risk
GSEs provide update on risk-sharing programs; seek input on front-end deals
June 29, 2016
By Ben Lane
The federal government is looking for additional methods and mechanisms that it can use to transfer credit risk currently borne by Fannie Mae and Freddie Mac, and therefore the American taxpayers, to private investors.
On Wednesday, the Federal Housing Finance Agency published details of the credit risk-sharing histories of Fannie and Freddie, and issued a request for input on ways that the government-sponsored enterprises can shift more risk to the private market.
According to the FHFA report on the risk-sharing deals, the GSEs executed a total of 43 risk-sharing deals in 2015, moving a portion of the risk on $417.1 billion in unpaid principal balance to private investors.
The FHFA report states that in total, the GSEs have transferred a portion of the risk on $837.9 billion in UPB since 2013.
According to the FHFA report, the corresponding amount of credit risk transferred on these loans is $30.6 billion, which represents, on average, about 3.6% of the UPB of credit loss protection for those loans.
The risk-sharing deals are significant because they provide further protection against credit loss for the GSEs beyond primary mortgage insurance, which is currently the “dominant method” for sharing risk on higher loan-to-value mortgage acquisitions.
But, as the FHFA cautions, mortgage insurance isn’t necessarily enough to cover for loan losses, especially in a “stress event” like the housing crisis.
“During stress events such as the recent financial crisis, for example, loan-level losses can exceed mortgage insurance coverage, leaving the Enterprises with the remaining credit risk,” the FHFA said in its report.
“For example, Enterprise loans with LTV ratios above 80% that were originated in 2006 and 2007 experienced average loss severities ranging from 29.4% to 33.2% after giving credit to any mortgage insurance benefit or lender indemnification,” the FHFA continued. “For many of these loans, loss severities exceeded the applicable mortgage insurance coverage level, which caused the Enterprises to absorb additional losses.”
And with the GSEs capital buffer on its way to zero, increasing the need for more robust risk-sharing programs from the GSEs moving forward.
Per the Preferred Stock Purchase Agreements, which went into effect when the government took Fannie and Freddie and require the government-sponsored enterprises send dividends to the Department of the Treasury each quarter that they are profitable.
Currently, under the PSPAs, the GSEs are prohibited from rebuilding capital and each of the GSEs’ capital base is required to be reduced, with their capital reserves scheduled to be drawn down to $0 in 2018.
To that end, the FHFA also put out a request for input for improving its current risk-sharing offerings and developing new risk-sharing structures.
Part of that request for input centers on possible, additional “front-end” credit risk transfer structures.
According to the FHFA, it distinguishes between “front-end” and “back-end” credit risk transfer transactions based on when the arrangement of the credit risk transfer occurs.
“Front-end” or “up-front” credit risk transfer transactions are those in which the arrangement of the risk transfer occurs prior to, or simultaneous with, the acquisition of residential mortgage loans by one of the GSEs, such as a collateralized recourse transaction.
“Back-end” credit risk transfer applies to transactions in which the arrangement of the risk transfer occurs after the acquisition of residential mortgage loans by the GSEs.
Much of the GSEs current risk-sharing is conducted via “back-end” transactions, including Freddie Mac’s Structured Agency Credit Risk or Fannie Mae’s Connecticut Avenue Securities debt transactions.
According to the FHFA, it is exploring more front-end risk-sharing moving forward.
One of those potential methods is developing a deeper mortgage insurance structure, which the FHFA said that it is currently evaluating with the GSEs.
Click here for the FHFA’s full risk-sharing report, and click here for the FHFA request for input on future risk-sharing.
“The Credit Risk Transfer Progress Report demonstrates transparency and documents that there has been a great deal of progress in the credit risk transfer market in a short period of time, even though the market is still relatively young,” said FHFA Director Mel Watt.
“The Request for Input demonstrates our commitment to build upon the progress and expand the array of credit risk transfer products,” Watt said. “Feedback from stakeholders is critical as we explore additional ways to enhance these programs and expand the investor base.”
http://www.housingwire.com/articles/37401-fannie-mae-freddie-mac-look-for-more-ways-to-share-credit-risk
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Naked Short Report – Wed 6/29/16
———————-
The volume of Naked Shorting today was 24% of total $FNMA volume at 500,000 shares. Yesterday’s volume was 34% and 1,100,000 shares.
Highest %: 58% on 5/18/16
Highest Shares: 15,900,000 on 4/13/16
Shares for May: 49,700,000
Shares for June:
Week ending 6/17: 5,000,000
Week ending 6/24: 5,000,000
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If there is no objection, I’d like to post the Naked Short Report on this blog.
For the past 8 sessions the percent has been +/- 2% from 32%. Seems to indicate to me that they have an automated trading system set up when news and activity is slow. It also gives more evidence that only a very few (or one) are behind the Naked Shorting otherwise the percentage would deviate more from 32%.
One interesting thing was that during the Brexit mess they did not back off or attack. They could have really made the stock go down much more but yet did not back off either. Not sure why.
Today was a bit of a break in trend at 24%
———————–
http://otcshortreport.com/index.php?index=FNMA&action=view
The Naked short data does NOT include regular Equity Shorting.
———————-
“Naked short selling is selling stock that you haven’t even borrowed: You sell stock on the exchange, don’t deliver it, and when your broker demands that you deliver it you hang up on him. That’s illegal.”
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I do not mind as I look forward to your daily short report. I am glad that you are here.
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Love these posts and your help with everything thanks to you and all the contributors out there! Happy 4th, KTF!
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I think it is too quiet around the fairholme case, they probably are settling the case
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It has been remarkably quiet in the Fairholme case.
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How could they settle one case with so many going on? If they did settle what does it mean for us? Let’s say government got to save face, nobody went to jail, there was no penalty or money owed but Fannie and Freddie were released to share holders govt still owned 80%?
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I’ll challenge to anyone ,Who wrote this talking casualty about the Freedom of information Act?
[quote]”The Government should not keep information confidential merely because public officials might be embarrassed by disclosure, because error and failures might reveled ,or because speculative or abstract fears”[/quote]
Maybe Honorable judge Sweeney??? not
Was ……. believe, Barak Obama in one of the first memoranda of His presidency !!!!WOW
https://www.whitehouse.gov/the-press-office/freedom-information-act
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Be Lender-Owned Insurers in DeMarco’s Plan
June 29, 2016 — 5:00 AM PDT
By Joe Light
Fannie Mae and Freddie Mac would be put through receivership and turned into lender-owned insurers under a housing-finance overhaul plan co-authored by the companies’ former regulator.
Ginnie Mae, a U.S.-owned corporation that guarantees payment on mortgage bonds, would be placed at the center of the housing-finance system under the Milken Institute proposal developed by Edward DeMarco, who ran the Federal Housing Finance Agency for more than four years, and Michael Bright, who worked on an ill-fated reform plan in 2014 while serving on Senator Bob Corker’s staff.
DeMarco and Bright want to see Fannie Mae and Freddie Mac converted into mutual companies, owned by lenders, that would sell insurance against defaults instead of buying and securitizing mortgages. As they do now with Federal Housing Administration loans to less-wealthy borrowers, the lenders would issue mortgage-backed securities under the auspices of Ginnie Mae. As an exception, Fannie Mae and Freddie Mac could still buy loans directly from small lenders, the authors said.
“This can become, in my view, a credible conservative, right of center approach to housing-finance reform,” said Michael Stegman, who stepped down as President Barack Obama’s housing-finance point man earlier this year and will soon join the Bipartisan Policy Center.
While few expect new housing-finance legislation to emerge before the U.S. presidential election in November, stakeholders have begun to lay the groundwork for a potential push in the next administration. Earlier this year, authors including advisers to Democrat Hillary Clinton’s campaign proposed merging Fannie Mae and Freddie Mac into a new government-owned corporation.
In contrast, DeMarco and Bright hold more sway with conservative lawmakers, and their plan could be a starting point if Republicans keep control of Congress makes a new push on reform.
The government took control of Fannie Mae and Freddie Mac in 2008, eventually injecting them with $187.5 billion in bailout money. At the time, many lawmakers expected the companies would quickly be wound down, but nearly eight years later Congress is still far from agreement on what kind of system, if anything, should take the companies’ place.
Significant Impact
DeMarco and Bright said they don’t expect their plan would have a significant impact on mortgage rates and that the new system would have between 5 percent and 10 percent capital to absorb potential losses before drawing on taxpayers.
They don’t say how how they would address the roadblocks that stymied earlier legislative efforts, including the 2014 bill that was abandoned amid Democrats’ objections to eliminating affordable housing goals. Progressive groups have fought to preserve the commitments to facilitate lending for certain lower-income borrowers, while some conservatives blame them for lax lending standards before the credit crisis.
DeMarco and Bright said that they don’t yet know how their system would replace the affordable housing goals and that they will seek input in coming months. That may not be enough to please progressives, who criticized DeMarco for not doing enough to help struggling borrowers when he headed FHFA.
Progress Unlikely
John Taylor, president of the National Community Reinvestment Coalition, said he doesn’t believe it would be possible for legislation preserving the affordable housing goals to make it through the Republican-controlled Congress.
“I wish it was, but it’s not,” he said.
Without such a possibility, Taylor said, his group would prefer that Fannie Mae and Freddie Mac be preserved in their current form.
The plan is also likely to displease private shareholders suing the government to claim a portion of the companies’ profits. The government since 2012 has taken nearly all the companies’ profits when they make them, and the DeMarco-Bright plan would leave little money for them.
http://www.bloomberg.com/news/articles/2016-06-29/fannie-freddie-would-be-lender-owned-insurers-in-demarco-s-plan
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If Demarco is involved, you have cause to be on high alert. As Director of FHFA, he took it upon himself to enact housing finance reform without congress or any other groups. He ignored the statutes of HERA and proceeded to put in place his version of what he thought housing finance infrastructure should look like. He was a rogue that had to be replaced quickly, thus Mel Watt.
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DeMarco , Bright ,Michael Stegman,advisers to Democrat Hillary Clinton’s(Sperling) All sworn enemies from FnF and the shareholders “right and by extension from the constitution ,just missing here Parrot! nothing coming from this litter mob-persons could be good.
Joe Light is a moped and not a journalist.
My grandmother could say “god raises them and the devil joins them”
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Relative to FnF ,don’t know if have some influence in our cases.
http://www.courthousenews.com/2016/06/28/scotus-to-hear-fannie-mae-jurisdiction-fight.htm
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Question: How many Actual dollars did the UST give to FnF in this.. I see you say they were forced to issue $189B of Gov Stock.. But how much ACTUAL cash did they put into it?
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To add on to this query are the monies obtained from Banks settling cases. If they are filed in the financials of Fannie Mae and Freddie Mac then those belong to the GSEs too. Treasury was not that aggrieved party but the GSEs . However everything conveniently swept to Treasury as if Treasury =FHFA= Fannie Mae + Freddie Mac.
Treasury keeps tossing the $187B figure but that already includes the 10% interest. If no funds were transferred from the Treasury to the GSEs then there was never a loan. Why pay interest on a loan guarantee?! Pay interest on the actual loan. If a Bank approves a loan for $137B and you only borrowed $5B why pay interest on $187B? If you did not get anything why pay interest?
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Good point about the bank settlements belonging to FnF and not Treasury, even though Treasury took those settlements. Bank settlements were indeed money to repay wrongs against FnF. The settlements belong to FnF and should be a part of any restitution.
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Both FnF in their latest monthly summary reports showed continuing drops in delinquency rates across the board, soon to reach pre-crisis levels.
I
These are the so-called “failed business models:”
Click to access 053116.pdf
Click to access 0516mvs.pdf
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It looks like Ginnie mae is taking market share too, while in conservatorship.. The gov is stalling in the courts while they pillage the companies and transfer future growth to ginnie mae.. Someone needs to chalk up a lawsuit for this too
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I’ve noticed this too. This is my single biggest concern with this stock.
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TH717,Outstanding resume in this post from all this saga,taking the opportunity to give you thanks for keep working this blog and your hard work for the justice,KTF
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JPMorgan whistleblower gets $63.9 million in mortgage fraud deal
A whistleblower will be paid $63.9 million for providing tips that led to JPMorgan Chase & Co’s agreement to pay $614 million and tighten oversight to resolve charges that it defrauded the government into insuring flawed home loans.
The payment to the whistleblower, Keith Edwards, was disclosed on Friday in a filing with the U.S. district court in Manhattan that formally ended the case.
In the February 4 settlement, JPMorgan admitted that for more than a decade it submitted thousands of mortgages for insurance by the Federal Housing Administration or the Department of Veterans Affairs that did not qualify for government guarantees.
JPMorgan also admitted that it had failed to tell the agencies that its own internal reviews had turned up problems.
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these banks should have been gave the FnF treatment,they earned it
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Something very wrong in our country it’s happening when govt Is aligned with the bandits and act as one ,courts of laws are our only one hope.
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can we get a naked short report for the last 2 days? I would guess yesterday was closer to 50%?
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34.21% 6/28/2016,the change in page have lost a lot people yet.
http://otcshortreport.com/index.php?index=FNMA&action=view
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thanks, was looking for Timdillen to come back and hook us up
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I no longer have access to the other blog. If there is no objection I would be happy to post The Naked Short Report here.
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Missed your reporting, TimD.
GO FOR IT!!!!
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Great post. Wonderful narrative of what has transpired so far. Being so guilty, it is hard to imagine how they can back out of the corner they have painted themselves into. They either give up with apologies, restitution and compensation or dig a bigger hole for themselves by some arm twisting of the judiciary which I have always been brought up to believe happens only in a Banana Republic. Well, speak of being between Iraq and a hard place; they have their falafels dangling over seering oil, ready to be deep fried. Please pass me the hummus and tahini sauce please, and not to forget the Baba Ganouj and Kababs while I wait for the falafels. At the rate we are going, the credibility of this administration will soon equate to that of ISIS if not worse.
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And here I thought an insult to ISIS would be impossible. You have proven me wrong.
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why is the other blog unavailable and/or by invite only now?
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I don’t think anyone knows the answer to your question. Something similar happened about 15 months back give or take. The best we can do is make the best of it.
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I believe the last time this happened, the blog was hacked and it took a while to get the blog restored. Not sure if that is the case this time or not.
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This morning I was reading some of the most recently released documents and one that caught my eye was the Deposition of Timothy Bowler. I just had to look! As I was reading the Deposition, something caught my eye. On page 51, lines 18, 19, 20, and 21 Mr. Bowler responds to a question posted by Mr. Patterson about the existence of a policy within the Treasury at that time to assure that no common shareholders would profit from earnings by FnF. Mr. Bowler replied that it was his understanding that there was such a policy based on the Treasury’s White Papers of 2012.
I knew this was incorrect because there were no Treasury White Paper of 2012. The only Treasury White Papers on reform of the GSE’s were the Obama Administration’s, Treasury’s, and HUD’s White Papers of Feb 11, 2011 titled: REFORMING AMERICA’S HOUSING FINANCE MARKET- A REPORT TO CONGRESS
Just to make sure I hadn’t missed something I did some research. Turns out Treasury was working on some White Papers as late as Nov. 2012, See: http://www.nationalmortgagenews.com/features/treasury-blueprint-fannie-freddie-on-hold-1033177-1.html
These efforts were shelved due to lack of interest by Congress. Here’s the kicker, these blueprints are the very same proposals announced by Hillary’s crack housing finance reform team just a few days ago!
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Still keeping the faith, me love Fannie long time! 😍
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