navycmdr
5 hours ago
Gov final Reply in Lamberth Case ...
+ plus the Seeking Alpha Article below:
https://storage.courtlistener.com/recap/gov.uscourts.dcd.160910/gov.uscourts.dcd.160910.436.0_1.pdf
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Fannie Mae Preferreds: A Safer Choice Than Common
Jul. 17, 2024 1:45 AM ET
...... Summary .......
--- Fannie Mae is likely to be recapitalized in the event of a Donald Trump victory.
--- The value of the common stock would be highly uncertain in a recap, but preferred issues
are likely to be redeemed or converted at face value.
--- The three most liquid preferred have compounded average annual returns above 100%
in the base scenario.
The last few weeks have seen renewed interest in the stocks of Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC). The government-sponsored enterprises have been the Schrodinger's cat of the market, alive and dead at the same time, since the mortgage insurers were taken into conservatorship during the 2008 financial crisis.
SA analyst Chris DeMuth Jr. recently highlighted the GSEs as a good way to bet on a Donald Trump election victory because of the likelihood they would be recapitalized and released to private investors--turning the zombie cat into a roaring kitty.
Rather than echo his arguments, I will address the differences between common stock and the various preferred issues, focusing Fannie Mae since I've followed it for at least 25 years.
Common Has Negative Equity
The reason the preferreds carry less risk in the event of a successful recapitalization is found on the balance sheet. The GSEs were prohibited from accumulating equity by the Obama administration. Instead, all profits were subject to a net worth sweep, in which the Treasury Department confiscated profits in return for implicitly guaranteeing the GSEs' debt in case of failure.
As a result, Fannie showed negative common equity of over $130 billion until the Federal Housing Finance Agency reversed the policy under Trump's director, Mark Calabria. While Fannie is now retaining profits, common equity still stands nearly $58 billion underwater.
Balance sheet of Fannie Mae
Preferred equity, which is divided between the government and private investors, shows a positive balance of $139 billion. It is senior to the common. Under any normal reorganization plan, for common shareholders to get anything of value, preferred issues would have to be made whole first, either by being redeemed at par or by being converted to common. (Caveat: Nothing is normal about this situation.)
Calabria, an advocate of recapitalizing and releasing the GSEs, was replaced by the Biden administration, which has not reimposed the net worth sweep but has taken no steps toward release.
Calabria explained his views that the net worth sweep was illegal and release is legally necessary as well as desirable in a June recorded interview with Bloomberg. An especially relevant portion begins around 30:30 of the audio.
When people ask me, you know even in a Trump term, it's not going to be a 2025 exit. 2026, '27 is more likely."
Interviewer: "Do you feel that the 2028 warrants are a meaningful deadline?"
Calabria: "No. (Laughs). The reason it's really not is if you look at the total value pie for Treasury, it's a rounding error. The value really is in the senior preferreds..."
To understand what he's saying, it's important to know the government owns warrants to buy 79.9% of the common stock, which expire Sept. 7, 2028. The government also owns senior preferreds that were issued to support FNMA during and after the financial crisis. Investors own about $35 billion in junior preferreds. These are senior to the government's common warrants and thus cannot be diluted if they are issued, unlike the common stock.
So what Calabria says about the Treasury's shares would also hold true for those held by investors--most of the value is in the preferreds.
Release Scenarios
In 2020, the Congressional Budget Office released an analysis of three release scenarios, with optimistic, median, and pessimistic assumptions.
In some scenarios, the GSEs would raise enough from the common-stock sale to achieve three goals: meeting their capital requirements, redeeming their outstanding senior and junior preferred shares, and providing the Treasury with some value for the warrants it received from the GSEs. (Those warrants give the Treasury the right, though not the obligation, to buy common stock in the GSEs for a nominal price in the future.)
The middle of these scenarios called for redemption of approximately $35 billion in outstanding junior preferreds but ascribed a value of zero to $100 million to the common stock warrants owned by the government, which implies that the investor-owned common shares would be worth less than $20 million.
That's not to discount the possibility of a good return on the common. One possibility is that current shareholders will receive rights to buy new shares, which like many IPO's could be at a favorable price.
Also, if recent profits continue, common equity would turn positive around 2028, and existing shares would have a positive book value. And unlike the preferred, there's no theoretical limit to the value of the common.
However, the preferreds have to be taken care of before any recapitalization can take place, and thus offer a better chance of success. The common stock is more of a bet on a Trump victory and could be risky after the election even if he wins.
Which Preferreds To Buy?
Fannie Mae has 15 issues of preferreds that are trading over the counter, according to Quantum.
Most of them do not trade a lot of shares. By far the most liquid is FNMAS, with average daily volume of 471,000. Others with fair volume are FNMAT (63,000) and FNMFN (65,000).
Let's use FNMAS as an example. It recently closed at $5.55, or 22% of face value of $25. If investors purchased 1,000 shares for $5,550, and it was redeemed for face value in July 2026, they would receive $25,000, for a compound annual growth rate of 112%.
Other issues would give even greater gains, as there is a tradeoff between return and liquidity. FMMAT would have a compound annual growth rate of 127% under the same assumptions. FNMFN is at 147%. Some of the others are still higher, but stocks with low liquidity are not recommended for most investors.
If instead of redeeming the preferreds, the reorganization plan calls for resuming quarterly dividends, the calculations would be different. This does not appear likely, however, as 8.25% fixed coupon on FNMAT and the variable rates on FNMAS and FNMFN represent higher-cost capital than a huge, well-capitalized financial Fannie should need to pay. All of the securities are non-cumulative, so there will be no payment of arrears.
Risks
Re-election of President Biden likely would mean a continuation of the "dead" version of the cat and a tumble in both common and preferred prices. Even if Trump wins, there are various legal and regulatory obstacles to completion of recapitalization. A serious recession that freezes the mortgage or IPO market could make recapitalization untenable before the 2028 election.
Conclusion: FNMA should continue to do well through Election Day as long as there is anticipation of a Trump victory, but its value in a recapitalization plan is speculative. FNMAS, FNMAT, and FNMFN are recommended for investors who can afford to take risks.
This article was written by - Vlae Kershner
Wise Man
13 hours ago
More evidence that the Supreme Court is the plotters' go-to court for their conspiracies.
Besides Justice Alito's out-of-the-box interpretation of the FHFA-C's Incidental Power, commented yesterday, that, once the spins are compared with the written text, what he was doing is endorsing the Separate Account plan, his opinion left other pearls:
▪️FIRST. "Dividend obligation": this financial concept doesn't exist in this world because it's never "mandatory", in an attempt to turn a dividend payment into interest payment (an expense in the Income Statement. Without restrictions) and with the objective to skip the Restriction on Capital Distributions in the law: A dividend is a distribution of Earnings (Changes in Equity: Funds taken from the Retained Earnings account).
There is either cumulative or non-cumulative dividend, precisely, for the moment it's unavailable for distribution, both because there weren't funds available for distribution with Accumulated Deficit Retained Earnings accounts all along and because it's restricted by law when FnF remain undercapitalized (IN GENERAL), which is what has happened.
One would wonder why this flawed concept was repeated by different actors in the Fanniegate scandal, to come to the conclusion that they were colluding to the same cause: the sacking of the enterprises.
- This is Justice Alito:
-This is a joint status report in the Lamberth court: FHFA represented by a Wall Street law firm and the Plaintiffs representing Wall Street:
-This is a deposition of the former Fannie Mae CEO given in 2020, but it was submitted to the Lamberth court for the trials as evidence.
-This is the origin of this flawed term: again, we have to come back to the 1989 bailout of the FHLBanks that is being used as template for Fanniegate (assessments sent to a "Separate Account to ensure payment of principal"), involving the FDIC (Sandra Thompson) and GAO (DeMarco), but, specifically, we will have a look at the press release announcing the end of the FHLB bailout in July 2011: "Completion of the REFCorp obligation", the FHFA solemnly announced, and people would think that the principal of the REFCorp bond was fully paid down, because a bond is also called "obligation" (the issuer is obliged to pay it back). But, later, we see that it was referring to the "fulfillment of an obligation to pay interests", which relates to the interest-only feature of the bond issued by REFCorp (Hence, "REFCorp bond"), where the FHLBs were Equity holders.
The REFCorp bond only paid interests.
The FHLB had to pay both interests and principal.
Therefore, the FHLBs had used their Separate Account for the fast payment of interests of the interest-only 40-year REFCorp bond and the $30B principal remained outstanding untile $SVB came along.
A rogue FHFA attempted to fool us all with the security "obligation" and the "interest-only" feature of the bond as an "obligation to pay interests", instead of what is stated in the law: the fast repayment of the 40-year principal of the bond, with assessments sent to a Separate Account reinvested in zero-coupon Treasuries, and where the Treasury Department was in charge by law of establishing a discount rate to assess the number of years left for the full repayment of principal.
This is why it has deviated to "dividend obligation" in the SPS, attempting to mimic the "interest-only" feature of the REFCorp bond that the FHFA called "RefCorp obligation", and turn it into "Dividend-only SPS", which doesn't exist in this world, just because they are annoyed that dividends are restricted in the law and the reality of a Separate Account plan to legalize the capital distributions that went through, despite the restriction, using the exceptions to the restriction, and one of the exceptions is, precisely, the repayment of these SPS (obligations in respect of Capital Stock).
The SPS are cumulative dividend SPS.
More evidence that Fanniegate is all about rogue people acting freely.
▪️SECOND. In the same screenshot, Justice Alito calls the Agreements "path of rehabilitation", when there is a law enacted exclusively to measure the financial condition of the enterprises, the FHEFSSA of 1992, enacted at the request of GAO in a report released one year earlier (image in the tweet below), and thus, the rehabilitation is measured with the capital metrics, capital definitions and capital classifications therein, not with a groundless determination by random people: "I think they are rehabbed", with currently a whopping adjusted $402B core capital shortfall over the Minimum Capital Level that GAO alluded to in its report, at the time DeMarco was a GAO employee. This is why DeMarco speaks FHEFSSA, and he enacted the July 20, 2011 CFR1237.12, for the continuation of the Separate Account plan: a rehabilitation for real.
Calabria's HERA struck the MANDATORY release from a Conservatorship for Critically Undercapitalized enterprises in the FHEFSSA (Core Capital > Minimum Capital Level, the threshold for the Capital Classification Undercapitalized-. Image in the tweet), precisely, to allow people to make up what a financial rehabilitation is.
https://x.com/CarlosVignote/status/1813107998639661156?t=CRMFhItwk234XUKrjwylWw&s=19
If "path of rehabilitation" with the dividend payments, is flawed, the same occurs with the ongoing SPS LP increased for free as compensation to the Treasury in the absence of dividend (NWS 2.0. The same Common Equity Sweep as before), because it's the same ill-conceived thing: the same capital distribution (both captured in the FHEFSSA definition of capital distribution number 1) and the same RESTRICTION. Restricted for a reason: for the path of rehabilitation for real.
▪️THIRD: Justice Alito was also egged on to repeat another slogan from the plotters: the ongoing NWS 2.0 was enacted in the "fourth amendment of the Purchase Agreement", repeated by the plotters throughout the social media.
This is false and the letter from the Solicitor General Perdogar that the justice pointed out in a footnote, simply alluded to "the prior amendments of the Purchase Agreements", which refers to the 4th (December 2017. Watt-Mnuchin), 5th (September 2019. Calabria-Mnuchin) and 6th (January 2021. Calabria-Mnuchin) amendments of the Purchase Agreement.
Why did the justice and all other plotters come up with 4th amendment? Because they are referring to the 4th amendment of the SPS Certificate of Designation, dated April 2021 with secretary Yellen in office, that simply reflected what was already included in the 4th, 5th and 6th PA amendments and no signature was necessary, as a way to get Yellen involved in the making of the Fanniegate scandal.
Justice Alito helped to spread the word "fourth" to make the plotters' case, who later have spread the word "fourth" for the NWS 2.0 a thousand times, and he was following orders, because no one else says "fourth" to talk about the NWS 2.0 that was brought to you solely by the Trump Administration.
▪️FOURTH AND FINAL POINT. We can read in the screenshot that justice Alito mentioned that the 3rd amendment in question "is no longer in place" and thus, no grounds for relief, when it's still in place in the form of SPS LP increased for free (another capital distribution restricted), challenged by the attorney Hamish Hume in the Court of Federal Claims before judge Sweeney with the Wazee I case that he voluntarily dismissed, and then, the attorney Thompson seized control of Wazee II in a district court, afraid of Hume in the scheduled July 1st amended complaint, because of this:
FnF start building their Net Worth, while also providing that 100% of that Net Worth would be owned solely by Treasury.
Justice Alito's stance resembles the attorney for Fairholme, David Thompson's, who was the attorney before the SCOTUS, that is using it to seek damages (back dividends for Berkowitz's Non-cumulative dividend JPS), contending that the ongoing compensation to the Treasury is wonderland, because the UST gets rich with the SPS LP increased for free in an amount equal to the Net Worth increase and, at the same time, FnF are being recapitalized through Retained Earnings, based on the Financial Statement fraud in FnF that are reluctant to post these gifted SPS LP and its corresponding offset with reduction of Retained Earnings account.
Therefore, zero Retained Earnings account built (C.C. and CET1) and the adjusted Core Capital remains stuck at $-194B every quarter.
This stance in the Collins case on remand from the SCOTUS, is what the attorney Thompson has stated in the scheduled July 1st amended complaint with Wazee II that he abruptly seized control of (plus other 4 cases), mentioned before.
Not only Justice Alito denied the existence of this new compensation to Treasury that is the same harm to the enterprises and thus, to the Equity holders as before, but also he mentioned earlier that it was "a path of rehabilitation", just like the hedge fund managers, like Bill Ackman: "FnF continue to build capital through retained earnings", which is the same stance as the Goldman Sachs alumni, Sandra Thompson at the FHFA.
Unaware all of them, that it renders their Retained Earnings account with an adjusted $-216B in FnF together, caused by the prior accumulated losses in early conservatorship, and the only account that absorbs the future "unexpected" losses (the expected losses are already covered by the Loan Loss Reserve -Allowance for Credit Losses-).
This account is captured in the Core Capital. Because the capital metrics is the way to evaluate the financial condition and risks, as pointed out in the GAO report of 1991, and thus, a gauge of the financial rehabilitation.
BOTTOM LINE
Justice Alito was talking about the rehabilitation of the Federal government.
stockanalyze
19 hours ago
catman is lying again. he is not only the architect of hera and hid the stress test but in 2019 said congress is needed to end conservatorship. why is he lying now that congress is not needed? he is a scumbag and if his name comes up, sell quickly and let the admin know of all what he has said, what he truly believes and done. forward this link.
https://www.bloomberg.com/news/articles/2019-06-12/fannie-freddie-regulator-asks-congress-to-help-end-u-s-control
today, “Calabria also sees a chance..” meaning it will not happen with him.
https://www.housingwire.com/articles/mark-calabria-weighs-in-on-housing-under-a-potential-trump-administration/
remember he said before that they will likely exit c ship in 2024? the word ‘likely’ should have rung alarm bells just like ‘chance’ does today.
https://www.americanbanker.com/news/fannie-and-freddie-will-likely-exit-conservatorship-by-2024-calabria-says
by the way , noticed that vance’s wife worked for judge thapar. thapar was the only dissent in rop case. with timeline she worked for him, she wasn’t on rop case, so she likely knows nothing about it.
read judge thapar’s dissent, very interesting. on page 19
https://www.opn.ca6.uscourts.gov/opinions.pdf/22a0222p-06.pdf
not sure if the above association means anything, far fetched or leads to anything, may be nothing burger but it is a small world after all and who knows.don't jump on it please. at least vance if told, would feel how the 16 year bogus conservatorship with $2100 down to $0.40 has made so many poor with their 529 taken away (while $167 billion given away for education loan forgiveness), retirement taken away while we have 500,000 new millionaires created just last year, companies have hit multi trillion dollar valuations and we are succumbed to have multiple jobs to survive in this inflationary environment where even a small french fry costs $5.00. watch movie on vance, what he went through, not on a silver platter. if he has the ears of what went on with fannie mae and freddie mac, i think it may be very hopeful.
i have given up hope as lost all . i wish i had any cash to buy some and not sure even if i did, if i would buy some. fellow travelers may pull off another net worth sweep overnight and ambush just like they did in 2012. be careful.
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