The GSE Week, Last Week
Hurry, before Congress returns and the place goes to Hell; again, can we all just talk?
If not scintillating, it was interesting watching the back and forth speculation of: 1) whether Ron Kirk who vacation golfed with the President may have mentioned to BHO anything about the case before Judge Margaret Sweeney and whether that—or something else, entirely, including something wholly inconsequential—caused the White House Counsel’s office to request access for three of its associates to the Fairholme documents.
We all are assuming that request—which has been documented and therefore not a figment on someone’s imagination--is for the original docs since a gaggle of them were declared too sensitive for the plaintiffs lawyers to see absent those ugly black redaction lines marked through otherwise spoken or written words?
Beginning of the GSE week
Last Monday started out fairly simple, when WSJ ‘s Joe Light reported that he asked Ron Kirk about the golf course rumor and Kirk said he had not spoken to BHO and didn’t even realize that his firm had a client involved in this issue.
Light described that “no” and then got hit with “tweets” pointing out that Kirk could have chosen to not tell Light the whole story and the former Dallas Mayor added the part about not knowing his firm’s client concerns just to build some additional cover.
I asked Light about that and he disagreed, saying he believed public officials just would refuse to answer the question, not answer it in a way that forced them to fudge the truth.
Again, as of this writing (Sunday, September 6), there has been no proof that anybody spoke to the President nor that the WH Counsel’s interest is anything but standard operating procedure (SOP), when the White House is involved in legal matters!
But that didn’t stop the denizens of the “Tweetosphere” from going back and forth, occasionally, with Light in the middle, offering possibilities of what they all hoped had happened and what could explain the WH Counsel’s movement.
Let me repeat, this all is speculation and should be viewed as such, but with one caveat I’ll hit later.
Middle of the GSE week
Todd Sullivan penned a lengthy article in ValuePlays, which took a different approach to the White House development.
Sullivan postulated a possible —in addition to the several others offered before—why the WH Counsel’s office sought document access. (BTW. Wouldn’t you think if the President of the United States wanted to see some %$&#@ paper, DoJ or Treasury just would bring it to him?? (“President Trump” has vowed to fix that, when he gets done with throttling—and possibly walling off, literally and figuratively--Mexico, China, Russia, and possibly Canada!!)
The point I will underscore is IF there is something substantive behind the Counsel Office’s request--and the “settlement talks” Holy Grail is in sight--the “whispering class” in DC will get hold of it and we’ll all soon know about it. Too many law firms, too many interested parties, too many vested interests—both pro and anti-GSE--for this type of development to stay under wraps.
Sullivan’s thought provoking article is part of that process, just as Joe Light honest reporting is of what Ron Kirk told him when Light asked if Kirk spoke to the President when they golfed.
End of the GSE week
A late contender for GSE story of the week—pregnant with possibility--is the Delaware filing of a separate GSE case, by Judge Myron Steele, former Delaware Supreme Court Justice, who outlined similar opinions in his amicus brief filed in the US Court of Appeals in conjunction with the Perry case and Judge Royce Lamberth’s original dismissal of same.
Steele cuts to the chase in the amicus and points out how Delaware law—where Fannie was chartered--forbids the use of preferred stock in the manner Treasury employed it in the 2012 “sweep.”
If Delaware courts concur. There goes the foundation for the government’s position on the Sweep and its preferred stock ownership.
The invalidity of the Net Worth Sweep under Delaware law informs the federal questions posed by Plaintiffs-Appellants in this appeal: 1. Whether the Federal Housing Finance Agency (“FHFA”) exceeded its statutory authority as conservator for Fannie Mae and the Federal Home Loan Mortgage Corporation (“Freddie Mac,” and, together with Fannie Mae, the “Companies”) under the Housing and Economic Recovery Act of 2008 (“HERA”) by assenting to the Net Worth Sweep under which the Companies must transfer all of their net assets to the United States Department of the Treasury (“Treasury”) and are prohibited from retaining capital, in service of the goal of eliminating the Companies; and 2. Whether Treasury exceeded its authority under HERA and violated the Administrative Procedure Act (“APA”) by entering into the Net Worth Sweep in 2012, when HERA USCA Case #14-5243 Document #1561097 Filed: 07/06/2015 Page 8 of 38 2 expressly permitted Treasury after December 31, 2009, only “to hold [or] exercise any rights received in connection with, or sell, any obligations or securities [it had already] purchased,” or by imposing the Net Worth Sweep based on outdated data without adequately examining reasonable alternatives. If the Net Worth Sweep was illegal under the charter of the Companies, it exceeds FHFA’s statutory authority as conservator by definition. Standing in the shoes of the board and the stockholders, FHFA cannot exercise a corporate power that the board and the stockholders could not themselves have exercised. See 12 U.S.C. § 4617(b)(2)(B) (granting the conservator the power to “operate the regulated entity with all the powers of the shareholders, the directors, and the officers of the regulated entity and conduct all business of the regulated entity”). Similarly, if the Net Worth Sweep is an illegal term for preferred stock, the amendment cannot possibly be regarded under Delaware law as Treasury’s exercise of a “right received in connection with” preferred stock purchased by Treasury before December 31, 2009. Preferred stockholders cannot have a perpetual claim on all the residual earnings of the Companies to the exclusion of common stockholders under Delaware law.
Status: Judge Sweeney Punts, in the spirit of football season
Sweeney’s order, issued after Friday’s 9-4 status hearing, appears below and it’s not startling or very satisfying.
She extends discovery to the end of this year; delays implementation of actions which clash with unfinished discovery (think NYT request), approves some minor others; calls for a new status meeting before 1-21-2016, yada, yada, yada.
ORDER The court conducted a status conference in the above-captioned case on September 4, 2015 concerning several matters, including various motions filed by the parties. As discussed during the status conference, the court resolves the following motions as follows: 1. Plaintiffs’ oral motion during the status conference to extend jurisdictional discovery is GRANTED. 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.
As one of my favorite DC people said, when I expressed my exasperation with a slow legal process:
“Hey it's only the world's second largest securities market after U.S. treasuries. What's the rush? (Additional proof that more college degrees don't equal greater wisdom.) “
Other GSE Items
Some dreams do come true.
On Sept. 3, former Fannie Chairman and CEO David O. Maxwell and his tennis partner, Herb Bascome of Devon, PA., won the United States 85-and-over grass court tennis championship at Longwood Cricket Club in Chestnut Hill, MA. Along the way, the winning pair beat the first and second seeded teams. It was a dream come true for Maxwell, a lifelong tennis player, who has undergone two knee and a hip joint replacement surgeries so he can continue his tennis passion.
House Draft Bill Would Recap GSEs
It’s nice that House members can cross party lines on GSE reforms. But with no real details, yet, of what Rep. Mick Mulvaney (R-S.C.), is touting in his new F/F recap proposal, it’s hard to make any guesstimates about its popularity, other than to note they aren’t too many GSE friends on Mulvaney’s House Banking Committee.
Added interest always is good, but the reality is no GSE legislation of any substance will move through the Congress until 2017 at the earliest, when there is a new President.
So, welcome aboard Congressman Mulvaney, just remember to don your big boy pads!
Iran Deal Now Protected for Obama
With retiring Senator Barbara Mikulski (D-Md.) announcing she’ll support President Obama and vote to sustain his veto of any GOP effort to derail the Iran proposal, the President appears to have won final passage.
The WH needed at least 34 committed votes (one third plus one) votes. They got that with Mikulski. Four others since have signed on, giving Obama 38. Approval looks like a foregone conclusion. (Although, we all will hear more threats and partisan allegations.)
Look for other uncommitted D’s to support or oppose the President—depending on their narrow back home political needs--now they know their vote won’t matter one way or the other, but the WH still will welcome those following Mikulski’s lead.
The Senate’s political “Bravehearts” are only those who went out early—before Mikulski’s clinching declaration--- and vowed their support for/opposition to the Obama plan. (See Sen. Chuck Schumer (D-NY).)
Everybody coming later—like Virginia’s Mark Warner (D-Va.), who hid his vote until the Iran decision appeared home free, because of Mikulski--was game-playing and very relieved their departing Maryland colleague rode political shotgun for them.
What Others Are Saying
Presidential campaign corner
Pledge: I think Trump just clinched!
Trump signing the GOP loyalty test, IMO, likely gives him the Republican nomination and—if that looks to become a finality--it might draw other D’s to challenge Hillary, seeing her continued popularity challenges and believing the national electorate won’t choose Trump, who never has held public office. (Hey, the less experience the better, right?)
But look at the other GOP presidential candidates and see which one you think might qualify as “The Donald’s” best VP choice? I am sure the GOP establishment will seek one of those for Trump’s eventual running mate.
Trump’s decision was a wise one for him and should lower a lot of R primary election barriers, but he’s still thoroughly unpredictable and maybe anathema to blocs of minority voters and others who care about integrity and realize you can’t return to “Fortress America” in the internet age.
Will Trump go after Carson?
Schmidt: Trump emasculates Bush
Foes to vote Trump in GOP Primary; “We’ll show you.”
Whither thou goest, Scott Walker?
Trump Stomps on GOP Economy Message
“OK, I’ll sign the pledge, but I won’t…..”
Ted Cruz’s Father, Rafael Cruz
This former Fidel Castro supporter, self-confessed alcoholic who abandoned his family, found Christ, and now lectures Christian clergy, lashes out regularly against son Ted Cruz’s opponents.
Is there a “pot and kettle” analogy with Rafael Cruz? How about the Republicans’ “11th Commandment”—don’t speak ill of another R--a surely a religious GOP presidential parent would know and abide by it???
Save me, please, from Pastor Cruz!!
--Judge Myron Steele’s amicus filed in the US Court of Appeals (Perry case)
--Media Discussion of Judge Steele’s Perry amicus brief
Negotiations to Solve GSE Issue Near?
September 2, 2015 Alexander Rosen Business
Richard X. Bove of Rafferty Capital Markets highlighted that Myron Steele, a retired Judge filed an amicus brief in the Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) lawsuits. The pressure continues to mounts for a negotiated deal as Judge Steele files case in Delaware. He was Chief Justice of the Supreme Court in Delaware before he took retirement.
Retired Judge Steele had submitted amicus brief in Federal National cases making two major claims. The first one of that the third amendment on Fannie Mae’s senior preferred stock is not enforceable, and secondly the Amendment violates Delaware law which clearly mentions that preferred shareholders are not eligible to get all the profits of the mortgage company leaving no profits for common shareholders.
Now, the retired judge has taken one step further and filed a case under his own name. Since Federal National is a Delaware entity, if the courts in that case find for Judge Steele, the Treasury will lose the game. The other cases will be unresolved since Delaware has alleged that mortgage company has broken the law.
Todd Sullivan reported that President Barack Obama, ex-President Clinton and lawyer Mr. Ron Kirk played golf a couple of weeks ago. He even released a picture of them on the golf course. Mr. Kirk Has served as Mayor Dallas in the past and was also a special trade executive appointed by the U.S. President.
He now works for a Perry Capital law firm, which is suing the Treasury and FHFA seeking the redress of the Federal National Third Amendment. This meeting may be a coincidence or an indication that the White House could probably lose control of the mortgage company.
Judge Steele as filing attorney in Delaware Class Action
Legal sources with whom I’ve spoken this week believe that Steele’s class action suit, i.e. Jacobs and Hindes, as well as his amicus, present very strong arguments against the U.S. government’s actions.
Jacobs and Hindes might have far-reaching property rights implications. The case also could be a major test of federal limits, because Treasury’s GSE moves could violated state laws as well.
(In an email exchange, over the weekend, printed in IHub, Judge Steele says he expects the Delaware federal court to take at least 6 months before moving on the Jacobs and Hindes class action suit.)
Joe Colangelo says public should be concerned about GSE plight.
Kamal Kolacek letter to Bill Ackman, “Why Fannie and Freddie holders deserve little compensation.”
Latino and Black Leaders in NYC say reviving F&F key to increased home ownership among minorities.
Maybe someone should tell that to President Obama, Secretary Julian Castro, and FHFA Director Mel Watt, just to name a few whose ears should get that message.
The Atlantic on Fannie Mae’s “Home Ready” new mortgage product could address the problem mentioned in the article above.
WSJ’s John Carney says WH interest not a big deal.
Compass Point says no behind the scenes F&F deal
IMF Looks Ahead Three Years
In an article written by Paul Muolo for Guy Cecala’s Inside Mortgage Finance publication, Muolo sets up the reality of GSE reform legislation for the next three years??
What We’re Hearing: The Coming Ticking Time Bomb at Fannie and Freddie / Time for Mel Watt to Step Up to the Plate? /
By Paul Muolo
If you think Congress is going to pass a Fannie Mae/Freddie Mac reform bill in the next two years, you’re dreaming. No matter how you analyze the situation, the political climate in Washington is so toxic that there’s little politicians from the both sides of the aisle can agree on unless it’s a dire emergency like the U.S. defaulting on a debt payment. For now, the GSEs are safe as long as they keep earning money, which looks like a given, even though they keep giving away the upside via risk-sharing deals. But there is a wild card here and it comes in 2018 when the allowable capital cushion at the two falls to zero. Fannie/Freddie watchers we’ve spoken to fear that a large hedging loss caused by a sharp swing in rates could eventually result in a net loss, which means Treasury would need to plug the net worth hole with cash money that comes from taxpayers
And when that day comes, you can bet that members of both parties will take to the floor of the House and Senate, criticizing each other for not doing something sooner. Of course, there is a way to avoid the zero capital cushion dilemma. Congress can pass legislation to allow the GSEs to build capital or Federal Housing Finance Agency Director Mel Watt can do the same by teaming up with Treasury Secretary Jacob Lew to do it administratively. But will it happen?
Bank Screw Up Corner
Nomura, RBS pay FHFA $836 Mil for F&F
Alexandra Petri lists parenting styles if those of you with kids want to know where you “fit” as Mom and Dad?