Banks got a lot more blowback and despite this they've been left pretty much unaffected by the feds. Minimal prosecutions, minimal fines, minimal rule changes, and as far as I know, no additional oversight.

Without following Fannie Mae's situation, my gut feeling is that their situation will turn out just fine. The big issue is how long and under what conditions they will emerge from conservatorship. I'm sure this will take ages, as all things in Congress do. But with housing market looking better by the day and time healing all wounds by the day, I'm optimistic. I will say that jumps to 30 and 250, per OP, are more delusion than forecasting.

You have your thread already, why are you making a new one?

http://forumserver.twoplustwo.com/30...worth-1322812/

Yah lock this thread.

FNMA is going to 0.

New Hank Paulson Quote about Fannie Mae
The Financial Crisis: Five Years Later
Hank Paulson: This Is What It Was Like to Face the Financial Crisis
September 12, 2013 BloombergBusinessweek

"When I came to Washington, Fannie or Freddie guaranteed or insured roughly half the new mortgages in America. Today about 90 percent of all new mortgages are insured by the government. So today it’s worse. I frankly find it abhorrent to even think about keeping Fannie or Freddie in conservatorship. If we do so, we’re just sowing the seeds of a future crisis."

From wiki:

In April 2007, he delivered an upbeat assessment of the economy, saying growth was healthy and the housing market was nearing a turnaround. "All the signs I look at" show "the housing market is at or near the bottom," Paulson said in a speech to a business group in New York. The U.S. economy is "very healthy" and "robust," Paulson said.[21]

In August 2007, Secretary Paulson explained that U.S. subprime mortgage fallout remained largely contained due to the strongest global economy in decades.[22]

On March 26, 2008, Secretary Paulson said in remarks at the U.S. Chamber of Commerce, “As we work our way through this turbulence, our highest priority is limiting its impact on the real economy. We must maintain stable, orderly and liquid financial markets and our banks must continue to play their vital role of supporting the economy by making credit available to consumers and businesses. And we must of course focus on housing, which precipitated the turmoil in the capital markets, and is today the biggest downside risk to our economy. We must work to limit the impact of the housing downturn on the real economy without impeding the completion of the necessary housing correction. I will address each of these in turn. Regulators and policy makers are vigilant; we are not taking anything for granted.”[23]

In May 2008, The Wall Street Journal wrote that Paulson said U.S. financial markets are emerging from the credit crunch that many economists believe has pushed the country to the brink of recession. "I do believe that the worst is likely to be behind us," Paulson told the newspaper in an interview.[24]

On July 20, 2008, after the failure of Indymac Bank, Paulson reassured the public by saying, “it's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation.”[25]

On August 10, 2008, Secretary Paulson told NBC’s Meet the Press that he had no plans to inject any capital into Fannie Mae or Freddie Mac.[26] On September 7, 2008, both Fannie Mae and Freddie Mac went into conservatorship.[27]

On November 18, in testimony before the United States House Committee on Financial Services, Secretary Paulson told lawmakers, “There is no playbook for responding to turmoil we have never faced. We adjusted our strategy to reflect the facts of a severe market crisis always keeping focused on Congress's goal and our goal – to stabilize the financial system that is integral to the everyday lives of all Americans.”[28]

On November 20, 2008, during remarks at the Ronald Reagan Presidential Library, Secretary Paulson said, “We are working through a severe financial crisis caused by many factors, including government inaction and mistaken actions, outdated U.S. and global financial regulatory systems, and by the excessive risk-taking of financial institutions. This combination of factors led to a critical stage this fall when the entire U.S. financial system was at risk. This should never happen again. The United States must lead global financial reform efforts, and we must start by getting our own house in order.”[29]

Because FNMA is so profitable now, I think the lawsuits against the government will have a very good shot at winning.

Judge Margaret Sweeney issued an order to deny the government’s motion for stay pending the resolution of related actions in the U.S. District Court for the District of Columbia (re: APA actions).

Love this quote. It is as much the duty of govenment to render prompt justice against itself in favor of citizens as it is to administer the same between private individuals. Abraham Lincoln

Here's my laywoman's guess on FNMA's third quarter profits. Pros: Third quarter home sales notoriously the best; Rising home prices; Declining delinquences, Declining book debt. Interest rate increase negligible.

I'm guessing they will show an 11 billion dollar profit. The have also indicated the possibilty of releasing 30 billion in tax credit writedowns.

This can only help the lawsuits against the government. Let's hear it for the Fifth Amendment!

Did you take into account the junior preferred dividend payments that they aren't making in your assessment of their profitability?

Ok so in the first picture this is a breakdown of the total corporate debt that Fannie Mae as a corporation owes. Short-term,long-term etc.

In the second picture it shows the total amount of MBS that Fannie Mae owns. This is the amount that is being wound down and the proceeds from that are then used to pay off the debt that it owes.

The first number is just under 580 billion dollars in debt.
The second number is only 547.8 billion of MBS.

This leaves a deficit of 33.2 billion. I'm going to assume that the company is liquidated over 5 years as proposed in Corker/Warner to determine what would be left for common shareholders in the company in a receivership scenario or something similar to it.

Preferred stock with back payments: 19 billion at 10 percent interest compounded from 2008 to 2013 = -30.6 billion

Senior Preferred stock: -117 billion

Debt to MBS deficit: - 33.2 billion

Cash plus property,plant,equipment: +168.5 billion

Bank litigation settlements: 1/3rd of 180 billion = +60 billion

Libor settlements: 2 billion

Net revenue 5 years @ 10 billion per year = +50 billion

30.6
117
33.2
--------
180.8

168.5
60.0
2.0
50.0
--------
280.5


280.5
-180.8
--------
99.7 billion to common

Let's assume that the government exercises the 79.9 percent option and dillutes the shareholders. So 20 percent of 99.7 billion is 19.94 billion divided by 1.2 billion shares makes the liquidation value of FNMA presently:

$16.61 per common share

This is assuming that the G-fee contracts are a wash and are transferred over to the Treasury or FMIC without being purchased by them.

GSE reform legislation will probably value the contracts as equal to the liabilities that offset the fees. So if it costs .48 to guarantee a mortgage the liability for default is balanced by the income from the fee.

It remains to be seen if compensation would be required from FMIC or Treasury to cover the profitable portion of those contracts. For example, if the G-Fee is .48 percent and the actual risk of the "product" is .38 percent then a pretty good argument can be made that FMIC or Treasury has to compensate the market value of the income that would have been had by having the spread between the two.

So if the spread can be determined to be .10 basis points on 3.2 trillion that would equate to 3.2 billion dollars per year in income. If the average duration of the mortgages in the portfolio would likely be 7 years FMIC might be compelled to compensate 3.2 x 7 years to complete the last part of the windown. So that 22.4 billion could also end up with the common stock.

This thread does such a great job of illustrating a major investing thought process pit fall that I'll probably bookmark it so that I can link it to people as an example.

You should respond to my last few posts.

Below is a partial response to my e-mail from my US Senator's office.

...."The (payroll tax) extension passed in December 2011 was paid for with a 10-year increase in the fees that Fannie Mae and Feddie Mac charge lenders for guaranteeing home loans, as well as an increase in the annual premium that the Federal Housing Administration charges homeowners for insuring mortgages".

"I opposed this offset because it will guarantee the continued existence of Fannie Mae and Freddie Mac for at least another ten years, despite the fact that these entities were intended to be in a temporary conservatorship".

In my e-mail to the Senator, I basically asked him not to support the Warner-Corker bill. I'm really starting to feel that based on the massive complexities of this issue, and FNMA's return to profitablity, the Warner-Corker bill will eventually loose steam and dry out.

It is too hard to do teach someone how to read a balance sheet and do a forecast.

You forgot to add in the senior preferred stock dividends and junior preferred stock dividends starting from now to 5 years from now in your guestimate.

You could have saved yourself a ton of time by actually looking. It has a book value (that is all assets minus all debts) of negative $21.45 per share. If they maintain their current record earnings* (AND never made any dividend payments to the senior and junior preferred shares*), it would take them 3 years to be above water.

Buying a stock with a huge negative book value is what we in the industry call "not a good idea."

*which ain't gonna happen.

They are unlikely to exercise the common stock warrant in a situation where they pass legislation to liquidate the company. The junior preferred stock is non-cumulative so in a forced liquidation those shareholders are not entitled to previous dividends if they have been suspended. Additionally, I calculated the dividend amounts on the junior preferred far in excess (10 percent) of the average amount that they actually pay dollar for dollar. So it is likely that even in a situation where they do pay back dividends the dollar amount is accurate.

If the dividend sweep amendment holds in all its respects and Corker/Warner passes exactly as it is written and is signed by the president (very unlikely since the bill only has a 4 percent chance of passing), then yes you can minus the 50 billion in net earnings that I estimated over the next five years.

That still leaves 49.7 billion for the common stock.

Your estimate on their current book value is flat-out incorrect.

If they liquidate, you get what is left over. That is negative $21.45 per share, so $0.

That is true.

You did.

Rolling back the amendment would be negative. Try to figure out why the stock jumped on the news that the amendment agreement happened. It was positive.

If the bill doesn't pass, then you can also minus the 50 billion.

It wasn't an estimate! It is on your source, right next to the words "Book Value Per Share (mrq):" Nicely, they do the math for you!

As I have implored you, if you want to bet on this, buy the junior preferred shares. I'm not suggesting you do (since I think they are also going to be worthless, just slightly less likely to be worthless). As always, I will be happy if things work out for you in this bet. Just concerned that naïve people will follow you in on it (which benefits you not at all).

And get drawn back into an argument with a guy who has shown repeatedly that he wants to be right in investing? Here's the thing... Some people care about having the right ideas and some people care about being personally right. When it comes to investing you are basically gambling on the outcome of things that will happen in the real world. These things will happen regardless of what you think, so the goal is simply to make your ideas mirror the real world as much as humanly possible.

To do this you have to be very flexible in your ideas. BriantheMick2 has spent an almost heroic amount of time trying to talk you out of your firm BELIEF that FNMA is an automatic home run. He's made a lot of really good points. You've responded by putting your fingers in your ears and screaming 'lalalalalalala' at the top of your lungs. This is happening because you want (very badly) to be right. Beliefs have no place in investing. You do not get paid to be right, you get paid to make money. You make money by getting your mental image of the situation as close to real life as possible as quickly as possible. This often involves ditching your own idea and stealing some other persons ASAP.

EDIT: Like seriously dude if you want what you believe to be relevant to your work join the clergy.

With 10 lawsuits and counting against the government on behalf of FNMA, I found the following article very interesting.

"The Just And Legal Way Forward For Fannie Mae And Freddie Mac" June 10/2013. Author: Bryndon Fisher

Below are some inserts from his article.

"The first option is for government officials to direct the FHFA to comply with the original intent of the conservatorships and amend, retroactively, the Agreements with the Treasury to allow the companies to use funds in excess of the 10.0% annual dividend amount for the rebuilding of their capital structures and the repayment of their debt to the Treasury, effective January 1, 2013. Additionally, the two firms are to be released from their conservatorships and returned back to the shareholders when each company has achieved certain risk-based capital requirements, as provided by law 12 U.S.C. § 4611(a)(1).

Furthermore, Fannie and Freddie are to be relisted on the New York Stock Exchange, with any remaining amounts owing on the Treasury's aggregate liquidation preferences to be satisfied by exercising whatever portions of the warrants are necessary to retire the debts and unpaid interest (dividend). Also, through a prudent mix of debt and unused Treasury warrants, the two companies could hasten the process of full recapitalization beyond the basic regulatory requirements. Consider, too, that conservative estimates indicate that on a fully diluted basis, the initial values of the common shares for Fannie and Freddie could be approximately $37.00/share and $29.00/share, respectively. And finally, if Congress still wishes to reform the enterprises, the Congressional Research Service has provided several alternatives in their February 2013 report to Congress that are not contrary to the conservatorships, the taxpayers, or the tax-paying shareholders.

The second option is for Congress to seize, once and for all, these shareholder-owned enterprises for public purposes, purposes that would preclude current shareholders from participating in the liquidated assets or the new or reformed companies' profits. This option is messy, though, because it would force the government to properly compensate common and preferred shareholders under the Fifth Amendment to the U.S. Constitution for the taking of their companies; thus, requiring forensic accountants, and micro- and macro-economists to determine the fair value of each company's common and preferred shares using the fair value of the assets and liabilities. And it would probably lead to a multitude of lawsuits that would challenge those fair value estimates and, subsequently, impede the implementation of any housing finance reform.

The third and final option is for Congress and the president to continue to do nothing as both companies and their shareholders languish in a state of uncertainty, while the Treasury's coffers fill with improperly appropriated and highly questionable gains. This option, however, will produce only one, very swift result -- a shareholder derivative suit. A shareholder derivative suit is a legal action initiated by one or more shareholders on behalf of the company against a third party (e.g., management, directors). In this case, the third party would be the conservator (the FHFA), and the cause of action would be for breach of fiduciary duty. But, HERA legislation was crafted 1) to prohibit shareholders from bringing suit, and 2) to limit judicial review."

However, the D.C. Court of Appeals found in Kellmer v. Raines, 674 F.3d 848 (2012) that "the statutory language bars shareholder derivative actions . . . absent a manifest conflict of interest by the conservator." Thus, a conflict of interest does exist, since the proposed action is not against Fannie and Freddie, but against the firms' conservator, the FHFA. So, the onus is placed upon the shareholders to defend the two companies from the actions of their conservator."

Anyone interested in reading the full article can find it on, seekingalpha.com.

Have a good day out there.

I posted pictures and a bunch of numbers. Those numbers prove that it is almost certain that I am right. The stock trades at 1.33. I'm trying to show all of the possible outcomes and the result if they happen. The numbers prove that you can't lose money in this stock if you hold it regardless of what happens.

It's a fact that I am right here. The evidence supports my opinion that strongly.

You mean the proof that didn't include the actual book value as officially calculated?

There are two major problems with your thesis.* First, the book value is negative by a **** ton. Second, the book value is negative by a **** ton.

Now, I know that that technically only counts as one major problem, but it is such a large problem that I think it worth mentioning twice.

It is a fact that I am right here. You are over there. I have far better evidence of where I am.

*There are more than two, but that is the main one with your most recent statement of how much it is worth.**

**actually, I'm being lazy. Your ideas on how this winds down are also quite speculative, but I've got no specific crystal ball like you claim to have. The entire rest of the market says that it is worth about a buck thirty-three a share.

PRELIMINARY CASE MANAGEMENT ORDER No. 1 IN THE FANNIE MAE/FREDDIE MAC SENIOR PREFERRED STOCK PURCHASE AGREEMENT LITIGATIONS

Signed by Judge Wilkins

The order states “A fundamental duty of this Court is “to secure the just, speedy and inexpensive determination” of these lawsuits. Fed. R. Civ. P. 1. Where matters pending before the Court “involve common question[s] of law or fact”, the Court may “join for hearing or trial” those common questions, formally “consolidate” the lawsuits, or “issue any other orders to avoid unnecessary cost or delay.” Fed. R. Civ. P. 42(a). Because of the overlap of issues, common facts, and complexity of these ten cases, the Court stayed all proceedings in them while it seeks to determine whether, and if so, to what extent, consolidation, coordination or any other “special procedures,” Fed. R. Civ. P. 16(c)(2)(L), should be employed to manage these cases efficiently and fairly going forward.”

1. Perry Capital LLC v. Lew, 13-cv-1025
2. Fairholme Funds, Inc. v. FHFA, 13-cv-1053
3. Liao v. Lew, 13-cv-1094
4. Cacciapelle v. FNMA, 13-cv-1149
5. Am. European Ins. Co. v. FNMA, 13-cv-1169
6. Cane v. FHFA, 13-cv-1184
7. Dennis v. FHFA, 13-cv-1208
8. Marneu Holdings Co. v. FHFA, 13-cv-1421
9. Arrowood Indemnity Co. v. FNMA, 13-cv-1439
10. Borodkin v. FNMA, 13-cv-1443

Judge Wilkins ordered for all the parties mentioned above meet and confer on the following issues:

a. What common issues of fact exist between all of the cases, or subsets of the cases.
b. What common issues of law exist between all of the cases, or subsets of the cases.
c. Whether the proposed case management and briefing schedule developed by the parties for the APA claims in Perry Capital LLC v. Lew, 13-cv-1025 (see Dkt. No. 20) can and should be adopted (as is or as modified) for any or all of the other cases raising APA claims.
d. Whether consolidation of any or all of the cases, the filing of a consolidated multi-plaintiff complaint, and/or the filing of a consolidated class action complaint is necessary or beneficial at this juncture or, alternatively, whether the briefing, argument and decision of any common legal questions that will be raised in anticipated motions to dismiss and/or for summary judgment could occur efficiently (and jointly, where possible) through some form of coordination short of formal consolidation of any or all of the cases.
e. Whether it is necessary or beneficial to appoint interim lead or liaison plaintiffs’ counsel in the putative class action cases at this time.
f. Whether the Court should defer consideration of any takings claims pending action by the Court of Federal Claims, and if not, how those claims and the cases raising them should be handled.
g. Whether there are any issues, in addition to those listed above, that the Court should examine or decide at this juncture.


Perry Capital’s counsel to take on the lead role in organizing the meeting and conferring among the plaintiffs’ counsel in these ten cases, and that process should commence immediately.

The Court also ordered the following:
· Counsel for plaintiffs and defendants to convene at least one joint meeting in person no later than October 30, 2013 to discuss the order
· Joint Status report due no later than November 6, 2013, outlining in detail, with explanation where necessary, the positions of all of the parties on the issues specified above.
· Status Hearing to be scheduled for November 12, 2013

This is absolutely standard. Courts don't allow multiple class action lawsuits on similar issues without a huge justification for it (aka showing that the "similar" issues aren't really similar). Fairly sure that there isn't a thinking person alive who didn't expect this.

This, of course, doesn't include the few idiots who thought that "multiple lawsuits" was in any way a good thing.

As always, gl. Would be pretty cool if this works out for you.

Fannie Mae Survival Back on the Table 10/15/13 - Bloomberg

http://www.bloomberg.com/news/2013-1...ashington.html

There a bunch of reasons multiple lawsuits can be helpful. The major drawback is the complexity of that can possibly make the outcome take longer to happen.

The nature of how the judge is asking the lawyers on both sides to co-operate and respond probably makes it more likely that a resolution can happen without going through the entire process.

A settlement here of the major issues is so beneficial to the government and the shareholders simultaneously that it almost seems like a no brainer. Call it the law of ridiculous numbers. Shareholder or not it's pretty obvious that if they get a bad court decision here that it leaves them open to a bunch of direct and tertiary liability.