Berko says ready for FIVE YEAR!!!! fight...

[skibrian]

https://www.bloomberg.com/politics/articles/2017-06-19/berkowitz-says-fannie-freddie-legal-fight-may-go-five-more-years

Berkowitz Says Fannie-Freddie Legal Fight May Go Five More Years

by

Joe Light

and

Erik Schatzker

June 19, 2017, 5:00 AM CDT

• Fairholme manager says U.S. Supreme Court could decide outcome
• Investment firm has not had discussions with the U.S. Treasury

Five more years? That’s how long fund manager Bruce Berkowitz says it may take to resolve his legal battle with the U.S. government over Fannie Mae and Freddie Mac’s billions in profits.

“From beginning to end, it could be a 10-year process,” Berkowitz, whose Fairholme Fund holds one of the largest stakes in the mortgage-finance giants, said in a June 16 interview with Bloomberg Television.

It’s already been more than four years. Berkowitz, hedge fund manager Bill Ackman and several other investors sued the government over its 2012 decision -- under the provisions of a crisis-era bailout -- to seize all of Fannie and Freddie’s earnings. So far, federal judges have upheld the legality of that profit sweep.

Berkowitz said he’d like to see President Donald Trump release Fannie and Freddie from government control and turn them over to shareholders, moves the Obama administration resisted. If Trump’s Treasury Department doesn’t take action quickly, Berkowitz said he’ll bring his case to the U.S. Supreme Court.

The government took over Fannie and Freddie in 2008 as the housing market was crashing, eventually injecting $187.5 billion into the companies. Under the original bailout terms, the Treasury received a new class of “senior” preferred shares that paid a 10 percent dividend, along with warrants to acquire nearly 80 percent of the companies’ common stock.

In 2012, the government changed the terms. Instead of a 10 percent dividend, the government would receive nearly all profits, but there would be no payouts when the companies suffered losses.

Fairholme and other investors cried foul and sued in 2013. So far, judges have sided with the government. In February, an appellate court in a split decision mostly upheld a lower court’s decision to dismiss Fairholme’s case. While Berkowitz and the other investors have argued that the government lied about its reasons for implementing the 2012 profit sweep, the courts so far have said that such motives or evidence doesn’t matter.

Lawmakers in the Senate are currently at the early stages of developing legislation to revamp the housing-finance system, which has an uncertain outcome for shareholders even if it succeeds. Treasury Secretary Steven Mnuchin has said that it’s his “strong preference” to work with Congress on bipartisan reform, although he hasn’t ruled out taking action without lawmakers.

Violating Constitution

Berkowitz said he hasn’t discussed plans for overhauling Fannie and Freddie with Mnuchin. If the Trump administration doesn’t stop the profit sweep, he said Fairholme will “absolutely” go to the Supreme Court.

“When you go back and think about it, right, there are issues of breach of contract. There are constitutional issues. How do you create an agency that oversees Fannie and Freddie that doesn’t answer to any branch of government?” said Berkowitz, referring to the Federal Housing Finance Agency, which controls the companies.

Berkowitz said that not attacking the constitutional issues in the first place was a mistake in Fairholme’s legal strategy. “We should’ve argued it. It was so obvious. We argued the finer points,” Berkowitz said.

[seysmont]

Terrible interview. The guy asks him why should an average investor care about the GSE's? And the answer should be because the framework for what was done to the GSE's can be applied to any regulated company. Utility, bank, anything regulated. And the government can come in and de facto expropriate the company that's "regulated". It's a talking point, he should be saying this, not what he says. It's terrible. Nobody cares about another Constitutional violation. There are many of those, nobody cares. If they know that D can be seized at will, they would care. It's pretty obvious what the problem is.

[joseph s]

Therein lies the problem. If this goes to 2020 and we have a recession or admin change, could be chucked into rship. People need to recognize that the opportunity to do something is NOW. Waiting to "build capital" or do some other garbage is not only risky, it is reckless.

I still think this will happen so fast it will make your head spin once implemented/announced.

[littlede...@gmail.com]

In 5 years my son will be a senior in college!

[littlede...@gmail.com]

In 5 years, I will have my AARP membership!

[SimSla]

I think we might be misinterpreting what he said. Maybe he does not shine light on the current developments for a reason.

[seysmont]

He is putting a stake that he will sit in this for 5 years. There will be no Mnuchin at the Treasury in 5 years. I think that's about right for full valuation.

[skibrian]

I admit, I write headlines sometimes to draw clicks LOL

I don't think this drags on five more years.  I can't imagine any scenario where Mnuchin doesn't make sure this issue is resolved on his watch, and that is now less than four years.

[Duncan Macleod "Beta"]

i think the supreme court could here this within 2 years if there was a will to do so.

I think Berk was appealing to the Current administration's hate of the consumer agency that has zero oversight, and aligning FnF with that cause.

[SimSla]

I watched the interview again. It seams he implies he will file a case challenging the constitutionality of HERA. Hense the 5 years.

[joseph s]

Well. He is definitely staying the course until he doesnt. With 36% of the fund's assets in fnf pref, I dont see him selling.

Paulson, Blackstone and him have surely spoken. Hopefully things heat up soon. We shall see. My guess is that we hear nothing until the weekend it happens. Friday after mkt close thru that Sunday will be nothing but chatter. Again. A guess on how it will go down. This is not going to stay like this forever.

[chrise...@gmail.com]

"This is not going to stay like this forever"

A welcome reminder. Recall that Ed DeMarco comtemplated r-ship and discovered, lo-and-behold, that was a non-starter. R-ship has never, ever been on the table.

Not sure what (pun-intended) the chances are of Watt saying no-divvy, make us pay 12% instead of 10% or whatever he says (chuckle - because 10, 12 is less than everything).

Bu, bu, but... we had a deal!?

Good luck all - 10 days until Watt either pulls (another) disappearing act for a few months or becomes a media darling with contention that he is just-doing-his-job as con-serv-a-tor

[G. Buckman]

I'm not sure what happened, but it appears someone deleted my post (from yesterday) in this thread.  I didn't do it, so I hope this site isn't becoming like the other one.  I can't imagine what I wrote to cause it to be deleted by Matt or any other admin here, but I sure would like to know.

[joseph s]

I didnt delete it. Unless I unintentionally did. I noticed one time that I got a message saying "are you sure you want to delete this thread?"

It is pretty sensitive.... I cant imagine Matt deleting anything.

No. We will not be like the other board. Ever. Free thoughts please.

Matt hated it when team crazy deleted his stuff

[joseph s]

I admit, the delete button is RIGHT there and it only gives a quick rationale and it gets deleted. Looks very easy to delete a post....

[joseph s]

The delete button and final delete are literally on top of each other. My guess is it was an accident. Sucks I didnt get to read your post

[G. Buckman]

No, I didn't delete it, as I read it on the site (later in the day) after I posted it.  I mentioned that I'm sure Berk has spoken to Nooch (directly or indirectly) about all things FnF.  That's the only thing I can think would get it deleted.  If admin thinks this site it being read by certain foes of FnF shareholders, maybe they don't want those statements posted here just in case.....not sure, just a guess.  I definitely didn't delete it though.

[joseph s]

No. I meant it is easy to accidentally delete as an admin. If it is discovered it was me, I apologize. Yes. I read that post. No reason to delete that. Just your opinion....

I agree that berko is talking to paulson/blackstone. Prob not Mnuchin direct.

[G. Buckman]

Understood.  No worries.  Things happen.....probably just gremlins.  ;-)

[joseph s]

I do think it was a fat finger given that the preferred attack posts dont get deleted. I think attacking higher in your own capital structure is one of the most moronic things you can do.

But. To each their own...

[mhill_fin]

I haven't deleted a post yet. I have a hands off approach. No clue what happened.

[joseph s]

Strange. I havent deleted anything intentionally. I remember reading that post. Not sure how to figure out how it was deleted.

[joseph s]

The only posts I have ever deleted intentionally were my own. It is actually difficult to touch that button by scrolling. I just tried... I think Matt and I are the only admins. I guess it could have been me. I was dead sober last night. Swear...

[ron...@comcast.net]

I had one deleted on Tim Howard thread. Posted it again and it was again deleted. I then posted it on another thread and it remained. No clue why but no worries.

[joseph s]

Well. That isnt good, either....

[littlede...@gmail.com]

The C-ship IMO and I hope will not last 5 years.  I do believe Trump will end it during his tenure as President.  I believe at the minimum the NWS will end.  If the NWS ends, then berko's lawsuit will likely end with it.  Trump is a good chance for us to get a new system in place.  Lets see if it happens.  A goober can only hope.....go figure...devil

[Duncan Macleod "Beta"]

were there links in the deleted post or a paste.

I think maybe there is something with some publications copyright shit.   They dont want people stealing thier shit, and want you to go to thier site so they get the exposure and clicks.

Google was skipping this somehow sending people to thier site. and the publications went insane.

[seysmont]

@LD. There is something else going on, though, because MBS hedge funds are in panic about Moelis plan now. There is more stuff we don't know about that transpired in 2008. Those people are out of power now, but still its interesting why they panic. It probably means something is happening and they are afraid.

[Duncan Macleod "Beta"]

Seys- Is this along the lines of your last comment?

READ NOW"Bond Market Concerns Could Scuttle Paulson’s Fannie-Freddie Plan 
By Joe Light and Matt Scully June 21, 2017, 3:00 AM CDT 

Investors blanch at prospect of limiting government backstop 

Key official says administration wants explicit guarantee 

A hedge fund proposal for freeing Fannie Maeand Freddie Mac from U.S. control is poised to face stiff opposition from investors who say it risks wrecking the mortgage-bond market. 

The Moelis & Co. blueprint, which firms including Paulson & Co. and Blackstone Group LPsponsored, calls for raising tens of billions of dollars in capital for the mortgage-finance companies. The plan, released earlier this month, would also limit the amount of federal money available to offset any Fannie and Freddie losses to $150 billion. 

Fannie and Freddie package mortgages into debt securities that most investors treat as being fully guaranteed by the U.S. government, in part because the companies are currently under federal control. Some investors argue that capping taxpayer rescue funds, while releasing Fannie and Freddie to private shareholders like Paulson could upend the $5 trillion market for the bonds they issue. By extension, that tumult might hurt homebuyers, whose low interest rates hinge on demand for the mortgage securities. 

“I don’t think you could sell virtually any of this debt overseas if it wasn’t government-guaranteed,” said Scott Simon, who until 2013 managed billions of dollars in mortgage-backed securities for Pacific Investment Management Co.Some of his former foreign clients would have reacted to a limited backstop by asking him to “sell it all,” he said. 

Fannie and Freddie play a pivotal role in the housing market by providing liquidity. They do so by purchasing mortgages from lenders and wrapping the loans into debt with assurances that investors will be made whole if borrowers default. U.S. regulators seized Fannie and Freddie during the financial crisis and bailed them out at least partly because of bond investors’ concerns over what would happen to their holdings if the companies collapsed. 

Congressional Efforts 

The Moelis proposal comes as Congress revives efforts to overhaul the housing-finance system, which has been a goal of many lawmakers since the 2008 meltdown. Holders of Fannie and Freddie legacy shares, such as Paulson, fear that such an effort could take years and possibly result in legislation that mostly wipes them out. Moelis says its plan offers a better alternative, because it could be executed quickly with support from President Donald Trump and regulators. 

Before the crisis, many investors assumed the U.S. government would make good on the guarantees even if the two companies collapsed. That wink and nod, given not only by company executives but also federal officials, drove down rates on Fannie and Freddie debt, which led to better mortgage rates for borrowers. 

The government did end up standing behind the companies, ultimately injecting them with $187.5 billion in taxpayer funds. Now, the question is what would happen if the U.S. released them with a limited backstop or none at all. 

No Capital 

Under the current regime, Fannie and Freddie have almost no capital on their balance sheets and $258 billion to draw on from the U.S. Treasury if needed. Under the Moelis plan, the companies would eventually have combined capital of as much as $180 billion, plus another $150 billion if needed from taxpayers. 

Since the total funds standing behind Fannie and Freddie guarantees would be greater in the new system, bond investors should feel just as safe, the Moelis executives said. 

“The unintended consequences of putting into place a full mortgage-backed guarantee are enormous,” Moelis Senior Advisor Landon Parsons said at a Cato Institute event last week. Mortgage bond investors want a full guarantee to get better capital treatment on Fannie and Freddie securities, but such a guarantee could drive up rates on other kinds of mortgages, Parsons said. 

It’s unclear whether the Trump administration agrees. Treasury counselor Craig Phillips told attendees at an Urban Institute event last week that the administration believed the government should no longer implicitly guarantee Fannie and Freddie but instead explicitly guarantee mortgage bonds, according to people who attended. The change could be difficult without legislation. 

Government support for housing should be explicit where it exists, Federal Reserve Vice Chairman Stanley Fischer said Tuesday during a speech in Amsterdam where he cautioned against forgetting the lessons learned from the 2008 crisis. 

Side Benefit 

“An explicit guarantee would be good for mortgage investors and homeowners,” said Brian Norris, a senior portfolio manager at Invesco Ltd., which manages more than $850 billion. A limited backstop wouldn’t be enough for many investors and an unlimited guarantee would have a side benefit of driving down mortgage rates for some borrowers, Norris said. 

On the other hand, under a limited backstop many bond investors might keep the assumption that if push came to shove, the U.S. government would make available unlimited support, essentially reverting to the implicit guarantee that existed before the crisis, said Larry Penn, chief executive officer of Ellington Financial, a mortgage-bond investor. 

‘Walk Away’ 

“You are kidding yourself if you think the government is going to walk away from the companies even if they are privately owned,” said Penn, whose firm also wants to see the government offload more risk to private investors. 

The Securities Industry and Financial Markets Association, whose members include some of the bond market’s biggest asset managers, has spent millions of dollars in recent years lobbying Congress on issues including housing-finance reform. One of Sifma’s longstanding goals has been to make the guarantee of Fannie and Freddie securities explicit and unlimited, which would likely raise the value of their members’ investments while making loans cheaper for borrowers. 

Chris Killian, head of Sifma’s securitization group, said he believed mortgage-bond investors would react negatively to a limited backstop. 

An average investor in Fannie and Freddie bonds “is not somebody who wants to ponder whether or not there’s credit risk or ponder how the government is going to react if something happens,” Killian said. Bond investors want legislation to reform Fannie and Freddie “that’s final and stable,” he said.

[joseph s]

@Beta-

Maybe that is what happened.  Not sure.  I don't think G Buckman's post had links in it but he would know...  His post was pretty generic, too.  Just had his opinion that Mnuchin and Berko are talking.  I don't think they are directly but who knows...

[seysmont]

Yeah, this article. Ellington is founded by Agency MBS trader, Mike Vranos. The last time they quoted Ellington, and Larry Penn specifically was ages ago. Larry had nothing to do with MBS before Ellington, when Ellington was a hedge fund. If they cry about the GSE's, there is some scam happening they are participating in, and the release will end it.

[seysmont]

Before that Amherst too was negative, and they also used to be an MBS hedge fund. Laurie Goodman is in a think tank promoting the same crap as Stevens. Those are not banks. Those were hedge funds originally. The whole story of banks being behind this doesn't add up, when two related hedge funds are trying to accomplish the same thing as Stevens. 

[joseph s]

@Bloomberg article:

The capital that Moelis provides will likely insulate the gov't from a bailout unless nationwide prices drop more than 30%.  There is no way in hell the gov't wouldn't back the bonds in that scenario and everyone knows it.  During the Great Depression, housing prices dropped 90%.  That is why we have FNMA and FMCC.  To provide stable funding in times of distress/extreme distress.  A balance sheet with capital to withstand a 30% decline is ridiculously high.  If prices drop that much, every major bank in the country would probably be technically insolvent as well.  So stupid to keep carting out the same arguments over and over. 

The second guy is right.  The gov't would step in when it is 5 trillion in guarantees.  The trade off is affordable housing and 30 yr mortgage coupled with a system in place if we have another financial meltdown,  I think the trade off is worth it. 

[littlede...@gmail.com]

Seymont:  I told you.  I am different from the rest of most of the goobers here because I am not here to save the mortgage market.  Whatever happens to it, I will adopt to it.  I am here as a shareholder and wanting to bring value to my shares.  Nothing else.  I am a trader...always have been.....with that said......From where I am sitting, I do not sense or feel the panick you are feeling. I am for the moelis plan.  I am for payout.  I am in the boat as UI and Paulson and Co. 

Goobers have to define why you are here?  I am not an MBS hedgefund or invest in MBS.  Neither are you guys....quit bringing headaches upon yourselves...

Berko and eggman is likely for moelis.  Make your monies and reassess goobers.....make sure you are reading the news that align with OUR hedgefunds.....the end....look for the utility model.....I do not care if the utility model wipes the hedgefunds out of the MBS game.  If there is a explicit guranatee, they will find a way and make do.....WE goobers look at whitepapers, congress, trump goobers, courts and OUR HEDGEFUND...berko/eggman/etc.....updates....

bond market will be no worst under the moelis plan as long as their is an explcit guarantee which there is.....the Arthur is trying to use old news to make new news.....da devil roll wit da MOMO club DD and research.....have faith in your too.....read relevant news and updates....not just any ole goober....go figure...devil

[seysmont]

LD: I am not here to save the mortgage market either. It should be clear to you they are running some scam while the GSE's are in conservatorship. So all the BS they spout about the banks is just BS. There is some scam that is enabled by the conservatorship, and they are not willing to let it go. Maybe nobody is asking them, but they are fighting for status quo.

[seysmont]

Hensarling also talked about wiping out the GSE's again today. Meanwhile either Mnuchin lies to ICBA or Hensarling talks his book and name drops Mnuchin.

[SimSla]

The same people who for the last 9 years were trying to close the GSEs are talking the same garbage and this is a cause for concern? As Tim Pagliara said "Look at what they do. Not what they say". Housing legislation is not happening. They need to pass Healthcare and Tax, raise the debt ceiling and the year is over. 

[seysmont]

He is talking about utility model. Essentially change of name from GSE's to utility. Probably that was the reason for the rally in the first place until he talked wind down. These people are all Venezuela tier politicians.

[neo]

Warner, Corker, & Crapo are joining forces again...this time using the Milken Institute, MBA, & The Urban Institute as their patsies...see the latest IMF news article...Warner says he sees enough bipartisan consensus to maybe do something before tackling any Dodd-Frank issues.This should make all suspicious of that nebulous "utility model" everyone seems so sure will benefit us. There are many ways to structure any financial deal and if these guys lead the way on any utility model implementation you won't like it. Also, all the guys writing these "utility model" plans were all involved in the shenanigans that either put the NWS in place or advised O and his admin, or covered for them, TSY and FHFA in all that has transpired.

[seysmont]

Here is the thing, though. What Hensarling said is utility model as "wipe out". Before he was for receivership as "wipe out". If they leave c-ship, chances are Corker will be the first to capitalize on them. He will fight until he flips his position if he is losing.

[dgj...@gmail.com]

utility model was FMIC combination of F&F ...new building....wipe out all shareholders of all money. They have implemented most of this.

[seysmont]

So FMIC is going to have a full faith and credit guarantee of the US government for a cool $6T in new debt. You know that assets with the government have a strange tendency to disappear (like NWS), so only the $6T in debt will remain. Of course the House will gladly sign off on that.

Hensarling fired a shot at Corker/Warner plan. What he said is not government will be involved with his plan. The whole thing has become a con, and somebody is getting conned. The shareholders don't have to be conned, because brute force works fine. So some major players are going to get conned. I don't know who, but either the House is getting conned or the banks are getting conned. One of them will be conned.

[dgj...@gmail.com]

Seysmont, I don't believe that there is any gaurantee that the gov will have to put $6T debt on the books. There are lots of off-the-books "debts" that get covered by obligations or whatever. After 8 yrs of this I believe that the only limit to what they can do is political and I dont even understand that because apparantly our elections are of questionable integrity. Jill Stein found some of that before the Mi recount was shut down.

[seysmont]

It doesn't matter what the government decides in this case, because the second the government can't walk away from the debt, it gets put on their books by rating agencies. $6T in liabilities suddenly added to their balance sheet = instant debt downgrade. I asked Moody's analyst about this a while ago. That's how they do it. Right now they can walk away from this debt, so it's not US government guaranteed. The guarantee is still implied.

[seysmont]

That's why I'm saying it's a con. Mnuchin's guy comes out and says full guarantee is something that they want, but Hensarling, who supposedly works with Mnuchin on this, and has conversations with him, comes out and says his plan is still the best, which is putting the banks pushing for 0% risk weighting (according to Rosner) in a situation where the act of Congress is not a choice between status quo and 0% risk weighting, which is a win win for them, but a possibility of 100% risk weighting is introduced if Hensarling gets his plan in. Its the same con Paulson ran. They are lying to some players, and it's not us, they don't care about us. The indication its a con is that it's hard to make any sense out of it, so lots of critical information is missing, and when that happens, somebody big gets conned.

[atlanta42]

so - could it be that Hensarling and Corker are getting conned?

[seysmont]

Hensarling & Corker are on the opposite sides of the spectrum. Hensarling wants full private Fannie and Freddie and Corker wants to wipe out shareholders and full faith and credit guarantee. They are not on the same side of the debate.

[seysmont]

Maybe not Fannie and Freddie, but Hensarling is against the GSE's idea as a whole. I don't think he really cares what happens to shareholders. He doesn't want government in the mortgage business. I would say he is against the GSE's charters not the shareholders per se. So Corker has more problems with Hensarling than Hensarling has with the shareholders.