Fannie Mae: Why The US is Losing to Fairholme

Fannie Mae: Why The US is Losing to Fairholme

Fannie Mae

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Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC): Treasury and FHFA have gotten knocked around in court vs Fairholme. To date they have yet to win a decision from the judge and based on the back and forth with the Judge last week,  that record is not likely to be broken when she rules on Fannie Mae and Freddie Mac discovery.

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Fannie Mae – Why Fairholme is winning

So, the question one must ask then is why? Put aside your biases on the merits of either side’s arguments for a minute and look at the two opposing Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) lawyers, Charles Cooper and Stuart Delery.

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One only need read the following two briefs to understand what is going on here:

Delery Proposal

Cooper Proposal

Cooper has been 2 or 3 steps ahead of the US on every issue since the beginning and was again here.  There is no way his brief was researched and filed in the time between last week hearing and when this was filed. No, Cooper anticipated the ruling and had this waiting. After a few tweaks for specificity based on what Judge Sweeney called for, bam, filed.  The US simply reiterated a previous filing with their request.

Now, it very well could be that the ease at which plaintiffs are running circles around the gov’t here is a simple one, the gov’t finds itself in a seemingly indefensible legal position. For proof of this you need not read the thousands of pages of courts docs like I have, just read the following paragraph from last week (also detailed  here):

THE COURT: And so far, I haven’t gotten — I haven’t received a good answer from the Government. Counsel is very able. But counsel has expressed concern of what could happen if certain documents are released, which I do not want to see happen, but counsel didn’t answer to my satisfaction the discrepancy between sort of using the deliberative process as sword and shield. On one hand, FHFA is a government entity, you know, for purposes of booting the Plaintiffs out of court and not part of the Government, but for purposes of forwarding discovery, all of a sudden deliberative process is appropriate because they are part of the Government. So, it’s a schizophrenic approach and I’m just waiting to hear a reasonable explanation.

This has been a recurring theme in this case.  The gov’t claims on the one hand “plaintiffs cannot sue us because we are not the gov’t” and then on the other claims “we do not have to turn over certain papers to you in discovery because we are the gov’t”.  This is but a taste of what has been happening to date.   Time after time Cooper has caught the gov’t different sides of the same arguments about Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) when conditions change.  This has been noted by the Judge also. The first “wave” of discovery ought to start soon and it is simply going to be a Treasure trove for plaintiffs.

For those wondering, the gov’t did not give Sweeney an answer to her query.

Fannie Mae: Why The US is Losing to Fairholme via ValuePlays

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.
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