Fannie Mae – Legal Scholar: Third Amendment Is A “Sham Transaction”

Fannie Mae Common Securitization Platform Fannie Mae Mortgage Insurance

Fannie Mae

Photo by NCinDC

Legal Scholar On IU Teleconference: Third Amendment Is A “Sham Transaction” by Investors Unite

The Federal Housing Finance Agency showed “no pretense” of acting in the best interest of Fannie Mae and Freddie Mac despite the obligations it had as conservator, an attorney for Perry Capital said during the Investors Unite teleconference Thursday. A noted legal scholar referred to the Third Amendment sweep was a “sham transaction.”

Listen to the teleconference here or below

If you missed this call, you missed a lot.

Matthew D. McGill, a partner at Gibson, Dunn and Crutcher, which is representing Perry Capital in its lawsuit against the federal government, joined the call as did Richard Epstein, the Laurence A. Tisch Professor of Law at NYU and a senior lecturer at the University of Chicago. Perry Capital recently appealed the ruling by U.S. District Judge Royce Lamberth to reject shareholders’ claims that the government overstepped its authority in the Sweep. Epstein recently published an op-ed in Forbes discussing the AIG and GSE lawsuits alleging improper action by the government in those high-profile interventions (spoiler: the GSE shareholders have the stronger case).

During the call, there was a brief discussion about whether Perry Capital would entertain a settlement with the government. As reported in Politico Pro, McGill said they were “of course willing to resolve” the issue, but that “to date, the government has expressed no interest in that.”

McGill also had blunt words for how FHFA has conducted itself as a conservator:

“The most fundamental point is that the FHFA actions as conservator totally disregarded the fiduciary duties they held as conservator. There has been no pretense of acting in the best interest of the companies.”

McGill went on to say that the “stuck in a death spiral” narrative the government has been pushing about the health of Fannie Mae and Freddie Mac to explain the 2008 action to infuse them with cash and put them in conservatorship has been shown to be “conclusively false.” He noted the dividends the enterprises were required to pay to the Treasury could be paid in-kind and did not have to be paid in cash. Therefore, it was a “remarkable turn of events” that, when the companies were suffering tremendous losses that were almost entirely non-cash accounting losses imposed by the FHFA as conservator, the write-down of deferred cash created an enormous hole that Treasury was obliged to fill. Conveniently then, after the Third Amendment Sweep was enacted, the loan-losses were reversed and tax assets written back up resulting in the companies sitting on billions of dollars in assets that were subsequently handed over to the Treasury.

Professor Epstein provided a comprehensive review of the jurisdictional matters at hand in each of the lawsuits that have been filed – Perry Capital, Fairholme Funds, and the individual shareholders in Iowa. He, like McGill, also addressed the shroud of secrecy the government insists in drawing over these matters.

“It’s an open scandal that the government continues to demand secrecy. The Obama Administration has pledged to be the most open, and they have completely failed in this regard,” he said. “The strategy here by the government is to delay the release of documents in the Fairholme case because it will completely change how the appeal looks.”

Epstein added, “When you take all the money from somebody, that’s not mere regulation – that’s an outright confiscation, and that’s what’s going on here.”

Asked what could be done by the Administration right now to resolve matters, both McGill and Epstein said that it is within the power of the FHFA and the Treasury to end the Third Amendment sweep.

“The Third Amendment was an executive action. It was an agreement between agencies so the administration could put through today another agreement to end the sweep. That is within their purview,” McGill said.

An excellent point, and one with which we wholeheartedly agree. We’d like to thank Professor Epstein and Mr. McGill for their time and expertise. We also want to thank the nearly 200 people who participated in the teleconference, especially those who submitted questions. There has been a robust conversation on social media about the call, and we’re glad to be able to provide these forums to give investors a voice in the ongoing debate.

More from Investors Unite

For exclusive info on hedge funds and the latest news from value investing world at only a few dollars a month check out ValueWalk Premium right here.

Multiple people interested? Check out our new corporate plan right here (We are currently offering a major discount)



About the Author

Guest Post
If you are interested in contributing to ValueWalk on a regular or one time basis - email us at info(at)valuewalk.com

5 Comments on "Fannie Mae – Legal Scholar: Third Amendment Is A “Sham Transaction”"

  1. Couldn’t agree more. These gold collared criminals belong in orange jumpsuits, eating slop. But instead, they’re given “bailouts” and fines. Yeah…Riiiiggghhht.

  2. The BANKSTERS merrily continue to commit fraud upon hardworking people and fraud upon the courts. The biggest Ponzi scheme the world has ever seen , where the Banksters created credit out of thin air, not for their borrowers, but for the banksters themselves via the Federal Reserve’s magic check book, with no bank account behind it. The Bankster then loaned that imaginary money to people on the security of overvalued real property with the deliberate aim of reducing the artificially raised property prices and putting people out of work.People without income cannot pay their bills, so they were guaranteed they could steal all that real property from their rightful owners. Of course you would say to yourself, that makes no sense because the Banksters would lose money when foreclosing on the security , but you’d be wrong because the banksters insured the debt with an insurance company, but just forgot to tell the borrowers that. SO they knew they could not lose. Its what you might call having your cake and eating it too. You see, just secretly insuring the debt was the way they ensured that they lost no money. First they sold investors in Wall Street on the idea of using pensions and other fund moneys to invest in the profitable housing market. Then they sold homeowners on the idea of borrowing money against their rising property values, secure in knowing that they had artificially raised those prices and knew they could reverse that trend rapidly, when the time was right. Then they found another group of investors and sold them on insuring against the unlikely risk of those secure mortgages defaulting. But, as you know, they had already insured the downside risk. So they devised a new name that no one understood called the credit default swap. These were not insurance policies regulated by the states, but were unregulated securities sold on wall street to investors. So, once they got the business of insurance outside of the regulatory realm, it was no holds barred and they sold the same investment to up to 20 different groups in respect of every mortgage pool they pretended to create in the securitized mortgage scam.But people need to lose the mindset of someone who has been brainwashed by the garbage put out by government at state and federal level and echoed in the corporate owned media

    SO therefore, The banksters along side Freddie and Fannie, were and still are continuing to submit fraudulent documents to the courts in order to steal homes from homeowners. They and their substitute trustee lawyers (ie Samuel I White PC, just one of many ) are submitting FRAUDULENT papers to the courts in order to FRAUDULENTLY foreclose on homeowners across the nation. Mortgage notes with Forged Owners signatures and ta-da endorsements are being submitted to the courts in order to steal homes. Bank of america(or as they like to refer to themselves…fka countrywide) made a deal with the attorney generals to modify loans that they really had no right to modify as they were illegally acquired to begin with. They committed notary fraud, forgery, added fake endorsements and as their crimes began to come to light…………they made a deal and instead of modifications (which they LED the homeowners to believe what was happening)….they handed the fraudulent documents over to Green Tree among others, to foreclose. Meanwhile, homeowners are the ones who are paying the price by having their homes taken because of felonies that are being committed . Fraud upon the courts, racketeering, forgery, wire fraud, notary fraud…pathetic, nauseating, and just all around disgusting. Wake up America. Wake Up.

  3. I sure hope so but, as we have seen the can be kicked down the road, I am not holding my breath. We, the people will talk soon.

  4. Time to arrest the scumbags, Not only at Freddie and Fannie, but these criminal mortgage servicers. OCWEN (aka. NEWCO) is 1 will attend to watch them be led to prison in shackles. I am not holding my breath on the info in this call but if it is not true, the people will take care of these thugs, our own way. With no silly delays, hearings, or appeals. Their only option is a life sentence in prison, with NO chance of EVER getting out.

  5. the Law will talk sooner or later…

Leave a comment

Your email address will not be published.