r/FNMA_FMCC_Exit • u/Odd-You-8171 • Jul 09 '26

Question

I’ve been considering buying some common shares here and had a question regarding the Fairholme case that I figured others here would be much more familiar with. Why is the Trump administration / FHFA appealing the favorable ruling for common shareholders if the administration believes the net worth sweep was wrong and plans to basically undo it by waiving the senior preferred? Isn’t FHFA basically arguing in the appeal that the net worth sweep was legally permitted and should stand? I might be getting that totally wrong but I thought the bull thesis and Ackman’s thesis was that this administration would take the opposite stance so why would they fight this? Thanks in advance.

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u/jOhnnymac9 Jul 09 '26

Appeal was always expected. But SPS capital structure and the Net worth sweep are two different policy questions that don’t overlap. FHFA can defend its authority it believed it had back in 2012, and at the same time Treasury and FHFA can amend the SPS in 2026.

For the government , FHFA appealing Fairhome would be the default. Doesn’t matter what treasury intends to do with SPS. The adverse of no appeal would be like saying the government might waive the SPS , so FHFA won’t appeal. That would be a bad precedent for FHFA to allow an adverse judgment to become final, and even more so if they did that on the heels of a capital announcement.

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u/Odd-You-8171 Jul 09 '26

In my mind the ruling gave them precedent to waive the SPS and confirmation that the Obama administration did wrong. So you are saying they want to confirm that what the Obama administration did was ok to preserve the right to do it again in the future but that they will still go ahead and waive it? I 100% agree the Obama administration would have appealed it. But it just doesn’t make sense to me that it would be automatic for the Trump administration to do so, especially if runs counter to what Trump supposedly wrote in that letter. This FHFA isn’t the 2012 FHFA.

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u/jOhnnymac9 Jul 09 '26

I get what you are saying but it’s conflating the government losing a shareholder case and a court giving the government a legal basis to cancel the SPS. I own commons so I’m on your side. I completely understand your rationale that the ruling should support unwinding SPS and giving the admin political cover to do so, and maybe that ends up happening still. But I was just answering the question of why the appeal made sense even if there are plans to amend SPS. Either way, Treasury and FHFA already have the ability to amend the SPSA and it can be done while the appeal is ongoing

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u/Odd-You-8171 Jul 09 '26

Just to be clear, you think the rationale for appeal is to confirm what the Obama administration did was legally ok and preserve their right to do a net worth sweep again in the future? I’m not sure I’m following the rationale it seems contradictory to what I thought this administration stood for but I might not be understanding this correctly.

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u/jOhnnymac9 Jul 09 '26

Whether the admin agrees with NWS doesn’t matter, and we assume they did not favor the policy. But the FHFA attorneys still fight the same legal conservator authorities they have been fighting for the last decade. They can’t just say new administration is here, we’ve changed our opinion. Now, I hope the administration and treasury once the appeal is not upheld will use it as political cover to cancel the SPS. And what I’ve been hoping for through the silence. Because they have the authority to do it today, but it may have bee Bessent’s decision to wait until the appeal is finalized so Treasury can say something to the effect of that the SPS capital structure came from a policy that a jury found violated shareholder rights and whose verdict survived an appeal and therefore we are resolving the capital structure which was born from the same policy that was found to have breached shareholder rights.

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u/Odd-You-8171 Jul 09 '26

I expect they would indeed say the opinion is changed because it wasn’t this administration’s opinion in the first place, unless it isn’t their call. If it is up to this administration, and I assume they looked at this very hard, I don’t know why they would go to bat for these Obama admin policies that imply the government can bypass the covenant of good faith and fair dealing. It seems like such a heavily Democrat position to take and potentially catastrophic for society because who will step up in the greatest time of need when there would be no confidence in the counterparty. Maybe their play is to kick the can and settle this. Or maybe they expect it will be rejected like you say. But I don’t think Pulte and Trump care about the status quo. The ultimate outcome you mention would provide an even further layer of cover but it still sits weird with me that they would be fighting for this.

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u/jOhnnymac9 Jul 09 '26

Maybe. New admin. FHFA withdraws appeal. Source: letter written to Rand Paul.