Thread by @FnFGateFan

Long day #Fanniegate Fans, in a long trial.

Too much time spent on motions meant we only got half the closings, but let's review them a bit.

There was a brief discussion of the issues to be addressed after the rebuttal case finished, but we'll see that when we get to it. Dharan was here for his cross examination. Ds brought up the draft issue but Dharan explained it again for them.

Ds: You understand that these are not official projections right?
Dha: I don't know what that means
Ds point to Benson's testimony, "call it an unofficial forecast", "more of a strategic thought piece"
Dha: Yes it was part of a strategic planning meeting

Dha agrees that it was unusual to do such a long term forecast.
Ds: You understand that this wasn't their best estimates?
Dha: That's not how I read it, he's just saying it was strategic not audited

Benson's testimony "You've asked if this was the best estimation - it wasn't, purpose wasn't to go through the kind of rigor we'd normally do..."
Ds: So not his best estimate?
Dha: He's just saying it was an unofficial long term forecast.
Ds: Also contained Freddie projections?

Dha: Yes
Ds: Benson didn't have internal Freddie data?
Dha: I don't know what he had access to
Benson was asked why project for Freddie, "We're using public info trying to make the best estimates"?
Dha: Yes
Ds: Freddie didn't project 10 yrs?
Dha: No

Ds: And more than 5 years unusual?
Dha: Yes
Ds: No stress case?
Dha: This is the base case
Ds: Layton was concerned about stress test?
Dha: I don't recall that, you might have testimony
Layton testimony "Concerned about all of it, stress case is most concerning"
Dha: Exactly

Ds: In the stress case they take significant draws?
Dha: Yes they do, even in the end they have 35B of commitment, so the goal was to see even in the worst-case scenario and they would still have commitment left
Ds: They projected [?190B?] draws?
Dha: That was the total...

Dha [cont]: it includes the pre-2012 draws. I use the example of an earthquake, you wanted to understand if the house would survive a disaster and it did.
Ds: [40B?] draws per year?
Dha: Yes, that scenario included 20% housing price drop, which only happened in the Great...

Dha [cont]: ...Depression and even in that scenario they still survive and still had commitment left.
Ds: Nothing further
Ps re-examine
Ps: Recall what Mayopolous said about projections?
Ps want to play clip, Ds object, L overrules.

[Mayopoulous clip, Q: Was this your best projection? May: Tried to produce reliable, credible, reasonable projections. Q: Wouldn't show to the board if you thought it was wrong? May: No.]
Ps: What did the projections show?
Dha: 6.5B draws over next 10 years

Ps: And the later projections shown to the board?
Dha: Only 8.7B draws over 10 years
Ps: Any info from Ds counsel change your opinion?
Dha: No
Ps: Benson's testimony clear to you?
Dha: You have to read the whole answer, but he was presenting best info he could to the board

Dha dismissed, Thakor called.
Thakor was in court when Attari testified and reviewed Atari's report.
Ps: Agree or disagree?
Tha: I disagree, in fact I couldn't disagree more, he made a lot of mistakes. Heart of my analysis is all-in cost, you can't just focus on PCF in isolation

Tha [cont]: Can't just say if PCF is not substantial it's not fair, have to look at the warrants, the $1B upfront, the 10% rate on draws. Dr. Attari makes a mistake in looking at the PCF in isolation and the research shows that all-in cost is key.

Thakor agrees Attari didn't testify about all-in cost.
Thakor gets a portable mic and goes to write on an easel. Writes his #'s on board.
Tha: Simple example of a mortgage, want to borrow $100k and bank B says 10% interest and also 80% of the profits on the sale of the house...

Tha [cont]: so if you make a loss that's your problem, but if you make a profit the bank gets 80% of it. And bank A says 5% interest but they have a fee at $500. So if bank B says bring me a market assessment, then the answer is NOTHING, you get to compare the all-in costs...

Tha [cont]: ...have to look at the rates and the fees and the 80% of profits, so you have look at everything. I hope that was helpful.
Ps: Attari criticized all-in costs?
Tha: Well he didn't consider it at all, which really surprised me.
Ps: He criticized comparisons you made?

Ps [cont]: For example, comparing equity to loans is apples and oranges?
Dha: No he's wrong on a # of counts, Tsy did provide equity assistance to others including CPP, also he says loans would be different than equity, but the rates on loans would be lower, and in fact yields...

Dha [cont]: corp pfd stocks are actually lower than corp debt when you control for credit ratings as shown in the latest research I cite in my report.
Ps: Did Attari mention that in his testimony?
Dha: No, and in his depo he said he hadn't seen it.

Ps: Tsy provided equity assistance to AIG?
Dha: Yes
Ps: Did Attari address your slide in his testimony?
Dha: No, and in the end NY Fed commitment transferred to Tsy
Ps: Let's look at Attari's slide, your thoughts?
Dha: Many, first you shouldn't compare 2008 to NWS in 2012

Dha [cont]: It says AIG was secured, but rate difference can be very small, 2bps up to 129bps, but even if you add the max amount you don't get close to the 10%, so this doesn't change my opinion that the GSEs terms were much more onerous than AIG terms. It's true AIG terms were

Dha [cont]: worse in Sept 2008 but they changed very quickly, 6 weeks later. And AIG was so close to collapse that book value was meaningless. In one day AIG collateral req. rose from $8B to $32B, and CDS prices went up 400%, by comparison GESs in 2012 were much better off.

Dha goes on to discuss CPP and that it wasn't just "topping off" the capital of banks as Attari had suggested, but that they were on the verge of collapse. And terms much more favorable, 5%, no upfront fee, could pay it back, small warrants which could also be redeemed

Dha: Remember GSEs paid 150B in NWS above the 10% div...
Ds: Objection, outside the scope
L: Sustained.
Ds are objecting the answers not the questions, Dha is unstoppable, this "deal" clearly offends his sensibilities and he's shouting it from the mountaintop/jury box.

Dha explains his FDIC proxy analysis and tears down Attari's misleading criticisms. Attari made no calculation. FHFA/Tsy made no calculation.
Ps: Who is the only one who calculated a PCF?
Dha: I am
Ps: And your max PCF?
Dha: 45bps
Ps: Compare to NWS?
Dha: $1.6B vs $111B in 2012

Ds object to this last point but the numbers have already been shown. Nothing further from Ps.
Ds: I'm not going to ask about your primary opinion which is that PCF should be zero?
Dha: Zero on an all-in cost basis, and 45bps max in isolation.

Ds: You understand that Attari thinks it should be 45bps on liabilities?
Dha: Yes, he ignores the adjustments in FDIC calculations
Ds: Do you know how the 1.6B breaks down between FnF?
Dha: I'd have to go back an calculate, I think Fan had 116B commitment left and Fred about 140B

Ds: I'll help you [ brings up slide ] so Fan. 5.3B over 10 years and Fred. 6.3B [using 45bps]
Dha: Yes, I'd have to check the math to be sure, but I'll take your word for it
Ds: You've been here in court and seen Benson's projections?
Dha: Yes
Ps: Objection, outside the scope

Ds: In the projections Fan would have zero net worth by 2022?
Dha: Ok
Ds: And if you add the PCF it would cost an additional 5.3B?
Dha: Yes, when were projections were made? Projections get updated and the housing market was improving throughout 2012 and by 2013-

Ds: Your honor if I could be heard on the phone?
[Ds objecting to their own questions?]
Ds: Nothing further
Ps: Nothing further
Thakor steps down. Ds have agreed to allow two slides in closing that means Ps don't need to call Mason so rebuttal case is over.

Ps try to offer Moody's and Fitch docs explaining ratings outlooks and watches, Ds brought it up with Attari and then implied with some 2012 Moody's analyst report that FnF ratings might be downgraded in the future. L denies because the docs are from 2022.

L also isn't confident that Senate committee records are reliable enough for him to take judicial notice of them, so Ps denied on that as well.
Ds make a long argument that Ps shouldn't be able to talk about any numbers except 1.6B

Ps say they will make very clear damages are 1.6B but the other numbers give important context.
L: I take it any appeal will go to the Fed. Circuit here?
Ps: I believe it will go to the DC circuit.
L: The Fed. Circuit seems not to like these comparisons

L [cont]: I think you are right on the line so I'll deny the motion in limine [it was Ds motion, so Ps win]
Ps: I'm planning to explicitly tell them this is not what we are asking for in damages, this is just for context.

Ps have a slide titled "Any of these true facts mean you must find for Ps"
Ds argue and L agrees they have to change it to "should find".
Ps object to a slide on a meeting between Layton and Credit Suisse, but L allows it. Ps try to restrict analyst reports but L allows them.

Darn, this should be Thakor! and all the rest from here down are all Thakor.

Should be Thakor, not Dharan

Should be Thakor, not Dharan

Should be Thakor, not Dharan

Should be Thakor, not Dharan

Should be Thakor, not Dharan

Should be Thakor, not Dharan

Should be Thakor, not Dharan

Should be Thakor, not Dharan

Should be Thakor, not Dharan

Should be Thakor, not Dharan

Ds tell Lamberth they are submitting formal motions for judgement as a matter of law (like SJ but during the trial) and decertification of the class for the record, although they are aware the court has already rejected both.
L: I'd like to state some reasons for denying Ds...

L: motions. They misunderstand the theory of harm, the drop in share prices is not the injury, the NWS eliminated the potential for future dividends, shareholders contracts receive a bundle of rights and the NWS removed a valuable stick from that bundle. The price drop is a...

L: ...measure of the damages produced by experts. If Ps had developed another theory of damages before the closing of evidence, they might have been allowed to proceed. [How? L prevented any supplements from our experts. This was a very confusing statement.]

Next they turn to jury instructions. There is an instruction about video depositions that they agree on. Ps want an instruction on analyst reports not being relied on for their truth but only influence on decision makers, but Ds say they are already in evidence, so L rejects...

...the proposed instruction. Ps object to Ds language about shareholder contracts being informed by events. Ps agree HERA granted authority for FHFA to act in own interests [Thanks to SCOTUS misunderstanding incidental powers of conservators], Ds have been making this argument

for 9 years and courts have made clear in motion to dismiss and SJ ruling that this doesn't mean FHFA can do anything, they had to act in accordance w/ reasonable expectations in the contract. Ds are going to get up and say they can do whatever they want.
Ps proposed language:

"Changes to the law amend or inform the shareholder contracts. While HERA authorized FHFA to act in their own interests, FHFA violated the contract if they arbitrarily or unreasonably violated Ps expectations in the contract that they might receive future dividends."

Ds complain that they want to instruct jury that FHFA acted within the scope of its statutory powers [true under Collins but irrelevant and misleading in this trial]. Ps say Ds are just re-iterating their SJ argument and want Collins to decide the case, when court has ruled no.

I think the quoted language made it in, but there was a lot of back and forth and revisions on the spot so it was hard to be 100% sure. The language is very good for Ps as you would expect if you read L's SJ ruling which was very positive on the merits and only neg on damages.

They work out the language on penalty interest, and remove the 6% since it doesn't matter for jury to know the rate. This went on so long we don't have time for all the closings, so L offers Ds to either go tomorrow or split in two. Ds choose to split.