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Treasury Secretary Hank Paulson holds a meeting in New York to warn a select group of fund managers about impending conservatorship, despite telling the New York Times that he expected the government’s inspection of Fannie and Freddie’s books would give confidence to the market just the day before.
Congress passes the Housing and Economic Recovery Act of 2008, creating the Federal Housing Finance Agency, which is signed into law July 30. The law states that a conservator must act to restore a company in conservatorship to “sound and solvent condition,” and must act to “preserve and conserve” the company’s assets.
Amid turmoil and uncertainty across the financial markets, Secretary Paulson and FHFA Director James Lockhart announce that the GSEs will be placed into conservatorship, stating, “This comprehensive and complementary set of actions best meets our three objectives of market stability, mortgage availability and taxpayer protection.”
As conditions of the Conservatorship, Treasury announces that it will acquire $1 billion in Senior Preferred stock of each GSE, which will accrue a 10% dividend per year. Additionally, the Treasury will receive warrants for the purchase of 79.9% of the GSE’s common stock, intentionally shy of an 80% ownership stake which would have forced the government to account for GSE liabilities on its balance sheet.
Mario Ugoletti leaves his position as Director of the Office of Financial Institutions Policy at the Treasury where, according to his own testimony in a subsequent federal court case, he “participated in the creation implementation of the Preferred Stock Purchase Agreements, which governed the Treasury’s financial stake in Fannie and Freddie.”

After leaving his position at the Treasury, Ugoletti accepts a position at the Federal Housing Finance Agency as Special Advisor to the Office of the Director. In that role, Ugoletti advises FHFA Director Edward DeMarco on matters concerning the PSPAs and serving as the “primary liaison with Treasury concerning the PSPAs and any amendments to the PSPAs.”

Effectively “switching sides,” Ugoletti assumes the legally dubious position of negotiating with his former Treasury colleagues on behalf of the interests of the GSEs and their shareholders, on the very PSPAs that he helped to create. FHFA, the GSE conservator and now Ugoletti’s employer, is legally supposed to be entirely free from government oversight.
Treasury Official Jeffrey Goldstein sends an internal action memo to Treasury Secretary Timothy Geithner in which he cites making clear “the Administration's commitment to ensure existing common equity holders will not have access to any positive earnings from the GSEs in the future,” as a potential benefit of refusing to waive the 2011 Periodic Commitment Fee. This “commitment” is never disclosed to shareholders.


Treasury Secretary Timothy Geithner announces that the government is changing the rules and institutes the “Third Amendment” to the PSPAs, which siphons-off 100% of Fannie and Freddie profits in perpetuity. The Third Amendment also mandates that the enterprises’ capital reserves be systemically wound down to zero by 2018, placing the taxpayer at increasing risk for potential disruptions in the market.

Hover each of the years following the sweep to see the progression of Fannie and Freddie’s payments to Treasury.
U.S. Senators Bob Corker and Mark Warner introduce legislation that codifies the Treasury’s unconstitutional taking under the Third Amendment and adds $5 trillion to the national debt by putting the “full faith and credit” of the U.S. on GSE liabilities.
Mario Ugoletti declares under oath that the FHFA and GSEs had not even begun to discuss the possibility of recognizing any value to their DTAs at the time the Third Amendment was implemented, and that “neither the Conservator nor Treasury envisioned” that Fannie’s would be reversed in early 2013. This is despite the fact that tax assets played a major role in the decision to place the enterprises into conservatorship in the first place, and despite the fact that, as conservator, FHFA is mandated to work in the interests of the enterprises and their shareholders.
U.S. Senators Mike Crapo and Tim Johnson introduce legislation similar to the Corker-Warner bill, which still codifies the third amendment and provides NO recognition of shareholder rights in winding down the GSEs and transferring their assets to a new entity.
Massachusetts Representative Michael Capuano introduces legislation that would end the Third Amendment Sweep and reclassify all previous (and future) GSE payments as repayment on the loans they received in the bailout.
Former Treasury official and current housing policy advisor on the National Economic Council Michael Stegman acknowledges that future GSE draws from Treasury would come at the taxpayer’s expense. Stegman, a proponent of the Third Amendment Sweep and fierce opponent of recapitalization, fails to acknowledge that taxpayers are increasingly exposed to the risk of draws by the continuation of the sweep.
U.S. Representative Marsha Blackburn of Tennessee introduces legislation that would establish a secondary reserve fund in which to place GSE profits until GSE reform is enacted. This would effectively end the Third Amendment Sweep and would allow the GSEs to build a capital buffer against losses.
U.S. Senator Chuck Grassley sends letters requesting information from the Treasury and Department of Justice regarding their reluctance to turn over key documents in GSE court cases and the use of executive privilege to exempt certain documents from the discovery process. In a press release, Grassley’s office cites the Morgenson New York Times piece as a contributing factor in the Senator’s decision to send the letters.
A sensitive internal Treasury memo from 2011, written by Treasury Official Jeffrey Goldstein, is revealed in press accounts. The memo was not disclosed in the discovery process of an earlier GSE lawsuit, despite a court order to turn over all relevant documents, further fueling concerns about repeated government attempts to withhold information in GSE court cases.
Senate Banking Committee Chairman Richard Shelby introduces a comprehensive “Regulatory Relief” bill ostensibly aimed at addressing sections of Dodd-Frank. Tucked away in the bill, however, are provisions that would prevent Treasury from selling any of its GSE Senior Preferred Stock without Congressional approval. This effectively codifies the status quo of the mortgage market unless Congress passes comprehensive housing finance reform. This would ensure the prolonged continuation of the Third Amendment Sweep, and would strip FHFA Director Mel Watt and the Administration of their ability to enact GSE reform as is clearly intended in HERA.


Hover each of the years following the sweep to see the progression of Fannie and Freddie’s payments to Treasury.


Hover each of the years following the sweep to see the progression of Fannie and Freddie’s payments to Treasury.


Hover each of the years following the sweep to see the progression of Fannie and Freddie’s payments to Treasury.


Hover each of the years following the sweep to see the progression of Fannie and Freddie’s payments to Treasury.