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Watt Weighs In as Lawmakers Seek Elusive Balancing Act on GSE Reform

Posted January 22, 2018 by clientservices

There seems to be a little more common ground on GSE reform but the terrain is rocky and has deep chasms so it could be slow going before Congress and the Administration can finally resolve the issue at the heart of the financial crisis of ten years ago.

Federal Housing Finance Agency (FHFA) Director Mel Watt last week responded to a request from Senate Banking Committee Members Mike Crapo (R-ID) and Sherrod Brown (D-OH) and outlined his most detailed views to date on housing finance reform and the role of Fannie Mae and Freddie Mac. Watt suggested Fannie and Freddie could be reincorporated as private entities, owned by shareholders, and be governed by strong liquidity and capital requirements. The government would provide an explicit guarantee for catastrophic losses. In other words, they would operate like public utilities, including having a regulated rate of return.

The Independent Community Bankers of America (ICBA) were quick to praise Watt’s stance on preserving the role of local lenders in originating mortgages, particularly in rural communities. Even Mortgage Bankers Association (MBA) President Dave Stevens had positive things to say about Watt’s ideas, noting in particular the MBA’s own proposal calls for a government guarantee behind mortgage backed securities (MBS).

A few days later, Craig Phillips, a senior counselor to Treasury Secretary Steven Mnuchin, indicated Watt’s proposals are generally in line with Treasury’s general thinking. Mnuchin said late last year that housing finance reform is a priority for this year and listed ending the conservatorship, protection of taxpayers and preservation of the 30-year mortgage as guiding principles in housing finance reform.

Very quickly, mortgage bankers called on Congress to get the job done as soon as possible. With tax reform done, they want to end the long impasse over Fannie and Freddie’s role in housing finance and transition to system in which they can supplant the GSEs – even if they do not explicitly state that that is their aim. Phillips would not be pinned down on the timing but, like Watt, said the ball is in Congress’s court.

The telegraphing between policymakers and private sector interests could be seen as a sign of genuine interest in addressing this last piece of unfinished business from the 2008 financial crisis before election-year politics completely cripples Washington. On the other hand, just beneath the surface agreement on the goals and principles of reform, as serious differences in approaches and the government shutdown serves as a reminder that commonsense and goodwill are in short supply in Washington.

Watt and Mnuchin seem disinclined to exercise their statutory authority to end conservatorship without Congressional approval of plan for how to go about it. Congress, however, seems stuck reworking ideas that have come up short in the past while balancing this year’s political realities.

As in the past, most of the focus is on the efforts of Senators Bob Corker (R-TN) and Mark Warner (D-VA) who have been revising a proposal they put forward in previous Congresses. The details of their revised bill are not known and there have been reports that the two senators have diverged on some key issues. The current iteration is said to envision putting Fannie and Freddie into receivership and create 10 private sector guarantors which would have a government backstop for catastrophic losses. This hews closely to a proposal from the Mortgage Bankers Association.

Watt supports making more room for private capital in home lending but he believes the creation of 10 or more new entities to compete with Fannie and Freddie would undermine more than help a stable, liquid secondary market.

Meanwhile, retiring House Financial Services Chairman Jeb Hensarling, a longtime critic of the federal government’s role in housing, has come to acknowledge that a government guarantee in the secondary mortgage market will have to be part of any solution that could make it the president’s desk. If the Senate is trying to win support from House conservatives then lawmakers will have to look beyond the lure of displacing Fannie and Freddie and ponder whether compelling taxpayers to back MBS issued by a sprawling network of private-sector guarantors is in any way consistent with getting the government out of the home loan business. Likewise, if Fannie and Freddie were to disappear, people of modest income in rural areas, who often vote Republican, could find it harder to access affordable finance options from small, community-based lenders.

What might be driving the desire to finally deal with the GSEs is an accounting adjustment in the new tax law that moves Fannie and Freddie closer than ever to needing another “bailout” to cover possible quarterly losses. In response to this looming possibility, last month Treasury and FHFA agreed to another change in the terms of the conservatorship to allow the GSEs to keep about $3 billion in equity capital each. While that move might have signaled Washington’s growing angst over the political fallout of another bailout, they are more likely to see it as more time to haggle and delay.

Watt deserves credit, once again, for trying to keep things real. And yet, for all the recent flurry of activity, taxpayers, shareholders and average people seeking homeownership remain at the mercy of a broken Congress and an unpredictable Administration.

Capital Buffer Deal May Buy Enough Time to Get Down to Business on GSE Reform

Posted December 21, 2017 by clientservices

The announcement today that Fannie Mae and Freddie Mac will begin maintaining a $3-billion capital baseline is the first tangible demonstration in five years that officials in Washington actually want to protect taxpayers and end the stalemate on reforming the government sponsored enterprises.

Beginning next year, Fannie and Freddie were to have had their capital buffers wiped out completely, courtesy the Net Worth Sweep imposed on them in 2012. Under the arrangement worked out between the Treasury Department and the Federal Housing Finance Agency, the dividend payments Fannie and Freddie are required to make to Treasury each quarter will be based on the GSEs maintaining a capital buffer of $3 billion. Therefore, the $4.7 billion-dollar payment Freddie was to make for third quarter earnings will be reduced to $2.3 billion and Fannie’s scheduled $3 billion dividend payment will be pared back to $600 million. This will create a thin buffer from market fluctuations for the GSEs and perhaps buy a little time before taxpayers would again be on the hook to cover quarterly losses at the enterprises.

The arrangement is a far cry from having the GSEs keep all of their earnings once they paid back Treasury the $187 billion in emergency funds received nine years ago - which they did, plus an additional $90 billion, courtesy the Net Worth Sweep. Had the law been followed, the GSEs would have been operating on sound and solvent footing, thus ending the conservatorship and facilitating meaningful and needed reform in a manner that honored shareholder rights.

Nonetheless, the deal signals that the Administration recognizes the fact that running the companies with no reserve capital to cover losses is untenable and the day of reckoning is about to arrive. To that extent, it is a vindication for FHFA Director Mel Watt, who has been warning for a year that dwindling capital reserves poses a risk taxpayers. It is also a sign that Treasury Secretary Steven Mnuchin recognizes the urgency of the situation and has resolved to act sooner than later.

“Treasury’s first duty is to ensure that taxpayers are being protected,” Mnuchin said. “This agreement balances the concerns of the FHFA with compensation for taxpayers. The Administration looks forward to working with Congress on comprehensive housing finance reform, a top priority in the year ahead.”

The Administration will have to act quickly to truly protect taxpayers in the coming months. The deal comes just hours after Congress cleared a historic tax reform and reduction bill that will have major implications for Fannie and Freddie’s balance sheets. With the reduction in the corporate tax rate from 35 percent to 21 percent, the value of some $23 billion in deferred tax assets will evaporate, dramatically increasing the likelihood of another taxpayer bailout. This would saddle the Administration with politically unpopular reality and give critics of the tax bill fresh ammunition about its unintended consequences and overall fairness.

Watt is keenly aware of this, saying in a statement, “While it is apparent that a draw will be necessary for each Enterprise if tax legislation results in a reduction to the corporate tax rate, FHFA considers the $3 billion capital reserve sufficient to cover other fluctuations in income in the normal course of each Enterprise’s business,” Watt wrote. “We, therefore, contemplate that going forward Enterprise dividends will be declared and paid beyond the $3 billion capital reserve in the absence of exigent circumstances.”

If “exigent circumstances” could be perceived as Watt keeping his options open it is also safe to assume Mnuchin has attached strings of his own. The Treasury statement noted, “…any failure by Fannie Mae or Freddie Mac to declare and pay a full quarterly dividend will result in the automatic, immediate termination of its capital buffer.”

In the nine years since the financial crisis promoted the creation of the conservatorship, FHFA has implemented a number of changes to operate the GSEs more prudently. However, the Obama Administration’s Net Worth Sweep and inaction by Congress have mostly made the situation worse for taxpayers, the housing finance market, and of course, shareholders.

It is too early to say that this very limited step announced today is the beginning of the end of this long and dismal saga. However, to paraphrase Churchill, it might be better than merely the end of the beginning.

Mnuchin Adopts Good Starting Points on GSE Reform

Posted November 27, 2017 by clientservices

From the Wall Street Journal’s CEO Council annual forum, a two day event where the world’s most ambitious leaders connect, came a tweet from the WSJ Capital Journal account which amplified remarks from Treasury Secretary Steven Mnuchin:- “We do want to preserve the 30-year mortgage.. and we don’t want to put taxpayers at risk. Those are the two starting points on GSE reform.”

Those are good starting points. With no risk of presumptuousness, this indicates the Trump Administration is very unlikely to propose completely doing away with the government-sponsored enterprises, Fannie Mae and Freddie Mac. In addition, GSE reform will almost certainly include the restoration of adequate capital reserves. That is the only way to protect taxpayers from having to make up for possible shortfalls at the GSEs or bailing them out in the next broader market crisis.

It has been nearly one year since then Treasury Secretary-designate Mnuchin told Fox Business Network, “We’ve got to get Fannie and Freddie out of government ownership. It makes no sense that these are owned by the government and have been controlled by the government for as long as they have.” Mnuchin was most likely signaling that ending Fannie and Freddie’s captivity in a government-run conservatorship was necessary. Only a wild logical leap would allow one to conclude he was announcing a dramatic departure from 80 years of federal housing finance policy.

It is widely acknowledged that the existence of Fannie and Freddie during these many years has helped make the 30-year-fixed-rate mortgage a popular and successful finance product. The very idea of the “American Dream” is inextricably linked to a stable secondary mortgage market sustained through countercyclical liquidity, which the GSEs played a major role in creating and sustaining. Only a handful of countries offer such a pathway to homeownership. The United States has long embraced the idea that homeownership promotes the accumulation of wealth that can be passed on to future generations and helps build strong communities. Working Americans would justifiably feel betrayed if the Trump Administration and Congress put home ownership out of reach for millions of people.

Nearly three years ago, when it looked as though Washington policymakers were zeroing in on ways to dismantle Fannie and Freddie, bank analyst Dick Bove, told The Street that taking two of the biggest buyers of 30-year mortgages out of the equation would almost certainly limit housing finance options for working Americans. He said banks are eager to offer loans but mostly for much shorter durations — between five and 10 years. The story noted that lending experts predicted dismantling Fannie and Freddie would mean higher finance costs, “driving the American Dream even further out of reach of lower- and middle-class consumers.”

Earlier this year, a research note published by Kroll Bond Rating Agency, in response to Mnuchin’s comments from last November, explained how Fannie and Freddie help mortgage lending. First, the superior credit standing of the U.S. government helps support the sale of securities secured by one in four family home loans and then also act as guarantor for these mortgage securities, taking the first-loss credit risk on the underlying loans. “By guaranteeing the credit risk, the GSEs make it easier for the bond market to deal with the long and variable duration risk of a 30-year mortgage,” KBRA said. In addition, the implicit governmental guarantee of the GSEs’ mortgage backed securities enables a “to be announced” (TBA), market to help with the efficient management of interest rate risk. In short, without the GSEs the TBA market would cease to exist and homebuyers would pay the price through higher interest rates.

“Today, commercial banks account for just half of the $10 trillion US mortgage market while non-banks account for the rest of the annual production of new loans,” the analysis said. “With no forward TBA market to hedge interest rate risk, non-banks would be marginalized and only commercial banks could hold 1-4 family mortgages, either for portfolio or sale. Banks would see a substantial increase in cost.”

Even critics of a government role in home finance policy have been hard pressed to prove that home finance would be as accessible without Fannie and Freddie. The 2011 book, Guaranteed to Fail: Fannie Mae, Freddie Mac, and the Debacle of Mortgage Finance was highly critical of the financial risk taking and political agendas that put Fannie and Freddie in peril leading up to the 2008 financial crisis and envisioned a GSE-free mortgage marketplace. However, the authors had to acknowledge, “Without well-developed secondary markets for mortgages, it is hard to sustain this mortgage product…To the extent that U.S. households have come to know and love this product, any GSE reform should consider the importance of maintaining a strong securitization market so as to preserve the availability of a long-term fixed-rate mortgage product.” If GSEs had to be preserved, they recommended the “boring public utility model” that has gained some traction in recent years.

The second element of the tweet - protection for taxpayers - can be achieved in part by locking in reforms that have been implemented in recent years to shrink the GSEs’ portfolios, create a larger role for private sector players, and tighten up lending and securitization standards. Additional reforms will be needed. Regardless, the only way to truly protect taxpayers is to make sure there are adequate capital buffers at Fannie and Freddie. With the Net Worth Sweep whittling the GSEs’ capital to zero over the next five weeks, the day of reckoning Federal Housing Finance Administration Director Mel Watt has long warned about could arrive sooner than later. At that point, it might become clearer how Washington plans to serve aspiring homebuyers and taxpayers in the years to come.

Corporate Tax Cut Could Expose Net Worth Sweep Folly

Posted November 20, 2017 by clientservices

As a $1.5-trillion tax measure moves incrementally toward becoming law, Washington policymakers could have to confront the consequences of the raid on Fannie Mae and Freddie Mac’s capital that has been going on the last five years.

The House of Representatives approved a sweeping bill to reduce taxes and reform the tax code November 16 on a vote of 227-205. The same day the Senate Finance Committee completed a four-day markup of its own tax cut measure. While the measures are different in many ways, they overlap in cutting the corporate tax rate to 20 percent from the current 35 percent. The Senate bill, however, would delay that provision from taking effect until 2019. Should the House prevail in cutting the rate sooner, taxpayers could be shocked to learn they might have to kick in to support Fannie and Freddie once again. The reason is a little understood matter of “deferred tax assets.”

An analysis by Ike Brannon in the Weekly Standard from last spring noted that the $150 billion in losses Fannie and Freddie posted leading up to the 2008 financial crisis have been carried forward to reduce tax obligations in future years. At the 35 percent corporate tax rate, he estimated the value of the deferred tax assets would reduce future tax bills by $53 billion. But if the rate drops to 20 percent, the value of the deferred tax assets would drop to roughly $30 billion.

Why does this matter? Because if the GSEs’ quarterly profits are not greater than the value of the estimated $23 billion in remaining deferred tax assets at the time the rate cut goes into effect, the GSEs will face a shortfall. For reference, while Fannie and Freddie have been posting quarterly profits fairly consistently for more than five years, quarterly profits of more than $23 billion are unlikely. Their combined third quarter profits added up to $7.7 billion.

Under the Net Worth Sweep, Fannie and Freddie’s capital buffers have been systematically whittled down since 2012. In just over a month, they will have zero in reserve capital. That means Treasury will need to make up for losses with taxpayer funds.

While reducing and simplifying taxes has broad support, bailing out Fannie and Freddie would likely anger many taxpayers, justifiably so. Nine years of using the GSEs as a piggy bank will have consequences.

The Net Worth Sweep’s Moral and Practical Deficiencies

Posted November 13, 2017 by clientservices

A new paper by John Berlau at the free-market oriented Competitive Enterprise Institute, not surprisingly, takes a dim view of the historic and persistent roles of Fannie Mae and Freddie Mac in the home mortgage market. It takes an equally dim view of the government’s lack of respect for the rights of shareholders in the course of its nine-year-old conservatorship of the companies.

Berlau argues that Congress and the Trump Administration should take two steps to enable a fully private mortgage market to function. One is to do away with what he sees as the distortive influence of rules and regulations included in the Dodd-Frank Act. But the first step he recommends is for the government to, “respect the property rights of GSE shareholders and offer them some form of compensation.” He wrote:

There are moral and practical reasons for compensating GSE shareholders. If government abrogates contracts in this case, why would investors make substantial investments in mortgage securities in the future? If investors see any market as prone to arbitrary government takeovers, they will be very reluctant to invest in this sector. Investors will not buy into a transitional privatization scheme, if they think the government can abrogate their property rights at the first sign of things going south. In its GSE phase-out legislation, Congress should set up a commission to determine the value of GSE shares, and once the commission makes its determination, the government should compensate GSE shareholders accordingly.

“Moral and practical” aptly summarizes why shareholders need to be made whole. The suits brought by groups of investors are based on violations of specific statutes and the Constitutional prohibition of “taking” private property for public use without “just compensation.” That alone should have prevented the Net Worth Sweep from being conceived and implemented in the first place. But Berlau’s insights merit more than a passing acknowledgement.

Indeed, it is immoral for government to run roughshod over the financial lives of countless Americans. Investors Unite members who made what seemed like a sound investment decision to better prepare for retirement, education costs and other needs have been wronged in a moral sense by the abrupt and arbitrary policy pivot of the Net Worth Sweep. Never have shareholders in a private company endured such reckless mistreatment at the hands of their government.

With regard to the practical considerations, Berlau is in good company in warning that the conduct of the conservatorship and Net Worth Sweep in particular send a terrible signal to investors in financial institutions.

It is impossible to rationalize the government’s decision to vacate the rights of private shareholders and take steps so clearly outside the letter and spirt of the law. Whether it is through a commission or simply allowing the market to reset stock prices once Fannie and Freddie are properly capitalized and the conservatorship terminated, the first step in charting the future course of federal housing policy should be based on certain moral and practical principles. The Trump Administration would send the market the right signal by following the law and restoring the rights of shareholders.

Groundhog Day on Capitol Hill

Posted November 3, 2017 by clientservices

In the 1993 comedy Groundhog Day, Phil Connors (Bill Murray) is stuck in an endless loop, hearing the same things, and repeating the same day. At one point, he asks a friend, “What would you do if you were stuck in one place and every day was exactly the same, and nothing that you did mattered?” His response? “That about sums it up for me.”

And that about sums it up for Thursday’s hearing before the House Financial Services Subcommittee on Housing and Insurance, the second hearing in just a few weeks on sustainable housing finance. As anticipated, Mortgage Bankers Association (MBA) President Dave Stevens testified and brought up many of his same points supporting the MBA’s GSE reform plan. Those same tired points we’ve heard over and over.

He started off with a line we can all agree on:

“Nine years have passed since the GSEs were placed in conservatorship, and yet their long-term status remains unresolved. Extended conservatorship is economically and politically unsustainable, and it is an unacceptable long-term outcome. Without comprehensive reform, borrowers, taxpayers, and lenders will all face increased risk and uncertainty about the future.”

But as usual, he left some important points out.

Stevens failed to recognize that while reforms have been made to the GSEs, thousands of everyday investors have been harmed in the process. From the Net Worth Sweep to failing to allow Fannie Mae & Freddie Mac to build up a capital buffer, the group his organization’s plan purports to protect – taxpayers – is instead put at great risk of footing the bill for another giant bailout. Simply put, this is a risk that can be avoided by planning ahead while Fannie Mae and Freddie Mac are enjoying success. Or as Vice President Pence’s chief economist Mark Calabria put it at an Urban Institute event on Wednesday:

“A modest decline in the housing market could result in an injection of billions of taxpayer dollars [to the GSEs]… I think we need to have a mortgage finance system that takes into consideration that you will have cyclical effects in the housing market, not one based upon the dream of ever increasing prices.”

Calabria is right. As someone who was embedded in housing policy throughout the financial crisis as a senior staffer on the Senate Banking Committee when HERA was crafted, we should heed his warning. The ultimate goal of GSE reform should be to not only return to investors their hard-earned money, but protect taxpayers in the long run. And while it’s certainly true parts of the MBA plan would have positive impacts on promoting affordable rental housing and the goal of home ownership, it would also create a huge risk to taxpayers. Investors Unite and others have continued making this point, and it’s beginning to seem like a scene from Groundhog Day.

But unlike the movie, the impacts of these decisions have real world consequences. Fannie Mae recently announced its third quarter income of around $3 billion, almost all of which will be returned to the Treasury. That’s a total of $114.8 billion that’s already been returned, far more than was used to bailout Fannie Mae following the financial crisis.

What does this mean for everyday Fannie and Freddie investors? Less money in their pockets, more cash for the feds. After nine years of conservatorship, it’s time to push real solutions to this endless loop, otherwise we’re doomed to repeat the same story.

An Overview of Litigation Landscape as Several Cases Advance in Court

Posted November 3, 2017 by clientservices

The wheels of justice turn slowly but recent turns have advanced the cause of Fannie Mae and Freddie Mac shareholders. In addition, the U.S. Supreme Court could decide by the end of the year to take up a cert petition to review challenges to the Net Worth Sweep.

In an Investors Unite teleconference Wednesday, David H. Thompson, a managing partner at Cooper and Kirk, shared his observations following oral arguments he presented in Chicago on Tuesday in Roberts vs. FHFA. He also offered thoughts on the latest development in the pursuit of documents the government has tried to keep locked away and other cases working their way through state and federal courts in various states.

Thompson, who is also representing investors with Fairholme Funds in their challenge of the Sweep, said the recent decision by U.S. Court of Federal Claims Judge Margaret Sweeney to allow plaintiff attorneys to access in a “quick peek” process some 9,000 documents still under protective order should also help shareholders. Documents that have been made public to date have revealed government officials proudly devising ways to strip Fannie and Freddie of revenues. Thompson noted that in protracted efforts to access information, the last documents to come to light are often those that contain the most useful information.

Meanwhile, in Minnesota, a ruling is likely later this year in a suit in which a group of investors contend the structure of FHFA is unconstitutional. In addition, Perry Capital has asked the U.S. Supreme Court to take up the issue of whether FHFA and Treasury exceeded their authority in the Net Worth Sweep. Briefs are due by the second half of December and the high court should announce by mid-January whether it will make consider the request. “If so, buckle up your seatbelts,” Thompson said.

To listen to a replay of the Wednesday’s teleconference, click here.

Another Quarterly Treat for Treasury, Another Trick on Everyone Else

Posted October 31, 2017 by clientservices

At some point in the future, Fannie Mae and Freddie Mac will retain their quarterly revenues just as other companies do, allocating funds to capital reserves, and other routine functions. For now, however, the money will flow into Treasury and be spent in ways almost impossible to track.

Today Freddie Mac announced its income for the third quarter of 2017 was $4.65 billion. Most of it will go to Treasury. That will bring the total dividends paid to Treasury since Freddie was placed in conservatorship in 2008 to $114.8 billion - $43.5 billion more than Freddie drew in emergency bailout funds at the height of the 2008 financial crisis. Fannie Mae will announce its third quarter earnings on Thursday. When Fannie’s Q2 earnings were announced in August, the company had surrendered $162.7 billion to Treasury since 2008 - $46.6 billion more than it drew in emergency loans. Therefore, the government has bagged a net return of over $90 billion during the course of the conservatorship.

But this is no treat for taxpayers. It is a trick on them as well as on Fannie and Freddie’s shareholders and homebuyers. The revenue stream officials in the Obama Administration created with the Net Worth Sweep in 2012 is draining the GSEs of their lifeblood, capital. Each quarter that the companies post profits allows the recklessness and deception to continue. But when Fannie and Freddie head into next year with no reserve capital and suffer a quarterly loss or two, there will be a reckoning that should have Washington policymakers spooked.

At that point, the state of the conservatorship of Fannie and Freddie will move from a short mention in the Business section to the front page. Taxpayers will not be happy to learn that they need to cover Fannie and Freddie’s losses, especially since Washington has had nine years to restore the companies’ soundness and solvency. The Trump Administration will have to explain why it has perpetuated the Obama Administration’s scheme to bleed Fannie and Freddie and allowed government lawyers to continue to defend the previous Administration’s false narratives and stonewalling in court.

FHFA Director Mel Watt continues with his clarion call about the need to retain earnings and pleas for Congress to build on GSE reforms FHFA has achieved to design comprehensive housing finance reform. There are indications that Congress might be gearing up for action. The House Financial Services Committee had a hearing on the subject last week and has another hearing scheduled for Thursday. The Senate Banking Committee had another in a series of hearings over the summer. At that session, small lenders rejected possible proposals to marginalize them to the benefit of the nation’s largest banks. Whether Congress can coalesce around a common-sense way of exiting the conservatorship with needed reforms in housing finance policy is an open question. Ideological and partisan antipathy to Fannie and Freddie, along with disregard for shareholder rights, is pervasive among lawmakers. Still, no one in Congress has come up with an alternative approach to maintaining a stable and healthy secondary mortgage market that would serves taxpayers and average Americans pursuing home ownership better than the current model.

Maybe next quarter.

The Last Word on the Document Tug of War?

Posted October 23, 2017 by clientservices

U.S. Court of Federal Claims Judge Margaret Sweeney’s opinion in agreeing to Fannie and Freddie shareholders’ request for a “quick peek” review of an additional 1,500 documents at the center of a drawn-out discovery process should be the last word about the limits of government secrecy.

The suit by investors with Fairholme Funds, Inc. alleges the government deprived Fannie and Freddie shareholders of property without compensation in implementing the Net Worth Sweep of the companies’ profits and diverting the money to the federal Treasury. The discovery process in the suit started with over 12,000 documents.

Following a ruling granting the motion to compel the production of this batch of 1,500 documents made public earlier this month, Judge Sweeney’s full rationale painstakingly takes up each relevant assertion by lawyers for Fairholme Funds and lawyers for the government. Consistent with previous rulings in the tug of war that has gone on for over three years, Sweeney is thorough and fair-minded on each narrow consideration of law and procedure but insistent that the government’s reasons for denying access to documents have become less convincing at each turn. She wants to end the fight over documents so the case can proceed on actual facts and evidence.

“The court’s sole purpose in utilizing the procedure is to bring jurisdictional discovery to an end so that the case may move forward,” she wrote of the rules governing her court’s procedural discretion. “Given the court’s wide discretion to manage discovery pursuant to RCFC 26, and given the mutually agreed-to protective order already entered in this case, the court’s use of the quick peek procedure is eminently appropriate.”

Her ruling is the latest determination about the government’s unsupportable claim of various kinds of executive privilege to keep documents hidden. Generally, executive privilege is applied to matters of national security or other highly sensitive information. The motion to compel before Sweeney concerned “deliberative process” and “bank examination” privileges the government has asserted.

Sweeney pointed out that even the government has conceded its approach to handing over relevant documents has been “piecemeal.” The “quick peek” procedure will allow Fairholme’s lawyers to get a look at all of the 1,500 documents in a time and place the parties agree to. This will enable plaintiffs to see if there are additional pieces of information that could strengthen their case. Sweeney has already ruled that in cases involving the unconstitutional taking of property, the law leans toward citizens. She is clearly eager to end the slow drip of information plaintiffs should be able to see. At each turn, the government has failed to provide a constitutionally acceptable reason why the documents should remain sealed – or why they should have in the first place.

Noting the protective order originated in July, 2014, she stressed it specifically stated that it was “not intended to address or govern claims of privilege that may otherwise be asserted by any of the parties…[but] rather, the express purpose of the protective order was to protect “proprietary, confidential, trade secret, or market-sensitive information, as well as information that is otherwise protected from public disclosure under applicable law.”

As strong in its depth and scope as her opinion is, even Sweeney had to acknowledge the law provides avenues to continue even discredited causes. Toward the end of her opinion, she instructs, “The parties shall then meet and confer in an effort to resolve their differences without further court involvement. If they are unable to do so, plaintiffs may file a renewed motion to compel those documents they contend are both relevant and not privileged.”

If presented with such a motion, no doubt, Sweeney will again apply rigorous scrutiny to both sides. However, she might justifiably wonder what the government’s lawyers do not understand about transparency in carrying out the people’s business.

To date, the Sweep has sent over $270 billion of Fannie and Freddie’s revenues to Treasury and more might be on the way amid speculation their profits for the third quarter of the year might be fairly robust. Companies doing this well should not be wards of the state. They should be operating with sufficient reserve capital and returned to their shareholders.

IU Executive Director Tim Pagliara Submits Comment on FHFA’s Draft Strategic Plan for Fiscal Years 2018-2022

Posted October 17, 2017 by clientservices

To Whom It May Concern,

My name is Tim Pagliara, a Fannie Mae and Freddie Mac shareholder and the executive director of Investors Unite, a coalition of individual shareholders in the government sponsored enterprises Fannie Mae and Freddie Mac. I write on behalf of the thousands of members of my organization to implore the Federal Housing Finance Agency, in its capacity as the GSEs’ conservator, to include in its strategic plan the suspension of Fannie and Freddie dividend payments to the Treasury Department in order to allow the GSEs to reserve capital and begin building a direly needed capital base.

The GSEs have recently entered their ninth year in conservatorship. Testifying October 3 before the House Financial Services Committee, FHFA Director Mel Watt reiterated his belief that the conservatorship is not sustainable and that it has been “unprecedented in scope, complexity and duration,” especially considering the GSEs support over $5 trillion in mortgage loans and guarantees.

As required under the Housing and Economic Recovery Act of 2008, FHFA has helped restore the GSEs to a safe and solvent condition, enabling them to continue to provide liquidity and stability in the home loan marketplace. However, changes made in 2012 to the terms of the conservatorship that requires the GSEs to make quarterly dividend payments to the U.S. Treasury will leave the GSEs with no reserve capital beginning January 1, 2018. This is counter to the interest of taxpayers, the rights of GSE shareholders and the public policy goal of access to home finance, regardless of economic cycles.

The government and taxpayers have been paid back in full for $187.5 billion in emergency funds provided to the GSEs during the financial crisis of 2008-09. As the GSEs have continued to turn a profit, an additional sum of over $80 billion has been paid to the U.S. Treasury, as required by the Third Amendment of the conservatorship’s terms. There was never a legitimate policy rationale for this action commonly called the Net Worth Sweep. Its continuation is now creating new hazards for all stakeholders.

The systematic depletion of the GSEs’ capital reserves means taxpayers will be compelled to cover possible losses, which is a matter of concern expressed by Members of Congress from both political parties, Director Watt and Treasury Secretary Steven Mnuchin. The weakening of the GSEs’ financial condition is in direct opposition of HERA’s mandate for FHFA to return the GSEs to solvency. The policy also undermines a predictable, stable home loan marketplace and affordable housing goals in federal law. In addition, the policy violates the Constitutional rights of the GSEs’ shareholders.

Ending the Net Worth Sweep will facilitate a responsible exit from the conservatorship, as HERA envisions. The thousands of everyday, working Americans who comprise Investors Unite have invested their hard earned money in the GSEs for retirement, education and other needs, and have suffered unjustly as a result of the Sweep. These Americans expect only that federal agencies execute the law fully and faithfully. More broadly, the Sweep creates unnecessary uncertainty in the housing sector, which accounts for nearly 20 percent of the U.S. economy. The policy also sets a bad precedent for the trustworthiness of the government in dealing with distressed financial institutions.

It is time to end the quarterly dividend payment by Fannie Mae and Freddie Mac and protect taxpayers from having to provide additional support to the GSEs. An eventual exit from the conservatorship must respect the rights of hardworking people who own shares in Fannie and Freddie and create a sustainable mortgage market for future generations of Americans.

The Jig is Up: Shareholder Lawyers Close to Getting a Look at All Documents in Sweep Litigation

Posted October 5, 2017 by clientservices

Once again, a federal judge has sent government lawyers a clear message: Stop trying to hide the truth about the Net Worth Sweep. This time, they appear to be out of options.

On October 4, U.S. Court of Federal Claims Judge Margaret Sweeney granted a motion to compel the disclosure of documents filed over the summer by attorneys for Fairholme Fund’s shareholders in Fannie and Freddie. In August, they asked Sweeney to order the use of the “quick peek” procedure for about 1,500 documents related to the Sweep, many of them emails and other communications between government officials going back five years ago or more. Consistent with several previous rulings, Sweeney’s granting the motion rebuked government lawyers who have for years invoked various forms of privileged treatment to keep the public from knowing the full story about the Sweep – and to deny shareholders their rights.

With the latest ruling, lawyers for shareholders will finally be able to review nearly all of the documents the government has been so determined to hide about the deliberations, calculations and machinations of senior officials in the Obama Treasury Department, the Federal Housing Finance Agency (FHFA) and other governmental offices. While this is a clear victory for transparency in government, Sweeney’s ruling provides Fairholme’s attorneys only the opportunity to scan the trove of documents that have been part of the largest privileged log in U.S. history. In essence, at this point a “quick peek” is getting close to the “full monty.”

When the Net Worth Sweep was announced in August 2012, Fannie Mae and Freddie Mac were already four years into what was supposed to be a temporary conservatorship and back on their feet financially. The GSEs were also about to enter a period of great profitability, just as government officials predicted when conceiving the idea of the Net Worth Sweep. The decision to suddenly divert the GSEs’ earnings away from replenishing capital reserves and into government coffers seemed amiss and prompted a series of lawsuits by investors and shareholders in Fannie and Freddie.

To demonstrate this action exceeded the legal authority provided to government agencies under the Housing and Economic Recovery Act (HERA), shareholders sought documents that should have been open to the public. But the government raised the dubious claim executive privilege, normally invoked for national security reasons, to keep the records sealed. In a discovery process involving about 12,000 documents the government at first made 3,500 documents available. But that was just the beginning of a battle over documents.

In early 2017, a Federal Circuit Court turned down the government’s attempt to end the discovery process altogether but allowed that documents could be made available to plaintiff attorneys on a case-by-case basis. On August 1, the government agreed to release 17 more documents but these items only fueled suspicion about what the government continued to hide. For example, an email discussion about “re-recording certain deferred tax assets that had been written-off” directly contradicted a statement by Mario Ugoletti, a senior Federal Housing Finance Agency (FHFA). Another document concerned an email summarizing a June 2012 meeting between FHFA officials and Fannie’s CFO Susan McFarland that affirmed yet again that officials knew the GSEs were about to become quite profitable even though the Sweep was later justified, in part, as a way to protect taxpayers from possible losses at Fannie and Freddie.

Instead of battling over one five-year-old email after another, in August Fairholme attorneys asked Sweeney to use the “quick peek” procedure for about 1,500 documents from May 2012 onward. By saying yes this week, Sweeney not only helped expedite a protracted battle over evidence critical to the pursuit of justice for shareholders but also affirmed the principle of transparency in government.

Will Congress Ever Listen to Mel Watt?

Posted October 2, 2017 by clientservices

When Federal Housing Finance Agency (FHFA) Director Mel Watt testifies before the House Financial Services Committee on Tuesday, October 3^rd he will almost certainly reiterate that Fannie Mae and Freddie Mac’s lack of buffer capital poses an imminent threat to taxpayers. Unfortunately to date, his warnings to Congress have fallen on deaf ears.

The committee’s chairman, Rep. Jeb Hensarling, R-TX, and many lawmakers seem to believe even the most prudent actions to address immediate realities facing the government sponsored enterprises’ balance sheets will set in motion so-called “recap and release” from the conservatorship under which GSEs have operated for nine years. Having set up this straw man argument, these lawmakers demand the sole right to determine the fate of the GSEs – specifically to dismantle them and replace them with a yet-to-be defined structure.

It has been over a year and a half since Watt spoke in stark terms of the consequences of the Net Worth Sweep, the policy shift the Obama Administration orchestrated in 2012 that compels the GSEs to turn their profits over to the U.S. Treasury each quarter. In a February 2016 speech at the Bipartisan Policy Center Watt sought to spur action on GSE reform saying, “The most serious risk and the one that has the most potential for escalating in the future is the Enterprises’ lack of capital.”

Since then, the GSEs’ capital has just kept rolling into Treasury’s coffers. The latest installment of $5.1 billion arrived last Friday September 29 - - $3.1 billion from Fannie and $2 billion from Freddie. That brings the total to about $268 billion – and about $85 billion more than the $187.5 in emergency loans the GSEs were provided during the 2008 financial crisis. It also leaves companies that back over $5 trillion in home loans with a little more than a half billion in reserve capital between them. By the start of 2018 they will have no reserve capital. At that point, even relatively small losses will have to be covered by public funds – by any definition, a bailout.

A few weeks ago, a number of groups that represent smaller lenders urged Watt to use his authority to build a cushion and develop a recapitalization plan. Last month, Sen. Sherrod Brown, D-OH, and five fellow Democratic senators wrote letters to Watt and Mnuchin urging that Fannie and Freddie build up some reserve capital.

During Mel Watt’s tenure as FHFA Director, Fannie and Freddie have been substantially de-risked. The companies have dramatically trimmed their holdings, shifted billions in mortgage risk to the private sector, and adopted safeguards to prevent a returning to overleverage of the pre-crisis years. It’s time to finish the job. HERA explicitly gives Watt the authority to act unilaterally as conservator, but he has been working, in vain, to forge consensus. He has not shied away from warning that a draw on Treasury funds would be disruptive to the mortgage market. Late last month, Watt reiterated his concern about the dwindling buffers and said FHFA was “committed to working with Secretary Mnuchin to address the issue.” He has also tried to assuage the fears of policymakers by explaining that maintaining reserve capital is not the last word in GSE reform. Indeed, any lawmaker who wants meaningful GSE reform should recognize that the goal will be easier to attain if Fannie and Freddie are not the center of an explosive political battle over their perilous financial condition.

If Watt was still a member of the Financial Services Committee, among the questions he might ask a FHFA director is why it makes sense for Fannie and Freddie to send Treasury money the companies would in turn need to tap when their backup capital vanishes next year. He might also observe that if his fellow lawmakers felt strongly about GSE reform, they should have come up with a workable bipartisan plan in the last eight years.

But Watt isn’t in Congress anymore. As FHFA director, he has the authority to act on his own public recommendations, power granted to him specifically by HERA. He should use it, and act to defend taxpayers. Nobody would be able to credibly argue that he didn’t give Congress their chance.

Why We Fight On: A Parent’s Lament about the Sweep’s Impact on a Girl’s College Plan

Posted September 28, 2017 by clientservices

Anyone who thinks the Net Worth Sweep is just another story of inside-the-Beltway politics, ideology, and clever lawyers battling in court should read an open letter from N. Bradford Isbell, a former Fannie Mae employee and shareholder, about the Sweep’s impact on a family’s college plans for their daughter:

“I am a former Fannie Mae employee and long-term Fannie Mae shareholder. While working at Fannie Mae (2001-2011), I invested the bulk of my then 8-year old daughter’s college fund in Fannie Mae common stock, prior to the 2008 conservatorship. (My daughter is 17 now, and hopes to go to college next year; I hope we can afford it.). On the day that the government took over Fannie Mae and Freddie Mac, I lost 80% of the value of my holdings, as the market judged, correctly, that the terms of the takeover (aka “bailout”) were terrible for shareholders.

The letter underscores why Investors Unite continues to fight on behalf of thousands of average people who own shares in Fannie Mae and Freddie Mac. The full text of the letter, which can be read at GSE links, rightly expresses not only shock at the initial action by unelected bureaucrats – rightly described as “the largest financial theft in human history” - but also one parent’s frustration that the Sweep has been allowed to continue for so long:

“I am baffled as to why it has taken so many years to litigate the Net Worth Sweep’s legality. What FHFA and Treasury did is patently self-serving; patently in violation of FHFA’s self-acknowledged, congressionally-mandated duty to preserve and conserve Fannie Mae and Freddie Mac assets; patently constitutes theft from GSE shareholders (I think our Constitution prohibits this); and self-evidently wrong. The desperate efforts by FHFA and Treasury to hide evidence from the courts and American people—more than 11,000 documents—are self-evidently wrong. The false statements told by, and/or on behalf of, Treasury and FHFA to the American people and the courts about the Net Worth Sweep are self-evidently wrong. These actions reek of malice, lawlessness and deceit.”

The letter concludes by expressing justifiable outrage over the trampling on the rights of U.S. citizens – actions more typical of a totalitarian state or a “Banana republic” - along with a plea for the courts to render justice.

Whether it is a ruling by courts or the Administration exercising its authority to fulfill its statutory obligations, it is time to end the Sweep. It is bad policy with real world implications for thousands of people, including Isbell’s daughter.

Mnuchin Confirms GSE Sweep May Have Funded Obamacare

Posted May 1, 2017 by Investors Unite

In an interview on Fox Business News this morning, U.S. Treasury Secretary Steven Mnuchin confirmed stunning reports that officials from the last Administration used the windfall from the Net Worth Sweep of Fannie Mae and Freddie Mac’s profits for “other parts of the government.”

Investors Unite noted this intriguing possibility several weeks ago when Dr. Jerome Corsi, InfoWars Washington Bureau Chief, first published a series of stories in which he connected the dots found in government budget documents, court records and comments from officials related to policy priorities as the Net Worth Sweep was being formulated. With Mnuchin’s comments today on Fox Business News, it appears Corsi was onto something.

About three quarters of the way through today’s interview, host Maria Bartiromo, referring to reports of, “… how President Obama needed money for Obamacare and would take from all the agencies - and he took from Fannie and Freddie,” asked, “Is that true?”

Mnuchin replied without equivocation: “It is true, they used the profits from Fannie and Freddie to pay for other parts of the government while they kept taxpayers at risk,” he said.

The current Treasury Secretary’s stark acknowledgement of Obama Administration officials’ apparent cavalier relationship with the law when they conceived a plan to divert Fannie and Freddie’s profits is itself newsworthy. But so are his comments that have a bearing on ending the fiasco of the GSEs’ conservatorship.

To recap, Corsi’s analysis showed that Congress explicitly declined to appropriate any funds to Section 1402 of the Affordable Care Act, which concerns payments of insurance subsidies. Without that money to subsidize lower-income people’s purchase of health insurance, insurers would be forced to charge people with higher incomes a lot more, which would make Obamacare “dead in the water” in Corsi’s analysis. Not surprising, Obama Administration officials scrambled to get around this impediment, leading to a fight in court. However, on May 12, 2016 U.S. District Judge Rosemary Collyer, in the case U.S. House of Representatives v. Burwell, (130 F. Supp. 3d 53, U.S. District Court for the District of Columbia), affirmed that Health and Human Services Secretary Sylvia Matthews Burwell had no constitutional authority to divert funds.

By diving deeply into budget documents, Corsi discovered that the hefty profits Fannie and Freddie were just beginning to generate would provide almost exactly what would be needed for the health insurance subsidies. Citing a report issued in March 2016, the Congressional Budget Office estimated the cost for providing Section 1402 subsidies over the next ten years (2016-2026) was estimated to be $130 billion. Corsi’s analysis also points to damning information found in a Congressional Budget Office publication “The Budget and Economic Outlook: 2015 to 2025” about how “transactions with Fannie Mae and Freddie Mac” were considered as part of “mandatory U.S. government spending.”

Getting to the bottom of what happened requires such relentless analysis because so much remains veiled in secrecy. Corsi’s analysis used documents related to the Sweep that were forced into the open by federal judges in the course of shareholder litigation and posted at FannieFreddieSecrets.org. As if to underscore the lack of transparency on matters concerning the GSEs, just last week the U.S. House approved a bill that would end an exemption to Freedom of Information Act (FOIA) requests related to Fannie and Freddie. Bartiromo noted the passage of this bill during the interview with Mnuchin but the Secretary declined to comment on the specifics of this aspect of the Fannie and Freddie misadventure.

However, Mnuchin restated his concern that the continuing Sweep poses a looming threat to taxpayers. The longer the GSEs are depleted of capital the more likely it is that taxpayers will again be compelled to advance public funds to pay their bills. Mnuchin is clearly averse to this arrangement and wants to bring it to an end as soon as possible.

He told Bartiromo that housing finance reform is a “top priority.” During public appearances last week on President Trump’s tax relief vision, Mnuchin said GSE reform is something the Administration will be looking to take up during “the second half of this year.” Mnuchin reiterated his view a “gigantic line” from Fannie and Freddie to the Treasury” was not a sustainable arrangement for taxpayers. He added, however, that preserving liquidity in the home loan marketplace remains a central tenet of GSE reform.

In a public forum sponsored by The Hill Last week, Mnuchin said preserving access to affordable home finance and protecting the taxpayer are so important that they cannot be ranked but rather should be lumped together as “the top principles” in reforming housing finance policy.

To date, Fannie and Freddie have made dividend payments of over $265 billion to the Treasury. That is a whopping profit of nearly $80 billion on the $187.5 billion the GSEs were advanced by taxpayers in the period right after the 2008-09 financial crisis. The fact that this slush fund was used to circumvent the expressed intentions of Congress is profoundly unsettling on its own but raises again the need to end the conservatorship and implement housing finance policies consistent with the rule of law.

The exact details of Mnuchin’s thinking about a path out of the conservatorship can only be gleaned from subtle qualifiers to his public statements. For example, he was quick to clarify with Bartiromo that he has never said Fannie and Freddie should be “privatized.” In addition, Mnuchin told the audience at The Hill event he wants to be sure GSE reform must avoid pushing down on the issue only to have “pop up” somewhere else. That would suggest he is disinclined to simply shift Fannie and Freddie mortgage securitizing operations to a new government-sponsored entity or to Ginnie Mae, as suggested by former FHFA Acting Director Ed DeMarco and Michael Bright.

Last week, Mnuchin pledged to work with Congress and respect the priorities of lawmakers but he stopped short of saying legislation will be required to implement GSE reform. Perhaps after considering the significant steps FHFA has already undertaken to reform the GSEs using its existing statutory authority under the Housing and Economic Recovery Act, Mnuchin and other Administration officials will conclude that they can complete the job without legislation.

Mnuchin’s interest in ending the conservatorship while retaining the GSEs’ success in making sure loans are available to average Americans looking to buy a home is welcome. His awareness of the sneaky maneuverings to misuse Fannie and Freddie’s revenues for Obamacare should spur his interest in resolving the situation as soon as possible – naturally, in a way that is consistent with the interests of taxpayers, capital markets and GSE shareholders.

With Split Decision in Appeals Court, Shareholders Should Continue to Press their Rights

Posted February 21, 2017 by Investors Unite

Today’s split decision by a three-judge federal appeals panel on the legality of the Net Worth Sweep should not be seen as the end of shareholders’ quest for justice. The judges directed U.S. District Court Judge Royce Lamberth to reconsider important portions of the case and plaintiffs can still appeal today’s decision to the U.S. Supreme Court.

While the Appeals panel upheld Lamberth’s ruling that the government acted within its power under the Housing and Economic Recovery Act (HERA) in implementing the Net Worth Sweep in 2012, the judges said the allegations by investors of “breach of contract, breach of the implied covenant of good faith, and fair dealing regarding liquidation preferences and the claim for breach of the implied covenant with respect to dividend rights” need another review. In essence, some Fannie Mae and Freddie Mac investors could pursue monetary – aka “takings” damages to compensate them for their loss.

Despite today’s ruling by the Appeals Court for the U.S. Circuit Court for the District of Columbia, it is still hard to imagine that Congress gave the Federal Housing Finance Agency carte blanche to do whatever it wanted with Fannie Mae and Freddie Mac. It seems unlikely that HERA – or any other statute – grants the government such broad power to trample on property rights. Remember, even Judge Lamberth, in his October 2014 dismissal of plaintiffs’ claims, conceded that the Net Worth Sweep could “raise eyebrows.” Nonetheless, he saw the law as granting FHFA very wide latitude.

In a dissent from her two colleagues today, Janice Rogers Brown, a 2005 nominee of President George W. Bush, conceded FHFA was enacted at a time of turmoil for financial markets and commented, “But even in a time of exigency, a nation governed by the rule of law cannot transfer broad and unreviewable power to a government entity to do whatsoever it wishes with the assets of these Companies.” She insisted Congress would have had to create a more “explicit and comprehensive framework” to justify even “a less-sweeping delegation of authority.”

We have cited many times an analysis of HERA by Mark Calabria, a former congressional aide, and Michael Krimminger, a former chief counsel for the Federal Deposit Insurance Corporation, both of whom were intimately involved in drafting HERA. They have made clear Congress consciously drew heavily from the Federal Deposit Insurance Act (FDIA) and Financial Institutions Recovery, Reform and Enforcement Act of 1989 (FIRREA) to define FHFA’s powers and duties.

For Judge Brown’s part, “Here, Congress did not endow FHFA with unlimited authority to pursue its own ends; rather, it seized upon the statutory text that had governed the FDIC for decades and adapted it ever so slightly to confront the new challenge posed by Fannie and Freddie.”

We can only speculate the U.S. Supreme Court might look at HERA and the Sweep and conclude the government’s action does more than “raise eyebrows” and instead veers outside Constitutional limits on government.

Putting aside the painstaking analysis of issues such as whether the plaintiffs had the right to sue the government or whether the government exceeded its authority, practical and serious policy questions remain. So long as the Sweep continues, two of the largest financial services companies in the world will be routinely stripped of capital. Without an adequate base of capital, taxpayers could be at risk for having to shore up the companies in the event of another housing market downturn. More broadly, the continued conservatorship and deadlock over the future role of Fannie and Freddie ill serves capital markets and average Americans looking to finance a home.

As Investors Unite Executive Director Tim Pagliara commented today, “We hope that the Trump Administration will put an end to this wrong by ending the sweep now and restoring the rights of shareholders.”

Investors Unite Pre-Inaugural Call

Posted January 13, 2017 by Investors Unite

Investors Unite Pre-Inaugural Call

On Wednesday, January 18 at 11:00 am EST, Investors Unite Executive Director Tim Pagliara will host a call to discuss the outlook for GSE shareholders as Washington prepares for the change in administration and Members of Congress settle into their new assignments.

Pagliara will be joined by Horace Cooper, senior fellow at the National Center for Public Policy Research, John Yoo, the Heller Professor of Law at the University of California School of Law, and Saikrishna Prakash, the James Monroe Distinguished Professor of Law at the University of Virginia School of Law.

To join the teleconference, please RSVP to [email protected].

WHO: Tim Pagliara, Investors Unite Executive Director and CapWealth Advisors Chairman and CEO

Horace Cooper, Senior Fellow at the National Center for Public Policy Research

John Yoo, Heller Professor of Law at the University of California Berkley School of Law

Saikrishna Bangalore Prakash, James Monroe Distinguished Professor of Law at the University of Virginia School of Law

WHAT: Investors Unite Pre-Inaugural Call

WHEN: Wednesday, January 18, 11:00 am EST

DIAL IN: 877-876-9177; Conference ID: Investors

RSVP: Please RSVP to [email protected]

About Investors Unite: Formed by Tennessee investor and CapWealth Advisors Chairman and CEO, Tim Pagliara, Investors Unite (investorsunite.org) is a coalition of over 1,400 private investors from all walks of life, committed to the preservation of shareholder rights for all invested in Fannie Mae and Freddie Mac. The coalition works to educate shareholders and lawmakers on the importance of adopting GSE reform that fully respects the legal rights of Fannie Mae and Freddie Mac shareholders and offers full restitution on investments.

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Sanity, Honesty and Respect for the Rule of Law Are Needed in Housing Policy

Posted January 10, 2017 by Investors Unite

The Wall Street Journal is seen as the bible of free markets, prudent management and the rule of law. So, its January 9 editorial that dismissed Fannie Mae and Freddie Mac shareholders’ rights and tried to preempt the incoming Trump Administration from doing anything short of dismantling the companies was stunning.

The paper assigned cynical intentions to Treasury Secretary-designate Steve Mnuchin’s statements that it was time to get Fannie and Freddie out of government control and restructure them so they are financially sound and never again need an infusion of taxpayer money. Putting aside the ad hominem argument that Mnuchin must be scheming to help Wall Street firms because he worked at Goldman Sachs, the Journal omitted important facts and got other facts wrong.

The Journal pointed out that Fannie and Freddie received almost $190 billion of taxpayer money in 2008 when it appeared they could collapse and then asserted, “Not unreasonably, taxpayers now receive all of their profits. But the private shareholders of these so-called government-sponsored enterprises keep pretending that something other than the government is responsible for their income streams. As if anyone would buy their guarantees—or give them cheap financing—if Uncle Sam weren’t standing behind them.”

Well, it is unreasonable. Under the Net Worth Sweep, Fannie and Freddie have surrendered to Treasury some $70 billion more than the original so-called bailout sum. This policy goes directly against what the law that created the conservatorship stipulated. It is an illegal taking of property – hence the ongoing litigation by shareholders. It has also forced the companies into the perilous position of having inadequate backup capital. How is it reasonable to rake up profits that should belong to shareholders? How is it reasonable to expose taxpayers to another bailout if the housing market sinks?

Fannie and Freddie had a fairly good run as publicly-chartered and privately-held companies until the late 1980s, when a mix of bad management, government mandates and lax regulation undermined their original mission. Until then, investors and homebuyers benefitted from the existence of the companies. It is speculation to assert there would be no takers for the securities the reformed and restructured government sponsored enterprises would offer.

No one denies that changes in housing finance were – and continue to be - needed following the financial crisis of 2008. A smaller, more clearly defined role for government may well make sense. But the law required restoring the companies to a solvent position first. Instead, the Obama Administration’s Treasury Department decided to use Fannie and Freddie’s profits as a piggy bank and Congress failed to come up with a viable alternative to them.

The Journal’s assertion that Mnuchin will adhere to the “mythology” of the 30-year fixed-rate mortgage was pure speculation. Its discussion of this finance product was also factually flawed. First of all, it dismissed Fannie and Freddie’s role in creating the kind of stability and liquidity in the home finance market that allowed for the creation of the 30-year mortgage. But to back up its view, the editorial cited a recent op-ed by former FDIC Chairman William Isaac and former Wells Fargo Chairman Richard Kovacevich which explained, “Nonconventional or ‘jumbo’ 30-year mortgages not guaranteed by Fannie and Freddie have existed for decades. In the decade preceding the financial crisis, the interest rate on these jumbo mortgages averaged only about 0.25% higher than similar guaranteed mortgages, a difference of a little over $40 a month on a $200,000 mortgage.”

But here is a critical distinction in finance products the Journal conveniently ignored. “Jumbo” mortgages are nonconventional by their very nature – they are too large to fit within Fannie and Freddie’s conforming loan limits, so they cannot be guaranteed by the GSEs in the first place. They are products marketed for a very specific and exclusive segment of the population, not the constituency that Fannie and Freddie are mandated to serve. Using the availability of these jumbo loans to argue that there is no need whatsoever for a government role in housing finance availability is like saying that there’s no need for public housing because there are waterfront apartments available in Georgetown.

If the new Administration wants to bring the Fannie and Freddie conservatorship fiasco to an end, everyone should be encouraged. But a sane approach starts with acceptance of facts and adherence to the law. That means ending the New Worth Sweep and then dealing with properly capitalized companies in a way that honors obligations to shareholders, protects taxpayers from future rescue missions and maintains affordable finance options for working Americans.

Holding Steady on Ending the Conservatorship and Restoring Shareholder Rights

Posted November 15, 2016 by Investors Unite

The dust is still settling from the collapse of conventional wisdom in the biggest political earthquake of our time. In the midst of this change and uncertainty, however, Fannie Mae and Freddie Mac shareholders are firm in their resolve to end the conservatorship and regain their rights.

There are many questions about the key players and policies of the Trump Administration. However, fundamental facts about federal housing finance policy reform and the illegality of the Net Worth Sweep have not changed. Investors Unite’s warnings about the need for capital, government transparency, the rule of law, the flaws in credit risk sharing and the implications of building the common securitization platform are as valid now as they were a week ago.

“The conservatorship of Fannie Mae and Freddie Mac was never supposed to last this long, and it has opened the door for lawless behavior by our government,” Investors Unite founder Tim Pagliara said in statement. “We hope the election creates the conditions to end the conservatorship and for a legal settlement with investors, either now or in early 2017.”

The election will usher in new officials at the Treasury Department, people who were not involved in concocting and forcing the Federal Housing Finance Agency to implement the Net Worth Sweep. FHFA Director Watt, however, will be allowed to continue in his post if he so chooses. Watt has navigated through politically charged policy options with thoughtful consideration of the long- and short-term implications these policies will have on taxpayers and homeowners. His warnings about the ongoing depletion of the GSEs’ capital base will require the attention of senior officials early on in the incoming Administration. It is unlikely President-elect Trump relishes the idea of seeking taxpayer assistance to shore up Fannie and Freddie. The hasty dismantling of enterprises that have been the bedrock of affordable homeownership for generations of working families will not likely engender support from the public.

The new Administration should be given a chance to evaluate credit risk sharing mechanisms that have been under way for three years and long-term strategies for housing finance policy reform and then adopt its own approach to these issues. The lame-duck Congress and President should refrain from making major policy changes in eleventh-hour, catch-all spending bills. The courts, meanwhile, are continuing to consider shareholders’ allegations that the government violated the Constitution and the Housing and Economic Recovery Act in implementing the Net Worth Sweep.

Since Fannie and Freddie were put into conservatorship eight years ago, dozens of ideas have been offered to dismantle the GSEs and create a better housing finance. Most have failed to gain traction. One reason for this is that most do not represent a better way to provide countercyclical liquidity and stability in the mortgage market. A new Administration represents a chance to take a fresh look at options. It should not be a reason to start from scratch in designing solutions and extend a conservatorship that has already gone on for too long. It is time to restore shareholders’ rights and release recapitalized and reformed GSEs to perform their invaluable service to hard-working American families.

Fannie and Freddie Bailouts Unique in Helping Government, Hurting Shareholders

Posted November 3, 2016 by Investors Unite

With the release of third quarter earnings this week, we are reminded that eight years into their conservatorships, Fannie Mae and Freddie Mac are unique amongst the financial institutions and automobile companies that received federal bailouts during the nadir of the financial crisis.

Following the latest round of earnings, the GSEs have returned nearly $70 billion more than they were loaned to the Treasury, making for a staggering 136% return on investment for the federal government. Compared to the payback from other government bailouts this has been a great deal for taxpayers, much less so for Fannie and Freddie shareholders.

Let’s look at the bailout balance sheet. Under the Toxic Asset Relief Program (TARP), which was authorized separately from the GSE bailouts, the Treasury has doled out some $434 billion to various banks, automobile companies, and investment funds. According to ProPublica, taking into account the revenues acquired through the sale of assets in companies that have repaid the loans, the government has profited by just under $9 billion on the entire package.

The taxpayers’ biggest losses, by far, came on the bailout of General Motors, whose toxic assets were liquidated in Chapter 11 bankruptcy while the healthy portions of the automakers’ business were converted into a new, government-owned company. In 2014, the government sold off the last of its stake in both the “new” and “old” GMs at an estimated $11.2 billion loss.

Other losses came on the mortgage servicing subsidiaries of the Big Banks, including Wells Fargo and Bank of America. Those banks and many others have since paid out tens of billions of dollars in lawsuit settlements for their role in causing the crisis by issuing subprime mortgages and selling them to Fannie and Freddie.

Outside of the GSEs, the biggest returns were from Citigroup, AIG, and Bank of America. Combined, those three companies, which received a total of $157.8 billion in taxpayer assistance, have returned about $23 billion in profit to the Treasury (the bulk of which comes from Citigroup). That’s about $15 billion less than the roughly $38 billion in profit returned by Fannie Mae, which received $116 billion in bailout funds, and about $6 billion less than the approximate $29 billion in profit returned by Freddie Mac, which received about $70 billion in funds.

Aside from government profits, the glaring difference between these companies and the GSEs is that the banks and auto manufacturers are back to functioning as private companies. They retain profits and their shareholders benefit. While the shareholders in “old” GM were wiped out as part of the bankruptcy process, shares in “new” GM are trading at more than $30. Meanwhile, the financial institutions are now required to hold so much capital that they have lobbied against those requirements as being too stringent.

This is all in sharp contrast to Fannie and Freddie. Despite being the most profitable post-crisis bailouts by orders of magnitude, the GSEs remain wards of the state, trapped in a limbo where they remain private companies but send all of their earnings to the government.Much has been said and written about the dangers posed by this ongoing arrangement, including by GSEs’ own chief regulator. Though taxpayers have profited handsomely from the conservatorships, they now stand to foot the bill for another bailout if earnings were to drop even slightly in subsequent quarters. That is because the companies have been required to systematically whittle down their buffer against losses to practically zero. That this theoretical bailout would come because Washington policy dictates that two of the most profitable companies in the world should actively put themselves at risk, in direct contrast to the policies that govern the rest of the post-crisis financial sector, is an absurdity of historic proportions.

There is another key difference between the GSEs and the other bailout recipients. Fannie and Freddie perform a critical public service in making homeownership accessible and in their duty to serve underprivileged borrowers. They have been the lynchpins in a system that has facilitated access homeownership for America’s low- and middle-income families since the wake of the Great Depression. This stands in stark contrast to the Too Big To Fail Banks, which bear so much responsibility in causing the housing crisis by taking advantage of those same borrowers in a greed-fueled binge on fast profits, and which continue to participate in jaw-dropping acts of malfeasance to this day.

When the next Congress descends on Washington, there will be two broad consensuses on housing finance reform: 1) The current arrangement is untenable and dangerous and 2) Fannie Mae and Freddie Mac are the irreplaceable cornerstones of housing in this country. Congress cannot afford to kick the can down the road any longer, nor can it afford to continue the fundamentally misguided endeavor of attempting to “reform” the housing system through risk-sharing transactions. Instead, it must work with the next administration to draw up a plan to finally end the conservatorships before the tremendous gains of the last four years are squandered. As Tom Forrester recently wrote for the Washington Post, “let’s quit while we’re ahead.”

Even Big Lenders Have Questions about Front-End Risk Sharing

Posted October 17, 2016 by Investors Unite

The more private sector players think about front-end risk sharing, the more consensus there is on proceeding with caution.

Since 2012, the Federal Housing Finance Agency has required Fannie and Freddie to transfer a portion of the credit risk on the loans they acquire to the private sector. The official rationale for this policy is to reduce the chance that taxpayers would again be forced to shore up the GSEs. In fact, credit risk sharing appears to be part of a strategy to force Fannie and Freddie to surrender their business in order to make it easier to achieve the Treasury Department’s goal of winding down the GSEs. Since 2013, Fannie and Freddie have transferred nearly 90 percent of the credit risk on eligible loans to private market investors such as banks and mortgage insurers. Until now, most of these transactions have been “back-end” transfers – where Fannie and Freddie transfer credit risk on loans they have already acquired and securitized. Over the summer, FHFA sought input on transferring the credit risk when loans are originated, or at the “front end.”

Last week, the American Bankers Association sent a letter to FHFA that seemed to endorse the dramatic changes in the multi-trillion-dollar mortgage market by regulatory fiat. “Absent legislative reform, the development and standardization of credit risk transfer programs is likely to be one of the most substantial transformations of the secondary mortgage market to occur since the conservatorship of the GSEs was announced in September of 2008,” the letter said.

However, when it comes to front-end risk sharing, the ABA is more cautious. The letter expressed concerns these transfers could add costs for borrowers and create new complexities in originating home loans mortgages. The ABA’s bottom line was to not jeopardize the back-end risk sharing.

“One of the clear benefits of back-end credit-risk transfers is that it has no impact on loan origination, as the credit-risk transfer happens after the sale of the loan to the GSEs,” ABA Senior Vice President Joseph Pigg wrote. “Front-end credit-risk transfers may not necessarily include such benefits.”

The Mortgage Bankers Association, whose members are also eager to get a larger piece of Fannie and Freddie’s business, has also urged FHFA to continue to look before it leaps.

“MBA has for decades advocated for a bright line between primary and secondary markets,” MBA’s President David Stevens wrote in the letter to the Federal Housing Finance Agency (FHFA). “One aspect of this bright line is that primary market lenders select front-end credit enhancements, while the GSEs structure back-end credit enhancements.”

The MBA stressed the importance of transparency and recommended ways to make sure small lenders aren’t put at a competitive disadvantage in pricing their loans as a consequence of front-end risk-sharing. Like the ABA, the MBA is on board with back-end transfers but acknowledged some downsides to these transactions as well, such as the fact that Fannie and Freddie have to “warehouse the risk for several months before they can complete the risk-transfer offerings.”

The concern expressed by the big lenders about the impact on small lenders and borrowers notwithstanding, the Community Home Lenders Association (CHLA) and the Community Mortgage Lenders of America continue to warn that risk sharing will inevitably lead to domination by big lenders. They remain suspicious of front-end transactions. For its part, the Independent Community Bankers Association weighed in to acknowledge Fannie and Freddie should consider new and better ways of managing risk but its letter to FHFA started with a more fundamental issue of risk: the depletion of Fannie and Freddie’s capital reserves since implementation of the 2012 with the Net Worth Sweep. “ICBA urges the FHFA to direct the Enterprises to develop and implement a capital restoration plan,” the letter stated.

The recent spate of letters raises good questions. Another question, to which there is no answer, is whether Fannie and Freddie would be engaging in these types of risk sharing transactions in the first place without the mandate from their conservator. As former Fannie Mae executive Timothy Howard has noted, it is not clear these transactions make good business sense.

Eventually, the election season will end and lawmakers can direct their attention to the wholesale changes in mortgage finance that are already underway. We can only hope the next President and Congress can weigh in on risk-sharing and other so-called reforms before Fannie and Freddie are out of capital.

Investors Unite Legal Call

Posted October 6, 2016 by Investors Unite

Listen to the teleconference here.

On Thursday, October 6 at 10:30 am EDT, Investors Unite Executive Director Tim Pagliara will host a teleconference to discuss the state of affairs of the many pending legal cases related to GSE shareholders, including the recent unsealing of Judge Margaret Sweeney’s order denying claims of privilege over documents that the government has sought to withhold from the public.

Pagliara will be joined by Cooper & Kirk Partner David Thompson, who represents plaintiffs in Sweeney’s court, and University of Virginia Law Professor Saikrishna Bangalore Prakash, author of a white paper, The Government’s Seizure of Private Property Behind a Veil of Secrecy, which discusses the misuse of executive privilege in this litigation.

To join the teleconference, please RSVP to [email protected].

WHO: Tim Pagliara, Investors Unite Executive Director and CapWealth Advisors Chairman and CEO

David Thompson, Partner, Cooper & Kirk

Saikrishna Bangalore Prakash James Monroe Distinguished Professor of Law and Horace W. Goldsmith Research Professor at the University of Virginia School of Law

WHAT: Investors Unite Call on Judge Sweeney’s Opinion

WHEN: Thursday, October 6^th, 10:30 am EDT

DIAL IN: 800‑895‑0198; Conference ID: Investors

RSVP: Please RSVP to [email protected]

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TODAY: Investors Unite Legal Call

Posted October 6, 2016 by Investors Unite

Today, Thursday, October 6 at 10:30 am EDT, Investors Unite Executive Director Tim Pagliara will host a teleconference to discuss the state of affairs of the many pending legal cases related to GSE shareholders, including the recent unsealing of Judge Margaret Sweeney’s order denying claims of privilege over documents that the government has sought to withhold from the public.

To join the teleconference, please RSVP to [email protected].

WHO: Tim Pagliara, Investors Unite Executive Director and CapWealth Advisors Chairman and CEO

David Thompson, Partner, Cooper & Kirk

Saikrishna Bangalore Prakash James Monroe Distinguished Professor of Law and Horace W. Goldsmith Research Professor at the University of Virginia School of Law

WHAT: Investors Unite Call on Judge Sweeney’s Opinion

WHEN: Thursday, October 6^th, 10:30 am EDT

DIAL IN: 800‑895‑0198; Conference ID: Investors

RSVP: Please RSVP to [email protected]

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Will Congress Grease Big Bank Takeover of Fannie and Freddie?

Posted September 26, 2016 by Investors Unite

Last week, the Community Mortgage Lenders of America joined with several civil rights organizations, affordable housing groups and business organizations in urging Congress not to slip policy changes affecting Fannie Mae and Freddie Mac into catch-all spending bills that must be enacted by the end of the year.

The letter cautioned Congress specifically against legislative riders dealing with the Common Securitization Platform (CSP) and credit risk sharing, pointing out that the Federal Housing Finance Agency is currently addressing both issues in a detailed manner and seeking public input.

“…arbitrary Congressional changes in these two areas,” the letter said, “could negatively affect borrowers and other stakeholders by interfering with affordable housing objectives and with fair secondary market access by small and mid-sized mortgage loan originators.”

Had the letter been drafted a few days after it was, it might have included a reference to the scandal at Wells Fargo. As we have noted, both risk sharing and the CSP are of, by, and for the nation’s big banks. Scrutiny of the industry in the wake of the Wells Fargo scam is all the more reason to avoid rushing into codifying so-called reforms. There is ample time to learn more about risk sharing, the CSP, and the implications of both changes for borrowers and taxpayers.

The culture that pressured bank employees to put profits ahead of people is by no means confined to Wells Fargo. CNN Money recently reported that employees at well-known large banks such as Bank of America, Citizens Bank, PNC, SunTrust, and Fifth Third spoke of “sales obsession” that pervades their banks as well. Comptroller of the Currency Michael Curry told the Senate Banking Committee the OCC is looking into whether other banks have employed high-pressure sales tactics like those that gave rise to 5,300 Wells Fargo employees creating sham accounts.

In addition, the Consumer Financial Protection Bureau logged over 31,000 customer complaints under the category of opening, closing and management of bank and credit cards and in June, the National Employment Law Project, an advocacy group for low-wage workers, reported on the threat of the banks’ aggressive sales metrics for “unwitting customers.”

The British newspaper, The Guardian, took stock of this unfolding mess and Wells Fargo CEO John Stumpf’s wince-worthy appearance before the Senate Banking Committee and created a list of eight deadly sins of the banking industry: Stupidity, Self-deception, Obliviousness, hubris, scapegoating, greed, doublespeak, and cowardice.

“A lot of us are worried that there’s similar doings going on in other banks,” Senate Banking Chairman Richard Shelby, (R-AL) was quoted as saying.

That being the case, lawmakers should avoid giving their approval to codifying risk sharing and the CSP. Another Congress, along with a two-term presidency, is coming to an end without needed reform of Fannie and Freddie. Given the years of inaction, there is no reason to toss so-called reforms into huge spending bills on the way out the door. Instead, Congress should step back, take a careful look at the financial services landscape and rethink the wisdom of handing over Fannie and Freddie’s portfolios to banks. If Wells Fargo and other banks are as concerned about the long-term liquidity and stability of the mortgage market as they have been about their integrity in serving customers, then Shelby and his colleagues should all be worried and move with informed caution.

Sharing Risk with Risky Players Like Wells Fargo

Posted September 15, 2016 by Investors Unite

As a scandal at Wells Fargo renews concerns about the banking industry’s apparently unshakable penchant for shadiness and greed, Fannie Mae and Freddie Mac continue to report steady progress in making more of the credit risk in their portfolios of home loans available to private investors, such as mortgage insurers and, of course, banks. Once again, caution and scrutiny is warranted.

Yesterday Freddie Mac announced the latest tranche of its Structured Agency Credit Risk (STACR) debt notes, the mechanism by which Freddie has been transferring a significant portion of its mortgage credit risk on certain groups of loans to private investors. Freddie reports more than 200 unique investors, including insurers and reinsurers, have assumed a significant portion of credit risk on nearly $530 billion of unpaid balance principal on single-family mortgages. Freddie reported it is partnering with Bank of America Merrill Lynch and Goldman, Sachs & Co. in facilitating these transactions. Late last month, Fannie Mae announced it had transferred a portion of the credit risk on single-family mortgage loans worth $741.8 billion to private investors through its Connecticut Avenue Securities (CAS) transactions.

These figures suggest there is demand in the financial marketplace for Fannie and Freddie’s business. Indeed, Fannie and Freddie’s offerings might represent a good deal for some investors but it is important to ask, as we have before, whether or not they are a good deal for Fannie and Freddie. The GSEs are still trapped in a government-run conservatorship after eight years, so it is hard to evaluate if Fannie and Freddie would undertake these transactions were it not for the mandate to do so from the Federal Housing Finance Agency. We have also pointed out that risk sharing could end up hollowing out Fannie and Freddie, but not ultimately create a private-sector alternative to them. The reason is the lack of an adequate and reliable pool of capital for mortgages on a consistent basis.

The scandal at Wells Fargo highlights another important reason for policymakers to ask more questions as Fannie and Freddie are forced to transfer credit risk to the nation’s largest banks. The nature and scope of the scandal is jaw-dropping. This was no isolated caper by a handful of rogue employees. We now know that 5,300 Wells Fargo employees opened up as many as two million unauthorized accounts for its customers. Many accounts were apparently closed almost immediately after they were opened. Many of the bank’s customers might not have even been aware they were used to generate fees that helped employees rack up bonus pay. Carrie Tolstedt, the Wells Fargo executive in charge of the operation, is conveniently retiring from a job that reportedly provided $125 million in compensation.

Fortune reports that when Tolstedt’s retirement was announced, Wells Fargo’s CEO John Stumpf said she had been one of the bank’s most important leaders and “a standard-bearer of our culture” and “a champion for our customers.”

Eight years ago this month, the bursting of the housing bubble cascaded into a financial and economic crisis of historic proportions. Since then there has been a lot of finger pointing about who or what was to blame and what remedies were needed. The bitter irony is that the banks and other mortgage originators who were fined billions for peddling high-risk and fraudulent loans that were the source of the crisis are back in business, and as the Wells Fargo scandal demonstrates, at least some of them are back to their old tricks.

Congress seems willing to overlook this. Earlier this week, the House Financial Services Committee approved a bill that would scale back elements of the Dodd-Frank Act and repeal the Volcker Rule, which is aimed at stopping banks from making risky bets with their own money.

Meanwhile, Fannie and Freddie shareholders await economic justice. To be sure, the outsized role of Fannie and Freddie in mortgage finance needed to be addressed. By now, the GSEs should have been properly reformed and shareholders made whole, as required by the Housing and Economic Recovery Act. Instead, Congress and the Administration have been partners in their inaction in coming up with needed reforms that protect shareholder rights. Congress has raised hardly any objections to Treasury’s reckless and illegal Net Worth Sweep that has depleted the GSEs of capital, and lawmakers, for the most part, continue to look the other way as risk-sharing whittles away at Fannie and Freddie’s core business.

Judge’s ‘Paint By Numbers’ Decision Will Not Deter Shareholders

Posted September 12, 2016 by Investors Unite

In dismissing a suit over the Net Worth Sweep on September 9, U.S. District Judge Karen Caldwell declared a federal agency acting as conservator has the right to plunder privately held assets. As absurd as that sounds, it could help make the case that the Net Worth Sweep amounts to the taking of property which is the focal point of another shareholder suit before the U.S. Court of Federal Claims.

One reason why Judge Caldwell’s opinion is objectionable is that she too readily dismisses the statutory history that underlies the Housing and Economic Recovery Act (HERA) with regard to the powers of a government conservator. Experts who were involved in crafting HERA have detailed how Congress consciously drew heavily from the Federal Deposit Insurance Act (FDIA) and Financial Institutions Recovery, Reform and Enforcement Act of 1989 (FIRREA) to define the powers and duties of the Federal Housing Finance Agency (FHFA), created by HERA.

With HERA and its predecessors, Congress authorized a conservatorship to help financial institutions get back on their feet. If the institutions could not be returned to solvency, the government could put them into receivership and supervise the fair distribution of whatever assets remained. Judge Caldwell’s presumption of FHFA’s wide latitude completely ignores the distinction between conservatorship and receivership.

On top of that, the ruling dances over the fact that FHFA, at Treasury’s behest, acted in direct opposition to returning the enterprises to solvency. Congress gave FHFA the power to do what is “necessary to put the [Companies] in a sound and solvent condition” and “appropriate to . . . preserve and conserve [their] assets.” 12 U.S.C. § 4617(b)(2)(D). It could not be clearer that Congress intended FHFA to put Fannie and Freddie back on solid financial footing.

In addition, in order to figure out if FHFA’s actions were “necessary” or “appropriate” it is important to understand the agency’s reasoning and intentions. But Caldwell brushes aside the responsibility of the government to explain its rationale for the Sweep and declares, essentially, that the government can do whatever it wants, regardless of the reason. Even if one were to accept the fact that no rationale is needed – and that is a big “if” – it is preposterous to assume HERA gave FHFA the authority to actively prevent Fannie and Freddie from rebuilding capital or resuming normal business operations. Conservatorships have never been created to guarantee companies could not preserve and conserve assets.

Another reason why the ruling is flawed is because it is based on the assumption that FHFA “may” preserve and conserve Fannie and Freddie’s assets. In essence, Judge Caldwell believes HERA provides no mandate or duty for FHFA to facilitate the restoration of the enterprises’ solvency. This is deeply disturbing. It stands to reason that Congress stipulated FHFA’s authority because it wanted the agency to use that authority. Laws do not lay out duties, authorities and powers with the assumption agencies will put them aside and freelance based on the ideological caprices or political agenda of agency personnel. In essence, “may” implies that the agency should not do anything else. But Judge Caldwell’s interpretation would open the flood gates for government agencies to act without restriction during conservatorships.

There are a number of technical but no less important issues that are also of concern. One is the conclusion that Treasury did not exceed its authority under HERA because the Net Worth Sweep was merely an amendment to Treasury’s existing securities rather than a purchase of new securities. In fact, Congress mandated that FHFA be independent and explicitly restricted Treasury’s authority. The Sweep was not just a technical amendment to Treasury’s existing securities, it was a significant enough change to nature of shareholders’ economic interest to constitute a “purchase” of new securities. This exceeded Treasury’s authority.

In addition, Judge Caldwell suggests if there was power grab by Treasury, then FHFA - but not shareholders - could sue. Of course, as documents the government has been forced to make public in recent months have shown, FHFA’s independence has been thoroughly and deliberately undermined by Treasury so the idea of an inter-agency suit cannot be taken seriously.

Caldwell’s paint by numbers decision largely echoes the reasoning of U.S. District Court Judge Royce Lamberth’s when he threw out suits by investors in October 2014. Let us not forget, however, that Lamberth himself acknowledged in that opinion that the Sweep could “raise eyebrows” even as he concluded the law allowed the government wide latitude. That decision is on appeal and documents made public since have done more than raise eyebrows about the government’s actions and efforts to conceal those actions from Judge Lamberth’s court.

Common Securitization Platform is Nearly Complete but Why is it Needed?

Posted September 8, 2016 by Investors Unite

Recently, Freddie Mac Senior Vice President for Securitization Mark Hanson happily declared that the Common Securitization Platform will be operational before the end of the year. The CSP is billed as a way to modernize and consolidate Fannie Mae and Freddie Mac’s back-office administrative infrastructure for securitizing purchased mortgages. However, no one should overlook the fact that the CSP is also part of a process to undermine the GSEs.

“If all goes as planned, Freddie Mac will be the first company to issue fixed-rate mortgage-backed securities through the Common Securitization Platform (CSP). We also plan to move all existing fixed-rate Freddie Mac Participation Certificates (PCs) to the CSP, which will support their administration as well as new issuances,” wrote Hanson in an update on Freddie’s website. This would be a milestone in the creation of one kind of security guaranteed either by Freddie Mac or Fannie Mae for trade in the To Be Announced (TBA) market.

The idea for the CSP emerged in 2012 when the Federal Housing Finance Agency concluded that there was no existing private sector infrastructure capable of securitizing the $100 billion per month in new mortgage originations. Presumably, with a new and improved securitization operation within the GSEs, it would be more feasible to end to the conservatorship of Fannie and Freddie and move forward on comprehensive housing finance reform. Of course, the conservatorship endures and needed policy reforms have gone nowhere.

So is the CSP a solution in search of problem? Fannie and Freddie’s securitization operations survived the 2008 financial crisis. It was the securitization operations of private-sector players that went into dormancy when the private label security market collapsed, as investor trust in these products evaporated. It is not exactly clear why it is so crucial to revamp Fannie and Freddie’s infrastructure and obscure the distinctions between the mortgage-backed securities the GSEs create and sell to investors.

More than likely, the CSP is just one component in a process of dismantling Fannie and Freddie and replacing them with a yet unknown and unproven structure. The CSP happens to coincide with the adoption of risk sharing strategies FHFA has required Fannie and Freddie to adopt in 2012. It is far from clear that risk sharing will actually distribute risk, but it is clear that it will create more exposure for the taxpayer by eroding Fannie and Freddie’s profitability.

Administration officials have long been upfront in wanting to wind down Fannie and Freddie, which they claim is necessary to create a larger role for private capital. Risk sharing combined with the CSP will certainly help large private sector players cherry pick Fannie and Freddie’s core business. As FHFA’s update on the CSP issued last September noted, “The 2014 Conservatorship Strategic Plan also made clear that the CSP would support the issuance by both Enterprises of the Single Security and reaffirmed that the CSP would be developed so that it can be adapted for use by additional market participants in the future.” Not surprisingly, the Mortgage Bankers Association and Structured Financial Industry Group have also been transparent in declaring that the CSP should be designed to enable use by “other participants.”

The problem with all of this, other than new legal issues that will undoubtedly arise from the government giving away the GSE’s business to the big banks, is that nobody has credibly demonstrated that there is enough private capital to fulfill Fannie and Freddie’s mission. The only plausible outcomes to all of this are fewer mortgages and reduced access to homeownership for most Americans.

It was useful for Freddie to give the public an official “heads up” that the CSP is well on the way to becoming a reality in the coming months. Perhaps this is the time for someone on Capitol Hill to ask more questions about the implications of this development for aspiring homebuyers, capital markets and taxpayers.

Let the Sunshine of Disclosure Disinfect Fannie Mae Litigation

Posted March 8, 2016 by Investors Unite

By Saikrishna Prakash

In the coming days and weeks, federal judge Margaret Sweeney will rule on a motion to compel the federal government to disclose tens of thousands of documents sought by Fairholme Funds Inc. related to the federal conservatorship of Fannie Mae and Freddie Mac. The government’s attempt to shield these documents via a claim of executive privilege looks absurd, especially since the documents may reveal wrongdoing on the part of the Treasury Department. Let’s hope Judge Sweeney forces the government to turn those documents over.

The suit had its origins in 2008, when the federal government moved to prevent the collapse of the federally chartered enterprises Fannie Mae and Freddie Mac, which buy mortgage loans from banks and bundle them into securities that are sold to investors. This is aimed at helping to keep markets liquid so that banks can make more home loans. That year’s Housing and Economic Recovery Act provided Fannie and Freddie with billions in public funds and placed them in conservatorship under the authority of the newly established Federal Housing Finance Agency (FHFA), but did not eliminate the interests that private shareholders had in Fannie and Freddie. In 2012, when the companies began generating profits again, Treasury Department officials negotiated what has become known as the Net Worth Sweep. The Net Worth Sweep diverts nearly all net income from both enterprises to the Treasury. Thus Fannie and Freddie have sent over $241 billion to the Treasury, leaving Fannie and Freddie shareholders out in the cold.

Read the full article: Let the Sunshine of Disclosure Disinfect Fannie Mae Litigation

#FannieGate: 9th Circuit rules that Fannie and Freddie are private companies

Posted March 4, 2016 by Investors Unite

By Sarah Wheeler

A decision by the 9th Circuit Court of Appeals yesterday could have big implications for a Delaware case where plaintiffs are arguing that Fannie Mae and Freddie Mac are Delaware corporations and therefore are subject to state, not federal law.

Because Delaware law doesn’t allow for the net worth sweep of Fannie and Freddie profits, if the GSEs are ruled to be private companies, that profit sweep would be illegal. The 9th Circuit seems to be saying just that in a decision that upheld a district court finding.

Read the full article: #FannieGate: 9th Circuit rules that Fannie and Freddie are private companies

No Capital at Fannie and Freddie is Bad for Taxpayers, Markets and America’s Families

Posted February 25, 2016 by Investors Unite

By John Burnett

It has been nearly eight years since the housing market buckled and plunged the country into a financial crisis that is still embedded in our national psyche.

Yet practically nothing has been done to resolve the fate of two institutions at the center of the crisis, Fannie Mae (FNMA) and Freddie Mac (FMCC) , the housing finance giants. And this, in turn, has implications for taxpayers, capital markets and working families.

Read the full article: No Capital at Fannie and Freddie is Bad for Taxpayers, Markets and America’s Families

Investors Unite Executive Director Tim Pagliara Commends FHFA Director Mel Watt for Comments on GSE Capital Buffers

Posted February 18, 2016 by Investors Unite

FOR IMMEDIATE RELEASE [email protected]
February 18, 2016

Investors Unite Executive Director Tim Pagliara Commends FHFA Director Mel Watt for Comments on GSE Capital Buffers

WASHINGTON – Today, in response to FHFA Director Mel Watt’s remarks on the risks posed to the housing market by the GSEs’ ongoing conservatorship, Investors Unite Executive Director Tim Pagliara had this to say:

“I commend Mel Watt for his forthright comments on the risks posed to the stability of America’s housing market by the never-ending GSE conservatorship. As Director Watt noted, the GSEs’ woefully inadequate capital reserves pose a grave threat to the housing finance system and all American taxpayers. FHFA should use the statutory authority granted to it by HERA to advocate for the end of the Net Worth Sweep.”

About Investors Unite: Formed by Tennessee investor and CapWealth Advisors Chairman and CEO, Tim Pagliara, Investors Unite (investorsunite.org) is a coalition of over 1,400 private investors from all walks of life, committed to the preservation of shareholder rights for all invested in Fannie Mae and Freddie Mac. The coalition works to educate shareholders and lawmakers on the importance of adopting GSE reform that fully respects the legal rights of Fannie Mae and Freddie Mac shareholders and offers full restitution on investments.

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Protecting the economy and homeowners: Four ways to restore Fannie and Freddie

Posted January 22, 2016 by Investors Unite

By Robert Shapiro

President Obama was right to boast about the American economy’s recent achievements in his State of the Union address. American businesses have come back from the Great Recession and created more than 14 million jobs, along with record profits. One happy result is today’s 5 percent unemployment rate, half the level in the second half of 2009. U.S. growth also has outpaced the gains by the world’s other major, developed economies for five years. Yet, one key aspect of the 2008-2009 crisis remains largely unaddressed – namely, the arrangements we use to finance housing.

This matters, because the right housing finance reforms could lower the likelihood of another crisis and increase the strength of this expansion. Moreover, the Obama Administration and Congress clearly have the ability to carry out those reforms, especially by rewriting the operating terms and mission requirements of Fannie Mae and Freddie Mac, government-sponsored enterprises now run by the federal government.

Read the full article: Protecting the economy and homeowners: Four ways to restore Fannie and Freddie

Giant mortgage hybrids, still playing critical role, left in limbo by politicians

Posted December 26, 2015 by Investors Unite

By Dave Beal

President Obama, leaders of both parties in Congress, private sector influentials and various others have pledged to put Fannie and Freddie out of business. This has long been a goal of conservative intellectuals and politicians, convinced that the government should not be in the housing finance business. But while the two agencies’ numerous critics have come up with many proposals for how to replace these two entities, skeptics stress there is no assurance that any of these plans would work.

Tim Pagliara, an activist investor and the CEO of CapWealth Advisors in Nashville, founded a group called Investors Unite to advocate for Fannie and Freddie investors. Pagliara says the two entities are too important to be wound down. “It’s political theater to think they can shut them down,” he says. “That’s folly.”

Read the full article: Giant mortgage hybrids, still playing critical role, left in limbo by politicians

‘Jumpstart GSE Reform’ will only prolong the conservatorships of Fannie and Freddie

Posted December 23, 2015 by Investors Unite

By Tim Pagliara

‘Tis the season for legislative mischief – when ornaments get added to must-pass bills at the last minute and lawmakers, eager to get home for the holidays, look the other way. Unfortunately, Sen. Corker (R-Tenn.) was able to slip language from his “Jumpstart GSE Reform” amendment into the omnibus spending bill now on its way to the president’s desk.

The “Jumpstart GSE Reform” was poorly named. It would actually hinder chances for reform by requiring Congress to sign off on administration efforts to end the conservatorship of Fannie Mae and Freddie Mac. The result is that taxpayers remain at risk for footing the bill of a bailout if the undercapitalized GSEs experience a downturn. Meanwhile, the Treasury will continue to feast on the GSEs’ revenue because of the net worth sweep. As modified in the omnibus bill, the “jumpstart” language will likely have the effect of locking this bad policy in place for at least two more years.

Read the full article: ‘Jumpstart GSE Reform’ will only prolong the conservatorships of Fannie and Freddie

Investors Unite: Jumpstart Does Not Prevent Settlement with Shareholders

Posted December 16, 2015 by Investors Unite

FOR IMMEDIATE RELEASE
December 16, 2015

[email protected]

Investors Unite: Jumpstart Does Not Prevent Settlement with Shareholders

Investors Unite Founder Tim Pagliara released the following statement on the inclusion of the so-called “Jumpstart GSE Reform” amendment to the omnibus spending bill:

“The so-called “Jumpstart GSE Reform” amendment does not stop or affect in any way the ongoing litigation by shareholders over the illegal net worth sweep, and we look forward to seeing what discovery brings. Moreover, this provision in the omnibus spending bill does not prevent the Administration from reaching a settlement with shareholders.”

“We welcome Congress’ leadership in immediately passing legislation that requires the Federal Housing Finance Agency to retain capital in Fannie and Freddie. This would protect the taxpayer from the risk that has been created by Treasury’s illegal net worth sweep, which deprives Fannie and Freddie of any real capital base. We encourage Congress to simultaneously engage in a robust oversight investigation of Treasury’s violation of the Housing and Economic Recovery Act, which remains the statute that governs the conservatorship of these companies.”

About Investors Unite: Formed by Tennessee activist investor and CapWealth Advisors Chairman and CEO, Tim Pagliara, Investors Unite (www.investorsunite.org) is a coalition of over 1,400 individual Fannie Mae and Freddie Mac shareholders from all walks of life, committed to the preservation of shareholder rights for all invested in the GSEs.

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Fannie and Freddie’s Government Rescue Has Come With Claws

Posted December 15, 2015 by Investors Unite

By Gretchen Morgenson

On May 9, 2012, the executives of Fannie Mae, the beleaguered mortgage finance company, finally went public with good news: After three and a half years as a ward of the state, it was profitable again.

Since being bailed out by the government at the height of the financial crisis, Fannie had drawn $116 billion from the Treasury. But it had been clear for months inside the company that things were looking up. In fact, when Susan McFarland, chief financial officer of Fannie, announced the earnings, she said, “We expect our financial results for 2012 to be significantly better than 2011.”

Read the full article: Fannie and Freddie’s Government Rescue Has Come With Claws

Industry Weighs in on Wall Street Influencing GSE Reform

Posted December 8, 2015 by Investors Unite

By Xhevrije West

Tim Pagliara, founder and chairman of Investors Unite, a coalition of more than 1,100 Fannie Mae and Freddie Mac investors, told MReport: “I’m not surprised. A lot of the movement to shut down the GSEs has been, on one level, irrational. There’s been a lot written about it. I think when you follow the money and the conflicts emerge, you see that it has less to do with policy than it does to do with the greed and arrogance of those that are trying to push their narrative.”

Read the full article: Industry Weighs in on Wall Street Influencing GSE Reform

A Revolving Door Helps Big Banks’ Quiet Campaign to Muscle Out Fannie and Freddie

Posted December 8, 2015 by Investors Unite

By Gretchen Morgenson

Seven years after their dubious lending practices helped push the United States economy to the brink of disaster, the nation’s largest banks are closing in on a long-sought goal: to unseat Fannie Mae and Freddie Mac, the mortgage finance giants, and capture their share of the profits in the country’s $5.7 trillion home loan market.

Taking place largely behind the scenes, the movement to take over the mortgage market has been propelled in part by a revolving door between Washington and Wall Street, an investigation by The New York Times has found.

Read the full article: A Revolving Door Helps Big Banks’ Quiet Campaign to Muscle Out Fannie and Freddie

The depressing reason Obama and Congress have failed to fix Fannie Mae and Freddie Mac

Posted December 2, 2015 by Investors Unite

By Bethany McLean

The Obama administration and a set of constituents who would seem to be its natural allies are currently at war over the festering problem of mortgages. The NAACP and the National Community Reinvestment Coalition (NCRC)—an association of more than 600 community based organizations— are among the groups that have turned on the government. At issue are Fannie Mae and Freddie Mac, the mortgage giants which have been in the clutches of the government ever since the financial crisis of 2008. The groups argue that government sponsored enterprises (GSEs) need reform now, in order to protect access to affordable housing. Surprisingly, they have been given the equivalent of the middle finger by Obama and company. But why?

Let’s back up a few years and set the scene: Fannie and Freddie are essentially giant insurance companies—they stamp mortgages made to American homeowners with a guarantee that they’ll pay the principal and interest if the homeowner can’t. This makes it possible to sell securities backed by homeowners’ monthly mortgage payments to investors. But as we know, in 2008 the inevitable happened. A lot of people were unable to make those payments. Both companies were placed into a state called conservatorship, in which they are run by the government and supported by a line of credit from the US Treasury Department. Then-secretary Henry Paulson called it a “time out.” In other words, it was supposed to be temporary, like putting a screaming toddler in the corner. Instead, it’s been the longest time out in history. Finally, in the summer of 2012, the Obama administration decided to sweep all of the two companies’ profits into the Treasury Department, where they can be used for deficit reduction. In effect the president nationalized the two GSEs.

Read the full article: The depressing reason Obama and Congress have failed to fix Fannie Mae and Freddie Mac

Why Hindes/Jacobs Plaintiffs Will Prevail In The Fannie Mae And Freddie Mac Delaware Litigation

Posted December 2, 2015 by Investors Unite

FNMA and FMCC junior preferred and common shareholders are aware that when FHFA and the US Treasury entered into the 3rd Amendment to the Senior Preferred Stock Purchase Agreement (SPSPA) in 2012, FHFA, as conservator for FNMA and FMCC, agreed to replace the dividend rate on the Treasury senior preferred stock from 10%, if paid in cash, or 12%, if paid in kind, to a dividend that swept to the Treasury all of the net worth of FNMA and FMCC then existing at the time of the dividend (subject to a de minimus retention amount that declines to zero in 2018) (NWS).

The NWS had the effect of (I) nationalizing FNMA and FMCC, by diverting all future profits to Treasury and away from existing private shareholders, and (ii) denuding FNMA and FMCC of any capital cushion, notwithstanding that they are massive financial institutions with trillions of dollars of debt securities outstanding.

Read the full article: Why Hindes/Jacobs Plaintiffs Will Prevail In The Fannie Mae And Freddie Mac Delaware Litigation

Case to Watch: U.S. set to defend Fannie, Freddie profit sweep

Posted December 2, 2015 by Investors Unite

By Dena Aubin

The U.S. government is set to defend next month its so-called “sweep” of Fannie Mae and Freddie Mac profits in the face of lawsuits by private investors in the two mortgage finance giants.

Read full article: Case to Watch: U.S. set to defend Fannie, Freddie profit sweep

How Uncle Sam Nationalized Two Fortune 50 Companies

Posted November 13, 2015 by Investors Unite

By Roger Parloff

Most stories about the financial crisis of 2008, the darkest chapter in American economic history since the Great Depression, come to an end by 2012. That’s when ours begins.

After the housing market bottomed out in 2011 and began its upward trajectory, the nightmare seemed to end. For business it was morning in America again. Most of the too-big-to-fail institutions had either paid back their federal bailout money or were on track to do so. Stocks climbed and stockholders rejoiced.

Read the full article: How Uncle Sam Nationalized Two Fortune 50 Companies

Fannie Mae & Freddie Mac ‘Recap and Release’ Touted by Former White House Advisors

Posted November 12, 2015 by Investors Unite

By Scott Morgan

A pair of former advisors to the Clinton and Obama administrations recently laid out plans to bring the contentious “recap and release” proposal to recapitalize the GSEs and release them from government conservatorship to reality.

Robert Shapiro, a former official in the Clinton administration and current advisor to senior members of the Obama White House, and Elaine Kamarck, a Harvard lecturer and one-time advisor to Vice President Al Gore, released “A Strategy to Promote Affordable Housing for All Americans by Recapitalizing Fannie Mae and Freddie Mac” Tuesday, a 53-page treatise that outlines four key components to the recap and release proposal.

Read the full article: Fannie Mae & Freddie Mac ‘Recap and Release’ Touted by Former White House Advisors

Ethics group urges probe of Corker stock trades

Posted November 10, 2015 by Investors Unite

By Mary Orndorff Troyan

A new ethics watchdog group in Washington is asking the Securities and Exchange Commission and the Senate ethics committee to investigate whether Sen. Bob Corker had access to inside information when he profited from stock trades involving a Chattanooga real estate company.

The Campaign for Accountability, a nonprofit formed in 2015 that targets elected officials, filed the complaints Tuesday based largely on a Nov. 3 Wall Street Journal story showing Corker, R-Tenn., made well-timed trades in a company he did business with years ago. Corker did not disclose some of the transactions until the newspaper inquired about them.

Read the full article: Ethics group urges probe of Corker stock trades

White House Opposes GSE Recap, Homebuyers Suffer

Posted November 2, 2015 by Investors Unite

By Brooke Anderson Thompkins

White House and Treasury Department officials recently made clear they are not interested in recapitalizing Fannie Mae and Freddie Mac — let alone releasing them from government conservatorship — while lawmakers continue to stall on long-term reform for the government-sponsored enterprises.

But in doing so, they indicated the administration intends to leave office without addressing both the GSEs’ diminishing capital bases and tight credit conditions for many working Americans.

Read the full article: White House Opposes GSE Recap, Homebuyers Suffer

Fannie Mae: Recap and Release” Not an Option—But Neither is Status Quo

Posted October 23, 2015 by Investors Unite

By Amanda Maher

With housing finance reform at an impasse, and with Fannie Mae and Freddie Mac investors growing increasingly impatient, there’s growing risk that this public-private partnership that’s been in place since the New Deal era will grind to a halt. If the government continues to hoard all the profit, investors have no chance of making good on their investments. If they can’t make good on their investments, investors will stop buying shares of the companies—again putting taxpayers at risk of a bailout.

Despite the back and forth between the government, the companies’ and their shareholders, there’s one thing that’s for certain: U.S. taxpayers continue to face the greatest risk. Housing finance reform is needed to transfer risk away from taxpayers and the GSEs to the private sector. Yet dismantling Fannie Mae and Freddie Mac isn’t a reasonable option, either. We need these GSEs to continue buying up mortgage from private lenders in order for lenders to offer the lower interest rates that make homeownership a reality for many Americans.

Read the full article: Fannie Mae: Recap and Release” Not an Option—But Neither is Status Quo

What should be done with Fannie Mae and Freddie Mac? (Video)

Posted October 23, 2015 by Investors Unite

With Jeffrey Brown & Bethany McLean

In “Shaky Ground,” financial writer Bethany McLean takes a close look at mortgage-lending institutions Fannie Mae and Freddie Mac, and their role before, during and since the 2008 financial meltdown. She joins Jeffrey Brown to discuss the origin of the housing crisis and where things stand seven years later.

Watch the full video here: What should be done with Fannie Mae and Freddie Mac?

Fannie, Freddie Reshaping Mortgage Market Without Congress’ Help

Posted October 21, 2015 by Investors Unite

By Kate Berry

The chief executives of Fannie Mae and Freddie Mac are moving forward with a bevy of changes that will continue to transform the mortgage market without input from Congress.

After eight years in conservatorship, housing finance reform in Congress remains in limbo, leaving the Federal Housing Finance Agency to force the government-sponsored enterprises to make changes.

Read the full article: Fannie, Freddie Reshaping Mortgage Market Without Congress’ Help

Sen. Bob Corker says investors should short Fannie and Freddie

Posted October 8, 2015 by Investors Unite

By Steve Goldstein

The continued stock-market vitality of housing finance giants Fannie Mae and Freddie Mac has been a puzzle to some. Perhaps none more than Sen. Bob Corker, the Tennessee Republican, who came out on Wednesday calling for investors to make bets that the companies’ shares will fall in value.

The call came during Corker’s interview with CNBC’s Rick Santelli about the topic of housing finance reform.

Read the full article: Sen. Bob Corker says investors should short Fannie and Freddie

Risk-Sharing Is No Substitute for Capital at Fannie and Freddie

Posted October 6, 2015 by Investors Unite

By William M. Isaac

In recent weeks, the debate over what to do about mortgage giants Fannie Mae and Freddie Mac has shifted from wholesale replacement to genuine reform.

Fannie and Freddie, now in the eighth year of a conservatorship that began in the depths of the financial crisis, remain in in limbo even after paying back nearly $238 billion to taxpayers — that’s $50 billion more than they were ever loaned in the first place.

Read the full article: Risk-Sharing Is No Substitute for Capital at Fannie and Freddie

CHLA unveils plan for massive GSE reform, ending profit sweep

Posted September 29, 2015 by Investors Unite

By Trey Garrison

The Community Home Lenders Association authored an action plan that lays out transitional steps to reformFannie Mae and Freddie Mac, preserve a government guarantee and protect taxpayers.

“Consumers’ access to credit is best served by a competitive mortgage market, with full participation by nonbanks and small banks,” said Scott Olson, CHLA’s Executive Director. “CHLA agrees that Fannie and Freddie should be reformed to protect taxpayers — but they should also maintain their key role as a cash window and should be in control of obtaining risk sharing to avoid the big banks controlling the market.”

Read the full article: CHLA unveils plan for massive GSE reform, ending profit sweep

Better Luck Next Year: Fast-Track GSE Legislation And Convocation Of Court Cases

Posted September 16, 2015 by Investors Unite

By Wayne Olson

Cheyenne Hopkins of BloombergBusiness wrote that “[Senator Bob] Corker has won his party’s support to fast-track his legislation prohibiting Treasury from selling or liquidating preferred shares in the U.S.-owned mortgage companies, a step that could see it passed without debate, according to a Senate aide who request [sic] asked not to be named.” It is simply not true that Freddie Mac (OTCQB:FMCC) and Fannie Mae (OTCQB:FNMA) are “U.S.-owned mortgage companies.” To state what should be obvious, FMCC and FNMA are market-traded common equity securities that are, but for the 3rd Amendment, entitled to the residual after the firms’ other obligations are paid.

It is true that there has been a de facto nationalization of Fannie Mae and Freddie Mac (together known as the government sponsored enterprises or GSEs) via the Senior Preferred Stock Purchase Agreements (SPSPAs) between U.S. Treasury and the Federal Housing Finance Agency (FHFA). Moreover, the 3rd Amendment to the SPSPAs features a “net worth sweep” that sweeps all of the GSEs’ earnings to the coffers of the U.S. Treasury and prevents the GSEs from recapitalizing. This has the economic effect of directly expropriating investors in GSE common and preferred stocks on a quarter-by-quarter basis, as GSE earnings are swept to Treasury. But, it is foolishly simplistic to say that the GSEs are “U.S.-owned mortgage companies.”

Read the full article: Better Luck Next Year: Fast-Track GSE Legislation And Convocation Of Court Cases

The biggest risk to the global financial system post-2008 crisis? It’s right here in D.C.

Posted September 16, 2015 by Investors Unite

By Robert J. Terry

This week marks the seven-year anniversary (I can’t believe it’s been that long) of the global economy’s implosion, sparked by the massive Lehman Brothers bankruptcy filed on Sept. 14, 2008. Business journalist Bethany McLean has pinpointed a “festering problem” left over from that crisis, and it resides here in town.

It’s Fannie Mae and Freddie Mac, the D.C.-based mortgage giants that went into federal “conservatorship” in 2008 at the brink of bankruptcy. McLean — the Vanity Fair writer who uncovered the accounting shenanigans at Enron Corp. that led to the book, “The Smartest Guys in the Room” — has a new book, called “Shaky Ground: The Strange Saga of the U.S. Mortgage Giants,” which is about “the tangled history and very messed-up present of these two companies, which impact the lives of a lot of Americans, whether they realize it or not.”

Read the full article: The biggest risk to the global financial system post-2008 crisis? It’s right here in D.C.

Watch Out Taxpayers: You Could Be On The Hook (Again) If Another Housing Crisis Hits

Posted September 15, 2015 by Investors Unite

By Clark Packard

When the housing financing market collapsed seven years ago, taxpayers provided Fannie Mae andFreddie Mac with $188 billion in equity in exchange for senior preferred shares in each of the massive Government Sponsored Enterprises (GSEs), which were then put into government conservatorship. Today taxpayers are largely free and clear from the bailout they were forced to underwrite, but what happens if another housing downturn hits America? Unless Congress acts on remedies, taxpayers could once again be hit with a huge liability.

The root of this problem can be traced to a decision several years after the housing finance crisis. The GSEs’ senior preferred shares initially guaranteed a 10% annual dividend. In 2012, however, the Obama administration amended the agreement to require virtually all of Fannie and Freddie’s net earnings be sent to the Treasury. After posting second quarter earnings of $4.6 billion and $4.2 billion respectively in early August, Fannie and Freddie will send the Treasury a combined $8.3 billion this month.

Read the full article: Watch Out Taxpayers: You Could Be On The Hook (Again) If Another Housing Crisis Hits

Warren Said to Pull Endorsement of Fannie Shareholder Bill

Posted September 15, 2015 by Investors Unite

By Cheyenne Hopkins

Senator Elizabeth Warren is withdrawing her support for a Republican measure that had been on the fast track to bar the Treasury Department from selling Fannie Mae and Freddie Mac preferred shares, according to a person familiar with the matter.

Warren, who originally cosponsored an earlier version of the legislation, pulled her endorsement because revised language allows the entities’ guarantee fees to be used to cover government spending, said a person familiar with her thinking who asked not to be identified because the matter is private. Those fees, which Fannie Mae and Freddie Mac charge to lenders to protect against losses, could be passed down to low-income borrowers if they’re increased.

Read the full article: Warren Said to Pull Endorsement of Fannie Shareholder Bill

Elizabeth Warren changes mind, sides with Fannie and Freddie

Posted September 15, 2015 by Investors Unite

By Michelle Celarier

The Fannie Mae saga continues to make strange political bedfellows.

Sen. Elizabeth Warren (D-Mass.), patron saint of the left, has ditched her support for a bill that would shut down Fannie Mae and Freddie Mac and replace them with a private system.

Read the full article: Elizabeth Warren changes mind, sides with Fannie and Freddie

McLean, Shaky Ground: Fannie Mae & Freddie Mac

Posted September 14, 2015 by Investors Unite

By Brenda Jubin

Columbia University Press has launched a new publishing imprint, Columbia Global Reports, to produce “six short, ambitious works of journalism and analysis a year, each on a different under-reported story in the world.” Bethany McLean, co-author of The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron and All the Devils Are Here: The Hidden History of the Financial Crisis, has written the first title, Shaky Ground: The Strange Saga of the U.S. Mortgage Giants. It’s an auspicious beginning for the series.

Mervyn King, the former governor of the Bank of England, told the author: “Most countries have socialized health care and a free market for mortgages. You in the United States do exactly the opposite.” (p. 9) And, he didn’t add but I will, we do both badly.

Read the full article: McLean, Shaky Ground: Fannie Mae & Freddie Mac

New Bill to Recapitalize Fannie Mae and Freddie Mac is Introduced

Posted September 11, 2015 by Investors Unite

By Xhevrije West

As Fannie Mae and Freddie Mac celebrate their seven-year anniversary of conservatorship, new legislation is being drafted in the U.S. House of Representatives that will allow them to establish more capital and prevent another taxpayer-sponsored bailout.

“This is a great development,” said Tim Pagliara, founder of Investors Unite and chairman, founder and CEO of CapWealth Advisors, LLC. The Third Amendment Sweep continues to put taxpayers at risk by depriving the GSEs of capital that would be a buffer against another economic downturn.”

Read the full article: New Bill to Recapitalize Fannie Mae and Freddie Mac is Introduced

The biggest remaining risk in today’s financial system, hiding in plain sight

Posted September 11, 2015 by Investors Unite

By Bethany McLean

On a bitterly cold gray day in December 2014, there was a strangely large crowd at the United States Courthouse in Des Moines, Iowa, where Senior District Judge Robert Pratt was hearing arguments in Continental Western Insurance Company v. FHFA. The title gave few hints as to why the room, the goings-on of which rarely transcend local interest, would be packed close to standing-room-only, filled with representatives of the country’s top investment firms, including a slew of New York hedge fund types, along with prominent Washington lawyers, including a George W. Bush-appointed former U.S. Attorney and a Department of Justice lawyer.

Read the full article: The biggest remaining risk in today’s financial system, hiding in plain sight

Obama official hid Fannie and Freddie’s profit mojo: suit

Posted September 11, 2015 by Investors Unite

By Michelle Celarier

An Obama administration official misled a federal court in 2013 when he stated the government did not know Fannie Mae and Freddie Mac were about to return to profitability, lawyers for Fairholme Funds, a big shareholder in the mortgage giants, claimed in a recent court filing.

More than a year earlier, when losses at the two companies were forecast far into the future, the government moved to sweep any possible future Fannie and Freddie profits into Treasury’s coffers.

Read the full article: Obama official hid Fannie and Freddie’s profit mojo: suit

Trending Thursday: Forensic accounting in #FannieGate gets audited

Posted September 11, 2015 by Investors Unite

By Trey Garrison

The full 27-page report, which can be read here, was from two activist investors involved in the FannieGate controversy with extensive legal and business backgrounds, Adam Spittler CPA, MS and Mike Ciklin JD, MBA, MRE.

Now, an independent audit of that report certifies that, yes, their findings are pretty much right in the center of the bulls-eye.

Read the full article here: Trending Thursday: Forensic accounting in #FannieGate gets audited

Conservatorship Continues Seven Years Later With No End In Sight

Posted September 9, 2015 by Investors Unite

On September 6, 2008, the government seized control of Fannie Mae and Freddie Mac after bailing out the mortgage giants to the tune of a combined $187.5 billion, and the FHFA’s conservatorship of Fannie Mae and Freddie Mac began.

Last week marked the seventh anniversary of the FHFA’s conservatorship of the GSEs. Seven years later, the topic of how much of a role, if any, the government should play in housing finance remains hotly contested. While many housing stakeholders and lawmakers agree that the conservatorship needs to end, the issue of the GSEs’ future remains a source of contention. Some of the GSEs’ biggest investors, such as Fairholme Funds and Pershing Square, have filed lawsuits over the sweeping of GSE profits into Treasury, which began in 2012 when Fannie Mae and Freddie Mac returned to profitability.

Read the full article: Conservatorship Continues Seven Years Later With No End In Sight

Fannie-Freddie Lawsuit Should Matter to the Masses

Posted September 8, 2015 by Investors Unite

By Joseph Colangelo

Most people are aware of the ongoing legal battle waged by Fannie Mae and Freddie Mac shareholders against the U.S. government. But the lawsuit also has broader implications for consumers that have thus far gone unacknowledged.

In the midst of the housing crisis, the two government-sponsored enterprises were placed into conservatorship under terms outlined in the Housing and Economic Recovery Act of 2008. This agreement allowed the entities to access Treasury funding and therefore continue providing liquidity to the mortgage market. In exchange, the government acquired a 79% ownership stake in the GSEs by way of purchasing common shares.

Read the full article: Fannie-Freddie Lawsuit Should Matter to the Masses

The Third Amendment – A Breeding Ground For Secrecy And Corruption

Posted September 3, 2015 by Investors Unite

By David Fisher

Three truisms will collide this Friday in a Federal courtroom in Washington DC. The first two truisms – “secrecy breeds corruption” and “follow the money” – make the failure to disclose documents relating to an under-the-radar agreement that has generated billions of dollars for the United States Treasury exceedingly troubling. Cause of Action, and others, think the public has a right to know about this deal and its genesis.

During the 2008 financial crisis, taxpayers bailed out Fannie Mae and Freddie Mac at a cost of $187.5 billion. This bailout was styled as a loan and for several years Fannie and Freddie paid the interest due on this loan. By 2012 Fannie and Freddie were again profitable. In August 2012, Fannie, Freddie, the Department of Treasury and Federal Housing Finance Agency (FHFA) amended their deal with what is called “the Third Amendment.” Under the Third Amendment, the government began sweeping all the companies’ profits into the Treasury. As of last December 2014, the Treasury had received a total of $225.4 billion from the companies – $40.8 billion more than they borrowed from taxpayers.

Read the full article: The Third Agreement – A Breeding Ground For Secrecy And Corruption

Fannie and Freddie Are Making Lots of Money — But Not for Their Shareholders

Posted September 3, 2015 by Investors Unite

By Logan Beirne and Jonathan Macey

Here in the United States, corporations operate under laws that even the federal government must respect. It is a principle so deeply ingrained in our system that it should be almost unnecessary to point out, were it not for the troubling behavior of our public servants in Washington.

In a move that smacks of nationalization, the Federal Housing Finance Agency and the United States Treasury are pressing ahead with a plan that keeps two private companies — Fannie Mae and Freddie Mac — under government control at the expense of American investors.

Read the full article: Fannie and Freddie Are Making Lots of Money — But Not for Their Shareholders

More on Golf, Settlement and the WSJ on the GSE’s

Posted September 2, 2015 by Investors Unite

By Todd Sullivan

I’ve refrained from commenting on the WSJ’s coverage of the GSE saga for quite some time (since last December I believe) because, well, at this point they are simply trolling. But, since this piece is so disingenuous and patently false in some aspects, I feel obliged to chime in. I have reprinted the whole thing so as to not be accused of cherry picking snippets to make a point and will interject my thoughts as we go through it.

Read the full article: More on Golf, Settlement and the WSJ on the GSE’s

Fannie Mae: Pressure Builds For A Negotiated Settlement – Bove

Posted September 1, 2015 by Investors Unite

Richard X. Bove, Vice President Equity Research at Rafferty Capital Markets, highlights Retired Judge Myron Steele filling an amicus brief in the Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) lawsuits.

Pressure continues to build for a negotiated settlement. Retired Judge Myron Steele files suit in Delaware. President Obama golfs with Ron Kirk, a key hedge fund counsel.

Read the full article: Fannie Mae: Pressure Builds For A Negotiated Settlement – Bove

Is a Fannie and Freddie settlement near?

Posted September 1, 2015 by Investors Unite

By Richard Bove

White House lawyers recently asked a federal court to grant them access to documents in the case between Fairholme Funds and the United States over Fannie Mae and Freddie Mac.

I think the unusual request suggests that the White House may be moving closer to a negotiated settlement in the multiple Fannie Mae lawsuits which will benefit shareholders in this company, the largest of whom is the U.S. taxpayer.

Read the full article: Is a Fannie and Freddie settlement near?

Congress Urged to Pass Bill to Protect Taxpayers from Another Fannie Mae and Freddie Mac Bailout

Posted September 1, 2015 by Investors Unite

By Brian Honea

The Competitive Enterprise Institute (CEI) and 14 other organizations have written an open letter to the U.S. House of Representatives and the U.S. Senate urging them to pass legislation that would provide a cushion to prevent another taxpayer bailout of Fannie Mae and Freddie Mac.

The organizations, representing “hundreds of hardworking Americans fed up with government spending and overreach,” encouraged members of Congress to quickly pass H.R. 1673, known as the Enterprise Secondary Reserve Taxpayer Protection and Government Accountability Act of 2015 was introduced by Rep. Marsha Blackburn (R-Tennessee) in March. This bill would create a reserve fund from the GSE profits from which Fannie Mae and Freddie Mac could draw if necessary rather than depend on the Department of Treasury (taxpayers) for another bailout similar to the $187.5 billion resuscitation they received in 2008.

Read the full article: Congress Urged to Pass Bill to Protect Taxpayers from Another Fannie Mae and Freddie Mac Bailout

Cognitive Dissonance, Fannie Mae And Freddie Mac, Greed, Spite And Ulterior Political Motives

Posted August 24, 2015 by Investors Unite

By Wayne Olson

Fairholme has raised 16 important questions regarding Freddie Mac (OTCQB:FMCC) and Fannie Mae (OTCQB:FNMA). I addressed four of these questions in a previous article. In this article, I address the 12 remaining questions in reverse chronological order.

September 30, 2014, was an important day for Freddie Mac and Fannie Mae common stockholders and preferred stock holders. On this day, Judge Lamberth issued his decision in the Perry Capital case with respect to the legitimacy of the third amendment to the Senior Preferred Stock Purchase Agreements ((SPSPAs)) between the Federal Housing Finance Agency (FHFA) and U.S. Treasury (Treasury). Judge Lamberth’s decision acknowledges that it “is understandable for the Third Amendment, which sweeps nearly all GSE profits to Treasury, to raise eyebrows, or even engender a feeling of discomfort,” but he goes on to find that “HERA’s unambiguous statutory provisions, coupled with the unequivocal language of the plaintiffs’ original GSE stock certificates, compels the dismissal of the plaintiffs’ claims.”

Read the full article: Cognitive Dissonance, Fannie Mae And Freddie Mac, Greed, Spite And Ulterior Political Motives

August 17, 2012, The Net Worth Sweep, And Fairholme’s 16 Questions

Posted August 19, 2015 by Investors Unite

By Wayne Olson

August 17, 2012, was both a memorable and a terrible day for Freddie Mac (OTCQB:FMCC) and Fannie Mae (OTCQB:FNMA) (together known as the government-sponsored enterprises or GSEs) common stockholders and preferred stock holders. On this day, the 3rd Amendment to the Senior Preferred Stock Purchase Agreements (SPSPAs) was announced, which included the establishment of the net worth sweep, which “eliminates the possibility of the Enterprises having to borrow from U.S. Treasury (Treasury) to pay dividends, which could have eroded market confidence. This change also ensures all the Enterprises’ earnings are used to benefit taxpayers.”

In addition to the FMCC and FNMA common stocks, the net worth sweep also affects the Freddie Mac and Fannie common stocks. Table 1 provides summary information - circa mid-2012 - on two GSE preferred stocks, FMCKJ and FNMAS. These preferred stocks are notable because they were issued shortly before the financial crisis. May 2, 2012 and August 17, 2012 were high-volume days for these preferred stocks. The trading prices of these preferred stocks had gradually risen during the May 2, 2012 to August 16, 2012 period - and then dropped like a rock on August 17, 2012.

Read the full article here: August 17, 2012, The Net Worth Sweep, And Fairholme’s 16 Questions

Fannie Mae offloads more credit risk to insurers

Posted August 19, 2015 by Investors Unite

By Ben Lane

Seeking to further decrease the taxpayers’ liability, Fannie Mae announced Tuesday that it completed its third credit risk-sharing transaction as part of its Credit Insurance Risk Transfer program.

The Credit Insurance Risk Transfer program shifts credit risk on a pool of loans to a panel of reinsurers. The deal helps to further diversify its counterparty exposure and reduce taxpayer risk by increasing the role of private capital in the mortgage market, Fannie said.

Read the full article: Fannie Mae offloads more credit risk to insurers

The Sneaky Path We Took To A Socialist Mortgage Market

Posted August 18, 2015 by Investors Unite

By Jeffrey Dorfman

Back in September 2008, two government sponsored entities commonly known as Fannie Mae and Freddie Mac were placed under government conservatorship. These two quasi-governmental agencies provided much of the liquidity in the U.S. mortgage market by borrowing money at low rates thanks to their implicit government guarantee, and then using those funds to purchase and securitize mortgages. But with the real estate bubble deflating rapidly, they were broke and needed government help. Or did they?

A strong case can be made that Fannie and Freddie should never have existed in the first place. If the government was taking much of the risk by guaranteeing their bonds, why were Fannie’s and Freddie’s executives and shareholders allowed to share the profits? However, the answer to this question should have been to revoke their implicit government backing, not to make them a full-fledged arm of the government.

A new report by some investors who would like to see some return on their shares in Fannie Mae shows that the government used some highly questionable accounting tactics in order to make it appear that Fannie Mae needed a bailout Their analysis shows that Fannie actually had enough cash reserves to have made it through the recession; in fact, they show that Fannie actually generated positive net cash income every quarter throughout the mortgage market meltdown.

Read the full article here: The Sneaky Path We Took To A Socialist Mortgage Market

Riddle me this: When is a raisin like Fannie, Freddie investment return?

Posted August 18, 2015 by Investors Unite

By Trey Garrison

The machinations that led to the GSE conservatorship and the fallout since is making more and more headlines, this time at the Daily Caller.

Here’s a taste:

Read the full article: Riddle me this: When is a raisin like Fannie, Freddie investment return?

When Is A Raisin Like An Investment Return? When The Government Takes It Away

Posted August 17, 2015 by Investors Unite

By Tara Helfman

It’s an unsettling fact: The government can help itself to your property. If your home stands in the way of a new sports arena, the government can bulldoze it; and if your farm stands in the path of a new highway, the government can pave it. However, the Constitution places clear limits on such takings. The Fifth Amendment prohibits the government from taking private property without due process of law. It also requires that the government pay owners just compensation whenever it takes their property for a public purpose.

But what if, instead of taking your home or your farm, the government decides to help itself to all the future profits of your investments? Does it still owe you compensation? According to a group of investors in Fannie Mae and Freddie Mac, the answer is an unequivocal yes. And it appears that the law is on their side now more than ever.

Read the full article: When Is A Raisin Like An Investment Return? When The Government Takes It Away

Good News For Fannie And Freddie Shareholders?

Posted August 12, 2015 by Investors Unite

By Nora Caley

Another case is Perry Capital v. Lew. In that case, Investors Unite, a coalition of investors, filed an amicus curiae, or friend of the court brief, in July. Michael H. Krimminger, partner with Cleary Gottlieb Steen & Hamilton, who is retained by Investors Unite, says the point of the brief is that the Third Amendment sweep violates the Housing and Economic Recovery Act (HERA) of 2008. Specifically, the sweep violates the requirement that a conservatorship be conducted with the goal of restoring the companies to a “sound and solvent condition.”

“The model for the HERA statute was clearly the Federal Deposit Insurance Act,” says Krimminger, who previously held executive positions with the Federal Deposit Insurance Corp. “When you are interpreting HERA you should look back, and you would see that FHFA conservatorship is completely at odds and completely contrary to how the FDIC would do conservatorship.”

Read the full article: Good News For Fannie And Freddie Shareholders?

Peekaboo Fannie Mae, Freddie Mac Accounting May Have Helped Circumvent Fifth Amendment

Posted August 12, 2015 by Investors Unite

By Glen Bradford

Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) are run like they are government agencies. Overseen by the Federal Housing Finance Agency who have put them into conservatorship, these government sponsored enterprises historically support American home affordability. After writing about the GSEs and owning the common securities for over a year I have instead moved into preferred shares and this article is an explanation why.

According to the FHFA and US Treasury, the government all but owns the companies. With the third amendment net worth sweep in place since 2012 the net worth of Fannie Mae and Freddie Mac belongs to US Treasury and FHFA runs them. Even though the government runs them and they take all their money forever, but they are still private shareholder owned companies. Yes, you read that right.

Read the full article: Peekaboo Fannie Mae, Freddie Mac Accounting May Have Helped Circumvent Fifth Amendment

The future of Fannie and Freddie

Posted August 12, 2015 by Investors Unite

By Logan Beirne

Last month, a judge exposed a new tear in the federal government’s shroud of secrecy in its battle for Fannie Mae and Freddie Mac. On July 21, Judge Margaret Sweeney of the United States Court of Federal Claims for the D.C. Circuit granted the hedge fund Fairholme’s motion to use in its court battle “protected information,” which the government had fought to keep secret. This development may very well indicate that Judge Sweeney believes the Feds are talking from both sides of their mouths in the multiple investor suits over their handling of the mortgage giants.

The federal government has gone to extraordinary lengths to keep secret the discussions surrounding its seizing control of the private companies in 2008 and subsequent expropriation of all their profits in 2012. Its efforts may be unravelling.

Read the full article: The future of Fannie and Freddie

After earning billions in profits, Fannie, Freddie reform further than ever

Posted August 10, 2015 by Investors Unite

By Ruth Mantell

Fear of failure isn’t the only obstacle to reform. Some U.S. lawmakers may be loath to revamp a system that has helped the government to narrow its deficit. A bailout arrangement forces Fannie and Freddie to send their profits to the U.S. Treasury Department each quarter. The GSEs have sent more than $50 billion to the Treasury than the bailout funds they received.

Last week, Fannie Mae reported a $4.6 billion second-quarter profit, and Freddie Mac reported a $4.2 billion second-quarter profit.

Read the full article: After earning billions in profits, Fannie, Freddie reform further than ever

Lawmakers Move to Halt Fannie, Freddie Pay Raises

Posted July 30, 2015 by Investors Unite

By Joe Light

The regulator of Fannie Mae and Freddie Mac earlier this month awarded the companies’ chief executives multimillion-dollar pay increases. Now, Congress is moving to take it all away.

On Wednesday, the House Financial Services Committee approved a bill that would limit the CEOs’ pay to $600,000 a year. That was the cap before Federal Housing Finance Agency Director Mel Watt earlier in July approved a $3.4 million raise for the current CEOs, Fannie Mae’s Timothy J. Mayopoulos and Freddie Mac’s Donald Layton. The $4 million pay packages included an annual base salary of $750,000 along with total possible deferred salary of $3.25 million.

Read the full article: Lawmakers Move to Halt Fannie, Freddie Pay Raises

FHFA Examiner Shortfall Still Persists, IG Report Claims

Posted July 29, 2015 by Investors Unite

By Colin Wilhelm

The Federal Housing Finance Agency is still not producing enough adequately-trained examiners necessary to monitor Fannie Mae and Freddie Mac, four years after the agency’s inspector general first raised concerns about the issue, a new report claims.

The examiner commission program, founded in 2013 after an FHFA Office of Inspector General report found two-thirds of FHFA examiners lacked proper training, has thus far failed its mission to produce qualified examiners, the July 29 report finds. The examiners assess risk taken in transactions made by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

Read the full article: FHFA Examiner Shortfall Still Persists, IG Report Claims

10,000+ Discovery Documents Mark Big Win For GSE Investors

Posted July 29, 2015 by Investors Unite

By Glen Bradford

Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) are two government sponsored enterprises with around $5T in assets that are publicly traded private companies that are worthless as long as the Federal Finance Housing Agency’s sponsored Preferred Securities Purchase Agreement with the United States Treasury continues to remit all the net worth of the two to Treasury’s General Fund. Below is a key sampling of redacted legal filings that seem to suggest that the government has been selective with their disclosures at the very least. If the redacted portions of these documents are covering up information that proves the government knew that there weren’t problems at Fannie Mae and Freddie Mac when they decided to take all the profits in perpetuity, then the stocks are worth at least $20 and far more than that if the warrants are voided as part of a settlement or as part of a cancellation of the entire PSPA or conservatorship.

Read the full article: 10,000+ Discovery Documents Mark Big Win For GSE Investors

Why the U.S. Treasury Really Took Over Fannie Mae and Freddie Mac

Posted July 28, 2015 by Investors Unite

By Rodney Johnson

Besides, under the current model, the U.S. Treasury can just sit back and collect mailbox money once a quarter. Can’t beat that.

If all of this sounds fishy, that’s because it is.

Read the full article: Why the U.S. Treasury Really Took Over Fannie Mae and Freddie Mac

Judge Orders Treasury to Disclose Fannie & Freddie Conservatorship Documents

Posted July 23, 2015 by Investors Unite

By Xhevrije West

A ruling in the Federal Claims Court on Tuesday made by Judge Margaret Sweeney will force the U.S. Treasury to disclose all of Fannie Mae’s and Freddie Mac’s conservatorship documents. Over 10,000 discovery documents will be released to the United States District Court of Appeals in Washington D.C. and the United States District Court.

Fairholme Funds made the request in court against the GSEs, claiming that their investor ownership stake was taken unlawfully from them by the government when the conservatorship occurred. Fairholme’s efforts are a step toward getting their ownership stake returned to them.

Read the full article: Judge Orders Treasury to Disclose Fannie & Freddie Conservatorship Documents

Judge orders massive release of Fannie, Freddie conservatorship docs

Posted July 22, 2015 by Investors Unite

By Jacob Gaffney

Judge Margaret Sweeny in the Federal Claims Court in Washington yesterday granted a motion that will force theU.S. Treasury to release all discovery document materials in its possession that pertain to the decision to takeFannie Mae and Freddie Mac into conservatorship.

The request, made by Fairholme Funds, is a big win for them in the battle to review federally sealed documents in its case against the United States government. Fairholme is one of several former investors in the government-sponsored enterprises who say their ownership stake was illegally taken from them by the federal government during conservatorship. They are fighting in court, to get that stake returned.

Read the full article: Judge orders massive release of Fannie, Freddie conservatorship docs

Fannie and Freddie are Back, Bigger and Badder Than Ever

Posted July 20, 2015 by Investors Unite

By Bethany McLean

If we can’t do any better, isn’t it time to fix what we have and ease Fannie and Freddie out of conservatorship? The first step is to stop sending all their dividends to the Treasury. That would allow them to start rebuilding capital, eventually to a level substantially higher than what they were allowed to operate with before the crisis. Then, let’s devise a tighter regulatory structure, one that limits the businesses in which Fannie and Freddie can operate, limits the incentives of their management teams to take risk, and limits their ability to lobby. We could cap the returns to shareholders, as utilities do.

Franklin D. Raines, Fannie’s former chief executive, suggests structuring them like mutual insurance companies, which are owned by their policyholders, who would in this case be homeowners, rather than shareholders. A guarantee fund, modeled after the Federal Deposit Insurance Corporation, could support the companies in times of stress as the F.D.I.C. does banks. It would not be perfect. But if the alternative is doing nothing, it’s a whole lot better than that.

Read the full article: Fannie and Freddie are Back, Bigger and Badder Than Ever

So, Just Who Does Have Access?

Posted July 15, 2015 by Investors Unite

By Todd Sullivan

Yesterday I wrote about the explosion is people being granted access to protected information in the GSE litigation.

Peter Chapman was gracious enough to put this handy chart together (NOTE: This does not include all those who have recently asked for access, this list will surely grow, significantly)

Read the full article: So, Just Who Does Have Access?

Was the Third Amendment sweep of Fanne, Freddie a sham?

Posted July 14, 2015 by Investors Unite

By Trey Garrison

Last week in a teleconference hosted by Investors Unite, one of the guests — noted legal scholar Richard Epstein, the Laurence A. Tisch Professor of Law at NYU and a senior lecturer at the University of Chicago — didn’t mince words about what he thought of the Department of the Treasury’s “Third Amendment sweep” of GSE profits.

He called it a “sham transaction.”

Read the full article: Was the Third Amendment sweep of Fanne, Freddie a sham?

Freddie Mac And Fannie Mae Preferred Stocks As Special Situation Investments

Posted July 13, 2015 by Investors Unite

By Wayne Olson

Freddie Mac (OTCQB:FMCC) currently has $14.109 billion of preferred stock on its balance sheet at redemption value. Freddie Mac has a number of preferred stock issues.

Freddie Mac is in conservatorship and has not paid preferred dividends since the second quarter of 2008. Indeed, FMCKJ only paid dividends for two quarters before dividends were suspended. 240,000,000 shares of FMCKJ were issued on December 4, 2007 at $25 per share, with proceeds of $5.91 billion to Freddie Mac and the initial dividend rate was set at 8.375 percent (which was to be reset at no less than 7.875 percent beginning in 2013). Thus, even at a market price of about $3.75 per share, FMCKJ currently has a market cap of about $900 million.

Read the full article: Freddie Mac And Fannie Mae Preferred Stocks As Special Situation Investments

Freddie, Fannie profit sweep called threat to financial stability

Posted July 13, 2015 by Investors Unite

By Dena Aubin

Letting the U.S. government seize Fannie Mae and Freddie Mac profits without a judicial review would unleash “a new species of government intervention” and threaten financial market stability, lawyers for two financial trade groups said.

Read the full article: Freddie, Fannie profit sweep called threat to financial stability

Groups File Amicus Briefs on Behalf of Investors in GSE Profits Lawsuit

Posted July 8, 2015 by Investors Unite

Non-partisan seniors advocacy group 60 Plus Association, Inc., and several other groups and individuals have filed amicus briefs in the U.S. Court of Appeals for the District of Columbia Circuit on behalf of Perry Capital, the plaintiffs in a dismissed lawsuit against the government regarding the sweeping of GSE profits into Treasury.

Perry Capital, a New York-based hedge fund and one of the largest investors in Fannie Mae and Freddie Mac, sued the government in 2013, claiming the sweep of GSE profits into Treasury was illegal. The suit was dismissed in September 2014 and subsequently appealed.

Other groups or individuals who filed amicus briefs on behalf of Perry Capital include the National Black Chamber of Commerce, Investors Unite, Pershing Square Capital Management, Professor Jonathan R. Macey, Timothy Howard and The Coalition For Mortgage Security, Center for Individual Freedom, and Independent Community Bankers Of America, The Association Of Mortgage Investors.

Read the full article: Groups File Amicus Briefs on Behalf of Investors in GSE Profits Lawsuit

Amicus Briefs Filed In Appellate Court In Support Of Fannie Mae Plaintiffs

Posted July 8, 2015 by Investors Unite

By Todd Sullivan

Below are Appellate Briefs filed either in support of plaintiffs or in support of maintaining Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) in the current form and eliminating their liquidation.

I’d expect more to come

Read the full article: Amicus Briefs Filed In Appellate Court In Support Of Fannie Mae Plaintiffs

Civil Rights Group Calls for Recapitalizing GSEs

Posted July 6, 2015 by Investors Unite

By Brian Collins

A coalition of labor unions, civil rights, religious and progressive groups is urging the Obama administration to reconsider its approach to housing finance reform and shore up the affordable housing trust fund before it leaves office in January 2017.

The Leadership Conference on Civil and Human Rights floated a proposal in June that would recapitalize Fannie Mae and Freddie Mac as well as provide permanent financing for the affordable housing trust fund.

Read the full article: Civil Rights Group Calls for Recapitalizing GSEs

Newspaper Files Motion to Unseal Depositions in Fairholme GSE Profits Lawsuit

Posted July 2, 2015 by Investors Unite

The New York Times Company has filed a motion with the U.S. Court of Federal Claims to intervene and to have the “protected information” designation removed from the testimony of key government officials in Fairholme Funds’ GSE profits lawsuit.

The newspaper has asked the Court to remove the protected information tag from the depositions of Edward DeMarco, who was the director of the Federal Housing Finance Administration from 2009 to 2014, and Mario Ugoletti, who was a senior official with the U.S. Department of Treasury in 2008 when the government bailed out Fannie Mae and Freddie Mac at a combined price of $187.5 billion.

Read the full article: Newspaper Files Motion to Unseal Depositions in Fairholme GSE Profits Lawsuit

NY Times Pushes For Access To DeMarco’s Deposition On Fannie Mae

Posted July 2, 2015 by Investors Unite

By Michael Ide

The The New York Times Company (NYSE:NYT) has filed a motion to intervene in the Fairholme Funds lawsuit against the government over the Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA)/Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) conservatorship and full income sweep. The newspaper wants some testimony currently designated as Protected to be released so that they (and the rest of us in the media) can report on it. Fannie Mae longs, who believe the government acted in bad faith, are excited about getting more information released, but even people with no interest in the case should support what’s really just a push for greater transparency.

“This court has recognized that the public has an enforceable interest in access to discovery, which is to be balanced against the parties’ interest in confidentiality,” says the NY Times filing. “The courts have repeatedly recognized that disclosure of discovery is particularly appropriate when a lawsuit sheds light on the performance of governmental agencies and entities – which is precisely the case here.”

Read the full article: NY Times Pushes For Access To DeMarco’s Deposition On Fannie Mae

Treasury sweep of Fannie, Freddie shareholder profits “costly for housing”

Posted July 1, 2015 by Investors Unite

By Trey Garrison

Yale Law School lecturer Logan Beirne examined a lawsuit recently filed by three Fannie Mae and Freddie Mac investors accusing the federal government of exceeding its authority as a conservator.

The three plaintiffs in question allege that the Federal Housing Finance Agency and the U.S. Treasury “systemically exceeded their limited authority under HERA” and “acted arbitrarily and capriciously.”

Read the full article: Treasury sweep of Fannie, Freddie shareholder profits “costly for housing”

Funds appeal over Fannie and Freddie

Posted June 30, 2015 by Investors Unite

By Tom Braithwaite

Perry Capital and Fairholme Funds on Monday fired their latest salvo in a battle with the US government over Fannie Mae and Freddie Mac, appealing against a US district court ruling that the Treasury had the right to seize the mortgage companies’ profits.

The appeal complains of an “expropriation and effective nationalisation of two of America’s largest and most profitable companies — Fannie Mae and Freddie Mac”, which was “unprecedented in American history and blatantly at odds with the governing statute”.

Read the full article: Funds appeal over Fannie and Freddie

There Is Still Time for Obama to Strengthen the American Dream for All

Posted June 30, 2015 by Investors Unite

By Eva Clayton

Income inequality is an issue that we must work diligently to identify balanced policy solutions that reward hard work and determination. Narrowing the income gap and widening opportunity for all is an effort that this administration has focused on in earnest. So much so that the president made it one of his priorities to provide Americans a pathway to the middle class. Nonetheless, income inequality will continue, as it should, to be a key issue in the 2016 presidential elections. Countless Americans do their best to keep food on the table and build a decent life for their family, yet it seems the odds are stacked against them.

President Obama can strengthen his legacy in this area with tools he already has. He doesn’t need to magically unlock the logjam in Congress to help ensure the resources for affordable housing for years to come. Under the Housing and Economic Recovery Act of 2008 (HERA), the president can buttress programs to help working Americans access affordable housing and facilitate homeownership. For generations, homeownership was the very definition of the American dream but the 2008 housing crisis turned that dream into a nightmare for many families. Despite the President’s support for an array of policies aimed at working families and improving the pathway to the middle class, there is a lot more to do to restore the dream of homeownership.

Read the full article: There Is Still Time for Obama to Strengthen the American Dream for All

Saxton v. FHFA - Have FHFA and the Treasury Exceeded Their Limited Authority under HERA?

Posted June 29, 2015 by Investors Unite

By Logan Beirne

Earlier this month, a new front was opened in the legal campaign by investors against the federal government’s (mis)management of mortgage giants Fannie Mae and Freddie Mac. In the latest salvo, Saxton v. Federal Housing Finance Authority (FHFA), individual investors from Iowa filed suit to stop the government from syphoning private property into the U.S. Treasury’s coffers. This most recent litigation effort seeks to reign in the federal government as it subverts the rule of law.

Like every major financial firm in the U.S., Fannie and Freddie found themselves in acute financial distress during the financial crisis of 2007-2008. A root cause of this crisis was the collapse of the real estate market, which caused record mortgage defaults. This, in turn, made investors unwilling to buy the securities that Fannie and Freddie sold. At the height of the crisis the federal government moved in and bailed out both, injecting over time approximately $117 billion into Fannie, and $70.5 billion into Freddie, receiving in return rights to own 79.9% of the companies’ common shares – with the remainder in private hands.

Read the full article: Saxton v. FHFA - Have FHFA and the Treasury Exceeded Their Limited Authority under HERA?

Mortgage Market on the Mend

Posted June 22, 2015 by Investors Unite

By Lisa Prevost

New research from TransUnion, the credit information service, predicts that some 1.5 million homeowners who were forced out of the mortgage market after the housing bust will have recovered sufficiently to re-enter the market sometime between now and 2017.

But creditworthiness alone does not a buyer make. Other studies suggest that the fallout from the financial crisis is still a hindrance for many Americans, and that the national homeownership rate will continue to fall in coming years.

Read the full article: Mortgage Market on the Mend

Monday Morning Cup of Coffee: CFPB under the gun again

Posted June 22, 2015 by Investors Unite

By Trey Garrison

The shareholders suing Treasury certainly agree that taxpayers entitled to significant compensation for the risk borne in the $187 billion bailout of Fannie and Freddie, just as they are entitled to recompense for the $426 billion dollars in bailouts of the big banks and auto industry authorized under the TARP program. But what Royce fails to mention, however, is that the GSEs are already far and away America’s most profitable bailout, having returned over $40 billion to date in profit on top of what the Treasury invested.

What shareholders – and anyone honestly invested in some kind of justice here should be asking – is why does the government continue to let taxpayers bear all of risk at the point of first-loss under the guise of repayment?

Read the full article: Monday Morning Cup of Coffee: CFPB under the gun again

Valuing Freddie Mac And Fannie Mae’s Common And Preferred Stocks

Posted June 17, 2015 by Investors Unite

By Wayne Olson

Freddie Mac’s (OTCQB: OTCQB:FMCC) expected near-term earnings of roughly $2.50 per share would imply a common stock valuation of $25.00 per share if a price/earnings ratio of 10 times is assumed. For Fannie Mae (OTCQB:OTCQB:FNMA), expected near-term earnings of roughly $1.80 per share would imply a stock price of $18 per share, again using a 10 times price/earnings ratio. These are impressive proposed valuations, which have gotten the attention of actual and potential investors in FMCC and FNMA in recent years.

These proposed valuations for the FMCC and FNMA common stocks assume that the U.S. Treasury warrants to own 79.9 percent of FMCC and FNMA are exercised. If they are not exercised, the assumed valuations for FMCC and FNMA would be about $125 and $90 per share, respectively.

Read the full article: Valuing Freddie Mac And Fannie Mae’s Common And Preferred Stocks

Fannie and Freddie Investors Play it Safe After AIG Ruling

Posted June 17, 2015 by Investors Unite

By Xehvrije West

Fannie Mae and Freddie Mac investors made some careful moves after Monday’s court decision between American International Group (AIG) and the GSEs. The share of the GSE’s stock went up about 9 percent before dropping back down, however, Monday’s ruling may not necessarily mean good news for shareholders, according to multiple media reports.

MarketWatch analysts said that Judge Thomas C. Wheeler of the U.S. Court of Federal Claims ruled that the U.S. government ran afoul of the law when rescuing American International Group in 2008. The judge found that “there is nothing in the Federal Reserve Act or in any other federal statute that would permit a Federal Reserve Bank to take over a private corporation and run its business as if the government were the owner.”

Read the full article: Fannie and Freddie Investors Play it Safe After AIG Ruling

FHFA’s 2014 report to Congress

Posted June 16, 2015 by Investors Unite

By Brena Swanson

The Federal Housing Finance Agency released its 2014 report to Congress giving an update on what exactly went on at the agency that year.

According to the law, it must report to Congress on the agency’s plans to “continue to support and maintain the nation’s vital housing industry, while at the same time guaranteeing that the American taxpayer will not suffer unnecessary losses.”

Read the full article: FHFA’s 2014 report to Congress

Hank Greenberg Wins Trial But No Damages in AIG Bailout Suit

Posted June 16, 2015 by Investors Unite

By Christie Smythe, Sophia Pearson, & David McLaughlin

The U.S. set illegal terms in demanding American International Group Inc. stock for an $85 billion bailout during the financial crisis, but that doesn’t mean AIG investors deserve compensation, a court ruled.

What began as a long-shot lawsuit by Hank Greenberg’s Starr International Co. gained credibility over years of failed government attempts to dismiss it. During an eight-week trial, Starr’s lawyer David Boies grilled Ben Bernanke, Hank Paulson and Timothy Geithner, and U.S. Court of Claims Judge Thomas Wheeler repeatedly ruled in Greenberg’s favor.

Read the full article: Hank Greenberg Wins Trial But No Damages in AIG Bailout Suit

For Fannie, Freddie Investors, Cautious Optimism After AIG Ruling

Posted June 16, 2015 by Investors Unite

By Joe Light and Juliet Chung

Monday’s court decision involving American International Group Inc.AIG +1.09% sent shares of Fannie Mae FNMA +2.79% and Freddie Mac FMCC +2.70% up during the day Monday as much as 9%, before they pulled back. Fannie and Freddie investors are in the midst of their own lawsuit against the government challenging a change in terms of those companies’ bailouts; investing in shares of the mortgage-finance giants largely has been a political and legal bet that the courts would strike down the government’s 2012 decision to change how it collects money from them.

Some Fannie and Freddie shareholders said Monday they viewed the AIG decision as generally encouraging given what they see as the government’s less defensible approach with the mortgage-finance giants than with AIG.

Read the full article: For Fannie, Freddie Investors, Cautious Optimism After AIG Ruling

Rep. Royce Calls Out Castro on GSE Reform

Posted June 12, 2015 by Investors Unite

The hearing follows both Rep. Royce and Secretary Castro keynoting National Journal’s “Sustainable Homeownership: The Future of Housing Finance” forum during which Rep. Royce endorsed aspects related to housing finance reform of Sen. Richard Shelby’s (R-AL) regulatory relief bill, the Financial Regulatory Improvement Act of 2015.

“I wanted to get your take on … an increase in private sector credit risk sharing by the GSEs … the creation of a truly Common Securitization Platform which allows for issuance of mortgage-backed securities other than the GSEs, and the development of a common residential mortgage-backed security by Fannie Mae and Freddie Mac. I thought I would just give you the floor to discuss how this might bring private sector capital back into the market and how we might work together to achieve these goals as kind of a building block,” said Rep. Royce to Secretary Castro.

Read the full article: Rep. Royce Calls Out Castro on GSE Reform

Bipartisan group of senators to FHFA: Expand, clarify credit risk transfers

Posted June 11, 2015 by Investors Unite

By Brena Swanson

A bipartisan group of Senate Banking Committee members wrote a letter urging the Federal Housing Finance Agency to expand and better define the development of the Credit Risk Transfer programs, which shift credit risk from Fannie Mae and Freddie Mac to the private sector.

Together, U.S. Sens. Mark R. Warner, D-Va., Bob Corker, R-Tenn., Heidi Heitkamp, D-N.D., Mike Crapo, R-Ind., Jon Tester, D-Mont. and Dean Heller, R-Nev., sent the letter to FHFA Director Mel Watt, outlining five steps he needs to take to bring transparency to the secondary mortgage market.

Read the full article: Bipartisan group of senators to FHFA: Expand, clarify credit risk transfers

Top Bank Analysts Warn Another Frannie Bailout Coming

Posted June 11, 2015 by Investors Unite

By Elizabeth MacDonald

Brad Bracey and Matt MacFarland at SNL Financial warn: “Some believe the institutions are now exposed to another downturn in the housing market.”

Both housing finance giants are dialing down their portfolios. “Their capital reserves are set to reduce every year until reaching zero by 2018,” at a rate of about $600 million a year, says Compass Point analyst Isaac Boltansky, who characterizes the “dwindling capital reserve” as a “sunset provision.” He adds: “Reduce their capital each year so that, hopefully, at some point in the future, another Congress will handle these issues because they’ll have to. It’s like a ticking time bomb.”

Read the full article: Top Bank Analysts Warn Another Frannie Bailout Coming

Income Growth Feeds Consumer Confidence in Housing: Fannie Mae

Posted June 9, 2015 by Investors Unite

By Andy Peters

The nationwide gain in income has fed Americans’ optimism about housing, which could lead to a more active housing market this year, Fannie Mae said in a new report.

The number of consumers who said their household income had significantly increased rose to nearly an all-time high, Fannie Mae said in its monthly National Housing Survey. The consumers responded to a survey that Fannie Mae conducted between May 1 and May 20.

Read the full article: Income Growth Feeds Consumer Confidence in Housing: Fannie Mae

Another Assault On Treasury’s Infamous Third Amendment: The Struggle Over The GSEs Is Not Over

Posted June 9, 2015 by Investors Unite

By Richard Epstein

Late this past May, Thomas and Ida Saxton brought suit against the Federal Housing Finance Agency (FHFA) in the Northern District of Iowa, and thus opened up a new front in the long-running litigation over the federal takeover of Fannie Mae and Freddie Mac, two Government Sponsored Enterprises, or GSEs, that had hybrid private and public status. Saxton v. FHFA marks perhaps the most noteworthy development since District Court judge, Royce Lamberth, granted the United States an unexpected and undeserved victory, on summary judgment no less, in Perry Capital LLC v. Lew, decided on September 30, 2014. In my capacity as an advisor to a number of institutional investors, I have discussed at length the many weaknesses of that opinion in earlier Forbes posts here , here, here, and here. In this article I will not restate the many defects of economics, statutory construction and constitutional law that pervade that opinion.

It is helpful to explain how the Saxton complaint artfully weaves together the various legal, legislative and economic strands of the case to mount a full-scale and well-considered attack on FHFA and Treasury for systematically exceeding the limited authority conferred on them by the Housing and Economic Recovery Act (HERA). The Saxton complaint consciously avoids any constitutional challenges to the government’s action, but does state forceful claims that both FHFA (and Ed DeMarco in his official capacity its then Director of FHFA) and Treasury acted beyond the scope of their statutory authority, that these actions were arbitrary and capricious when tested against the normal standards of administrative law, and, finally that their actions were in breach of their contractual and good faith obligations to the private shareholders of both Fannie and Freddie.

Read the full article: Another Assault On Treasury’s Infamous Third Amendment: The Struggle Over The GSEs Is Not Over

Fannie and Freddie Shareholders Sue FHFA and Treasury Department Over Payment of Profits to U.S. Government

Posted June 4, 2015 by Investors Unite

By Stephen Knaster, Suzette Pringle, and M. Todd Scott

On May 28, 2015, three Fannie Mae and Freddie Mac (the “Companies”) shareholders filed a complaint in the United States District Court for the Northern District of Iowa against the Federal Housing Finance Agency (“FHFA”), its director, and the U.S. Treasury Department in connection with FHFA’s agreement to pay all of the Companies’ profits to the Treasury on a quarterly basis (the “Net Worth Sweep”). According to plaintiffs, the Net Worth Sweep would be all encompassing depriving the private shareholders of their profits forever.

Read the full article: Fannie and Freddie Shareholders Sue FHFA and Treasury Department Over Payment of Profits to U.S. Government

KBW: Here’s how Shelby bill will affect banks and mortgage finance

Posted June 2, 2015 by Investors Unite

By Trey Garrison

Among the most significant proposals in the 216-page draft bill is a requirement raising the SIFI bank threshold from $50 billion to $500 billion, altering the $10 billion threshold, and targeting specific GSE changes. This would, in effect, free smaller lenders from the heavy capital requirements and strict oversight currently enforced against the big banks. It also includes a provision increasing the $50 billion SIFI threshold to $500 billion, while maintaining some degree of FSOC review.

Other proposals in the bill take aim at mortgage finance firms Fannie Mae and Freddie Mac, “systemically important” designations to nonbanks and insurance industry supervision.

Read the full article: KBW: Here’s how Shelby bill will affect banks and mortgage finance

Confirmation Received: GSE Exec Discussed DTA Reversal With Treasury Pre- Sweep/ Ugolettis Worst Nightmare?

Posted June 1, 2015 by Investors Unite

May 29, 2015

Proving once again that our commitment to the truth allows us to smash the access journalists coverage of this critical story.

A copy of the Complaint filed yesterday initiating a new lawsuit entitled Saxton v. FHFA in the U.S. District Court for the Northern District of Iowa is attached to this e-mail message.

Read the full article: Confirmation Received: GSE Exec Discussed DTA Reversal With Treasury Pre- Sweep/ Ugolettis Worst Nightmare?

RBS mortgage settlement with FHFA could reach $4.5B

Posted May 28, 2015 by Investors Unite

By Brena Swanson

The Royal Bank of Scotland Group could pay as much as $4.5 billion to resolve claims of misconduct in its handling of U.S. mortgage securities, according to an article in Bloomberg.

RBS may be closer to JPMorgan Chase & Co.’s $4 billion accord with the U.S. Federal Housing Finance Agency over its sale of mortgage-backed securities than Deutsche Bank AG’s $1.9 billion deal, Elliott Stein, an analyst for Bloomberg Intelligence, wrote on Wednesday.

Read the full article: RBS mortgage settlement with FHFA could reach $4.5B

HARP Extended Through 2016; Next Outreach Event To Be Held June 12

Posted May 28, 2015 by Investors Unite

After announcing earlier this month that it had extended the Home Affordable Refinance Program (HARP) through 2016, the Federal Housing Finance Agency (FHFA) announced this week that it is planning its sixth HARP outreach event on June 12 in Phoenix.

The agency reports that the number of mortgage refinances completed through HARP has now surpassed 3.3 million. FHFA’s first quarter Refinance Report shows that more than 31,000 HARP refinances were completed through March, bringing the total to 3,302,102 since inception of the program in 2009.

Read the full article: HARP Extended Through 2016; Next Outreach Event To Be Held June 12

Housing doing better than broader economy

Posted May 28, 2015 by Investors Unite

By Ryan Smith

The housing market is expected to do better than the economy in 2015, according to Fannie Mae.

Fannie has downgraded its economic growth forecast for the year, expecting economic gains to be3 slowed by the weight of a weak first quarter. In all, the economy is expected to grow just 2.3% in all of 2015 – a downgrade of 0.5 percentage points from Fannie’s earlier forecasts.

Read the full article: Housing doing better than broader economy

Caution: GSE reform could have serious unintended consequences

Posted May 27, 2015 by Investors Unite

By Joseph Murin

The role of the government sponsored enterprises, Freddie Mac and Fannie Mae, in combination with government-owned corporation Ginnie Mae, has been fairly straightforward for decades: ensure that capital flows freely to American mortgage lending markets so that the American dream remains achievable for all.

While most now consider the GSEs to provide an implicit guaranty, as opposed to Ginnie Mae’s explicit guaranty, all three play a critical role in making mortgages available to many Americans who otherwise might not be able to afford a home.

Read the full article: Caution: GSE reform could have serious unintended consequences

Fannie Mae, Freddie Mac Reform To Be Center Of Shelby Bill Fight: Bove

Posted May 27, 2015 by Investors Unite

By Richard Bove

The biggest fight around this legislation will be focused on Fannie Mae and Freddie Mac. The Bill clearly sets these two companies on a path to destruction. It sets the stage for the re-introduction of the failed Corker/Warner legislation at some future point.

The remainder of this commentary will briefly highlight the key parts of the legislation.

Read the full article: Fannie Mae, Freddie Mac Reform To Be Center Of Shelby Bill Fight: Bove

Fannie Mae predicts strong spring homebuying season

Posted May 22, 2015 by Investors Unite

By Ben Lane

The economy may not grow at the previously expected rate, but that shouldn’t stop housing from improving in 2015, according to Fannie Mae’s May 2015 Economic Outlook.

The report from Fannie Mae, released Thursday, shows that economic growth is expected to pick up in the second quarter and through the second half of 2015, but continued financial conservatism among consumers suggests only modest growth for the year.

Read the full article: Fannie Mae predicts strong spring homebuying season

U.S. Senate panel’s bank oversight bill gets no Democratic votes

Posted May 22, 2015 by Investors Unite

By Michael Flaherty and Sarah N. Lynch

A bill to ease regulations across the U.S. financial sector passed a Senate committee on Thursday with no support from Democrats, in a setback to the largest overhaul of 2010 banking reforms since the rules were put in place.

The Senate Banking Committee cleared the Financial Regulatory Improvement Act of 2015 with all 12 Republicans voting in favor, and all 10 Democrats voting against.

Read the full article: U.S. Senate panel’s bank oversight bill gets no Democratic votes

Senate Democrats counter Republican’s bank regulation bill

Posted May 20, 2015 by Investors Unite

By Michael Flaherty

Democrats on the Senate Banking Committee on Tuesday released their own version of a regulation relief bill, keeping the proposed changes focused on small banks and forcing the panel’s Republican chairman to try and hash out a deal in coming months.

The Democrats’ bill is a rebuke to Richard Shelby of Alabama, the committee chair who officially released his wide-ranging legislation on Monday after circulating a 216-page draft version last week.

Read the full article: Senate Democrats counter Republican’s bank regulation bill

Shelby’s Bill Is the Right Way Forward on Financial Reform

Posted May 20, 2015 by Investors Unite

By William M. Isaac

However, I am concerned about the legislation’s controversial provisions relating to Fannie Mae and Freddie Mac, which have little if any nexus to regulatory reform. Deciding what to do with Fannie and Freddie is an extremely important public policy task for the government, and the next step should not be tucked away in an unrelated regulatory reform measure. Disturbingly, some provisions contained in the proposed Senate bill would undermine the Housing and Economic Recovery Act of 2008, the statute that governs the government-sponsored entities.

In 2008, when Fannie and Freddie fell into distress, Congress passed HERA and established the Federal Housing Finance Agency as an independent conservator for them. As conservator, the FHFA is required to “preserve and conserve” Fannie and Freddie for their shareholders. But that’s not at all what has happened.

Read the full article: Shelby’s Bill Is the Right Way Forward on Financial Reform

Democrats Said to Plan Alternative to Shelby’s Dodd-Frank Bill

Posted May 19, 2015 by Investors Unite

By Silla Brush

Democrats on the Senate Banking Committee are drafting financial legislation as an alternative to a Republican bill they see as an effort to dismantle the Dodd-Frank Act, a committee aide said Monday.

Ten Democrats, led by Senator Sherrod Brown of Ohio, are signing onto the proposal ahead of a Thursday meeting of the committee, according to the Democratic aide. The lawmakers have signaled support for measures to help community banks and credit unions, while criticizing Republicans for pushing plans that would help banks with as much as $500 billion in assets and relax some mortgage regulations.

Read the full article: Democrats Said to Plan Alternative to Shelby’s Dodd-Frank Bill

Is the Butler Gonna Claim Privilege Next?

Posted May 19, 2015 by Investors Unite

By Todd Sullivan

So it seems as though everyone in Washington was involved in the drafting and implementation of the 3rd amendment (NWS) to the GSE’s conservatorship . Want proof?

Attached is Fairholme’s filing challenging the government’s designation of certain documents as “protected”(and by “certain” I mean “every single one”).

Read the full article: Is the Butler Gonna Claim Privilege Next?

Morning Money: M.M. FACTS OF LIFE: SHELBY EDITION

Posted May 18, 2015 by Investors Unite

By Ben White

Conventional wisdom holds that many sections of Sen. Richard Shelby’s banking regulation bill could eventually find their way into law following some tweaks. That wisdom is wrong. Senate Democrats are likely to strongly oppose much of the bill and the administration sees nothing beyond the first title on community banks as palatable.

Think there will be a compromise on lifting the cap on banks automatically subject to increased regulatory scrutiny and capital standards to $250 million (Shelby proposed raising it from $50 billion to $500 billion)? Think again. The White House is not likely to support any change to the current rules. Administration officials are also cool to Shelby’s proposals on insurance regulation and pretty much everything beyond the first section of the bill.

Read the full article: Morning Money: M.M. FACTS OF LIFE: SHELBY EDITION

U.S. housing regulator moves closer to allowing single security

Posted May 18, 2015 by Investors Unite

The regulator of U.S. housing finance firms Fannie Mae and Freddie Mac on Friday moved closer to allowing the two firms to issue a common security, rejecting a series of suggested changes to the agency’s plan.

The Federal Housing Finance Agency hopes a single security will lower borrowing costs by increasing liquidity in the market for mortgage-backed securities. An FHFA official told reporters the plan had been generally well received by investors.

Read the full article: U.S. housing regulator moves closer to allowing single security

Nomura, RBS Ordered to Pay $806 Million to Housing Agency

Posted May 18, 2015 by Investors Unite

By Edvard Pettersson

Nomura Holdings Inc. and Royal Bank of Scotland Group Plc were ordered to pay $806 million in damages to government-owned mortgage companies over misleading securities pitches.

A federal judge in New York on Friday ordered the banks to pay the full amount requested by the Federal Housing Finance Agency. U.S. District Judge Denise Cote earlier found the banks liable for “enormous” deception in the sale of mortgage-backed securities.

Read the full article: Nomura, RBS Ordered to Pay $806 Million to Housing Agency

Senate deregulation package would set stage for end of Fannie, Freddie

Posted May 15, 2015 by Investors Unite

By Joseph Lawler

Some investors in the companies, which are delisted from stock exchanges, have been aiming for the re-privatization of the firms, seeking to allow them to rebuild capital through a legislative or judicial reversal of a 2012 decision by the Treasury to take all of the government-sponsored enterprises’ profits.

The housing-finance provisions of Shelby’s bill “inappropriately politicize the conservatorship of Fannie and Freddie, and don’t belong in this financial reform legislation,” said Tim Pagliara, the executive director of the group Investors Unite that advocates on behalf of private shareholders of Fannie and Freddie.

Read the full article: Senate deregulation package would set stage for end of Fannie, Freddie

Shelby’s Banking Proposal Would Also Determine Future Of Fannie Mae

Posted May 13, 2015 by Investors Unite

By Michael Ide

Senate Banking Chairman, Richard Shelby (R-AL) released draft banking reform legislation earlier today, and while changes to the Dodd-Frank Act and possible Federal Reserve reforms have gotten the most attention, the bill would also clarify the future of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC). The legislation would direct the Federal Housing Finance Agency to make the Common Securitization Platform (CSP) increasingly independent of the GSEs and then transition it to a non-profit entity that could work with approved issuers other than Fannie Mae and Freddie Mac.

The section starts off by putting limits on how Fannie Mae and Freddie Mac can be managed: guarantee fee increases can’t be used to fund anything beyond normal GSE business functions or housing finance reforms passed by Congress. One of the criticisms of the full income sweep (certainly not the only one) is that money earned by the GSEs is getting sucked into the Federal budget instead of being used to rebuild them. This wouldn’t affect the income sweep, but it would stop further g-fee increases from being used to fund other parts of the government.

Read the full article: Shelby’s Banking Proposal Would Also Determine Future Of Fannie Mae

US Senate Banking bill takes aim at Fed, GSEs, mortgage rules

Posted May 13, 2015 by Investors Unite

The Senate Banking Committee on Tuesday released a draft of its regulation relief bill, which proposes easing rules for small banks, limiting restrictions on mortgage requirements and restructuring the Federal Reserve and other financial regulators.

The bill also proposes changes to Fannie Mae and Freddie Mac and addresses concerns raised by the insurance industry. Shelby’s staff has set a vote on the bill for May 21, amid opposition from the committe’s top Democrat

Read the full article: US Senate Banking bill takes aim at Fed, GSEs, mortgage rules

Judge’s Ruling Against 2 Banks Finds Misconduct in ’08 Crash

Posted May 12, 2015 by Investors Unite

By Joe Light

A U.S. District Court judge on Monday said Nomura Holdings Inc. wasn’t truthful in describing mortgage-backed securities sold to Fannie Mae and Freddie Mac, giving a victory to the companies’ conservator, the Federal Housing Finance Agency.

Judge Denise Cote asked the FHFA to propose updated damages to be paid by Nomura and co-defendant RBS Securities Inc., which underwrote some of the investments. At the outset of the case, the FHFA asked for about $1.1 billion.

Read the full article: Judge’s Ruling Against 2 Banks Finds Misconduct in ’08 Crash

Are Fannie Mae and Freddie Mac Headed for a New $157 Billion Bailout?

Posted May 11, 2015 by Investors Unite

By Matthew Frankel

Fannie Mae (NASDAQOTCBB: FNMA ) and Freddie Mac (NASDAQOTCBB: FMCC ) were recently stress-tested, and the results were discomforting to say the least. It was found that in another major recession, the lack of capitalization at the agencies could create the need for another bailout of up to $157.3 billion from U.S. taxpayers.

While this is definitely troubling, it may be the wake-up call lawmakers need to finally figure out what to do with Fannie and Freddie. Here’s why the agencies could be headed for trouble, and what the government could do about it.

Read the full article: Are Fannie Mae and Freddie Mac Headed for a New $157 Billion Bailout?

Senate Bank Chair weighs sweeping GSE, mortgage lending overhaul

Posted May 11, 2015 by Investors Unite

By Trey Garrison

The chairman of the Senate Banking Committee is drafting sweeping regulatory relief legislation that could be the biggest overhaul to the Dodd-Frank Wall Street Reform Act since it was passed, and may include provisions raising the SIFI bank threshold from $50 billion to $500 billion, altering the $10 billion threshold, and targeting specific GSE changes.

Sen. Richard Shelby’s, R-Ala., bill would free smaller lenders from the heavy capital requirements and strict oversight currently enforced against the big banks.

Read the full article: Senate Bank Chair weighs sweeping GSE, mortgage lending overhaul

Leaked Treasury Memo Raises Eyebrows About GSE Rescue

Posted May 11, 2015 by Investors Unite

The GSE shareholder group, Investors Unite, said the memo shows that the Treasury Department apparently aimed to conceal its thought process on the fate of Fannie and Freddie.

“Remarkably, Treasury withheld that highly-relevant memo in court cases stemming from shareholders’ claims that Treasury went well beyond HERA in its dramatic move in 2012 to lay claim to the GSEs’ revenues,” the group said.

Read the full article: Leaked Treasury Memo Raises Eyebrows About GSE Rescue

Mortgage giant Freddie Mac posts $524M profit in 1Q; paying $746M dividend to government

Posted May 6, 2015 by Investors Unite

By Marcy Gordon

Mortgage giant Freddie Mac reported net income of $524 million for the first quarter, down sharply from the same period of 2014, as it sustained losses on the investments it uses to hedge against swings in interest rates.

The January-through-March results posted Tuesday marked the government-controlled company’s 14th straight profitable quarter. Freddie said that although earnings show volatility, its business fundamentals are strong and continued to improve during the quarter.

Read the full article: Mortgage giant Freddie Mac posts $524M profit in 1Q; paying $746M dividend to government

Freddie Mac CEO: Ready for legislative solution

Posted May 6, 2015 by Investors Unite

By Jacob Gaffney

Freddie Mac this morning reported its fourteenth quarter of positive earnings and the chief executive officer continues to believe the government-sponsored enterprise will move from strength to strength.

A new development, however, is that Donald Layton, who prefers to be called Don, said that Freddie Mac is prepared for any housing reform package that passes legislation.

Read the full article: Freddie Mac CEO: Ready for legislative solution

Fannie And Freddie: Stress Test Results Confirm Need For 4% Capital Levels

Posted May 4, 2015 by Investors Unite

By David Sims

The Federal Housing Finance Agency just released the results of the annual stress tests for Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC). Under the severely adverse economic scenario, the companies would need $157.3 billion in capital. Before you jump to the conclusion that this number is too high (or too low), let’s put this in context.

Fannie Mae has $3.25 trillion in assets and Freddie Mac has $1.95 trillion in assets. That’s $5.2 trillion combined. As a percentage of the total, the $157.3 billion is 3.0%.

Read the full article: Fannie And Freddie: Stress Test Results Confirm Need For 4% Capital Levels

Treasury document helps Fannie, Freddie suits: analyst

Posted May 4, 2015 by Investors Unite

By Ruth Mantell

A four-year old Treasury Department document may help shareholders of federally controlled mortgage-finance giants Fannie Mae and Freddie Mac sue over a bailout agreement that forces the companies to send their profits to the government, an analyst said Friday.

In a Jan. 4, 2011, memorandum to then-Treasury Secretary Timothy Geithner, staff members wrote proposals for winding down government sponsored-enterprises Fannie and Freddie and trying to increase private capital in the mortgage market, among other issues. The recently released document’s first “end state” option called for privatizing the GSEs once they were “adequately capitalized.”

Read the full article: Treasury document helps Fannie, Freddie suits: analyst

Leaked Treasury Memo On Fannie Mae, Freddie Mac Shows Fraud Says Pagliara

Posted May 4, 2015 by Investors Unite

ValueWalk

Winding down Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), says Goldstein in the memo, is a “bank-centric model” that “benefits larger institutions,” putting the system at risk with lenders too big to fail and raising costs for borrowers from smaller institutions. The memo goes on to state that ending Fannie Mae and Freddie Mac would imperil the 30-year, fixed-rate mortgage and “markets would be subject to greater swings in spreads and liquidity and credit pricing would be more pro-cyclical.” Furthermore, it contradicts Treasury’s public claims that the GSEs would need a capital ratio of 10% by saying the number is actually closer to 3-4%.

In short, it’s a top official at Treasury making the exact same warnings and capitalization arguments that Tim Pagliara, Investors Unite, many of the nation’s legal and economic experts, and a host of GSE shareholders across the country have been making for years.

Read the full article: Leaked Treasury Memo On Fannie Mae, Freddie Mac Shows Fraud Says Pagliara

Stress Tests Reiterate Lack of Capital for Fannie Mae, Freddie Mac

Posted May 1, 2015 by Investors Unite

By Joe Light

Fannie Mae and Freddie Mac would require up to $157.3 billion in additional support from the U.S. Treasury in a severe economic downturn, according to the result of stress tests released on Thursday by the Federal Housing Finance Agency.

The tests, required by the Dodd-Frank financial-regulatory overhaul, are designed by the Federal Reserve to simulate a severe recession, in which the unemployment rate rises to 10% by mid-2016 and real gross-domestic product falls 4.5% by the end of 2015 before beginning to recover. The projections aren’t meant to be “expected outcomes,” the agency said.

Read the full article: Stress Tests Reiterate Lack of Capital for Fannie Mae, Freddie Mac

Fannie And Freddie: A New Leaked Treasury Memo Surfaces

Posted May 1, 2015 by Investors Unite

By David Sims

When it comes to the Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) legal cases, shareholders were left for dead last fall when Judge Lamberth ruled that the cases against the government were not yet ripe. The decision has been appealed, but Inside Sources has found good reason for the appeal to move forward.

“During that case, Treasury was required to turn over all relevant materials to the court for review. The memo obtained by InsideSources, dated January 4, 2011, was never disclosed to the court as part of the Administrative Record.”

Read the full article: Fannie And Freddie: A New Leaked Treasury Memo Surfaces

Leaked Treasury memo on Fannie, Freddie fuels fire for sweep critics

Posted May 1, 2015 by Investors Unite

By Trey Garrison

Investors Unite Executive Director Tim Pagliara, one of the leaders in the movement among shareholders fighting the Treasury’s sweep of GSE profits, disagrees, telling HousingWire that this was a smoking gun that shows Treasury never intended the conservatorship to be temporary, and, in his words, intentionally committed fraud.

“I think part of what’s going on is that people have some explaining to do, because they need to explain how they said they had to have a 10% capital requirement and their own people said it’s 3%-4%,” Pagliara said. “This isn’t some one-off, it was signed off on by seven people in Treasury including the general counsel’s office. When the private sector is saying that you need 2.5%-5% capitalization and they ridicule and attack you, then you see the inconsistency when Treasury itself is saying 3%-4%.

Read the full article: Leaked Treasury memo on Fannie, Freddie fuels fire for sweep critics

Treasury’s Missing Fannie, Freddie Doc

Posted April 30, 2015 by Investors Unite

By Zachary Warmbrodt and Jon Prior

The Treasury Department failed to disclose in a recent case brought by Fannie Mae and Freddie Mac shareholders an internal memo discussing how to deal with the housing giants taken over by the government in 2008, according to a source who received the document from a former Treasury official.

The January 2011 memo sent from then-Treasury Undersecretary for Domestic Finance Jeffrey Goldstein to then-Secretary Timothy Geithner contains the staff’s transition plan and descriptions of three possible scenarios, including the privatization of Fannie and Freddie that “is essentially the path laid out under” the 2008 law authorizing the bailout of Fannie and Freddie as well as “the Paulson Treasury.”

Read the full article: Treasury’s Missing Fannie, Freddie Doc

Exclusive: Leaked Treasury Memo Counters Legal Claims

Posted April 30, 2015 by Investors Unite

By Shawn McCoy

A leaked Treasury memo obtained by InsideSources may raise new questions about the government’s compliance in turning over documents to a U.S. District Court prior to a ruling made last fall in a case brought by shareholders of Fannie Mae and Freddie Mac.

In September, U.S. District Judge Royce Lamberth dismissed a suit against the US Treasury over its seizure of all profits from the two Government-Sponsored Enterprises (GSEs). Lamberth’s decision is currently being appealed.

Read the full article: Exclusive: Leaked Treasury Memo Counters Legal Claims

7 point plan to make Fannie and Freddie something everyone could live with

Posted April 28, 2015 by Investors Unite

HousingWire, By Trey Garrison

A conservatorship is supposed to be a temporary thing, but we’re now running on six-and-a-half years since Fannie Mae and Freddie Mac collapsed – it’s time to get something going.

Everyone has their preferred route out, because no one wants to return to the way things were, nor do they want to keep things as they are now.

Read the full article: 7 point plan to make Fannie and Freddie something everyone could live with

You Can’t Fix the Mortgage Market From Here

Posted April 28, 2015 by Investors Unite

US News & World Report, By John Burnett

Reports that Fannie Mae and Freddie Mac are down to fumes and could need another infusion of taxpayer dollars to stay capitalized have revived an ongoing debate on what, if any, role the government should have in the multi-trillion dollar mortgage finance market. It is debate worth having, but we need to put the horse before the cart. The two government sponsored enterprises first need to be restored to a safe and solvent condition.

In the most perilous moment of the 2008 global financial crisis, the Treasury Department provided Fannie and Freddie with financial assistance needed to preserve liquidity and stability in the housing market, and the two were put into conservatorship under the newly-created Federal Housing Finance Agency. Six and half years later, Fannie Mae and Freddie Mac have paid back the Treasury Department, but are now being run with virtually no capital between the taxpayer and potential losses on $5 trillion worth of mortgages on their balance sheets.

Read the full article: You Can’t Fix the Mortgage Market From Here

The heavy hand of US market intervention

Posted April 27, 2015 by Investors Unite

The Financial Times, By Tom Braithwaite

Fannie Mae and Freddie Mac is a tougher case for the government. In 2012, the Obama administration, without warning, changed the terms of the 2008 rescue to “sweep” profits into the public purse, hurting long-suffering shareholders.

Admittedly, those shareholders had for years reaped the benefits of a dubiously-constructed scheme underpinned by implicit government guarantees. But it is hard to argue that the midnight machinations of the Treasury were beyond reproach.

Read the full article: The heavy hand of US market intervention

Making a Fannie and Freddie we could live with

Posted April 27, 2015 by Investors Unite

The Hill, By Mark A. Calabria and Alex J. Pollock

Fannie Mae and Freddie Mac’s collapse into government conservatorship was a long six and a half years ago. In spite of endless discussions of reform, they remain in conservatorship limbo, where they are run by their regulator as wards of the state, with de minimis capital. Nobody wants the old Fannie and Freddie back; nobody wants them to stay on indefinitely in conservatorship.

What is required are practical steps forward, rather than designing the ideal but politically unachievable solution. We offer Congress the following suggestion as something that can be done now: simply take away all Fannie and Freddie’s special privileges. They could be allowed out of conservatorship when all of the following actions have been taken:

Read the article: Making a Fannie and Freddie we could live with

Fannie And Freddie: Recent Developments Point To Privatization

Posted April 23, 2015 by Investors Unite

Seeking Alpha, By David Sims

Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) shareholders have been waiting more than six years for the financial crisis to come to a close. It is a complicated issue, but may soon be resolved, if Congress takes some action.

Professor Susan Wachter of the Wharton School says that there is some consensus forming on reform and privatization may be coming soon.

Read the full article: Fannie And Freddie: Recent Developments Point To Privatization

Treasury Says GSEs Have an ‘Ongoing Financial Commitment’ to Taxpayers

Posted April 23, 2015 by Investors Unite

THe MReport, By Brian Honea

The U.S. Department of Treasury responded to a letter written by Senator Chuck Grassley (R-Iowa), Chairman of the Senate Judiciary Committee, earlier this month asking when Treasury’s agreement with the Federal Housing Finance Agency (FHFA) to sweep GSE profits into Treasury will end.

In the response letter, dated April 21, 2015, Treasury’s Acting Assistant Secretary for Legislative Affairs, Randall DeValk said that wanted to “clarify some misunderstandings” from some press reports regarding the agreement, and said that the government’s $187.5 billion bailout of Fannie Mae and Freddie Mac with taxpayer funds in 2008 was not an “ordinary” loan.

Read the full article: Treasury Says GSEs Have an ‘Ongoing Financial Commitment’ to Taxpayers

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