Fannie Mae and Freddie Mac Investors in Atlanta Implore Government to Follow The Rule of Law
- August 14, 2014
Individual investors in mortgage-giants Fannie Mae and Freddie Mac today implored Federal Housing Finance Agency Director Mel Watt to exercise his authority to end the illegal taking of investor dividends through a federal conservatorship that was slipped into law two years ago.
“As of today, the majority of my retirement savings are invested in Fannie and Freddie,” said investor Upendra Kulkarni, who owns a small IT consulting business in Alpharetta, GA. “Before and after the economic downtown in 2008, I decided to invest in the companies as they supported millions of Americans in fulfilling their American Dream of homeownership.”
At the same time, the government infused $187.5 billion into Fannie and Freddie to ensure that these important institutions did not fail. While this was an expensive action, the alternative – allowing Fannie and Freddie to fail and thereby ensuring that the mortgages they held would go into default – was unthinkable. Unlike the auto bailouts, the tax dollars were provided as a loan, and as of March 2014, both Fannie Mae and Freddie Mac have fully repaid that loan. “Even the notion that Fannie and Freddie were in trouble is being challenged. Of the $187.5 billion they were advanced, much of that money really wasn’t needed. And it was paid back in a very quick manner. As of March 2014, the loans were fully repaid and then some. In fact, Fannie and Freddie paid the government $40 billion over what they received. That money is currently being used to offset the deficit instead of going back and helping recapitalize the housing industry.” said Tim Pagliara, a former Fannie Mae executive and chairman of Investors Unite, a coalition of more than 800 Fannie Mae and Freddie Mac investors who are petitioning the government to end the conservatorship.
In August 2012, however, the U.S. Treasury enacted a Third Amendment “sweep” of Fannie Mae’s and Freddie Mac’s dividend profits, claiming all of the companies’ profits for the federal government. Since then, Fannie and Mae have paid more than $40 billion to the greater Treasury fund instead of investors earning the dividends they are contractually owed as a result of their investments.
“This marks a historic milestone in the government’s blatant disregard for the rule of law and disrespect for marketplace standards,” Mr. Pagliara said.
Mr. Pagliara’s and Mr. Kulkarni’s remarks came during a press briefing in advance of an event hosting by Director Watt to address affordable housing options for Atlanta-area residents. Mr. Watt so far has declined to meet with investors to discuss ending the conservatorship.
“I am pleased that Director Watt is taking to the road to discuss importance issues in housing finance reform and the Federal Housing Finance Agency,” Mr. Pagliara said. “It is essential that these issues are brought forth to those that these decisions will impact the most and that every stakeholder has a seat at the table to discuss why housing reform is important.”
While partisan gridlock in Washington, D.C., is often faulted for holding up important pieces of legislation that could help the American people, in this case, it is protecting current and future homeowners against misguided GSE reform legislation that fail to address the government’s overreach into the housing market. Reforms must focus on the fundamentals of transparency and fairness if they are to ensure a robust housing market that benefits bot underserved populations and millennials looking to jumpstart their own American Dream.
Mr. Pagliara and other investors expressed hope that they would be able to meet with Mr. Watt while he was in Atlanta to address an end to the conservatorship. During his remarks, Mr. Pagliara referenced an opinion piece from a close colleague of Mr. Watt’s days it the U.S. House of Representatives. Mr. Watt and former Congresswoman Eva Clayton represented parts of North Carolina.
“A strong housing market requires private capital, and private capital follows the rule of law,” Mr. Pagliara quoted from Ms. Clayton’s op-ed in the Charlotte Observer.
While some have argued that investors should be cut out of the loop entirely, Mr. Kulkarni, who spoke for hundreds of his fellow investors, made clear what is at stake if the government continues its illegal actions of taking all of Fannie Mae’s and Freddie Mac’s dividend profits.
“The government’s conservatorship and Third Amendment Sweep leave me holding nothing,” Mr. Kulkarni said. “This behavior sets a bad precedent, sending the message that the government can takeover shares of a company without any explanation or compensation plan for shareholders. Individual investors are hanging in the balance, wondering if we will ever recover the money we invested in the U.S. housing system for our retirement, for our children’s education, and for general savings. It is time that we are heard and those in charge pay attention. We are not hedge funds or big banks, we are Americans demanding the government does what is right and follows the rule of law.”