The FHFA Has Breached Its Fiduciary Duty To Fannie Mae And Freddie Mac
When Fannie Mae ("Fannie" (FNMA.OB)) and Freddie Mac ("Freddie" (FMCC.OB)) were placed into conservatorship by the newly-created Federal Housing Finance Agency (the "FHFA") on September 7, 2008, one of the goals was to "preserve and conserve the Compan[ies'] assets and property and to put the Compan[ies] in a sound and solvent condition" (Pg.2). And if economic conditions allowed for the possibility of such a recovery, the FHFA had a fiduciary duty to facilitate such a recovery for the benefit of both the taxpayers and the companies' shareholders.
Well, after almost five years it has become quite apparent that it is possible for both Fannie and Freddie to recover. In fact, the May 9th and 8th news releases from both Fannie and Freddie, respectively, all but confirm their ability to become solvent under the terms of their conservatorships. However, the recent amendment in August 2012 to the Senior Preferred Stock Purchase Agreements by the FHFA and the U.S. Treasury (the "Treasury") have made it all but impossible for the firms to recapitalize and exit their conservatorships. In other words, by placing this artificial barrier in the way of these two companies, the FHFA as conservator has breached its fiduciary duty and is, thus, in violation of the conservatorship agreements as well as its covenants to the shareholders. Even the Congressional Research Service stated in their September 2009 report to Congress that "by law, [Fannie's and Freddie's] conservatorship[s] will end if they meet the minimum capital requirements" (Pg.7).