What is this about?
This action seems even more egregious when you consider that if the two companies were permitted to apply earnings in excess of the 10.0% annual dividend amount to the aggregate liquidation preference, the senior preferred stock would be retired on or before the end of 2015 without the need for the Treasury to exercise its warrants. Let's take Fannie as an example. According to its May 9th news release, the company is set to send the Treasury approximately $59.4 billion on or before June 30th, all of which is considered by the Treasury a "dividend" payment. However, if the original agreement were still in effect, approximately $56.5 billion would be applied to the aggregate liquidation preference, leaving a balance of approximately $60.6 billion. If we assume that, going forward, Fannie will have quarterly earnings available for repayment averaging approximately $7.5 billion, the company will be able to repay its debt to the taxpayers in full (including the 10.0% annual dividend) by the fourth quarter of 2015.
Consequently, Ralph Nader and his associates are working on one last appeal to Congress and Treasury Secretary Lew to do the right and legal thing for both the taxpayers and existing shareholders. Mr. Nader's letter, dated May 23rd, chronicles the questionable actions taken by the FHFA and the Treasury, while providing a basis for the release of these two companies from their respective conservatorships.
If, however, lawmakers and government officials remain unconvinced and undeterred from their present course, there is a strong possibility that legal action could be taken this year. I thoroughly believe this would be the right direction to take, if the FHFA and the Treasury are to be compelled to comply with the intended purposes of the conservatorships that obligate them to permit the companies to be 1) recapitalized, 2) released from conservatorship, 3) returned to the shareholders, and 4) relisted on the New York Stock Exchange.
If Congress still wishes to reform these two entities, then they should do so but not at the expense of the taxpayers or the shareholders. A promise was made on September 7, 2008 to the shareholders of both companies by the FHFA and the Treasury, and that promise is being broken slowing over time.
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).
By Dana Blankenhorn 03/20/13 - 12:41 PM EDT
Stock quotes in this article: FNMA, FMCC
NEW YORK (TheStreet) -- Fannie Mae (FNMA_) and Freddie Mac (FMCC_), the evil twins blamed for the housing crisis, seem to be coming back from the dead.
As our Philip van Doorn reports, the hope is, both can recapture massive tax valuation allowances with which they could repay some of their government bailouts.
The full recapture of the deferred tax assets would provide Fannie and Freddie with $93.2 billion, going quite a long way to a fully redemption of $188.3 billion in preferred shares held by the government.
Back in 2007 Freddie and Fannie were seen as licenses to print money. Both sold at over $60/share. The latest speculative bubble has both of them trading at around 85 cents/share.
The two companies were rendered worthless by the bailout's terms, under which the Treasury Department got preferred stock paying a 10% dividend whether or not they were profitable. This meant they were borrowing to pay dividends. Reuters says that only $58 billion of the bailout has been repaid. Both are now profitable on an operating basis.
But wait, there's more.
Marketwatch reports a bipartisan group of U.S. senators introduced the "Jumpstart GSE Reform Act," which would keep the government from just funneling money from loan guarantees into the Treasury, and perhaps let Fannie and Freddie arise like little Frankenstein monsters. The sponsors are Bob Corker of Tennessee, David Vitter of Louisiana, Mark Warner of Virginia and ... Elizabeth Warren?
That's right, gang, speculators are betting on Elizabeth Warren to save Fannie and Freddie. Warren, former Harvard professor, designer of the dreaded Consumer Financial Protection Bureau, and mild-mannered populist who defeated the Clark Kent stand-in, Scott Brown, last November to become senator from Massachusetts. THAT Elizabeth Warren.
Absent some new guidance from Congress, the Federal Housing Finance Agency is planning its own restructure, described at the Credit Union Times. This would be a market utility, separate from Fannie and Freddie, that would replace their system for turning mortgages into securities.
It's this move by FHFA Acting Director Edward DeMarco, who was first appointed by former President Bush and then re-appointed by President Obama in 2009, that seems to have lit a fire under reform. Mortgage Orb calls DeMarco indestructible, like styrofoam or Cher, because the Administration has yet to move forward on housing reform and because Republicans would oppose any reform-oriented replacements.
Still, the Rochester Democrat & Chronicle reported nine attorneys general recently called for his ouster because he refuses to grant write-downs of principal on mortgages that remain under water; 45 Congressional Democrats are also calling for DeMarco to go, according to the Huffington Post.
So you have business demanding reform because it wants to make mortgages, liberals demanding reform because they hate the present rules, and a bill to do the job supported by a bipartisan coalition. Does this make FNMA or FMCC worth 85 cents a share?
Just remember, if you're putting money into these stocks today, you're betting that Washington can break through its gridlock and produce something that will make you a profit. The roulette wheel is spinning on that. Want to place the bet?
You must be living in dream land as car salesmen I know all make over $100,000.
If all you make is $18,000 you must be very lazy as hell. Go find another job.
What have you been drinking. He will go down all right. More like Carter, one of the worst in history.
Your so smart, you have not learned to turn off the caps lock.
Give me a break you fool.