International Group Inc (NYSE:AIG) and Citigroup Inc (NYSE:C), both of which had investors who were allowed to benefit from the recovery of these companies. It should be no different when it comes to the Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)’ shareholders, who, in addition, are useful to the U.S. Treasury in keeping the GSE liabilities off the government’s books.
The FHFA ordered the Fannie and Freddie boards and executives to suspend communications with shareholders and abolish annual shareholder meetings. And, adding insult to injury, in 2010 the FHFA arbitrarily directed Fannie and Freddie to initiate the delisting of their common and preferred stock from the NYSE. This needless act further vaporized shareholder value to pennies per share and chased away many institutional investors.
In 2012, as Fannie Mae and Freddie Mac were returning to profitability despite financial and operating restrictions on their activities, the U.S. Treasury unilaterally changed the terms of its investment in Fannie Mae and Freddie Mac to its own benefit. The Treasury replaced the already well-above-market 10 percent dividends that the GSEs were paying to a “sweep” of all of the profits of the companies. Fannie Mae and Freddie Mac are now sending nearly all of their earnings to Treasury, cannot rebuild their capital, and their shareholders remain in a limbo where they are neither eliminated nor given an opportunity to recover.
This brings us to today. Fannie Mae and Freddie Mac – and their shareholders – have been treated unfairly throughout this entire process. And it isn’t yet over. A number of proposals for housing finance reform have recently been advanced in Congress. Most notable is Senators Johnson’s and Crapo’s legislative draft.
Taxpayers, consumers and shareholders should have serious reservations about this proposal for housing finance reform. It does not sufficiently protect taxpayer dollars from being devoted to another bailout. It does not advance adequate support for affordable and low-income housing for underserved communities. It sets an objectionable precedent for shareholder rights and treatment in this country. And it leaves far too many regulatory decisions up in the air, and without a baseline, thereby leaving the replacement agency to become prey for the bank’s corporate law firms to write their own rules.
The legislative proposals in the Senate and the House do not adequately anticipate the greed and power embedded on Wall Street in its incentive structure. And without laying out a strict regulatory structure, they seem to wrongfully assume that private capital will regulate itself. Do we really want to give even more power to the ‘Too Big to Fail’ banks that were principally responsible for this crisis to begin with?
Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) were certainly not blameless for transgressions similar to those larger ones committed by the Wall Street crowd prior to the financial crisis in 2008. But to eliminate them and unravel this intricate market further, Congress could be opening the door wide for runaway corporate exploitation. We aren’t arguing that the GSEs should be maintained as is; but instead urged they be regulated strongly to prevent their previous missteps and abuses.
Many, if not almost all, of the reforms contained in the Johnson-Crapo housing finance reform legislative draft could be enacted within the framework of the current system and applied to the GSEs’ structure. The Johnson-Crapo legislation would unnecessarily eliminate the GSEs, implicitly supports the federal government’s continued exploitation and mistreatment of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)’ shareholders, and would leave the shareholders silenced, used, and abused.
The FHFA, Treasury, and now Congress are acting as a “closet liquidator” of Fannie Mae and Freddie Mac, effectively acting to wind down the companies. This explicitly contradicts the aforementioned legal mandate of the conservatorship.
In House and Senate hearings on the future of Fannie Mae and Freddie Mac, many stakeholders and individuals interested in the housing sector have been invited to share their views. Those left without a seat at the table are the shareholders, who were told for years that their investment was the safest one after U.S. Treasury bonds.
Shareholders have begun to fight back by bringing lawsuits against the federal government for their mistreatment. There have been several suits filed that put forth a good argument challenging Treasury’s “Third Amendment” dividend sweep. This is a good step – but this isn’t enough; our voices need to be and will be heard, and amplified, in the legislature as well.
Today, we make our voices heard in the halls of Congress. I urge other Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) shareholders, individual and institutional, who have yet to come forward to join us and do the same in the coming weeks and months.
For more information visit http://www.shareholderrespect.org/.
Contact:
Ralph Nader or Jeff Musto
202-387-8030
Senate Banking Committee Letter from RN on GSE Reform – Senator Johnson 4-9-2014
