Fannie Mae: The Third Amendment Sweep Is Endangering The Taxpayer

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Fannie Mae: The Third Amendment Sweep Is Endangering The Taxpayer

Fannie Mae

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Fannie Mae: The Third Amendment Sweep Is Endangering The Taxpayer by Investors Unite

$228.2 billion. That’s how much Fannie Mae and Freddie Mac will have paid to the U.S. Treasury since 2008 when the companies were put into the conservatorship. They have long passed the point in which the original taxpayer loan was repaid; in fact, that was about $40 billion ago.

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Fannie Mae’s earnings report today notes that it pulled in $1.3 billion in profit for the fourth quarter of the year. Freddie Mac’s report yesterday noted $200 million in profit for the same quarter. And when the payments are due to Treasury in March, Freddie will send another $900 million and Fannie will send $1.9 billion.

Clearly the companies are profitable, but Fannie CEO Tim Mayopoulos said during a press call this morning that because the company does not have a capital reserve, there is a risk that it may be forced to rely on taxpayers for another loan. According to reports, Mayopoulos said that the “possibility of needing to take a draw from Treasury increases over time.”

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Of course, the reason there is no capital reserve is because the government is taking all of Fannie Mae and Freddie Mac’s profits!  This underscores the importance of ending the Third Amendment Sweep to protect to protect taxpayers.  The sweep illegally diverts the GSEs’ profits and prevents them from building capital reserves that would be used in bad times.  The sweep specifically violates HERA, which requires FHFA to restore Fannie and Freddie to a “safe and solvent condition.”

Mark Calabria, a former top aide at the Senate Banking Committee, and Michael Krimminger, former general counsel to the FDIC, were both instrumental in the creation of HERA and authored a very smart white paper detailing HERA violations. We’ve blogged about it, and you can read the post here, but here’s a key excerpt:

“They understood Congress didn’t have to start from scratch when writing HERA. Lawmakers looked at bank conservatorships and receiverships under the Federal Deposit Insurance Act (FDIA) and made a conscious decision to replicate the provisions aimed at protecting stakeholders. Congress embraced the long-held understanding of conservatorships should be relatively short-term proceedings with the interests of stakeholders in mind.

“‘Foremost in the drafters’ minds was the importance of both continuing the Companies’ operations without disruption and maintaining market confidence in the fair treatment of the Companies’ stakeholders by the government,’ they wrote.”

It’s time to end the sweep.  It’s not just illegal, it’s threatening the taxpayers as well.

More from Investors Unite

  • CBO Report, Analysis Misses the Mark
  • Fannie and Freddie Have Now Paid Back $38.1 Billion More Than They Borrowed. So Why Aren’t They Allowed to Begin Rebuilding Capital?
  • The Street.com Whiffs on Discovery Story
  • The “Light of Truth FOIA Campaign”
  • The Shareholder Lawsuit Remains Strong

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8 COMMENTS

  1. 9 days
    before the announcement of the 3rd amendment net worth sweep to stop the
    circular draws from the Treasury to pay the Treasury the 10% dividend Fannie
    may had second quarter net income of $5.1 Billion.

    Date: August 8, 2012

    “WASHINGTON, DC – Fannie Mae (FNMA/OTC) today reported net income of $5.1
    billion in the second quarter of 2012…

    The company’s comprehensive income of $5.4 billion in the second quarter
    of 2012 is sufficient to pay its second-quarter dividend of $2.9 billion to the
    Department of the Treasury.”

  2. 9 days before the announcement of the 3rd amendment net worth sweep to stop the circular draws from the Treasury to pay the Treasury the 10% dividend Fannie may had second quarter net income of $5.1 Billion.

    http://www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2012/q22012_release.pdf

    Date: August 8, 2012
    “WASHINGTON, DC – Fannie Mae (FNMA/OTC) today reported net income of $5.1 billion in the second quarter of 2012…
    The company’s comprehensive income of $5.4 billion in the second quarter of 2012 is sufficient to pay its second-quarter dividend of $2.9 billion to the Department of the Treasury.”

  3. Fannie and Freddie, are not (strictly speaking) private company, it is a quasi private/public company like some utilities. Fannie and Freddie are necessary as “backstops” for the mortgage markets, and do serve a purpose.
    They were NOT intended to become the nations “bank” for the housing and other markets. F & Fm hold over 90% of all Mortgages in the U.S., that is not was was intended.
    Banks have perverted the Fannie and Freddie authorization, to be a place where they can dump their loans after they make their profit.
    Banks earn most of the profits from loans in the inception and fees that are paid early in the loan.
    Then they dump it off on the bank of last resort F & FM, along with the lower margins for 30 years.
    A long time ago (30 years) banks held most of the loans in their portfolios, which gave them a strong base. Now they only hold short term debt, ever changing and ever at risk, with little or nothing to back it up.
    That is why the government has been demanding the banks increase their reserves.
    But the banks are balking and fighting the reserve increases.
    OPJ

  4. Why won’t anyone ask the question that stands like the elephant in the room?
    How did they go from a huge debt, to massive profits.
    Well the reason is, they sold all of that debt, at a price well above the market value of the debt.
    So, what idiot would buy the bad debt (securities) with the underlying support much lower than the purchase price?
    What moron would bet on the value of the property (securities) raising enough to offset the possible losses, if it should go down or not ever go up?
    Who on Earth would think the banks are not at some time going to get rid of the millions of foreclosed properties, at some point?

    Which will force property values down, as well as the (securities) these fools just bought.
    Ok… I’ll tell you….YOU did…………or rather in your name, The FEDERAL RESERVE..DID.. WHICH NOW IS NEARLY 4 TRILLION IN DEBT.
    Oh, just in case you don’t know, that is a debt owed by the American people, each and every one.
    And to make thing even worse, if that is possible, it is not included in the 18 plus trillion our current Administration has pushed the debt to.
    Only in America… God Bless our lying politicians.

  5. If you are using the constitution for guidance. Try looking into the fifth amendment. FnF are both privately held companies
    which are suffering form an illegal takings. The government is self dealing at extortion levels that would make the mob blush.

  6. Every functioning Western Democracy has some government back stop in there housing market. In a pollyanish
    world we would have a housing market where private capital guarantees all. No taxpayer guarantee, no government involvement to help low income families obtain access to home ownership. Unfortunately- there is not enough private capital to service the home mortgage market and no private institution willing to hold paper for thirty years. The shut them down theory will not happen and in the event that an alternate universe will come into play, we will all be looking at much higher interest rates. Amortize that over thirty years- that will be the largest tax increase in US history.

  7. This is somewhat of a rhetorical question- Why has Mayopoulos not asked Treasury to release FNMA from Conservatorship? Put on your big boy pants and preserve and protect the 7,600 employees.

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