Fannie Mae, Freddie Mac: Growing Chorus Calls for 3rd Amendment Details

Fannie Mae, Freddie Mac: Growing Chorus Calls for 3rd Amendment Details

Fannie Mae

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Fannie Mae, Freddie Mac: Growing Chorus Calls for 3rd Amendment Details by Todd Sullivan, Value Plays

A group of 17 Conservative/free-market organizations have sent a letter to Reps McHenry and Green demanding the government be more open regarding the 3rd amendment to the SPSA regarding Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA).  It seems pretty apparent the public is beginning to turn its support towards plaintiffs in these cases and if nothing else, that will chill any potential legislative action regarding Fannie Mae and Freddie Mac’s (in terms of restructuring them) for the near term.

Failing any congressional support for Corker/Warner or Johnson/Crapo (there isn’t any and what there is has been weakening for some time) all that is left is for the courts to decide. I think one has to be dangerously naive to somehow believe Treasury and FHFA were not acting in concert with each other. If that is true, this case goes to trial. Although, I think rather than have the embarrassing details come out during trial, the government does the smart thing and just gets rid of this by settling.  Since the government has been repaid at a profits, the easy things is to void the SPS and convert the warrants Treasury hold to equity and they can profit as the entities rebound. For the record plaintiffs are in no rush to go to trial either and have all said they are amenable to settle.

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Also, I fully expect J Tim Howard to receive approval from Judge Sweeney regarding plaintiffs request to allow him to see protected material and this will be a rather significant blow to the defense.   Howard has intimate knowledge of the Fannie Mae and Freddie Mac’s and will easily be able to point plaintiffs in any direction where something seem “unusual” for lack of a better word.

The letter (from Housing Wire): (link to letter)

September 17, 2014

The Honorable Patrick McHenry
The Honorable Al Green
U.S. House Committee on Financial Services Subcommittee on Oversight and Investigations 2129 Rayburn House Office Building Washington, DC 20515

Dear Chairman McHenry and Ranking Member Green:

As organizations that share your goals of transparency and accountability in government and applaud your efforts at oversight, we wish to bring to you a matter that needs your urgent attention. On vital issues relating to the government? sponsored enterprises (GSEs) Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) – issues concerning both government spending, private property and contract rights – the Obama Administration continues to shroud information in secrecy.

In 2012, then?Treasury Secretary Timothy Geithner altered the terms of the federal government’s conservatorship over Fannie Mae and Freddie Mac. This “Third Amendment” to the Restated Senior Preferred Stock Purchase Agreements will require both Fannie Mae and Freddie Mac to turn over to the government any net profits they earn indefinitely, even after taxpayers have been paid back in full. Such a taking is a clear violation of property rights belonging to the Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC)’ private shareholders – a group that includes American families, seniors and pension beneficiaries. It will also enable unaccountable, off?budget government spending hikes.

Not only is this Third Amendment an unprecedented power grab that violates shareholder property rights, but the process used by the Treasury Department to develop the amendment provided neither an opportunity for public comment nor the customary transparency safeguards that permit we the people to hold our government accountable. To this day, the Amendment’s provenance remains secret.

The potential seizure of private assets has spawned numerous lawsuits challenging both its constitutionality and lack of statutory authority. Needless to say, it should be incumbent upon the Treasury Department and any other agencies involved to make public all relevant documents associated with the Amendment’s development. Information that comes to light due to the on?going litigation should be made available to the public, but members of Congress also have a responsibility

to the public when they perform the vital function of oversight.

We urge you to demand greater transparency and accountability on this matter by requesting that the Treasury Department turn over to your committee, or otherwise make public, any and all documents shedding light on the alleged need for and legal rationale justifying the Third Amendment, as well as all documents detailing the Amendment’s development and evolution, such as those customarily contained in the administrative docket for an agency rulemaking.

We note that the U.S. Court of Federal Claims recently issued a discovery order in Fairholme v. United States – one of the ongoing Third Amendment legal challenges – ordering the government to turn over a similar set of documents to the court. We urge you to request these documents be made public in order to further the rule of law and ensure government accountability.

Thank you for your attention to this crucial matter of government oversight.


John Berlau
Competitive Enterprise Institute

James Martin
60 Plus Association

Phil Kerpen
American Commitment

Coley Jackson
Americans for Conservative Enterprise

Donald E. Wildmon American Family Association

Richard and Susan Falknor Blue Ridge Forum

Norm Singleton Campaign for Liberty

Chuck Muth Citizens Outreach

Leslie Paige
Council for Citizens Against Government Waste

Andrew Langer Institute for Liberty

Seton Motley Less Government

Amy Ridenour
National Center for Public Policy Research

Lew Uhler
National Tax Limitation Committee

JD Gordon
Protect America Today

Karen Kerrigan
Small Business and Entrepreneurship Council

Judson Phillips Tea Party Nation

Preston Noell
Tradition, Family, Property, Inc.

Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.
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