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#FannieGate, $fmcc, $fnma, Fannie Mae, FHFA, Freddie Mac, Henry Paulson, HERA, Margaret Sweeney, Third Amendment Sweep, Treasury
It is near certainty that Treasury and FHFA together conspired and crafted the Net Worth Sweep Amendment to help expedite the wind down. There are plenty of public information not to mention protected and privileged information to support that fact. To get a better picture of the situation, you’ll need to understand the statutory purpose and actions of FHFA/Conservator in conjunction with the communication and actions of Treasury. Meanwhile, Senator Charles Grassley of Iowa, Chairman of the Senate Judiciary Committee wants answers, the truth and transparency with a deadline of April 20th.
HERA Statutory Purpose:
The purpose of appointing the Conservator is to preserve and conserve the Company’s assets and property and to put the Company in a sound and solvent condition. The goals of the conservatorship are to help restore confidence in the Company, enhance its capacity to fulfill its mission, and mitigate the systemic risk that has contributed directly to the instability in the current market.
The purpose stated above from FHFA was absolutely never in their intention based on their actions and completely misleading to say the least when they placed Fannie Mae and Freddie Mac under Conservatorship. Most would considered it as an outright huge lie after reviewing FHFA and Treasury Actions Analysis.
FHFA and Treasury Actions Analysis:
When the 2012 Amendment was under consideration, Fannie Mae and Freddie Mac were experiencing a turnaround in their profitability. Due to rising house prices and reductions in credit losses, in early August 2012 the Enterprises reported significant income for second quarter 2012. Fannie Mae had net income of $5 billion and Freddie Mac had net income of $3 billion, and neither required a draw from Treasury under the PSPAs.
It is clear, on August 17, 2012, less than two weeks after the Enterprises announced their positive quarterly earnings, Treasury and FHFA announced that they had modified the terms of the PSPAs. In its press release, Treasury said that the changes would “help expedite the wind down of Fannie Mae and Freddie Mac, make sure that every dollar of earnings each firm generates is used to benefit taxpayers, and support the continued flow of mortgage credit during a responsible transition to a reformed housing finance market.”
The 2012 Amendment modified five areas of the PSPAs:
(1) Change the structure of dividend payments owed to Treasury:
The 2012 Amendment significantly altered the structure of the dividend payment, such that the Enterprises are no longer required to draw funds from Treasury just to pay Treasury dividends. As of January 1, 2013, the dividend payment is no longer based on a fixed percentage of the liquidation preference. Instead, the dividend is based on the amount of positive net worth reported by each Enterprise. Net worth is the amount by which assets exceed liabilities.
(2) Increase the Enterprises’ rate of mortgage asset reduction:
The PSPAs originally required that each Enterprise reduce its mortgage assets by 10% per year down to $250 billion. The 2012 Amendments accelerate the reduction to 15% per year. In announcing the 2012 Amendments, FHFA’s Acting Director indicated that the goal of “the faster reduction in the retained mortgage portfolio” was to “further reduce risk exposure and simplify the operations of Fannie Mae and Freddie Mac.” As of December 31, 2012, each Enterprise could own mortgage assets valued at no more than $650 billion. With the 15% reduction rate, the Enterprises would reduce their portfolios to $250 million by 2018, four years earlier than previously scheduled. So far, the Enterprises have met or exceeded their annual 10% reduction target.
(3) Suspend the periodic commitment fee:
Under the original PSPAs, each Enterprise was supposed to begin paying in 2010 a quarterly “periodic commitment fee” in an amount to be agreed on by Treasury and the Enterprises. The amount was never set and Treasury consistently waived the fee, so it was never paid. Although the 2012 Amendments retain the fee within the PSPAs, they suspend it as long as the new dividend formulation is in place.
(4) Require that the Enterprises produce annual risk management plans:
The 2012 Amendments added a new requirement that each Enterprise, under the direction of FHFA, provide a “risk management plan” to Treasury on December 15th each year starting in 2012. The risk management plan “shall set out [the Enterprise’s] strategy for reducing its enterprise-wide risk profile and shall describe, in reasonable detail, the actions [the Enterprise] will take, to reduce both the financial and operational risk associated with each reportable business segment.” In its press release announcing the 2012 Amendments, Treasury indicated that these plans would “support a thoughtfully managed wind down” of the Enterprises. Treasury also described the plans as focusing on how each Enterprise intends to “reduce taxpayer exposure to mortgage credit risk for both its guarantee book of business and retained investment portfolio.” The Enterprises provided these plans to FHFA for 2012.
(5) Exempt dispositions at fair market value under $250 million from the requirement of Treasury consent.
The PSPAs require that the Enterprises obtain Treasury’s consent for certain transactions. Those transactions requiring consent include any asset dispositions, with a few exceptions. For example, one exception was that the required mortgage asset reductions by the Enterprises (i.e., the annual 10%—now 15%—reductions) do not require Treasury consent. The PSPAs also excepted any asset dispositions for fair market value “in the ordinary course of business, consistent with past practice,” presumably to allow the Enterprises to conduct their business without having to seek Treasury approval for routine transactions. The 2012 Amendments add an exception to the consent requirement, allowing the Enterprises to dispose of assets or properties at a fair market value of less than $250 million without seeking Treasury’s approval, even if the transaction does not fit into the category of “ordinary course of business.” The Enterprises may still need FHFA approval for the transactions.
In Conclusion:
Treasury’s announcement of the 2012 PSPA Amendment said that the changes would “make sure that every dollar of earnings” the Enterprises generate would be “used to benefit taxpayers,” “support the continued flow of mortgage credit,” and “help expedite their wind down.”
It is a fallacy that ending the circularity of draws from Treasury to pay dividends increases the likelihood that ample funds will remain available for Treasury support of the Enterprises, if such support becomes necessary. The change in the dividend structure also will affect quarterly payments to Treasury, potentially resulting in the Enterprises returning more money to Treasury sooner. Indeed, because of accounting treatment, sustained profitability of the Enterprises could result in one-time large dividend payments to Treasury from each Enterprise. However, the significance of the impact of the change in the dividend structure depends on a variety of factors, including the magnitude of fluctuations in the Enterprises’ net worth. Further, increasing the rate at which the Enterprises shrink their retained mortgage portfolios may pose challenges as the remaining investments are less liquid. At the same time, this will increase Enterprises operating and financial risks.
The evidence is clear and factual. The purpose of the 2012 Amendment was to more quickly reduce the Enterprises’ assets rather than preserve and conserve as prescribe in HERA. Furthermore, the changes to the PSPAs DO NOT help put the Enterprises in a sound and solvent condition but rather set the course toward financial housing disaster.
Fast Forward:
Charles Grassley Questions Diversion of Fannie and Freddie Earnings
Charles E. Grassley, Chairman, Committee on the Judiciary seeks the truth and wants answers to the following no later than April 20, 2015 from Eric Holder, US Attorney General and Jack Lew, Treasury Secretary:
What’s Next:
No later than April 20th, 2015, DOJ and Treasury must answer those 5 critical questions. The answers could potentially shed more lights on the wrong doing of those agencies when they crafted the 2012 Amendment to expedite the wind down of Fannie Mae and Freddie Mac. It is no longer about if but when we all will know the truth and nothing but the truth to assist plaintiff expedite their case in Federal Claims Court.
Depositions of former FHFA directors and others are scheduled for April 17th and 29th but it is subject to change to several dates in May. More importantly, it is not expected to be rescheduled beyond the end of May which tells us that plaintiff has enough evidence to move forward.
Factual Reference Links:
Treasury Department Announces Further Steps to Expedite Wind Down of Fannie Mae and Freddie
Third Amendment dated as of August 17, 2012
Questions and Answers on Conservatorship
Letter to DOJ from Chairman, Committee on the Judiciary
Letter to Treasury from Chairman, Committee on the Judiciary
TH717 
Pingback: Huge Disclosure of Unsealed Emails | TH717
Great article. Thanks for the info. Does anyone know where I can find a blank 2012 fannie mae form to fill out?
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[Michael Stegman’s remarks contradicts HERA Statute of who is in charge. Thus, I believe Mr. Michael Stegman is on the deposition witness list.]
No Recapitalization Plans Expected to Pass for Fannie (FNMA), Freddie (FMCC), According to Treasury Official
Fannie Mae (OTCBB: FNMA) and Freddie Mac (OTCBB: FMCC) won’t be able to recapitalize, though certain initiatives might be implemented by the White House sans a comprehensive housing finance overhaul.
Michael Stegman, the Treasury’s counselor to the secretary for housing finance policy, commented at a Goldman Sachs conference today that the Obama administration thinks Fannie and Freddie should wind down mortgage investment portfolios more quickly than they are currently doing. The two entities also created new kinds of securities that they sell to private investors to unload some of their mortgage credit risk, which the administration thinks should also increase.
Fannie and Freddie recently entered an agreement with the U.S. Treasury Department which calls for the two to reduce capital buffers each year over the next three years. The duo have a buffer of $1.8 billion in 2015, which should reach zero by 2018. However, the lower buffer puts greater risk on Fannie or Freddie needing to take another infusion from the Treasury should another quarterly or annual report end up with a loss.
Stegman sees the notion of a Treasury backstop giving enough confidence to mortgage investor without the need for a capital buffer.
Stegman’s full remarks ahead of the Goldman conference follow:
Good morning, and thank you, Carsten, for that kind introduction. It’s a pleasure to be with you today to engage on a very important issue for our country and our economy.
This morning, I want to discuss the state of housing finance reform and the path we see to a more sustainable mortgage finance system that meets President Obama’s principles and creates a housing finance system that will promote stability in the housing market and the broader economy, and therefore, benefits the American people. First, I’d like to briefly explain why Treasury is devoting significant resources to helping market participants create a robust and responsible non-government-guaranteed securitization market and then discuss our thinking about how to move forward on GSE reform.
Private Label Securities Initiative
The Administration believes that private capital should be at the center of the housing finance system. To that end, Treasury has been working with the industry to develop the structural reforms necessary to help bring the private label securities, or PLS, market back, and get investors off the sidelines. A key component of this effort is rebuilding trust among market participants, and to this end, Treasury published the results of an exercise last month that would provide greater transparency around credit rating agency loss expectations for newly originated mortgage collateral. The goal of this exercise and the broader PLS initiative is to improve confidence in post-crisis practices and encourage investors to return to a reformed PLS market.
Treasury views a diverse housing finance system that features multiple execution channels as essential to promoting competition, market efficiency, and consumer choice. We see the development of a healthy and responsible PLS market as an important component of a sustainable housing finance system and a complement to a reformed government-supported channel, an objective I will discuss in the remainder of my speech.
GSE Reform
With that in mind, let me turn my attention to the GSEs. We are now well into the seventh year of Fannie Mae and Freddie Mac’s conservatorship. We cannot forget that the actions taken in the wake of the financial crisis to backstop the GSEs stabilized the housing market, protected the capital markets, and supported the broader economy. But as I have said many times, the status quo is unsustainable. Taxpayers remain at risk, market participants are uncertain about the government’s longer-term footprint in the mortgage market, and mortgage access and pricing decisions are not in the hands of market participants. The American people deserve better.
They deserve an efficient, sustainable, housing finance system that serves borrowers effectively and efficiently without leaving taxpayers on the hook for potential future bailouts. The critical flaws in the legacy system that allowed private shareholders and senior employees of the GSEs to reap substantial profits while leaving taxpayers to shoulder enormous losses cannot be fixed by a regulator or conservator because they are intrinsic to the GSEs’ congressional charters. And these charters can only be changed by law. That is why we continue to believe that comprehensive housing finance reform is the only effective way forward, not narrowly crafted ad-hoc fixes.
We cannot forget about the important progress made in the Senate during the last Congress and hope that the new Congress will afford the opportunity to again advance bipartisan legislation meeting our principles, even if it is too soon to tell what the ultimate prospects will be. The Administration remains ready, willing, and able to work in good faith with members of both parties to complete this important but unfinished piece of financial reform. As memories of the financial crisis fade, we cannot become complacent. The best time to act is when the housing market is well along the path to recovery and credit markets are normalizing, not on the precipice of a new economic shock when there is little time to be thoughtful.
We do recognize the myriad of challenges to achieving a bipartisan legislative consensus. But as I will explain shortly, we believe that significant progress can be, and is being made, prior to legislation, to help move the housing finance system towards a more sustainable future. While this progress is not a substitute for legislative reform, it can, over time, reduce the challenges to achieving a desired legislative outcome that puts in place a durable and fair housing finance system by advancing us down the path of transition.
Progress under Conservatorship
To that end, I’d like to highlight the steps forward that have been made under the conservatorship – progress that needs to be built upon. Important gains have been and continue to be made in de-risking and preparing the Enterprises for transition. The GSEs’ critical housing finance infrastructure and technology – which was allowed to obsolesce in the years preceding the financial crisis – is being renewed and enhanced.
Furthermore, their business practices are being reformed. Between 1995 and 2008, management grew the GSEs’ retained investment portfolios, which are financed at government-subsidized borrowing costs, fourfold to a combined total of $1.6 trillion. Since entering conservatorship, those portfolios have been nearly halved, and they are required to shrink further to less than $500 billion in total by year-end 2018.
In addition to being a major source of GSE earnings, these portfolios remain a significant source of financial volatility and potential taxpayer risk. These portfolios, the pursuit of maximum earnings, and the drive to recapture market share through greater risk-taking left taxpayers holding the bag when the bets went wrong. In conservatorship, these practices have been replaced with a recommitment to more effective risk management, prudent underwriting, more appropriate pricing, and a greater emphasis on sustainable mortgage finance.
The Federal Housing Finance Agency (FHFA), as the independent regulator and conservator of the GSEs, is laying the groundwork for a future housing finance system based upon private capital taking the majority of credit risk in front of a government guarantee with greater taxpayer protections, broader access to credit for responsible borrowers, and improved transparency and efficiency. These measures include, among others, expanding and diversifying risk-taking among private actors, further focusing GSE businesses on meeting the mortgage finance needs of middle class households and those aspiring to join the middle class, and developing a securitization infrastructure that can serve as the backbone for the broader mortgage market over time. All of these initiatives are consistent with the long-term vision of providing secure homeownership opportunities for responsible middle-class families.
After the failure of both GSEs, FHFA’s ability to stand in the shoes of their respective boards and senior management as conservator in order to set appropriate, statutorily-guided priorities and ensure follow-through has been good for the Enterprises and good for the American people. Preserving FHFA’s role in the future housing finance system merits serious consideration.
Administrative Vision
With that history in mind, I want to expand upon our vision for reforms that would transition the GSEs further along a path toward a future housing finance system while they still benefit from Treasury’s capital support. In turn, the progress we make today could serve both as a framework for, and reduce certain challenges associated with, achieving bipartisan legislative reform. Within the context of a continuing backstop, further de-risking the Enterprises is common-sense, prudent policy. Other actions that improve market efficiency and liquidity and develop infrastructure that would promote competition are consistent with the Administration’s interest in a durable and fair housing finance system.
The first of these areas is in the shedding of GSE legacy risk, both in their retained portfolios and their guarantee book. Given the strengthened underwriting practices and high credit quality of their new guarantee book, this legacy risk represents the overwhelming majority of taxpayer risk exposure to the GSEs today. Despite asset sales and natural run-off, their retained portfolios remain substantial at over $400 billion each and still constitute a significant line of business. The size and complexity of the retained portfolios also necessitate active hedging, introducing considerable basis risk and earnings volatility and making the GSEs susceptible to potentially relying on a future draw of PSPA capital support.
In light of the strong demand for mortgage credit risk in the market today and the market success of Freddie Mac’s first nonperforming loan (NPL) sale in July of last year, it would be both feasible and beneficial to taxpayers to responsibly accelerate the reduction of the most illiquid assets in the GSE portfolios. In particular, Treasury sees value in cultivating programmatic NPL sales at both Enterprises with a focus on market transparency, improving borrower outcomes, and community stabilization.
Similarly, in light of the GSEs’ expertise in transferring credit risk on their new books of business and recognizing that the bulk of credit risk exposure on their guarantee books is tied to their pre-2009 legacy commitments, the potential for transferring credit risk on their legacy guarantee books also merits consideration despite the unique challenges it may entail.
Continuing with the theme of reducing taxpayer exposure to mortgage credit risk, the second area where we see room for progress is in transferring credit risk on new originations. As I said before, the Administration believes that a sustainable housing finance system must have private capital at its core, and in conservatorship, the GSEs have started down a path of transferring greater mortgage credit risk to private market participants.
As you are aware, beginning in 2013, the GSEs have cultivated their respective credit risk transfer programs. These programs and their effectiveness in transferring credit risk have grown substantially in under two years. The GSEs have also engaged in other innovative forms of risk transfers including reinsurance contracts and recourse agreements.
Although the GSEs are directionally on the right path, there is more to be done on this front. Despite issuing 16 credit risk transfer transactions since 2013 referencing $530 billion notional balance, this amounts to approximately 20 percent of the GSEs’ combined guarantees over this time period and roughly 12 percent of the GSEs’ combined books of business. And while recent transactions have made progress by selling first-loss exposure for the first time, these transactions still rely on a defined credit event and fixed severity schedule.
The closer the GSEs can come to transferring the majority of risk to private market participants, the better. Such credit risk transfer activities serve to field-test the role of government as a guarantor of catastrophic risk while private capital bears the risk of the majority of potential losses. We are also sensitive to existing constraints to rapidly expanding credit risk transfer activities today and are supportive of additional, measured efforts to foster this market sustainably over time.
This is why we support the conservator’s efforts to responsibly expand credit risk transfer efforts through continued structural innovation and counterparty strengthening in order to broaden and diversify the investor base and optimize pricing efficiency and stability. Credit risk transfer activities should not be concentrated in any one mechanism or entity. Rather, they should seek to develop a variety of mechanisms and entities in order to improve pricing efficiency and transparency, provide the lowest cost to borrowers, and ultimately, inform the framework of the future housing finance system. We see great value in leveraging the unique investment needs and competencies of the broad spectrum of market participants in shaping a sustainable model for putting first loss mortgage credit risk in private hands.
Finally, under the direction of FHFA, the GSEs have embarked upon a cutting-edge project to develop a Common Securitization Platform (CSP) and a fungible To-Be-Announced, or TBA, contract. We are broadly supportive of these efforts, which in the immediate future will modernize the GSEs’ collective securitization infrastructure and improve the liquidity and efficiency of the market.
However, given the CSP’s joint ownership by the GSEs and scope narrowly focused on their businesses, the near-term CSP initiative would not succeed at separating the industry’s critical securitization infrastructure from the GSEs’ credit risk-taking activities. This separation is necessary to enhance the stability of the housing finance system. Nor will it use its full potential to reshape the broader housing finance landscape by facilitating standardization, transparency, and competition, and serving as a market gateway for both guaranteed and non-guaranteed securities.
This is why we would support opening up the CSP as early as it can be responsibly done to accommodate non-GSE users, which should be reflected not just in the Platform’s functionality but also in its governance structure. Greater transparency, more concrete timelines, broader engagement with private stakeholders, and ultimately, expanded governance of the CSP joint venture to include non-GSE stakeholders are all in the interests of moving towards a more sustainable future housing finance system.
The nation’s housing finance system is too critical to remain in a state of limbo without a clear, legislated vision for the future. However, the activities I outlined today are representative of the progress that can be made without legislation. By pursuing these and other activities that de-risk the Enterprises, we can put the housing finance system on a course aligned with the Administration’s priorities that would promote greater stability for the housing market and broader economy.
Capital
With the recent release of the GSEs’ 2014 fourth quarter earnings, there seems to be increased interest in the subject of GSE capital. But before we discuss this, it is worth taking a step back to review the purpose of the Senior Preferred Stock Purchase Agreements, commonly referred to as the PSPAs. The PSPAs were put in place as both companies were placed into conservatorship. These agreements were established to protect the solvency of the two companies and to allow them to continue to operate. This was necessary to protect financial stability and to ensure the continued flow of mortgage credit. The PSPAs gave market participants confidence in the GSEs’ debt and MBS obligations through which they fund the majority of the mortgage credit in this country. Without this capital support, it is clear that both GSEs would have been insolvent and that mortgage credit would have dried up as a result.
With this as a backdrop, I want to frame for this group how we think about capital at the GSEs while they are in conservatorship and continue to rely on the PSPAs to support their activities.
Currently, the GSEs operate with a minimal amount of capital at each Enterprise. These capital reserve amounts were established in order to provide protection against unexpected losses related to their retained investment portfolios. This capital amount will amortize to zero by 2018 when we would expect the GSEs to have wound down their legacy investment business. And, from Treasury’s standpoint, we would like to see these retained portfolios wound down even faster to further reduce risk.
Despite having only minimal retained capital levels at the GSEs, investors continue to have confidence in their securities due to the ongoing backstop the PSPAs provide each company. The substantial remaining capital support left under the PSPAs gives market participants the confidence to buy 30-year GSE securities on a day-in and day-out basis. This is despite the fact that the companies remain in conservatorship and have minimal capital levels.
However, as a result of the ongoing capital support through the PSPAs, taxpayers remain exposed to potential future losses at the GSEs. Let me remind you, both recapitalization of the GSEs and draws against the existing Treasury backstop due to potential future losses would come at taxpayers’ expense.
Allowing the GSEs to exit conservatorship within the existing framework that includes their flawed charters, conflicting missions, and virtual monopolistic access to a government support through the PSPAs exposes taxpayers to great risk and is irresponsible. As we have said repeatedly, the only way to responsibly end the conservatorship of the GSEs is through legislation that puts in place a sustainable housing finance system with private capital at risk ahead of taxpayers, while preserving access to mortgage credit during severe downturns.
One final point for those who advocate a recapitalization of Fannie Mae and Freddie Mac while in conservatorship and subsequent privatization. If in the future the GSEs were to operate as they did prior to conservatorship, the GSEs’ size and significance would certainly attract broad regulatory attention due to the financial stability implications of their possible failure. Given this and the associated economic and regulatory ramifications, simply returning these entities to the way they were before is not practical nor is it a realistic consideration.
Conclusion
In closing, I want to return to the issue of timing and the urgency of enacting housing finance reform legislation. We know from experience that mortgage credit will be broadly accessible until it’s not; that capital markets will be liquid until they’re not. When the next crisis hits, it is unlikely that we will have the benefit of advance warning, and at that point, it will be too late for thoughtful reform. Our options will be limited, our hands will be tied, and we will be destined to relive the mistakes of the past.
Reforming a system as complex and as far-reaching as housing finance in a sensible and sustainable way takes time to get things right and to ensure a smooth transition from the existing system to the new, safer, fairer system. The point I want to make today is that there is an enormous amount of very good work underway to de-risk the enterprises, enhance liquidity, and protect taxpayers in a direction aligned with the Administration’s principles for long-term reform.
Nevertheless, institutionalizing these and other critical reforms in bipartisan legislation is by far the better course. Let’s be prudent; let’s have foresight; let’s find a bipartisan pathway to preventing another GSE bailout, which continuation of the status quo guarantees. We can do this, and we must do this.
http://goo.gl/R5bIyT
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In Stegman’s remark, he didn’t address the purpose of appointing the Conservator is to preserve and conserve the Company’s assets and property and to put the Company in a sound and solvent condition according to the HERA Statute nor did he mention about how the PSPA is placing the GSEs in jeopardy by requiring them to liquidate their profitable investment portfolio and sweeping all profits to Treasury. Both actions clearly contradicts the original “Purpose of invoking the Conservatorship” within HERA Statute.
I speculate that ripeness occurred when Conservator took over all rights, titles, powers, and privileges of the regulated entity, and of any stockholder, officer, or director of such regulated entity with respect to the regulated entity and the assets of the regulated entity; and title to the books, records, and assets of any other legal custodian of such regulated entity while violating the purpose of the Conservatorship by signing and agreeing to the covenants of the “Purchase Senior Preferred Agreement” or (PSPA) as soon as FHFA placed the GSEs into Conservatorship.
As a reminder, Treasury, FHFA and Federal Reserve met and crafted the PSPA weeks proceeding the placement of the GSEs into Conservatorship which clearly means that FHFA was no doubt acting as the government at the time. FHFA was named as Conservator but clearly acted as the government when it signed the PSPA without a formal legal review to ensure that the PSPA met the condition set forth in the HERA Statute.
No one wants to talk about this yet since the focus is on the 3rd Amendment. Once plaintiff attorneys prove the defect with the 3rd Amendment, I believe the original PSPA might come in play as to who, why, how and when it was created as well as the purpose of the terms, conditions and covenants. At the end, the big question might be “Did the parties have the legal authority to include all of those terms, conditions, and covenants in the PSPA?”.
In my honest opinion, the only way to fix this mess is through Federal Claimes Court under Judge Sweeney with the help of Senators and Congressmen like Glassley, Capuano, and Malvaney who are asking the right tough questions while seeking the truth from the Obama’s Administration, Treasury, FHFA and DOJ. I hope they look into the Federal Reserve and the SEC as well.
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Send an email to each members of the Committee on the Judiciary.
Your Honorable Senator,
Please encourage and support Senator Charles E. Grassley, Chairman, Committee on the Judiciary while he seek the truth, demand transparency and answers to the following questions from Eric Holder, US Attorney General and Jack Lew, Treasury Secretary:
Letter to DOJ:
Click to access GrassleylettertoDOJ.pdf
Letter to Treasury:
Click to access GrassleyLettertoTreasury.pdf
1. Has the President personally invoked executive privilege over documents related to the Fannie Mae, Freddie Mac and Treasury Third Amendment agreement? If so, when? If not, why are DOJ attorneys citing that privilege as a reason to withhold those documents?
2. Does the Third Amendment cause a breach of any of FHFA’s statutory duties to ensure that each regulated entity operates in a safe and sound manner? Please explain.
3. During the negotiation of the Third Amendment between Treasury and FHFA, did DOJ communicate with any of the entities involved regarding its legality? If so, please describe those communications in detail.
4. Under what legal authority was the Third Amendment authorized?
5. Prior to litigation, did DOJ discuss with Treasury and/or FHFA the need to assert privileges, including executive privilege, over certain documents?
As a taxpayer, we have a right to know what has transpired.
Based on the HERA Statute, we are were told that the purpose of appointing the Conservator was to preserve and conserve the Company’s assets and property and to put the Company in a sound and solvent condition. The goals of the conservatorship were to help restore confidence in the Company, enhance its capacity to fulfill its mission, and mitigate the systemic risk that has contributed directly to the instability in the current market.
Press Release from FHFA:
Click to access fhfa_consrv_faq_090708hp1128.pdf
It is clear, on August 17, 2012, less than two weeks after the Enterprises announced their positive quarterly earnings; Treasury and FHFA announced that they had modified the terms of the PSPAs. In its press release, Treasury said that the changes would “help expedite the wind down of Fannie Mae and Freddie Mac, make sure that every dollar of earnings each firm generates is used to benefit taxpayers, and support the continued flow of mortgage credit during a responsible transition to a reformed housing finance market.”
Press Release from Treasury:
http://www.treasury.gov/press-center/press-releases/Pages/tg1684.aspx
The purpose of the Third Amendment was to more quickly reduce the Enterprises’ assets rather than preserve and conserve as prescribe in HERA. Furthermore, the changes to the PSPAs DO NOT help put the Enterprises in a sound and solvent condition but rather set the course toward financial housing disaster.
Please help us to defend the Constitution, seek the truth and demand transparency.
Sincerely
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Powerful Senate Judiciary Chairman to Feds: Tell Me Why, Exactly, Are You Exerting Executive Privilege Over Fannie & Freddie and Profit Sweep Documents?
April 9, 2015
It’s well-known among federal agencies that when Iowa Sen. Charles Grassley puts them in his sights for some malfeasance, they are in for a bad time of it. He is relentless. He is tenacious. And he just sent letters to Attorney General Eric Holder and Treasury Secretary Jack Lew demanding to know why the government invoked executive privilege in refusing to turn over documents regarding the Third Amendment Sweep.
Sen. Grassley is the very powerful Chairman of the Senate Judiciary Committee, and in his letters, he wastes no time is making clear the answers he wants:
“Fannie and Freddie shareholders sued in July 2013. According to the New York Times, in the course of litigation, the DOJ has imposed broad assertions of privilege on 669 documents it may otherwise be required to produce. Of these documents, executive privilege is listed as the reason for withholding 45 of them.
“… The taxpayer has a right to know what has transpired. But, instead of transparency, there appears to be an invocation of executive privilege. If true, this is cause for concern.
“Accordingly, please provide the following:
“1. Has the President personally invoked executive privilege over documents related to the Fannie Mae, Freddie Mac and Treasury Third Amendment agreement? If so, when? If not, why are DOJ attorneys citing that privilege as a reason to withhold those documents?
“2. Does the Third Amendment cause a breach of any of FHFA’s statutory duties to ensure that each regulated entity operates in a safe and sound manner? Please explain.
“3. During the negotiation of the Third Amendment between Treasury and FHFA, did DOJ communicate with any of the entities involved regarding its legality? If so, please describe those communications in detail.
“4. Under what legal authority was the Third Amendment authorized?
“5. Prior to litigation, did DOJ discuss with Treasury and/or FHFA the need to assert privileges, including executive privilege, over certain documents?”
Sen. Grassley notes that he expects the answers by April 20. Sen. Grassley is very careful to do a full examination of the issues so that once he does get involved he is on solid footing in demanding answers and diligent in his follow-up.
Here’s what New York Times reporter Gretchen Morgenson, herself showing the doggedness that is a hallmark of the Times’ reporters, wrote in her article about Sen Grassley’s letter:
“The government’s decision to divert all of Fannie’s and Freddie’s earnings was unexpected when it was announced. As conservator, F.H.F.A. was supposed to oversee the companies with an eye to stabilizing them and conserving their assets. Redirecting their profits to the Treasury has prevented the companies from building up a larger capital cushion to absorb future losses, should they arise.
“The shares of both companies have continued to trade publicly since they entered conservatorship. As the companies recovered and their earnings ballooned, some shareholders contended that sweeping the profits into the Treasury was an improper taking by the government of private property. Several shareholders sued the government. The Obama administration has responded by fighting document requests and demanding an unusual degree of confidentiality over material relating to the decision.
“In one such case, lawyers for the Justice Department defending against a lawsuit brought by Fairholme Fund, a mutual fund company and a Fannie and Freddie shareholder, have made extensive claims of privilege on documents surrounding the profit sweep.
“Logs filed in the case in mid-January listed 231 Treasury documents in which the government cited various privileges. Presidential privilege was cited in 38 of those items and in seven documents involving F.H.F.A., the conservator.”
We know we’re not the only ones looking forward to seeing the government’s response to Sen. Grassley. As is also well-known among the agencies, those who ignore his request do so at their own peril. We’re glad to see such a forthright and powerful Senator stand up for shareholder and taxpayer rights.
About Investors Unite: Formed by Tennessee activist investor and CapWealth Advisors Chairman and CEO, Tim Pagliara, Investors Unite (www.investorsunite.org) is a coalition of private investors from all walks of life, committed to the preservation of shareholder rights for all invested in Fannie Mae and Freddie Mac. The coalition works to educate shareholders and lawmakers on the importance of adopting GSE reform that fully respects the legal rights of Fannie Mae and Freddie Mac shareholders and offers full restitution on investments.
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