Rodney5
1 hour ago
Fannie Mae private shareholder-owned company
If Congress wants a framework established for Fannie and Freddie to operate as a true utility that's fine. BUT Congress will first need to pay the Shareholders fair market value. (explained below)
The Authors of the article quoted former FHFA Director Mark Calabria, that is only a small part of what Mr. Calabria said, need to read the rest of the story.
'The Conservatorships of Fannie Mae and Freddie Mac: Actions Violate HERA and Established Insolvency Principles:' By Michael Krimminger and Mark Calabria
Highlights
“The authors of this paper were intimately involved in the policy discussions and legislative drafting that led to the creation of HERA,”
“disregarding HERA's requirement to “maintain the corporation’s status as a private shareholder-owned company” and FHFA’s commitment to allow private investors to continue to benefit from the financial value of the company’s stock as determined by the market.”
“Conversely, if FHFA agrees to allow Treasury to seize all of the net assets from the Companies simply because Treasury has decided to prevent the Companies from returning to private control, FHFA is violating its obligations under HERA to “preserve and conserve” the Companies’ assets and protect the interests of stakeholders.”
“FHFA and Treasury have radically departed from HERA and the principles underlying all other U.S. insolvency frameworks and sound international standards through a 2012 re-negotiation of the original conservatorship agreement.”
“ignoring HERA's conservatorship requirements and transforming the purpose of the conservatorships from restoring or resolving the Companies into instruments of government housing policy and sources of revenue for Treasury;”
“Congress consciously chose to vest with FHFA, not Treasury, the sole authority over invoking and conducting a conservator or receivership. The role of Treasury is exclusively that of a creditor”
“the Companies received billions of dollars in Treasury support. However, all of that money was repaid long ago. As of today, Treasury has diverted nearly $40 billion beyond what it initially invested in the Companies.”
“If that process can be manipulated to favor one creditor – as FHFA has favored Treasury – then there is no basis to judge what could happen if a company fails. This is particularly troubling because it is the government that has subverted the normal conservatorship process”
“stripping all net value from Fannie Mae and Freddie Mac long after Treasury has been repaid when HERA, and precedent, limit this recovery to the funding actually provided.”
NOTE: limit this recovery to the funding actually provided.
Mr. Calabria referenced HERA and precedent. Federal Statutes do not allow the Treasury to attach a commitment fee onto the Senior Preferred Stock. THEREFORE, by reason of Federal Statute, the Treasury owes the companies the overage payment on $191.4 billion total draws from Treasury, plus compounded interest; (recommended interest payment at a compounded rate of return 10%, in conjunction with the amount the FHFA recommended to the Treasury).
FEDERAL STATUTES
The Charter Act, and the Federal Housing Enterprises Financial Safety and Soundness act of 1992 (FHEFSSA); Both as amended by the HOUSING AND ECONOMIC RECOVERY ACT OF 2008, (HERA). The Charter Acts are Fannie Mae and Freddie Mac's enabling statutes. FHEFSSA and HERA are regulatory statutes, governing the companies' regulators. All are laws passed by Congress.
HERA is a Federal Statute not a contract, the Senior Preferred Stock Purchase Agreement is a contract not the law.
The day of the take down Fannie Mae’s core capital of $47.0 billion and Freddie Mac’s core capital of $37.1 billion Totals $84.1 billion. This amount of core capital remained with the companies until the illegal commitment fee started sucking shareholders money into the dark hole of the Treasury. This continues until massive profits were foreseen by the Treasury coming in to the companies as net profit. At this time Treasury implemented the Net Worth Sweep. From the point in time of the start of the collection of the illegal commitment fee until the companies were allowed to retain earnings a total of $301.1 billion was sent to the Treasury.
$181.4 billion Fannie returned to Treasury. Form 10K Dec 31, 2023. Page 9
$119.7 billion Freddie returned to Treasury. Form 10K Dec 31, 2023 Page 5
Total $301.1 billion
For the purpose of a new lawsuit, that any district court has jurisdiction over, by reason of Federal Statute, the Treasury owes the companies the overage payment on total draws in the amount of draws $191.4 billion, the overage payment $109.7 billion, plus compounded interest; (recommended interest payment at a compounded rate of return 10%, in conjunction with the amount the FHFA recommended to the Treasury).
Under the funding agreement the Treasury paid to Fannie $119.8 billion Form 10k December 31, 2023 page 8
Under the funding agreement the Treasury paid to Freddie $71.6 billion Form 10k December 31, 2023 page 5
$191.4 billion total draws from Treasury
The calculation includes both companies and the calculation starts at the point in time when the Net Worth Sweep was implemented. Calculation of interest payments the Treasury owes Fannie and Freddie Shareholders.
Note: the interest calculation does not include the space in time from the start of the illegal commitment fee period up to the NWS. This amount should be calculated and added to the total amount of interest calculated below.
$301.1 billion sent to the Treasury.
Treasury draws totaling $191.4 billion
Difference of $109.7 billion the Treasury owes to the Shareholders in over payments.
August 17, 2012, Treasury and FHFA agreed to amend the PSPAs, changing the 10% dividend into a “Net Worth Sweep.” The Net Worth Sweep required Fannie Mae and Freddie Mac to pay the full amount of their net worth to Treasury every quarter. FHFA Director DeMarco, this non-elected bureaucrat, has been allowed to steal the companies for the Treasury.
From 2012 to 2024
At a compound annual growth rate of 10% on amount Treasury owes Shareholders $109.7 billion. The interest at the rate of 10% on $109.7 billion calculates within a 12 year period of time in the amount of $344.29 billion in interest.
Principal of $109.7 billion plus $344.29 billion in interest = $453.99 billion
The Treasury owes the Shareholders $453.99 billion
Compound Interest Calculator
Initial investment $109.7 billion, length of time in years 12, interest rate 10% annually.
?Third quarter 2024
Fannie Mae Net Worth $90.5 billion
Freddie Mac Net Worth $56.3 billion
Combined Net Worth $146.8
$146.8 billion plus $453.99 billion = $600.79 billion
Fannie Mae common stock outstanding 1,158,087,567
Freddie Mac common stock outstanding 650,059,553
Combined common stocks
1,808,147,120 … ( Fannie Mae 64.05% Freddie Mac 35.95% }.
$600.79 billion / 1,808,147,120 =
$332.26 per share combined
Fannie Mae 64.05% is $212.81 per share
Freddie Mac 35.95% is $119.44 per share
The above calculation does not include the combined Earnings Power of the companies businesses.
EARNINGS POWER OF THE BUSINESSES
Fannie Mae’s common stock outstanding 1,158,087,567
$18.8 billion net income per year / 1,158,087,567 = $16.23 per share of earnings,
PE Ratio of 14 x $16.23 = $227.22 per share intrinsic value.
Freddie Mac common stock outstanding 650,059,553
Net earnings $3.1 billion per quarter, $12.4 billion net per year.
$12.4 billion net / 650,059,553 = $19.07 per share of earnings
PE Ratio of 14 x $19.07 = $266.98 per share intrinsic value.
Fannie Mae Earnings Power $227.22 plus 64.05% $212.81 = $440.03
Intrinsic Value $440.03 per share
Freddie Mac Earnings Power $266.98 plus $119.44 = $386.42
Intrinsic Value $386.42 per share
Again Note: the interest calculation does not include the space in time from the start of the illegal commitment fee period up to the NWS. This amount should be calculated and added to the total amount of interest calculated.
Treasury taking any amount of equity from shareholders will be considered stolen property under federal law. The Treasury and FHFA illegal exaction due to violating Federal statutes all monies with interest should be returned to the companies. Neither the Charter Act nor did HERA authorize the Treasury to charge a commitment fee on a line of credit to be paid by the Enterprise.
Illegal exaction explained: https://investorshub.advfn.com/boards/read_msg.aspx?message_id=174797511
Link to Calabria writing; https://www.cato.org/sites/cato.org/files/pubs/pdf/working-paper-26_1.pdf
2latefortears
3 hours ago
Ending the Fannie/Freddie conservatorships
Exiting conservatorship with fairness and competition at the forefront
December 6, 2024, 7:00 am By Scott Olson and Rob Zimmer
Near the end of the first Trump Administration, the Federal Housing Finance Agency (FHFA) finalized a capital rule for Fannie Mae and Freddie Mac. A December 2020 HousingWire article reported that this was part of an overall effort by FHFA to fulfill the statutory mandate of responsibly ending the Enterprises’ conservatorships — with Treasury Secretary Mnuchin testifying before Congress that the GSEs could be released from conservatorship once they accumulated significant capital.
With a second Trump Administration imminent, speculation is growing that the GSEs could soon exit conservatorship. At a September CHLA Roundtable, former FHFA Director Mark Calabria said that there is “maybe a 70% chance” this will be accomplished by 2027, adding that “You can get them out. It’s all feasible, doable.” [See HousingWire story on the CHLA Roundtable].
Is taking Fannie and Freddie out of conservatorship a good idea? CHLA has for many years thought so. But it must be done the right way. A framework should be established for Fannie and Freddie to operate as a true utility – balancing their critical mission of affordable homeownership and rental housing loans with financial and operational guardrails, so they don’t go off the cliff again like they did in 2008.
Equally important, there must be substantive small lender protections to protect community independent mortgage banks (IMBs) and community banks – to ensure that a level playing field is created. This is essential for rigorous competition, which benefits borrowers through lower rates and more choices.
Before people sound the alarm about Fannie and Freddie being returned to the private sector, it is critical to understand that significant financial reforms have taken place since 2008.
The 2008 HERA legislation created a strong regulator — FHFA — with responsibilities to ensure that the GSEs operate in a financially sound manner. In turn, as noted, FHFA adopted strong capital requirements for Fannie and Freddie, and they have already accumulated $146.6 billion in combined capital.
Interest rate risk has significantly been taken out of the equation, through strict caps on the volume of loans GSEs can hold in portfolio. The GSEs have been engaging in credit risk transfers, which both shift credit risk to other players and foster market discipline.
Post conservatorship, CHLA (and many others) believe the GSEs should operate under a true utility model, to rein in the types of actions that led to the conservatorship in the first place.
FHFA should not set pricing for guarantee fees — but it should prevent Fannie and Freddie from using their GSE status to maximize profits, instead keeping fees at levels commensurate with a fair return on capital. FHFA should not allow the GSEs to pursue risky loans like they did pre-conservatorship with no doc, no income loans. FHFA should not allow the GSEs to engage in activities unrelated to their core affordable housing mission of purchasing and bread and butter single family and multi-family mortgage loans.
At the same time, Fannie and Freddie should fully and vigorously pursue their affordable housing mission. CHLA has concerns here, because, for example, FHFA imposed arbitrary volume caps in 2020 on individual lenders originating GSE single family loans for investor properties and second homes.
CHLA would oppose re-imposition of these types of caps — or any other actions that arbitrarily reduce the GSEs’ footprint. Banks have broadly retreated from portfolio mortgage lending since 2008 and the private label securitization (PLS) market for single family loans is moribund. Therefore, it would be folly to assume, without evidence, that the “private sector” will step in if Fannie and Freddie retrench.
The second imperative is to ensure that smaller lenders are protected, that there is a level playing field.
In the years leading up to 2008, Fannie and Freddie offered sweetheart pricing deals to mega-lenders like Countrywide and WAMU. We saw how that turned out. So FHFA during the first Trump Administration commendably adopted a conservatorship policy of mandating G Fee parity.
G Fee parity — no pricing discounts based on lender size or lender GSE volume — needs to be an explicit policy post-conservatorship. This should be broadly defined to avoid loopholes, like price discrimination with regard to buy up/buy down grids or any use of proxies for volume discounts.
CHLA also believes private mortgage insurers should not be able to price discriminate based on the size or volume of the lender, since mortgage insurance is an essential component of lower down payment GSE loans. The same should be true for other essential third party services for GSE loans (e.g., FICO’s 2023 pricing scheme to provide significantly lower pricing to a select group of 50 lenders they picked).
Second, there must be an ongoing commitment by both Fannie and Freddie to maintaining a robust cash window, with full access to all approved seller-servicers on a non-discriminatory basis. The cash window is critical to creating robust competition. It has worked very well during the conservatorship.
Third, Wall Street Banks should not be given new GSE charters. We know Wall Street banks desire a GSE charter (back-stopped by taxpayers), so they can gain an unfair competitive advantage — solely for their own bank customers. This is antithetical to the principles of competition and fair mortgage markets.
The final issue is Congress’ role in taking the GSEs out of conservatorship. As CHLA has long pointed out, the 2008 HERA statute gives FHFA and the Treasury Department the authority to accomplish this. Therefore, while Congress is of course welcome to participate in the process, it is not essential.
CHLA’s concern about a conservatorship exit through legislation is that Wall Street Banks, with their lobbying and PAC powers, will exert unfair influence over the final legislation. We witnessed that a decade ago with the last major Congressional GSE reform. Fortunately, a coalition of small lenders, homebuilders, and consumer groups beat back efforts to give the big banks an unfair advantage.
Put simply, the overriding principle governing taking Fannie and Freddie out of conservatorship must be a level playing field for all lenders, which leads to robust competition and maximum borrower choices.
Fasten your seatbelts. It could be an interesting ride.
Scott Olson is the Executive Director and Rob Zimmer is the Director of External Affairs for the Community Home Lenders of America (CHLA), which represents small and mid-sized IMBs.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the editor responsible for this piece: zeb@hwmedia.com.
https://www.housingwire.com/articles/ending-the-fannie-freddie-conservatorships/