Fannie Mae-No Politics (FNMA)

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A friend of mine on FB posted this. If already posted in the past, please skip.

"Here is a court case that everyone MUST read. I cannot stress the importance of this case enough. It lays the foundation as to why the conservator CANNOT simply liquidate Fannie Mae.

"The case was called Herron v. Fannie Mae. It was decided in April of 2012.

"Here are some key portions:

"When a federally chartered financial institution (such as a national bank, federal savings association, or government-sponsored enterprise) encounters financial distress, it does not
go through bankruptcy. Instead, it is placed into federal conservatorship or receivership. The conservator or receiver takes over the day-to-day operations and assumes the powers of shareholders, board of directors, and management. The purpose of the conservator or receiver is to restore the entity to fiscal feasibility or to liquidate and distribute its assets.

"The conservator or receiver steps into the private status of the entity. For example, when the Federal Deposit Insurance Corporation (“FDIC”) takes over as conservator or receiver for a failed bank, it obtains the rights and powers of the bank’s shareholders, officers, and directors. See 12 U.S.C. § 1821(d)(2)(A). As conservator or receiver, it may take over the assets and operation of the insured depository institution to conduct all of the institution’s business, in order to preserve and conserve the assets and property of Fannie Mae. Id. § 1821(d)(2)(B). FDIC in its role as conservator or receiver is placed “in the shoes of the insolvent” entity. O’Melveny & Myers v. FDIC, 512 U.S. 79, 86-87 (1994) (examining 12 U.S.C. § 1821(d)(2)(A) & (B)).

"A claim against FDIC as receiver is “a claim against the depository institution for which the FDIC is receiver.” Am. Nat’l Ins. Co. v. FDIC, 642 F.3d 1137, 1144 (D.C. Cir. 2011). Further, when acting as receiver, FDIC does not pursue the interests of the government.
Atherton v. FDIC, 519 U.S. 213, 225 (1997). Courts have similarly held that FDIC as conservator was not acting for the United States. See, e.g., Ameristar Fin. Servicing Co. LLC v. United States, 75 Fed. Cl. 807, 811 (2007).

"O’Melveny interpreted the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”), 12 U.S.C. 1461 et seq., the statute applicable to FDIC. Section 1821(d)(2)(A) & (B) of FIRREA, regarding the power and rights of conservators and receivers, is almost identical to § 4617(b)(2)(A) & (B) of HERA.

"When FHFA steps in as conservator or receiver it immediately succeeds to all rights and powers of the stockholders, officers, and directors of the regulated entity placed into such conservatorship or receivership. 12 U.S.C. § 4617(b)(2)(A). In like manner, on September 6, 2008, FHFA placed Fannie Mae into conservatorship. As conservator, FHFA took over the assets and operations of Fannie Mae with all the powers of the shareholders,
officers, and directors to conduct all of Fannie Mae’s business, in order to preserve and conserve the assets and property of Fannie Mae. See id. § 4617(b)(2)(B). Thus, like FDIC when it serves as a conservator or receiver of a private entity, FHFA when it serves as conservator “step[s] into the shoes” of the private corporation, Fannie Mae.

"In such circumstances, the federal agency in its guise as a conservator or receiver of a private corporation is not a government actor. For example, in United States v. Beszborn, 21 F.3d 62, 67-68 (5th Cir. 1994), the Fifth Circuit held that the Resolution Trust Corporation (“RTC”) as receiver of a failed bank was not a government actor. The RTC had sued the former officers and directors of the failed bank in a civil case and obtained a judgment including punitive damages. The government subsequently brought criminal charges against the officers and directors based on the same conduct. The officers and directors asserted Double Jeopardy as a defense. The Fifth Circuit found that the RTC as receiver stood in the shoes of the insolvent bank, i.e., that the RTC was a private entity and not the government for purposes of the Double Jeopardy clause. 21 F.3d at 68.

"Ms. Herron fails in her attempt to distinguish O’Melveny. She argues that FHFA should be treated differently than FDIC because FHFA acts as both regulator and conservator for Fannie Mae and FDIC only acts as conservator (or receiver). Ms. Herron overlooks critical facts. FDIC also serves as regulator of state-chartered banks that are not members of the federal reserve system.

"When one of these banks goes into conservatorship, FDIC serves as both regulator and conservator. Even with regard to federally
chartered institutions for which the Office of the Comptroller of the Currency has primary regulatory authority, such institutions must submit to FDIC regulation including FDIC “backup examination
authority.” Id. at 165.

"Similarly, Fannie Mae was not converted into a government entity when it was placed into conservatorship; instead, FHFA stepped into the shoes of Fannie Mae. FHFA as conservator for
Fannie Mae is not a government actor.

"Ms. Herron avers that Fannie Mae is a federal actor for the purpose of her First Amendment claim because: (1) the conservatorship is of indefinite duration; (2) FHFA presently
controls Fannie Mae; and (3) Treasury provides financial support to Fannie Mae in exchange for non-voting Senior Preferred Stock. Ms. Herron draws the wrong conclusion from these three
uncontested facts.

"Fannie Mae would be a federal actor if the FHFA conservatorship retained for the government permanent authority to appoint a majority of the corporation’s directors. Lebron, 513 U.S. at 400. To the contrary, the appointment of FHFA as conservator did not establish permanent government authority to control Fannie Mae.
First, Ms. Herron insists that there is no date certain when the conservatorship of Fannie Mae will end, and, therefore, she erroneously concludes that FHFA control over Fannie Mae
must be permanent.

"In order to be a government actor under the Lebron framework, permanent government control is required. Lebron itself distinguishes permanent from temporary control. The
Supreme Court contrasted Amtrak, which was a federal actor in the permanent control of the Ms. Herron unsuccessfully attempts to distinguish Beszborn, asserting that the RTC in that case operated to benefit the creditors and stockholders and asserting that FHFA operates Fannie Mae to benefit the federal government.

"This reflects an incorrect understanding of the facts. Treasury’s
interest in Fannie Mae is as a shareholder of Senior Preferred Stock. FHFA operates Fannie Mae to benefit of creditors and shareholders, in the same way that RTC operated the failed financial institution in Beszborn. 11 See Pl.’s Opp. [Dkt. 55] at 41 (“[T]he record evidence is undisputed that the conservatorship is of indefinite duration, and that neither FHFA nor Fannie Mae knows when or how it will end.”)

"Although the duration of the conservatorship is indefinite, FHFA’s control over Fannie Mae is temporary. Fannie Mae was not
a federal actor at the relevant time.

"Second, Ms. Herron asserts that FHFA’s complete control over Fannie Mae makes Fannie Mae a federal actor. Congress empowered FHFA to act as conservator of Fannie Mae for the
purpose of reorganizing, rehabilitating, or winding up its affairs. 12 U.S.C. § 4617(a)(2). Thus, the enabling statute expressly allows FHFA temporary but complete control over Fannie Mae, not
permanent control. See also Stip. ¶ 67 (citing Fannie Mae, Form 8-K filed with the SEC at 2 (Dec. 24, 2008) (conservatorship of Fannie Mae has no specified termination date)); Stip. ¶ 156 (citing
OMB, Fiscal Year 2012; Analytical Perspectives, Budget of the U.S. Government at 373 (Feb. 14, 2011) (budget reflects Fannie Mae as a non-budgetary entity in keeping with its temporary status in
conservatorship)); Stip ¶ 38 (quoting FHFA Fact Sheet: Questions and Answers on Conservatorship at 2 (Sept. 7, 2008) (there is no exact time frame that can be given as to when the conservatorship
of Fannie Mae might end)).

"The complete control exercised by FHFA is authorized by statute; it is how conservatorship is accomplished. Because conservatorship is by nature temporary, the government has not acceded to permanent control over the entity and Fannie Mae remains a private corporation.

"Finally, Ms. Herron also argues that Fannie Mae was transformed into a federal entity via (1) Treasury’s appointment of Fannie Mae as administrator of the Home Affordable Modification Program through the Financial Agency Agreement and (2) Treasury’s entry into the Stock Agreement with Fannie Mae. With regard to the Financial Agency Agreement, it states that Fannie Mae is
distinct from the government and must maintain a fiduciary duty of loyalty to the federal government. Stip. ¶ 146 (citing Financial Agency Agreement at 3-4). The Financial Agency Agreement also expressly provides that contractors to Fannie Mae (such as Ms. Herron) do not become subcontractors of the government. Stip. ¶ 147 (citing Financial Agency Agreement §14(B)).

"These provisions make it clear that the Financial Agency Agreement did not transform Fannie Mae into a government entity.
The Stock Agreement did not give the government permanent control over Fannie Mae. The Stock Agreement provided Treasury with a warrant to purchase 79.9% of the total shares of Fannie Mae common stock outstanding on the date of exercise at a nominal price. Stip. ¶ 93 (citing Fannie Mae Form 10-K for 2009 at 331-32 (Feb. 26, 2010)).

"As of this date, Treasury has not exercised this warrant. The Stock Agreement also required Treasury to provide funding to
Fannie Mae to ensure a positive net worth in exchange for shares of Senior Preferred Stock that pay a certain dividend. Stip. ¶ 55 (citing Treasury Fact Sheet: Treasury Senior Preferred Stock Purchase Agreements at 1-2 (Sept. 7, 2008)). Senior Preferred Stock conferred no voting rights. Id. Thus, Treasury’s warrant to purchase common stock and its ownership of non-voting Senior Preferred Stock do not give the United States permanent control over Fannie Mae and do not make Fannie Mae a government entity under Lebron.

"Ms. Herron also relies on Brentwood Academy v. Tennessee Secondary Sch. Athletic Ass’n, 531 U.S. 288 (2001), arguing that the government is so entwined with Fannie Mae as to have
created a public entity subject to constitutional restrictions. Under Brentwood, the Supreme Court held that an athletic association in which the majority of members were public schools could be deemed to be a federal actor because the association was pervasively entwined with government policies and was managed and controlled by government officials in their government capacity. Id. at 299-301. Brentwood did not change the law of conservatorship and receivership. As described above, a conservator or receiver steps into the shoes of the private entity — it assumes the private status of the entity. See O’Melveny, 512 U.S. at 86-87; Am. Nat’l Ins. Co., 642 F.3d at 1144;
Beszborn, 21 F.3d at 67-68.

"Fannie Mae was a private entity; when FHFA took over as conservator of Fannie Mae, it stepped into Fannie Mae’s private role. In sum, FHFA as conservator of Fannie Mae is not a government actor, and Ms. Herron’s Bivens claim will be dismissed."

Why the conservator CANNOT simply liquidate Fannie Mae