EnoughAlready! I would think the next question after reading the two other post in this thread would be… Well, what part of the law did FHFA / Treasury violate ? I’m glad you asked.
Published October 9, 2023
FINANCIAL SERVICES
Committee
Committee Members
118th CONGRESS
The purpose of this letter is to bring attention to the Committee violations by the Federal Housing Finance Agency (FHFA) violating of 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.
The conservatorship of Fannie Mae and Freddie Mac has continued for over 15 years. I am not sure if Committee Members understand the history of the takeover of the companies and pray the Committee will of your clemency hear me in a few words.
Before the take down of the companies Treasury Secretary Paulson was unaware that the FHFA Regulator had sent both Fannie Mae and Freddie Mac letters saying the companies were safe and sound and exceeded their regulatory capital requirements. Paulson told FHFA Director Lockhart that he had to change his agency’s posture on the two companies, and FHFA did exactly that. FHFA sent each company an extremely harsh mid-year review letter, and two days later, Paulson, Lockhart and Fed chairman Bernanke met with the companies’ CEO's and directors to tell them they had no choice but to agree to conservatorship.
When Paulson met with the directors of Fannie Mae and Freddie Mac to inform them of his intent to take over their companies, neither entity met any of the twelve conditions for conservatorship spelled out in the newly passed HERA legislation. Paulson since has admitted he took the companies over by threat.
HOUSING AND ECONOMIC RECOVERY ACT OF 2008 Page 2734 Twelve Conditions
APPOINTMENT OF THE AGENCY AS CONSERVATOR OR RECEIVER
Link: https://www.congress.gov/110/plaws/publ289/PLAW-110publ289.pdf
The FHFA freely admitted the companies were adequately capitalized.
SECOND QUARTER CAPITAL RESULTS
Minimum Capital
Fannie Mae’s FHFA-directed capital requirement on June 30, 2008 was $37.5 billion and its statutory minimum capital requirement was $32.6 billion. Fannie Mae’s core capital of $47.0 billion exceeded the FHFA-directed capital requirement by $9.4 billion.
Freddie Mac’s FHFA-directed capital requirement on June 30, 2008 was $34.5 billion and its statutory minimum capital requirement was $28.7 billion. Freddie Mac’s core capital of $37.1 billion exceeded the FHFA-directed minimum capital requirement by $2.7 billion.
Link: https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Suspension-of-Capital-Classifications-During-Conservatorship-and-Discloses-Minimum-and-RiskBased-Cap.aspx#:~:text=During%20the%20conservatorship%2C%20FHFA%20will%20not%20issue%20a,submit%20capital%20reports%20to%20FHFA%20during%20the%20conservatorship.
The FHFA forced Fannie Mae and Freddie Mac into a contract with the United States Treasury by Senior Preferred Stock. The Senior Preferred Stock Purchase Agreement is not a law: The SPSPA is an illegal contract between Treasury and FHFA as conservator of the two companies. The Charter Act, FHEFSSA and HERA passed by Congress is the supreme law of the land that governs the two companies.
Fannie Mae and Freddie Mac's regulatory guidelines would have prohibited the companies form paying dividends to the Treasury while severely under-capitalized, but the FHFA suspended those guidelines because the regulator wanted the companies to have to draw more senior preferred stock from the Treasury to pay the annual dividends in cash, ballooning their outstanding senior preferred stock and increase their required annual dividends. FHFA and its Director are executive branch entities and can not make changes to federal laws. Only Congress can change the law. Neither the Charter Act nor did HERA authorize the Treasury to charge a commitment fee.
When Fannie Mae and Freddie Mac were taken over by the FHFA no emergency existed and the FHFA had no authority granted by Congress to take over the companies, no authority written in the Charter Act that gave the FHFA right to take down the companies.
Charter Act: SUBSECTION (g) TEMPORARY AUTHORITY OF TREASURY TO PURCHASE OBLIGATIONS AND SECURITIES; CONDITIONS.— EMERGENCY DETERMINATION REQUIRED. Page 16
Under this subsection no emergency existed.
This leads to the question, who authorized the appropriation of taxpayer debt to provide the 200 billion commitment? Certainly not Congress. Treasury took it upon themselves and authorized a 200 billion commitment available in exchange for One Million Shares (1,000,000) with an initial liquidation preference of $1,000 per share. Shares of senior equity illegal and unconstitutional.
Page 5
Link: https://www.fhfa.gov/Conservatorship/Documents/Senior-Preferred-Stock-Agree/FNM/SPSPA-amends/FNM-SPSPA_09-07-2008.pdf
Charter act prohibits the commitment fees (Seniors, warrants, variable liquidation preference). More importantly the actions of Treasury to appropriate 200 billion in taxpayer debt, take non regulatory control of the companies through the SPSPA (require Treasury permission at least 10 separate times) and ownership of more than 50% of the companies requires them under the GAO act and the CFO act to consolidate the GSEs onto the nations balance sheet. The fact that that hasn't happened means the Treasury has violated the 14th amendment to the Constitution by repudiating the 5 trillion plus in debt the Treasury has acquired through their actions since 2008. Their actions have resulted in a takings of the entire enterprise value of the formerly private companies. These actions have necessarily turned the GSEs back into agencies of the executive branch as they were originally created. This is the definition of a major question and also a separation of powers problem since Congress did not authorize the actions Treasury took and continues to take.
In addition 'Deferred Tax Assets' the Treasury forced the companies to write down and record these non-cash expenses making the companies appear bankrupted. Fannie Mae and Freddie Mac were no where near bankrupted.
Mr. Howard wrote below,
Quote: “Between the time Fannie and Freddie were put into conservatorship and the end of 2011, well over $300 billion in non-cash accounting expenses were recorded on their income statements. These non-cash expenses, most of which were discretionary, eliminated all of the Companies’ capital and forced them, together, to take $187 billion from Treasury. But because accelerated or exaggerated expenses cause losses that are only temporary, Fannie’s and Freddie’s non-cash losses began to reverse themselves in 2012. Coupled with profits resulting from a rebounding housing market, the reversal of these losses enabled both Companies to report in August 2012 sufficient second quarter income to not only pay their dividends to Treasury but also retain a total of $3.9 billion in capital. As soon as it became apparent that a large percentage of the non-cash accounting losses booked during the previous four years was about to come back into income, Treasury and FHFA entered into the Third Amendment to the PSPA. The Third Amendment substituted for the fixed dividend payment a requirement that all future earnings—including reversals of accounting-related expenses incurred earlier—be remitted to Treasury. From the time the Third Amendment took effect through the end of 2014, Fannie and Freddie paid Treasury $170 billion, $133 billion more than they would have owed absent the Amendment.” End of Quote
The United States was not obligated after 1968 to back debt of Fannie Mae. The United States Taxpayers became obligated when the government took over the two companies.
Originally, Fannie Mae had an explicit guarantee from the United States government; if the entity got into financial trouble the government promised to bail it out. This changed in 1968. Fannie Mae became a private stockholder owned company. Fannie Mae securities received no actual explicit or implicit government guarantee. This is clearly stated in the securities themselves, and in many public communications issued by Fannie Mae.
Quote: “Although we are a corporation chartered by the U.S. Congress, the U.S. Government does not guarantee, directly or indirectly, our securities or other obligations. We are a stockholder-owned corporation, and our business is self-sustaining and funded exclusively with private capital. Our common stock is listed on the New York Stock Exchange and traded under the symbol “FNM.” Our debt securities are actively traded in the over-the-counter market.” End of Quote.
Information from: Fannie Mae form 10K Dec 31, 2007
part I, page 1, item 1.
https://www.fanniemae.com/sites/g/files/koqyhd191/files/migrated-files/resources/file/ir/pdf/quarterly-annual-results/2007/form10k_022708.pdf
Where is "maximize profits for taxpayers" written in the Charter Act? Specifically, in this provision entitled Fee Limitation of the United States:
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. The United States prohibition on assessment or collection of fee or charge to Fannie Mae, (section 304 Fee Limitation). Only Federal Reserve Banks are authorized to be reimbursed of fees, (section 309).
SEC. 304. SECONDARY MARKET OPERATION
Fee Limitation
Quote: “(f) PROHIBITION ON ASSESSMENT OR COLLECTION OF FEE OR CHARGE BY UNITED STATES.—Except for fees paid pursuant to section 309(g) of this Act and assessments pursuant to section 1316 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, no fee or charge may be assessed or collected by the United States (including any executive department, agency, or independent establishment of the United States) on or with regard to the purchase, acquisition, sale, pledge, issuance, guarantee, or redemption of any mortgage, asset, obligation, trust certificate of beneficial interest, or other security by the corporation. No provision of this subsection shall affect the purchase of any obligation by the Secretary of the Treasury pursuant to subsection (c) of this section.” End of Quote. Page 16
Only Federal Reserve Banks are authorized to be reimbursed of fees, (section 309).
SEC. 309. GENERAL POWERS OF GOVERNMENT NATIONAL MORTGAGE ASSOCIATION AND FEDERAL NATIONAL MORTGAGE ASSOCIATION
Federal Reserve Banks to Act as Fiscal Agents (Fannie Mae and GNMA)
Quote: “(g) DEPOSITARIES, CUSTODIANS, AND FISCAL AGENTS.—The Federal Reserve banks are authorized and directed to act as depositaries, custodians, and fiscal agents for each of the bodies corporate named in section 302(a)(2), for its own account or as fiduciary, and such banks shall be reimbursed for such services in such manner as may be agreed upon; and each of such bodies corporate may itself act in such capacities, for its own account or as fiduciary, and for the account of others.” End of Quote. Page 29
Link:
FEDERAL NATIONAL MORTGAGE ASSOCIATION CHARTER ACT
As amended through July 25, 2019
link: https://www.fanniemae.com/sites/g/files/koqyhd191/files/migrated-files/resources/file/aboutus/pdf/fm-amended-charter.pdf
The Senior Preferred Stock, with a variable liquidation preference outlined in the SPSPA and its amendments and share certificates is a new product for the purposes of the Safety and Soundness Act of 1992 as amended by HERA.
Congress directed the Director of FHFA to apply the Administrative Procedures Act to the new products sold to Treasury. The FHFA did not follow the administrative procedures congress required in the plain language of the safety and soundness act.
The Director of FHFA as regulator violated the safety and soundness act and the administrative procedures act by not following the statutory duty to approve new products issued by the GSEs to Treasury for the purpose of stabilizing the secondary mortgage market.
The law required the publication in the federal register of the SPS with their variable rate liquidation preference tied to the commitment. It requires a public comment period, and a rule making process to make the SPS legal. It is the same law that required the capital rule. And the same law that required FHFA a year ago issue the new products law for MBS products. They have ignored this requirement for 15 years.
Director Lockhart Regulator, and Director Lockhart Conservator. Holding both positions as Regulator and Conservator; Conservator Lockhart is required by law to file notice to himself as Regulator.
The Safety and Soundness Act required Director Lockhart as regulator not conservator to approve a new product issued by Director Lockhart acting as conservator FHFA-C (SPS with variable liquidation Preference) to Treasury under the terms of the SPSPA for the purpose of carrying out the secondary mortgage market. He was required as regulator to file notice in the federal register, seek public comment and issue federal regulations for the new product we call the Senior Preferred shares sold to Treasury.
HOUSING AND ECONOMIC RECOVERY ACT OF 2008
Page 2689
SEC. 1321. PRIOR APPROVAL AUTHORITY FOR PRODUCTS.
Link: https://www.congress.gov/110/plaws/publ289/PLAW-110publ289.pdf
The CFO act requires the Treasury department based on published accounting standards to determine if their actions of funding through appropriations, ownership of 100% of the GSEs net worth and non-regulatory control of the GSEs through the SPSPA require the consolidation of the GSEs liabilities onto the nations balance sheet. Do the actions of Treasury under the SPSPA require such consolidation under the plain language of the Chief Financial Officers Act?
The Congressional Budget Office publication states, “Federal Government effective ownership of Fannie Mae and Freddie Mac.”
The Enterprises have been Nationalized by the Government according to the CBO: The liabilities have not been added to the National Debt nor have the Shareholders been compensated by U.S. Law of the 5th Amendment.
Congressional Budget Office
From: Estimates of the Cost of Federal Credit Programs in 2023
Page 1, Foot Note 1.
Quote: “Fannie Mae and Freddie Mac have been in federal conservatorship since September 2008. CBO treats the two GSEs as government entities in its budget estimates because, under the terms of the conservatorships, the federal government retains operational control and effective ownership of Fannie Mae and Freddie Mac. For more discussion, see Congressional Budget Office, Effects of Recapitalizing Fannie Mae and Freddie Mac Through Administrative Actions (August 2020), www.cbo.gov/publication/56496; and Congressional Budget Office, The Effects of Increasing Fannie Mae’s and Freddie Mac’s Capital (October 2016), www.cbo.gov/ publication/52089” End of Quote
Link: https://www.cbo.gov/system/files/2022-06/58031-Federal-Credit-Programs.pdf
The United States Treasury in violation of the Charter Act has failed to treat as public debt the transactions of the United States when the FHFA placed Fannie Mae and Freddie Mac into conservatorship. This obligation was never recorded as public debt as required by law.
The Charter Act the Law of the Land.
Charter Act SEC. 304. SECONDARY MARKET OPERATIONS
(c) Terms and Rates
Quote: “All redemptions, purchases, and sales by the Secretary of the Treasury of such obligations under this subsection SHALL BE TREATED AS PUBLIC DEBT TRANSACTIONS of the United States.” End of Quote Page 14
Link: https://www.fanniemae.com/sites/g/files/koqyhd191/files/migrated-files/resources/file/aboutus/pdf/fm-amended-charter.pdf
IF THE FHFA / TREASURY are allowed to continue with the violations discussed in the above writing, and the illegal contract of the SPSPA agreement is allowed to stand the Committee should give consideration to the FHFA Breach of Contract Bad faith and Unfair Dealings actions of the government in litigation that took place in Judge Lamberth's Court. It took 8 random DC Jurors only 10 hours of deliberations to see right through the Government's false narratives.
It’s bad faith and unfair dealing when the Regulator is authorized to pay down the Senior Preferred Stock and sent the Net Worth without the pay down option. The FHFA Director doesn’t need the Treasury approval to pay down the Senior Preferred Stock the Director has the authority from Congress written in HERA:
HOUSING AND ECONOMIC RECOVERY ACT OF 2008
RESTRICTION ON CAPITAL DISTRIBUTIONS.— page 2731
‘‘(1) IN GENERAL.—A regulated entity shall make no capital distribution if, after making the distribution, the regulated entity would be undercapitalized. The exception.
Quote: “Page 2732
EXCEPTION.—Notwithstanding paragraph (1), the Director may permit a regulated entity, to the extent appropriate or applicable, to repurchase, redeem, retire, or otherwise acquire shares or ownership interests if the repurchase, redemption, retirement, or other acquisition— ‘‘(A) is made in connection with the issuance of additional shares or obligations of the regulated entity in at least an equivalent amount; and ‘‘(B) will reduce the financial obligations of the regulated entity or otherwise improve the financial condition of the entity.’’.
NOTE: REPURCHASE, REDEEM, RETIRE...
WILL REDUCE THE FINANCIAL OBLIGATIONS OF THE REGULATED ENTITY.
Link: https://www.congress.gov/110/plaws/publ289/PLAW-110publ289.pdf
In essence allows the trustees of Fannie and Freddie to go to the market at any time to raise new capital, including new capital with lower dividend coupons, to buy back the Treasury’s senior preferred. Any loyal conservator of Fannie and Freddie would take advantage of this refinancing option to end the bailout arrangement, by paying off the senior preferred in full. The Treasury did not take a Perpetual Equity Investment in the enterprises, the Treasury stated a temporary investment period!
The calculation of the pay down of the liquidation preference of the Senior Preferred Stock, I am asking this committee to apply the law written in the HERA legislation passed by Congress.
https://drive.google.com/file/d/15978NWfDcTtuClMBnwgWFmoPnwK94vWn/view
The liquidation preference has been paid and the Senior Preferred Stock should be canceled.
The law actually exists! FHFA and its Director are executive branch entities. They can not make changes to federal laws. Only Congress can change the law.
Therefore, the U.S. Congress did not give DeMarco the power to take all the future profits of their wards in conservatorship into perpetuity, thus Nationalizing the GSES, based on an Incidental Power in HERA: The Net Worth Sweep.
The U.S. Congress would have given the FHFA more explicit instructions to do so than merely drafting in the HERA to do whatever it feels is in its best interests. DeMarco, this non-elected bureaucrat, has been allowed to steal the companies for the Treasury.
The SCOTUS upholding the NWS does not change the fact the liquidation preference can be paid down and the Senior Preferred Stock redeemed under the terms of the law of HERA. The money kept by the Treasury by the NWS should be applied to principle and 10% interest and over payment should be returned to the companies. $301 billion is more than enough to pay the liquidation preference and redeem the Senior Preferred Stock.
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