One issue first: Sallie Mae's shareholders had a say in the future of Sallie Mae and Sallie Mae's transformation from being a GSE to becoming a completely shareholder private corporation. That has not been the case of Fannie Mae and Freddie Mac.
In the case of Fannie Mae and Freddie Mac we have the unthinkable and outrageous situation of the US Government via the FHFA and US Treasury and now the Senate via Johnson-Crapo of making into law and legal precedent the taking of private property without just compensation while sanctioning self-dealing between government agencies (FHFA and US Treasury) and their violation of statutory, procedural and constitutional laws.
Caveats:
Timing: - If the C-W or J-C passes as law prior to the resolution of the cases and the end of the conservatorship, there will be a very different result if the C-W or J-C passes after resolution of the cases and/or the end of the conservatorship. Ideally, the federal cases should be decided first, then legislation, if any, considered. Get things that are disordered straight first of all.
If legislation comes first, then there will be more complications and uncertainty stretching out over a long time horizon. Both C-W and J-C maintain the continued use of the third amendment to the PSPA to secure all net revenues for the US Treasury during the proposed wind downs. This is undesirable. Whether C-W or J-C can be enacted into law while there are federal cases challenging the legality of the third amendment to the PSPAs as well as filing takings claims is a point of power and contention between the legislative and judicial branches of government.
Can the C-W or J-C wind down of the GSEs proceed as law when the legality of the third amendment has not been decided in court? Will an injunction be ordered to prevent the wind down under the provisions for the third amendment to the PSPAs given in C-W and J-C? What impact will such an event have on the housing recovery, mortgage and interest rates, credit availability, operation of the secondary mortgage market, stock prices, the distribution of proceeds to shareholders according to the liquidation preference, etc.?
Compensation and/or Ownership: - Also, the taking claims cases and injunction cases seeking to vacate and set aside the third amendment may come into conflict instead of being supportive of one another as the wind down occurs before the federal cases are decided.
The takings claims are seeking compensation first with the possibility of a roll back of the third amendment to the PSPAs while the injunction cases are seeking the rule of law first. A win for the the rule of law first will protect shareholders' property rights, ownership and dividends and place the GSEs under the sound and solvent condition track in the conservatorship with eventual release as originally planned in 2008.
Seeking just compensation first can end up being a settlement payout of a small to no amount given the creditors demands, the payment of all outstanding debt obligations followed by the maximization of returns to the senior preferred shareholder (US Treasury). The remainder of any proceeds, if any, goes to the junior preferred and common stock shareholders. And all of this goes with the loss of company ownership. Payment means in this case, compensate us and then take the companies assets and do what you will.
There may be an attempt by the US Government to settle the taking claims cases during the wind down by offering a pittance. Wind down conditions could make for a "sell out" as seen in all of the bank settlements with the FHFA/GSEs. Something (small percent of the actual amount sued for) was taken rather than going for full compensation due and justice for the fraudsters.
It is ideal for these bill proposals to be discarded since the proposals are financially and pragmatically fatally flawed, legally and politically troublesome and wrongheaded, and wholly unnecessary. Any attempt to move these proposals forward is a sign that the leaders of the 113th Congress and the Administration are unscrupulous and fraudulent in their legislative outlook and adherence to uphold the laws of the US and are beyond rehabilitation.
