Fannie Mae-No Politics (FNMA)

[955]

HERA regulations regarding PURCHASE OF OBLIGATIONS OF Fannie & Freddie, i.e., the regulated entities. This would include any dividends paid to Gov (obligations) in return for Treasury backstops ('bailouts') while in conservatorship. Commentary follows.

From HERA 2008:

SEC. 1117. TEMPORARY AUTHORITY FOR PURCHASE OF OBLIGATIONS
OF REGULATED ENTITIES BY SECRETARY OF TREASURY.

(a) FANNIE MAE.—Section 304 of the Federal National Mortgage
Association Charter Act (12 U.S.C. 1719) is amended by adding
at the end the following new subsection:

‘‘(g) TEMPORARY AUTHORITY OF TREASURY TO PURCHASE OBLIGATIONS
AND SECURITIES; CONDITIONS.—

‘‘(1) AUTHORITY TO PURCHASE.—

‘‘(A) GENERAL AUTHORITY.—In addition to the authority
under subsection (c) of this section, the Secretary of the
Treasury is authorized to purchase any obligations and
other securities issued by the corporation under any section
of this Act, on such terms and conditions as the Secretary
may determine and in such amounts as the Secretary may
determine. Nothing in this subsection requires the corporation
to issue obligations or securities to the Secretary without
mutual agreement between the Secretary and the corporation.
Nothing in this subsection permits or authorizes
the Secretary, without the agreement of the corporation,
to engage in open market purchases of the common securities
of the corporation.

‘‘(B) EMERGENCY DETERMINATION REQUIRED.—In
connection with any use of this authority, the Secretary
must determine that such actions are necessary to—

‘‘(i) provide stability to the financial markets;
‘‘(ii) prevent disruptions in the availability of mortgage
finance; and
‘‘(iii) protect the taxpayer.

‘‘(C) CONSIDERATIONS.—To protect the taxpayers, the
Secretary of the Treasury shall take into consideration
the following in connection with exercising the authority
contained in this paragraph:

‘‘(i) The need for preferences or priorities regarding
payments to the Government.
‘‘(ii) Limits on maturity or disposition of obligations
or securities to be purchased.
‘‘(iii) The corporation’s plan for the orderly resumption
of private market funding or capital market access.
‘‘(iv) The probability of the corporation fulfilling
the terms of any such obligation or other security,
including repayment.
‘‘(v) The need to maintain the corporation’s status
as a private shareholder-owned company.
‘‘(vi) Restrictions on the use of corporation
resources, including limitations on the payment of dividends
and executive compensation and any such other
terms and conditions as appropriate for those purposes.

https://www.gpo.gov/fdsys/pkg/PLAW-110publ289/pdf/PLAW-110publ289.pdf


Comments in italics:

***Everything in this section requires mutual agreement between the Secretary and the corporation.

***EMERGENCY DETERMINATION REQUIRED.—In
connection with any use of this authority, the Secretary
must determine that such actions are necessary to—
(i) provide stability to the financial markets; [Financial Markets are stable]
(ii) prevent disruptions in the availability of mortgage
finance; and [No disruptions in mortgage finance exist]
(iii) protect the taxpayer. [All talk coming from Treasury is to protect the taxpayer. Yet, how does the NWS and not only the prevention of building capital, but winding down all existing capital reserves protect the taxpayer???]

***(C) CONSIDERATIONS.—To protect the taxpayers, the
Secretary of the Treasury shall take into consideration
the following in connection with exercising the authority
contained in this paragraph:
(i) The need for preferences or priorities regarding
payments to the Government.
(ii) Limits on maturity or disposition of obligations
or securities to be purchased.
(iii) The corporation’s plan for the orderly resumption
of private market funding or capital market access. [Non-existent. There are no plans to resume normal funding of equity markets.]
(iv) The probability of the corporation fulfilling
the terms of any such obligation or other security,
including repayment. [Impossible with capital reserves set to be exhausted by 2018 and no pay-down in principle allowed.]
(v) The need to maintain the corporation’s status
as a private shareholder-owned company. [This will totally cease when F&F reach zero capital reserves and require another 'bailout'.]
(vi) Restrictions on the use of corporation
resources, including limitations on the payment of dividends
and executive compensation and any such other
terms and conditions as appropriate for those purposes. [There are no restrictions or limitations in a NWS.]