The Conservatorship was created based on authority created by Congress in HERA or Housing Economic Recovery Act. The SENIOR PREFERRED STOCK PURCHASE AGREEMENT or SPSPA was the contract by which the Treasury agreed to purchase "1 million shares of preferred stock" from Fannie Mae. This was to provide money to Fannie Mae to meet it's financial obligations.
There is a clause in the SPSPA that states " should any portion of the agreement be unenforceable, the Treasury Secretary can with the stroke of a pen completely unwind and reverse the entire conservatorship, including the return of all moneys exchanged". All moneys includes all money Treasury has taken with the sweep shall be returned to Fannie and Freddie. This can be found in paragraphs 6.7 and 6.11 of the SPSPA. I've been writing about it below:
I've been looking at the Restated SPSPA for Fannie Mae to see if there were any components which were predatory in nature, much like the predatory loan practices which caused the "housing bubble". I was motivated to look closer at these documents based on a phrase in Henry Paulson's Book "On the Brink" :
Thursday, September 4, 2008
Do they know it's coming, Hank?" President Bush asked me. "Mr. President," I said, "we're going to move quickly and take them by surprise. The first sound they'll hear is their heads hitting the floor."
There is no question that this forced conservatorship was a hostile takeover from the very beginning. It didn't have to be that way. The Treasury could have hired FnF to clean up the toxic loans. Not only was the takeover hostile, there were numerous provisions in the SPSPA which are common to "loan sharking". For example, did you know that there is a provision which transfers all of the power of the Conservator to end the conservatorship (except by receivership) to the Secretary of the Treasury.
TREASURY dictates FHFA Director meet Treasury demands.
From SPSPA:
5.3 Conservatorship. Seller shall not (and Conservator, by it’s signature below, agrees that it shall not), without the prior written consent of the Purchaser (Treasury), terminate, seek termination of or permit to be terminated the conservatorship of Seller pursuant to Section 1367 of the FHE Act, other than in connection with a receivership pursuant to Section 1367 of the FHE Act.
This is first major breach of HERA statutes. The very contract by which the conservatorship is initiated is a breach of HERA because FHFA Director cannot be further independent. Am I the only person that see's that the SPSPA agreement is invalid and unenforceable because it starts by breaking a law? You can't do that! You can't have a contract which contains a clause that a law must be broken as a condition of the contract.
The lead defining statement in first page of HERA: ESTABLISHMENT OF THE FHFA There is established the FHFA as an independent agency of the Federal Government not subject to the direction of any other agency.
From HERA:
‘‘SEC. 1313A. FEDERAL HOUSING FINANCE OVERSIGHT BOARD.
‘‘(a) IN GENERAL.—There is established the Federal Housing Finance Oversight Board, which shall advise the Director with
respect to overall strategies and policies in carrying out the duties of the Director under this title.
‘‘(b) LIMITATIONS.—The Board may not exercise any executive authority, and the Director may not delegate to the Board any
of the functions, powers, or duties of the Director.
The Director may not delegate to the Board (or board members) powers or functions of the Director!
Enjoy!
