HERA requires that FHFA as
conservator return the Companies to “a
sound and solvent condition” and act to carry
on the business to “preserve and conserve the
assets and property” of the Companies. Unfo
rtunately, through the Third Amendment, Treasury
and FHFA have expressly rejected complying with these requirements, as confirmed in
testimony by Director Watt of FHFA.
123
That these continuing actions violate HERA’s explicit
requirements is demonstrated by
the long-standing practices of
the FDIC under the virtually
identical provisions of the FDIA and of the principles underlying other U.S. and international
insolvency frameworks.
This is important to the stakeholders in
Fannie Mae and Freddie Mac, of course.
However, it is perhaps more impor
tant to the future of public po
licy and the government role in
future insolvency proceedings. If Treasury a
nd FHFA can conduct the co
nservatorships of the
Companies to strip out any value and prevent th
e restoration of regulatory and market capital
despite their obligations under HERA, this manipulation of the process w
ill dramatically affect
public confidence in the fairness and predictability
of government’s participation in insolvency
proceedings. These unprecedented deviations fr
om settled insolvency practices and creditor
protections undercut one of the
critical foundations of a market economy, and could call into
question the reliability of the government as a reso
lution authority. It is essential that HERA be
enforced and that Treasury and FHFA comply with their duties. Fair
and predictably applied
insolvency rules allow investors, creditors and even consumers to
judge the risks of investing in,
doing business with, or buying produc
ts or services from a comp
any. Without pub
lic confidence
in this process, a critical foundation of
our market economy will be lost.
