This is interesting: "35. In Fannie Mae’s September 11, 2008 Form 8-K, it stated that “FHFA, as
Conservator, has the power to repudiate contracts entered into by Fannie Mae prior to the
appointment of FHFA as Conservator if FHFA determines, in its sole discretion, that
performance of the contract is burdensome and that repudiation of the contract promotes the
orderly administration of Fannie Mae’s affairs. FHFA’s right to repudiate any contract must be exercised within a reasonable period of time after its appointment as Conservator.” This
statement reflected what is expressly set forth in HERA regarding FHFA’s power to repudiate
contracts. 12 U.S.C. § 4617(d). Thus, if FHFA was to repudiate the contracts between the
Companies and their shareholders, FHFA was required to do so “within a reasonable period of
time after its appointment as conservator” on September 6, 2008.
36. FHFA did not, either within a reasonable period of time after its
appointment as Conservator or at any other time before August 17, 2012, purport to repudiate
any of the contracts governing the Companies’ Preferred Stock or any of its other shareholder
relationships.
37. At the time the conservatorship was imposed, FHFA’s director stated that
it was critical to complete key regulations implementing HERA governing minimum capital
standards, prudential safety and soundness standards and portfolio limits “so that any new
investor will understand the investment proposition,” clearly showing that FHFA intended that
private investors would continue to purchase Fannie Mae and Freddie Mac securities. Statement
of FHFA Director James B. Lockhart (Sept. 7, 2008) (available at goo.gl/xMjTse)."
"44. Treasury’s authority under HERA to purchase the Companies’ securities
expired on December 31, 2009. See 12 U.S.C. §§ 1455(l)(4), 1719(g)(4). After that date, HERA
authorized Treasury only “to hold, exercise any rights received in connection with, or sell”
previously purchased securities. Id. §§ 1455(l)(2)(D), 1719(g)(2)(D)."
"49. In fact, as early as November 8, 2011, the accounting and consulting firm
Grant Thornton LLP prepared a report for Treasury acknowledging that “[f]rom December 31,
2012 through September 30, 2018, Freddie Mac is not projected to draw on the liquidity
commitment to make its dividend payments because of increased earnings driven by significantly reduced credit losses in 2012 and 2014.” (GT007342.) A December 2011 internal Treasury
memorandum acknowledged that “both Fannie Mae and Freddie Mac are expected to be net
income positive (before dividends) on a stable, ongoing basis after 2012 . . . .” (UST00473633.)"
"56. But, rather than taking steps to enable the Companies to redeem the Senior
Preferred Stock or at least to accumulate capital for the benefit of the Companies and their
private shareholders, the Government took the unprecedented step of radically changing the deal
FHFA and Treasury had originally made so as to seize 100% of all value the Companies could
ever generate, and to eliminate any possibility that private shareholders would ever receive
anything. On August 17, 2012, FHFA, purportedly acting as Conservator for the Companies,
and the Treasury “agreed to” a so-called “Third Amendment” to the PSPAs. This Third
Amendment was not really an “agreement” between two different entities negotiating at arm’s
length, but was instead a unilateral action by two government entities acting in concert. It
provides that in place of the 10% coupon due on Treasury’s Senior Preferred Stock under the
original PSPAs, the Treasury would now receive a dividend equal to 100% of the Companies’
net worth (minus a small reserve that shrinks to zero in 2018). And, since the PSPAs provided
that in the event of a liquidation of Fannie Mae or Freddie Mac, the Government would receive a
liquidation distribution that included the amount of any prior unpaid dividend, the Third
Amendment guaranteed that even if the Companies were liquidated, Treasury would receive
100% of their net worth in that liquidation. No matter how much value the Companies generate,
the Third Amendment provides that 100% of it has to go to the Treasury."
"61. The Government’s determination to eradicate private stockholder rights
dates back to before 2012, although this was not publicly known. For example, jurisdictional
discovery in this case has revealed that as early as December 20, 2010, then Under Secretary for
Domestic Finance Jeffrey A. Goldstein authored an “ACTION MEMORANDUM” for Secretary
Geithner noting that referred to “the Administration’s commitment to ensure existing common
equity holders will not have access to any positive earnings from the GSEs in the future.” See 13-
cv-1053 (D.D.C.) ECF No. 23-5 at TREASURY-0202."
AI
