Fannie Mae-No Politics (FNMA)

[kthomp19]

Is there a provision in HERA prohibiting the payment of dividends while in conservatorship?

There are a couple. HERA includes four capital classifications for FnF in 12 USC 4614: "adequately capitalized", "undercapitalized", "significantly undercapitalized", and "critically undercapitalized".

FHFA is supposed to assign each of Fannie and Freddie to one of these categories every quarter (part (d)), but FHFA has declared, in 12 CFR 1237.3(c), that it has the incidental power to suspend capital classifications while FnF are in conservatorship. They cite Section 1364(e)(1) of the Safety and Soundness Act of 1992 (which HERA amended), but the copy I refer to on Congress's own website doesn't have a part (e) in Section 1364 at all. It's odd, but if the NWS somehow qualifies as an allowable incidental power then this refusal to classify FnF is peanuts by comparison.

It doesn't matter much anyway: with FnF's giant core capital hole (negative $119B combined), FnF would have to be classified as "critically undercapitalized" anyway.

Back to the point. HERA only places restrictions on capital distributions by FnF if they are classified "undercapitalized" (see 12 USC 4615(a)(3)) or "significantly undercapitalized" (see 12 USC 4616(a)(2)). By refusing to classify FnF at all, FHFA doesn't have to abide by those sections of HERA. So the technical answer to your question is "yes", there are sections of HERA that prohibit dividends during conservatorship. But they don't apply now and never have.

But there's an even more direct answer to your question. 12 CFR 1237.12 is titled "Capital distributions while in conservatorship" and directly addresses what you asked. Pay special attention to (b)(4), which allows the Director to authorize a capital distribution that "is otherwise in the public interest". That was the same reason the Supreme Court gave for saying that the NWS was a valid act of a conservator (not ultra vires) and dismissing Collins' APA claims under 4617(f).

Then, would payment of dividends (the sweep has been identified by the judiciary as variable rate dividends) to UST and not others violate HERA?

The above should explain why the answer to this question is "no".