Letter to Congressional Finance Committee.
I appreciate the suggestions and comments received. I included several. Please modify for your own use and send to your elected representatives.
I expect to send out by weeks end.
Date
To: U.S. House Committee on Financial Services Chairman & members
Subject: Theft from pension funds, State employee retirement accounts, and U.S. Citizens[url][/url][tag]insert-text-here[/tag]
This letter has two purposes:
1) To add to your knowledge of the illegal government nationalization of the government sponsored enterprises (GSEs), Fannie Mae (FNMA) and Freddie Mac (FMCC)
2) To request congressional intervention to force the Treasury/FHFA to release them from 14 Years of conservatorship
The release of the GSEs will be a win for the U.S. House Committee on Financial Services and a major win for the American people.
The GSEs have been in a wrongful conservatorship for over 14 years, despite their very strong financial condition. The GSEs hold over $7 Trillion dollars of mortgages. They have a loan to value (LTV) of over 50%, fifty percent. The average FICA score of these loans is over 750. The GSEs have a combined net worth of $94 Billion dollars reserved as of the end of Q3, 2022. FNMA has a 2022 YTD net profit of $11.5 Billion dollars, and FMCC has a 2022 YTD net of $7.6 Billion dollars. The GSEs far exceeded the Dodd-Frank required stress test, in its worst-case test scenario. Conservatorship is not needed! In fact, until being placed in this unlawful conservatorship, Fannie Mae has been profitable, well, since its inception in 1938!
This fraud perpetrated by Treasury/FHFA has wiped out the retirement funds of many citizens. The FHFA has kept them in conservatorship for so long it diminished the value of FNMA and FMCC stocks, affecting over one hundred thousand stock holders who have relied on the dividends to supplement their retirement. This action damaged millions more people who owned FMNA and FMCC in mutual funds, 401ks and pension funds.
The HERA (Housing Economic Recovery Act of 2008) passed by Congress, required the FHFA to put FNMA and FMCC in a sound and solvent financial condition. It also states, no dividends shall be paid until Fannie Mae and Freddie Mac have the required capital reserves. Interesting. Below in the next paragraph you will see the Net Worth Sweep prevented any profits from being reserved.
Ironically, once Treasury/FHFA placed the GSEs in conservatorship, they created a special class of stock to be paid dividends to themselves, while depriving other stockholders! Think about that! The FHFA, the Conservator Authority, abandoned its fiduciary responsibilities and deprived the GSEs of any ability to rebuild their capital reserves. As one judge of a legal case in-flight right now, observed “This resembles a mafia-style loan”. In effect, it is never allowed to be paid off.
What is more extraordinary, is how Treasury/FHFA did this. There are numerous documents, court filings, and articles written about this. At the time of the 2008 real estate crash, the wall street banks were holding $187 Billion dollars of toxic loans on their collective books. They needed to off-load these loans to the GSEs. That was the usual process of business to free up the banks’ capital, thus allowing them to make new loans. But the GSEs had governance rules too, that regulated what type of loans they could absorb. These bank loans were toxic. They did not want to do it. So, Treasury/FHFA came up with a plan.
A. FNMA and FMCC were profitable operating companies that did not need to be placed in conservatorship. The GSEs had over $60 billion dollars in reserve. Without absorbing “toxic loans” they could easily weather the severe 2008 economic head winds.
B. In 2008, Henry Paulson, Treasury Secretary, orchestrated the conservatorship, even though NONE of the criteria for conservatorship were met. (see attachment). Treasury Secretary Paulson met with the boards of FNMA and FMCC. He coerced them to place the $187 billion dollars of toxic loans assets on FNMA and FMCC books. In return Treasury would give the GSEs a $187 billion dollar compensating loan, at ten percent interest, 10%, while banks were charged only four percent, 4%. Then placed the GSEs in conservatorship. Once that occurred, the Conservator Authority (the Treasury/FHFA) issued themselves warrants to purchase 79.9% of the companies (because they could) for practically nothing.
C. Before the above actions were taken, in the Oval Office on September 4, 2008, President Bush directed to Treasury Secretary Paulson, “we have to make it clear that conservatorship is transitory, because otherwise it looks like nationalization.” In reply, (Quoting from Henry Paulson’s book, On the Brink), “The board of directors won’t know what hit them until their heads hit the floor.” He later bragged, “They had $187 Billion in toxic assets on their books. We had to Nationalize them.”
D. By 2012, the real estate market turned around. The GSEs reported projections to the FHFA with a return to profitability for the foreseeable future, as before. The GSEs would be entering “Golden Years of profitability”.
E. Ed DeMarco, Acting Director, FHFA, an unelected bureaucrat, never approved by the Senate, admitted in court, he consulted no one in his decision to implement what was soon to be called, The “Net Worth Sweep”, August, 17 2012. Basically, the FHFA, the Conservator Authority swept all quarterly profits of the GSE’s in perpetuity, in spite of their profitability projections, without any congressional approval or oversight! The “Net Worth Sweep” resulted in the launch of multiple lawsuits, (see judges’ comments in the attachment). Ed DeMarco stated in court under oath, these actions were based on his own political beliefs, without regard to data and the law, changing the GSE’s contract loan from ten percent, 10%, to one hundred percent, 100%, of the GSEs net worth in perpetuity. Think about this! Additionally, the Liquidation Preference increases for every dollar of profit the GSEs made.
a) There are over eleven thousand emails and documents unreleased and hidden from the public under Presidential seal. The few documents released in court, highlight the planned theft.
F. As of mid-2022, the GSEs have repaid $385 Billion dollars, against the cumulative loan of $191 Billion dollars!! Think about that! Yet they remain in conservatorship and the loan principal has not been reduced. This is a $194 Billion dollar “takings” by the Treasury/FHFA.
G. Nationalization of the GSEs is a violation of the fifth amendment of the U.S. constitution, “a takings without compensation”. Shareholders have received nothing.
The conservatorship has also affected the cost of home mortgages. Before the conservatorship of the GSEs, the average guaranteed loan fee on home loans was 25 basis points. Today it’s nearly 2x as much, hovering around 56 basis points, representing a hidden tax.
Shareholders, mutual funds and pension funds, along with many community banks, have been wronged. We are requesting administrative action to declare the GSE’s loan paid, eliminate the warrants, zero out the liquidation preference and return over payments beyond the original contract loan.
The fraud and corruption are replete. There are currently numerous lawsuits on-going, highly contested by the DOJ. The DOJ has spent an estimated $100 million dollars over fourteen years to keep this theft from being exposed to the public, putting forth legal technicalities in this legal battle.
End this Fraudulent Conservatorship[url][/url][tag]insert-text-here[/tag]
It is overdue to release Fannie Mae and Freddie Mac from the chains of conservatorship. The current FHFA director Sandra Thompson testified during her confirmation hearing, that she will take her direction from Congress. Congress needs to act, as oversite responsibility, directing Sandra Thompson and FHFA to End the Conservatorship.
We ordinary average citizens, need representation against this injustice.
Thank you for your consideration.
Sincerely,
Name
address
Below are key comments by Supreme Court Justices, Federal Judges along with others during congressional hearings regarding the conservatorship. Key comments in Federal court and congressional hearings are:
1) Federal Judge Margaret Sweeney called this a “mafia style loan”.
2) Federal Judge Edith Hollan Jones said, “The treasury has been compensated like a Pay Day Lender”.
3) Federal Judge Janice Rogers Brown, wrote, “This was an act of a banana republic.”
4) Former FHFA Director Mel Watt; “The law was trumped before I got there”
5) Former US Congressman Mike Capuano; “The shareholders of FMNA & FMCC have been screwed for years unnecessarily. They have paid back three times over”.
6) Former FHFA director Mark Calabria, who drafted HERA quote, “Ed DeMarco should be standing in front of a judge.” In regards to the Net Worth Sweep, for subverting HERA and the law.
7) Supreme Court Justice Sotomayor - "For no rational reason, FHFA sold all of Fannie and Freddie's assets, in exchange for $1.00, to itself. It did exactly what Justice Breyer said, it nationalized things. It nationalized the companies."
8) Supreme Court Justice Breyer’s comment “This is a takings case.” “They say, nationalization is not the kind of thing conservators and receivers do and, therefore, you can examine it. And when you examine it, you will see how unreasonable it is.”
Key Points Regarding the Conservatorship:
The Government destroyed the rights and value of the property interests tied to the common and preferred stock of the GSEs. The GSEs were put into the conservatorships under duress. The Government falsely informed the GSEs they had no choice but to consent or the Government would impose conservatorship regardless.
The conditions required for conservatorship delineated in HERA were not met, specifically:
A. Both GSEs were solvent as of September 6, 2008.
B. The GSEs had not experienced any substantial dissipation in their assets or earnings due to any legal violations or unsafe or unsound practices.
C. The GSEs were not transacting business under unsafe or unsound conditions.
D. The GSEs had not committed any violations of a cease-and-desist order.
E. The GSEs had not concealed any records from the FHFA.
F. The GSEs were likely to be able to pay their obligations and meet the demands of their creditors.
G. The GSEs had not and were not likely to incur losses that would have depleted their capital.
H. The GSEs had not committed any violation of any law or used any unsafe practice likely to cause insolvency or weaken the companies’ condition.
I. The GSEs were not undercapitalized without the prospect of becoming adequately capitalized.
J. The GSEs were not critically undercapitalized.
K. The GSEs had not committed money laundering.
AI
