My draft letter to the Congressional Financial Services Committee. Suggestions and comments are appreciated:
February 18, 2023
To: Patrick McHenry, US Congressman
Cc: U.S. House Committee on Financial Services (Republican members)
Subject: Conservatorship of GSEs, Fannie Mae (FNMA) and Freddie Mac (FMCC)
I once worked for a wise manager who often stated, “You can never go wrong doing the right thing”. This bit of wisdom is important to live by, including resolving current issues propagated by those in our government. Our government should be held to a higher standard and be the example of “doing the right thing”. It is a sham citizens have to fight in the courts with the DOJ over legal technicalities and semantics. The wrongful conservatorship of the GSE’s has been ongoing for fifteen years and the treasury department has “taken” over $300 billion dollars from Fannie Mae (FNMA) and Freddie Mac (FMCC) as repayment against an original $189 billion dollar loan commitment. The treasury department has been fully compensated years ago. Ms. Sandra Thompson, Director of FHFA, has commented on numerous occasions, she is waiting for congress to act. In other words, she wants congress to tell her what to do. It is time for congress to order the release Fannie Mae and Freddie Mac from conservatorship!
From the attached letter by former President Trump to Senator Rand Paul, “The idea that the government can steal money from its citizens is socialism and is a travesty brought to you by the Obama/Biden administration”.
One of the most egregious acts was the 3rd amendment which changed the terms of the conservatorship. This 3rd amendment is better known as the “Net Worth Sweep”. It was drafted and implemented by acting FHFA director, Ed DeMarco. This 3rd amendment changed the 10% repayment term to 100% of the GSE’s net worth. Worse yet, these payments would continue every quarter in perpetuity. It was intended to prevent the GSE’s from building retained earnings and exiting conservatorship.
The future of the Secondary Mortgage Markets in the United States is a Major Question of Economic and Political Importance, which should be decided by our Elected Representatives. Ed DeMarco, Acting Director of FHFA, an unelected bureaucrat, never approved by the Senate, admitted under oath in court, that he never consulted anyone in his decision to draft and implement the “Net Worth Sweep”. Emails presented in judge Margaret Sweeney's federal court as evidence from Treasury department indicate otherwise. Did Ed DeMarco commit perjury?
There are eleven thousand emails and documents under presidential seal, provided in Judge Sweeney’s court may provide a clear understanding of these “takings”. Of the few that have been released by the courts indicate a planned improper “takings” and manipulation of the GSEs. “The court will not condone the misuse of a protective order as a shield to insulate public officials from criticism in the way they execute their public duties.” ORDER GRANTING MOTION TO DE-DESIGNATE SEVEN DOCUMENTS; Judge Margaret M. Sweeney, April 13, 2016.
The basis of the conservatorship is to restore the GSEs to financial health and soundness. Soundness by definition means capital. The Treasury department has done the opposite by “taking” the net worth of the companies every quarter! Is this a violation of the federal statutes? I sure do think so!
Code of Federal Regulations Title 12 - Banks and Banking
Chapter XII - FEDERAL HOUSING FINANCE AGENCY.
Subchapter B - ENTITY REGULATIONS Part 1237 –
CONSERVATORSHIP AND RECEIVERSHIP.§ 1237.12
Capital distributions while in conservatorship.
(a) Except as provided in paragraph (b) of this section, a regulated entity shall make no capital
distribution while in conservatorship.
(b) The Director may authorize, or may delegate the authority to authorize, a capital distribution that
would otherwise be prohibited by paragraph (a) of this section if he or she determines that such capital
distribution:
(1) Will enhance the ability of the regulated entity to meet the risk-based capital level and the minimum capital level for the regulated entity;
(2) Will contribute to the long-term financial safety and soundness of the regulated entity;
(3) Is otherwise in the interest of the regulated entity; or
(4) Is otherwise in the public interest.
(c) This section is intended to supplement and shall not replace or affect any other restriction on capital
distributions imposed by statute or regulation.
The Treasury department issued itself warrants as collateral at the time of the conservatorship to ensure payment. Full payment has been received and warrants should be null and void.
Action requested: Congress needs to direct Ms. Sandra Thompson, Director of FHFA, to agree with the treasury department the loan has been paid and has been fully compensated, therefore eliminate the senior preferred stock agreement, eliminate the warrants and zero out liquidation preference. By consent decree release Fannie Mae and Freddie Mac from conservatorship. The ending of the conservatorship will eliminate all lawsuits and allow Fannie Mae and Freddie Mac to operate as private companies with oversight and regulation from FHFA.
FNMA released it’s 2022 annual 10K report on February 14, 2023. FNMA reports a $12.8 billion dollar profit and $60.3 billion dollars net worth. The company is profitable with an operating margin of 18.25%. FNMA has the financial health to stand on its own.
Attached for your reference is an analysis by Bryndon Fisher, “Solving for P: A Commonsense Approach to Valuing the Common Shares of Fannie Mae and Freddie Mac Under a Recapitalization Plan that Actually Makes Sense”.
Please take action and eliminate the conservatorship. Thank you for addressing my concern.
Sincerely,
