Below is my previous letter to congressman French Hill; changed and modified to send to 8 republican senators on the senate banking committee. Again many thanks to the contributing comments from board members, as this is collaborative work. ( as they say; copy from one person is plagiarism, copy from many is research) Please feel free to copy, modify and use to send to your representative of senator.
October 6, 2023
Senate Office Building
Washington, DC 20002
To: Honorable Senators and Republican members of the Banking Committee;
Mr. Bill Hagerty, Mr. Tim Scott, Ms. Katie Boyd Britt, Mr. Kevin Cramer, Mr. Mike Crapo
Mr. Steven Daines, Mr. John Kennedy, Ms. Cynthia M. Lummis
Subject: Urgent Review Required – FHFA and the Conservatorship of Fannie Mae and Freddie Mac
Dear Honorable Senators,
I extend my greetings to you as distinguished Republican members of the Banking Committee. I trust your comprehensive understanding of financial systems and the vital role of housing within the United States.
First, thank you for your proactive letter to Ms. Sandra Thompson, Director of FHFA regarding the Proposed Rule on Fair Lending, Fair Housing, and Equitable Housing Finance Plan, dated September 18, 2023.
I write to address a longstanding concern that has negatively impacted Fannie Mae (FNMA) and Freddie Mac (FMCC) shareholders for more than fifteen years – the overreaching actions of the Federal Housing Finance Agency (FHFA) and the extended conservatorship. This issue has not only affected countless Americans but also has implications for the broader financial landscape.
In light of your exceptional insight into these matters, I am confident you are aware of the magnitude of the problem. The shareholders of FNMA and FMCC, that includes millions of American citizens who have invested directly or indirectly through mutual funds and pensions, have endured substantial financial losses. Families have seen their retirement savings, children's education funds, and future financial security erode as a consequence of these circumstances. Moreover, the actions taken have had a ripple effect, causing community banks to suffer losses due to government actions and misleading statements.
It is disheartening to observe the conservatorship of FNMA and FMCC was initiated without adherence to the mandated conditions outlined in the HERA legislation. The Treasury Secretary at the time, Hank Paulson, conceded the takeover was coerced, deviating from the principles of fairness and transparency, that underlie our financial system. The terms of the agreements reached were not only abusive, but also fiscally unviable, a fact that any reasonable individual, particularly one with your background, can attest to. Morgan Stanley's CEO told Ben Bernanke, "We'll go down in flames before I agree to these terms!"
The GSE conservatorship is based on fraud and unethical standards by any measure. Only self-serving bureaucrats and lawyers using the most extreme legal technicalities have been able to continue this abuse. Recent developments, such as the verdict in the first district Federal Court regarding the Net Worth Sweep, have brought attention to the injustice suffered by shareholders. The jury's ruling confirmed the violation of the "Implied Covenant of Good and Fair Dealing", leading to a substantial award of damages amounting to $612 million. Any common person aware of the facts would come to the same conclusion. It took only ten hours of deliberation to reach a unanimous verdict.
Of particular concern is the impact of the "Net Worth Sweep," implemented by then acting FHFA director Ed DeMarco. This amendment unilaterally altered the repayment terms, resulting in an exorbitant 100% of net worth to be paid back quarterly, indefinitely. This approach is fundamentally at odds with the purpose of conservatorship, which is to facilitate the recovery of FNMA and FMCC to sound financial health. No sane person would ever accept these terms for personal or for a business.
Numerous infractions of federal regulations and laws have occurred under FHFA's oversight, casting a shadow over the integrity of the conservatorship. An alarming instance is the blatant violation of Code of Federal Regulation 1237.12, which explicitly states that capital distribution is prohibited while under conservatorship. Ed DeMarco's admission, under oath, he unilaterally enabled to divert over $300 billion to the Treasury, without consultation, is a stark reminder of the extent to which the original goals of the conservatorship have been disregarded.
The consequences of FHFA's actions have extended beyond shareholders. Home ownership for hard working middle class American Families has become more expensive due to inflated commitment fees and a tripling of Guarantee Fees on mortgages, directly impacting citizens seeking to establish stable residences.
Moreover, the unprecedented expansion of FHFA's workforce raises pertinent questions. The number of employees has tripled, an anomaly when compared to well-operated entities like FNMA and FMCC, as noted by Warren Buffet, who stated it would only require a handful of people for oversight responsibilities.
As a steward of the Banking Committee, I urge you to pose essential questions to FHFA regarding the Net Worth Sweep:
1. Did the Net Worth Sweep enhance risk-based capital levels? NO
2. Did it contribute to long-term financial stability? NO
3. Was the NWS in the interest of the regulated entities? NO
4. Was it in the public interest? NO (Taxpayers bear the liabilities).
It is abundantly clear the Net Worth Sweep failed to achieve rehabilitative effects and directly contradicted the FHFA Director's responsibility to safeguard assets.
Curiosity persists regarding the rationale behind sealing 11,000 documents and emails regarding FHFA by President Obama. The claim of "national security" warrants further scrutiny and demands transparency. What is President Obama hiding? Emails that have been unsealed in court indicate a concerted effort to misappropriate Fannie Mae and Freddie Mac funds and keep them wards of the government. Judge Margaret M. Sweeney, April 13, 2016, quoted, “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 of the 11,000 documents.
The attached charts, illustrating the staggering financial transfers from FNMA and FMCC to the Treasury under the Net Worth Sweep as of December 2022, emphasize the severity of the situation. A comprehensive analysis underscores Treasury's gains are far in excess of a reasonable estimate, and the ongoing senior preferred dividend payments could have been avoided.
FHFA Director Sandra Thompson's assertion of willingness to collaborate on housing finance reform raises concerns. It is my perspective this stance masks a reluctance to take decisive action.
Recent Dodd-Frank stress tests affirm FNMA and FMCC's profitability even under extreme economic conditions.
I advocate for the Banking Committee to assert its authority and release FNMA and FMCC from conservatorship. This step would nullify ongoing legal disputes and prompt FHFA to return to its fundamental operational and oversight role. The reforms undertaken by both companies position them for a responsible transition.
I propose a Senate inquiry into the litany of FHFA and conservatorship violations, further underscoring the urgency of the situation.
I beseech you to utilize your influence to effect change and uphold the interests of American taxpayers.
I am confident that your attention to this matter will yield significant benefits. The implications of your actions extend beyond the housing market, impacting the economy and the lives of countless citizens.
Sincerely,
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 quoted, “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.”
Attachments: 1) Power Point – GSEs payments to US Treasury
2) “What are they Waiting for?”, Gary Hindes, The Delaware Bay Company.
PS: This letter represents the thoughts of thousands of interested voters, throughout the United States, who regularly participate and post on INVESTORSHUB FNMA website. My letter also posted.
PS: Quote: “In summary, the entire Conservatorship, the notion of GSE instability, and a failed model appears to have been fabricated by the U.S. Treasury. HERA was passed by a congress during a moment of weakness and panic without any or all the congressmen and congresswomen understanding the details (fine fine print) and how these could be manipulated, As we have seen Fannie Mae was able to pay back the entire amount of funding from the U.S. Treasury because it never burned or needed the cash in the first place... as proven, strangely enough, via the Company's own disclosures.” End of Quote.
Spittler CPA, MS Mike Ciklin JD, MBA, MRE
