Fannie Mae-No Politics (FNMA)

[Anjango]

Has The FHFA Breached Its Fiduciary Duty to Fannie Mae and Freddie Mac?

When Fannie Mae (Fannie) and Freddie Mac (Freddie) were placed into conservatorship by the Federal Housing Finance Agency (FHFA), one of the goals was to “preserve and conserve the Companies’ assets and property, and to put the Companies in a sound and solvent condition.” And if economic conditions allowed for the possibility for such a recovery, the FHFA had a fiduciary duty to facilitate such a recovery.

Well, after almost five years it has become quite apparent that it is possible for both Fannie and Freddie to recover. In fact, estimates indicate that if both companies were allowed to apply funds in excess of the 10.0% dividend to the aggregate liquidation preference, the senior preferred stock would be retired on or before the fourth quarter of 2015 without the need for the U.S. Treasury (Treasury) to exercise its warrant.

However, the recent amendment in August 2012 to the Senior Preferred Stock Agreement by the FHFA and the Treasury, has made it all but impossible for both firms to recapitalize and exit their respective conservatorships. In other words, by placing this artificial barrier in the way of both firms, the FHFA as conservator has breached its fiduciary duty and is, thus, in violation of the conservatorship agreements. Even the Congressional Research Service stated in their September 2009 report to Congress that “by law, [Fannie’s and Freddie’s] conservatorship[s] will end if they meet the minimum capital requirements.”

Consequently, Ralph Nader and his organization are working on one last appeal to both Congress and Treasury Secretary Lew to do the right and legal thing for both the taxpayers and existing shareholders by allowing the firms to recapitalize and to exit the conservatorships. If, however, lawmakers and government officials remain unconvinced and undeterred from their present course, there is a strong possibility that legal action will be taken this year to compel the FHFA to comply with the intended purpose of the c-ships

Credit Due to braydon Fisher on yahoo