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Tuesday, December 10, 2013 11:53:43 PM
Below is the US lawyer account of why the the Third Amendment was executed. Any informed person reading this will realize this is an attempt to wiggle out of the Fariholme taking claim narrative. It is untrue. It will be remarkable if a judge accepts this selective, biased and false account.
In August 2012, FHFA, acting as conservator for the Enterprises, entered into the Third
Amendment to the Stock Agreements. See Compl. ¶¶ 10, 63-64, 73. The amendment was critical because of a longstanding concern that the Enterprises – though presently maintained in a solvent condition due to Treasury’s assistance – failed to generate enough revenue to fund the 10-percent dividend obligation. Moreover, the Enterprises faced enormous credit losses.8 Enterprises found themselves in a death spiral: drawing on the Treasury commitment to pay
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7 See www.fhfa.gov/webfiles/23/FHFAStatement9708final.pdf at 8.
8 Fannie Mae, Annual Report for Fiscal Year ended Dec. 31, 2012 (Form 10-K).
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Treasury its fixed dividend, which, in turn, increased Treasury’s total investment and the next quarterly dividend.9 This cycle would then repeat itself. There was concern that, under the weight of the fixed dividend, the Enterprises would run through the remaining Treasury investment capacity, leading to insolvency.
Consequently, the Third Amendment eliminated the prospect of future insolvency caused by the required fixed-dividend payments. The Third Amendment did this by eliminating the Stock Agreements’ provisions requiring the payment of a fixed, 10-percent dividend (see Compl. ¶ 66) that the Enterprises could not pay without further drawing on Treasury’s investment commitment. Instead, the Enterprises must now pay a quarterly variable dividend – known as a “net worth sweep” – only if the Enterprises are profitable and able to maintain capital reserves. Compl. ¶ 66. If either Enterprise’s net worth is negative in a quarter, no dividend is due from that Enterprise. The amendment was designed to strengthen the Enterprises, decreasing their funding costs and avoiding draws on the limited backstop provided by Treasury in the Stock Agreements. Thus, the modification maintained market stability by preserving Treasury’s ability to support the continued solvency of the Enterprises and avoiding the statutory trigger for receivership and liquidation.
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9 See Press Release, FHFA, Statement of FHFA Acting Director Edward J. DeMarco on Changes to Fannie Mae and Freddie Mac Preferred Stock Purchase Agreements (Aug. 17, 2012).
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