Fannie Mae-No Politics (FNMA)

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I was parsing through some old documents on the FHFA website last night and found this one, which is relevant to the current legal/political atmosphere surrounding the GSEs. It's a letter from Ed DeMarco (former director of FHFA) written to the chairs of the House Financial Services Committee and Senate Banking Committee in Feb 2010 as an update to the conservatorships of Fannie/Freddie. This letter was written 2 years prior to the PSPA 3rd amendment "net worth sweep".

http://www.fhfa.gov/webfiles/15393/Conservatorship_Letter_2_2_10%5b1%5d.pdf

I've highlighted some interesting comments made by Mr. DeMarco:

"As conservator, FHFA has the powers of the management, boards, and shareholders of the
Enterprises. However, the Enterprises continue to operate as business corporations. For
example, they have chief executive officers and boards of directors, and must follow the laws
and regulations governing financial disclosure, including requirements of the Securities and
Exchange Commission. Like other corporate executives, the Enterprises' executive officers are
subject to the legal responsibility to use sound and prudent business judgment in their
stewardship of their companies."

--The FHFA, vi DeMarco, openly states that Enterprises must behave as companies governed by sound business practices and SEC regulations. If in fact FHFA assumes the powers of the board and management, then it should be held accountable to these same standards. Clearly the 3rd PSPA amendment is not in line with this logic.

"The Enterprises' operating in conservatorship cannot be a long-term solution. When the
conservatorships and Treasury's financial commitments were established in 2008, Secretary
Paulson described the arrangement as a "time-out" to allow policymakers to further consider the
role of the Federal government and the Enterprises in the future system of housing finance.
There are a variety of options available for post-conservatorship outcomes, but the only one that
FHFA may implement today under existing law is to reconstitute the two companies under their current charters."

--DeMarco states that under current law (assuming HERA 2008?) nothing can be done to the GSEs, except restore them in a solvent condition. To my knowledge, there has been no legislation passed that contradicts this statement. Therefore, what legal footing does Congress stand on regarding reform that diverges from anything but initial restoration?

These thoughts are my opinion only. It seems as though statements made by FHFA, Treasury, and the Administration are rife with conflict and inconsistency. I can only imagine the kinds of documents that will be unearthed in the discovery process.