ATTN: GAK
My emails/messages to all the Senators went out end of July and early August 2016. If you are posting on their websites, they ask for issue/topic from a drop-down list. I usually chose Judiciary or Finance depending on what was available. My recollection is that they all have a limit on the number of characters you can use. So keep it short. My message was:
"When did conservatorship become a license to steal?
What is your position on the nationalization of Fannie Mae and Freddie Mac?
When did we stop being a democracy?
When did the USA become a banana republic?"
I do hope you have better luck than I did. I also hope other shareholders join you. I will.
Here's the response I received from Senator Tim Kaine (had completely forgotten it):
Dear Mr. Da Costa Pereira:
Thank you for contacting me about the status of shareholders of Fannie Mae and Freddie Mac since these two companies went into conservatorship. I appreciate hearing from you.
Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) which are federally-chartered, private companies. Before the housing crisis, the GSEs were regulated by the Office of Federal Housing Enterprise Oversight. Preferred stock certificates from both Fannie Mae and Freddie Mac provided notice that the Office of Federal Housing Enterprise Oversight had the ability to restrict dividend payments.
In 2008 Congress passed the Housing and Economic Recovery Act which established the Federal Housing Finance Agency as the new government regulator responsible for supervising Fannie Mae and Freddie Mac. This legislation clarified and enumerated the powers already possessed by the Office of Federal Housing Enterprise Oversight. Further, when the Federal Housing Finance Agency was appointed conservator for the GSEs, it "immediately succeeded to all rights, titles, powers, and privileges of the GSEs, and any stockholder, officer, or director of the GSEs."
After the GSEs went into conservatorship, the Federal Housing Finance Agency entered into a preferred stock purchase agreement with the Treasury Department. This preferred stock purchase agreement required the Treasury Department to provide financial support to avoid insolvency in exchange for several provisions, including a quarterly dividend, which was set at 10 percent of the liquidation preference in each firm. This preferred stock purchase agreement has been amended several times, but the third amendment to it established a more permanent formula for determining the funding commitment and modified how the dividend payment would be calculated.
A class of Fannie Mae and Freddie Mac shareholders has argued that the third amendment to the preferred stock purchase agreement constituted a taking of their property rights without just compensation under the Takings Clause of the Fifth Amendment to the Constitution. This class of plaintiffs includes those who bought shares in the GSEs both before and after the companies were placed into conservatorship.
In September 2014, the U.S. District Court for the District of Columbia dismissed the case, holding that the plaintiffs failed to plead a proper property interest for purposes of the Takings Clause. The plaintiffs have indicated that they will appeal.
The D.C. District Court reasoned that because the regulatory authority under the Housing and Economic Recovery Act gives the Federal Housing Finance Agency the authority to be appointed conservator or receiver, the Federal Housing Finance Agency succeeds to all the rights of GSE shareholders. When the Federal Housing Finance Agency succeeds to all the rights of GSE shareholders, the GSE shareholders necessarily lack the right to exclude the government from their investment. The Supreme Court has said that "the ‘right to exclude' is doubtless...one of the most essential sticks in the bundle of rights that are commonly characterized as property." Thus, the plaintiffs lacked the proper property interest to prevail under the Takings Clause.
The court also reasoned that there is a trade-off in investing in GSEs: because the GSEs receive meaningfully different benefits than private corporations (i.e. preferential tax treatment, far lower capital requirements, a widely perceived government guarantee), shareholders should have anticipated the possibility of increased regulation and the prospect of a government takeover.
Please be assured I will keep your views in mind should the Senate consider legislation regarding this important issue. Again, thank you for contacting me.
Sincerely,
Signature
Tim Kaine
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