Replies to post #11690 on Fannie Mae Preferred S (FNMAS)

[dpsimswm]

Yes. Preferred Shares existed before Conservatorship. $8 billion were held by banks. Paulson destroyed hundreds of community banks by eliminating dividends.

"Why Did These Banks Hold Fannie and Freddie Preferreds?

The preferred stocks were issued with documentation that was clearly crafted to give the impression of the Treasury's seal of approval, but with no legal ramifications for not standing behind the investments.

For example, in the Fannie Mae Series T Preferred Offering Circular, it states:

"As a federally chartered corporation, we are subject to the limitations imposed by the Charter Act, extensive regulation, supervision and examination by OFHEO and the U.S. Department of Housing and Urban Development ("HUD"), and regulation by other federal agencies, including the Department of the Treasury and the SEC."

Many investors purchased these securities believing that the U.S. Government would never let them default on their dividend payments. They were sold to investors as investment grade agency securities. However, in September 2008, dividend payments were suspended. It doesn't stop there.

Buy These Stocks "Without Limit"

In April 2002, the Comptroller of Currency, a division of the Treasury, issued letters to banks that stated the following:

"A national bank may invest in perpetual preferred stock issued by the Federal National Mortgage Association ("Fannie Mae") and by the Federal Home Loan Mortgage Corporation ("Freddie Mac") without limit,"

That's right. The Treasury told banks to buy Fannie and Freddie preferred stocks "without limit" and then they suspended the dividends to the same stock shares."

http://seekingalpha.com/article/693681-what-to-do-with-a-profitable-fannie-and-freddie