By statutory law, the GSEs can be put in receivership by the Director of the FHFA under Section 1367(a) of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 as amended in HERA 2008 Section 1145
So, the conservatorship cannot not always protect the GSEs from receivership. Conservatorship is not a guarantee.
The GSEs could be placed in receivership if the grounds exist for discretionary appointment or mandatory receivership.
Currently, no grounds exist.
However, this is further reason why the Third Amendment and its sweep and capital reserve reduction provisions needs to be vacated.
SEC. 1367. AUTHORITY OVER CRITICALLY UNDERCAPITALIZED REGULATED ENTITIES.
‘(a) Appointment of the Agency as Conservator or Receiver-
‘(1) IN GENERAL- Notwithstanding any other provision of Federal or State law, the Director may appoint the Agency as conservator or receiver for a regulated entity in the manner provided under paragraph (2) or (4). All references to the conservator or receiver under this section are references to the Agency acting as conservator or receiver.
‘(2) DISCRETIONARY APPOINTMENT- The Agency may, at the discretion of the Director, be appointed conservator or receiver for the purpose of reorganizing, rehabilitating, or winding up the affairs of a regulated entity.
‘(3) GROUNDS FOR DISCRETIONARY APPOINTMENT OF CONSERVATOR OR RECEIVER- The grounds for appointing conservator or receiver for any regulated entity under paragraph (2) are as follows:
‘(A) ASSETS INSUFFICIENT FOR OBLIGATIONS- The assets of the regulated entity are less than the obligations of the regulated entity to its creditors and others.
‘(B) SUBSTANTIAL DISSIPATION- Substantial dissipation of assets or earnings due to--
‘(i) any violation of any provision of Federal or State law; or
‘(ii) any unsafe or unsound practice.
‘(C) UNSAFE OR UNSOUND CONDITION- An unsafe or unsound condition to transact business.
‘(D) CEASE AND DESIST ORDERS- Any willful violation of a cease and desist order that has become final.
‘(E) CONCEALMENT- Any concealment of the books, papers, records, or assets of the regulated entity, or any refusal to submit the books, papers, records, or affairs of the regulated entity, for inspection to any examiner or to any lawful agent of the Director.
‘(F) INABILITY TO MEET OBLIGATIONS- The regulated entity is likely to be unable to pay its obligations or meet the demands of its creditors in the normal course of business.
‘(G) LOSSES- The regulated entity has incurred or is likely to incur losses that will deplete all or substantially all of its capital, and there is no reasonable prospect for the regulated entity to become adequately capitalized (as defined in section 1364(a)(1)).
‘(H) VIOLATIONS OF LAW- Any violation of any law or regulation, or any unsafe or unsound practice or condition that is likely to--
‘(i) cause insolvency or substantial dissipation of assets or earnings; or
‘(ii) weaken the condition of the regulated entity.
‘(I) CONSENT- The regulated entity, by resolution of its board of directors or its shareholders or members, consents to the appointment.
‘(J) UNDERCAPITALIZATION- The regulated entity is undercapitalized or significantly undercapitalized (as defined in section 1364(a)(3)), and--
‘(i) has no reasonable prospect of becoming adequately capitalized;
‘(ii) fails to become adequately capitalized, as required by--
‘(I) section 1365(a)(1) with respect to a regulated entity; or
‘(II) section 1366(a)(1) with respect to a significantly undercapitalized regulated entity;
‘(iii) fails to submit a capital restoration plan acceptable to the Agency within the time prescribed under section 1369C; or
‘(iv) materially fails to implement a capital restoration plan submitted and accepted under section 1369C.
‘(K) CRITICAL UNDERCAPITALIZATION- The regulated entity is critically undercapitalized, as defined in section 1364(a)(4).
‘(L) MONEY LAUNDERING- The Attorney General notifies the Director in writing that the regulated entity has been found guilty of a criminal offense under section 1956 or 1957 of title 18, United States Code, or section 5322 or 5324 of title 31, United States Code.
‘(4) MANDATORY RECEIVERSHIP-
‘(A) IN GENERAL- The Director shall appoint the Agency as receiver for a regulated entity if the Director determines, in writing, that--
‘(i) the assets of the regulated entity are, and during the preceding 60 calendar days have been, less than the obligations of the regulated entity to its creditors and others; or
‘(ii) the regulated entity is not, and during the preceding 60 calendar days has not been, generally paying the debts of the regulated entity (other than debts that are the subject of a bona fide dispute) as such debts become due.
‘(B) PERIODIC DETERMINATION REQUIRED FOR CRITICALLY UNDERCAPITALIZED REGULATED ENTITY- If a regulated entity is critically undercapitalized, the Director shall make a determination, in writing, as to whether the regulated entity meets the criteria specified in clause (i) or (ii) of subparagraph (A)--
‘(i) not later than 30 calendar days after the regulated entity initially becomes critically undercapitalized; and
‘(ii) at least once during each succeeding 30-calendar day period.
‘(C) DETERMINATION NOT REQUIRED IF RECEIVERSHIP ALREADY IN PLACE- Subparagraph (B) does not apply with respect to a regulated entity in any period during which the Agency serves as receiver for the regulated entity.
‘(D) RECEIVERSHIP TERMINATES CONSERVATORSHIP- The appointment of the Agency as receiver of a regulated entity under this section shall immediately terminate any conservatorship established for the regulated entity under this title.
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