Wednesday, February 18, 2015

Fannie Mae: Perspectives on HERA Shareholders Can Take to the Bank – Or at Least Should

Fannie Mae: Perspectives on HERA Shareholders Can Take to the Bank – Or at Least Should



Citing Sec. 4617(b)(2)(B) of the U.S. Code, he pressed whether that section of the law allows the government to take over the assets of mortgage market giants Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) / Federal Home Loan Mortgage Corp (OTCBB:FMCC) with all powers of the shareholders.  In other words, can’t the government do pretty much as it sees fit as the conservator of these government-sponsored enterprises (GSEs)? After all, aren’t the rights of the stockholders suspended during the conservatorship?
The only problem with this line of inquiry is that it misses other key components of the law as well as the intention of Congress – the letter and the spirit of the law. A complete reading of that section of the U.S. Code makes clear that it stipulates that the Federal Housing Finance Agency, which  HERA created and vested all power in as conservator, is to do whatever is needed to “conserve and preserve” the Fannie Mae and Freddie Mac’s assets. There’s also the explicit and separate direction to conservators to takes steps necessary to put the regulated entity in a “sound and solvent condition.” In other words, a conservatorship is meant to be a temporary arrangement that anticipates restoring the Fannie Mae and Freddie Mac and stockholders continue to retain all rights in the stock’s financial worth, which, by the way, is determined by the market, not the government.

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