http://muckrack.com/carney/articles
http://www.wsj.com/articles/u-s-government-puts-points-on-board-in-fannie-fight-heard-on-the-street-1411496516
In mid-2012, FHFA and the Treasury struck a deal that relieved the companies from the burden of paying a set dividend. Instead, they were required to pay the government only when they profited and only in an amount equal to their earnings. This meant Fannie and Freddie wouldn’t suffer in bad quarters and the Treasury would capture the upside of good quarters.
A number of lawsuits have since been filed claiming this amounted to an unconstitutional expropriation of shareholder assets and illegal self-dealing between the Treasury and the FHFA. The government has argued the cases should be dismissed because the FHFA was acting as the companies’ conservator, not as an arm of the U.S. government.
Earlier this year, a federal claims court judge granted Fairholme’s request to seek evidence the FHFA acted as “an agent and arm of the Treasury,” rather than as a third-party conservator.
That is where Friday’s decision by Judge Amy Berman Jackson of the federal district court in Washington becomes relevant. She ruled the Treasury and FHFA weren’t so closely interconnected to allow the plaintiff, an investor, to overcome the general rule that only the conservator can sue on behalf of Fannie Mae.
The lawsuits filed by Fairholme, Perry and Pershing may turn on a similar issue: claims the FHFA lacked independence when it made the profit-sweep deal and that Treasury was essentially directing the actions of the FHFA. If judges in those cases also take Judge Jackson’s position, the government will have an easier time defending the terms of the 2012 deal.
http://www.wsj.com/articles/heard-on-the-street-time-for-fannie-and-freddie-investors-to-surrender-1407782039
That spat has largely turned on the so-called sweep agreements the two companies entered into in 2012. Those require that after establishing a minimum net worth, all additional income must be handed over to the U.S. Treasury. In exchange, Uncle Sam agreed not to charge the companies a commitment fee on their government credit lines.
The fund managers argue that the government’s take should be limited to the 10% dividend owed on its preferred shares in the companies. The difference between the sweep and the 10% dividend was tens of billions of dollars last year—hence the attention.
Now it is far smaller. For Freddie, the difference is a rounding error. Under the sweep, it will pay $1.9 billion to the government. The 10% dividend on the preferred shares would be $1.8 billion. If Freddie owed a commitment fee for the credit line on top of that, it would likely be in deficit.
The difference is wider for Fannie. It is paying $3.7 billion to the government. A 10% dividend would be just $2.9 billion, an $800 million difference. But perhaps $250 million of that would likely go to any reasonable commitment fee on its $117.6 billion credit line.
Fannie’s chief said the second quarter gave a “good sense of a normalized environment,” suggesting these profit levels aren’t anomalous. And in this environment, sweep or no sweep, there is close to nothing left over for investors in Fannie or Freddie.
http://www.wsj.com/articles/SB10001424052702303851804579560290493211498
And even though the companies may no longer shrink their footprints, nothing in Mr. Watt’s remarks appeared to alter the official policy of their largest shareholder, the government: that Fannie and Freddie should be wound down.
Above all, neither Mr. Watt’s remarks nor the agency’s strategic plan make any mention of Fannie’s or Freddie’s shareholders. That silence is a warning in itself.
http://www.wsj.com/articles/SB10001424052702304655304579549972983056810
Fannie says it expects to remain profitable for the foreseeable future. But the low quality of its earnings are a warning to investors—and policy makers—that the mortgage giant is still far from steady on its feet.