The Third Amendment, Explained

The Third Amendment is a contract amendment executed on August 17, 2012, between the U.S. Treasury and FHFA (as conservator of Fannie Mae and Freddie Mac) that modified the Senior Preferred Stock Purchase Agreements (SPSPAs) Treasury entered with each Enterprise in 2008. The original SPSPAs gave Treasury a fixed 10% annual cash dividend on its senior preferred stock. The Third Amendment replaced that fixed dividend with the 'Net Worth Sweep' — a quarterly distribution of 100% of each Enterprise's net worth (minus a small reserve) to Treasury, in perpetuity.

Three reasons. First, it transferred over $300B in cumulative GSE profits to Treasury that would otherwise have rebuilt the Enterprises' capital base or flowed through to junior preferred and common shareholders. Second, it eliminated any path for Fannie and Freddie to rebuild capital and exit conservatorship as going concerns — which is why they're still in conservatorship 14 years later. Third, internal documents later revealed in Fairholme discovery contradicted the public 'death spiral' rationale, suggesting officials knew the change would scoop up imminent profits rather than prevent imminent losses.

That's been litigated for over a decade and the answer depends on which legal theory you ask about. APA challenges were largely barred under 12 U.S.C. § 4617(f). Direct fiduciary-duty claims failed at the Federal Circuit (Fairholme Funds v. United States, 26 F.4th 1274 (2022)). The Supreme Court held in Collins v. Yellen (2021) that FHFA's structure was unconstitutional but declined to invalidate the Net Worth Sweep itself. State-law contract and implied-covenant claims survived in the Berkley class action and produced an Aug 2022 jury verdict for shareholders — currently on appeal at the D.C. Circuit (oral argument heard April 21, 2026).

The first quarterly sweep dividend under the Third Amendment was paid in March 2013 for Q1 2013 results. Fannie's first sweep dividend alone was approximately $59B, driven largely by reversal of deferred tax asset valuation allowances — exactly the kind of imminent profitability the internal documents suggested officials knew was coming.

FHFA and Treasury justified the change by arguing the 10% fixed dividend ($19B/year combined) would force the GSEs to draw additional Treasury funds to pay the dividend itself — the 'circular draw' or 'death spiral' argument. Critics (and Fairholme discovery documents) argued this was pretextual, since the GSEs were about to become extraordinarily profitable. The Berkley jury found that the implied covenant of good faith and fair dealing was breached — implying the rationale didn't hold up under cross-examination.

Joshua Angel's five pro se complaints (Angel I through Angel V, 2018-2025) all challenge the Third Amendment under different theories — most prominently a 'federal government implicit guaranty' theory grounded in pre-conservatorship Treasury statements and (for Angel V) President Trump's May 27, 2025 statement that 'the U.S. Government will keep its implicit GUARANTEES.' Angel V was dismissed with prejudice on April 23, 2026, and Angel filed a motion for reconsideration four days later. Full case tracker: /joshua-angel-v-united-states.

Treasury has been paid back many multiples of the senior preferred draw — but in dividends, not principal. Treasury's stated liquidation preference is still on the books at the original $187B level, even though Fannie and Freddie have collectively paid more than $300B in dividends. Whether that's a 'taxpayer win' depends on whether you think dividends should reduce principal (the GSEs' shareholders argue yes; Treasury's accounting says no). The Berkley jury verdict and the Federal Circuit's Fairholme ruling have come out on opposite sides of the underlying contract questions.