Fannie Mae's and Freddie Mac’s charters were amended on July 30th, 2008, 38 days before Conservatorship began (September 7th, 2008) in order to approve a provision that will be very punitive to their shareholders during Conservatorship. The day of Conservatorship, the enterprises signed an Agreement with Treasury where the Treasury injects cash and receives Senior Preferred Shares with a 10% annual dividend in exchange.
The previous charter said that Treasury can purchase any obligation but these obligations shall have a “yield to be appropiate” taking into consideration the rate of the U.S. government’s debt. But the Treasury is not getting funds at a 10% annual yield but at a 0.11% annual rate.
Current charter updated with the amendment included:
Charter: SECTION 306 (c)
“Each purchase of obligations by the Secretary of the Treasury under this subsection shall be upon terms and conditions established to yield a rate of return determined by the Secretary to be appropriate, taking into consideration the current average rate on outstanding marketable obligations of the United States as of the last day of the month preceding the making of the purchase.”
Their charter was amended on July 30th, 2008 by enacting the "HOUSING AND ECONOMIC RECOVERY ACT OF 2008", in order to incorporate a subsection called "TEMPORARY AUTHORITY OF TREASURY TO PURCHASE OBLIGATIONS AND SECURITIES" to FnF's charters.
Basically the new amendment eliminated the previous cap in the yield so that the Treasury can approve later a scheme with a 10% punitive dividend, signaling: “Treasury is authorized to purchase any obligations and other securities issued by the Corporation under any section of this Act, on such terms and conditions as the Secretary may determine and in such amounts as the Secretary may determine.”
But the government is not empowered to trample shareholder and property rights. Fannie Mae and Freddie Mac are private shareholder-owned enterprises even in Conservatorship.
This usurer 10% dividend has widened the losses and subsequent draw requests to Treasury, issuance of Senior Preferred Shares and public harassment to Fannie Mae and Freddie Mac.
The Senior Preferred Stock Agreements could be deemed illegal with their previous charters and being part of the Conservatorship scheme, all could be deemed illegal. Just guessing, I've given you all the data, make your own opinion.
The Act enacted in July 2008 and incorporated in FnF’s charters, gave Treasury authority to use these new conditions (no cap in the yield,...) to provide stability to the financial markets, mortgage markets, to protect the taxpayer, etc… So, at that time they had the idea to put this amendment to work.
Curiously enough, the Warrant Prospectus gives Treasury the authority to assign its 79.9% stake in FnF, upon exercising the warrant, to any “Person” (private lenders,…) and that Person shall be deemed holder the exercise day in order to not make the Administration appear to be selling its stake in FnF to private lenders and avoid a public outcry. Point 2.1
So, adding both ideas together, those who wrote the Act in July, 30th 2008, had the purpose of assigning the government’s stake in FnF to private lenders. The assault attempt on FnF by the banks was written 38 days before Conservatorship.
We are still witnessing the assault attempt on Fannie and Freddie’s functions by the big banks in connivance with some politicians that continuously are introducing bills in Congress with the only purpose to wind-down FnF or tarnish their image and inflating their losses with accounting losses.
FnF’s underlying business is profitable before the 10% dividend to Treasury and massive accounting losses and unrealized losses of their PLMBS and derivatives portfolio that shouldn’t have mark-to-market accounting (both are a buy-and-hold MBS investors and the derivatives are used as a hedge), and reserves for performing loans (Freddie Mac has just announced it will begin to securitize previously delinquent impaired-loans acquired to its MBS trusts in order to begin to write-up reserves, the securitization of performing modified mortgages -TDRs- should be next).
FnF are also awaiting the settlement for the 18 financial institutions sued with fraud last September, for selling them a $200 billion porfolio of securities with fraudulent information (other institutions haven’t been sued but I guess will settle as well, like Wells Fargo and PHH, because they are the first and sixth largest U.S. mortgage lenders, respectively). This means FnF have been victims, and now victims of an assault attempt.
In the meantime so many companies and household accounts around the world have been literally destroyed. OCCUPY CONGRESS movement has just begun. We are the 99.99% suffering the bankers-politicians linkage.