Fannie, Freddie bill leaves status of private shareholders to courts

Sun Mar 16, 2014 5:45pm EDT
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By Margaret Chadbourn

WASHINGTON (Reuters) - A draft bill to wind down government-run mortgage financiers Fannie Mae FNMA.OB and Freddie Mac FMCC.OB, released by two leading senators on Sunday, would leave a decision on how to treat their private shareholders to the courts.

The 442-page draft measure from the Democratic chairman of the Senate Banking Committee and the panel's top Republican would keep in place current terms of the government's bailout of the two companies that require them to sweep all their profits into the U.S. Treasury.

It is silent on whether or not the companies' junior preferred and common shareholders should share in any proceeds when the companies are eventually liquidated.

Fannie Mae and Freddie Mac, the two leading sources of U.S. mortgage funds, were seized by the government during the financial crisis in 2008 and propped up with $187.5 billion in taxpayer funds to keep them solvent. In return, the government got a controlling stake in the companies.

They have since returned to profitability and private shareholders, including Perry Capital and Fairholme Capital Management, have sued the United States over bailout terms that prevent them from buying back the government's shares.

The bill, written by Democrat Tim Johnson and Republican Mike Crapo, would replace Fannie Mae and Freddie Mac with a system based more on private capital that aims to ensure taxpayers are never again put on the hook.

It would aim to shutter the companies over five years, although that deadline could be extended if needed to ensure there are no market disruptions.

"This proposal includes an explicit government guarantee in order to add stability to the economy, keep costs reasonable for borrowers and renters, and ensures fair access to the secondary market for all lenders," said Johnson.   Continued...

The headquarters of mortgage lender Fannie Mae is shown in Washington September 8, 2008.REUTERS/Jason Reed