Fannie, Freddie bill leaves status of private shareholders to courts

Sun Mar 16, 2014 9:07pm 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 U.S. senators on Sunday, would leave a decision on how to treat their private shareholders to the courts.

The 442-page draft 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 private shareholders should share in any proceeds when the companies are 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. In return, the government got a controlling stake in the companies.

They have since returned to profitability and by the end of March will have sent the Treasury $202.9 billion in dividends.

Private investors, including Perry Capital and Fairholme Capital Management, have sued over the bailout terms. They argue they should stand to benefit from the profits given that the companies soon will have paid more in dividends to taxpayers than they received in aid.

Fannie Mae and Freddie Mac help ensure the mortgage market stays liquid by buying loans from lenders and repackaging them as securities that they sell to investors with a guarantee. Since the government seized the firms, that guarantee has explicit government backing.

The bill, written by Democrat Tim Johnson and Republican Mike Crapo, would replace the companies with a new industry-financed agency. The agency would provide a government backstop, but it would only kick in after private creditors took a hit.   Continued...

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