Sen Richard Shelby at the 5 min mark regarding the GSE’s: “It’s time to get them up and running on their own without the government help”
Also a white paper from Calabria and Krimminger emphatically state ” that the conservatorships of Fannie Mae ($FNMA) ($FNMAS) and Freddie Mac ignore that precedent and resolution practice, and do not comply with HERA”. About the authors:
The authors of this paper were intimately involved in the policy discussions and legislative drafting that led to the creation of HERA, Mr. Calabria in his capacity as one of the senior professional staff to Chairman Richard Shelby of the U.S. Senate Committee on Banking, Housing and Urban Affairs, and Mr. Krimminger in his capacity as a senior policy advisor with the FDIC. During his more than twenty-one years with the FDIC, Mr. Krimminger participated in the management of receiverships and bridge banks, in the practical and policy development of the FDIC’s resolution strategies, and served as Deputy to the Chairman for Policy and General Counsel during the recent financial crisis.
As a result, we bring practical experience in the application of these laws and policies along with extensive experience in the regulatory and legislative analysis that led to HERA. We feel that the precedents and their application under HERA have not been adequately discussed in considering Treasury’s and the FHFA’s actions during the conservatorships.
Although a new statute, HERA was well-grounded in the long history of FDIC bank conservatorships. In fact, in adopting HERA, Congress virtually replicated the FDIA’s conservatorship and receivership provisions in part to provide comfort to stakeholders in two of the largest, and most important, U.S. financial institutions.
They detail in the papers the conservatorships violates HERA in the following ways:
o continuing the conservatorships for more than 6 years without any effort to comply with HERA’s requirements to “preserve and conserve” the assets and property of the Companies and return them to a “sound and solvent” condition or place them into receiverships;
o rejecting any attempt to rebuild the capital of Fannie Mae or Freddie Mac so that they can return to “sound and solvent” condition by meeting regulatory capital and other requirements, and thereby placing all risk of future losses on taxpayers ;
o stripping all net value from Fannie Mae and Freddie Mac long after Treasury has been repaid when HERA, and precedent, limit this recovery to the funding actually provided ;
o ignoring HERA’s conservatorship requirements and transforming the purpose of the conservatorships from restoring or resolving the Companies into instruments of government housing policy and sources of revenue for Treasury;
o repeatedly restructuring the terms of the initial assistance to further impair the financial interests of stakeholders contrary to HERA, fundamental principles of insolvency, and initial commitments by FHFA; and
o disregarding HERA’s requirement to “maintain the corporation’s status as a private shareholder-owned company” and FHFA’s commitment to allow private investors to continue to benefit from the financial value of the company’s stock as determined by the market.
If you remember correctly in Sonoma, the 9th Circuit Appeals Court stated:
III. Discussion
As courts may take no “action to restrain or affect the exercise of powers or functions of the Agency as a conservator or a receiver,” 12 U.S.C. § 4617(f), the question before us is whether FHFA’s directive to the Enterprises to discontinue purchasing PACE-encumbered mortgages is a lawful exercise of its authority as conservator of the Enterprises rather than, as the district court concluded, an improper exercise of its power as a regulator. If the PACE directive falls within FHFA’s conservator powers, it is insulated from review and this case must be dismissed.Conversely, the anti-judicial review provision is inapplicable when FHFA acts beyond the scope of its conservator power. See Sharpe v. FDIC, 126 F.3d 1147, 1155 (9th Cir. 1997) (holding that statutory bar on judicial review of the Federal Deposit Insurance Corporation’s actions taken as conservator or receiver “does not bar injunctive relief when the FDIC has acted beyond, or contrary to, its statutorily prescribed, constitutionally permitted, powers or functions.” (internal quotation marks omitted)).
One can expect this paper to get plenty of play before Sweeney and the Appeals Court hearing the Lamberth appeal. Further I’d expect them to be called by plaintiffs in all cases since they were involved with the drafting of HERA itself. Do not be surprised to see portions of this paper or the entire paper itself submitted into evidence.
Defendants are trying to get all the cases thrown out simply by stating HERA precludes any judicial review. Plaintiffs argue that Sanoma says if the Conservator violates any portion of HERA or acts outside the scope of it, they open everything up for judicial review.
I’ve been saying for a very long time this is far from over. From last year’s chorus from Congress to wind down the GSE’s to now hearing them wonder out loud why they are still in conservatorship, the tone from Congress has definitely changed. Watch Sweeney’s court…..things are going to get real interesting there soon. The government was desperate to have discovery halted pending the Lamberth appeal and they lost. There is always a reason for desperation…….
Full paper: Krimminger-Calabria-HERA-White-Paper-Jan-29