Senior Preferred Stock Purchase Agreements

Professor Epstein`s analysis earlier this year published numerous articles indicating that Fannie and Freddie were about to pay dividends in excess of the $188 billion invested by the Treasury in priority preferred shares of GSEs. In a previous commentary, Professor Epstein made a clear statement about the message implicit in most of these stories: as soon as the $188 billion was paid into the Treasury, taxpayers would be compensated in full and the GSEs would have to be returned to their private shareholders. It is best to describe these agreements as unconditionally, irrevocable and taxpayer-backed lines of credit. Only this continued taxpayer support allows GSEs to keep working, sell trillions of dollars on mortgage securities at advantageous rates, and be able to make a profit. Once again, the original preferred shareholders or their successors have little claim or interest in these “profits”. In order to reduce the amount of capital required, special interests are proposing to grant at least part of the nearly $200 billion liquidation preference to priority preferred shares. Such an amortization on the credit granted by the Ministry of Finance to the GSEs would constitute a blatant rescue plan financed by the taxpayer. In addition, other changes to the dividend formula to allow GSEs to retain additional capital are approaching completion. In the event of inexperience, such a change could deprive taxpayers of adequate compensation for the risks incurred by the GSE`s rescue operations over the past 11 years. In addition to these rescue operations, the Treasury and the Federal Reserve bought more than $3 trillion in MBSs and GSE bonds to avoid further losses that would have required even more bailouts. From September 2008 to December 2009, the Treasury purchased GSE-MBS for more than $220 billion.

REF In November 2008, the Federal Reserve announced that it was considering buying GSE bonds and MBS for a trillion dollars. REF The Fed then purchased from December 2008 to March 2010 GSE bonds worth $134.5 billion and more than $1.1 trillion from GSE-MBS, REF and an additional $2.2 trillion from MBS between October 2011 and June 2019.REF on September 30 On September 27, 2019, the Department of Finance and the Federal Housing Finance Agency (FHFA) were conservatives of Fannie Mae and Freddie Mac. announced changes to the Preferred Stock senior certificates that will allow Fannie Mae and Freddie Mac to retain profits beyond the $3 billion in capital previously allowed by the 2017 correspondence agreements. Fannie Mae and Freddie Mac are now allowed to maintain capital reserves of $25 billion and $20 billion. These changes were recommended in the treasury reform plan published on September 5, 2019. . . .