Freedom For Fannie
The purpose of this petition is to bring to attention a very pressing issue currently facing our nation concerning the future of the government-sponsored enterprise Federal National Mortgage Association (“Fannie Mae”). Due to compounded financial issues following the economic downturn in 2008, Fannie Mae was placed under conservatorship of the Federal Housing Finance Agency, receiving significant financial backing ($117B) by the government to prevent its total failure. As per conservatorship agreements, Fannie Mae was to continue business operations with expectations to send future profits (if any) to the US Treasury. Guidelines were enacted to reduce the dominance of Fannie Mae’s presence in the loan marketplace and ultimately dissolve the company. These guidelines were constructed under the absolute assumption that Fannie Mae would likely never return to profitability. Despite these low expectations of investment return, as of the date of this writing, Fannie Mae has repaid the US Treasury $35.6B of the $117B lent as bailout funds. These payments have come in the form of quarterly dividends, which the conservatorship agreement deems unfit for debt repayment purposes and instead considers these sums simply a return on the government’s bailout investment risk. This seems duly unjust, as nearly 30% of the bailout has been repaid but none has actually gone to repayment. Under this current model, one must ask “how does Fannie Mae responsibly pay back their debt while simultaneously increasing capital to secure business sustainability?” The bottom line is: under current policy, it can’t. Recent financial reports from Fannie Mae demonstrate the extremely profitable nature of the company and return to AAA accreditation. In the last quarter alone, they have reported net income of $7.2B, the largest in the 75-year history of the company. To complement this, Fannie Mae currently has nearly $60B in deferred tax assets (DTAs) that will be used to bolster their annual profitability even further—leading to perhaps the most profitable quarter for any business in the history of the stock market. Also, recent court proceedings brought by Fannie Mae against major banks (e.g. Bank of America) have yielded profits of ~ $12B. Importantly, preliminary rulings in these cases found that major banks knowingly duped Fannie Mae into accepting loans that were doomed to fail. Many more big banks are in Fannie’s legal crosshairs for committing the same fraudulent loaning activities, resulting in an additional estimated $200B cumulative gain. Collectively, these important developments significantly change the perception that Fannie Mae was the cause of the real estate bubble and instead shift the blame onto financial institutions. Improved lending standards and consumer requirements have severely limited the chances of future repeat bad lending practices. Realization of DTAs and compensation from financial institutions could effectively pay back the bailout funds in full. Therefore, political discussion of a Fannie Mae wind-down needs to now be carefully considered in light of these recent findings and begs the question “if it wasn’t broke, why fix it?” An even bigger issue looms in the forefront. While Fannie Mae is under conservatorship of the federal government, it is still owned by public shareholders. Skimming of all Fannie Mae and shareholder profits by the US Treasury, without applying any of those funds to bailout repayment is therefore a direct violation of the Fifth Amendment Constitutional right (government seizure of public property without just compensation). The government has essentially been using Fannie Mae’s recent profitable emergence as fuel for feeding the federal political budget, without resolving repayment obligations. Changes to the conservatorship agreement must be made to rectify this matter, return Fannie Mae to solvency, and repay the bailout in a manner that is fair for government, Fannie Mae, and shareholders alike. The fact of the matter is that Fannie Mae, through government backing of securitized mortgages, has largely facilitated the American Dream; home ownership is still at the core of American economic values. To this day, Fannie Mae still backs 90% of home mortgages, because they can offer these with lower down payments and increased availability, qualities crucial for lower and middle income families—the majority of the US population. Winding down of Fannie Mae at this critical time would not only stunt the economic recovery and bustling real-estate market, it would also crush the hopes of many honest, hard-working American’s home ownership dreams. In summary, clearly Fannie Mae has the profits and future potential to significantly contribute to enhanced growth, real estate upturn, and national financial recovery. For the reasons stated above, we urge our Congressional leaders to engage in meaningful discussion on maintaining Fannie Mae as a viable company and major player in the mortgage market by devising a reasonable plan that both prudently, yet expeditiously, releases Fannie Mae from government conservatorship into shareholder control and satisfies a timely repayment of debt to the US Treasury.