#share#The government claims it changed the terms in order to avoid any need to give the GSEs additional funds to pay the 10 percent dividend on funds already received. And the conservator abandoned its duty to safeguard the assets of the entities in conservatorship. So, the government (Treasury) negotiated with itself (FHFA) to achieve a windfall for itself. Eight days later, Treasury negotiated with the GSEs’ conservator, the Federal Housing Finance Agency (FHFA), for an astounding revision (called “the third amendment”) of policy: Instead of the agreed-upon dividend, and already enjoying a right to 80 percent of the GSEs’ profits, the government would get 100 percent forever, far exceeding the size of the original bailout. According to documents recently unsealed, on August 9, 2012, Treasury was told that the GSEs’ prospects were for strong profitability, requiring no further government assistance. Then, however, the Treasury Department was told of the GSEs’ strong recoveries. The government’s original rescue terms were for Fannie and Freddie to pay a stiff dividend on the bailout funds - 10 percent, amounting to $4.7 billion per quarter. The government (Treasury) negotiated with itself (FHFA) to achieve a windfall for itself.
A conserved entity should be returned to normal business in private ownership.įannie and Freddie have recuperated profitably. In September 2008, the government rescued them with $187.5 billion and placed them in conservatorship, which is supposed to be temporary and rehabilitative. What could go wrong did, and in 2008 the two GSEs floundered. The two federally chartered but privately owned GSEs, which guarantee 80 percent of American mortgages, were created because Washington wanted to engineer - what could go wrong? - more homeownership than market forces would produce. This maddeningly complex story illustrates the toll the administrative state takes on the rule of law.
The two are the “government-sponsored enterprises” (GSEs) Fannie Mae and Freddie Mac.