Skip to main content


The next comment has been submitted to FHFA upon input requested to interested parties regarding the “2018-2020 Enterprise Housing Goals Proposed Rule” and I will submit the same comment on every initiative related to FnF’s Public Mission.

Dear FHFA’s representative,
As a common shareholder of Freddie Mac, I’m an interested party on this topic.
Because the government is not fulfilling its obligation under the Charter, I urge the FHFA to not abide by the Enterprises’ obligations either, regarding the Public Mission.
I’d like to denounce that the lawmakers, politicians and officials are acting pretending that the operating system of their Charter or “Spirit of the Charter” doesn’t exist.
Every generation of lawmakers introduce an amendment into their Charter to curtail the Spirit of the Charter: Fannie Mae and Freddie Mac were chartered by Congress to fulfill a Public Mission (affordable housing, to serve underserved markets, countercyclical role in the secondary market, etc.). In exchange for this Public Mission, the lawmakers at the time wrote a bailout scheme for the enterprises in their Charter, because “affordable housing” and “countercyclical role” translate into risky mortgages.
The bailout scheme is a low-cost U.S. Treasury’s funding commitment to purchase securities of the enterprises.
FMCC’s Charter. SECTION 306 (c)
Each purchase of obligations by the Secretary of the Treasury under this subsection shall be upon terms and conditions established to yield a rate of return determined by the Secretary to be appropriate, taking into consideration the current average rate on outstanding marketable obligations of the United States as of the last day of the month preceding the making of the purchase.
And the 2 year Treasury note, when Conservatorship began, stayed at 0.3% - 0.4% annual rate since long time ago, not 10% that was the rate imposed by the government at the time.
Thanks to this commitment, the enterprises are able to issue bonds at very low rates on the market to finance their operations, and not due to the false concept of “securities backed by a Government Implicit Guarantee”. Concept spread throughout the media by the same interested parties that pretend that their Charter doesn’t exist (the usual suspects: Goldman Sachs, W. Buffett, hedge-fund managers, bribed-journalists at CNBC, Bloomberg, WSJ, etc.)
There is no way the lawmakers at the time (FNMA was founded during the Great Depression and chartered in its current form in 1954; FMCC was chartered in 1970) didn't lay out a bailout scheme for the enterprises, as the current interested parties have argued in order to benefit off FnF’s balance-sheet with lucrative deals later (issuance of Preferred Stocks, Credit Risk Transfer transactions, Net Worth Sweep, 30 year callable MTN redeemed months later at an outstanding rate of return when Conservatorship began,…)
But, surprisingly, in the run-up to a crisis (which is a symptom of the  moral character of the lawmakers), their charters were amended on July 30th, 2008 by enacting the HOUSING AND ECONOMIC RECOVERY ACT (HERA), in order to incorporate to their charters a subsection called "TEMPORARY AUTHORITY OF TREASURY TO PURCHASE OBLIGATIONS AND SECURITIES" . SECTION 1117
Basically the new amendment removed the previous cap in the yield so that the Treasury can approve later a scheme with a 10% punitive dividend (the PSPA), signalling:
Treasury is authorized to purchase any obligations and other securities issued by the Corporation under any section of this Act, on such terms and conditions as the Secretary may determine and in such amounts as the Secretary may determine.
It was former Treasury Secretary and Goldman Sachs alumni, Hank Paulson’s bazooka requested to Congress, according to his book.
But the first measure to contravene the Spirit of the Charter was written in the law Federal Housing Enterprises Financial Safety and Soundness Act of 1992, SEC. 1304, when for the first time included that there is no obligation by Treasury to provide any funds to the enterprises. It’s clear that it was written to protect the taxpayers against crippling liabilities, but more clear is that the Spirit of their Charter says that there should be an obligation of the Treasury to commit funds to FnF at very low rates when they need funds to carry out their Public Mission, primarily because the entity charged to supervise the Safety and Soundness of FnF is a Federal Agency, the FHFA, the one to blame if FnF are insolvent (that is, without a Retained Earnings account big enough to absorb future losses).
Therefore, HERA wasn't necessary if their Charters already contemplated the purchase of FnF's securities. Congress just had to update the $2.25 billion obsolete limit in the Treasury's funding commitment written in their Charters, because it was set 40 years ago by Congress. At the time, Fannie Mae had only about $15 billion in outstanding debt. In 2008, it had total debt of about $800 billion, while Freddie Mac had about $740 billion.

The Spirit of the Charter is the intention why the lawmakers chartered FnF. It wasn't to make FnF be placed into Conservatorship during 9 years on every crisis because a bunch of gangsters have hijacked the U.S. Institutions.
It doesn't matter if the lawmakers and US officials want to implement the Spirit of the Charter or not. It's legally binding. Period.
Kind regards,
Carlos Vignote
Freddie Mac common shareholder since August 2010.


Popular posts from this blog

Fannie Mae And Freddie Mac: There's No Secret Sauce But Secret Plan

According to 2008 HERA, Capital Distributions (like dividends) are restricted for Undercapitalized enterprises. But there are exceptions where they are authorized: if it's in connection with the "purchase of ownership interest" (the SPS are Equity) and it will "reduce the obligations" (the SPS are obligations). In July 2011, when it was clear that FnF would become profitable soon (the losses were driven by the provision set aside for loan modifications and their portfolios were almost fully reserved) and thus, the SPS would be paid back soon (I estimate they were paid back in 2013 for FMCC and 2014 in the case of FNMA), the FHFA, with the excuse of writing regulation to be more transparent about what is set forth in HERA, added one important exception more that would allow FnF to continue paying dividends to the Equity holders: "to meet their Risk-Based Capital levels", that is, for their recapitalization. The Administration's narrative has been …

Fannie Mae And Freddie Mac. Follow the money

Capital Distributions are restricted while in Conservatorship, according to 2008 HERA, where is set forth the regulation. The FHFA has repeated this several times, although referring to payments of claims, etc. But a dividend is also a Capital Distribution.

It doesn't matter what is written in the SPSPA signed between the FHFA/US Treasury, because a contract doesn't supersede a law in force.
Distributing dividend would go against Established Insolvency Principles and common sense. The companies need to increase capital and not decrease it, retaining earnings and not distributing it.
The FHFA has allowed to distribute Capital only to one holder of Equity interest, the holder of Senior Preferred Stocks. Why is that?
It turns out that distributing capital to the US Treasury both recapitalizes the enterprises (to be in a solvent condition) and pays off the obligations with the Treasury (to be in a sound condition), which is exactly the Conservator's Power:
If you have any do…


In Spain we know it well. Every time there's a switch of political parties in any Administration (Municipal, Regional or Central State) and the opposition party takes over the helm, the news about unpaid bills emerge. It's commonly known as "bills hidden in the drawer". So, a new Administration starts its mandate with the coffers in negative territory. This causes many troubles to the private contractors working for the Administrations because their bills are due during months or years. But the authorities in the Eurozone have come up with a brilliant idea. Let's use the Central Banks to advance the payments to the creditors using the money printing press but, as the new bank notes in circulation would show up in the statistics provoking depreciation of the currency and thus, inflation, it's better to conceal it issuing Book Money, which is not legal tender and therefore, it cannot show up in any statistic. In my previous article a talked widely about this n…