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 the opposite. That the U.S. Government is entitled to a fat dividend that depletes the Capital in companies under Conservatorship, which contravenes the Conservator's Power: "put FnF in a sound and solvent condition", which means both reduce their obligations and recapitalization, as Capital is the only measure to determine the soundness or creditworthiness of a financial institution, and reducing the obligations improves their solvency.

So, we've been told a big lie, which is authorized by HERA in the Conservator's Incidental Power: "take any action, authorized by this section, in the best interests of FnF or the FHFA". Take any action to fulfill its Power, like carry out a secret plan and lie about it.

A second proof of the existence of this Secret Plan, is that it has already been carried out by the FHFA for the FHLBanks. They were bailed out by Congress in 1989 and since 1999 they were required to pay interest on RefCorp bonds. But suddenly, in 2011, the FHFA announced that their obligations with RefCorp had been fully satisfied (the principal of the bonds had been paid back). It only means that the interest payments in truth had been applied toward the repayment of the bonds. Later, the same amount applied toward paying down the obligations (20% of their profits), will be used for their recapitalization (retained earnings account). FnF are paying a 10% and since 2012, a NWS (100% of the profits) dividend for the same plan, but secretly.

The third proof about the existence of this plan is seen in the SPSPA, where the SPS amount is called "aggregate Liquidation Preference of the SPS". FnF pay dividends as a percentage of this Liquidation Preference (SPSPA, 3rd amendment). Also the draws to Treasury increase the Liquidation Preference of the SPS (SPSPA, initial agreement). The Liquidation Preference is the Liquidation Right that emerges only upon liquidation, that might not coincide with the stated value (debt outstanding) if there have been partial principal repayments.
SPSPA (3rd amendment):

As a proof of this rare circumstance, the prospectus of the JPS  specifies that their dividend is calculated multiplying the coupon by the stated value of the JPS (in the absence of par-value), $25 or $50, which is the normal thing to do and not multiply it by the Liquidation Preference, as the SPS do. The Liquidation Value is just a specification of the contract, like the Redemption Value, but it's only used as a reference. So, intentionally they are concealing the stated value of the SPS because the FHFA is carrying out a parallel accounting of the stated value and the SPS might be kept at a stated value of $0 since 2013/2014 after the first years of fast (10% and NWS) partial repayments.
Prospectus of the JPS:

The last proof of the existence of The Secret Plan, could be the covenant 5.3 in the SPSPA, where both the Treasury and the FHFA explicitly agree to not seek the termination of the Conservatorship pursuant to the Section 1367 of the FHEFSSA.

The part where the FHFA seeks the termination of the Conservatorship is found in its Power: "Put FnF in a sound and solvent condition", which means recapitalization as commented earlier, because a high capital reserve translates into a company financially viable, a condition for the release from Conservatorship, as it's stated in this Congress' document.

Why do they agree to not uphold the current law in force? It's a felony and they could face up to 10 years in prison with the aggravating circumstance of being public servants. The truth is that one thing is what is publicly stated and other thing what they really are doing concealed, which meets the meaning of Secret Plan, otherwise they would be jailed.
The part that says "without the prior consent of the Purchaser (the Treasury Department)" is the door open to carry out the Secret Plan, that is, the opposite to what is signed in the contract: seek the termination of the Conservatorship through restoring Capital levels.

BOTTOM LINE
11 years with lies that have allowed the Hedge-Funds and Community Banks to switch their JPS for Common Stocks, with far greater upside and the real thing (direct ownership of FnF), through making the retail investors buy the illiquid JPS under the hook of a threat of massive dilution on the Common Stocks due to follow-on stock offerings, warrant exercised (not authorized in HERA as it was issued to protect the taxpayer), etc.

Under this scenario, the U.S. Treasury owes $99 billion to FnF, but we have to add other amounts due:

- $7 billion: Corporate Tax on the settlements

-$16 billion: TCCA fees banned in the Charter

-$15 billion: MHA program. Even FnF advanced payments to the mortgage servicers (banks) but later they weren't reimbursed by Obama (TARP program)

-$5 billion: a 1.5% interest on the amount owed by the Government.

Grand total owed by the U.S. Treasury = $142 billion

Adding up the Capital currently held by FnF:

$6 billion: 1Q Net Worth
$4 billion: 2Q dividend to Treasury withheld

$20 billion: Loan Loss Reserve

The outcome is a Total Capital amount of $172 billion.

It turns out that the Secret Plan is not that secret if it's written in the laws and regulations. If we add that a Conservatorship was better regulated by the 1992 FHEFSSA before being struck by HERA (a more clear mandate: 1-Capital Restoration Plan and 2-Restriction on Capital Distributions), then, what we have suffered is a congressional plan of deception, more proper of a Nazi regime and its Ministry of Propaganda headed by Joseph Goebbels.

Now, only the prosecution of all involved in this plan of deception of masses is left, before they escape to Cuba. From the Judiciary, U.S. Officials and politicians,  to investment banking advisors, stock market analysts, internet message board users and journalists. #HangThemAll