Fannie And Freddie Reform--The Right Way

Tuesday, April 29, 2014
With Congress poised to begin marking up legislation to reform mortgage giants Fannie Mae and Freddie Mac by the end of the month, more and more Fannie and Freddie investors have learned exactly what that means for their pensions and personal investments. And what are those investors being told? That Fannie and Freddie are going away and stock held by firefighters, police, school teachers, community banks, pensioners and individual investors will amount to nothing more than worthless paper.


The Federal government used $187.5 billion taxpayer dollars to keep the Government Sponsored Enterprises (GSEs) afloat and placed them into conservatorship at the height of the financial crisis in 2008.  The government held to its original conservatorship agreement until August 2012 when it arbitrarily decided to change the rules in midstream with an amendment that diverted 100 percent of Fannie and Freddie's profits to the Treasury's coffers, effectively wiping out private investors. Some of the investors who had their dividend swept away were invested in the GSEs years before the conservatorship took effect; some people had invested around the outset of the conservatorship and some had invested a few years after.

After hearing outrage from Fannie Mae and Freddie Mac investors from across the country, I decided to organize a group to visit Washington last week to meet with our elected representatives. Our message to lawmakers was simple: Washington must reform the GSEs in such a way that shareholders are paid what they are contractually and legally owed-something that the currently proposed legislation put forth by members of the Senate Banking Committee fails to do.

How does their bill treat shareholders?  First, it permanently writes into law the Treasury Department¹s move to forever seize the profits of Fannie and Freddie.  And second, it wipes out FHFA's legal duties as a conservator to all other entities besides the Treasury Department.  Put another way, individual shareholders, retirees, police and fire pensioners, and others will be left without a penny; the government gets it all.

Senators Corker and Crapo have both said that their legislation "leaves the investor issue to the courts",  but that claim defies credibility.  Their legislation puts Congress' thumb firmly on the scales of justice and on the side of the Obama Administration taking money it wasn¹t entitled to.  Last week, Treasury Secretary Jack Lew explained the federal government's taking by saying "I doubt a lot of people [the taxpayer] would feel they have been made whole."  But Mr. Lew ought to check his math:  the federal government put in $187 billion, and so far has received $205 billion back plus 80 percent of any upside of a recapitalization.   The Treasury Department has made out much better in their support of Fannie and Freddie than they did with the auto bailouts.  But regardless of losses or profits, the government has to live by the terms of its contracts the same way private parties do.   

Moreover, the very premise of this legislation, that Fannie and Freddie need to be wiped out, may be politically convenient but it ignores the realities of how the nation¹s mortgage market is capitalized, and how affordable housing becomes a reality for the middle class. Handing over the housing finance market and the guarantee business to the too-big-to-fail banks, wiping out the community banking system and obliterating Fannie and Freddie investors won¹t encourage private capital to show up for mortgages..

I know this; as a professional money manager, I allocate capital for a living.  If private investors can't rely on the rule of law in the mortgage market, they'll re-allocate capital to fund auto loans, credit card debt, or even apartments.  Capital follows the rule of law. 

America's mortgage market is a $10 trillion industry that needs private capital.  Without it, mortgages will become harder to obtain for ordinary Americans;  mortgage fees will increase, creating substantial burdens for homeowners; and the 30-year mortgage may become a thing of the past.

Ask an investor and they will tell you:  The marketplace functions based upon rules and certainty. Arbitrarily changing the rules in the middle of the game is destructive to investor confidence, and it's un-American.  We can only hope that Washington will listen to investors in its bid to reform Fannie and Freddie ­ the right way.   

Tim Pagliara
Franklin, Tn.


Retain Justice Sharon Lee

I’m a business person, not an attorney.  I appreciate integrity and character.  I appreciate hard work and honesty, and I appreciate intelligence.  I have known Justice Sharon Lee for many years--long before she was appointed to the Court of Appeals in Knoxville, and later to the Tennessee Supreme Court—she has all the characteristics that judges should have.    ... (click for more)

I Know Kenny Smith

I’m writing in response to comments by City Councilman Larry Grohn about Kenny Smith. I don’t know Mr. Grohn, but I know Kenny Smith.  Kenny told me he met Grohn once but doesn’t know him.   If Grohn really knew Kenny Smith, he’d know Kenny pushed for expanded vocational education while on the School Board and is intent on pushing for it on the County Commission. ... (click for more)

DA Looking Into Issue Of County Commission Candidate's Campaign Sending Filled-Out Request For Absentee Ballot To Elderly Voters

The District Attorney's Office has been provided with documents that a County Commission candidate's campaign sent filled-out requests for absentee ballots to elderly voters. Kerry Steelman, election administrator, said there have been four instances in which such requests came from the Elect John Brooks campaign. He said state law says in Section 2-6-202:  (3) A person ... (click for more)

Graham Says County School-City Lawsuit Settlement "Stinks," But County Commission Approves It

The County Commission on Wednesday approved a settlement of a lawsuit brought by the Hamilton County Schools against the city of Chattanooga, though several commissioners said they were not happy with the deal and Commissioner Joe Graham said it "stinks." Commissioner Graham was the lone no vote. He was joined by Commissioner Tim Boyd in a failed effort to defer it a week. ... (click for more)

Vols Open 2018 Season Against West Virginia In Charlotte

KNOXVILLE, Tenn.   – The Charlotte Sports Foundation announced Tuesday that the Tennessee Volunteers will open the 2018 season on September 1 against the West Virginia Mountaineers at Bank of America Stadium in Charlotte, North Carolina, home of the NFL's Carolina Panthers. All information related to kickoff date, time and tickets will be announced at ... (click for more)

Ooltewah's Williams Signs With Northwest Missouri

Ooltewah’s Mike Williams, one of District 5-AAA’s most respected wide receiver threats in 2013, has signed a football scholarship with Northwest Missouri State, the defending NCAA Division II national champion. Williams chose the Bearcats, members of the Mid-America Intercollegiate Athletics Conference, over Carson-Newman, in Jefferson City, Tenn., and Paine College, in Augusta ... (click for more)