David Stevens, president of the Mortgage Bankers Association industry group who was Federal Housing Administration commissioner until 2011, derided investors pursuing their self-interest. The Federal Reserve’s policy of buying Fannie Mae and Freddie Mac mortgage securities to stimulate the economy boosted their company profits, he said.
“The shareholders are all about the shareholders,” Stevens said. “Everybody else cares about getting the system right.”
Fixing System
The demands of hedge funds don’t need to disrupt the rebuilding of the system, according to Adam LaVier, a former Treasury official and now a managing director at Millstein & Co. LP, a financial advisory firm in Washington.
“Over the course of this debate, Fannie and Freddie will have generated at least $250 billion to $300 billion in earnings, far in excess of the $187 billion that Treasury invested in them,” LaVier said. “Are you going to tell me you can’t redeem the $33 billion of junior preferred, repay Treasury in full plus a significant profit, and fix the system?”
Fannie Mae and Freddie Mac could return $179.2 billion in profits to taxpayers over the next 10 years if they continue operating under federal conservatorship, according to an annual forecast released today by the Office of Management and Budget.
‘Big Hurdle’
Perry faces a “big hurdle” in court because the law governing the government’s conservatorships bar most types of lawsuits, said Patrick J. Smith, a partner at Ivins, Phillips & Barker in Washington. Nader said in an interview he thought Perry’s case was the strongest. The government changed the rules “midstream” after the bailout, Nader said.
The preferred shares owned by Fairholme, Perry and the rest will probably end up worthless unless they get help in court, analysts such as Ed Mills at FBR Capital Markets & Co. predict.
A Congressional decision on the future of government’s role in real estate finance will probably not come anytime soon, and that could weigh on the value of shares not paying dividends. Observers including Laurie Goodman, the former mortgage-bond analyst who now heads the Urban Institute’s Housing Finance Policy Center, say legislation to remake the system most likely won’t be enacted until President Barack Obama’s successor takes office in 2017.