Just as Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) shareholders begin their decent into Washington D.C. to support the Investors Unite coalition, a new coalition calling themselves the Coalition for Mortgage Security (CMS) has announced their presence.
When asked a few questions about the organization, a spokesperson gave the following general remarks:
CMS is advocating for the government to reverse course and abide by the original terms and choices that it originally made: that private capital was not going to be wiped out in Fannie or Freddie, just as it wasn't wiped out in AIG or the banks that took TARP. We are advocating that the government makes sure that taxpayers are paid back, in full, with interest. Keep the 80 percent rate of ownership that the government took as the price of intervention. And honor the rules of law, fairness, and common sense that underpin our economy - that with risk comes reward."
The coalition launched today, but CMS has spent months building the coalition and preparing for our launch. As the discussion around the Crapo-Johnson legislation heats up, there will be a robust debate about the best way to reform our housing finance system. We believe CMS will help shape the debate in a bipartisan, constructive manner and that our principles offer a blueprint for reform."
Ken Blackwell, a former undersecretary at the Department of Housing and Urban Development, former Ohio State Treasurer and former mayor of Cincinnati, serves as a Director of CMS and we will be adding and announcing more Directors and advisers as the coalition continues to make its voice heard on this critical issue."
For those that are interested, Ken Blackwell is a Republican.
What does this mean for Fannie and Freddie shareholders?
Having Republicans and Democrats fighting for shareholders means that they have a chance for survival. It also means that this political debate will be extended and new meaningful changes will be made to the legislation in Congress.
From the CMS website, the organization appears to be advocating the Sallie Mae (SLM) style of wind-down, where the organizations are made private and their charters would be removed. History shows that shareholders in the Sallie Mae transformation faired very well and survived all of the changes to the structure.
The Sallie Mae Privatization Act of 1996 started the long process of removing Sallie Mae's charter. Shareholders were given the option of converting their shares to an entirely new private company, or a complete liquidation. Shareholders chose to continue existing as a private entity.
During the next five years, during the transition phase, the new private entity's earnings grew three-fold and stockholders were rewarded for taking part in the plan.
Disclosure: I am long FNMA, FMCC.