GSE Shareholders Demand Respect

Includes: FMCC, FNMA, SLM
by: David Sims

Ralph Nader and the Center for Study of Responsive Law have recently started a new petition seeking rights for Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) shareholders. Additionally, they held a forum in Washington DC on Wednesday, February 5th. Nader has been a shareholder activist in the GSE common shares for many years. Now that the companies are 98.9% of the way to paying back taxpayers, I'd expect Nader and others to ramp up their activist efforts.

Here is a link to a video of the forum on Wednesday.

Here is the text of Nader's latest petition.

"Fannie Mae and Freddie Mac shareholders deserve respect. They have been silenced, used, and abused by the federal government.

When the government initiated the Conservatorship of Fannie Mae and Freddie Mac, shareholders lost their voting rights, dividends on preferred and common stock were suspended, and annual shareholder meetings were canceled.

The government sponsored enterprises (GSEs) have returned to profitability, but their shareholders with zombie stock remain without rights or remedies, and with no opportunity - as given to bailed out Citi and AIG shareholders - to share in the recovery of value that is likely for Fannie and Freddie.

Many of the GSEs' shareholders are small investors, who were told for years that their investment was the safest one after U.S. Treasury bonds.

Legislation currently in Congress - the PATH Act (H.R. 2767) in the House, and the Corker-Warner bill (S. 1217) in the Senate - does not address how to deal with Fannie Mae and Freddie Mac shareholders."

So, does this mean anything for GSE shareholders? I believe there is a growing chorus of vocal advocates from both political houses that is voicing their opposition to the continued government "taking" and the lack of reform for the GSEs.

I am by no means an expert on anything GSE-related, but I am a shareholder that has held a concentrated position in these shares since 2009. The last update I made on the GSE situation was a note about how Jeb Hensarling (R-TX) was comparing the Fannie Mae and Freddie Mac wind-down plans to the Sallie Mae Wind-down of the 1990s. Of note in that article is the process by which the old Sallie Mae (NYSE:SLM) company was wound-down and new shares were issued to existing shareholders in a new entity. Common shareholders survived all the government transformations. If this is the plan for the current shareholders, the government has an interest in communicating that plan. They may have a legitimate claim to at least 79.9% of the commons stock through warrants, if the courts uphold the original Conservatorship Agreement. Those warrants have significant value for taxpayers.

According to Inside Mortgage Finance, if the government has a plan, it doesn't appear to be going well. The Common Securitization Platform appears to be having a problem determining compensation for its CEO. It might be that they can't find a candidate to take a $450,000 salary. One might think they are setting the bar a little low. Consider that JP Morgan's CEO just got a $23 million pat on the back after a year that included $5.1 billion in mortgage-related settlements with the FHFA. The GSEs are an important part of a multi-trillion dollar mortgage industry. Shouldn't a key leader in that industry get paid an amount commensurate with his peers?

Maybe it's time the politicians consider a private party solution for GSE reform. There's no reason to wait any longer. Taxpayers are nearly repaid. The housing market is in recovery. Waiting any longer will only cause additional damage.

Disclosure: I am long FMCC, FNMA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.