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FHFA Proposes Rule Clarifying Fannie Mae, Freddie Mac Conservatorships

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The Federal Housing Finance Agency (FHFA) sent a proposed rule to the Federal Register to clarify the terms of conservatorship and receivership. The rule would apply to operations at Fannie Mae (FNM), Freddie Mac (FRE) and the Federal Home Loan Banks (FHLBs) under the Housing and Economic Recovery Act of 2008 (HERA). It aims to bring conservatorship and receivership operations into greater transparency and models many provisions in the Federal Deposit Insurance Corp. (FDIC) rules for conservatorships and receiverships, according to an FHFA statement. It comes at a time when the future of the government-sponsored enterprises (GSEs) is in question, with some calling for their eventual wind-downs. As HousingWire explores in the July magazine issue, a bill submitted in the House of Representatives details the timeline to take the GSEs out of conservatorship and eventually completely remove the government's guarantee of Fannie and Freddie. While the ultimate future of the GSEs remains unsettled, the FHFA is looking to clarify their operations while in conservatorship -- and in receivership, should the GSEs end up there. The proposed rule (download here) addresses the status and priority of claims, the relationships among various classes of creditors and equity-holders and the priorities for contract parties and other claimants under conservatorship or receiverships. It clarifies that all claims arising from an equity interest in a regulated entity in receivership would be given the same treatment as the interests of shareholders. It also clarifies that claims by shareholders would rank as the lowest priority in a receivership, behind the receiver's administrative expenses, the regulated entity's general liabilities and liabilities subordinated to those general creditors. The proposed rule states the ability of a regulated entity to make capital distributions during a conservatorship would be restricted. It also states that the powers of the conservator or receiver include continuing the missions of a regulated entity and ensuring the operations encourage liquid, efficient and competitive national mortgage finance markets. The proposed rule also clarifies the status of claims against the conservator or receiver for breach of contract. The FHFA will receive public comments on the proposed rule up to 60 days after its publication in the Federal Register. The FHFA recently directed Fannie and Freddie to de-list their common and preferred stock from the New York Stock Exchange (NYSE) after it hovered near the minimum average closing price of $1 for more than 30 days for most months since the conservatorship took effect in September 2008. Write to Diana Golobay.

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