A coalition of 17 conservative and free-market public policy groups sent a letter to the ranking members of the House Finance Services Oversight and Investigative Subcommittee urging them to demand more transparency and accountability regarding the “Third Amendment Sweep” of the six-year GSE conservatorship agreement from the U.S. Treasury.
The Third Amendment, the groups say, infringes on the rights of private shareholders who invested in Fannie Mae and Freddie Mac. The Third Amendment changed the 10% cash dividend paid to Treasury to a system where the GSEs pay all of their quarterly profits to Treasury.
The letter from the coalition coordinated by the Competitive Enterprise Institute is addressed to Republican Chairman Patrick McHenry and Democrat Ranking Member Al Green and can be read here.
The letter reflects growing awareness of the secrecy with which the federal government has responded to legal challenges to the seizure of private assets as part of the six-year conservatorship of the GSEs.
Earlier this week, HousingWire reported that Treasury is fighting the motion by Fairholme Funds to hire former Fannie Chief Financial Officer O J. Tim Howard as a consultant to review some 800,000 pieces of discovery evidence in that shareholder lawsuit.
Attorneys for the federal government have argued that Howard should not get to serve as a consultant with access under the limited discovery a federal judge granted, arguing that Howard was forced out of Fannie in an accounting scandal, even though investor lawsuits against Howard were found to be without merit and his case with settled with no admission of wrongdoing with the Securities and Exchange Commission.
Plaintiffs in several high profile lawsuits expect that discovery could reveal the provenance of the Third Amendment, which diverted all profits to Treasury and left hundreds of thousands of zombified shareholders in its wake.
“Not only is this Third Amendment an unprecedented power grab that violates shareholder property rights,” said CEI senior fellow John Berlau, “but the process used by Treasury to develop the amendment did not allow for public comment or the customary transparency safeguards that permit the American people to hold our government accountable.”
Specifically, the letter asks the subcommittee to demand the Treasury Department turn over to the committee, or make public, any and all documents, which could shed light on “the alleged need for and legal rationale justifying the Third Amendment, as well as all documents detailing the Amendment’s development and evolution, such as those customarily contained in the administrative docket for agency rulemaking.”
Coalition members include: Competitive Enterprise Institute, 60 Plus Association, American Commitment, American Family Association, Americans for Competitive Enterprise, Blue Ridge Forum, Campaign for Liberty, Citizen Outreach, Council for Citizens Against Government Waste, Institute for Liberty, Less Government, National Center for Public Policy Research, National Tax Limitation Committee, Protect America Today, Small Business and Entrepreneurship Council, Tea Party Nation, and Tradition, Family, Property, Inc.
Investors in the GSEs want the mortgage giants to pay shareholder profits it owes, but the GSEs are not doing that as part of the bailout agreement with the federal government.
After Fannie Mae and Freddie Mac were bailed out during the financial crisis and placed into conservatorship, all profits were directed back to the U.S. Treasury.
Now that the government has been paid back, investors say they want their stake and their rights upheld.
Consumer advocate Ralph Nader, CapWealth Advisor CEO Tim Pagliara, investor Carl Icahn, and dozens of GSE shareholders from 20 states have joined together in this campaign under the banner Investors Unite. Fairholme is one of several hedge funds with GSE holdings.
A copy of the motion to allow Howard access can be read here.
A Treasury spokesperson declined to comment.