More Tax Payer Money for Fannie/Freddie

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U.S. Uncaps Support for Fannie, Freddie Article

By JESSICA HOLZER and MICHAEL R. CRITTENDEN
WASHINGTON -- The U.S. Treasury said it would provide capital as needed to Fannie Mae and Freddie Mac over the next three years, effectively opening its checkbook to the government-controlled companies in a bid to reassure investors in their debt.

Treasury also will end its purchases of the companies' mortgage-backed securities and terminate a never-used short-term liquidity facility set up for the firms and the Federal Home Loan Banks.

And it moved to allow the companies to shrink their giant portfolios of mortgage securities more slowly, though it said it was still "committed to the principle" of reducing the portfolios.

Treasury announced the moves in a Christmas Eve press release, a week before its authority to change the terms of its agreements with the companies was set to expire. After Dec. 31, Treasury would need the consent of Congress to make such changes.

So far, the government has pumped $60 billion into Fannie Mae and $51 billion into Freddie Mac to keep each company solvent since it seized the firms in September 2008 under a legal authority known as "conservatorship." The companies, threatened by mounting mortgage defaults, were headed toward collapse.

At the time, the Treasury pledged to inject up to $100 billion of capital apiece as needed into the companies in exchange for preferred stock paying a 10% dividend. The Obama administration earlier this year doubled that commitment to $200 billion.

The new terms announced Thursday would allow the cap on Treasury's support to increase by the amount of the total net loss the firms experience over the next three years, beginning on Jan. 1. The cap in place at the end of 2012 would apply thereafter.

The changes come as Fannie's and Freddie's regulator, the Federal Housing Finance Agency, on Thursday approved multimillion pay packages for the firms' top executives. The pay announcement and the sweeping increase in the government's commitment to backstop the companies are certain to stoke anger from the companies' critics on Capitol Hill.

"The Obama administration's decision to write a blank check with taxpayer dollars for the continued bailout of Fannie Mae and Freddie Mac is appalling," said Rep. Scott Garrett (R., N.J.). He argued the timing of the announcement, on Christmas Eve, was "designed to try and sneak the bailout by the taxpayers."

A senior Treasury official said he didn't expect either company to need the additional authority Treasury is creating by ending the caps on its support. Rather, the changes would provide reassurance to investors in Fannie's and Freddie's debt and mortgage-backed securities so that they would continue to invest, the official said.

The companies' top regulator, Federal Housing Finance Agency Director Edward J. DeMarco, said in a statement that the changes provide "further protection against adverse conditions in the mortgage market."

The administration, in a midyear review of the 2010 budget, estimated the taxpayer exposure to the companies at a combined $170 billion over 10 years.

Treasury also on Thursday moved to relax a requirement that the companies shrink their portfolios of mortgage securities by 10% per year beginning next year. Treasury will allow them to base the 2010 reduction on the maximum limit on the size of the portfolios -- $900 billion -- rather than their actual size at the end of 2009.

The move would allow the companies flexibility to avoid selling off securities next year just as the Federal Reserve and Treasury are ending programs to purchase mortgage-backed securities, a senior Treasury official said. Currently, each firm's portfolio stands at more than $700 billion.

Treasury also said it would waive for one year a fee charged the companies in exchange for the government aid. The Treasury official cited the poor conditions in the mortgage market.

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Odd Couple Demands Probe of Rahm Emanuel at Freddie as More Money Rolls In

FOXNews.com

Two strange bedfellows have asked Attorney General Eric Holder to investigate President Obama's right-hand man, chief of staff Rahm Emanuel, for his potential role in the near collapse of mortgage giants Fannie Mae and Freddie Mac, just as Treasury lifts the cap on their bailout money.

WASHINGTON -- Two strange bedfellows have asked Attorney General Eric Holder to investigate President Obama's right-hand man, chief of staff Rahm Emanuel, for his potential role in the near collapse of mortgage giants Fannie Mae and Freddie Mac.

The letter by Jane Hamsher, founder of the liberal Firedoglake Web site, and Grover Norquist, Americans for Tax Reform Chief, was sent Wednesday, one day before the Treasury Department announced that it will lift the $400 billion financial cap on loans to the government-sponsored enterprises to make sure they stay afloat.

It also arrived just before the Federal Housing Financial Authority announced Thursday that it would place salary caps on 11 of the companies' top executives.

Hamsher and Norquist want to know now whether the bailout was in part the result of corrupt practices by Emanuel while he was a board member at Freddie in 2000-2001.

They cited a Chicago Tribune story that described a plan by the executives and the board to use accounting tricks to show shareholders they were reaping massive profits even as they continued down a path of risky investments. The profits were then used to justify the executives' big bonuses. When Emanuel left the board to enter Congress in 2002, he was qualified for $380,000 in stock and options and $20,000 cash.

The two wrote they would like the Justice Department to "begin an investigation into the cause of Fannie and Freddie's conservatorship, into Rahm Emanuel's activities on the board of Freddie Mac (including any violations of his fiduciary duties to shareholders), into the decision-making behind the continued vacancy of Fannie and Freddie's inspector general post, and into potential public corruption by Rahm Emanuel in connection with his time in Congress, in the White House, and on the board of Freddie Mac."

Since the financial bailout began, Fannie and Freddie have received $111 billion in taxpayer loans. In August, the administration projected the cost for rescuing Fannie and Freddie would total $170 billion.

Treasury Department officials said the cap will be replaced with a flexible formula to ensure the companies can stand behind the billions of dollars in mortgage-backed securities they sell to investors.

"The amendments to these agreements announced today should leave no uncertainty about the Treasury's commitment to support these firms as they continue to play a vital role in the housing market during the current crisis," the department said in a statement.

FHFA issued its own ruling Thursday that the base salary for officers besides the CEO, CFO and COO cannot exceed $500,000 a year. That means five officers are exempt and 11 will now face a cap.

The capped executives will be allowed to get up to one-third of their salary in additional incentive bonuses. Any deferred cash salary -- like stock salary received by private company executives who received bailouts -- will be paid partly as a means to keep executive officers working at the GSEs.

FHFA acting chief Edward DeMarco said the compensation deal is to mimic the one set up by pay czar Kenneth Feinberg for private companies.

"The enterprises must attract and retain the talent needed to accomplish (their) objectives. We have worked with the enterprises' boards and sought the guidance of the Special Master of TARP Executive Compensation, to develop competitive compensation packages that benefit from the structural standards created for the TARP-assisted firms," DeMarco said.

Eight of the then-top 11 executives at Fannie Mae left the company just before the U.S. government stepped in with its bailout, as did the four highest paid executives at Freddie
Mac.

Treasury officials will provide an updated estimate for Fannie and Freddie losses when President Obama sends his 2011 budget to Congress in February. The formula Treasury will use will provide the institutions with a sufficient cushion based on the losses they may incur over the next three years.

In their letter to Holder, Hamsher and Norquist wrote that the White House has stonewalled any inquiries into Emanuel's role on the board, noting that the acting inspector general was "stripped of his authority earlier this year by the Justice Department, relying on a loophole in a bill Mr. Emanuel cosponsored and pushed through Congress shortly before he left for the White House."

The White House has not appointed a new inspector general to determine whether crimes were committed by the board to defraud investors, the two noted, and the statute of limitations for empaneling a grand jury is about to run out.

"Under the influence of Rahm Emanuel, the White House is moving a trillion-dollar slush fund into corruption-riddled companies with no oversight in place. This will allow Fannie and Freddie to continue to purchase more toxic assets from banks, acting as a back-door increase of the TARP without congressional approval," Hamsher and Norquist wrote.

Asked about the letter on Thursday, White House spokesman Bill Burton did not address the allegations, saying, "I have the feeling that Rahm's job is very safe."

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