I’ll have a Double Capuano – Brilliant Congressman Tries Again!

Congressman Capuano: “Payback Treasury!”

112_capuano_ma08

Congressman Michael Capuano is a Democrat from Massachusetts serving since 1998. Prior to that, Mr. Capuano graduated from Boston College Law School and served as an alderman, then mayor of his hometown, Somerville, MA. Among other responsibilities, Mr. Capuano serves on the House Committee on Financial Services.

On February 24, 2015, Mr. Capuano introduced “H.R. 1036: To provide for the repayment of amounts borrowed by Fannie Mae and Freddie Mac from the Treasury of the United States, together with interest, over a 30-year period, and for other purposes.”

https://www.govtrack.us/congress/bills/114/hr1036

Details are forthcoming on the bill, however in 2013, Congressman Capuano introduced a similar bill “H.R. 2435: Let the GSEs Pay Us Back Act of 2013.”

Details of that bill can be viewed here:

http://www.gpo.gov/fdsys/pkg/BILLS-113hr2435ih/pdf/BILLS-113hr2435ih.pdf

The bill had no co-sponsors, received no votes and its official status is “Died in a previous Congress.” The following is a summary of the 2013 bill:

H.R.2435 — Let the GSEs Pay Us Back Act of 2013 (Introduced in House – IH)
HR 2435 IH

113th CONGRESS

1st Session

  1. R. 2435

To provide for the repayment of amounts borrowed by Fannie Mae and Freddie Mac from the Treasury of the United States, together with interest, over a 30-year period, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

June 19, 2013

Mr. CAPUANO introduced the following bill; which was referred to the Committee on Financial Services

A BILL

To provide for the repayment of amounts borrowed by Fannie Mae and Freddie Mac from the Treasury of the United States, together with interest, over a 30-year period, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Let the GSEs Pay Us Back Act of 2013′.

SEC. 2. REPAYMENT OF TREASURY BORROWING.

The Secretary of the Treasury and each enterprise (acting through the conservator for the enterprise appointed pursuant to section 1367 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4617)) shall enter into an agreement with that modifies the Preferred Stock Purchase Agreement for such enterprise to provide as follows:

(1) TERMINATION OF DIVIDENDS- That after such modification, any Senior Preferred Stock purchased under such Agreement by the Department of the Treasury shall not accrue further dividends.

(2) TREATMENT OF ENTERPRISE DRAWS ON TREASURY- That any amounts received, before or after such modification, during a single year by the enterprise as a draw on the commitment made by the Department of the Treasury under such an Agreement, shall be treated as a loan made by the Treasury to the enterprise that–

(A) was originated on the date of the last such draw during such year;

(B) has an original principal obligation in an amount equal to the aggregate amount of such draws;

(C) has a term to maturity of 30 years;

(D) has an annual interest rate of 5 percent for the entire term of the loan;

(E) has terms that provide for full amortization of the loan over such term to maturity; and

(F) shall be repaid by the enterprise in accordance with the amortization schedule established for the loan pursuant to subparagraph (E) of this paragraph, subject to paragraph (3).

(3) TREATMENT OF DIVIDENDS PAID- That any dividends paid by the enterprise to the Department of the Treasury under the Senior Preferred Stock Agreement before such modification of such Agreement shall be treated as payments of principal and interest due under the loan referred to in paragraph (2), and shall be credited against payments due under the terms of such loan (in accordance with the amortization schedule established for such loan pursuant to paragraph (2)(E)), first to such loan have the earliest origination date that has not yet been fully repaid until such loan is repaid, and then to the next such loan having the next earliest origination date until such loan is repaid.

SEC. 3. DEFINITIONS.

For purposes of this Act, the following definitions shall apply:

(1) ENTERPRISE- The term `enterprise’ has the meaning given such term in section 1303 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4502).

(2) PREFERRED STOCK PURCHASE AGREEMENT- The term `Preferred Stock Purchase Agreement’ means, with respect to an enterprise, the Amended and Restated Senior Preferred Stock Purchase Agreements, dated September 26, 2008, amended May 6, 2009, further amended December 24, 2009, and further amended December 24, 2009 (as such agreements may be further amended), between the United States Department of the Treasury and such enterprise.

______________________________________________________

It is commendable that Congressman Capuano desires to do the right thing (he also serves on the House Committee on Ethics). His tenacity is equally impressive given that he is attempting to pass this bill again.

Does the bill have a chance of passing? Perhaps. But what will help is public support…!

What also helps is knowing that HERA 2008 required the financial agreements between Fannie/Freddie and the Department of Treasury to enable repayment.   REQUIRED!

Also, the Preferred Stock Purchase Agreement Stock Certificates between Fannie/Freddie and the US Treasury provides for the option for repayment.

The following is the section in HERA 2008 that discusses the repayment requirement:

“HOUSING AND ECONOMIC RECOVERY ACT OF 2008

REGULATED ENTITIES BY SECRETARY OF TREASURY.

(a)      FANNIE MAE.—Section 304 of the Federal National Mortgage Association Charter Act (12 U.S.C. 1719) is amended by adding at the end the following new subsection:

‘‘(g) TEMPORARY AUTHORITY OF TREASURY TO PURCHASE OBLIGATIONS AND SECURITIES; CONDITIONS.—

‘‘(1) AUTHORITY TO PURCHASE.—

‘‘(A) GENERAL AUTHORITY.—In addition to the authority under subsection (C) of this section, the Secretary of the Treasury is authorized to purchase any obligations and other securities issued by the corporation under any section of this Act, on such terms and conditions as the Secretary may determine and in such amounts as the Secretary may determine. Nothing in this subsection requires the corporation to issue obligations or securities to the Secretary without mutual agreement between the Secretary and the corporation. Nothing in this subsection permits or authorizes the Secretary, without the agreement of the corporation, to engage in open market purchases of the common securities of the corporation.

‘‘(B) EMERGENCY DETERMINATION REQUIRED.—In connection with any use of this authority, the Secretary must determine that such actions are necessary to—

‘‘(i) provide stability to the financial markets;

‘‘(ii) prevent disruptions in the availability of mortgage finance; and ‘‘(iii) protect the taxpayer.

‘‘(C) CONSIDERATIONS.—To protect the taxpayers, the Secretary of the Treasury shall take into consideration the following in connection with exercising the authority contained in this paragraph:

‘‘(i) The need for preferences or priorities regarding payments to the Government.

‘‘(ii) Limits on maturity or disposition of obligations or securities to be purchased.

‘‘(iii) The corporation’s plan for the orderly resumption of private market funding or capital market access.

‘‘(iv) The probability of the corporation fulfilling the terms of any such obligation or other security, including repayment.

‘‘(v) The need to maintain the corporation’s status as a private shareholder-owned company.

‘‘(vi) Restrictions on the use of corporation resources, including limitations on the payment of dividends and executive compensation and any such other terms and conditions as appropriate for those purposes.

http://www.gpo.gov/fdsys/pkg/PLAW-110publ289/pdf/PLAW-110publ289.pdf

______________________________________________________

The Senior Preferred Stock Purchase Agreement, Preferred Stock Certificate dated September 17, 2012 and signed by Edward DeMarco provides for an option to repay the Treasury debt.

AMENDED AND RESTATED CERTIFICATE OF DESIGNATION OF TERMS OF

VARIABLE LIQUIDATION PREFERENCE SENIOR

PREFERRED STOCK, SERIES 2008-2

3. Optional Pay Down of Liquidation Preference

(a)    Following termination of the Commitment (as defined in the Preferred Stock Purchase Agreement referred to in Section 8 below), and subject to any limitations which may be imposed by law and the provisions below, the Company may pay down the Liquidation Preference of all outstanding shares of the Senior Preferred Stock pro rata, at any time, in whole or in part, out of funds legally available therefor, with such payment first being used to reduce any accrued and unpaid dividends previously added to the Liquidation Preference pursuant to Section 8 below and, to the extent all such accrued and unpaid dividends have been paid, next being used to reduce any Periodic Commitment Fees (as defined in the Preferred Stock Purchase Agreement referred to in Section 8 below) previously added to the Liquidation Preference pursuant to Section 8 below. Prior to termination of the Commitment, and subject to any limitations which may be imposed by law and the provisions below, the Company may pay down the Liquidation Preference of all outstanding shares of the Senior Preferred Stock pro rata, at any time, out of funds legally available therefor, but only to the extent of (i) accrued and unpaid dividends previously added to the Liquidation Preference pursuant to Section 8 below and not repaid by any prior pay down of Liquidation Preference and (ii) Periodic Commitment Fees previously added to the Liquidation Preference pursuant to Section 8 below and not repaid by any prior pay down of Liquidation Preference. Any pay down of Liquidation Preference permitted by this Section 3 shall be paid by making a payment in cash to the holders of record of outstanding shares of the Senior Preferred Stock as they appear in the books and records of the Company on such record date as shall be fixed in advance by the Board of Directors, not to be earlier than 45 days nor later than 10 days preceding the date fixed for the payment.

(b)    In the event the Company shall pay down of the Liquidation Preference of the Senior Preferred Stock as aforesaid, notice of such pay down shall be given by the Company by first class mail, postage prepaid, mailed neither less than 10 nor more than 45 days preceding the date fixed for the payment, to each holder of record of the shares of the Senior Preferred Stock, at such holder’s address as the same appears in the books and records of the Company. Each such notice shall state the amount by which the Liquidation Preference of each share shall be reduced and the pay down date.

(c)    If after termination of the Commitment the Company pays down the Liquidation Preference of each outstanding share of Senior Preferred Stock in full, such shares shall be deemed to have been redeemed as of the date of such payment, and the dividend that would otherwise be payable for the Dividend Period ending on the pay down date will be paid on such date. Following such deemed redemption, the shares of the Senior Preferred Stock shall no longer be deemed to be outstanding, and all rights of the holders thereof as holders of the Senior Preferred Stock shall cease, with respect to shares so redeemed, other than the right to receive the pay down amount (which shall include the final dividend for such shares). Any shares of the Senior Preferred Stock which shall have been so redeemed, after such redemption, shall no longer have the status of authorized, issued or outstanding shares.

http://www.sec.gov/Archives/edgar/data/310522/000031052212000141/fanniemaeq309302012ex41.htm

______________________________________________________

Again, thanks to Congressman Capuano for his persistence and leadership in attempting to resolve the GSE quagmire. Mr. Capuano has HERA and the Agreements on his side. And he needs the public on his side, too!

Let’s rally behind Congressman Capuano’s effort to fix this stalemate and to restore hope in the American Dream!

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5 thoughts on “I’ll have a Double Capuano – Brilliant Congressman Tries Again!

  1. Respectfully,

    It’s difficult to understand why one would propose a 30-year “solution” for something that’s already transpired.

    Government “loaned” the GSEs a total of $188B during the financial crisis.

    To date, the GSE’s have returned ~$239B to Government. That’s nearly $50B above what was loaned, and this total return to government increases by billions of dollars each quarter the GSEs remain profitable.

    In addition, the federal government holds a 79% equity stake in the GSEs – worth (arguably) $150B today.

    Given these facts, why do we need this bill?

    “To provide for the repayment of amounts borrowed by Fannie Mae and Freddie Mac from the Treasury of the United States, together with interest, over a 30-year period, and for other purposes.”

    ???

    This citizen would like his government to restore fairness to their actions in this matter. For example,
    1) Keep $210B of the funds already collected (as the principal and interest payment on the $188B “loan”).
    2) End the conservatorship, and return the surplus and the equity to the shareholders (or seed a GSE reserve fund).

    Noting one remaining issue…
    My government has “already spent” the $239B collected to date (as general funds to Treasury that offset the deficit). However, citizens have not been protected from financial exposure to further vicissitudes of the mortgage markets. Given the experience of 2007-2010, one would think that protecting from future similar debacles should reign as the top legislative priority.

    Liked by 1 person

    • I first thought the same thing, but in reading the 2013 bill it states,

      “(3) TREATMENT OF DIVIDENDS PAID.—That any dividends paid by the enterprise to the Department of the Treasury under the Senior Preferred Stock Agreement before such modification of such Agreement shall be treated as payments of principal and interest due under the loan referred to in paragraph (2), and shall be credited against payments due under the terms of such loan (in accordance with the amortization schedule established for such loan pursuant to paragraph (2)(E)”

      Meaning… the loans are paid off (or very close depending on the math…). He wrote that bill in 2013, so we’ll see how the 2015 version is updated. Either way, he wants FnF to receive credit for payments already made. Good news!!

      Liked by 1 person

  2. Pingback: $FNMA Capuano bill for those who haven’t seen it last month from fanofred | GlenBradford.com

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