Senior Preferred Stock Purchase Agreements

Under the Senior Preferred Stock Purchase agreement, Freddie Mac may not exchange, purchase, retire or acquire other Freddie Mac shares (except preferred share or priority warrant) without prior written approval from the Ministry of Finance. On September 30, 2019, the Department of Finance and the Federal Housing Finance Agency (FHFA) announced, as curators of Fannie Mae and Freddie Mac, changes to the “Preferred Senior Stock Certificates” to allow Fannie Mae and Freddie Mac to retain profits in excess of the $3 billion in capital reserves authorized by the 2017 correspondence contracts. Fannie Mae and Freddie Mac are now allowed to maintain capital reserves of $25 billion, or $20 billion. These changes were recommended in the housing reform plan released on September 5, 2019. Mark Calabria, director of the FHFA, made a statement on the 2019 correspondence agreements, when they were announced. On September 6, 2008, the FHFA decided to place the GSEs under the conservatory and not bankruptcy. In line with its broad conservative powers, the FHFA, on behalf of the GSEs, has reached an agreement with the Treasury to save troubled companies with two lines of credit worth $100 billion (one for each company). In exchange for this new line of credit, each GSE issued 1 million shares of a new class of priority preferred shares to the Treasury, with an initial valuation of $US 1,000 per share. A recent comment by a preferred shareholder of Freddie Mac, which calls on state-subsidized companies to “keep, recapitalize and terminate the conservatory” on many levels, is false. The Trump administration looks set to end nearly 11 years of conservatives at the largest U.S.

state-subsidized company – the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). However, the current conditions of the State Conservative would require the GSEs to raise the nearly $200 billion they owe the Treasury and an additional $200 billion to build a capital buffer. Many interest groups are committed to amending existing agreements to reduce the financial burden on both GSEs, which is tantamount to an additional taxpayer bailout for bankrupt businesses. Fortunately, this rescue is not the only way to end the conservatory. In order to reduce capital by capitalization, special interests propose to allocate at least part of the liquidation preference of nearly $200 billion for priority preferred shares. Such a write-down on the credit that the Treasury gave to the GSEs would be a blatant taxpayer-funded rescue plan.