Fannie and Freddie shareholders want a say in mortgage finance reform

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Breanna Deutsch Contributor
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As lawmakers try to revamp Fannie Mae and Freddie Mac — two government-sponsored enterprises at the center of the financial meltdown — groups protecting shareholders are speaking out.

The bipartisan Coalition for Mortgage Security became the latest shareholders’ rights groups to urge Washington to look out for investors when pushing mortgage finance reform through Congress.

“Our mission is to ensure that the federal government enacts legislation that responsibly winds down Fannie Mae and Freddie Mac and sets up a new system funded by private capital with a limited government role and strong regulatory oversight,” one of the organization’s directors, Ken Blackwell, told The Daily Caller News Foundation.

Blackwell, who is a former Cincinnati mayor and undersecretary of Housing and Urban Development under President George H.W. Bush, explained, “We want to make sure that folks outside of the Beltway are not left out of the conversation.”

“And we want to make sure that from the beginning that all of the stake holders’ legitimate concerns are addressed as we transition away from Fannie Mae and Freddie Mac in their current form,” Blackwell told TheDCNF.

He was specifically referring to the bipartisan Johnson-Crapo bill that was offered into the Senate back in March.

The bill, co-sponsored by South Dakota Democratic Sen. Tim Johnson and Idaho Republican Sen. Mike Crapo, would work to dissolve Fannie Mae and Freddie Mac and replace the government-sponsored-enterprises with a new government agency.

Also under this legislation, private investors – who own the 20 percent of the GSEs not held by the government – would get nothing.

Unsettled by this component of the bill, Blackwell said his organization is prepared to work alongside Congress to configure legislation that phases out Fannie and Freddie, but protects the interests of private investors who have a stake in the GSEs.

“This is not going to be a 50 yard or a 100 yard dash – this is going to be a marathon,” he said, recognizing mortgage finance reform would be a long, sustained effort.

Blackwell’s group specifically noted on its website that it hopes to, “Replace Fannie Mae and Freddie Mac with private companies funded by private capital, without any special privileges or a Federal Charter.”

Other organizations founded on the principal of protecting shareholders’ rights are getting involved in the debate over the future of the companies.

Last Monday, a senior advocacy group called the 60 Plus Association launched television and radio ads in Idaho, arguing that millions of ordinary investors hold shares in Fannie and Freddie through pension or retirement accounts.

Consumer advocates, Ralph Nader and Tim Pagliara, are also heading Investors Unite – a group focused on guarantee shareholders’ rights amidst the enactment of GSE reform.

While the current form of the bill does not give shareholders any return on their investment, there have been several lawsuits filed in the U.S. Court of Federal Claims on behalf of Fannie and Freddie shareholders. The groups have said that the fate of shareholders will ultimately be decided in the courts.

Defenders of the bill argue this won’t be so devastating.

Keith Brainard, a research director for the National Association of State Retirement Administrators, told that “speculative investors” – not public pension funds – have more to gain from the lawsuits fighting for share of Freddie and Fannie’s recent profits.

The seeds of this dispute were planted during the 2007 and 2008 housing crisis, when the U.S. government approved a $187 billion bailout of the companies with taxpayer dollars in order to avoid a deeper recession. The money has since been reimbursed, and Fannie and Freddie have now returned to profitability, but under the revised terms of the bailout, the U.S. Treasury is now the sole beneficiary.

Members of the Senate Banking Committee are scheduled to vote on the Johnson-Crapo bill at the end of April.

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