by Richard A. Epstein
Hoover Institution
March 04, 2014
Recently, the government announced that it will receive another multi-billion dollar “dividend” from Fannie Mae and Freddie Mac. That payment will return to the United States Treasury (with interest) all of the $187 billion in bailout money lent to the two mortgage giants, pursuant to the Housing and Recovery Act (HERA). HERA required the Federal Housing Finance Agency (FHFA) to manage the corporations’ assets to facilitate their return into private hands upon repayment of the loans. The legal landscape, however, was radically changed in 2012 thanks to the Third Amendment to the 2008 bailout agreement. It called for a “net worth sweep” under which all the net receipts of Fannie and Freddie were magically converted into “dividends” to be paid to the government, diverting the dividend stream from Fannie and Freddie shareholders. This audacious deal ensured that the two corporations would never pay off their debts to the United States.



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