Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) are two Fortune 50 companies that the government has held in conservatorship since 2008 governed by HERA which was passed into law in 2008. HERA created FHFA, the Federal Housing Finance Agency and permitted the agency to place the two companies into conservatorship if they met certain conditions. Because the companies were adequately capitalized at the time they were placed into conservatorship since they had their highest levels of capital in history, the government coerced the companies' BODs into surrendering the companies into a statutory framework formally known as conservatorship. Since Fannie and Freddie were placed into conservatorship the companies have consistently remained cash profitable.
Further inspection of the GSEs annual statements shows this is due to their regulator packing them full of temporary accounting losses designed to retroactively justify the imposition of conservatorship. When it was already a foregone conclusion that these temporary accounting losses were going to be reversed to create one-time gains in excess of $100B, the government implemented the third amendment to the senior preferred purchase stock agreement (SPSPA) which unilaterally took 100% of the net worth of the enterprises for no consideration. Investors have been furious, but to date no judge has ruled the government's actions as illegal but the court system has said that if the government breaches contracts, there are consequences. Those consequences are TBD as they are in-remand in the DC Court of Judge Lamberth.
