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16 BIG CHANGES AT FREDDIE, FANNIE SOUGHT BY INVESTOR A mutual fund manager with stakes in Fan- nie Mae and Freddie Mac released two letters at the start of March calling for the directors of each GSE to protect shareholders' interests with governance actions. In identical letters addressed to the boards of each enterprise, Bruce Berkowitz, manag- ing member and CIO of Fairholme Capital Management, urges the directors to "act in the best interests of each company and in accor- dance with accepted best practices for corporate governance." Specifically, Berkowitz asks the boards to retain each company's earnings to rebuild capital; cease borrowing for dividend payments to the U.S. Treasury; provide accurate disclosure; and be proactive in addressing conflicts of interests by retaining independent advisers when the Federal Housing Finance Agency (FHFA) is conflicted in its duty as conservator and regulator. e letters also request each board to con- vene annual shareholder meetings and relist the companies on the New York Stock Exchange. e letters mark another step in Berkowitz and Fairholme's efforts to get a piece of Fannie and Freddie's profits, which have been helped in large part by the recovering housing market and settlements with banks over soured mortgage- backed securities. ough the companies will have paid off their Treasury draws—and then some—by the end of May, a later adjustment to their bailout terms stipulates all profits be delivered to the Treasury. In July 2013, Fairholme joined hedge fund Perry Capital in filing suit against the government to pro- test the amendment. In November, the company drafted a proposal for a group of investors to pur- chase each enterprise's core insurance business—a proposal that still stands, Berkowitz notes. In a release accompanying the letters, Berkowitz explains the dramatic measures: "e conservatorship of Fannie Mae and Freddie Mac—now in its sixth year—is perpetuat- ing the pre-crisis regulatory and management shortcomings of the companies," he said. "Any notion that the answer to Fannie and Freddie's pre-crisis problems is more government involve- ment is just as flawed as the idea that the United States economy can properly function without their core business." A spokesperson for FHFA declined to remark on the letters, while a representative for Freddie Mac did not immediately return a request for comment. Fannie Mae, however, responded publicly with a statement from chair- man Philip A. Laskawy. "I am confident that the Board is doing the job it has been given," the statement said. "FHFA has retained certain authorities for its exclusive determination and control, as provided by federal statute, including all decisions relating to the declaration and payment of dividends to the United States Treasury. "Our Board and management will continue to perform their duties, as provided by federal statute and delegated by FHFA, diligently and to the best of their abilities." HOME PRICE GROWTH SLOWS; COULD SIGNAL DECLINE An early look at housing data in February shows a severe slowdown in home price growth as distressed sales activity grows stronger. Clear Capital's Home Data Index (HDI) Market Report recorded only a 1 percent gain in home prices over the quarter ending in February. at figure is down from a 2.5 per- cent pace of growth for the January quarter. While many price indicators have pointed to slowdowns over the last few months, the latest trend could be the start of something worse, says Dr. Alex Villacorta, VP of re- search and analytics at Clear Capital. "Our early data shows national quarterly price gains are falling at a rapid pace and suggest overall prices could dip into negative territory soon if current conditions continue," he said. ree out of the 15 lowest-performing metro markets in the latest HDI reported slight price declines over the quarter, while the remaining 12 were mostly flat. With win- ter not quite over yet, near-term price declines "are not out of the question," according to Clear Capital. Adding to the problem is a 1.8 percent- age point uptick in national REO saturation, which stood at 22.7 percent as of the end of February—further threatening price trends. "Since the market fallout in 2006, home prices have dramatically declined during sustained periods of rising distressed sale activity," Villacorta explained. "Over the last two years, however, rising distressed sales have been offset by investor demand, which is not guaranteed to be present in 2014." He added: "ough it is not unusual to see rising distressed activity over the winter months, the current housing picture gives reason to be concerned. If we don't see a cor- rection come spring, the housing market may be in for a long year."median price in Q 4 2013 was $170,000, up 13.3 percent from Q 4 2012. Egbert L. J. Perry will become the new chairman of the Fannie Mae Board of Directors effective March 31 when the current chairman retires. KNOW THIS

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