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» VISIT US ONLINE @ DSNEWS.COM 63 agreed to pay quarterly fixed dividends to Treasury that were equal to 10 percent of the total amount of outstanding funding that Treasury had provided for the enterprises. Treasury and FHFA then entered into the ird Amendment in 2012 to address another threat to the stability of Fannie Mae and Freddie Mac, DeValk wrote. He said the GSEs were not earning enough to pay the 10 percent dividend and were coming off quarters in which they experienced net losses and had to draw down additional funds from Treasury. He said that the GSEs would likely have had to take additional draws to pay the 10 percent dividends, which would decrease the amount of available funding capacity under Treasury's commitments, and would again be facing the prospect of insolvency as they had in 2008. In 2012, the ird Amendment changed the structure of the dividend payments so that Fannie Mae and Freddie Mac would not have to draw from Treasury (taxpayers) to pay the dividends, DeValk wrote. "e ird Amendment replaced the 10-percent fixed dividends with a formula under which each enterprise pays Treasury, as a dividend, the amount by which its net worth for the quarter exceeds a set capital reserve," DeValk wrote, noting that Fannie Mae and Freddie Mac subsequently enjoyed greater earnings than expected, but the future of their profitability was not assured because a large portion of their profits in 2013 came from one- time tax benefits and litigation recoveries. DeValk noted that while several hedge funds have brought on lawsuits to try to stop the sweeping of GSE profits into Treasury, FHFA and Treasury have prevailed in the two cases that have been resolved to date. He said Treasury did not make a "simple loan" to Fannie Mae and Freddie Mac with the 2008 bailout, and that the terms of the preferred stock agreements are intended to compensate Treasury and taxpayers for an ongoing financial commitment – not to repay a one-time loan. To date, the GSEs have paid Treasury approximately $228 billion, which is more than $40 billion than they received in the 2008 bailout. DeValk did not address any of any other of Senator Grassley's concerns in the response letter. He said FHFA would be better positioned to answer questions regarding its role of regulator and conservator of the GSEs. Grassley is not satisfied. "e Justice Department stated that an actual assertion has not been authorized by the President and indicated that no decision about whether actually asserting the privilege would be needed 'unless and until plaintiffs file a motion to compel' production," Grassley said. "You have to wonder if the provisional privilege is brinkmanship or bluster by Justice Department lawyers rather than a legitimate signal that the President would actually assert the privilege to keep the records secret. "e public's business generally ought to be public, especially when the American people's money is involved. e government needs to justify its rationale for keeping the public in the dark." But whether the moves by the administra- tion represent actual shady dealings done in secret or simply practical steps taken to ensure government runs efficiently, the senator be- lieves that the optics leave much to be desired. "I haven't seen any evidence that more transparency is the rule as time winds down," Grassley said. "e President set a high bar in pledging to have the most transparent administration ever, and efforts by his Justice Department to withhold documents using provisional executive privilege won't help his legacy in that regard." (Editor's note: e Five Star Institute is the parent company of DS News) COVER STORY FROM THE BENCH INDUSTRY INSIGHT INDUSTRY INSIGHT "Treasury also took on an enormous risk when rescuing the enterprises in the middle of a financial crisis – a risk for which any private investor would have demanded substantial compensation." —Treasury Response to Grassley Criticism Treasury Secretary Jack Lew

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