Fairholme Leans on Fannie and Freddie Directors

NEW YORK (TheStreet) -- Fannie Mae  (FNMA) and Freddie Mac  (FMCC) investor Fairholme Funds wrote a letter to the boards of directors of both companies Feb. 28 asking them to protect the interests of shareholders.

The rights of shareholders in the two government sponsored enterprises have been suspended indefinitely as a result of a 2012 amendment to the conservatorship agreement put in place in 2008, when the U.S. government took control of the housing finance giants.

Fairholme, which owns over 20 million shares of common stock and over 66 million shares of preferred stock in Fannie Mae and over 17 million shares of common stock and over 52 million shares of preferred stock in Freddie Mac asks the boards of directors of those companies to preserve capital.

"The Company does not currently have, nor has it ever had, an obligation to pay cash dividends to Treasury, despite statements by the Federal Housing Finance Agency ('FHFA') to the contrary," both letters state.

The letters also speak to "conflicts of interest that have arisen for FHFA," the conservator of the GSEs, which "are deeply disturbing."

The letters state that "the conservator is required by law to act in the best interests of the [GSEs]," though "as an agency of the United States Government, FHFA cannot be expected to impartially negotiate with Treasury regarding the terms of Treasury's investment in the Company."

In response, a Fannie Mae spokesman pointed to a statement from chairman Philip Laskawy

"As legislated by Congress, with conservatorship, the Federal Housing Finance Agency as Conservator assumed by law all of the rights, powers, and privileges of the company, including those of the board of directors," it reads in part, adding, "I am confident that the Board is doing the job it has been given."

An email message to Freddie Mac's press office wasn't returned.

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