Nader Seeks Fannie Mae Value in Push That Also Aids Hedge Funds

Apr 09, 2014 12:06 pm ET

April 9 (Bloomberg) -- Consumer activist Ralph Nader and a free-market group whose funders include billionaires Charles and David Koch are part of a growing crowd urging the Senate to preserve value for investors in Fannie Mae and Freddie Mac.

“As the housing-finance reform debate heats up on Capitol Hill, it is of the utmost importance that the voices of shareholders -- which have, until now, been ignored -- be heard,” Nader, 80, said in a statement he released today as a delegation of individual stockholders from 20 states prepared to visit lawmakers. The five-time presidential candidate said he owns about 50,000 of each company’s shares himself.

Lobbying is intensifying as the Senate Banking Committee prepares for an April 29 hearing where lawmakers will finish writing a bill to wind down the two mortgage-finance companies. A draft released last month is largely silent on how investors would be treated as the firms are liquidated.

Supporters of the bill, including the Mortgage Bankers Association, say the new push is part of an attempt by investors such as hedge funds to make their long-shot bet on the companies’ stock pay off. MBA President David Stevens this week criticized ads comparing the Senate plan to Obamacare that were released by the 60 Plus Association, a seniors group that has received donations from the industrialist Koch brothers.

“The 60 Plus Association, along with hedge funds and other third-party groups who have shown little other interest in housing, is offering misleading information and comparisons in an effort to derail this bipartisan reform effort that has been years in the making,” Stevens said in a statement. “These same hedge funds have recently speculated in Fannie Mae and Freddie Mac stock, and they could reap massive profits by keeping the housing finance system in its current state of limbo.”

Investors Unite

Two new organizations -- Investors Unite, founded by Tennessee money manager Tim Pagliara, and the Coalition for Mortgage Security, which declined to disclose its donors -- also began campaigns this week on behalf of shareholders.

Republicans and Democrats in Congress have expressed little interest in passing a bill that spells out benefits for investors, who were long thought to have been wiped out after the near-bankrupt companies were seized by regulators in 2008 and bailed out with $187.5 billion from taxpayers.

Still, if the lobbying groups can delay the legislative process, they could buy time for federal lawsuits that have been filed by investors including Perry Capital LLC and money manager Bruce Berkowitz’s Fairholme Funds Inc., which bought the stock after the bailout. The suits challenge an arrangement in which the U.S. now keeps 100 percent of Fannie Mae and Freddie Mac’s profits as a return on the government investment.

Stock Surge

Fannie Mae and Freddie Mac provide liquidity to the housing market by buying mortgages and packaging them into bonds. Their stock has surged as the new investors have taken significant stakes. Bill Ackman, manager of Pershing Square Capital Management, said in November that he’d bought almost ten percent of the common shares of the two companies that aren’t owned by the U.S. government.

Fannie Mae common stock, which was trading at $4.06 at 11 a.m. in New York, is up 35 percent from $3.01 on Dec. 31. Freddie Mac was trading at $4.09, a gain for the year of about 41 percent. The mortgage companies dropped at least 27 percent on March 11 after leaders of the banking panel announced their plan to eliminate the firms in the bill.

Shareholder Respect

Nader began his campaign three years ago when Fannie Mae’s and Freddie Mac’s common shares, which had once traded above $70, were each commanding only about 30 cents. He created an organization called Shareholder Respect, sent letters to U.S. officials including Treasury Secretary Jacob Lew, and hired a Washington-based public affairs firm to help him build a coalition.

Nader says he’s convinced there are still plenty of mom- and-pop investors holding onto shares that they bought before the government intervention.

Still, many of the individual investors who attended a press conference in Washington today said they’d bought their stock after the companies were already in conservatorship, only to be surprised when the government began requiring all profits to be sent to the Treasury each quarter. Kim Adams, a Nevada homemaker whose husband is a carpenter, said she bought stock in 2009.

“We don’t have any kind of retirement savings so I was looking for someplace to put my money that would be safe,” she said. “I was looking at Fannie Mae and Freddie Mac at 79 cents a share and I thought, I can afford that.”

‘Ordinary Investors’

The ads paid for by 60 Plus say, “millions of Americans invested their pension and retirement funds in mortgage companies Fannie Mae and Freddie Mac” and that under the bill, “ordinary investors -- teachers, police officers, firefighters -- could lose retirement savings.”

Pension funds that suffered huge losses in 2008 have been gradually liquidating their Fannie Mae and Freddie Mac holdings rather than fighting for a share in the companies’ newfound good fortune. In the days leading up to the takeover, Calpers, the pension fund of California’s government retirees, held 4.2 million shares of Fannie Mae and 3.9 million shares of Freddie Mac. Now, Calpers owns 2.6 million shares of Fannie Mae and 1.9 million shares of Freddie Mac.

“At this point, pension-fund holdings of Fannie and Freddie are likely to be quite small, if not immaterial,” Keith Brainard, a research director for the National Association of State Retirement Administrators, said in a telephone interview.

--With assistance from Andrew Zajac in Washington.