Alliance Battles to Save Fannie and Freddie
By: Matthew Goldstein (NY Times) April 2014
The investor Bruce R. Berkowitz is providing seed money for a new group that is running advertisements in newspapers and on television to support Fannie Mae and Freddie Mac, the government-sponsored mortgage finance companies that lawmakers are trying to wind down.
Mr. Berkowitz’s Fairholme Capital Management mutual fund, which is an investor in both Fannie and Freddie, is a member of the coalition that is backing the group behind the ad campaign — United for American Homeownership, said a person briefed on the matter who was not authorized to discuss it publicly. This person also said that Fairholme provided seed money to the group.
The group took out full-page ads on Tuesday in The New York Times and The Wall Street Journal and began running television ads on Sunday on some stations. The group’s website formally went live on Tuesday as well.
The message of the ad campaign, which prominently features a United States flag and images of families with children, is that political leaders in Washington should work toward “preserving and strengthening” Fannie and Freddie.
In an emailed statement, Paul Scarpetta, a spokesman for Fairholme, said the group’s message was that “Fannie and Freddie need to be fixed, not thrown away.” The statement continued: “We support reform and are ready to invest in it.”
Other organizations that are part of the coalition supporting United for American Homeownership include the National Consumer League, RetireSafe, the Fair Housing Advocates Association and the National Organization for Women.
Fairholme and other investors that have bought shares in Fannie and Freddie are concerned that any restructuring of the mortgage giants, which required a $187 billion government bailout in 2008 to survive the housing crisis, could harm their investment. In February, Mr. Berkowitz’s firm sent a letter to the boards of the two companies asking them to give investors a greater say in how they are run. The companies are regulated by the Federal Housing Finance Agency.
In November, Mr. Berkowitz’s firm announced a proposal for it and other private investors to buy the mortgage security insurance business of Fannie and Freddie.
Fannie and Freddie are the main guarantors of mortgage-backed securities in the United States. The companies got into trouble in the financial crisis by taking on too much risk by guaranteeing mortgage securities backed by loans to borrowers with shaky credit histories. Those securities lost much of their value when the housing market crumbled.
The group’s website says its board includes Bob Kerrey, the former United States senator; Harry C. Alford, chief executive of the National Black Chamber of Commerce; and Joshua J. Angel, a bankruptcy and restructuring lawyer with Herrick Feinstein in New York.
The website does not make any mention of Fairholme’s financial support. A person close to the group and Fairholme but not authorized to speak publicly said no other financial firms were involved with the group.
The website also provides links to news articles and opinion pieces, including one titled “Fannie Mae and Freddie Mac must not die,” which was written by Richard Bove, a bank analyst at Rafferty Capital.
On Tuesday, the Senate Banking Committee started to consider a proposal to wind down Fannie and Freddie and replace them with a new federal insurance program for mortgage bonds.
