In identical letters addressed to the boards of each enterprise, Bruce Berkowitz, managing member and chief investment officer of Fairholme Capital Management, urges the directors to "act in the best interests of each company and in accordance 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.
The letters also request each board to convene annual shareholder meetings and to relist the companies on the New York Stock Exchange.
The 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. Though the companies will have paid off their Treasury draws—and then some—as of the end of May, a later adjustment to their bailout terms stipulates all profits be delivered to Treasury.
In July 2013, Fairholme joined hedge fund Perry Capital in filing suit against the government to protest the amendment. In November, the company drafted a proposal for a group of investors to purchase each enterprise's core insurance business—a proposal that still stands, Berkowitz notes.
In a release accompanying the letters, Berkowitz explained the dramatic measures: "The conservatorship of Fannie Mae and Freddie Mac—now in its sixth year—is perpetuating 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 involvement 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 Monday with a statement from chairman Philip A. Laskawy.
"I am confident that the Board is doing the job it has been given," the statement said in part. "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."