Ruling in Perry Capital Appeal Shackles Fannie Mae/Freddie Mac Shareholders

One buys stock with an understanding that the rules affecting profit and loss won’t change without warning. The U.S. Court for Appeals, District of Columbia Circuit, apparently believes otherwise. On February 21, the court ruled 2-1 that investors in shares of secondary residential mortgage lenders Fannie Mae and Freddie Mac, as managed by Perry Capital LLC, a New York hedge fund, have no right to realize their accrued profits. The decision continues the federal conservatorship of the two companies established in 2008. The case was triggered by the “sweep rule” issued by the Treasury Department in August 2012. That rule confiscated dividends as repayment for $187.5 billion in emergency loans even though the corporations have repaid far more than that. The case, one of many such suits, is a lesson on the perils of government bailouts.

National Legal and Policy Center on many occasions has analyzed the Fannie Mae and …

Congress Says ‘No’ to Fannie Mae/Freddie Mac CEO Pay Hike; Misses Big Picture

fannie-mae-and-freddie-macIf there is an issue that has united popular indignation, Left and Right alike, executive compensation surely ranks near or at the top.  But the bipartisan opposition to recent pay increases for the CEOs of mortgage conduits Fannie Mae and Freddie Mac, while highly understandable, misses the larger point.  Several months ago, these companies, which account for nearly half the outstanding home mortgage debt in the U.S. and which since 2008 have been wards of the government, announced plans to raise annual CEO pay from $600,000 to $4 million.  Their overseer, the Federal Housing Finance Agency, approved the hikes.  In response, Congress overwhelmingly has passed (or is on the verge of passing) bills to roll them back.  Lawmakers would do better to allow the firms to operate freely and without subsidies.

National Legal and Policy Center has visited the travails of these two companies many times over the last …

Documents Reveal Government Saw Gold in Fannie Mae/Freddie Mac Profit ‘Sweep’

fannie-mae-and-freddie-macTwo years ago, in August 2012, the U.S. Treasury Department issued its so-called “sweep” rule forcing mortgage giants Fannie Mae and Freddie Mac to surrender all future profits. Shareholders were angered. Some sued the government. Their displeasure now has a measure of vindication. Near the end of July, an unnamed source leaked a confidential Treasury document (see pdf) to the public, dated June 13, 2011, showing that the department was willing to go to bat on behalf of outside investors, particularly The Blackstone Group, to facilitate purchases of equity stakes in the companies. At the time, Fannie and Freddie were rebounding from a deep slump, yet their management, under tight federal conservatorship since September 2008, had their hands tied. The latest revelations may strengthen the claims of existing shareholders, and more broadly, the cause of property rights.

National Legal and Policy Center for more than a year (such as

Court Forces Government to Release Documents in Fannie/Freddie Suit

Fannie Mae/Freddie MacThe burden carried by the holders of stock in mortgage giants Fannie Mae and Freddie Mac, each operating for nearly six years under federal conservatorship, just got lighter. On July 16, U.S. Court of Federal Claims Judge Margaret Sweeney, in a procedural ruling, held that shareholder-plaintiffs in Fairholme Funds Inc. et al. v. United States are entitled to know material facts that the government wants to keep secret. The shareholders are seeking compensation for foregone income resulting from the Treasury Department’s “sweep” rule of August 2012, which forced the companies to forward all dividends to the department in perpetuity. Government lawyers had filed a motion for a protective order on May 30 to inhibit discovery. The outcome of this case will have major implications for the future of property rights in this country.

National Legal and Policy Center has been following the situation at the Washington, D.C.-based Federal National Mortgage …

Senate Committee Approves Fannie/Freddie Phaseout, But Bill Keeps Government Role

sen-johnson-and-crapoEveryone in Washington favors “reform.” Unfortunately, the term can be highly deceptive. Such is the case of the Housing Finance Reform and Taxpayer Protection Act of 2014 (S.1217), a bill that would abolish troubled mortgage giants Fannie Mae and Freddie Mac in favor of a federally-backed private insurance system. Last Thursday, the Senate Banking Committee approved the measure by a 13-9 vote. Yet the bill, sponsored by Sens. Tim Johnson, D-S.D., and Mike Crapo, R-Idaho (in photo), may never reach the Senate floor – and not undeservedly. For the real problem with Fannie Mae and Freddie Mac, which now are profitable and have more than repaid their federal bailout debt, is not their existence; it is their subjection to tight federal control. The “new” system would retain and even expand this control, while not restoring the rights of shareholders left high and dry.

National Legal and Policy Center several times …

Johnson-Crapo Fannie Mae/Freddie Mac Repeal Bill Misses Larger Issues

Fannie Mae and Freddie MacNever underestimate the ability of Congress to address a problem through symbolic action. Over the weekend, Sens. Tim Johnson, D-S.D., and Mike Crapo, R-Idaho, introduced a bill, the Housing Finance Reform and Taxpayer Protection Act of 2014, to phase out secondary mortgage lending corporations Fannie Mae and Freddie Mac over a five-year period and replace them with a new insurance-based system. The 442-page draft bill builds on a plan unveiled last June by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va. Like its predecessor, this bill rests on the faulty premise that the main problem is these companies’ continued existence. Lawmakers instead should allow them to operate, but without a federal lifeline. Significantly, the new bill makes no mention of the junior preferred and common Fannie Mae and Freddie Mac shareholders whose earnings are being seized in perpetuity by the U.S. Treasury.

Federal National Mortgage Association (“Fannie Mae”) and …

Fannie Mae/Freddie Mac Shareholders Publicize Suit against Federal Taking of Assets

Fannie Mae and Freddie MacFannie Mae and Freddie Mac formally are known as Government-Sponsored Enterprises, or GSEs. These days the “S” might stand for “stolen.” A group of their shareholders are arguing as much in federal court in Perry Capital v. Lew. The U.S. Treasury Department, claim the plaintiffs, overstepped its authority by impounding profits in perpetuity through its “sweep” rule of 2012. On Wednesday, February 5, the group, Shareholder Respect, held a conference in Washington, D.C. to highlight its view that the rule violates the terms of the temporary conservatorship under which Fannie Mae and Freddie Mac have been forced to operate since 2008.  Ralph Nader, through his group, Public Citizen, organized the event. Speakers included the shareholders’ lawyer, former Solicitor General Theodore Olson. Anyone concerned over the future of property rights in this country should be following this case.

The Washington, D.C.-based Federal National Mortgage Association (“Fannie Mae”) and the …

Mel Watt Sworn in as Fannie Mae/Freddie Mac Conservator

mel-wattAs a Democratic North Carolina congressman, Melvin Watt had a hand in creating the mortgage meltdown. Now he’s the new head of an agency charged with helping to reverse the meltdown. Irony is well and alive in Washington, D.C.  Yesterday former Rep. Watt (in photo) was sworn in to a five-year term as director of the Federal Housing Finance Agency (FHFA), created in 2008 to oversee Fannie Mae and Freddie Mac. These two companies now hold or guarantee roughly $5 trillion in assets. The Democratic-majority Senate had confirmed Watt on December 10 by 57-41 following a failed effort in October to block a Republican filibuster.  The approval followed a Senate vote on November 21 to lower the bar for invoking cloture (i.e., breaking a filibuster) on most presidential nominations from 60 votes to a simple majority.

To understand why Mel Watt is the wrong man to head FHFA, it would …

Senate Republicans Block Mel Watt FHFA Nomination; White House to Try Again

mel-watt-congressional-photoNorth Carolina Democratic Congressman Melvin Watt has a dream job: running a federal agency that controls around $5 trillion in financial assets. For now, he’ll have to keep dreaming about it. On October 31, the Senate, by a 57-41 margin, fell three votes shy of the 60 votes needed to invoke cloture (i.e., end debate) over President Obama’s nomination of Watt as director of the Federal Housing Finance Agency, which for over five years has been conservator for mortgage giants Fannie Mae and Freddie Mac. Republicans, with two exceptions, voted to filibuster, believing he wasn’t qualified to run the agency. Yet the main problem with Watt is less his qualifications than his view that FHFA should be a permanent agency, and one with favoritism toward nonwhites.

The upside of the vote: Edward DeMarco will remain in charge of the agency for at least a little longer. National Legal and Policy …

Senate Bill to Repeal Fannie Mae/Freddie Mac Repackages Old Problems

For nearly five years, Fannie Mae and Freddie Mac have operated under federal conservatorship. A number of observers, including lawmakers on Capitol Hill, think that’s too long. What’s more, they want to pull the plug on the mortgage giants’ existence. On June 25, Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., introduced a bill, the Housing Finance Reform and Taxpayer Protection Act of 2013 (S. 1217), that would replace these companies with a new insurance-based system. Supporters champion the legislation as a way to protect the public from future bailouts and promote more home mortgage lending.

 Yet the measure may invite a rerun of the 2008 credit meltdown because it doesn’t challenge the prevailing assumption of homeownership as a right. An alternative bill, at least, introduced last Thursday by Rep. Jeb Hensarling, R-Tex., would reduce taxpayer exposure. Created by Congress, respectively, in 1938 and 1970, Federal National Mortgage Association …

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