Fannie And Freddie: Treasury Sued Over Bailout Terms


The bailout of Fannie and Freddie has led to a lawsuit against the US Treasury. The federal lawsuit, filed by investors with Perry Capital LLC, challenges the 2012 bailout terms imposed on the government-owned mortgage firms.

Facing insolvency, Fannie Mae and Freddie Mac were placed into conservatorship in 2008. The lawsuit claims that while under restrictions of the conservatorship, both firms avoided paying quarterly dividends by paying the majority of their profits to the government.

As reported by Yahoo News, the change was spelled out in an amendment to the previous bailout agreement. As the Treasury Department amended the agreement in 2012, they were named in the lawsuit.

Also named in the lawsuit is the Federal Housing Finance Agency, which oversees Fannie and Freddie’s operations.

In 2010, Perry Capital started investing in both mortgage firms. The contend that the amended agreement decreased shareholder value, as it prevents them from accumulating capital.

An attorney for Perry Capital explains the lawsuit in further detail:

“What we’re seeking is to require Treasury and the FHFA to obey the rules set forth in the Housing and Economic Recovery Act … There are no damages being sought.”

Perry capital’s attorneys are referring to the HERA, which limits government involvement and obligations under conservatorship.

As reported by Reuters, both firms have reorganized and are currently making a profit. As of June 30, they collectively paid taxpayers more than $132 billion in dividends.

As they continue to rebound, several investors, including Perry, would like to see both mortgage firms privatized. A bill promoting the liquidation of both firms was presented by several bipartisan senators in June.

Currently, Fannie and Freddie either own or guarantee nearly half of all home mortgages. Neither firm loans money. Instead, they purchase the loans from primary lenders, providing insurance against default.

The Fannie and Freddie lawsuit was filed in the US District Court in Washington. The US Treasury and FHFA have denied comment on the lawsuit.

 

 

 

 

 

 

 

 

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