From Richard’s Bove email this morning on the Fannie Mae and Freddie Mac legal and political battle for GSE reform.

There have been two developments in the past few days that have changed the financial position of Fannie Mae. The first was a positive decision by a Federal Court. The second was a note to the Federal Housing Finance Agency (FHFA) from Congress.

 

? The Justice Department threw a “Hail Mary” pass in its battle with the various plaintiffs in its lawsuits against the Treasury and the FHFA. It had been the government’s hope that it could wrap all of these cases into one lawsuit. Justice would then argue to drop that lawsuit.

 

? This is not to be. The U.S. Judicial Panel on Multidistrict Litigation rejected the request. Therefore, these lawsuits will go forward in the states of Delaware, Iowa, Illinois, and Kentucky, plus the two Washington District courts.

 

? The second positive is the increasing number of requests by civil rights and other organizations that Fannie Mae be recapitalized. The most important of these requests came from 32 Democratic representatives.

 

? It stated that the letter was: “to express our concerns about your agencies’ policy of requiring Freddie Mac and Fannie Mae to operate without adequate capital. Fortunately, the Housing and Economic Recovery Act (HERA) of 2008 provides a solution to this problem by requiring the FHFA Director to ensure that the GSEs are adequately capitalized. HERA includes a number of provisions expressing Congress’ intent that the GSEs be operated in a safe and sound manner … The fact that the GSEs are currently in conservatorship, and that Congress has not enacted further legislation post-HERA, does not justify an agreement between FHFA and the U.S. Treasury to ignore HERA’s mandate.”

 

? The last sentence here is a blockbuster since it states that the FHFA must obey the law

 

? Stay tuned.

 

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