FHFA & Treasury “Exceeded” Authority On Fannie Mae & Freddie Mac: Yale Legal Scholar

FHFA & Treasury “Exceeded” Authority On Fannie Mae & Freddie Mac: Yale Legal Scholar
<h4>Fannie Mae</h4> <small>Photo by <a href="http://www.flickr.com/photos/[email protected]/2839158592" target="_blank">NCinDC</a> <a rel="nofollow" href="http://creativecommons.org/licenses/by-nd/2.0/" target="_blank" title="Attribution-NoDerivs License"><img src="https://www.valuewalk.com/wp-content/plugins/wp-inject/images/cc.png" /></a></small>

Yale Legal Scholar: FHFA & Treasury “Exceeded” Authority On Fannie Mae And Freddie Mac by Investors Unite

Writing in the National Law Review, Yale Law School lecturer Logan Beirne dissects the recently filed lawsuit in Iowa by three Fannie Mae and Freddie Mac investors accusing the federal government of exceeding its authority as a conservator. Beirne says the case “astutely focuses on [the Federal Housing Finance Agency’s statutory breeches,” unlike the earlier suits that focused on constitutional claims. Beirne writes:

“However, rather than work as conservator to benefit Fannie Mae and Freddie Mac’s shareholders, as is its obligation under traditional conservatorship law, the FHFA acted for the benefit of the U.S. government – and to the detriment of those private shareholders. In a surprise deal, the FHFA effectively wiped out the private shareholders and essentially turned the proceeds of Fannie Mae and Freddie Mac to the U.S. Treasury.”

When the government decided to put the enterprises into conservatorship, it was done in part to ensure that Fannie Mae and Freddie Mac did not experience more distress than they already had. We’ve noted before that the government imposed tough terms in exchange for this, but at the time, the vast majority believed it was a necessary step. As Beirne points out, the companies returned to profitability by the second quarter in 2012 … and then the Third Amendment Sweep was created just a few months later.

Exclusive: Izzy Englander’s Millennium Management Focuses On Longer Term Capital

Schonfeld Strategic Advisors Robert Atchinson Phillip Gross favorite hedge fundsEarlier this month, Greylock Capital Associates, an emerging markets hedge fund, filed for bankruptcy protection in New York assets under management dwindled from nearly $1 billion in 2017 to $450 million at the end of 2020. After three years of losses, Bloomberg reported that assets could drop below $100 million by the end of the Read More

As a conservator, though, FHFA, despite comments from officials, had a statutory obligation to shareholders. Concerns for taxpayers are important, yes, but breeches of contractual responsibilities are frowned upon, and can lead to future distrust. Beirne writes:

“As conservator under HERA, it is precisely the FHFA’s responsibility to work for the benefit of the shareholders. Under standard corporate law principles, that conservator is bound, by a strong fiduciary duty to protect the corporate assets for the benefit of both common and preferred shareholders. By working for the benefit of third party taxpayers – and to the detriment of private shareholders – the FHFA is in breach of its duties under HERA.”

The three plaintiffs in the Iowa case – Thomas Saxton, Ida Saxton and Bradly Paynter – have alleged that FHFA and the U.S. Treasury “systemically exceeded their limited authority under HERA” and “acted arbitrarily and capriciously.” Anyone who’s familiar with the history here should certainly agree with that. Beirne rightly concludes that while the “political winds of the moment” make the seizure of private property from shareholder seem popular, the long-term consequences of allowing this violation of the rule of law to go unchecked would have very costly consequences on the housing market.

We strongly encourage you to spend a few minutes reading the piece – it’s well worth your time.

More from Investors Unite

No posts to display