In an otherwise disappointing ruling handed down by a federal appeals panel July 17, a dissenting view once highlighted the damage done by the government’s ongoing abuse of its statutory authority in confiscating the profits of the government sponsored enterprises Fannie Mae and Freddie Mac.
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A three-judge panel of the U.S. Court of Appeals for the Fifth Circuit ruled the Federal Housing Finance Agency (FHFA) has acted within its statutory authority in adopting an amendment to the terms of conservatorship of the GSEs in 2012 that implemented the infamous Net Worth Sweep. The Obama-era policy pivot requires the perpetual diversion of the GSEs’ quarterly earnings to the U.S. Treasury.
The Sweep was conceived and implemented in deceit. It was touted as a way to shield taxpayers from having to cough up more bailout money for Fannie and Freddie. But as federal courts demanded the government turn over documents related to the deliberations and rationale for the Sweep, it has become obvious that the GSEs were actually relatively healthy and the Sweep was merely a means of crippling the unpopular housing finance entities by siphoning off their profits for whatever the Administration needed money for.
For years the shareholders whose property was unconstitutionally taken from this policy have doggedly pursued justice and restoration of the rule of law. Over the last five years, there have been come victories, especially with regard to forcing the government to hand over once “privileged” documents. But once again a federal court sided with the government in its extraordinary overreach of statutory authority.
However, while Tuesday’s dismissal of shareholder claims in Texas court’s Collins vs. FHFA is no doubt disheartening for shareholders waiting for wrongs to be made right, faith remains that the rule of law will be upheld. In adissenting opinion, Judge Don Willett argues against the court’s finding that FHFA has acted within its statutory authority by adopting the Net Worth Sweep, and explains:
“To answer the question before us, we need only look to HERA’s plain text. And it is our duty to ensure that the FHFA operates squarely within the bounds of its statutory authority. Regrettably, the majority opinion does otherwise.
The upshot is a lucrative limbo: Mortgage-finance giants Fannie Mae and Freddie Mac are forever trapped in a zombie-like trance as wards of the state, bled of their profits quarter after quarter in perpetuity. In rejecting the Shareholders’ statutory claims, the majority opinion embraces the views of our sister circuits, adopting “the same well-reasoned basis common to those courts’ opinions.” But what the majority opinion finds convincing, I find confounding.
The sweep siphons the GSEs’ net worth quarter after quarter—all but guaranteeing that they will draw on Treasury’s funding commitment, increasing its liquidation preference. This action is fundamentally incompatible with the FHFA’s statutory mandate as conservator. Indeed, Congress specifically permits the FHFA to perform this action as receiver, yet the FHFA seeks to evade the carefully crafted statutory scheme by proposing an impermissibly broad, and unnecessarily encroaching, view of its powers as conservator. This overstep cannot sidestep judicial review.”
Judge Willet’s dissent reflects shareholders’ well-rounded understanding of the Administration’s disregard of their rights and the government’s negligence when it comes to protecting taxpayers from additional draws on their money to make up for shortfalls deliberately engineered by unelected bureaucrats.
Ten years after the financial crisis, Fannie Mae and Freddie Mac have paid back emergency taxpayer-backed loans plus an additional $91 billion. The rule of law is fragile and needs constant reinforcement. Now it’s time for the government – and other courts looking at additional shareholder suits – to reread Judge Willet’s dissent.
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