Legal cases involving Fannie Mae (OTCMKTS:FNMA) and Freddie Mac (OTCMKTS:FMCC) continue to make their way through the court system. Shareholders want to stay on track of these cases because their outcomes will have significant impact on the value of their investments. Bank analyst Dick Bove provided an update on all the major court cases for the government-sponsored enterprises.
Supreme Court not moving on Fannie Mae (OTCMKTS:FNMA) and Freddie Mac (OTCMKTS:FMCC) yet
For example, he believes the Supreme Court is reluctant to move forward on the cases involving Fannie Mae and Freddie Mac. The court has not yet said it will hear any of the cases, so there’s no guarantee that it will.
However, the Supreme Court will listen to arguments on a related case about whether the position of the director of the Consumer Financial Protection Bureau is unconstitutional. This case applies to the GSEs because another case ruled that the position of the Federal Housing Finance Agency’s director is unconstitutional. If the Consumer Financial Protection Bureau’s director is ruled to be unconstitutional, it’s expected that the FHFA director’s position will remain unconstitutional.
The broader issues involving Fannie Mae (OTCMKTS:FNMA) and Freddie Mac are not expected to be heard by the Supreme Court this year.
Appeals court and district court
The Fifth Circuit Court of Appeals is the court that ruled the FHFA director’s position to be unconstitutional. The court also said the director can be removed at any time by the president at will.
However, the Fifth Circuit Court of Appeals hasn’t ruled on any of the issues related to the net worth sweep. Instead, it has remanded that issue to the U.S. District Court for the Southern District of Texas in Houston for fact checking.
The Houston court will be tasked with checking the facts presented by the plaintiffs in the case that was before the Fifth Circuit Court. According to Bove, it’s hoped that this court will reverse itself and declare the net worth sweep to be illegal.
Federal claims court
The U.S. Federal Claims Court has been asked to rule on whether the government has illegally taken benefits from shareholders in Fannie Mae (OTCMKTS:FNMA) and Freddie Mac (OTCMKTS:FMCC). Bove said the court “is showing a clear disposition to the view that something illegal has happened here.”
The court is now setting rules for a trial on this issue. There is no timeline yet for that trial.
DC District Court on Fannie Mae (OTCMKTS:FNMA) and Freddie Mac (OTCMKTS:FMCC)
The U.S. Appeals Court asked the U.S. District Court for the District of Columbia to review the cases involving Fannie Mae (OTCMKTS:FNMA) and Freddie Mac for the second time. It has requested 70,000 documents from the government in the case. A trial is expected in March 2021.
According to Bove, the court may be leaning in the same direction as the Federal Claims Court, which would be a good thing for the plaintiffs.
He added that no significant court decisions in any of these cases are expected before the presidential election in November. If the plaintiffs do win any of the court cases, the results will be appealed to higher courts, which means it could take another two years for the matter to finally be resolved.