Mortgage

Dick Bove: Likelihood of settlement over Fannie, Freddie sweep growing

Says Treasury’s “illegal” actions means shareholders might recover

A client note from Richard Bove, vice president of Equity Research at Rafferty Capital Management, supports what a growing number of observers say — that the government is in a bad position regarding the Third Amendment Sweep of shareholder profits, and is likely to settle with shareholders.

While sources among shareholders tell HousingWire that they would be glad to recover what was taken, the downside is it would be a way for Treasury to avoid accountability for its actions.

Here’s Bove’s take:

Finally, information is being released concerning the state of Fannie Mae at the end of 2008 and the beginning of 2012. These were two critical periods in the company’s history because they reflected:

  • The placement of the company into a conservatorship; and
     
  • The disenfranchisement of the private shareholders.

Apparently, the government believed that Fannie Mae was key to recovering the housing market in 2008. Therefore, it took over the company and used it to facilitate stabilizing housing. This was a brilliant move that was very successful. The only problem is that along the way the government wiped out shareholder values – i.e., expropriated private property without any compensation. This is illegal and the likelihood is growing that the government will settle its litigation with meaningful benefits to the private shareholder in 2016.

Shareholders and plaintiffs allege that, by following the direction of the U.S. Treasury to enact the Third Amendment Sweep, the Treasury and Federal Housing Finance Agency acted unlawfully, which has resulted in the federal government illegally taking private property.

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