Government LendingLegal

Federal court tosses GSE shareholder claims

Court rules President Obama and Trump could have stopped the net worth sweep "at any time"

A federal appellate court on Tuesday dismissed claims from Fannie Mae and Freddie Mac shareholders who had hoped to recoup part of their equity after it was wiped out by the U.S. Treasury’s “net worth sweep.”

The Court of Appeals for the Federal Circuit reversed the Claims Court’s earlier decision not to dismiss the shareholders’ derivative claims. The ruling resolves eight separate shareholder claims, which stem from the 2012 decision to transfer most of Fannie Mae and Freddie Mac’s equity to the Treasury, four years after the two entities were placed in conservatorship.

The appellate court found that there was “adequate presidential oversight” over the actions the FHFA in relation to the net worth swep, because FHFA’s policies as conservator of Fannie Mae and Freddie Mac were jointly created by FHFA and the Treasury — and the president could have removed the Treasury Secretary at any time.

“Presidents Obama and Trump could have directed the Treasury Secretary to refuse to continue the net worth sweep at any time, but did not do so,” U.S. Circuit Judge Kathleen O’Malley wrote.

In 2018, the Fifth Circuit Court of Appeals held that the Federal Housing Finance Agency was within its statutory authority when it enacted the “net worth sweep” of the GSEs’ dividends, but found that the FHFA was not constitutionally structured. In 2019, the Fifth Circuit Court of Appeals reversed its ruling on the “net worth sweep” and remanded the case back to the district court.

In June 2021, the Supreme Court dismissed claims that the FHFA exceeded its authority under federal law, but found that the structure of the agency was unconstitutional.

“We conclude only that under the terms of the Recovery Act, the FHFA did not exceed its authority as a conservator, and therefore the anti-injunction clause bars the shareholders’ statutory claim,” Justice Samuel Alito wrote.

The 2021 ruling allowed President Biden to remove then-FHFA Director Mark Calabria, and install Sandra Thompson as acting director of the FHFA. Thompson awaits confirmation in the Senate to be FHFA director.

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