The Freddie Mac headquarters in McLean, Va., earlier this year.
Photo: Andrew Harrer/Bloomberg NewsWASHINGTON—The Supreme Court on Thursday said it would wade into a yearslong dispute involving the federal takeover of Fannie Mae and Freddie Mac during the financial crisis of 2008, agreeing to review a case examining the government’s move to seize the mortgage-finance companies’ profits.
The justices, in a brief order, said they would consider legal issues stemming from the government’s 2012 decision to channel nearly all of Fannie and Freddie’s profits to the Treasury Department.
The move was part of the government’s bid to more quickly reclaim the taxpayer dollars that kept the firms afloat. It also stopped the companies from borrowing from the Treasury to pay dividends they owed the government under the terms of their bailout.
The court will hear the case during its next term, which begins in October. The court said it would hear dueling appeals by both the government and a group of shareholders.
The investors who sued said the terms of the profit sweep amounted to an illegal end-run to prevent the firms from building capital that might one day be available to private shareholders.
The Trump administration has argued the shareholders didn’t have a sound legal basis for proceeding with their claims in light of the wide latitude that Congress gave to the Federal Housing Finance Agency, the companies’ independent federal regulator.
The shareholders, in turn, argued that the FHFA is structured unconstitutionally, with a single director who holds too much power. The Supreme Court agreed with similar arguments in a decision last month that ordered a restructuring of the Consumer Financial Protection Bureau.
A Supreme Court ruling in favor of the government could help the Trump administration return the companies to private ownership by clearing up legal uncertainties that may hamper efforts to raise fresh capital. A decision in favor of litigating shareholders could scramble those plans and allow shareholders to leverage a multibillion-dollar settlement with the government.
A decision is expected by June 2021.
A New Orleans-based federal appeals court, in a splintered ruling last year, revived some shareholder claims that had been thrown out by a trial judge. The high court will review that ruling.
Fannie and Freddie buy mortgages from banks, package those mortgages into securities and sell them to investors. The securities are attractive to investors because the underlying mortgages are guaranteed by Fannie and Freddie, an arrangement that makes it possible to offer home loans at fixed rates of interest for 30 years.
The government stepped in to take over Fannie and Freddie at the start of the 2008 financial crisis, which inflicted big losses on the firms. The government ultimately injected about $190 billion into the firms. In exchange, it received a special class of stock that paid a 10% dividend, along with warrants to acquire nearly 80% of Fannie and Freddie’s common stock for a nominal price.
In 2012, the government stopped requiring the companies to pay dividends in quarters when they weren’t profitable, which had forced the companies to borrow money to pay the government. In exchange, the firms would pay all of their profits to the Treasury as dividends. The change coincided with the firms’ return to profitability as the housing market rebounded.
As a result of the profit sweep, the firms have paid back the government much faster than expected. In recent years, Fannie and Freddie’s strong profits have more than made taxpayers whole for the federal bailout.
Write to Brent Kendall at brent.kendall@wsj.com and Andrew Ackerman at andrew.ackerman@wsj.com
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
"hear" - Google News
July 10, 2020 at 02:46AM
https://ift.tt/3iQScOW
Supreme Court to Hear Case on Government Seizure of Fannie, Freddie Profits - The Wall Street Journal
"hear" - Google News
https://ift.tt/2KTiH6k
https://ift.tt/2Wh3f9n
Bagikan Berita Ini
0 Response to "Supreme Court to Hear Case on Government Seizure of Fannie, Freddie Profits - The Wall Street Journal"
Post a Comment