Fannie Mae settled a shareholder lawsuit for $170 million Friday, ending litigation involving accusations that it misled investors about its safety before failing in 2008.
Reuters reported that the settlement, which was filed with the U.S. District Court in Manhattan, will distribute funds to investors who held shares of the mortgage business between 2006 and September 2008, when it failed and was taken into possession by the federal government along with Freddie Mac.
The chairman of Boston Retirement System, a retirement fund for Boston city workers that was one of the lead plaintiffs in the case on behalf of shareholders, hailed the settlement as a victory.
“We’re extremely pleased with the results,” Daniel Greene said in a statement announcing the settlement, adding that “we were able to successfully allege that investors’ losses were caused by Fannie Mae’s statements and actions rather than by the financial crisis.”
The suit accused Fannie Mae of inflating its stock price by misleading investors about its accounting methods and capital as well as about its exposure to faulty home loans.
Since failing and receiving a nearly $188 bailout from the federal government, the government-sponsored enterprises Fannie Mae and Freddie Mac and their government conservator, the Federal Housing Finance Administration, have been involved on all sides of litigation related to bad mortgages.
The government faces lawsuits from its current shareholders related to their treatment following the bailout. The two businesses have returned to positive cash flow in recent years and have returned roughly $220 billion to the U.S. Treasury Department. Investors have sued the government to challenge a 2012 decision to sweep all of the companies profits into the Treasury rather than using them to recapitalize the businesses.
Meanwhile, the FHFA has settled 16 lawsuits against banks and other financial firms for selling Fannie and Freddie faulty mortgage-backed securities in the run-up to the housing crash. In some instances, including with the banks Goldman Sachs and Bank of America, the settlements ran into the multiple billions of dollars. The FHFA is still pursuing three suits against lenders that outstanding.
