A federal judge on Tuesday dismissed a lawsuit by investors in Fannie Mae and Freddie Mac against the federal government.
The suit, brought by a group of investors including activist hedge funds Fairholme Funds and Perry Capital, sought to reverse a 2012 decision by the Obama administration to take all of the bailed-out companies’ profits for the Treasury. The investors argued that the move constituted an illegal taking from Fannie and Freddie’s private owners.
Judge Royce Lamberth of the U.S. District Court for the District of Columbia wrote in his dismissal of the case Tuesday that the law enacting the government-sponsored enterprises’ 2008 bailout allowed the Treasury to take the companies’ profits. Lamberth suggested that “the plaintiffs’ grievance is really with Congress itself. It was Congress, after all, that parted the legal seas so that [the Federal Housing Finance Agency] and Treasury could effectively do whatever they thought was needed to stabilize and, if necessary, liquidate, the [government-sponsored enterprises].”
After failing in 2008 because of disastrous bets on faulty mortgages, the two mortgage giants were taken into conservatorship by the Bush administration and ultimately received $188 billion in taxpayer funds. As the economy recovered, however, they turned cash-flow positive under the government’s management and have paid more than that amount back to the Treasury.
While Fannie and Freddie were delisted from the stock exchanges, they still have private shareholders. After the Treasury’s 2012 decision to take 100 percent of the companies’ excess earnings, investors sued. The Obama administration and bipartisan members of Congress have said that the government-sponsored enterprises do not have an obligation to private shareholders and have stated their opposition to allowing the companies to become recapitalized and return to their former business model.
News of the lawsuit being thrown out was first reported by Bloomberg Tuesday evening.
