Fannie Mae-No Politics (FNMA)

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Plaintiffs allege that prior to the 2008 takeover, the government adjusted the companies’ lending standards and capital restraints to encourage the companies to purchase a greater number of risky subprime securities. While this ultimately led to significant weaknesses in the companies’ portfolios, Plaintiffs contend that the companies nonetheless remained adequately capitalized and financially sound, and did not need the conservatorships. According to Plaintiffs, the government improperly bullied the companies’ boards into acquiescing in the takeover.

Plaintiffs also claim that the government took control of the mortgage companies not because of their financial condition, but in order to pump liquidity into the nation’s mortgage market and to force the companies to hold the nation’s toxic debt. They also claim that the government destroyed shareholder value through stock agreements through which the Treasury Department would receive from each mortgage company: $1 billion in senior preferred stock, preferences for the senior preferred stock, warrants to acquire 79.9% of each company’s common stock for $0.00001 per share, and 100% of the companies’ quarterly profits, starting January 2013.

Plaintiffs contend that the government takeover was, in fact, “beneficial to the economic welfare of the nation.” However, they claim that the government’s public policy goals were not sufficient grounds to divest the companies’ shareholders of their shareholder rights or render their stock worthless. Thus, the suit claims, the takeover was a misappropriation of private property in violation of the Constitution’s due process and takings clauses.

http://blogs.orrick.com/securities-litigation/2013/06/18/fannie-and-freddie-shareholders-to-us-2008-government-takeover-of-mortgage-giants-good-for-the-country-not-so-much-for-us/