Fannie Mae (FNMA)

[RumplePigSkin]

Snippets below from en banc ruling:

http://www.ca5.uscourts.gov/opinions/pub/17/17-20364-CV2.pdf

IMO it’s pretty clear the appellate decision claims the continued NWS goes beyond the FHFA conservator’s authority, which is supposed to protect and rebuild capital to allow the GSEs to reemerge from insolvency. The GSEs never went to receivership where the NWS for liquidation purposes might have been legal.

The Scotus cert (appeal) is only about count 4 if I remember correctly and is about the constitutionality of an agency with no checks and balances, which is how the decision begins - referring to our founding father’s ingenious idea for check and balances to check overzealous “ambitions.”. IMO The Scotus request doesn’t affect anything regarding the NWS.

Great read if you haven’t read the decision.

Pages 37 to 39 are telling regarding Count 1 of the complaint.

Now to apply this understanding of conservator powers to the Third
Amendment. We hold the Shareholders stated a plausible claim that the Third Amendment exceeded statutory authority. Transferring substantially all capital to Treasury, without limitation, exceeds FHFA’s powers to put the GSEs in a “sound and solvent condition,” “carry on the[ir] business,” and “preserve and conserve [their] assets and property.”188 We ground this holding
in statutory interpretation, not business judgment.
In adopting the net worth sweep, the Agencies abandoned rehabilitation
in favor of “winding down” the GSEs. Treasury announced that the Third Amendment would “expedite the wind down of Fannie Mae and Freddie Mac” and ensure that the GSEs “will be wound down and will not be allowed to retain profits, rebuild capital, and return to the market in their prior form.”189 The FHFA acting Director also said that the Third Amendment “reinforce[d] the notion that the [GSEs] will not be building capital as a potential step to regaining their former corporate status.”190 In a report to Congress, FHFA explained that it was “prioritizing [its] actions to move the housing industry to a new state, one without Fannie Mae and Freddie Mac.”191 For reasons we are about to explain, this “wind down” exceeded the conservator’s powers and is the type of transaction reserved for a receiver.
As a textual matter, the net worth sweep actively undermined pursuit of a “sound and solvent condition,” and it did not “preserve and conserve” the GSEs’ assets.192 Treasury has collected $195 billion under the net worth sweep.193 This alone exceeds the $187 billion it invested.194 After paying back more than the initial investment, the GSEs remain on the hook for Treasury’s entire $189 billion liquidation preference.195 And under the net worth sweep,
Treasury has a right to the GSEs’ net worth in perpetuity.196
FHFA had authority, of course, to pay back Treasury for the GSEs’ draws on the funding commitment. The funding commitment provided liquidity and took on risk, so Treasury was also entitled to compensation for the cost of financing. But the net worth sweep continues transferring the GSEs’ net worth indefinitely, well after Treasury has been repaid and the GSEs returned to sound condition. That kind of liquidation goes beyond the conservator’s powers.

Page 42

We now turn to Count IV, the Shareholders’ constitutional claim.
Although the Shareholders could theoretically obtain full relief under Count I alone, they appeal from the dismissal of that count, so the parties have yet to litigate it to judgment.