$FNMA~$FMCC~Investment group sues US over Fannie, Freddie bailout terms
Perry Capital LLC, an investment manager, is suing the US Treasury in federal court in Washington to challenge the 2012 changes of the bailout terms set for government-owned mortgage firms Fannie Mae and Freddie Mac.
The lawsuit alleges that the Treasury and the regulator for Fannie Mae and Freddie Mac violated a 2008 law that put the two mortgage companies into conservatorship as they faced insolvency at the height of the US financial crisis.
The Treasury Department amended the bailout terms last year, forcing Fannie Mae and Freddie Mac to hand over most of their profits to the government, replacing a requirement that the companies pay quarterly dividends of 10 per cent on the government’s nearly 80 per cent stake.
The suit names both Treasury and the Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac.
Perry Capital, which began investing in both firms in 2010, claimed in the lawsuit that shareholder value was impaired when the government instituted a “dividend sweep.”
The arrangement prevents the firms from building capital or redeeming any of the “senior preferred” shares that the US government has taken in exchange for the cash injections to keep Fannie Mae and Freddie Mac afloat.
The bailout agreement provides no mechanism for Fannie Mae and Freddie Mac to repay the US$187.5 billion (about RM550 billion) they owe the government from their 2008 bailout.
The two companies have returned to profitability, prompting investors to snap up the preferred stock of Fannie Mae and Freddie Mac in a bet they will be made private companies in the future.
“This lawsuit seeks to uphold the rule of law,” Theodore Olson, a partner at the law firm Gibson, Dunn & Crutcher and a former US solicitor general, said in a statement.
He said the 2008 Housing and Economic Recovery Act, known as HERA, established specific rules about the government’s limits and obligations under conservatorship.
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