U.S. Seeks Supreme Court Review of Fannie-Freddie Profit Sweep

(Bloomberg) -- The Trump administration asked the U.S. Supreme Court to toss out a lawsuit by Fannie Mae and Freddie Mac investors that challenged the federal government’s hoarding of nearly all the mortgage giants’ profits.

In an appeal filed late last week, Justice Department lawyers said a federal appeals court was wrong when it ruled in September that the investors’ lawsuit should go forward. The shareholders’ suit claims the Treasury Department and the Federal Housing Finance Agency exceeded their authority by taking all of Fannie and Freddie’s earnings. The FHFA is the companies’ regulator.

The lower court ruling has “significant financial implications for the federal government, the enterprises and market participants,” the Justice Department argued in its petition to the Supreme Court.

The Trump administration contends the 2008 law that set up the FHFA precludes lawsuits that challenge the profit sweep. Fannie and Freddie were put under federal control later that year as the housing market cratered, and ultimately received a $191 billion taxpayer rescue. The companies have since returned to profitability and have paid more than $300 billion in dividends to the Treasury.

The controversial decision to hoard Fannie and Freddie profits was made by the Obama administration in 2012. Hedge funds and other shareholders have been fighting to overturn the sweep for years.

The investors previously filed their own appeal asking the Supreme Court to intervene. They argue that the structure of the FHFA is unconstitutional because its director can be fired by the president only for limited reasons.

The new case is Mnuchin v. Collins, 19-563.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net

To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Jesse Westbrook, John Harney

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