WASHINGTON — The U.S. Supreme Court has agreed to hear an appeal by the Trump Administration, which is seeking to avoid a lawsuit by shareholders of Fannie Mae and Freddie Mac relating to the government conservatorship of the companies more than a decade ago following the financial crisis.
The case involving the government sponsored enterprises (GSEs) is similar to that of an earlier lawsuit that had been filed against the Consumer Financial Protection Bureau. As CUToday.info reported earlier, the Supreme Court has just issued a ruling in a similar case concerning the constitutionality of the Consumer Financial Protection Bureau. In that decision, the Supreme Court ruled the CFPB’s single director, who was unaccountable to the president, was unconstitutional, and could be fired at any time.
The FHFA is headed by a director who is appointed to a five-year term by the president subject to confirmation by the U.S. Senate.
The highest court will review a 2019 ruling by the 5th U.S. Circuit Court of Appeals in New Orleans that shareholders in the two companies could pursue a challenge to the 2012 agreement between the Federal Housing Finance Agency, which oversees the two GSEs, and the Treasury Department. The deal eliminated dividend payouts to various shareholders and required the companies to pay the U.S. Treasury an amount equal to their quarterly net worth each quarter, noted the New York Times.
The Supreme Court has also agreed to take up a related appeal brought by the shareholders that challenges the constitutional structure of the agency. The cases will be heard together in the court's next term, which starts in October.
Case Filed in 2016
The original case was filed in 2016, when Fannie and Freddie shareholders Patrick Collins, Marcus Liotta and William Hitchcock sued in a federal court in Texas saying that the 2012 agreement, sometimes referred to as the "net worth sweep," exceeded FHFA's authority and that the structure of the agency was unconstitutional, according to the Times.
The federal government in 2008 took control Fannie Mae and Freddie Mac when both were teetering on the brink of insolvency. The government took a majority stake in each and they were placed under the supervision of the FHFA, which was created at the same time.