Supreme Court rules against Fannie Mae, Freddie Mac shareholders

The U.S. Supreme Court handed down its decision this week in a case involving a 2012 agreement between the federal government and mortgage loan companies Fannie Mae and Freddie Mac.

According to Breitbart, the nation’s highest court shot down the suit brought by shareholders of the companies.

Details of the case

The case reportedly hinged on a deal involving the two companies, the U.S. Treasury Department, and the Federal Housing Finance Agency (FHFA). Fannie Mae and Freddie Mac specialize in buying mortgages from banks, turning them into securities, selling them to investors, and guaranteeing payments to those who purchase the securities.

In 2008, both companies were on the verge of collapse when the Treasury and FHFA stepped in to bail them out. The result was a situation commonly referred to as a “circular draw,” which allowed the companies to take money from the Treasury and pay back a dividend.

The following year, the amount of government money allowed to be put into the companies was fixed at $400 billion, leading to concerns that they could once again reach the point of financial collapse.

A new agreement in 2012 resulted in the companies being required to pay virtually all of their profits back to the Treasury in what became known as a “net worth sweep.”

Shareholders challenged that agreement in Collins v. Yellen, the case decided this week by the Supreme Court.

Supreme Court ruling

On Wednesday, Justice Samuel Alito wrote a majority opinion against the shareholders.

“It is not necessary for us to decide—and we do not decide—whether the FHFA made the best, or even a particularly good, business decision when it adopted the third amendment [that put in place the net worth sweep],” he determined, according to Breitbart. “Instead, we conclude only that under the terms of the Recovery Act, the FHFA did not exceed its authority as conservator, and therefore the anti-injunction clause bars the shareholders’ statutory claims.”

In other words, the net worth sweep will continue.

Of course, shareholders did score a victory on one issue when the court ruled that a U.S. president cannot be limited by Congress in his ability to fire the head of the FHFA.

Accordingly, it is expected that Mark Calabria, who was tapped by former President Donald Trump to lead the agency, will be fired by President Joe Biden.

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