“Today’s decision gives President Biden the opportunity to make sure that we have an FHFA director who is committed to addressing the housing needs of renters and homeowners, and to making our housing system work for everyone,” Senate Banking Committee Chairman Sherrod Brown, an Ohio Democrat, said in a statement.
Fannie and Freddie are crucial to housing because they buy loans from lenders and package them into bonds while guaranteeing payment to investors if homeowners default. The process keeps the mortgage market humming and ensures borrowing rates remain low.
Taxpayer Rescue
Fannie and Freddie got into trouble when the housing market tanked in the run-up to the Great Recession, prompting the government to take them over and rescue them with $187.5 billion in taxpayer funds. The firms have since become profitable again, paying out billions of dollars in dividends to the Treasury. Determining the future of the companies, including how they might function outside of U.S. control, is the biggest policy decision remaining from the 2008 financial crisis.
The shareholders’ loss before the Supreme Court removes any pressure, at least for now, for Biden to break from the status quo, said Jim Vogel, an analyst at FHN Financial. That means Fannie and Freddie could remain in federal conservatorship for the foreseeable future, a situation that the Trump administration tried and failed to bring to an end. Investors had hoped that a win at the Supreme Court would put pressure on Biden to settle the cases and release the companies from government control.
The ruling “appears to lay to rest many of the lingering questions and ‘what-ifs’ surrounding how long Fannie and Freddie could continue their status as a ward of the federal government,” Vogel said. “The status quo can continue as long as the administration and Congress would like.”
Fannie and Freddie shareholders still have on-going lawsuits in other cases proceeding under different legal theories that they plan to continue fighting.
“The SCOTUS decision does not address claims by shareholders for just compensation under the Takings Clause or for damages for breach of their shareholder contracts,” Boies Schiller Flexner attorney Hamish Hume, who represents investors in another case, said in an email. “We continue to vigorously litigate those claims in lower courts and believe they will ultimately prevail.”
Whatever path the Biden administration takes on Fannie and Freddie, Compass Point Research & Trading’s Isaac Boltansky doesn’t anticipate major changes to housing finance.
“While our nation’s mortgage-finance system is a Frankenstein’s monster, and it is far from perfect, it continues to function well,” Boltansky said in an email. “Congress has neither the interest nor the capacity to fix something that is not broken.”
—With assistance from Felice Maranz, Greg Stohr and David Scheer.
This article was provided by Bloomberg News.