The court spent less time in Wednesday’s argument on what many Fannie and Freddie investors have viewed as the primary thrust of the case, contentions that the FHFA exceeded its authority with the 2008 accords.
The Trump administration, which is defending the profit sweep, contends that the 2008 law that created the FHFA precludes lawsuits that challenge the financial arrangement. Justice Department lawyer Hashim Mooppan also argued that a separate provision in that law eliminated the right of shareholders to sue on behalf of the companies.
Justice Amy Coney Barrett suggested she disagreed with the latter part of that defense, saying a federal law that governs administrative agencies “gives a direct cause of action for someone aggrieved by agency action.”
But Justice Sonia Sotomayor said allowing a challenge to an agency action because it affected a company’s stock price would be a “sea change in how administrative challenges are litigated.”
‘Not Worthless’
And Roberts seemed to reject the investors’ argument that the companies had been “nationalized,” saying he checked the stock prices of Fannie and Freddie the morning of the argument and saw that they were respectively trading at $2.69 and $2.56.
“Your shares are not worthless,” Roberts said. “They’re worth something, presumably largely based on judgments about what the future holds. So doesn’t that render your sort of nationalization rhetoric just that, rhetoric?”
The federal government seized Fannie and Freddie during the 2008 financial crisis and put them into conservatorship under FHFA control. The companies were eventually injected with $187.5 billion in U.S. aid.
As part of the bailout, the Treasury Department received warrants to acquire nearly 80% of the companies’ common stock, as well as a new class of senior preferred stock that paid a 10% dividend.
At the time the Obama administration announced the profit sweep, officials touted it as a way of winding down Fannie and Freddie. Some Republicans argued that it would cement the companies at the center of the housing-finance system.
Fannie and Freddie reported giant profits immediately after the amendment, and hedge funds that had bought legacy shares at a steep discount cried foul, claiming that the earnings should have stayed at the companies. The investors eventually sued in several courts under myriad legal theories.
The cases are Collins v. Mnuchin, 19-422, and Mnuchin v. Collins, 19-563.
This article was provided by Bloomberg News.