Fannie, Freddie Plunge After Court Rules Hedge Funds Can't Sue

Tyler Durden's picture

Moments ago, the stocks of the nationalized GSEs - Fannies and Freddie - tumbled by over 30%, after a federal appeals court upheld a ruling that barred hedge funds from suing to overturn the U.S. government’s 2012 decision to capture billions of dollars in the profits generated by the mortgage guarantors Fannie Mae and Freddie Mac after their bailout.

According to Bloomberg, which first reported the ruling, some Fannie Mae and Freddie Mac investors still have a shot at money damages, based on when they acquired their shares and whether they did so before or after the Federal Housing Finance Agency was created and then imposed its control over Fannie Mae and Freddie Mac. They can pursue breach of contract claims, the appeals panel said in a split 2-1 decision Tuesday.

“It’s a little too early for me to announce what our response will be other than to say what these breach of contract claims were always the central claims in this case,” said Hamish Hume, a Washington-based attorney with Boies Schiller Flexner LLP, who represented some of the prevailing shareholders.

In place since January 2013, the controversial net worth sweep allowed the U.S. to recapture all of the $187 billion in taxpayer money it spent to stave off the companies’ collapse during the global fiscal crisis and as of 2016, at least $56 billion more. All of that without reducing Treasury’s liquidation stake in either firm.

As Bloomberg adds, the court, which included two judges selected by Republican presidents and one picked by a Democrat, heard arguments on April 15. It later allowed additional friend-of-the-court briefs to be filed by allies on each side, solicited still more submissions concerning a jurisdictional question and permitted the investors’ filing of evidence produced in sweep-related cases pending before other courts. Their ruling may yet be subject to U.S. Supreme Court review.

The U.S. Treasury Department press office did not immediately reply to an e-mailed request for comment. David Thompson, an attorney for the suing Fairholme Funds Inc. did not immediately respond to a voice-mail message seeking comment.

The appellate decision follows Fannie Mae’s Nov. 3 report in which it said it made a $3.2 billion profit in the third quarter of 2016, the company’s 19th straight quarterly profit. Those profits were more than the $1.96 billion earned in the same quarter a year earlier. The company had said it would send $3 billion to the Treasury in December, bringing its total payments to $154.4 billion.


Two days earlier, the smaller Freddie Mac said it made a $2.3 billion profit during the third quarter of this year and would send the same amount to the U.S.


Sweep terms let the companies retain an annually diminishing capital buffer that phases out in 2018, meaning any losses later sustained will require one or both to draw on taxpayer funds.

Meanwhile, some prominent hedge funds investors - most notably Bill Ackman and Richard Perry -  have been actively pushing the government to revert to the GSE status quo, as existed prior to the 2008 bailouts, convinced it would unlock substantial stakeholder value. Today, however, that won't be the case.

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SloMoe's picture

Ackman can't seem to get a break. Sniff...

spastic_colon's picture

this story is so 30 minutes ago.....looks like he doubled down and made a quick 40% since then.

HedgeJunkie's picture

Couldn't have happened to a better group of people.

Atomizer's picture

Ask Alan Greenspan what his betting positions were prior to collapse. 

buzzsaw99's picture

fuck ackman and the rest of his cronies. for once the court is right. the guy should be in jail for insider trading.

ZoroAustrian's picture

When are they going to sweep back all the easy money they fed (and keep feeding) to the rest of Wall Street?

wisehiney's picture

Whaddaya know.

Someone gambled and actually LOST!

small axe's picture

Kleptocrats 1, Oligarchs 0

and Joe Six-Pack still can't afford a ticket to the ballgame

cowdiddly's picture

2 entities that should have never existed in the first place, but especially after the MBS debacle.

These are the same 2 dog turds Obama said he was going to do something about before he was elected but then never even got close to them as he was afraid something might stick to his suit. So he handled it like he did everything else and did NOTHING,

booboo's picture

That is because of black privilege, Franklin Raines ran that shit show into the ground


Ackman is likely desperate for yield.

Dewey Cheatum and Howe's picture

you pays your money and you take your chances. WOW! what a concept.

World-Gone-Mad's picture

One small victory for the US taxpayers. What a concept: making it or losing it without taxpayer subsidies.

hooligan2009's picture

now perhaps fraudie and funny can be privatized and the Government can get out of financing house purchases by people that don't need a subsidy from every other tax payer AND taxpayers can stop funding banks at Treasuries plus 0.5% for banks to lend at Treasury plus 1.5% on 8 trillion of housing debt.

the tax payer should not be paying a 1% on 8 trillion subsidy - 80 billion a year - to banks here and to German Landesbanks.

the goverment can borrow at market rates for treasuries and lend directly to those it wishes to help. 2.5% for ten years instead of 4% via banking/fraudie/funny cartel, or 3.5% instead of 5% for thirty years

(fraudie and funny = freddie and fannie).


buzzsaw99's picture

that's just crazy talk. ;-)

hooligan2009's picture

i know, right? common sense has no place in a racketeering scam that benefits the banks at the expense of the tax payer!

Atomizer's picture

Know that sometimes I sound like a broken record. You have to understand how the system works. They're con artists. What's not mentioned is fiduciary responsibility to people who deposit money into the bank. I'm going to repost. 

Money Confiscation Legal? - YouTube

Seasmoke's picture

That won't stop Fannie and Freddie Servicers who own NOTHING from fraudclosing

Atomizer's picture

They were called Robo-Signers who committed fraud on using a co-signer.

My wife's sister tryed to pull off the shit will me. I fucking blew up at her.

Said no. If you observe the clickbait ads, they are back at it again. They are inserting Donald Trump. He wasn't sworn in as President. This clickbait was running all last summer of 2016. Instead, they used Obama in ad caption. 

Difference Between Co-borrower and Cosigner for 2017 FHA Loans -

code of conduct - JPMorgan Chase

2016 Code of Conduct (PDF) - JPMorgan Chase

LawsofPhysics's picture

Correct.  200+ years of real estate and contract law broken...

and yet, not one banker or financier went to prison!?!?!?!?

Fuck'em.  I sure hope they taste like chicken or make good fertillizer, because we are about to find out.

corporatewhore's picture

That is the fault of the bought and paid for judiciary.

Not one single judge other than a few in Florida and New York rose up and said "if you can't prove you own it, you can't foreclose it" and have no rights.  Most just signed off on foreclosure fraud and went on to collect re election contributions and fat pensions.


Joe Cool's picture

They're still around?  Since when?  I thought they were shot and killed in the back off the barn years ago!!

Atomizer's picture

Moody's kept them on board as a black ops program. 

Joe Cool's picture

It's obvious that we as a nation and culture are out of ideas...We just do what we know won't work and ends in tears....

Withdrawn Sanction's picture

Black ops, maybe; but something sure was hinky in their financials prior to the housing debacle.  Fannie and Freddie were doing a typical month's book of business of between $30B and $50B each per month, or around $350B to $600B per year per GSE.  If you looked at their Consolidated Statement of Cash Flows, however, they were cycling about twice that number, mostly through their short-term funding facilities. 

IOW, they were "burning" cash to the tune of $30B to $50B a month to buy mortgages, bundle them into MBS, and add a dolop of credit default insurance.  And it's important to recognize that most of this activity should be self-funding on a cash flow basis--as MBS are sold that revenue can then be used to buy more mortgages.  Regardless, the 2 giants were raising more than twice their ordinary run-rate of business in the commercial paper markets.  So....where'd the rest of the cash go?  In a way, it's a bit like Rummy's notice on 9/10 that Pentagon auditors could not account for several trillions that had gone "missing."  Fannie and Freddie apparently had/have the same difficulty.


Atomizer's picture

AIG is next insolvent story. 

LawsofPhysics's picture

Really?  Didn't we already bail those motherfuckers out already, several times?

fuck'em, off with their heads!

koan's picture

Ackman was raised in Chappaqua, New York, and he is the son of Ronnie I. (née Posner) and Lawrence David Ackman, the chairman of a New York real estate financing firm, Ackman-Ziff Real Estate Group.[5][6] His family is Jewish.[7][8]

Publicus's picture

We will make America great again.

Omega_Man's picture

if they have less liability, why would they go down... should go up... what a fucked up world

trippy64's picture

The value of the stock weas pushed up in the hopes that the profits would go to the sharweholders of the stock, not the tax payers. The profits are still going somewhere, just not in the hands where the bet was made. Thus the sell-off.

LawsofPhysics's picture

Ha... Ha...!!!

Let me be clear, all the useless paper-pushers better learn some tradeable skills in a motherfucking hurry.

"Full FAITH and credit" 

Dg4884's picture

Unless these two failures are privatized, no one loses but us.

Ink Pusher's picture

Hoo-Rah! That fuckin' chart is an awesome depiction of linear poetic justice !