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New Suit "Injects Vigor" into GSE Conservatorship Challenges

Wednesday, July 1, 2015

An unsigned article in the National Law Review takes another look at the Federal Housing Finance Agency (FHFA)/Treasury Department handling of the conservatorship of Fannie Mae and Freddie Mac (the GSEs) and the law suits that have challenged that handling.  The article is prompted by a new suit filed by what appears to be a family of investors from Iowa which takes a different tack from suits filed earlier which, while they have not failed, have hit rough sledding in federal courts.

To revisit history, in 2008 the GSEs, hit by the collapse of the housing market, falling home prices, increasing defaults, and the unwillingness of investors to purchase their mortgage-backed securities, were placed in conservatorship authority of the Housing and Economic Recovery Act (HERA).  The newly created FHFA was appointed conservator and the GSEs were provided with a line of credit by the Treasury Department in return for preferred, dividend generating senior stock in both companies. Over the course of the next few years a total of approximately $117 billion in Treasury funds was used to shore up Fannie, and $70.5 billion for Freddie.  The preferred stock was the equivalent of 79.9% of the companies' common shares with the rest remaining in private hands.

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