SC Upholds Authority of FHFA to Collect Profits on Bailout Money

• Neville Gabby
• 0 comment
• July 13, 2021

On June 23, the U.S. Supreme Court issued a ruling on the lawsuit filed by Fannie Mae and Freddie Mac investors versus the Federal Housing Finance Agency (FHFA). Supreme Court Justice Samuel Alito ruled that even if FHFA’s structure is flawed to the point of being unconstitutional, he and all other SC Justices unanimously agreed that the profits being collected by the FHFA in favor of the government, do not exceed the statutory authority of the federal agency.

The SC concluded that while FHFA was structured unconstitutionally this was stipulated by Congress so that the incumbent could not easily replace the director of the agency, in case the priority policies of the FHFA are contrary to that of the sitting POTUS.

While the ruling did not grant the $124 million dividends beng claimed by Fannie Mae and Freddie Mac investors from the FHFA, the ruling granted incumbent president, Joe Bident, the right to replace the Director of the FHFA.

That being the case, Pres. Biden lost no time in removing FHFA Director Mark Calabria and appointing Sandra L. Thompson as interim director. The move further deemed hopes of Fannie Mae and Freddi Mac investors to privatize the two government-backed financial institutions. As it is, President Biden is not in favor of privatization deals as he intends to tap on the resources of the agency in addressing and solving the country’s massive housing problem.

What Exactly is the FHFA?

The FHFA was established by Congress as overseer-conservator of the $190 million bailout money that the government infused in Freddie Mac and Fannie Mae to keep the two financial institutions solvent during the 2007-2008 financial crisis.

Freddie Mac and Fannie Mae are government-backed entities that bought deed of real estate mortgages from lenders and then sold them as investment products to private investors.

At first, private shareholders realized huge profits from collecting the payments due from home mortgage borrowings. However, because of the subprime loans that ballooned into amounts that borrowers could no longer afford to pay, Fannie Mae and Freddie Mac stood at risk of becoming insolvent.

To keep the two financial institutions afloat, the government infused taxpayer money with Congressional approval but subject to the oversight of the FHFA to protect the government’s investment. As Fannie Mae and Freddie Mac’s conservator, the FHFA conservator directed all profits to the government’s Treasury Department.

However, private shareholders od the two institutions are claiming that as much as $124 million has been overpaid to the government, which they tried to claim by seeking the intervention of legal courts.

However the only aspect found unconstitutional by the Supreme Court about the FHFA, is the condition that prevents an incumbent president from replacing the Director of the agency.