Supreme Court Ruling in Fannie/Freddie Case – Helpful on Questions of Presidential Removal Powers, Unhelpful to Shareholders

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Today, the Supreme Court ruled on a much-anticipated case related to the federal government policy of seizing the net profits for government-sponsored entities Fannie Mae and Freddie Mac. CEI Attorney Devin Watkins expressed disappointment that the core problem was left unresolved for now:

“By properly holding the restrictions on presidential removal to be unconstitutional, the court in Collins v. Yellen upheld an important principle: Executive power should only be exercised by government officers who are accountable to the President and, through him, the American people. But it is sad to see no remedy was given to Fannie and Freddie shareholders by the court and, instead, the case was sent back to the lower court to consider if shareholders should get something for the harm caused to them.”

Congress established federally-backed home mortgage companies Fannie and Freddie decades ago as companies with private shareholders but also lines of credit with the government. But then, in 2008, Fannie and Freddie were taken into conservatorship by the federal government to prevent them from collapsing. And then the Obama administration’s 2012 “Third Amendment” to the conservatorship set forth a policy whereby all of Fannie and Freddie’s net profits have been swept back into government coffers, leaving the companies with virtually no capital and leaving shareholders with nothing. The Trump administration ended the net worth sweep and allowed Fannie and Freddie to retain capital, a necessary step for releasing them from government conservatorship.

Related analysis:

Treasury, FHFA Reverse ‘Net Worth Sweep” at Fannie and Freddie

Court Ruling Curtails Government Power in Fannie/Freddie Case

Report: Fannie Mae and Freddie Mac Still Endanger U.S. Economy