An Overview of the Fannie and Freddie Conservatorship Litigation
Abstract
The fate of Fannie Mae and Freddie Mac are subject to the vagaries of politics, regulation, public opinion, the economy, and not least of all the numerous cases that have been filed in 2013 against various government entities arising from the placement of the two companies into conservatorship. This short article will provide an overview of the last of these. The litigation surrounding Fannie and Freddie’s conservatorship raises all sorts of issues about the federal government’s involvement in housing finance. These issues are worth setting forth as the proper role of these two companies in the housing finance system is still very much up in the air. The plaintiffs, in the main, argue that the federal government has breached its duties to preferred shareholders, common shareholders, and potential beneficiaries of a housing trust fund authorized by the same statute that authorized their conservatorships. At this early stage, it appears that the plaintiffs have a tough row to hoe.
Protecting the taxpayers? Hard to see where this ever makes any sense. To the average newspaper reader “protecting the taxpayers” sounds satisfyingly complete, a nice closure to an epidemic of public-private lawlessness.
Homeowners signed some “contracts” too, however hopelessly naive, but otherwise in good faith. The assumption was that they wouldn’t be set up to fail, tortured, foreclosed upon, and or bankrupted as a swarm of all cash banshees descended upon their modest former domiciles — all while the US Justice Department/Covington Burling go out of their way to protect or ignore the fraudsters. But that’s exactly what happened, and this is more than a breach, it’s a deliberate attack.