Fannie Mae’s shareholders suffer key court defeat

US judge ruled claims against auditor belong to government

Fannie Mae's Timothy Mayopoulos and Deloitte's Punit Renjen
Fannie Mae's Timothy Mayopoulos and Deloitte's Punit Renjen

Fannie Mae’s private shareholders suffered a defeat in federal court Wednesday, when a judge ruled they can’t sue the company’s auditor, Deloitte.

According to the ruling in a U.S. District Court in Florida, all claims against Deloitte belong to the Federal Housing Finance Agency, which took over Fannie as a conservator in 2008, the Wall Street Journal reported. The ruling could impact the shareholders’ other lawsuits, which are aimed at getting a share of the mortgage insurer’s profits.

Following Fannie Mae’s government bailout in the wake of the subprime mortgage crisis, the company in 2012 agreed to funnel virtually all its profits to the U.S. Treasury during profitable quarters.

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The company’s shareholders, some of whom bought shares at bargain prices, argue that the 2012 change was unnecessary and that they are entitled to some of those profits. They also claim that Deloitte didn’t properly audit Fannie, and that if it had done so the agency would have already left conservatorship.

The FHFA is unlikely to continue the shareholder’s lawsuit against Deloitte now that their claims have been transferred to it, the newspaper reported.

Fannie Mae, along with its sister company Freddie Mac, buys mortgage loans from lenders, stamps them with an implicit government guarantee, repackages them as securities and sells them off to investors. The firms act as de-facto mortgage insurers, playing a key role in keeping borrowing costs low. In 2015, Fannie Mae provided Blackstone Group [TRDataCustom] and Ivanhoe Cambridge’s acquisition of Stuyvesant Town-Peter Cooper Village with a $2.7 billion loan originated by Wells Fargo.

Fannie and Freddie’s shares rose in recent weeks after the incoming Treasury secretary Steven Mnuchin said he wants to bring them back to private ownership. [WSJ]Konrad Putzier