Fannie and Freddie Investors Keep $812 Million Award Over Dividends

Court Upholds $812 Million Award for Shareholders

Shareholders of Fannie Mae and Freddie Mac won a significant victory on Friday as the US Court of Appeals for the District of Columbia Circuit upheld a jury award and interest totaling $812 million. The award was imposed against the Federal Housing Finance Agency (FHFA), which had collected the mortgage-finance firms' profits in exchange for a government bailout during the Great Recession.

The ruling affirms a previous jury decision in a class action and a separate suit by a group of shareholders. The investors argued that the government's seizure of profits through the so-called "net worth sweep" was unlawful. The appeals court agreed that the sweep violated the shareholders' rights, leading to the $812 million judgment.

Investors Denied $48 Billion Claim

However, the court denied the shareholders' request to seek an additional $48 billion from the government. The investors had claimed that the net worth sweep, implemented in the wake of the 2008 housing crisis, effectively transferred all profits to the Treasury, leaving nothing for shareholders. The appeals court ruled that the shareholders could not pursue this larger claim, limiting their recovery to the $812 million award.

The net worth sweep required Fannie Mae and Freddie Mac to pay dividends to the Treasury equal to their entire net worth, effectively eliminating any retained earnings. This arrangement was part of the 2008 bailout that kept the companies afloat during the financial crisis.

What It Means for Income Investors

The ruling provides some restitution for shareholders but underscores the ongoing legal and financial uncertainties surrounding Fannie Mae and Freddie Mac. Income investors should note that the companies remain under government conservatorship, and future dividend payments are subject to regulatory and legal developments.

Reporting based on: Bloomberg Law News. Figures verified against market data where available.