Statement by Investors Unite Executive Director Tim Pagliara on U.S. Supreme Court’s Declining to Take up Shareholder Suits Stemming from Net Worth Sweep
- February 20, 2018
The U.S. Supreme Court today let stand rulings in three shareholder lawsuits that challenged the legality of the 2012 amendment to the term of the conservatorship of the government sponsored enterprises Fannie Mae and Freddie Mac. The amendment, known as the Net Worth Sweep, diverts the GSEs’ quarterly earnings to the U.S. Treasury. In response, Investors Unite Executive Director Tim Pagliara issued the following statement:
“Shareholders will continue to seek only what is rightfully theirs and nothing more. The U.S. Supreme Court’s decision to let stand lower court rulings that sanctioned the Net Worth Sweep makes it more important than ever for the Trump Administration and the Federal Housing Finance Agency to end the conservatorship of Fannie and Freddie and address the last piece of unfinished business from the 2008 financial crisis.
The decision means FHFA, as Fannie and Freddie’s conservator, has wide latitude under the Housing and Economic Recovery Act to fulfill the law’s mandate to restore the government sponsored enterprises’ soundness and solvency. Without the Sweep, Fannie and Freddie’s solvency and adequate capital reserves would have been self-evident. It is time to use that authority to end the Sweep and the decade-long stalemate on GSE reform. It is time for policymakers to create a sustainable housing finance model that serves taxpayers and aspiring homebuyers and honors obligations to the GSEs’ shareholders.
We continue to believe the government’s action was wrong. It trampled on the rights of ordinary people who invested in Fannie and Freddie. It led to the creation of a Treasury Department slush fund for unrelated spending. It needlessly exposed taxpayers to the GSEs’ losses, as demonstrated last week by their draw of roughly $4 billion in public funds, and it hampered completion of needed reforms at the GSEs and the creation of a more disciplined housing finance model.
Had the government been fully confident in its position, it would not have taken such great pains to conceal the decision making process surrounding the rationale and the timing of the Net Worth Sweep. The drawn out battle to force the government to reveal what never should have been concealed in the first place will forever mark a low point in the annals of government transparency.
The Trump Administration has an opportunity to undo the Obama Administration’s disregard of HERA with the Net Worth Sweep. FHFA and Treasury, working with the U.S. Congress and private sector stakeholders, should use today’s ruling to turn to the immediate task of protecting taxpayers from additional draws, preserving the American Dream for hardworking individuals and families, and ending the theft shareholders have endured.”