Market Share

Fannie Mae owned or guaranteed 28 percent of the $11 trillion residential-mortgage market through September 2015, according to its annual report filed with the U.S. Securities and Exchange Commission. Freddie Mac had 18 percent of that market, according to its data.

Treasury pumped $187 billion into Fannie Mae and Freddie Mac under what was billed as a conservatorship meant to rehabilitate them. Initially, the U.S. was to be repaid with fixed quarterly dividends. In Aug. 2012, that plan was altered to enable the government to capture substantially all of the companies’ profits, sparking lawsuits in Washington, Delaware, Iowa and elsewhere.

U.S. District Judge Royce Lamberth in Washington threw out the Perry/Fairholme case, as well as a related class action, in Sept. 2014, finding HERA blocked most of their claims. Dividends, he said were payable at the discretion of the companies’ directors.

Up to Congress

“The plaintiffs’ grievance is really with Congress,” he said then. “It was Congress, after all, that parted the legal seas so that FHFA and Treasury could effectively do whatever they thought was needed to stabilize and, if necessary, liquidate the GSEs.”

Arguing the net worth sweep should be set aside, Perry Capital lawyer Theodore Olson told the appellate panel it was, “a massive, and we submit lawless, expropriation of Fannie Mae and Freddie Mac,” that left them insolvent “zombies.”

Hume asked the judges to look at the economic substance of what the government had done with what were now profitable businesses. He said those who held Fannie Mae and Freddie Mac stock at the sweep’s inception had been materially harmed.

Defending the government’s action, FHFA lawyer Howard Cayne told the court Freddie Mac and Fannie Mae were on the brink of insolvency at the time of the bailout. Had the mortgage market failed, “that would have made a horrible situation just so much worse.”

In a letter to investors, Perry Capital principal Richard Perry in September said he was winding down his New York-based flagship fund after 28 years, explaining that his investment style no longer worked.