Fannie Mae (FNMA) and Freddie Mac (FMCC): Don’t Sleep on Some of the Circuit Court Appeals

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Disclaimer: Author is Long Fannie Mae Preferred and Freddie Mac Preferred.

Federal National Mortgage Assctn Fnni Me (OTCMKTS:FNMA) and Federal Home Loan Mortgage Corp (OTCMKTS:FMCC) shares, preferred and common, have taken a beaten since the Perry Appeal in the District of Columbia Court of Appeals case. While not all relief was denied to the plaintiffs, as the court ordered a remand for breach of contract for liquidation and dividend rights, the court hid behind 4617(F) which limits the abilities of a court to take any actions to restrain or affect the exercise of powers of the functions of the Agency as a conservator or a receiver, when it came to relief on the Net Worth Sweep.

Besides the dissenting opinion in that case from Judge Janice Rogers Brown, a Republican appointee, no court so far has considered the merits and has let the Housing and Recovery Act of 2008 or HERA section 4617(F) shut things down as it bars injunctive relief. Without injunctive relief, the options for the courts are potentially limited to breach of contract claims, or takings in the Federal Claims Court. Both can only grant monetary relief.

There are two parallel cases in different circuits that have received very little attention that may have better odds then previously assumed. While the District of Columbia Court of Appeals is very Democrat heavy and has more of a political slant then other Appeals courts due to its location, the 6th circuit is 9 to 5 Republican appointees, and the 8th Circuit only has 1 non-Republican appointee.

Here’s a quick overview of where things stands in those two cases:

US Court of Appeals for the 6th Circuit: Robinson v FHFA

The lawyer representing Ms. Robinson, in the 6th Circuit, is Fairholme’s lawyer in the Sweeney case, Chuck J. Cooper. In Mr. Cooper’s opening brief you see a brief that not only is detailed but is tailored to attack the logic given in the Perry Case. Ms. Robinson’s opening brief was filed on February 10th, 2017 (read here).  The Treasury and FHFA filed their Briefs on April 12th, 2017 (read here). The Plantiffs have 14 days to file a response.

US Court of Appeals for the 8th Circuit: Saxton v FHFA

This appeal is fairly new as the original judgement was issued on March 27th, 2017 and the notice of appeal filed on March 31st. The original complaint is available here, with the judgement against the plaintiffs here.

The plaintiffs’ Brief is currently due by May 24th, 2017, which will get the ball rolling.

Conclusion

It’s still early in both of the appeals. Neither has a Judge panel, nor has gotten far into briefs yet.

If merely one of these two Court of Appeals finds Judge Janice Rogers Brown or the plaintiffs arguments more compelling, then you have an equal powered court to the DC Court of Appeals delivering a contradictory ruling, which would require a tie breaker from the US Supreme Court. While no court has truly granted the plaintiffs any relief at this point of time, options remain in the legal world, even if they may take quite a bit of time to play out.

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