In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations
||United States District Court for the District of Columbia
||Misc. Action No. 13-mc-01288 (RCL)
||Honorable Royce C. Lamberth
||Federal Housing Finance Agency (“FHFA”), the Federal National Mortgage Association (“Fannie Mae”), and the Federal Home Loan Mortgage Corporation (“Freddie Mac”)
KTMC represents shareholders in a lawsuit against the Federal Housing Finance Agency (“FHFA”), the Federal National Mortgage Association (“Fannie Mae”), and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) regarding their conduct in connection with the implementation of the Third Amendment to the Senior Preferred Stock Purchase Agreements between Fannie Mae, Freddie Mac, and the United States Treasury, dated August 17, 2012.
On September 6, 2008, the FHFA placed Fannie Mae and Freddie Mac into conservatorship. Acting as conservator, the FHFA then agreed to a Senior Preferred Stock Purchase Agreement (“PSPA”) between each company and the Treasury. Under each PSPA, Fannie Mae and Freddie Mac issued Senior Preferred Stock to the Treasury in exchange for the Treasury’s commitment to provide funding up to a specified cap. The principal value of the preferred stock in each of Fannie Mae and Freddie Mac was equal to $1 billion (in exchange for the commitment) plus any dollars actually invested into the company. The PSPAs generally gave Treasury a dividend equal to 10% per year (if paid in cash) of the amount Treasury invested in the company paid out quarterly with senior priority plus a fee for Treasury’s commitment to invest additional funds if needed.
Four years later, on August 17, 2012, the Treasury and FHFA agreed to the Third Amendment to the PSPAs (the PSPAs were previously amended twice) under which the 10% dividend was converted into a “Net Worth Sweep” that required Fannie Mae and Freddie Mac to pay the full amount of their net worth to Treasury every quarter.
As a result of the Third Amendment to the PSPAs, Plaintiffs allege that it became impossible for private shareholders to ever receive any dividend or liquidation distribution from Fannie Mae and Freddie Mac, regardless of the profitability of the companies. Plaintiffs allege that the Third Amendment was implemented just as the housing market was recovering and the companies were returning to robust profitability and that the Defendants’ conduct in agreeing to the Third Amendment just as Fannie Mae and Freddie Mac were returning to profitability violated the contractual implied covenant of good faith and fair dealing inherent in Plaintiffs’ stock certificates.
The case is titled In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations, No. 13-mc-1288 (RCL) and is pending in the United States District Court for the District of Columbia.
A ten-day jury trial is set to begin on October 17, 2022.