For several years, subsequent "draws" on the Treasury by the GSEs were in great part used to cover dividends on the government's preferred shares. Yes, the GSEs were borrowing from the government to pay the government.
Then in August 2012, the government stopped playing the dividend game with the GSEs, and simply required them to pay all income over to the Treasury as dividends, less a minimal $3 billion capital buffer for each GSE.
But the weakest part of the complaint is that following their placement into conservatorship, the government used Fannie and Freddie "as a vehicle to restore investor confidence in the mortgage market by providing a mechanism for other financial institutions to unload their bad mortgage debts." There are no numbers backing up this claim, in the complaint.
The shareholders in the complaint go on to quote Fannie Mae alone in saying the company "provided approximately $2.3 trillion in liquidity to the mortgage market in 2009 through 2011 through [its] purchases and guarantee of loans."Fannie and Freddie have indeed greatly increased their role in the secondary mortgage market, however, loans originated from 2009 and later were underwritten under much more strict criteria than they were before the housing crisis began. These newer loans are providing a great deal of the GSEs current profitability. Neither Hagens Berman Sobol Shapiro nor Spector Roseman Kodroff & Willis immediately responded to requests for comment. -- Written by Philip van Doorn in Jupiter, Fla. >Contact by Email. Follow @PhilipvanDoorn
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV