This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Fannie, Freddie Plaintiffs Claim Takeover Deepened Losses

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.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
3 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
FNMA $2.67 -1.48%
FMCC $2.56 -1.73%
AAPL $132.74 1.90%
FB $82.71 1.40%
GOOG $562.86 -0.39%

Markets

DOW 18,154.41 +74.27 0.41%
S&P 500 2,124.15 +6.46 0.30%
NASDAQ 5,114.4320 +22.3470 0.44%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs