Feds Can Take Up Claims Against Fannie Mae

     WASHINGTON (CN) – A conflict of interest does not prevent a government agency from replacing the plaintiff accusing Fannie Mae of gross mismanagement, a federal judge ruled.
     Gail Sweeney Estate Marital Trust brought a shareholder derivative suit last year against the Federal National Mortgage Association, more commonly known as Fannie Mae; its conservator, the Federal Housing Finance Agency (FHFA); and the U.S. Department of the Treasury.
     The action took aim at the Treasury Department’s interference with Fannie Mae’s plan to unload $2.6 billion worth of low-income housing tax credits.
     Though the Treasury Department said its finding that the sale would not help taxpayers, the shareholders said claimed that the denial of consent amounted to a breach of fiduciary duty.
     They balked when the FHFA – the controlling shareholder of Fannie Mae – moved to substitute itself as the plaintiff in the action, but U.S. District Judge Amy Jackson approved the move Friday.
     “The court finds that this case does not present a conflict of interest sufficient to justify an exception to [the Housing and Economic Recovery Act]’s command that only Fannie Mae’s conservator may bring suit on Fannie Mae’s behalf,” Jackson wrote.
     Federal law connects the FHFA to Fannie Mae, authorizing the agency as the government-sponsored corporation’s regulatory parent, according to the ruling.
     While the federal government has fed Fannie Mae $116 billion, Jackson found no conflict of interest in letting the government sue the corporation it kept solvent after the financial collapse of 2008.
     “But plaintiff’s central claim – that the FHFA would never ‘bite the hand that fed it’ by suing its source of funding – is undermined by the contract, since Treasury is obligated to provide funding whether or not it is sued,” she wrote, citing the contract where the Treasury Department agreed to provide billions to Fannie Mae in exchange for stock and the right to ensure that the corporation used its assets wisely.
     “And the fact that the FHFA acquiesced to Treasury’s disapproval the (sic) [low-income housing tax credit] sale suggests little more than that the FHFA abided by the terms of its contract with Treasury.”
     Finding no conflict of interest, the judge ruled that the FHFA may substitute itself as plaintiff in the case.

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