Here Are Both Sides Of The Collins Lawsuit Over Fannie Mae, Freddie Mac

The Supreme Court has decided to hear the Collins case lawsuit involving Fannie Mae and Freddie Mac in December. That lawsuit could provide some major breakthroughs for all the litigation involving Fannie Mae and Freddie Mac.

Odeon Capital hosted a conference call with Brian Barnes of Cooper & Kirk, who was one of the main authors of the brief submitted to the Supreme Court by the plaintiffs in the Collins case. Analyst Dick Bove explained the plaintiffs' and the government's arguments in the case, adding that he believes the lawsuit will be groundbreaking for Fannie Mae and Freddie Mac shareholders.

Government's side in the Fannie Mae, Freddie Mac lawsuit

He said the government claims it has the right to make every decision for the government-sponsored enterprises. The government also argues that the net worth sweep saved the GSEs from a vicious cycle of borrowing more and more money and then paying more and more dividends.

The government also argues that it has met the requirement of maintaining the health and solvency of Fannie Mae and Freddie Mac. Bove and the plaintiffs disagree.

Plaintiffs' side in the Fannie Mae, Freddie Mac lawsuit

The plaintiffs argue that the GSEs were cash-flow positive when the government took them over, placing them in conservatorship. They suggest that the acquisition wasn't appropriate. They also argue that they have the right to sue because they have been harmed directly by the loss of their shareholder rights and because the companies' financial stability has been harmed.

The argument also asserts that the law doesn't give conservators free rein to run these companies in ways that harm them. It also claims that the government didn't conserve and preserve the financial stability of Fannie Mae and Freddie Mac.

The plaintiffs' case also points out that Federal Housing Finance Agency Director Mark Calabria himself has said that the net worth sweep was probably illegal. They also say the government's dividend claims are spurious because Fannie and Freddie didn't have to pay cash.

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