Fannie Mae and Freddie Mac Profit Distribution in Question

July 19, 2013

If you borrow a book at the library there comes a time you have to give it back and depending on how long you keep it you may incur a fee. Similarly when companies receive government aid or a payout they are expected to pay the money back. Fannie Mae and Freddie Mac investors have been lobbying against the government on the matter of how that payback should be done for sometime now. The latest action was taken by the hedge fund, Perry Capital, who is suing the government with the goal of limiting the Treasury and Federal Housing Finance Agency (FHFA). This suit would stop them from receiving approximately 80%, a majority of the profits, and restore the system to the originally authorized 10% of the companies’ income quarterly. The sweep amendment was put in place last year to expedite the repayment of government payouts during the market crises. Perry Capital isn’t requesting any form of back pay or damages; instead the object of the suit is to restore profit distribution to the original agreement. This proposed alteration would obviously benefit the investors, who since the market decline have seen little or no money from their investment. Perry Capital has been an investor in both companies since 2010. In 2008 both Fannie Mae and Freddie Mac were seized by the government and received over $187 billion in taxpayer aid after nearly having to file bankruptcy.

One opinion is that the government needs the money back and that investors voluntarily took on the risk of an investment having negative results. Others feel that Perry Capital and the other investors involved were misled about the company’s potential for return. Do you think the Treasury and FHFA have the right to take such a large portion of company dividends? Or do you agree that the investors should see more of the companies current returns? Comment and let us know.

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