Fannie Mae Ky-complaint 10 23 2015



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Download Fannie Mae Ky-complaint 10 23 2015
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  1 IN THE UNITED STATES DISTRICT COURTFOR THE EASTERN DISTRICT OF KENTUCKYSOUTHERN DIVISION AT PIKEVILLE ARNETIA JOYCE ROBINSON,Plaintiff,vsTHE FEDERAL HOUSING FINANCEAGENCY, in its capacity as Conservator of theFederal National Mortgage Association and theFederal Home Loan Mortgage Corporation,MELVIN L WATT, in his official capacity asDirector of the Federal Housing FinanceAgency, and THE DEPARTMENT OF THETREASURY,Defendants No __________  PLAINTIFF’S COMPLAINT FOR DECLARATORY AND INJUNCTIVERELIEF Plaintiff Arnetia Joyce Robinson (“Plaintiff”), by and through her undersigned counsel,hereby alleges as follows: IINTRODUCTION 1 In August 2012, at a time when the housing market was recovering from thefinancial crisis and the Federal National Mortgage Association and the Federal Home LoanMortgage Corporation (respectively, “Fannie” and “Freddie,” and, together, the “Companies”)had returned to stable profitability, the federal government took for itself the entire value of therights held by Plaintiff and Fannie’s and Freddie’s other private shareholders by forcing these private, shareholder-owned Companies to turn over   all  of their profits to the federal governmenton a quarterly basis  forever  —an action the government called the “Net Worth Sweep” Plaintiff  Case: 7:15-cv-00109-ART-EBA Doc #: 1 Filed: 10/23/15 Page: 1 of 52 - Page ID#: 1  2 brings this action to put a stop to the federal government’s naked, unauthorized, and ongoingexpropriation of private property rights2 Fannie and Freddie are two of the largest privately owned insurance companies inthe world They insure trillions of dollars of mortgages and provide essential liquidity to theresidential mortgage market The Companies operate for profit, and their debt and equitysecurities are privately owned and publicly traded The Companies’ shareholders includecommunity banks, charitable foundations, mutual funds, insurance companies, pension funds,and countless individuals, including Plaintiff3 Throughout the financial crisis, Fannie and Freddie were capable of meeting all of their obligations to insureds and creditors and were capable of absorbing any losses that theymight reasonably incur as a result of the downturn in the financial markets As mortgageinsurers, Fannie and Freddie are designed to generate ample cash to cover their operatingexpenses—and indeed this was the case for the Companies throughout the financial crisis Incontrast to the nation’s largest banks, the Companies took a relatively conservative approach toinvesting in mortgages during the national run up in home prices from 2004 to 2007 As a result,the Companies (i) experienced substantially lower mark-to-market credit losses during thefinancial crisis than other mortgage insurers, (ii) were never in financial distress, and (iii)remained in a comparatively strong financial condition Indeed, the Companies’ ability to payany outstanding claims—a fundamental principle for all insurers—was never in doubt Despitethe Companies’ relative financial health, the Department of Treasury (“Treasury”) implementeda deliberate strategy to seize the Companies and operate them for the exclusive benefit of thefederal government Case: 7:15-cv-00109-ART-EBA Doc #: 1 Filed: 10/23/15 Page: 2 of 52 - Page ID#: 2  34 At Treasury’s urging, in July 2008, Congress enacted the Housing and EconomicRecovery Act of 2008 (“HERA”) HERA created the Federal Housing Finance Agency(“FHFA”) (Treasury and FHFA are sometimes collectively referred to herein as the “Agencies”)to replace Fannie and Freddie’s prior regulator and authorized FHFA to appoint itself asconservator or receiver of the Companies in certain statutorily specified circumstances Asconservator, HERA charges FHFA to rehabilitate Fannie and Freddie by taking action to put theCompanies in a sound and solvent condition while preserving and conserving their assets Onlyas receiver does HERA authorize FHFA to wind up the affairs of Fannie and Freddie andliquidate them HERA’s distinctions between the authorities granted to conservators andreceivers are consistent with longstanding laws and practices of financial regulation5 HERA also granted Treasury temporary authority to invest in the Companies’stock until December 31, 2009 Congress made clear that in exercising this authority Treasurywas required to consider the need for Fannie and Freddie to remain private, shareholder-ownedcompanies6 These limitations on FHFA’s and Treasury’s authority make clear that Congressdid not intend for the Agencies to operate Fannie and Freddie in perpetuity, and certainly not for the exclusive financial benefit of the federal government7 On September 6, 2008—despite both Agencies’ prior public statements assuringinvestors that the Companies were in sound financial shape—FHFA, at Treasury’s urging,abruptly forced Fannie and Freddie into conservatorship Under HERA, and as acknowledged byFHFA at the time, the purpose of the conservatorship was to restore confidence in and stabilizethe Companies with the objective of returning them to normal business operations As FHFAconfirmed in its public statements at the time, conservatorship is necessarily temporary, and Case: 7:15-cv-00109-ART-EBA Doc #: 1 Filed: 10/23/15 Page: 3 of 52 - Page ID#: 3