By Lawrence Hurley
WASHINGTON (Reuters) - The U.S. Supreme Court on Thursday agreed to hear an appeal by President Donald Trump's administration seeking to avoid a lawsuit by shareholders of mortgage finance firms Fannie Mae and Freddie Mac (OTC:FMCC) relating to the government rescue of the companies following the 2008 housing crisis.
The justices will review a 2019 ruling by the New Orleans-based 5th U.S. Circuit Court of Appeals that shareholders in the two companies could pursue a challenge to the 2012 agreement between the Federal Housing Finance Agency and the Treasury Department. The deal eliminated dividend payouts to various shareholders and required the companies to pay the U.S. Treasury an amount equal to their quarterly net worth each quarter.
The court also took up a related appeal brought by the shareholders that challenges the constitutional structure of the agency.
The Supreme Court in a similar case concerning the Consumer Financial Protection Bureau ruled on June 29 that such a structure is unconstitutional, deciding that the president should be able to fire the director at any time.
The cases will be heard together in the court's next term, which starts in October.
In 2016, Fannie and Freddie shareholders Patrick Collins, Marcus Liotta and William Hitchcock sued in a federal court in Texas saying that the 2012 agreement, sometimes referred to as the "net worth sweep," exceeded FHFA's authority and that the structure of the agency was unconstitutional.
The government in 2008 seized Fannie Mae and Freddie Mac, both private enterprises set up by Congress, at the height of the financial crisis as they teetered on the brink of insolvency. The government took a majority stake in each and they were placed under the supervision of the FHFA, which was created at the same time.
The FHFA is headed by a director who is appointed to a five-year term by the president subject to confirmation by the U.S. Senate.