Those Shoes

Myron Steele, attorney for plaintiffs in the Jacobs v. FHFA case, sent a letter this week to Judge Sleet stating:

“…The Ninth Circuit issued its opinion after the parties completed briefing on the pending Motions to Dismiss. In Adams, the Ninth Circuit held that Fannie Mae and Freddie Mac are private companies, not federal instrumentalities, and that the conservatorship placed the Federal Housing Financing Agency (“FHFA”) “in the shoes of Fannie Mae and Freddie Mac, and gives the FHFA their rights and duties, not the other way around.” Id. at 6 (emphasis in original). This holding is contrary to Defendants’ arguments that federal law, not state law, governs the conservator’s power to implement the Net Worth Sweep as a term of preferred stock, and that FHFA has authority under HERA to act as it sees fit without regard to whether Fannie Mae and Freddie Mac themselves have power under state law to issue preferred stock having the terms of the Net Worth Sweep…” (emphasis added)

Click to access 15-00708-0036.pdf

In November 2014, I kicked off this blog with a rather long piece which started by citing a federal case:

Caroline Herron vs. Fannie Mae, et al

In that case, United States District Judge Rosemary Collyer stated:

“Thus, like FDIC when it serves as a conservator or receiver of a private entity, FHFA when it serves as conservator “step[s] into the shoes” of the private corporation, Fannie Mae.”


“Similarly, Fannie Mae was not converted into a government entity when it was placed into conservatorship; instead, FHFA stepped into the shoes of Fannie Mae. FHFA as conservator for Fannie Mae is not a government actor.”


“As described above, a conservator or receiver steps into the shoes of the private entity — it assumes the private status of the entity.” (emphasis added in all three passages)

The basis and details of both cases are not at all similar, though that is irrelevant to both judges’ rulings. In both cases, these judges ruled that FHFA steps into the shoes of Fannie and Freddie as conservator and thus assumes its roles, duties and responsibilities.

Myron Steele makes the case to Judge Sleet that Fannie and Freddie are governed by their respective state laws, which in this case invalidates or otherwise makes the Net Worth Sweep illegal.

Equally important is the fact that in these two cases the US Government argued different positions in each case.

In Adams, Government lawyers argued that Fannie and Freddie were a part of the federal government while under conservatorship. However, in Herron Government lawyers argued that Fannie and Freddie were not a part of the federal government while under conservatorship.

There seems to be a clear pattern with Government lawyers of consistently trying to have things both ways… however, the 9th Circuit Court and the DC District Court both rule that Fannie and Freddie continue as private companies even while in conservatorship.

If the shoe fits, wear it!

7 thoughts on “Those Shoes

  1. If the Preferred Stock as currently executed is determined by a Court to be invalid (I’m saying this differently than “the Net Worth Sweep or the Third Amendment is invalid”), then the important question is:

    – Does the court throw out the entire currently executed SPSA (which would include the warrants) OR… do they “roll the clock back” to the terms of the Second Amendment, as if the Third was never signed?

    Liked by 1 person

    • With the caveat that I am not a lawyer — the Jacobs complaint appears to focus solely on the Net Worth Sweep and makes no reference to invalidating PSPAs or warrants.

      For me, the best way to review what the plaintiffs seek is to read the PRAYER FOR RELIEF starting on page 52.

      Click to access 15-00708-0001.pdf

      Probably not the answer you wanted, but hope that helps. Welcome any legal scholar to correct my assessment…


      • i don’t have an answer that i want. i simply search for the truth… wherever that leads, from whatever source. (it will be what it will be. although i recognize one result would be economically better than the other.) great stuff for the FnF community and thanks for the lead on Prayer for Relief… I’ll keep truffle hunting.

        Liked by 1 person

  2. I’m aware of all lawsuits. I was tossing out a very specific, nuanced question (I know the 3rd Amendment is being challenged, but I’m asking… if the amendment is invalid, by default is the entire standing agreement invalid, or does Court simply roll clock back to 2nd Amendment as if 3rd had not been executed? In a typical contract, it will say (paraphrase) “This amends and supersedes all prior agreements. (it’s like a new agreement, as if the old had not existed) if any part of this is determined invalid, the entire thing is invalid and immediately due and payable” (which is fine because they’ve been paid back) … I’ll keep digging, looking for precedent. The Prayer for Relief did not specifically state anything more inflammatory beyond invalidating “the net worth sweep” but I’m wondering if doing so has the practical implication of causing a more dramatic outcome.


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