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Supreme Court rejects investor suits over Fannie Mae, Freddie Mac

Supreme Court

(Reuters) — The U.S. Supreme Court on Monday declined to again hear a multibillion-dollar case pursued by shareholders of Fannie Mae and Freddie Mac arising from the federal government’s takeover of the mortgage finance firms during the 2008 financial crisis.

The justices turned away an appeal by the investors of a lower court's ruling against their challenge to a 2012 agreement that resulted in hundreds of billions of dollars being redirected from Fannie Mae and Freddie Mac to the U.S. Treasury. The shareholders had argued that this arrangement unlawfully deprived them of dividends without compensation.

The private investors pursuing the appeal at the Supreme Court include Bruce Berkowitz's Fairholme Funds and funds managed by New York-based Owl Creek Asset Management.

Fannie and Freddie were created by Congress and operate as for-profit corporations with private shareholders, with the mission of expanding the national home lending market by buying home loans from private lenders and repackaging them as mortgage-backed securities.

When the housing market collapsed in 2008, the companies suffered overwhelming losses. To avoid catastrophic effects for the U.S. economy, they were placed in conservatorship under the newly created Federal Housing Finance Agency.

The case before the Supreme Court arose from myriad lawsuits that private shareholders filed over the 2012 agreement between the U.S. Treasury and the FHFA aimed at repaying the government for the bailout.