Fannie, Freddie plunge as US Supreme Court deals blow to investors

The justices rejected claims that the Federal Housing Finance Agency exceeded its authority under federal law.

The court said investors might be able to win damages on a separate claim that some payments under the so-called profit sweep were illegal because the FHFA director was unconstitutionally insulated from being fired by the president. But the justices said they wouldn’t use that claim to toss out the entire profit sweep.

The justices sent the case back to the lower-court level, where the investors will have a chance to show they were harmed by the lack of presidential control over FHFA directors who implemented the agreements.

Common shares of Fannie Mae slumped as much as 42 per cent and those of Freddie Mac plunged 44 per cent, both posting their steepest intraday declines since October 2014.

The decision is a setback for firms including Paulson & Co., Pershing Square Capital Management and Fairholme Funds Inc. that have sought for years to persuade the government to release Fannie and Freddie from government control, thereby earning billions of dollars on their shares.

The ruling could mean President Joe Biden will be able to oust Mark Calabria, the FHFA director and an advocate for releasing the mortgage giants from government control.