Ohio Pensions: Federal Rule Denies Us Rightful Fannie Payment

(August 28, 2011) — Two Ohio pension funds have asked a federal judge to disallow a federal agency rule that would potentially limit the amount they could eventually receive for suing Fannie Mae, the massive insurer of mortgage debt.

According to the lawsuit, rules set by the Federal Housing Finance Agency (FHFA) would allow some creditors — even, potentially, Fannie Mae’s own corporate officers — to be paid for unsecured claims before the Ohio Public Employees Retirement System and the State Teachers Retirement System of Ohio, the pension funds filing the suit. “If Fannie Mae’s officers — the very individuals responsible for the fraud — sued the company to recover their attorney’s fees, their claims would receive priority over plaintiffs’ valid securities fraud claims,” the two pensions allege in the lawsuit.

The FHFA is the federal agency tasked with sorting out claims against Fannie Mae and Freddie Mac, which are now under government control following severe stress in 2008. The claim-priority rules — which took effect in late July, and subordinate certain financial claims on the two mortgage agencies — are a violation both of the U.S. Constitution and the Housing and Economic Recovery Act, according to the pension funds. This is because FHFA’s acting director, Edward DeMarco, has acted in his capacity without confirmation for two years.

The original claims against Fannie Mae stem from alleged securities fraud; the two Ohio funds are the lead plaintiffs in a lawsuit filed in 2004 over what they claim are inflated earnings.

The case is: Ohio Public Employees Retirement System v. Federal Housing Finance Agency, 11-cv-01543, U.S. District Court, District of Columbia.