Ohio Pension Funds Challenge Fannie, Freddie Loss Rule

The Ohio Public Employees Retirement System and the State Teachers Retirement System of Ohio are asking a federal judge to throw out a Federal Housing Finance Agency (FHFA) rule that sets the priority for payment of unsecured claims against Fannie Mae and Freddie Mac.

Mortgage giants Fannie Mae and Freddie Mac currently are under the control of the FHFA, which is charged with protecting the safety and soundness of the two companies while they are dependent on government aid.

As reported Aug. 27 by Bloomberg, the Ohio pension funds contend that the rule, which took effect July 20, violates the Appointments Clause of the U.S. Constitution and the Housing and Economic Recovery Act because Edward DeMarco, FHFA’s acting director, who imposed it, has been in his position for almost two years without Senate confirmation.

The Ohio pension funds are the lead plaintiffs in a lawsuit filed in 2004 over a $6.3 billion overstatement of earnings. The defendants in the case include Fannie Mae, former Fannie Mae Chairman Franklin Raines, two other former executives and KPMG, a former company auditor.

In 2006, federal investigators accused Raines and other executives of overstating profits from 2001 until June 2004 in order to meet targets and generate executive bonuses.