WASHINGTON — Fannie Mae and Freddie Mac shareholders have lost another court decision in their efforts to overturn an agreement that allows the Treasury Department to capture most of the government-sponsored enterprises' profits.

A U.S. District Court judge in Kentucky ruled that the Federal Housing Finance Agency did not exceed its authority in entering into an agreement with Treasury in 2012 that sweeps the GSEs' profits into the U.S. Treasury.

The decision handed down by Chief Judge Karen Caldwell builds on a decision in Perry Capital LLC v. Treasury Secretary Jack Lew. The 2014 decision brought by hedge fund Perry Capital was the first setback for private shareholders who are suing the government.

In Arnetia Joyce Robinson v. FHFA, the GSE shareholders contended that the FHFA has failed to rehabilitate the two mortgage companies and said a net-worth sweep of the GSEs' quarterly profits will lead to a "nationalization of the two companies."

In her Sept. 9 decision, Judge Caldwell stressed that Congress gave the FHFA extraordinary powers in managing Fannie and Freddie if they were placed into conservatorship.

The FHFA's authority under the Housing and Economic Recovery Act of 2008 "exceeds the normal bounds of a conservatorship," Caldwell said in the decision.

Caldwell also affirmed that the FHFA has the authority to wind down the GSEs and sell off their assets. Under the FHFA's direction, the GSEs have been reducing their mortgage investment portfolios.

"FHFA is undoubtedly authorized to wind down the GSEs as a receiver," Caldwell said. "Plaintiff has offered no argument why FHFA is unable to convert its conservatorship into a receivership and, in fact, HERA clearly envisions the possibility of just such a conversion."

"In short, this Court finds that so long as FHFA "is exercis[ing] judgment under one of its enumerated powers" such as "disposing of assets ... when acting as its conservator ... a quintessential statutory power of FHFA" the court may not enjoin that act "merely because someone alleges" that it is "improperly or even unlawfully exercising a function or power that is clearly authorized by statute," the judge said.

Investors Unite, which has supported the shareholder lawsuits, criticized the decision.

In dismissing the lawsuit, the judge "declared a federal agency acting as conservator has the right to plunder privately held assets," according to Tim Pagliara, Investors Unite's chairman and CEO.

But industry analysts said the judge's decision made sense.

HERA is "incredibly protective in terms of judicial review of FHFA's receivership powers," said Edward Mills, a policy analyst at FBR Capital Markets. And HERA is "incredibly permissive in allowing FHFA to run the conservatorships."

"So for Fannie and Freddie shareholders seeking relief — their beef continues to be with Congress," Mills said. "The courts have not been willing to side with the investors."

At the same time, going to Congress is "perilous" for the GSE shareholders, he said. "There are some powerful forces on Capitol Hill that want to be sure the legacy shareholders never are compensated for their investment" in Fannie and Freddie, Mills added.

The FHFA's wide-ranging authority also gives the GSE regulator the flexibility to reverse course and allow the GSEs to retain a capital cushion, according to Scott Olson, executive director of the Community Home Lenders Association.

"The simple fact is that FHFA has the legal authority to have the GSEs retain quarterly profits to build a modest capital buffer and avoid a contrived Treasury advance — and FHFA should use that authority," Olson said in a written statement Monday.

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