Treasury mulling appeal of GSE investor ruling to high court: Mnuchin

WASHINGTON — The Treasury Department is considering appealing to the Supreme Court to try to overturn a court decision that sided with Fannie Mae and Freddie Mac investors, Secretary Steven Mnuchin said Tuesday.

Federal appeals court judges in New Orleans on Friday appeared to back claims by investors that Treasury's "net worth sweep" is illegal. The sweep provision was implemented in 2012, requiring the government-sponsored enterprises to deliver nearly all of their profits to Treasury to repay the government for bailing them out in the financial crisis.

Investors in the two companies have brought forward a number of lawsuits challenging the sweep, but Friday's ruling marked one of their clearest victories. Previously, other courts found that the Housing Economic and Recovery Act of 2008 placed restraints on judicial review.

Andrew Harrer/Bloomberg

“We’re looking at it carefully and we’re considering what to do about it, including we’re going to consider appealing it to the Supreme Court,” Mnuchin said in an interview with CNBC. “There are two parts of it. One is obviously the cash-flow sweep and that’s what the Treasury is looking at.”

Treasury released a presidentially directed report last week that detailed its legislative preferences and administrative plans for ending the conservatorships of the GSEs and reforming the nation’s housing finance system. The report said Treasury intended to end the sweep so Fannie and Freddie could retain earnings in an effort to build up the companies’ currently limited capital buffers.

Mnuchin told Fox Business on Monday that administration is set to act as early as September to suspend the sweep.

“We expect a near-term agreement to retain their earnings” in September or shortly after, he said.

The federal appeals court judges also sided with the court’s determination that the structure of the Federal Housing Finance Agency is unconstitutional.

Last July, the U.S. Court of Appeals for the Fifth Circuit in Texas agreed with the shareholders that the FHFA was “unconstitutionally insulated from executive control” since its single director — as opposed to a board or commission — cannot be fired by a sitting president without cause.