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Investors: U.S. Hid Details of Fannie, Freddie Profit Sweep

A group of investors opposed to the “sweep” of profits from Fannie Mae and Freddie Mac to the U.S. Treasury said Monday that recently unsealed court documents show the Obama administration has tried to stall legal challenges by claiming executive privilege.

The effort comes as the group, Investors Unite, seeks to build public support for their campaign against the profit sweep practice. Under that system, which began in 2012, Fannie and Freddie sends a large chunk of their earnings over to the U.S. Treasury, which the shareholders say shortchanges them.

In part because of this practice, the government’s conservatorship of the government sponsored enterprises, or GSE’s, has become an issue of growing concern. There is also a fear that because of recent weak earnings statements from both Fannie and Freddie, the Treasury may have to provide them with a cash infusion.

But other observers say Congress isn’t likely to take action on GSE reform anytime soon.

Meanwhile, Investors Unite says the public needs to know about what it sees as government foot-dragging regarding Fannie and Freddie. “The government’s sidestepping of the law is troubling. Its attempt to cover up its actions makes it even worse,” the group said in a statement “The more the public knows about this farce, the clearer the imperative to remain vigilant to undo the harm to shareholders and help avoid tragedies of government misdeeds in the future.”

Investors Unite represents Fannie and Freddie shareholders. It launched a website on Monday, FannieFreddieSecrets.org, which includes some unsealed court documents.

The group says the deposition transcripts and emails were kept secret because the government misused executive privilege “to impede the legal challenges” against the sweep.

“The Obama Administration has used executive privilege to withhold from the public roughly 12,000 documents, totaling roughly 120,000 pages, which detail deliberations over its 2012 decision to sweep up Fannie Mae’s and Freddie Mac’s capital,” according to the group’s website.

The federal government took over Fannie Mae and Freddie Mac during the 2008 financial crisis and put them in conservatorship, a process that established bailout repayment terms that affected some shareholders. Those terms were changed in 2012, a move that sparked shareholder lawsuits, as part of a plan to further repay U.S. taxpayers for the $187.5 billion in government funds used to keep the two mortgage giants afloat.

“The government’s sidestepping of the law is troubling,” the group wrote in a separate blog post. “Its attempt to cover up its actions makes it even worse.”

The Treasury Department declined to comment.

The investors may be going public because they are unlikely to find any sympathetic allies on Capitol Hill.

“The GSE shareholders are never going to get paid by the government because Congress will ultimately make that determination. And the investment firms that bought Fannie and Freddie stock after they were already placed into conservatorship do not register in any meaningful way among Congress’s concerns on this issue,” Stephen A. Myrow, managing partner at Beacon Policy Advisors LLC in Washington, said in an interview.

“There’s not going to be a huge caucus fighting for a bunch of investment firms that made a speculative bet. It’s a tainted issue,” Myrow said. “If the investors win the lawsuit and maintain it on appeal, maybe they have a card to play in the legislative process in the years ahead as housing reform plays out in Congress. Maybe.”

This story has been updated to show that the Treasury Department declined to comment.

Timothy R. Homan contributed.