$FNMA #FANNIEGATE

The D.C. Circuit entertained oral argument in Perry v. Lew yesterday, and an audio recording is available at https://www.cadc.uscourts.gov/recordings/recordings2016.nsf/74B30C9776477AA885257F96006585FE/$file/14-5243.mp3 at no charge.  Recall that the D.C. Circuit allocated one hour for oral argument in this appeal.  The actual amount of time the Court spent discussing the issues raised in this appeal nearly tripled.  I’d caution anyone listening to the recording to avoid the temptation to speculate that the Judges’ questions or silence reflect disagreement or acceptance of one or more of the four parties’ positions.  For example, Judge Millett’s questions to Ted Olson were intense.  My sense is that she was exploring the boundaries of the Institutional Plaintiffs’ arguments about what they think HERA and the Administrative Procedures Act require rather than sharing her preconceived notions about what she thinks they should be.

The shareholders want the D.C. Circuit to declare the Third Amendment void and unenforceable.  I doubt the three-judge panel will take that bold step based on what it’s seen and heard to date.

I suspect that the D.C. Circuit will remand the cases to Judge Lamberth with instructions to reconsider his decision after receiving a full administrative record.  I would like to think that the D.C. Circuit would give Judge Lamberth further guidance about how to interpret section 4617(f) of HERA, which the government says prohibits shareholder lawsuits, and HERA’s succession provision in section 4617(b)(2)(A)(i), but I don’t anticipate the D.C. Circuit’s ruling will be that expansive.

The Court asked the parties to discuss what, if any, effect section 4623(d) of HERA, limiting judicial review of FHFA’s capital classification decisions, and, presumably, whether the Third Amendment should be viewed as a capital classification change.  The Court asked the four parties to submit 10-page briefs about this new topic in the coming week.  You’ll recall — see http://goo.gl/MzpAUH — that Director Lockhart suspended capital classifications and capital requirements in Oct. 2008 while the GSEs are in conservatorship.