Are Fannie Mae and Freddie Mac private companies or government agencies?
It seems like a simple question. But determining the actual nature of the two corporations, which together own or guarantee about half the nation’s mortgages, is a tricky thing to do. For states and localities, the answer could translate into millions of dollars.
At least that’s the thinking behind a recent lawsuit in Oakland County, Mich. The suburban Detroit county, which not too long ago was still ranked the fourth wealthiest in the country, has been hit hard by the economic downturn and the foreclosure crisis, losing some $14 billion in taxable property value since 2007, according to county Treasurer Andy Meisner. Those losses have been compounded, Meisner says, by the fact that Fannie and Freddie haven’t been paying taxes that he says they owe. Usually when Michigan homeowners sell their property, they pay state and county taxes. But when Fannie and Freddie sell a home after acquiring it through foreclosure, they avoid paying a tax by claiming that, as government entities, they’re exempt.
That’s an argument that Meisner doesn’t buy. Although Freddie and Fannie were originally chartered by Congress, they’ve long been publicly traded companies, and their CEOs earn millions a year in compensation. Freddie Mac itself explicitly states on its website that it is not a government agency, calling itself “a private company serving a public purpose.” The mortgage giants are trying to have it both ways, Meisner alleges, so he recently filed suit to determine their status once and for all. “If it walks like a duck, flies like a duck and quacks like a duck, it’s a duck,” Meisner says. “They walk, fly and talk like a private business.” Complicating matters is the fact that, in 2008, Fannie and Freddie were placed in government conservatorship by the Federal Housing Finance Agency, which is trying to get involved in the suit.
Freddie and Fannie won’t comment on the pending case. But in addition to their claims of government status, the groups have cited a federal law that specifically exempts them from paying state and local taxes. Meisner says he believes that exemption doesn’t extend to property transactions.
The public-private distinction has become more important as the housing crisis has deepened and more and more homes have been turned over to -- and subsequently sold off by -- the two corporations. Meisner calculates that, at a minimum, Fannie and Freddie owe about $1.6 million to the county and $10.8 million to the state for taxes they haven’t paid since 2005. Meisner believes his county is the first to sue over the exemptions, but it won’t be the last. Other localities have contacted him for more information on the lawsuit. Nearby Ingham County has already brought a similar case against Fannie and Freddie. “We think it’s a pretty strong case,” Meisner says. “There are some very inconvenient truths that Fanny and Freddie are working around.”