|FEDERAL NATIONAL MORTGAGE ASSOCIATION FANNIE MAE filed this Form 10-Q on 08/03/2017|
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
The information in this item supplements and updates information regarding certain legal proceedings set forth in “Legal Proceedings” in our 2016 Form 10-K and our First Quarter 2017 Form 10-Q. We also provide information regarding material legal proceedings in “Note 15, Commitments and Contingencies,” which is incorporated herein by reference. In addition to the matters specifically described or incorporated by reference in this item, we are involved in a number of legal and regulatory proceedings that arise in the ordinary course of business that do not have a material impact on our business. Litigation claims and proceedings of all types are subject to many factors that generally cannot be predicted accurately.
We record accruals for legal claims when losses associated with those claims become probable and the amounts can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts accrued for those claims. For matters where the likelihood or extent of a loss is not probable or cannot be reasonably estimated, we do not recognize in our condensed consolidated financial statements the potential liability that may result from these matters. Except for matters that have been settled, we presently cannot determine the ultimate resolution of the matters described below or incorporated by reference into this item or in our 2016 Form 10-K or our First Quarter 2017 Form 10-Q. If certain of these matters are determined against us, FHFA or Treasury, it could have a material adverse effect on our results of operations, liquidity and financial condition, including our net worth.
FHFA Private-Label Mortgage-Related Securities Litigation
In September 2011, FHFA, in its role as conservator of Fannie Mae and Freddie Mac, filed a lawsuit against The Royal Bank of Scotland Group plc and certain related entities and individuals (collectively, “RBS”) in the U.S. District Court for the District of Connecticut alleging violations of federal and state securities laws in connection with private-label mortgage-backed securities RBS sold to Fannie Mae and Freddie Mac. On July 12, 2017, FHFA, on behalf of Fannie Mae and Freddie Mac as our conservator, entered into a $5.5 billion settlement agreement with RBS resolving all claims in this lawsuit. RBS paid us approximately $975 million of the settlement amount in August 2017.
Senior Preferred Stock Purchase Agreements Litigation
Between June 2013 and June 2017, several lawsuits were filed by preferred and common stockholders of Fannie Mae and Freddie Mac in multiple federal courts against one or more of the United States, Treasury and FHFA, challenging actions taken by the defendants relating to the senior preferred stock purchase agreements and the conservatorships of Fannie Mae and Freddie Mac. Some of these lawsuits also contain claims against Fannie Mae and Freddie Mac. The legal claims being advanced by one or more of these lawsuits include challenges to the net worth sweep dividend provisions of the senior preferred stock that were implemented pursuant to the August 2012 amendments to the agreements, the payment of dividends to Treasury under the net worth sweep dividend provisions, and FHFA’s decision to require Fannie Mae and Freddie Mac to draw funds from Treasury in order to pay dividends to Treasury prior to the August 2012 amendments. The plaintiffs seek various forms of equitable and injunctive relief, including rescission of the August 2012 amendments, as well as damages. The courts where the lawsuits were filed and the current status of the cases are listed below.
District of Columbia. On September 30, 2014, the U.S. District Court for the District of Columbia dismissed all but one of the cases then pending before that court. The plaintiffs in each of the dismissed cases filed a notice of appeal. The plaintiffs in the case that was not dismissed by the court voluntarily dismissed their lawsuit on October 31, 2014. On February 21, 2017, the Court of Appeals for the District of Columbia Circuit affirmed in part and reversed in part the district court’s dismissal of the cases filed in the U.S. District Court for the District of Columbia. On July 17, 2017, the Court of Appeals issued a revised opinion allowing certain plaintiffs to continue to maintain certain claims the original opinion had found not properly preserved, and modifying its discussion of the standard that applies to one of those claims. Fannie Mae is a defendant in this action, which is described in “Note 15, Commitments and Contingencies.”
Southern District of Iowa. On February 3, 2015, the U.S. District Court for the Southern District of Iowa dismissed the case pending before it. The plaintiff in that case did not file a notice of appeal.