County suit against Fannie, Freddie moving

A house on a largely quiet street in Pontiac — right in the heart of the beleaguered city’s historic Indian Village, not even a mile from the eastern Waterford Township border — sits blighted. The overgrown backyard is the equivalent of an urban jungle: the shingled garage roof is caved in. A pair of toys from a children’s playground abut the rear of the house, which seems to have more broken windows than in-tact ones. A basketball hoop sits unused. The back door has been open for months, but no one has entered.

The majority of the homes on the block appear well-kept: leaves raked and bagged, lawns mowed, patio furniture on front porches of the two-story homes that were once the dreams and aspirations of millions of American families. A Baptist church three doors down overflows with parishioners and hymns on many nights. Sometimes it seems like they are belting out requiems rather than praise, but they congregate nonetheless, dressed to the nines, overjoyed to have an audience — any audience — listening.

For some of them, the American dream has been recalibrated, adjusted almost as quickly as someone would fix a crooked tie, since the economic nosedive of 2007 and 2008, when the American housing market capsized, taking with it livelihoods, savings and retirement accounts, and the roofs over peoples’ heads.

And Andy Meisner smells a rat. Or two.

The first-term Oakland County treasurer, a Democrat who unseated popular Republican Pat Dohany in the anti-GOP backlash of 2008, has sued mortgage leviathans Fannie Mae and Freddie Mac, which many point to as the epicenter of the financial earthquake that jolted the very foundation of the American economy, bringing it to its knees.

But the crux of the matter — in which millions of dollars for the county and the state is at stake — isn’t exactly malfeasance in the business practices (at least in this case, although that has certainly been alleged) of the two agencies.

When you boil it down, it’s really more accurately whether or not to call them “agencies” at all.

Estimated county loss
grows to $3 million

The lawsuit, which has been mired in what Meisner called “procedural wrangling” in U.S. District Court since the summer, alleges that the county is owed unpaid transfer taxes from Fannie Mae and Freddie Mac, which, as government-sponsored enterprises, buy home mortgages from the original lenders, repackage them as mortgage-based securities, and then either sell them or hold them in their own investment portfolios, according to the lawsuit.

Original estimates — and county officials at the time stressed that they were estimates — pegged the amount the county was owed at about $1.6 million. However, that estimated figure has ballooned to nearly $3 million since the lawsuit was filed in June.

Fannie and Freddie, which received billions of dollars in federal support during the mortgage meltdown three years ago, claimed an exemption from the state’s transfer tax because, they say, as government agencies they don’t have to pay the tax that is added whenever a property changes hands — a reprieve that Meisner and a cadre of county legal minds allege amounts to the two entities shirking their tax liability to the county.

Not to mention to the state.

In June, county officials estimated that Michigan was owed some $10.5 million in unpaid transfer taxes from Fannie Mae and Freddie Mac, although one source who didn’t want to be identified in this special report said that figure has now jumped to approximately $12 million.

According to the county, the transfer tax amounts to $7.50 for the state for each $1,000 of a property’s value, while the county portion is $1.10 for each $1,000 in value.

Fannie and Freddie argue that they are governmental entities legally exempt from the state’s transfer tax, but officials say that’s ludicrous because, among other things, Fannie and Freddie have CEOs bringing in multi-million dollar salaries and boards of directors.

Meisner, a former state representative, may have reason to be hopeful this holiday season because of recent developments in the case. First, the Federal Housing Finance Administration (FHFA) — which Meisner called “the big guns,” the regulator and conservator of the two mortgage giants, not to mention the overseer of a dozen federal home loan banks — has been allowed to intervene on behalf of Fannie and Freddie, which is a clue to him that the lawsuit is being taken seriously.

“We opposed that motion (to intervene), but not aggressively,” Meisner said earlier this month. “They were granted the right to intervene on behalf of Fannie Mae and Freddie Mac, which I interpret as a positive thing because it shows that there is merit to our lawsuit and they are bringing in the big guns to protect them.”

But the state of Michigan is also bringing in the heavy-hitters. State Attorney General Bill Schuette and state Treasurer Andy Dillon — far from political buddies as a Republican and a Democrat, respectively — have also both filed motions to intervene in the case on behalf of the state, Meisner said.

“I appreciate them joining the fight to make the taxpayers whole from the financial institutions that have really ripped us off and helped to really destabilize our neighborhoods and gut our property values,” Meisner said, calling it “a real positive sign.”

Both have been granted, and therefore the battle royal can now be pegged as such: Oakland County, Meisner, and the state vs. Fannie Mae, Freddie Mac, and the FHFA.

Meisner said he expects oral arguments on a motion for summary disposition — which is effectively a motion by the plaintiffs saying that their legal argument is so strong that a trial is not necessary — to begin at the onset of the new year.

The source who asked not to be named said oral arguments will commence on Jan. 5, although Rod Hansen of the U.S. District Court of Eastern Michigan said that “it doesn’t appear that any oral arguments have been scheduled yet.”

According to Oakland County Deputy Corporation Counsel Keith Lerminiaux, the county came up with the original $1.6 million estimate on its losses by using the baseline of an estimated 2,400 “transactions” a year multiplied by six years at the rate of $110 per transaction.

“It could be higher or lower as we go in and do a more definitive analysis,” Lerminiaux said in June.

“When we did the initial rollout, we used a very conservative estimate,” Meisner said. “We used an estimate of $100,000 for the average real estate transaction for Oakland County. As we had a chance to solidify those numbers, the average real estate transaction was around $225,000.”

Meisner wants state to
fork over suit money

If the first-term county treasurer has his druthers in the event of a successful end to the Fannie and Freddie lawsuit, the state would earmark the $12 million in transfer tax money it would be expected to receive from the two government-sponsored enterprises (GSEs) since, as Meisner says, the state wouldn’t have received that money were it not for the efforts of the elected and appointed officials of Oakland County.

He said he will be in discussions with Schuette and Dillon in the coming weeks to discuss his request, which, if granted, would be used to combat blight, pay for housing counselors and stave off foreclosures in other ways.

“In addition to accountability, this lawsuit is about trying to make the taxpayer whole and trying to undo some of the damage to our property values in that the large amount of the drop in property values comes from the damage of having foreclosed properties in our neighborhoods,” Meisner said. “I’m proposing that the county and state portion be used for preventing foreclosures and paying for certified housing counselors to prevent them, but also to pay for the maintenance, rehabilitation and resale of foreclosed properties in Oakland County.

“That’s one of the most direct ways we can boost our property values — caring for these parcels and maintaining them,” he said.

Fannie and Freddie
by the numbers

Created by Congress in 1970 to provide liquidity, stability and affordability to the U.S. housing market, Freddie Mac — which has a chief executive officer, 5,100 employees, a headquarters in McLean, Va., five regional offices, and is publicly traded on the stock market — pumped $259 billion in liquidity into the housing market between Jan. 1 and Sept. 30. With a mortgage portfolio of 1 million single-family homes and 263,000 multi-family rental housing units, Freddie Mac — legally, the Federal Home Loan Mortgage Corporation — prides itself on its ability to help homeowners with their mortgages by refinancing or modify those loans.

Freddie Mac boasts that it has helped over 30,000 Michigan families avoid foreclosure since 2008.

Founded in 1938 during the Great Depression as part of FDR’s New Deal, Fannie Mae has been a publicly-traded company since the Vietnam Era. With aims of keeping liquidity flowing to mortgage lenders, bolstering the American housing and mortgage markets and supporting affordable home ownership, Fannie Mae — the Federal National Mortgage Association, in its official capacity — securitizes or buys mortgage loans from local and national lenders and financial institutions that originated them. That, Fannie Mae tauts, lets them “replenish their funds so they can lend to other homeowners.”

Fannie Mae — which does not lend money directly to homeowners — has provided $1.7 trillion in funding for single-family housing since 2009, all the while establishing stronger and more sustainable lending standards, according to the institution, translating into help for more than 7 million families buying homes or refinancing their loans in that same time frame.

It gobbled up $831 million in mortgages targeted specifically to low-income or first-time home buyers through banks and state housing finance agencies last year alone, its website says. Another $944 million in mortgages were purchased for manufactured homes, while another $138 million single-family mortgages in rural areas were purchased.

The two financial institutions that help prospective home buyers get more favorable rates by working with mortgage companies had been at the helm of one of the largest housing booms in the nation’s history, save for perhaps immediately following World War II.

And then the subprime mortgage crisis hit. And we know what happened after that.

Agencies across the state,
nation following suit

Oakland County often prides itself on being a trailblazer in a variety of governmental arenas, but perhaps its brass wasn’t expecting to lead the way like this.

Or maybe it was.

According to Meisner, officials from around the country — the state treasurer of Nevada, for example — have been in touch with him about the lawsuit, perhaps looking to get in on the action.

“The sense I got from our discussion is that she (Nevada State Treasurer Kate Marshall) is readying a lawsuit that would mirror our lawsuit on behalf of the people the state of Nevada,” Meisner said, adding that she requested copies of the legal proceedings from the lawsuit.

And given Nevada’s own troubles — it leads the nation in foreclosures and nearly a quarter of those foreclosures are because of strategic defaults, some reports have said — that may not be a bad idea.

But you don’t have to travel the 2,200-plus miles from the lakes area to the Nevada capitol of Carson City to gauge the interest in the county’s efforts.

Just go north across the county line.

There, in Genesee County, Treasurer Deborah Cherry, a former Democratic state senator whose district included Waterford Township until she was term-limited in 2010, is spearheading a class action lawsuit along with Ingham County. The suit that was filed earlier this month against the mortgage behemoths and the FHFA — this time on behalf of all 83 Michigan counties — states Fannie and Freddie failing to pay the transfer tax “either negligent, intentional or intended to defraud.”

Cherry said earlier this week that Genesee County estimates that it loses $78,000 annually from the exemption in question — small potatoes in comparison to Oakland County’s $3 million estimate, but that’s money not going to critical governmental operations.

“It’s not as big, but you keep adding it up over the years and it becomes pretty significant,” Cherry said. “In addition, there’s a whole lot of money that is not going to schools, for example, because of the waiver. It makes sense to me to have the courts determine (whether counties are owed the transfer tax), even though Fannie Mae says it’s not a governmental agency but it claims the exemption.”

Firm numbers aren’t available on how much all 83 Michigan counties may have lost because of the exemption, but Cherry roughly estimates that “it’s got to be in the tens of millions, if not more.”

Meisner: Expect more
legal action in time

Describing the Fannie and Freddie situation as “the low-hanging fruit,” Meisner and other county officials have noted that this is, in all likelihood, only the first in a series of legal avenues the county is going to pursue, as Meisner described it, “as another means of recovery.”

For example, Delaware Attorney General Beau Biden, son of Vice President Joe Biden, is going after MERS, or the Mortgage Electronic Registration System, along with other attorneys general and local elected officials, although that’s one that still in the “brain-storming process” at the county level due to a complicating factor in Michigan law that is “a little bit more loose than other states,” Meisner said.

“That’s one I anticipate pursuing.”

Furthermore, another avenue of pursuit may be seeking recovery against banks for non-payment of property taxes.

“There is a provision in the General Property Tax Act that allows for recovery against an individual or firm for non-payment of property taxes, and in many, many cases, we are seeing banks who are simply walking away from their legal obligation to pay property taxes,” Meisner said. “By walking away from their obligation to pay property taxes, they are shirking their responsibility and shifting the risk of that business decision onto our taxpayers, which is patently unfair. The taxpayers of Oakland County did not make the decision to give that individual a mortgage; that was a decision made by the bank, and the bank should bare the brunt of costs associated with that decision.”

$3M sought dwarfed by
overall property losses

Whatever the result of the county’s lawsuit or the class action case, an appeal is expected, whether it’s on behalf of the plaintiffs or defendants, according to one source with knowledge of the case who requested anonymity.

In addition, whatever the result, it’s not that the outcome will recoup the total property value plummet Oakland County experienced in recent years from $64 billion to $50 billion, nor the staggering decline in market value of county properties.

“While the recovery is not going to be $14 or $50 billion (in lost market value in Oakland County), you’ve got to start somewhere,” Meisner said. “I’ve been very proud to take this position for the county and the county taxpayers. I’m also proud that we were the first in the country to do this and you have attorneys general, state treasurers, and local elected officials across the country following our lead.”

Nor are the parishioners at the Baptist church in Pontiac likely to sing the praises of anyone involved in the lawsuit, whether it’s the plaintiffs or the defendants.

But Meisner hopes that they will reap some benefit, tangible or intangible, from the county’s and state’s legal efforts against Fannie and Freddie.

Repeated messages left with representatives from the Michigan Department of Treasury and the Michigan Attorney General’s Office went unreturned prior to press time. In addition, a message left for Lerminiaux or Oakland County Corporation Counsel Judy Cunningham went unreturned.

Requests for comment for this special report from the FHFA, Fannie Mae, and Freddie Mac were declined due to the pending litigation.