By Parke Shall

For a little bit of history, the Consumer Financial Protection Bureau had recently been found to be an unconstitutional entity in a DC circuit court because of the "unilateral power" bestowed upon its director. The Atlantic reported,

On Tuesday, a Washington, D.C. circuit court found the structure of the CFPB to be unconstitutional. More specifically, the court took issue with the inability for other arms of the government to review or rebuke the Bureau's judgements or actions and the unilateral power imbued in the CFPB's director-currently Richard Cordray.

The judgement issued said the following about the CFPB,

The Director enjoys significantly more unilateral power than any single member of any other independent agency. By "unilateral power," we mean power that is not checked by the President or by other colleagues. Indeed, other than the President, the Director of the CFPB is the single most powerful official in the entire United States Government, at least when measured in terms of unilateral power.

Little did many people know, but a similar constitutional action has been pursued against the FHFA, which is structured in almost the exact same fashion as the CFPB.

This means that within the next six months or so, we may see a summary judgment possibly rule that the FHFA is unconstitutional based on the same ruling that was made against the CFPB. This ruling would be extremely meaningful and monumental for those who are advocating for the recapitalization and release of both Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC).

A motion for summary judgment has flown under the radar for the most part over the last week and we certainly don't see the equity prices of either the common shares or the preferred shares of either of the government sponsored entities reflecting what we believe to be another legitimate chance for pro Fannie and Freddie shareholders to win their case against the government.

While this ruling may be some type of an end-around that nobody even considered, it is very real and it will be adjudicated soon. However, we still believe that Treasury Secretary Steve Mnuchin is committed to recapitalize and release the government sponsored entities no matter what, based on his publicly available statements.

At the end of the day, his say is going to be the only say that matters and we believe him to be on the side of both common and preferred shareholders.

We also believe that leaked information that was supposedly from the White House that came out last week regarding President Obama using funds from Fannie and Freddie to fund Obamacare may be part of the Trump administration strategy to construct a narrative around why they are going to recapitalize and release both of the GSE's. Benzinga wrote,

Infowars, which has earned a reputation for absurd and often comically critical headlines concerning President Obama, argues that the government's modification of the original terms of Fannie and Freddie's bailout agreement in 2012 was unconstitutional. Unfortunately for Fannie and Freddie investors, two courts have now disagreed with that conclusion.

Infowars alleges the Obama administration created the net worth sweep to help fund Affordable Care Act health insurance subsidies that would otherwise be underfunded. A Congressional Budget Office (CBO) report linked in the story clarifies that the previous administration considered inflows from Fannie and Freddie to be "outside of the federal government for budgetary purposes" because those funds were not taxpayer-generated. In that respect, the administration claims it needed no Congressional approval to appropriate the funds.

Infowars suggests the administration illegally routed these funds directly into Obamacare subsidies, but shareholder attorneys have so far failed to convince two different courts that they have a viable case.

At this point, shareholders' final chance at getting the net worth sweep struck down in court likely means convincing the U.S. Supreme Court to disagree with the rulings of the district court and the appeals court. Of course, if President Donald Trump and Treasury Secretary Steven Mnuchin decide to re-capitalize Fannie and Freddie and turn control back over to shareholders, investors may not even need the courts to see some major upside.