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58 | Th e M Rep o RT O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET Department Pershing square ceO drops One of His gse suits The voluntary dismissal of the lawsuit comes in the wake of adverse rulings in two similar cases. P ershing Square Capital Management CEO Wil- liam A. Ackman filed a voluntary notice of dis- missal in a U.S. District Court for one of his firm's lawsuits against the federal government over the seizure of GSE profits by the U.S. Department of the Treasury. Ackman filed two lawsuits against the government on con- secutive days in mid-August over the handling of Fannie Mae's and Freddie Mac's quarterly returns. Pershing Square is the largest non-government shareholder of GSE stock with about 170 million shares and close to $700 million invested in both GSEs combined. Pershing's stake in the two com- panies is about 10 percent. Pershing Square's first lawsuit, filed in the Federal Court of Claims, alleged that the diver- sion of GSE profits to Treasury's coffers, a practice started in 2012, equates to taking private prop- erty for public use without "just compensation," a practice forbid- den by the Fifth Amendment of the U.S. Constitution. The lawsuit alleged that the diversion of GSE profits created a "wind- fall" for the government while shortchanging GSE shareholders. That suit is still active. The second lawsuit, filed in the U.S. District Court, claimed that Pershing Square was denied fundamental shareholder rights and that the Federal Housing Finance Agency (FHFA), con- servator for both GSEs since 2008, refused to allow Pershing Squire to inspect books and records despite written demands made by Pershing to the FHFA board of directors to do so. The second complaint also called for the GSE profits being diverted to Treasury, which amount to billions of dollars, to be divided among the GSEs' common share- holders. This is the suit Ackman voluntarily dismissed. Two similar lawsuits filed in 2013 by investors Fairholme Funds and Perry Capital were dismissed by a judge in late September, with the judge ruling that the sweeping of GSE profits into Treasury was legal under the Housing and Economic Recovery Act. Both Fairholme and Perry have appealed the de- cision. Analysts suggest Ackman anticipated a similar ruling in his suit and that he dropped the case in order to avoid a lengthy appeals process. In mid-October, both Pershing Square and Fairholme an- nounced they had shored up their stock in Fannie Mae and Freddie Mac. The federal government seized control of Fannie and Freddie in September 2008 at the height of the nation's financial crisis, after which Treasury provided $188 billion to bail out the companies. Fannie Mae and Freddie Mac have since become profitable and have returned $218.7 bil- lion in dividends to taxpayers. Lawmakers want to phase out the two GSEs, which have been in conservatorship since the gov- ernment takeover six years ago. gses' Books of Business grow As business picks up for Fannie and Freddie, both companies report declining delinquencies. F annie Mae's book of business ended 10 consecutive months of declines when it posted a compound annualized rate in- crease of 1.5 percent in Septem- ber, according to the company's recently released September 2014 monthly summary data. Fannie's book of business totaled $3.12 trillion in September, up from $3.116 trillion in August, marking the first monthly in- crease reported by the GSE this year. The last increase was in November 2013, when it ticked up by 0.1 percent. Year-to-date as of September 30, Fannie Mae's compounded growth rate for its book of busi- ness wa 1.8 percent. Fannie Mae's gross mortgage portfolio declined at a compound annualized rate of 12.7 percent from August to September, with an ending balance of $438.1 bil- lion. The company's portfolio has declined at a rate of 14 percent year-to-date as of September 30; in January, it was $480.7 billion. The value of Fannie Mae's mortgage-backed securities (MBS) and other guarantees, which consists of securities and loans for which Fannie Mae man- ages credit risk, increased from August to September at a com- pounded growth rate of 2.7 per- cent, coming in at $2.79 trillion. September was only the second month of 2014 that Fannie Mae's MBS and other guarantees increased month-over-month; the only other time this year was from June to July, which saw an increase of 0.6 percent. Year-to-date as of September 30, MBS and other guarantees have declined at a rate of 0.6 percent. The conventional single- family serious delinquency rate for Fannie Mae loans dropped three basis points from August to September, slipping to 1.96 percent. The company's single-family seri- ous delinquency rate has declined every month since September 2013, when it was at 2.55 percent. Meanwhile, the multifamily seri- ous delinquency rate held steady at 0.09 percent, according to the GSE's summary report. In September, Fannie Mae completed 8,684 loan