Fannie Mae Appeals Ruling on O.C. Funds

The Federal National Mortgage Assn. has appealed U. S. Bankruptcy Judge John E. Ryan’s May order that the mortgage lender hand over $90 million to the county.

The appeal, filed Friday in U. S. Bankruptcy Court, gave Ryan notice that the agency, commonly called Fannie Mae, will be asking a U. S. District Court judge to overturn Ryan’s decision within the next few weeks.

“The court made an error,” said Fannie Mae attorney Daniel Slate. “Our motion should be granted.”

Slate declined further comment, and court papers filed so far give no indication of the grounds for Fannie Mae’s appeal, which will be filed in federal district court.

County bankruptcy attorney Bruce Bennett said he is certain Ryan’s decision will be upheld. “We have every expectation that Judge Ryan’s well-reasoned opinion will be affirmed,” he said.

Ryan’s ruling last month rejected a claim by Fannie Mae that it had a right to hold $118.5 million in proceeds from Fannie Mae’s December liquidation of $634 million worth of securities from the Orange County investment pool.

Instead of handing over all of the proceeds, the mortgage lender tried to keep some of the money to settle debts for an identical sum the county and four school districts are supposed to pay Fannie Mae when certain of their jointly issued notes come due this summer.

Fannie Mae attorneys argued that the agency had good reason to worry that the county and schools might default on their debts. But in his written opinion, Ryan called the attempt by Fannie Mae “unfair, inappropriate and inequitable.”

Ryan ruled that the investment pool is a separate entity acting in a different capacity from the county and schools and that therefore it would be illegal for Fannie Mae to try to keep money from one entity to pay off debts owed to it by others.

Earlier this month, Fannie Mae agreed to return $28.5 million belonging to the school districts, but decided to continue the fight over the remaining $90 million, Slate said.