Herron v. Fannie Mae

• Decision Date: 27 June 2017
• Docket Number: No. 16-5070,C/w 16-5091,16-5070
• Citation: 861 F.3d 160
• Parties: Caroline HERRON, Appellant v. FANNIE MAE, et al., Appellees
• Court: U.S. Court of Appeals — District of Columbia Circuit

861 F.3d 160

Caroline HERRON, Appellant
v.
FANNIE MAE, et al., Appellees

No. 16-5070
C/w 16-5091

United States Court of Appeals, District of Columbia Circuit.

Argued May 12, 2017
Decided June 27, 2017

Lynne Bernabei argued the cause for appellant. With her on the briefs was Alan R. Kabat, Washington, DC.

Michael A.F. Johnson argued the cause for appellee Federal Housing Finance Agency. With him on the brief were Howard N. Cayne and Dirk Phillips, Washington, DC.

Ira T. Kasdan argued the cause for appellees The Federal National Mortgage Association, et al. With him on the briefs were Bezalel A. Stern and Elizabeth C. Johnson. Damien G. Stewart, Washington, DC, entered an appearance.

Before: BROWN and KAVANAUGH, Circuit Judges, and SENTELLE, Senior Circuit Judge.

SENTELLE, Senior Circuit Judge:

Caroline Herron worked as an at-will contractor for the Federal National Mortgage Association, commonly known as

861 F.3d 163

Fannie Mae, on mortgage modification programs created by the Department of the Treasury ("Treasury") in response to the financial crisis in 2007 and 2008. According to Herron, Fannie Mae blocked her attempt to become an embedded contractor at Treasury and then terminated her contract work with Fannie Mae in retaliation for her purported disclosures of gross waste and mismanagement by Fannie Mae in administering the programs. Herron sued Fannie Mae and three Fannie Mae officers, asserting claims under District of Columbia law and, in the alternative, under Bivens . The district court dismissed the Bivens claim in a published opinion, holding that Fannie Mae is not a government actor, and, in a subsequent unpublished opinion, granted summary judgment against Herron on her remaining claims. For the reasons stated below, we affirm.

I.

Because of the numerous acronyms and terms of art employed in this opinion, we provide a brief glossary.

EESA Emergency Economic Stabilization Act of 2008
                FAA Financial Agency Agreement
                Fannie Mae Federal National Mortgage Association
                Freddie Mac Federal Home Loan Mortgage Corporation
                FHFA Federal Housing Finance Agency
                HAMP Home Affordable Modification Program
                HERA Housing and Economic Recovery Act of 2008
                MHAP Making Home Affordable Program
                

II.

Because the district court's opinions offer a detailed description, see Herron v. Fannie Mae , No. 1:10-cv-943, 2016 WL 1177918, at *1–12 (D.D.C. Mar. 8, 2016) ("Summary Judgment Opinion "); Herron v. Fannie Mae , 857 F.Supp.2d 87, 88–91 (D.D.C. 2012) ("Bivens Opinion "), we provide only a brief summary of the facts and allegations in this case.

A.

Although it originated as a government-owned entity, Fannie Mae became a privately owned, government-sponsored corporation in 1968. Perry Capital LLC v. Mnuchin , 848 F.3d 1072, 1080 (D.C. Cir. 2017). Fannie Mae and its brother corporation, the Federal Home Loan Mortgage Corporation, also known as Freddie Mac, "buy residential mortgages from banks, repackage them for sale as mortgage-backed securities, and guarantee these securities by promising to make investors whole if borrowers default." Judicial Watch, Inc. v. Fed. Housing Fin. Agency , 646 F.3d 924, 925 (D.C. Cir. 2011). Fannie Mae and Freddie Mac play a central role in the national mortgage market by providing lenders with capital to make more loans. Perry Capital , 848 F.3d at 1080 ; Judicial Watch , 646 F.3d at 926.

During the 2000s, Fannie Mae and Freddie Mac "bought risky mortgages and got caught up in the housing bubble." DeKalb Cty. v. Fed. Housing Fin. Agency , 741 F.3d 795, 798 (7th Cir. 2013). The decline in housing prices in the mid-2000s "substantially eroded the value of Fannie [Mae]- and Freddie [Mac]-held mortgages." Judicial Watch , 646 F.3d at 926. The ensuing financial crisis in 2007 and 2008 pushed both firms "to the brink of collapse." Perry Capital , 848 F.3d at 1079. To prevent these government-sponsored enterprises from defaulting, Congress enacted

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the Housing and Economic Recovery Act of 2008 ("HERA"), Pub. L. No. 110-289, 122 Stat. 2654.Perry Capital , 848 F.3d at 1079, 1080–81.

HERA established the Intervenor Federal Housing Finance Agency ("FHFA"), an independent federal agency charged with supervising and regulating Fannie Mae. See 12 U.S.C. § 4511 ; Perry Capital , 848 F.3d at 1080–81. Among other things, HERA authorized the FHFA to place Fannie Mae into conservatorship. See 12 U.S.C. § 4617(a). It exercised that authority on September 6, 2008. In conjunction with the appointment of the FHFA as conservator, Treasury committed to provide funding to Fannie Mae to keep it from defaulting. See Perry Capital , 848 F.3d at 1079, 1082.

B.

The financial crisis also spurred Congress to enact the Emergency Economic Stabilization Act of 2008 ("EESA"), Pub. L. No. 110-343, 122 Stat. 3765. The EESA provides the Secretary of the Treasury with the "authority and facilities ... to restore liquidity and stability to the financial system of the United States," 12 U.S.C. § 5201(1), and directs the Secretary to act in a manner that, among other things, "preserves homeownership," id. § 5201(2)(B). To that end, the EESA authorized the Secretary to "implement a plan that seeks to maximize assistance for homeowners" and to encourage loan servicers to minimize foreclosures. Id. § 5219(a)(1). Pursuant to this authority, the Secretary established the Home Affordable Modification Program ("HAMP"), which is designed to prevent foreclosures by encouraging loan servicers to modify mortgage terms for eligible homeowners.

A brief summary of HAMP is necessary to understand the factual allegations underlying this case. See generally Wigod v. Wells Fargo Bank, N.A. , 673 F.3d 547, 556–57 (7th Cir. 2012) (providing a detailed explanation of HAMP). HAMP—the largest mortgage modification program within Treasury's broader Making Home Affordable Program ("MHAP")—provides struggling homeowners with an opportunity to modify the terms of their mortgages, and can include changes such as reduced interest rates and term extensions. A HAMP modification consists of two steps. First, a servicer offers an eligible homeowner a "trial modification," which allows the homeowner to make modified mortgage payments for a specified term to determine whether those payments are sustainable. Then, if the homeowner successfully completes the trial modification, the servicer can convert the homeowner to a permanent mortgage modification. To encourage participation, Treasury offered financial incentives to servicers who agreed to these modifications, and, prior to June 1, 2010, Treasury permitted servicers to approve homeowners for trial modifications without written verification of income, meaning that servicers placed eligible homeowners in "stated" or "verbal" trial modifications, rather than compelling "verified" trial modifications.

On February 18, 2009, Treasury and Fannie Mae entered into a Financial Agency Agreement ("FAA"), under which Fannie Mae was to administer MHAP as a fiduciary to Treasury. See 12 U.S.C. § 5211(c)(3) (authorizing Treasury to designate certain institutions as "financial agents of the Federal Government"). Fannie Mae was eligible to receive incentive payments from Treasury based on a number of metrics set forth in the FAA, including the number of modifications. And, at least in fiscal year 2009, Fannie Mae used the number of modifications, regardless of whether they converted to permanent

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modifications, as a metric in determining executive bonuses.

C.

In June 2009, after the FHFA placed Fannie Mae into conservatorship, ICon Professional Services ("ICon"), a third-party contracting company, hired Herron to provide consulting services to Fannie Mae on MHAP and, more specifically, HAMP. Appellees Eric Schuppenhauer, a senior vice president at Fannie Mae, and Alanna Brown, Fannie Mae's Director of Government Programs and New Initiatives, were her direct supervisors. In addition to working with Fannie Mae officials and servicers, Herron worked directly with Treasury managers overseeing Fannie Mae's administration of MHAP.

Almost immediately after she began work at Fannie Mae, Herron raised a number of criticisms about Fannie Mae's administration of HAMP. Summary Judgment Opinion , 2016 WL 1177918, at *3. Herron does not press her argument concerning the excessive burdens Fannie Mae allegedly imposed on servicers on appeal. See id. at *3, *23–25. And she forfeited her argument concerning the extension of the HAMP enrollment deadline, see id. at *4–7, *28–30, by failing to adequately raise it in her opening brief. See City of Waukesha v. EPA , 320 F.3d 228, 250 n.22 (D.C. Cir. 2003). Therefore, the only criticism relevant to this appeal concerns the problems associated with the use of stated trial modifications, including the low rate of conversion to permanent modifications. See Summary Judgment Opinion , 2016 WL 1177918, at *3–4, *25–27.

The record establishes that the problems with stated trial modifications were highly debated and controversial topics at both Fannie Mae and...