On June 23, 2021, the Supreme Court held that the single-director structure of the Federal Housing Finance Agency (FHFA) was unconstitutional, dismissed the claim that the 2012 “net worth sweep” agreement between the agency and Treasury should be invalidated, and remanded the decision on potential relief back to the lower court. The case was brought by shareholders of Fannie Mae and Freddie Mac (GSEs).
As a result of the decision, the Administration has already replaced now former FHFA Director Mark Calabria with Acting Director, Sandra Thompson, who was the Deputy Director of the Division of Housing Mission and Goals for the agency. It is not yet clear who may be the potential permanent replacement or when they may be confirmed by the Senate.
In the consolidated cases of Collins v. Yellen, the issues before the Court included: (1) whether the FHFA’s structure violates the separation of powers agreement under the Constitution; and, (2) whether the agency exceed its statutory authority under the Housing and Economic Recovery Act (HERA) with a final agency action (the “third amendment” to the preferred stock purchase agreements (PSPAs) or “net worth sweep”).
On the first question, in a split decision, the Court held that the FHFA structure violated the separation of powers and severed the provision in the law that restricted the head of the agency to be removable by the President only “for cause” (i.e. misconduct or neglect), but did not strike down the entire agency itself. The Court followed the reasoning in a similar case heard last year, where it held that the director of the Consumer Financial Protection Bureau (CFPB) was removable at will by the president. This struck down a provision in the Dodd-Frank Act that restricted removal of the CFPB director only “for cause.” (Seila Law v. CFPB.) As found there, the Court held here that removal limitations infringe on the president’s authority over the executive branch.
On the second question, the Court unanimously dismissed the claim that the 2012 PSPA amendment should be invalidated, clarifying that the action was within the agency’s powers as conservator of the GSEs. According to the Court, HERA grants the FHFA expansive authority to act, where it could have “reasonably concluded that [the 2012 agreement] was in the best interests of members of the public who rely on a stable secondary mortgage market.” Given recent action by the FHFA and Treasury (the fourth amendment to the PSPAs), the plaintiffs may be entitled to retrospective relief based on harm imposed by the removal provision while the third amendment was in place, which the Court remanded to the Court of Appeals for the Fifth Circuit for resolution.
For more details on the case, see NAR’s Issue Brief.