By Emma Nitzsche
The White House is preparing to replace the leader of the Federal Housing Finance Agency (FHFA) after a Supreme Court ruling from Wednesday. The Court ruled that the FHFA’s leadership structure is unconstitutional under the separation of powers doctrine. The decision also shuts down a separate claim brought by shareholders of mortgage finance companies Fannie Mae and Freddie Mac.
In a 7-2 vote, the Court found that the singular director of the FHFA is insufficiently accountable to the president. The justices stated that the leadership structure of the FHFA was unconstitutional because of a provision that the president could only remove its director for a ‘cause,’ not at will.
The majority opinion, written by Justice Samuel Alito, referenced the unitary executive theory, holding that the president maintains control over all aspects of the executive branch. Proponents of the theory believe that the “for cause” stipulation infringes upon the president’s constitutional authority and that a president should be able to fire personnel at will, without a direct cause.
The FHFA was created in 2008 after concerns that Fannie Mae and Freddie Mac were not sufficiently regulated amid the housing bubble. After the agency was created, the two companies nearly collapsed and were placed under a government conservatorship that still exists today. Fannie Mae and Freddie Mac buy mortgages from lenders and put them into securities to sell to investors. Since the federal government took over, the companies have sent over $300 million in profit to the government.
A single director leads both companies, and, before today, they could not be fired without cause. The current FHFA director is Mark Calabria, a libertarian economist appointed by former President Trump in 2019. The Trump administration hoped to relieve Fannie and Freddie from government control and build capital under Mark Calabria.
The Wednesday decision mirrored the Court’s ruling on the similarly structured Consumer Financial Protection Bureau (CFPB) last year.
In a 5-4 vote, the Court concluded that because the CFPB had a singular executive leader, the president could remove the agency’s director without the precedent of “inefficiency, neglect, or malfeasance.” The case, Seila Law LLC v. Consumer Financial Protection Bureau, ruled that having a single director running an independent agency that “wields significant executive power” has no legal precedent.
Beau Brunson, Consumers’ Research’s Director of Policy and Regulatory Affairs, praised the Seila decision in a press release.
“No government agency should be operating outside the bounds of the constitution…the CFPB’s funding structure still has no Congressional oversight, and the Director has rule-making authority that goes far beyond any other agency under a single director,” wrote Brunson.
A year out from that the decisions, the current Supreme Court justices wrote that the housing regulator should be treated the same way the Supreme Court analyzed the Consumer Financial Protection Bureau.
On Wednesday, Mark Calabria released a statement on the Supreme Court’s decision, stating that he “respects the Supreme Court’s decision and the authority of the President to remove the Federal Housing Finance Agency Director …I wish my successor all the best in fixing the remaining flaws of the housing finance system in order to preserve homeownership opportunities for all Americans.”
