The U.S. Supreme Court gave President Joe Biden the authority to remove the head of the Federal Housing Finance Agency (FHFA) while dismissing claims from shareholders of Fannie Mae and Freddie Mac.
The FHFA oversees the federal home mortgage programs for Fannie Mae and Freddie Mac. Both of these institutions are led by a single director, appointed by the President, who cannot be fired without cause. The head of the FHFA, Mark Calabria, is a libertarian economist who was previously appointed by Donald Trump. His aim was to eventually privatize both companies. However, Biden clearly intends to remove him with the new Supreme Court ruling.
The Supreme Court upheld the lower court ruling that the structure of the FHFA is unconstitutional under the separation of powers doctrine because the agency’s director is not sufficiently accountable to the president. The majority invoked the unitary executive theory, which holds that the president maintains control over all aspects of the executive branch. Extreme proponents of this theory believe the “for cause” stipulation infringes the president’s constitutional authority and violates the separation of powers. Rather, they believe the president should be able to fire personnel at will.
The Supreme Court ruling aligns with the Consumer Financial Protection Bureau’s decision last year, stating that Biden and future presidents will have the power to remove the head of independent agencies at any time. This presents an issue for other independent agencies now that Biden can easily remove leaders for insubstantial reasons, subjecting them to political pressure.
The Supreme Court also dismissed separate claims brought by Fannie Mae and Freddie Mac shareholders, who challenged the 2012 agreement between the FHFA and the Treasury Department to send the company’s profits directly to the Treasury. The high court sent this back down to the lower court for further proceedings.
Fannie and Freddie primarily buy mortgages from lenders and bundle them into securities to sell to investors. They stand behind half of the $11 trillion U.S. residential mortgage market. Since the federal takeover, the companies have sent over $300 million in profits to the government.
The Trump administration was prepared to release Freddie and Fannie from government control, and start building capital under FHFA director, Mark Calabria. However, Democrats do not trust a privatized Fannie Mae and Freddie Mac, as it may take away affordable housing options.
For more information about the Supreme Court ruling, read the Collins v. Yellen court documents.
Update (06/23): Statement by Mortgage Banker Association President and CEO Bob Broeksmit regarding the U.S. Supreme Court's decision in Collins v. Yellen: "MBA recognizes and appreciates the impact of the Supreme Court's decision in Collins v. Yellen as FHFA plays a critical role regulating entities that ensure liquid markets for single-family and multifamily mortgages. We expect President Biden will move quickly to appoint a successor, and we look forward to working collaboratively with the administration, FHFA, and other stakeholders to ensure those markets function well for lenders and the American consumers they serve."
Update (06/23): White House officials told HousingWire that Biden plans to replace Calabria by the end of the day.
Update (06/23): Mark Calabria releases a statement on the Supreme Court's decision: "I respect the Supreme Court's decision and the authority of the President to remove the Federal Housing Finance Agency Director... However, much work remains. When the housing markets experience a significant downturn, Fannie Mae and Freddie Mac will fail at their current capital levels. 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." The rest of his statement can be read on the FHFA website.