June 23, 2021

SCOTUS rules FHFA structure unconstitutional, director can be removed at will

CapitolThe U.S. Supreme Court has upheld part of a lower court ruling that the Federal Housing Finance Agency's (FHFA) structure is unconstitutional under the separation of powers doctrine because the agency's lone director is insufficiently accountable to the president. This decision overturns the current FHFA structure that allows the director to be removed before the end of their five-year term only 'for cause.'

"The Supreme Court's decision to rule the FHFA's structure unconstitutional leaves many unanswered questions for the housing market amid the COVID-19 economic recovery and remaining uncertainties," said NAFCU President and CEO Dan Berger. "During this period of uncertainty, NAFCU will continue to advocate for policymakers to ensure credit unions retain uninterrupted access to the secondary mortgage market as well as for the GSE Patch to be extended over the long-term."

This decision mirrors the Court's decision in the lawsuit brought by Seila Law challenging the CFPB's single-director structure, determining that it is unconstitutional; the Court agreed to hear the FHFA case shortly after the CFPB decision was issued.

The Court held that, even though they found the FHFA was unconstitutionally structured, the Court's decision does not invalidate the amendments made to the Preferred Stock Purchase Agreements by the FHFA and Treasury Department.

In addition, the Court stated that the FHFA acted within its authority to make those changes, thereby dismissing the shareholders’ claims that the net worth sweep of Fannie Mae and Freddie Mac’s profits violates the statute.

As a result, the Court unanimously dismissed shareholders' claims regarding the constitutionality of the net worth sweep and sent the case back to lower courts. The Court explicitly stated that the shareholders could not seek to void the 20212 agreement altogether. 

A White House official has confirmed the Biden administration plans to replace FHFA Director Mark Calabria in the wake of the ruling, according to the Wall Street Journal; Calabria was appointed to the position in 2019 by President Donald Trump.