Calabria out at FHFA as Supreme Court paves way for ouster

The Supreme Court has ruled that the President of the United States can remove the director of the Federal Housing Finance Agency (FHFA), prompting the ouster of former director Mark Calabria.

The court ruled in Collins v. Yellen that a statute shielding the FHFA director from removal for anything other than malfeasance or neglect was unconstitutional. That statute, according to the court, violates the separation of powers between the legislative and executive branches.

Justice Samuel Alito delivered the opinion of the court. Every justice joined the majority opinion in full or in part. Justice Elena Kagan wrote a fully concurrent opinion but raised concerns over the majority’s reasoning, while Justice Sonia Sotomayor, joined by Justice Stephen Breyer, wrote an opinion that was partly concurrent and partly in dissent.

“The removal power helps the President maintain a degree of control over the subordinates he needs to carry out his duties as the head of the executive branch, and it works to ensure that these subordinates serve the people effectively and in accordance with the policies that the people presumably elected the President to promote,” Alito wrote.

“The Constitution,” he later added, “prohibits even ‘modest restrictions’ on the President’s power to remove the head of an agency with a single top officer. … The President must be able to remove not just officers who disobey his commands but also those he finds negligent and inefficient, those who exercise their discretion in a way that is not ‘intelligent’ or wise,’ those who have ‘different views of policy,’ those who come ‘from a competing political party who is dead set against [the President’s] agenda, and those in whom he has simply lost confidence.”

Alito’s opinion noted that the FHFA’s control over government-sponsored enterprises Fannie Mae and Freddie Mac has an unquestionable impact on whether millions of Americans can buy and keep their homes. Calabria, an outspoken critic of the federal government’s control of Fannie and Freddie, had spent his tenure working towards the companies’ recapitalization and release — a process that is now likely to end thanks to his removal.

“I respect the Supreme Court’s decision and the authority of the President to remove the Federal Housing Finance Agency Director,” Calabria said in a statement.

“During my tenure, FHFA has fulfilled its mission as the economy fluctuated from record-low unemployment and a strong housing market, to a pandemic-triggered recession that spared house prices but contracted supply. Through this cycle, FHFA has acted quickly and effectively to provide relief to homeowners and renters impacted by the COVID-19 pandemic, and to ensure Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System operate in a safe and sound manner, all while supporting historic growth in homeownership, especially among minority households.

“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 Supreme Court’s decision mirrors its ruling on a similar case last year, Seila Law LLC v. Consumer Financial Protection Bureau. In that case, the court disallowed restrictions set forth by Congress on the president’s ability to remove that agency’s director, also because they violated the separation of powers. Alito referenced that decision in his majority opinion.

Biden thus far has not named a permanent replacement for Calabria. Sandra L. Thompson has been announced as the acting director of the FHFA. Since 2013, she has served as deputy director of the Division of Housing Mission and Goals, where she oversaw the FHFA’s housing and regulatory policy, capital policy, financial analysis, fair lending and all mission activities for Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

“I am honored that President Biden has designated me to be acting director of the Federal Housing Finance Agency until a permanent director is confirmed,” Thompson said. “I look forward to serving in this role at this crucial time. As a longtime regulator, I am committed to making sure our nation’s housing finance systems and our regulated entities operate in a safe and sound manner. We can accomplish this, and at the same time have a laser focus on mission and community investment. There is a widespread lack of affordable housing and access to credit, especially in communities of color. It is FHFA’s duty through our regulated entities to ensure that all Americans have equal access to safe, decent, and affordable housing.”

While the court found that it was permissible for the president to remove the FHFA’s director at will, it stopped short of granting the original goal of the suit: invalidating a 2012 arrangement to hand over billions of dollars’ worth of Fannie and Freddie’s profits for capital infusions from the Department of the Treasury.

It’s an arrangement that finds its roots all the way back to the financial crisis of 2008. When the FHFA was created to assume control of Fannie and Freddie, the Treasury Department agreed to invest $100 billion in the two companies to help keep them solvent. The two companies, in exchange, agreed to make payments back to the Treasury, akin to an interest fee of sorts. But when Fannie and Freddie later couldn’t afford to make those payments, the FHFA amended the arrangement; since 2012, in lieu of making those regular payments, Fannie and Freddie handed over their profits to the Treasury instead.

A group of Fannie and Freddie’s private shareholders, complaining that all of the companies’ profits were being returned to the government, sued. They sought to nullify the arrangement — and have $124 billion returned to Fannie and Freddie — by bringing up the validity of the FHFA director’s removal protections. If the structure of the FHFA is unconstitutional, they argued, the 2012 amendment it made should be struck down.

The Supreme Court decided otherwise, finding that while the agency head’s removal protection is indeed invalid, changing that doesn’t necessitate dismantling the FHFA completely or overturning its previous actions.

“We hold that the shareholders’ statutory claim is barred by the Recovery Act, which prohibits courts from taking ‘any action to restrain or affect the exercise of [the] powers or functions of the [FHFA] as a conservator,” said Alito’s opinion. “But we conclude that the FHFA’s structure violates the separation of powers, and we remand for further proceedings to determine what remedy, if any, the shareholders are entitled to receive on their constitutional claim.”

The investors’ case now goes back to the 5th U.S. Circuit Court of Appeals to determine, as Alito wrote, if any remedy toward them is necessary.


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