Supreme Court: Mortgage Supervision Structure Unconstitutional

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WASHINGTON (AP) – On Wednesday, the Supreme Court gave the president more power to sack the head of the agency that oversees mortgage giants Fannie Mae and Freddie Mac. deciding that the structure of the agency violates the principles of separation of powers enshrined in the Constitution.

Judge Samuel Alito, addressing the majority of the members of the court, said that as the judges explained in last year’s case, “The constitution prohibits even ‘modest restrictions’ on the president’s powers to remove the head of an agency with one top official.”

The ordinance enables President Joe Biden to remove Mark Calabria, who was appointed head of the Federal Housing Finance Agency in 2019 by then President Donald Trump.

White House spokeswoman Jen Psaki told reporters after the Supreme Court ruling that the president would appoint a new head of the FHFA, but she did not give a timeline.

The judges sent the FHFA case, which was created during the 2008 financial crisis, back to the lower court for additional proceedings.

Shareholders in the two companies argued that the FHFA’s structure was unconstitutional and that judges should overturn a 2012 agreement that paid the companies billions to the government. This money is compensation for the taxpayer aid that Fannie Mae and Freddie Mac received after the 2008 financial crisis. Since then, the 2012 agreement has been superseded by a new one.

The judges refused to do what the shareholders asked and canceled the entire 2012 agreement.

“The structure of the FHFA violates the separation of powers, and we are returning for further proceedings to determine what remedy, if any, shareholders are entitled to obtain in their constitutional claim,” Alito wrote.

The judges noted that the agreement, which the shareholders complained about, was negotiated by the agency’s acting director, whom the president could remove from office for any reason. The judges said the finding “refutes the shareholders’ arguments in favor of canceling” the agreement as a whole.

The case is very similar to what the judges decided last year with the help of FHFA’s subsidiary agency, the Consumer Financial Protection Bureau, which is the government’s consumer watchdog agency. It was created by Congress in response to the same financial crisis.

In the bureau case, the court lifted congressional restrictions that the president could only fire a bureau director for “inefficiency, neglect, or malfeasance.”

Like the bureau chief, the FHFA director is appointed by the president and confirmed by the Senate for a five-year term. In the case of FHFA, the director was removed by the president for “good reason” only.

In a statement issued after Calabria’s rule, the current FHFA director called the job a lifelong honor and said he respects the president’s decision and authority. He added that while the FHFA acted “quickly and efficiently to help homeowners and tenants affected by the COVID-19 pandemic,” challenges remained and he wished his successor “all the best in addressing the remaining gaps in the housing finance system to remedy the situation and save homeownership opportunities for all Americans. “

Freddie Mac (Federal Home Loan Mortgage Corp.) shares fell 33.6% at $ 1.48. Fannie Mae (Federal National Mortgage Association) shares fell 32.1% to $ 1.52.

The court ruled in two combined cases: Collins v. Yellen, 19-422, and Yellen v. Collins, 19-563.

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Associated Press writer Josh Boak and business editor Paul Harloff contributed to this report.

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