Supreme Court: Mortgage Supervision Structure Unconstitutional

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WASHINGTON (AP). On Wednesday, the Supreme Court ruled that the structure of the agency, which oversees mortgage giants Fannie Mae and Freddie Mac, violated the separation of powers principles enshrined in the Constitution.

The judges sent the case involving the Federal Housing Finance Agency, overseen by Fannie Mae and Freddie Mac and created during the 2008 financial crisis, back to a lower court for additional proceedings.

Shareholders in the two companies argued that the FHFA’s structure was unconstitutional and that the judges should overturn a 2012 agreement that paid the companies billions to the government. The money is compensation for the taxpayer aid that Fannie Mae and Freddie Mac received after the 2008 financial crisis.

The judges did not go that far in their decision.

“The FHFA structure 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,” Judge Samuel Alito wrote to a majority of the court.

The case is much like what the judges decided last year with the involvement of the FHFA 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.

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

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