On Wednesday morning the Supreme
Court ruled that the statutory restrictions on the president’s ability to remove
the chairman of the Federal Housing Finance Agency (FHFA) violates the Constitution’s
separation of powers. Within hours the White House announced it would be
replacing Mark Calabria who currently holds that position.
The decision, in a case now known as
Collins v Yellen, was similar to Seila Law v The Consumer Financial Protection
Bureau (CFPB) which was decided last year in favor of the plaintiffs. Both FHFA
and CFPB were created during the housing crisis and had similar independent
structures, each headed by a single chairperson for a five-year term. Neither
chairperson could be removed from office except for cause.
The Collins case, however, had an
additional component. The suit was brought by shareholders of GSE stock who contended
that the 2012 revisions to a 2008 agreement between the GSEs (Fannie Mae and
Freddie Mac) and the U.S. Treasury were invalid due to the unconstitutional structure
of the agency.
The original Preferred Senior
Stock Purchase Agreements (PSPA) set terms for a
massive infusion of capital from Treasury at the time the GSEs were put into conservatorship
with FHFA as conservator. That agreement required the GSEs to pay a percentage
dividend to Treasury each quarter based on indebtedness and regardless of their
financial condition. The 2012 amendments changed that dividend to a net sweep
of any quarterly profits. Shareholders also maintained that these amendments
were made just as the GSEs were approaching profitability and were intended to bar
them from building capital. The stockholders said the amendments have led to a
$124 billion windfall for Treasury.
In an opinion written by Justice
Samuel Alito the court, in a 7-2 ruling, found the president did have the power
to remove the director because “the president’s removal power serves important
purposes regardless of whether the agency in question affects ordinary
Americans by directly regulating them or by taking actions that have a profound
but indirect effect on their lives.” However, it did not grant relief to the
plaintiffs, saying that in agreeing to the amendments, FHFA did not exceed its
authority under the Housing and Economic Recovery Act (HERA) of 2008 as a
conservator of the GSEs.
isn’t known what effect the removal of Calabria will have on another set of
PSPA amendments signed this January. Among the more controversial, a ceiling on
the number of investor and second home mortgages the GSEs can acquire as well
as a limit on risk layering. Earlier this year, the Urban Institute argued that investor mortgages were a useful and profitable part of the agencies’ portfolio. In addition to the most basic argument that more credit availability for investors means better affordability for renters, UI also pointed out that the profitability of investor loans allows the agencies’ to cross subsidize other affordable housing programs.
One Washington source said Sandra Thompson, current FHFA
Deputy Director, Division of Housing Mission and Goals (DHMG) is likely to be
named acting director until a permanent director is confirmed.
Bob Broeksmit, president and CEO of the Mortgage Bankers
Association (MBA) issued the following statement without mentioning Calabria by
“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.”
Calabria has already released a statement. Here’s a highlight that captures the spirit of the statement: “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.”
Notably, the original draft date on FHFA’s website was yesterday, June 22nd.