Supreme Court: Mortgage watchdog structure unconstitutional | Economic news

By JESSICA GRESKO, Associated Press

WASHINGTON (AP) – The Supreme Court on Wednesday gave the president more power to fire the head of the agency that oversees mortgage giants Fannie Mae and Freddie Mac, ruling that the agency’s structure violates the principles of separation of powers in the Constitution.

Writing for the majority of the court, Judge Samuel Alito said that, as judges explained in a case last year, “the Constitution prohibits even” modest restrictions “on the president’s power to remove the chief of ‘an agency with a single top executive. “

The decision paves the way for 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 press secretary Jen Psaki told reporters after the Supreme Court ruling that the president will appoint a new FHFA chief, but she did not give a timeline.

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The judges referred the case concerning the FHFA, created during the 2008 financial crisis, to a lower court for further proceedings.

Shareholders in both companies had argued that the FHFA’s structure was unconstitutional and that judges should overturn a 2012 deal under which the companies paid billions to the government. This money is compensation for the taxpayer bailout that Fannie Mae and Freddie Mac received following the 2008 financial crisis. The 2012 deal has since been replaced by a new one.

The judges refused to do what shareholders demanded and quashed the entire 2012 deal.

The “structure of the FHFA violates the separation of powers, and we refer further proceedings to determine what appeal, if any, shareholders are entitled to receive over their constitutional claim,” Alito wrote.

The judges noted that the deal the shareholders were complaining about was made by an acting director of the agency, who could be revoked by the president for any reason. The judges said the finding “goes against the shareholders’ argument to quash” the deal in its entirety.

The case is in many ways similar to the one judges ruled last year involving the FHFA’s associated 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 case involving the office, the court overturned restrictions imposed by Congress, according to which the president could only fire the office manager for “inefficiency, negligence in his duties or malfeasance in the performance of his duties.”

Like the head of the office, the director of the FHFA is appointed by the president and confirmed by the Senate for a five-year term. In the case of the FHFA, the director was revocable only by the president “for a valid reason”.

In a statement released after Calabria’s decision, the current FHFA director called the post a lifelong honor and said he respects the president’s decision and authority. He added that while the FHFA acted “quickly and effectively to relieve landlords and tenants affected by the COVID-19 pandemic”, the problems remained and he wished his successor “all the best to correct the remaining flaws. housing finance system to preserve homeownership opportunities for all Americans.

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

The two consolidated cases in which the court ruled are Collins v. Yellen, 19-422, and Yellen v. Collins, 19-563.

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

Copyright 2021 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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