Supreme Court Case Constitutionality of FHFA s Structure
Supreme Court Case: Constitutionality of FHFA's Structure 2020 Supreme Court Preview
(en banc),
cert. granted, 2020 WL 3865248 (U.S. July 9, 2020).
(en banc),
cert. granted, 2020 WL 3865249 (U.S. July 9, 2020). Oral argument not yet scheduled.
Issues: (1) Whether the Federal Housing Finance Agency’s (FHFA) structure violates the separation of powers; and (2) whether the courts must set aside a final agency action that FHFA took when it was unconstitutionally structured and strike down the statutory provisions that make FHFA independent.
During the Great Recession, Congress passed the to prevent catastrophic effects on the national housing market and the economy. The Recovery Act created the Federal Housing Finance Agency (FHFA). . Congress made the FHFA an independent agency led by a director, appointed by the President subject to Senate confirmation, who could be removed only for cause. . The Recovery Act gave the FHFA broad powers to regulate , the publicly traded, government-sponsored enterprises (together, the Enterprises) that were established to ensure a reliable and affordable supply of mortgage funds throughout the United States. The Enterprises operate in the secondary mortgage market, primarily buying home loans from private lenders, bundling them into mortgage-backed securities, and selling them to private investors.
In 2008, the Enterprises suffered overwhelming losses because of the decline in home prices and an increase in defaults on home loans. To prevent their collapse, FHFA appointed itself as conservator of the Enterprises under authority granted by the Recovery Act. . Shortly afterward, using its power as conservator, the FHFA executed a funding agreement with the Treasury Department to keep the Enterprises afloat. This agreement was amended twice in attempts to assist the Enterprises, which continued to face repeated losses and liquidity problems.
Shareholders in Fannie and Freddie sued FHFA and Treasury under the Administrative Procedure Act (APA) to set aside the agreement on two grounds. First, they argued that the FHFA and Treasury had exceeded their powers under the Recovery Act by agreeing to the third and final amendment. Second, they claimed the FHFA’s structure is unconstitutional and the agency’s decisions are, accordingly, invalid. . The district court rejected both of these arguments and held that the Recovery Act barred the shareholders’ APA claims and that the structure of the FHFA is constitutional. See id. The shareholders appealed to a panel of the Fifth Circuit, which affirmed the dismissal of the APA claims, but held that the FHFA is unconstitutionally structured because it is insulated from presidential oversight. . All parties sought rehearing en banc, and a majority of the Fifth Circuit affirmed the holding that the FHFA’s structure is unconstitutional. See . While the parties’ cross-petitions for certiorari were pending, the Supreme Court held that the structure of the Consumer Financial Protection Bureau (CFPB) is unconstitutional and severed the “for cause” provision. See . The CFPB and the FHFA have similar structures, making it likely that the Court will also hold that the FHFA’s structure is unconstitutional.
The parties will likely devote significant briefing to the additional questions the Court will consider: severability and whether the agreement between the FHFA and Treasury should be set aside. The shareholders contend that the provision of the agreement at issue deprives them of all of their economic rights and that the Fifth Circuit, having concluded the agency is unconstitutionally structured, should have set aside that portion of the amendment. The government, on the other hand, argues that the structure of the FHFA did not prejudice shareholders because the Treasury Secretary, who is removable at will, also approved and signed the amendment. See . The government also points out that the shareholders seek to invalidate the portion of the agreement that they dislike, while preserving the portions relating to the capital contributions that helped keep the Enterprises solvent. Id.
On Shaky Foundation Constitutionality of FHFA' s Structure
iStockCollins v Mnuchin
No. 19-422,(en banc),
cert. granted, 2020 WL 3865248 (U.S. July 9, 2020).
Mnuchin v Collins
No. 19-563,(en banc),
cert. granted, 2020 WL 3865249 (U.S. July 9, 2020). Oral argument not yet scheduled.
Issues: (1) Whether the Federal Housing Finance Agency’s (FHFA) structure violates the separation of powers; and (2) whether the courts must set aside a final agency action that FHFA took when it was unconstitutionally structured and strike down the statutory provisions that make FHFA independent.
During the Great Recession, Congress passed the to prevent catastrophic effects on the national housing market and the economy. The Recovery Act created the Federal Housing Finance Agency (FHFA). . Congress made the FHFA an independent agency led by a director, appointed by the President subject to Senate confirmation, who could be removed only for cause. . The Recovery Act gave the FHFA broad powers to regulate , the publicly traded, government-sponsored enterprises (together, the Enterprises) that were established to ensure a reliable and affordable supply of mortgage funds throughout the United States. The Enterprises operate in the secondary mortgage market, primarily buying home loans from private lenders, bundling them into mortgage-backed securities, and selling them to private investors.
In 2008, the Enterprises suffered overwhelming losses because of the decline in home prices and an increase in defaults on home loans. To prevent their collapse, FHFA appointed itself as conservator of the Enterprises under authority granted by the Recovery Act. . Shortly afterward, using its power as conservator, the FHFA executed a funding agreement with the Treasury Department to keep the Enterprises afloat. This agreement was amended twice in attempts to assist the Enterprises, which continued to face repeated losses and liquidity problems.
Shareholders in Fannie and Freddie sued FHFA and Treasury under the Administrative Procedure Act (APA) to set aside the agreement on two grounds. First, they argued that the FHFA and Treasury had exceeded their powers under the Recovery Act by agreeing to the third and final amendment. Second, they claimed the FHFA’s structure is unconstitutional and the agency’s decisions are, accordingly, invalid. . The district court rejected both of these arguments and held that the Recovery Act barred the shareholders’ APA claims and that the structure of the FHFA is constitutional. See id. The shareholders appealed to a panel of the Fifth Circuit, which affirmed the dismissal of the APA claims, but held that the FHFA is unconstitutionally structured because it is insulated from presidential oversight. . All parties sought rehearing en banc, and a majority of the Fifth Circuit affirmed the holding that the FHFA’s structure is unconstitutional. See . While the parties’ cross-petitions for certiorari were pending, the Supreme Court held that the structure of the Consumer Financial Protection Bureau (CFPB) is unconstitutional and severed the “for cause” provision. See . The CFPB and the FHFA have similar structures, making it likely that the Court will also hold that the FHFA’s structure is unconstitutional.
The parties will likely devote significant briefing to the additional questions the Court will consider: severability and whether the agreement between the FHFA and Treasury should be set aside. The shareholders contend that the provision of the agreement at issue deprives them of all of their economic rights and that the Fifth Circuit, having concluded the agency is unconstitutionally structured, should have set aside that portion of the amendment. The government, on the other hand, argues that the structure of the FHFA did not prejudice shareholders because the Treasury Secretary, who is removable at will, also approved and signed the amendment. See . The government also points out that the shareholders seek to invalidate the portion of the agreement that they dislike, while preserving the portions relating to the capital contributions that helped keep the Enterprises solvent. Id.