Client Memo - Supreme Court Holds that FHFA Director is Removable at Will

On Wednesday, June 23, 2021, the Supreme Court held that the structure of the Federal Housing Finance Agency (“FHFA”)—led by a single director who may only be removed for cause—violates Constitutional separation of powers. Justice Samuel Alito, writing for a 7-2 court, stated that “the Constitution prohibits even ‘modest restrictions’ on the President’s power to remove the head of an agency with a single top officer.”

In reaching this decision, the Court relied heavily on its 2020 decision in Seila Law LLC v. Consumer Financial Protection Bureau, where it held that Congress could not limit the President’s power to remove the Director of the Consumer Financial Protection Bureau (CFPB). Like the FHFA, the CFPB is an agency led by a single director. Although the Court noted several differences between these agencies, it stated that such differences were not material in determining whether Congress may limit the President’s power to remove its head.

Although the Court held the structure of the FHFA unconstitutional, the decision did not invalidate any policies or rulemaking enacted by Director Calabria or his predecessors. It will require future court challenges to determine whether specific FHFA actions are unconstitutional.

Following the decision, FHFA Director Mark Calabria resigned. Calabria had been appointed FHFA Director under President Trump. Following Calabria’s resignation, President Biden appointed Sandra Thompson, FHFA’s deputy director of Housing Mission and Goals, as acting director. Biden has yet to announce his nominee to replace Calabria.

Calabria had advocated for an end to the FHFA conservatorship of Fannie Mae and Freddie Mac (the “GSEs”) and a return to private control, a position opposed by several elected Democratic officials. Such a return to private control therefore now appears less likely to occur under the Biden administration and any new director ultimately confirmed by the Senate.

Under Calabria, the FHFA took several actions under its Preferred Stock Purchase Agreements (“PSPAs”) with the GSEs that have been viewed unfavorably by the mortgage industry, including the 50bps mortgage refinance fee and limits on the purchase of second home and investment loans. There is hope within the industry that an FHFA led by a Biden appointee will seek to ease the disruptions caused by these actions, although any revisions to the PSPAs are expected to take several months.

We will update you with any further developments as they occur. If you have questions regarding the contents of this alert, please let us know.

If you have questions regarding the contents of this alert, please let us know.

Allan Polunsky at Allan.Polunsky@mortgagelaw.com

Jay Beitel at Jay.Beitel@mortgagelaw.com

Marty Green at Marty.Green@mortgagelaw.com

Lauren Polunsky Dreszer at Lauren.Polunsky@mortgagelaw.com

Peter Idziak at Peter.Idziak@mortgagelaw.com

Claire Barber at Claire.Barber@mortgagelaw.com

Andrew Duane at Andrew.Duane@mortgagelaw.com

Tye McWhorter at Tye.McWhorter@mortgagelaw.com

Cody Beitel at Cody.Beitel@mortgagelaw.com

Doug Foster1 at Doug.Foster@mortgagelaw.com

1 Doug Foster is a non-lawyer and is not admitted to practice law in any state.