Supreme Court Rules FHFA Director ‘Removable at Will;’ Calabria Out
The Supreme Court on Wednesday ruled that the structure of the Federal Housing Finance Agency is unconstitutional, allowing the President to remove its director at will.
Shortly after the ruling, The Biden Administration removed Mark Calabria as FHFA Director, paving the way for the Administration to nominate a successor.
In its decision in Collins v. Yellen, the Court held that the FHFA Director is removable at will by the President before the expiration of his/her statutory five-year term, contrary to language in the 2008 Housing and Economic Recovery Act.
The majority relied on the Court’s 2020 decision in Seila Law LLC v. Consumer Financial Protection Bureau, which determined the structure of the Consumer Financial Protection Bureau, with a single director who could only be removed from office “for cause,” violates the Constitution’s separation of powers.
“The Recovery Act’s for-cause restriction on the President’s removal authority violates the separation of powers. Indeed, our decision last Term in Seila Law is all but dispositive,” Alito wrote in the majority opinion. “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. And there can be no question that the FHFA’s control over Fannie Mae and Freddie Mac can deeply impact the lives of millions of Americans by affecting their ability to buy and keep their homes.”
The majority opinion also noted the President “must be able to remove…those who have ‘different views of policy’” and “those who come ‘from a competing political party who is dead set against his agenda.”
Calabria, who was appointed in 2019 by then-President Donald Trump to serve a five-year term through 2024, was removed as FHFA Director within hours of the announcement. In a statement, Calabria said he respected the Supreme Court’s decision and the authority to remove the FHFA Director at will.
“During my tenure, FHFA has fulfilled its mission as the economy fluctuated record-low unemployment and a strong housing market, to a pandemic-triggered recession that spared house prices but contracted supply,” Calabria wrote. “FHFA has acted quickly and effectively to provide relief to homeowners and renters impacted by the COVID-19 pandemic, and to ensure Fannie Mae, Freddie Mac and the Federal Home Loan Bank System operate in a safe and sound manner, all while supporting historic growth in homeownership, especially among minority households.”
Mortgage Bankers Association President & CEO Robert Broeksmit, CMB, issued the following statement following the Court’s ruling:
“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.”
Broeksmit told MBA NewsLink that MBA expects FHFA to adopt more consistent policies.
“While Director Calabria advanced some initiatives that were top MBA priorities—most notably, leveling the playing field for all categories of MBA members—he also took actions that, however well-intended, were disruptive to the housing market, such as forcing Fannie and Freddie to implement policies that disrupted existing lender pipelines,” Broeksmit said.
Broeksmit cited the GSEs’ Adverse Market Refinance Fee, which imposed a 50-basis fee on conforming mortgages, ostensibly to account for the “additional risk” the GSEs undertook in taking on conforming loans during the COVID-19 pandemic. “The adverse fee incurred a very high cost on borrowers and did not give lenders enough time to clear their existing pipelines,” he said.
Additionally, Broeksmit cited how Calabria had the GSEs implement the PSPA caps, forcing lenders to scramble to come up with policies to deal with second homes and investment properties.
“For those reasons—and his very onerous capital rule and his rigid treatment of credit risk transfers—we look forward to President Biden appointing Mark’s successor,” Broeksmit said.
Broeksmit added he was not surprised at the speed in which the Administration removed Calabria. “Since our first meeting with the various transition teams, we’ve heard that Director Calabria did not have support from the Biden Administration,” he said.
Late Wednesday, the Administration announced FHFA Deputy Director Sandra Thompson as interim Director. Thompson has served at FHFA since March 2013; as Deputy Director, she oversaw FHFA’s housing and regulatory policy, financial analysis research and all mission activities for Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Prior to joining FHFA, she worked at the Federal Deposit Insurance Corp. for more than 23 years in a variety of leadership positions, including as Director of the FDIC’s Division of Risk Management Supervision.
As part of the ruling, the Court also dismissed statutory claims by a group of Fannie Mae investors that FHFA exceed its authority as conservator by adopting the Third Amendment to the Preferred Stock Purchase Agreements. The court found that language in the Recover Act sufficiently insulated FHFA from challenge for actions taken as conservator, nor did the “acting director” status of the FHFA Director at the time of the Third Amendment render it invalid. The Court did remand the case back to the lower court to see if the investors have any claims in light of its holding on constitutionality.