The Supreme Court ruled Wednesday that Congress again went too far when it tried to ensure the independence of a federal agency during the response to the 2008 global financial crisis.
Congress created the Federal Housing Finance Agency to oversee the housing finance system and bailout of the mortgage market and gave it a single director who serves for five years and could only be removed by the president “for cause.”
The FHFA’s first action was to put Fannie Mae and Freddie Mac into government conservatorship since the congressionally chartered mortgage giants backed about $5 trillion in home loans at the time and had suffered losses related to the mortgage crisis. The challenge at the Supreme Court spun off of one of the agency’s subsequent moves in that economic saga.
In a majority opinion written by Justice Samuel A. Alito Jr., the court found the FHFA’s structure is unconstitutional because it restricts presidents’ power to remove officers who disobey commands, are negligent, have different views on policy or come from a competing political party who are against their agenda.
President Joe Biden will move quickly to take advantage of the decision and replace the current head of the FHFA, Mark Calabria, who was appointed by former President Donald Trump, a White House official said.
It is critical that the agency implement the Biden administration’s housing policies, the official said, and “the President is moving forward today to replace the current Director with an appointee who reflects the Administration’s values.”
The Supreme Court decision was not unexpected. The court last year decided that the single-director structure of the Consumer Financial Protection Bureau, also created in response to the financial crisis, overstepped the Constitution’s separation of powers. The court on Wednesday leaned on that same reasoning.
The decision sends the case back to a lower court for next steps on claims brought by shareholders who contend the FHFA’s actions in a Treasury Department bailout of Fannie and Freddie gave the government profits that were rightfully theirs.
Justice Neil M. Gorsuch, in a separate opinion that concurred with most of the majority opinion, pointed out that new presidents always inherit thousands of executive branch officials whom they did not select.
“It is the power to supervise — and, if need be, remove — subordinate officials that allows a new President to shape his administration and respond to the electoral will that propelled him to office,” Gorsuch wrote.
Justice Sonia Sotomayor, in a partial dissent joined by Justice Stephen G. Breyer, said she would afford Congress the power to make officers like the FHFA director independent from “unfettered Presidential removal.”
“The Court has proved far too eager in recent years to insert itself into questions of agency structure best left to Congress,” Sotomayor wrote. “In striking down the independence of the FHFA Director, the Court reaches further than ever before, refusing tenure protections to an Agency head who neither wields significant executive power nor regulates private individuals.”
Alito contested that in the majority opinion joined in full by Chief Justice John G. Roberts Jr. and Justices Clarence Thomas, Brett M. Kavanaugh and Amy Coney Barrett, writing that an agency can affect ordinary Americans 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,” Alito wrote.