Biden ousts housing finance chief after U.S. Supreme Court ruling
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[June 24, 2021]
By Lawrence Hurley
WASHINGTON (Reuters) - President Joe Biden
on Wednesday fired the head of the Federal Housing Finance Agency who
had been appointed by his predecessor Donald Trump, acting hours after
the U.S. Supreme Court expanded presidential powers to make it easier to
oust the agency chief.
The court also nixed separate claims brought by shareholders of Fannie
Mae and Freddie Mac - both overseen by the FHFA - challenging a 2012
agreement between the agency and the Treasury Department arising from
the government's rescue of the mortgage finance firms following the 2008
financial crisis.
The justices, in the 7-2 decision, upheld part of a lower court's ruling
that the FHFA's structure was unconstitutional under the separation of
powers doctrine that distributes authority among the government's three
branches because its lone director was insufficiently accountable to the
president.
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The justices also voted unanimously to block separate claims brought by
the shareholders challenging the 2012 agreement.
Biden, a Democrat, quickly removed agency chief Mark Calabria, who had
been appointed by the Republican Trump. Calabria was confirmed by the
Senate in 2019 to serve a five-year term.
Calabria said in a statement he respects the Supreme Court ruling and
Biden's authority to remove him.
Late on Wednesday, FHFA announced that Biden had appointed Sandra
Thompson as the agency's acting director. Thompson has served as the
agency's deputy director of the Division of Housing Mission and Goals
since 2013, FHFA said.
A White House official, speaking on condition of anonymity prior to the
Thompson announcement, said Biden would name a replacement "who reflects
the administration's values."
The ruling was a body blow to the shareholders in their long-running
battle contesting the government's total claim on the two companies'
profits despite winning on the constitutional issue. It likely also
means that Fannie and Freddie will not be leaving their government
conservatorship anytime soon.
The justices, in a ruling authored by Justice Samuel Alito, sent the
case back to lower courts to consider whether the shareholders can
obtain compensation based on their constitutional claims. The court
noted that the shareholders could not seek to void the 2012 agreement
altogether.
Alito cast doubt on the notion that any subsequent FHFA decisions
implementing the 2012 agreement could be cast aside, saying "there is no
reason to regard any of the actions taken by the FHFA ... as void."
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The Supreme Court building is seen in Washington, U.S., June 21,
2021. REUTERS/Sarah Silbiger
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The U.S. government in 2008 seized Fannie and
Freddie, private enterprises established by Congress, at the height
of the financial crisis as they teetered on the brink of insolvency.
The government took a majority stake in each and they were placed
under the supervision of the FHFA, which was created at the same
time.
Wednesday's ruling triggered the largest sell off in Fannie Mae and
Freddie Mac in years, with their common shares each sliding by more
than 30%. Their preferred shares, owned largely by hedge funds that
had bet that the litigation would go their way and potentially force
the government to release the companies from the conservatorship
under which they have operated, fell by more than twice that margin.
Fannie's preferred "S" series and Freddie's preferred "Z" series -
among the last private capital raisings by both before their
government takeover - both sank more than 60%, their largest one-day
losses since the day after they were seized by the government.
The FHFA is led by a single director who until Wednesday's ruling
could be removed by the president only "for cause."
The Supreme Court ruling, in line with a similar 2020 decision
concerning the Consumer Financial Protection Bureau (CFPB), gives
presidents the authority to remove the agency's chief at any time.
The court in the CFPB case ruled that the agency's single-director
structure was unconstitutional, deciding that a president should be
able to fire its director at any time.
The 2012 agreement, sometimes referred to as the "net worth sweep,"
eliminated dividend payouts to various shareholders and required
Fannie and Freddie to pay the U.S. Treasury an amount equal to their
quarterly net worth each quarter, which now totals billions of
dollars.
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Fannie and Freddie shareholders Patrick Collins, Marcus Liotta and
William Hitchcock sued the FHFA and the Treasury Department in Texas
in 2016 arguing that the agreement exceeded FHFA's authority and
should be invalidated. Trump's administration appealed a 2019 ruling
by the New Orleans-based 5th U.S. Circuit Court of Appeals.
(Reporting by Lawrence Hurley; Additional reporting by Pete
Schroeder, Dan Burns and Steve Holland; Editing by Will Dunham and
Lincoln Feast.)
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