Federal Housing Finance Agency

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The Federal Housing Finance Agency (FHFA) is an independent government agency that regulates Fannie Mae and Freddie Mac, the government-sponsored entities that deal in mortgages, and the Federal Home Loan Bank System (FHLBank).^[1] It was formed in the aftermath of the 2008 recession.^[1]

In July 2021, the United States Supreme Court ruled that the structure of the FHFA was unconstitutional because it was led by a single director who was only removable by the president for cause.^[2] Click here to read more.

Background: Federal Housing Finance Board

Congress created Federal Housing Finance Board (1989)

In 1989, Congress created the Federal Housing Finance Board (FHFB) as part of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).^[3] FIRREA gave the FHFB oversight and rulemaking authority over the 11 government-sponsored banks that dealt in mortgages and other housing finance matters; these banks were known as Federal Home Loan Banks.^[3] Congress aimed to promote "a safe and stable system of affordable housing finance" through the FHFB.^[4]

Federal Housing Finance Agency (FHFA) replaced FHFB (July 2008)

During the 2008 recession, Congress passed the Housing and Economic Recovery Act (HERA) of 2008.^[3] The law replaced the FHFB, the Office of Federal Housing Enterprise Oversight (OFHEO), the agency tasked with overseeing Fannie Mae and Freddie Mac, and the government-sponsored enterprise (GSE) team at the U.S. Department of Housing and Urban Development (HUD).^[3] The responsibilities of those agencies were transferred to the new Federal Housing Finance Authority (FHFA).^[5][3][6] The 2008 law gave the FHFA authority similar to other agencies that monitor safety and soundness in certain markets and set goals for housing different populations.^[3] According to its website, the FHFA aims to ensure "that the housing government sponsored enterprises operate in a safe and sound manner so that they serve as a reliable source of liquidity and funding for housing finance and community investment."^[1]

Fannie Mae and Freddie Mac put in conservatorship (September 2008)

On September 7, 2008, FHFA Director James B. Lockhart announced that the FHFA would place Fannie Mae and Freddie Mac into conservatorship and take control of them.^[7] Lockhart said that the "goal of these actions is to help restore confidence in Fannie Mae and Freddie Mac, enhance their capacity to fulfill their mission, and mitigate the systemic risk that has contributed directly to the instability in the current market."^[7] He added that he believed conservatorship "will give the Enterprises the time to restore the balances between safety and soundness and provide affordable housing and stability and liquidity to the mortgage markets."^[7]

Structure of the Federal Housing Finance Agency

Administrative State
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Mission

According to its website, the FHFA has the following mission:^[1]

Leadership

The FHFA is headed by a director, who is appointed by the president with the advice and consent of the United States Senate. The FHFA Office of Inspector General is responsible for independent audits, evaluations, investigations, surveys, and risk assessments of FHFA’s operations.^[9]

In June 2022, Sandra L. Thompson became director of the FHFA.^[9] Below is a list of FHFA senior staff as of February 2024:^[9]

Authority and responsibilities

The FHFA is responsible for the regulation of Fannie Mae, Freddie Mac, and the 11 Federal Home Loan Banks. Under the authority granted by the Housing and Economic Recovery Act of 2008, the FHFA is authorized to do the following:^[6][10]

• Ensure that government-sponsored entities (GSE) operate “in a safe and sound manner, including maintenance of adequate capital and internal controls"
• Establish criteria for investments that GSEs may hold in their portfolios
• Establish risk-based capital requirements for GSEs
• Require GSEs to increase their capital
• Review and approve GSE executive compensation
• Review and approve any new products that Fannie Mae or Freddie Mac propose to offer
• Establish affordable housing goals for Fannie Mae and Freddie Mac
• Enforce compliance with housing goals

On September 7, 2008, former Director James Lockhart placed Fannie Mae and Freddie Mac under the conservatorship of the FHFA, giving the FHFA direct control over the operations of these two entities. At a hearing in September 2018, former House Financial Services Committee Chair Jeb Hensarling (R.-Texas) argued that the FHFA director was unelected and unaccountable while wielding omnipotent powers.^[11] As of September 2019, conservatorship of these entities was set to expire at the director's discretion.^[12][13]

Challenges to Federal Housing Finance Agency structure

See also: Federal courts hold CFPB structure unconstitutional

U.S. Supreme Court rules FHFA structure unconstitutional (2021)

In Collins v. Yellen, the United States Supreme Court on June 23, 2021, held that restrictions on the president's authority to remove the director of the FHFA violated the separation of powers. In its decision, the court also rejected the argument that the FHFA actions at issue in the case went beyond the agency’s legal authority.^[2]

Justice Samuel Alito delivered the opinion of the court, writing that "the Constitution prohibits even 'modest restrictions' on the President's power to remove the head of an agency with a single top officer."^[2]

The court’s decision to hold the structure of the FHFA unconstitutional articulated limits on the types of administrative agencies Congress may create and reaffirmed the court's 2020 decision in Seila Law v. Consumer Financial Protection Bureau (CFPB), which held that the CFPB director’s removal protections unconstitutionally insulated the agency from presidential control.^[2]

5th Circuit panel holds structure of the FHFA is unconstitutional (July 2018)

On July 16, 2018, a panel of the United States Court of Appeals for the 5th Circuit held in Collins v. Mnuchin that the structure of the FHFA is unconstitutional because it is led by a single director who is only removable by the president for cause. The panel consisted of Chief Judge Carl Stewart and Judges Catharina Haynes and Don Willett.^[14][15]

In Collins v. Mnuchin, Fannie Mae and Freddie Mac shareholders presented the following complaints:

• A 2012 dividend agreement between the FHFA and the U.S. Department of the Treasury, which rendered their shares valueless, exceeded the statutory authority of the FHFA and the Treasury Department.
• The FHFA' structure violates the U.S. Constitution because it is headed by a single director who is only removable for cause and it does not depend on congressional appropriations.^[14][15]

A district court dismissed the shareholders’ complaints. In a split per curiam decision, however, a Fifth Circuit panel reversed the decision and held that the structure of the FHFA violates the separation of powers because the agency’s director is too insulated from presidential control.^[16] The panel opinion stated that "Congress insulated the FHFA to the point where the Executive Branch cannot control the FHFA or hold it accountable," which the court said violated precedent set by the U.S. Supreme Court.^[16]

The court struck the language from HERA that only allowed the president to dismiss the FHFA director for good cause.^[16] Though the panel found the FHFA structure unconstitutional, it upheld the statutory authority of FHFA and Treasury Department to enter into the dividend agreement.^[14][16]

Both the plaintiff shareholders and the FHFA filed petitions for rehearing en banc—before the full Fifth Circuit—in August 2018. The court heard oral argument en banc on January 23, 2019.^[17][18]

FHFA changes stance; asks 5th Circuit to uphold statute requiring the president to give cause before removing agency director (July 2019)

See also: An overview of arguments for and against strong presidential appointment and removal powers

In a July 9, 2019, letter, the Federal Housing Finance Agency (FHFA) asked the Fifth Circuit Court of Appeals to uphold the statute that requires the president to give cause before removing the director of the agency.^[19] The agency’s interim director, Joseph Otting, had decided not to defend the structure of the agency, but its new director, Mark A. Calabria argued that the court should rule that the U.S. Constitution allows Congress to create agencies with single directors insulated from presidential control.^[19] The FHFA told the court that Calabria had reconsidered the constitutionality of the agency’s structure.^[19]

Fifth Circuit rules FHFA structure unconstitutional (September 2019)

On September 6, 2019, the Fifth Circuit Court of Appeals ruled 9-7 that the structure of the FHFA is unconstitutional.^[20] The Fifth Circuit sent the case back to the district court to decide whether the FHFA had the authority to require Fannie Mae and Freddie Mac to give so much of their net worth to the U.S. Treasury Department every quarter.^[20] The court held that the FHFA for-cause removal structure “limits the President’s removal power and does not fit within the recognized exception for independent agencies.”^[20] The U.S Supreme Court established that exception for agencies led by multi-member boards in the 1935 case Humphrey's Executor v. United States. The Fifth Circuit held that court precedent does not support removal protections for agencies led by single directors like the FHFA.^[20]

The court also held that “an independent agency with a single Director removable only ‘for cause,’ violates the separation of powers.”^[20] In this context, separation of powers refers to the three divided branches of the United States federal government: legislative, executive, and judicial. Under a strict reading of the U.S. Constitution, each branch has distinct powers and responsibilities and Congress is not allowed to create independent agencies that blend those powers.

The majority opinion cited the 2010 U.S. Supreme Court case Free Enterprise Fund v. PCAOB to support severing the removal protections from the FHFA statute and leaving the rest of the law in place.^[20]

See also

• Financial Stability Oversight Council
• Consumer Financial Protection Bureau
• Independent federal agency
• Appointment and removal power (administrative state)
• Appointment confirmation process

External links

• Federal Housing Finance Agency

Footnotes

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United States Terms Adjudication (administrative state) • Administrative judge • Administrative law • Administrative law judge • Administrative state • Arbitrary-or-capricious test • Auer deference • Barrier to entry • Bootleggers and Baptists • Chevron deference (doctrine) • Civil servant • Civil service • Code of Federal Regulations • Codify (administrative state) • Comment period • Compliance costs • Congressional Record • Coordination (administrative state) • Deference (administrative state) • Direct and indirect costs (administrative state) • Enabling statute • Ex parte communication (administrative state) • Executive agency • Federal law • Federal Register • Federalism • Final rule • Formal rulemaking • Formalism (law) • Functionalism (law) • Guidance (administrative state) • Hybrid rulemaking • Incorporation by reference • Independent federal agency • Informal rulemaking • Joint resolution of disapproval (administrative state) • Major rule • Negotiated rulemaking • Nondelegation doctrine • OIRA prompt letter • Organic statute • Pragmatism (law) • Precautionary principle • Promulgate • Proposed rule • Publication rulemaking • Regulatory budget • Regulatory capture • Regulatory dark matter • Regulatory impact analysis • Regulatory policy officer • Regulatory reform officer • Regulatory review • Rent seeking • Retrospective regulatory review • Risk assessment (administrative state) • Rulemaking • Separation of powers • Significant regulatory action • Skidmore deference • Statutory authority • Substantive law and procedural law • Sue and settle • Sunset provision • Unified Agenda of Federal Regulatory and Deregulatory Actions • United States Code • United States Statutes at Large Bibliography "Administrative Law - The 20th Century Bequeaths an 'Illegitimate Exotic' in Full and Terrifying Flower" by Stephen P. Dresch (2000) "Confronting the Administrative Threat" by Philip Hamburger and Tony Mills (2017) "Constitutionalism after the New Deal" by Cass R. Sunstein (1987) Federalist No. 23 by Alexander Hamilton (1787) "From Administrative State to Constitutional Government" by Joseph Postell (2012) "Interring the Nondelegation Doctrine" by Eric A. Posner and Adrian Vermeule (2002) "Rulemaking as Legislating" by Kathryn Watts (2015) "The Checks & Balances of the Regulatory State" by Paul R. Verkuil (2016) "The Myth of the Nondelegation Doctrine" by Keith E. Whittington and Jason Iuliano (2017) "The Progressive Origins of the Administrative State: Wilson, Goodnow, and Landis" by Ronald J. Pestritto (2007) "The Rise and Rise of the Administrative State" by Gary Lawson (1994) "The Study of Administration" by Woodrow Wilson (1887) "The Threat to Liberty" by Steven F. Hayward (2017) "Why the Modern Administrative State Is Inconsistent with the Rule of Law" by Richard A. Epstein (2008) Agencies Administrative Conference of the United States • United States Civil Service Commission • U.S. Government Accountability Office • U.S. Office of Information and Regulatory Affairs • U.S. Office of Management and Budget