Shakeup at the FHFA

Eakinomics: Shakeup at the FHFA Yesterday the Supreme Court (SCOTUS) ruled in Collins et al. v. Yellen, Secretary of the Treasury, et al. Recall that the Housing and Economic Recovery Act of 2008 (HERA) created the Federal Housing Finance Agency (FHFA) and structured it as an independent agency headed by a single director who was removable by the president only “for cause.” In the midst of the financial crisis, the FHFA put Fannie Mae and Freddie Mac into conservatorship and negotiated agreements for the government-sponsored enterprises (GSEs) with the Department of Treasury. The deal was that Treasury would backstop the mortgage giants and, ultimately, that the GSEs would make quarterly payments consisting of their entire net worth. This became known as the “net worth sweep.” Some GSE investors sued (“Collins et al.”), arguing that this agreement was an overreach in an attempt to get access to GSE earnings. It its decision, SCOTUS made two important rulings. (This is the short version. Thomas Wade has the full blow by blow here.) The good news for the FHFA was that it ruled the net worth sweep was legal and within the authorities granted by HERA. The bad news was that SCOTUS ruled the structure of the FHFA unconstitutional and that the director could be removed by the president without cause. The latter was not a big surprise, as SCOTUS had reached the same conclusion with a near-identical structure at the Consumer Financial Protection Bureau. Time will tell how FHFA policy toward the GSEs backstop (or, indeed, GSE policy writ large) will evolve now that the decision is in. But it took no time for Twitter to report, “News: Mark Calabria, a Trump appointee, will be replaced as director of the FHFA, which oversees Fannie and Freddie: WH official says ‘the President is moving forward today to replace the current Director with an appointee who reflects the Administration’s values.’” So, goodbye Mr. Director. That is a real shame because FHFA Director Mark Calabria has single-handedly accomplished more GSE reform than any of his predecessors and the past half-dozen Congresses combined. Given the low probability of legislated reforms, the baton will be passed to President Biden’s appointee. Be on the alert for any backsliding on the reform front. For his part, Calabria quickly released a statement that said, in part: “I respect the Supreme Court’s decision and the authority of the President to remove the Federal Housing Finance Agency Director. It has been the honor of a lifetime to serve as Director of the Federal Housing Finance Agency alongside world-class staff.” The Biden Administration now has the ability to control all the levers of housing and housing finance policy. There remains a great deal of cleanup after the fallout of the pandemic, but it will be interesting to see how the larger vision evolves.