The White House on Wednesday ousted Mark Calabria as director of the Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, potentially delaying efforts to recapitalize the two companies and release them from conservatorship.
The move came just hours after the Supreme Court ruled in Collins v. Yellen that the FHFA’s single-director leadership structure was unconstitutional, opening the door for President Joe Biden to fire Calabria, who was installed as director of the FHFA by the Trump administration.
Sandra Thompson, who has served as deputy director of the agency’s division of housing mission and goals since 2013, will serve as acting director of the FHFA.
The question now is what will happen to Calabria’s plans to overhaul Fannie and Freddie, which back about half of the $11 trillion U.S. residential mortgage market. Calabria said on Wednesday that “much work remains” to revamp the companies and get them back on solid financial footing.
Previously, the FHFA’s structure was such that the president could only remove its director for cause, but the Supreme Court’s decision makes it so the president can fire the director at will.
The decision was expected, as the court had ruled last year that the single-director structure of the Consumer Financial Protection Bureau (CFPB) was similarly unconstitutional.
The court also unanimously dismissed a claim by Fannie and Freddie shareholders who sued the government to invalidate the 2012 decision to send the companies’ profits directly to Treasury – the so-called “third amendment sweep.”
The high court remanded the case back to the 5th Circuit Court of Appeals for further proceedings to “determine what remedy, if any, the shareholders are entitled to receive on their constitutional claim.”
“I am honored that President Biden has designated me to be acting director of the FHFA until a permanent director is confirmed,” Thompson says in a statement. “I look forward to serving in this role at this crucial time. As a longtime regulator, I am committed to making sure our nation’s housing finance systems and our regulated entities operate in a safe and sound manner. We can accomplish this, and at the same time have a laser focus on mission and community investment. There is a widespread lack of affordable housing and access to credit, especially in communities of color. It is FHFA’s duty through our regulated entities to ensure that all Americans have equal access to safe, decent, and affordable housing.”
In a separate statement, Bob Broeksmit, CMB, President and CEO of the Mortgage Bankers Association (MBA), says Thompson’s “experience, expertise, and deep knowledge of housing finance will serve her well in this role.”
“We fully agree with the acting director’s stated goals of operating the regulated entities in a safe and sound manner while supporting their missions to increase the availability of affordable housing and extend access to credit,” Broeksmit says.
“[The] MBA has worked with the acting director extensively in the past and looks forward to continuing this relationship as she addresses a variety of housing finance issues, including the conservatorship of Fannie Mae and Freddie Mac,” Broeksmit adds. “This will include protecting taxpayers, serving the GSEs’ affordable housing mission, and ensuring a stable secondary mortgage market for a wide variety of single-family and multifamily lenders, regardless of size or business model.”
Jenny Lee, a partner at the law firm Arent Fox in its complex commercial litigation group and a former CFPB enforcement attorney, says the SCOTUS ruling “is one more example in a developing trajectory, including a similar ruling by the court involving the CFPB.”
“In both cases [the FHFA case and the CFPB case], the constitutionality rulings relate to businesses or agencies who challenge or defend the validity of government transactions,” Lee says. “In both cases, the challenging party sought to set aside agency enforcement activity, or government agreements.”
“In the FHFA ruling, the court did not rescind or set aside a prior government agreement on the grounds that the structure of the agency was unconstitutionality,” Lee says. “Same deal with the CFPB in the Seila Law case, in which the Supreme Court held the CFPB was unconstitutional, but did not provide a remedy that canceled out the CFPB action that the petitioner was trying to nullify.
”For both case examples, what they had in common is that even though the Supreme Court declared the agencies’ structure was constitutionally defective, it was then left to others—lower courts, other litigants, or the administration—to flesh out the practical effect or remedy,” Lee adds. ”Here, while the stage is now set for the Biden administration and the lower court on remand to act, the four corners of the SCOTUS ruling itself meant no change directly to the work of those agencies.”