The leadership structure for the Federal Housing Finance Agency (FHFA), which was created in 2008 to oversee Fannie Mae and Freddie Mac, is under fire from a Texas appeals court. The court, which is comprised of a three-judge panel, recently ruled that the FHFA “defies the Constitution because it does not answer to the president.” The executive branch cannot remove the single leader of the FHFA unless the president can demonstrate “cause,” meaning that the removal can only be a consequence of breach, malfeasance, or other inappropriate action on the part of the FHFA director.
Critics of FHFA’s infrastructure complain that not only is it insulated from executive accountability, but that it also is not bipartisan. It does not have a bipartisan commission, nor does it receive funding from Congress. The appeals court panel ruled that the law must be changed to permit the president to remove the FHFA director at will.
What Brought This Ruling About
The federal appeals court became involved due to a lawsuit brought on behalf of shareholders of Fannie Mae and Freddie Mac against the FHFA. The shareholders sued in response to the U.S. Treasury’s receipt of nearly all of the government-sponsored entities (GSEs) profits. Although the panel agreed that the leadership structure of Fannie Mae and Freddie Mac is unconstitutional, they did not agree that the profits should have been distributed differently.
So far, the FHFA has not issued an official comment.
What Happens Next?
If the ruling stands, current FHFA director Mel Wall, an appointee of former president Obama, will likely be removed. The current administration has been critical of his performance, as the previous administration was of the appointee in place when president Obama took office, Ed DeMarco.
If the FHFA ruling stands, then the CFPB will likely face restructuring as well. This bureau is also lead by a single director and not governed or funded in a bipartisan way. This will certainly affect the way that credit, mortgages, and loans are made across the country.