The Supreme Court hears arguments on the structure of the FHFA
The Supreme Court heard arguments on Wednesday over whether it should find the structure of the Federal Housing Finance Agency unconstitutional and cancel an agreement he made with the Treasury Department on the income of the companies he supervises, Fannie Mae and Freddie mac.
The plaintiffs in the case, Collins v. Mnuchin, filed a $ 124 billion claim against the federal government, essentially arguing that the FHFA, which was created in the aftermath of the 2008 real estate crash, acted illegally when it took several steps to prevent Fannie and Freddie from collapse.
The case has the potential to be the most profound legal decision to affect the mortgage market in more than a decade. Together, Fannie Mae and Freddie Mac guarantee more than half of the US $ 11 trillion mortgage loans.
The FHFA, as curator, concluded a agreement with the Treasury Department in 2008 which stipulated that the Treasury Department would provide up to $ 100 billion in funding to Fannie Mae and Freddie Mac in return for compensation consisting of stocks, dividends tied to the amount of money invested in companies and a priority on other shareholders to recover their investment.
The deal was amended in 2012, forcing Fannie and Freddie to pay dividends indexed to corporate equity (as opposed to the size of the Treasury Department’s investment).
The shareholders, led by principal plaintiff Patrick Collins, argue in Supreme Court that the Tory knew Fannie Mae and Freddie Mac “were on the verge of making huge profits, well beyond the dividends owed” under the current system, SCOTUSBlog reported.
The case also has great potential implications for the structure – perhaps even the existence – of the FHFA, which could be declared void and all previous agency actions invalidated.
The plaintiffs also argued that the FHFA is unconstitutional because it requires the president to be able to fire the director of the agency “only for just cause”.
“The FHFA’s broad demands for unlimited and normless discretion are a powerful example of the wisdom of the drafters in refusing to hand over executive power to a fourth branch of government that is not accountable,” said David Thompson, shareholder lawyer.
The federal government has agreed that the structure of the FHFA is unconstitutional, but in argument on Wednesday, he said the 2012 deal should stand since it was approved by an interim director and the treasury secretary, both of whom can be sacked at will by the president.
The court ruled 5-4 in a similar case in June on the structure of the Consumer Financial Protection Bureau, which was created by the Dodd-Frank Wall Street Act of 2010 on reform and consumer protection. The court also overturned the CFPB director’s protection against the president’s dismissal, but did not abolish the monitoring agency.
Aaron Nielson, a law professor who has advocated in defense of the structure of the FHFA, said the agency should not be held to the same standards as the CFPB because it does not regulate private companies and has less power. discretionary than the office, according to La Colline.
“The tribunal is going to have to answer some very difficult questions, especially on the constitutional basis of all this,” he said. “Fortunately, the court does not need to answer any of them. Because an interim director doesn’t have 10 years to start.
According to The Hill, Wednesday’s arguments focused more on how the court should rule on the 2012 contract and less on the structure of the agency itself.