Opinion analysis

On Wednesday, for the shareholders of mortgage giants Fannie Mae and Freddie Mac, the Supreme Court was seeking to dissolve a 2012 lawsuit that required the two companies to transfer profits to the federal government. There was mainly bad news.Justice Unanimously agree A shareholder’s claim cannot continue. Although the court agreed with 7 votes to 2 that the structure of the federal agencies regulating Fannie Mae and Freddie Mac was at least partially unconstitutional, the court did not order the money to be returned to shareholders because of the constitutional flaw. Instead, the case is now returned to the lower court, which decides whether shareholders are entitled to any relief.

In addition to shareholder lawsuits, the decision is the second time in the past year that the court rejected Congress’s efforts to restrict the president’s ability to remove heads of federal agencies. In June last year, the court lifted the restriction on the removal of the director of the Consumer Financial Protection Bureau.The decision on Wednesday made the same decision to the Director of the Federal Housing Finance Agency, and A White House official said President Joe Biden intends to “appoint a person who reflects the values ??of the government” within one hour of the ruling by Trump’s current FHFA head Mark Calabria.

case, Collins v YellenIts roots are the housing crisis in 2008. Fannie Mae and Freddie Mac — public companies created by Congress to purchase and guarantee mortgages issued by lenders — suffered huge losses during the crisis, and many people feared that these companies might go bankrupt. Congress’ response was to create FHFA to oversee these companies, and in some cases as their “protector” to take over and manage their financial affairs. FHFA subsequently reached an agreement with the Ministry of Finance to provide funds for Fannie Mae and Freddie Mac in exchange for compensation related to investments in the department.

This lawsuit occurred after the FHFA and the Ministry of Finance changed their agreement in 2012 to require the two rooms to pay dividends related to the company’s net worth, rather than being linked to the investment scale of the Ministry of Finance. Over the next few years, Fannie Mae and Freddie Mac paid approximately US$200 billion to the Treasury Department. According to Judge Samuel Alito’s opinion, the court stated that, according to the previous formula, this was “at least more than the company’s $124 billion more must be paid”. Three shareholders went to court to challenge the 2012 amendment. They made two arguments: First, the FHFA and the Ministry of Finance have no right to participate in the amendment, and second, the statute that created the FHFA is unconstitutional because it allows the president to fire the head of the agency only “for legitimate reasons.”

On Wednesday, the judges unanimously rejected shareholder arguments that the FHFA and the Ministry of Finance have no right to participate in the 2012 amendment. Alito explained that the claim is prohibited by the Housing and Economic Recovery Act, which prohibits the court from taking “any action to limit or influence the exercise of [the] The power or function of FHFA as the protector of Fannie Mae and Freddie Mac. Alito believes that under the Recovery Act, FHFA also has the right to act in the way that it believes is best for the company or FHFA. “This distinguishing feature of FHFA regulation,” Alito emphasized, “the statutory claims against shareholders are fatal”, because FHFA entered the 2012 amendment to benefit the public who “rely on a stable mortgage market”, even if this is not It must be in the best interests of Fannie Mae and Freddie Mac or their shareholders.

Turning to the shareholder’s argument that the statute that created the FHFA was unconstitutional because it restricted the president’s ability to fire the agency’s directors, Alito agreed. He explained that last year’s decision regarding the director of the CFPB, Seila Law v. Consumer Financial Protection Bureau, “Almost decisive” in this case.in Serrafa, The court removed the restriction that CFPB directors can only be removed due to “inefficiency, negligence, or malfeasance during their tenure”. Similarly, Alito concluded that the restrictions on the removal of FHFA directors violated the constitutional separation of powers because they violated the president’s power to make decisions in the executive branch.

The next issue facing the court is remedies for violations of the Constitution. Alito pointed out that shareholders hope that the 2012 amendments will be “completely repealed” and the dividends paid to the Ministry of Finance will be returned to Fannie Mae and Freddie Mac. Alito rejected the proposal because the person in charge of the FHFA who was actually responsible for passing the 2012 amendment was only an acting director, not a director confirmed by the Senate — and Alito wrote that the decree’s removal restrictions do not apply to acting directors. Alito also dismissed the shareholder’s argument that the actions of subsequent directors (removal restrictions did apply) required the revocation of the 2012 amendment. “[T]Alito wrote that there is no reason to believe that any action taken by the FHFA on the “2012 Amendment” is invalid — and there is “no reason to believe that” the 2012 amendment “must be completely revoked.” However, if shareholders (and others in similar situations) can prove that the removal clause caused them harm, the court may still obtain some damages. Therefore, the court sent the case back to the lower court to let them consider these arguments.

Judge Elena Kagan wrote an opinion (partially joined by Judges Stephen Breyer and Sonia Sotomayor), which partially agreed and agreed with the verdict.Kagan-who opposes Serrafa – Emphasize that the court’s retention of remedies “limits the damage of the court’s revocation of precedents”. “In refusing to revoke those decisions that the president approves,” she observed, “the theory that most people prevent formal presidential control hinders the president’s ability to implement his agenda in the real world.” She also emphasized that she believes that the appeals court of this case has decided. The Supreme Court is now sending the case back for consideration. “Therefore, I agree with the court’s opinion,” Kagan concluded, “because I understand that this lawsuit may end quickly.”

Sotomayor partly objected, and Breyer agreed. She will rule that, unlike CFPB, the structure of FHFA is constitutional.

This article is Originally published in Howe on the Court.