President Joe Biden will replace the federal regulator who oversees mortgage giants Fannie Mae and Freddie Mac Wednesday in the wake of a US Supreme Court decision that made it easier to replace the current head appointed by former President Donald Trump, according to a White House official.
“In light of the Supreme Court’s decision today, the President is moving forward today to replace the current Director with an appointee who reflects the Administration’s values,” the official said in a statement.
White House press secretary Jen Psaki confirmed the move later Wednesday afternoon. She did not give an indication of who would fill the job.
As part of its decision released Wednesday, the Supreme Court ruled that the Federal Housing Finance Agency structure was unconstitutional, and that Congress overstepped its authority in placing restrictions on the President’s ability to remove the agency’s head.
Under the Housing and Economic Recovery Act of 2008, Congress had created the agency after the national housing bubble burst and the market was suffering from record foreclosures and falling prices. Lawmakers placed the agency in charge of Fannie Mae and Freddie Mac in September 2008 and installed a director who would serve a five-year term and could only be removed by the president “for cause.”
Justice Samuel Alito, writing for a 7-2 majority, said that because the director of the agency can only be removed by the President for “inefficiency, neglect or malfeasance,” the restriction “violates the separation of powers.” The court held that leadership structure “clashes with constitutional structure” by “concentrating power in a unilateral actor insulated from Presidential control.”
“The President must be able to remove not just officers who disobey his commands but also those he finds negligent and inefficient,” Alito wrote.
The issue is of the utmost importance to those who criticize the so-called “administrative state” because they believe insulated agencies have unbounded and unreviewable authority in violation of the separation of powers. There has been a movement – supported by conservatives on the court – to rein in the independence of the agencies. Last term, for example, Chief Justice John Roberts wrote for a 5-4 court invalidating the leadership structure of the Consumer Financial Protection Bureau.
The court also dealt a blow to shareholders, turning away a claim that the Federal Housing Finance Agency exceeded its statutory authority when it entered into an agreement with the Treasury Department that the shareholders claim cut them out of their share of profits. But the court allowed the shareholders to go back and argue in the lower courts that the constitutional defect separately invalided the agreement.
The Treasury Department agreed to backstop the companies in exchange for senior preferred stock and quarterly fixed-rate dividends. It later replaced fixed-rate dividends with variable dividend payments. Fannie Mae and Freddie Mac’s shareholders argued that they lost billions of dollars when the government reduced their ownership interests. They sought to have Treasury return the payments or recharacterize them as a payment on the government’s investment.
This story and its headline have been updated with more information and reporting.