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The for-cause restriction on the President’s removal authority in the Housing and Economic Recovery Act of 2008, 12 U.S.C.S. § 4501 et seq., violates the separation of powers.
When the national housing bubble burst in 2008, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), two of the Nation's leading sources of mortgage financing, suffered significant losses that many feared would imperil the national economy. To address that concern, Congress enacted the Housing and Economic Recovery Act of 2008 (Recovery Act), which, among other things, created the Federal Housing Finance Agency (FHFA)--an independent agency tasked with regulating the companies and, if necessary, stepping in as their conservator or receiver. At the head of the Agency, Congress installed a single Director, removable by the President only “for cause.” §§4512(a), (b)(2). Soon after the FHFA's creation, the Director placed Fannie Mae and Freddie Mac into conservatorship and negotiated agreements for the companies with the Department of Treasury. Under those agreements, Treasury committed to providing each company with up to $100 billion in capital, and in exchange received, among other things, senior preferred shares and quarterly fixed-rate dividends. In the years that followed, the agencies agreed to a number of amendments, the third of which replaced the fixed-rate dividend formula with a variable one that required the companies to make quarterly payments consisting of their entire net worth minus a small specified capital reserve. A group of the companies' shareholders challenged the third amendment on both statutory grounds--that the FHFA exceeded its authority as a conservator under the Recovery Act by agreeing to the new variable dividend formula--and constitutional grounds--that the FHFA's structure violates the separation of powers because the Agency is led by a single Director, removable by the President only for cause. The District Court dismissed the statutory claim and granted summary judgment in the FHFA's favor on the constitutional claim. The Fifth Circuit reversed the District Court's dismissal of the statutory claim, held that the FHFA's structure violates the separation of powers, and concluded that the appropriate remedy for the constitutional violation was to sever the removal restriction from the rest of the Recovery Act, but not to vacate and set aside the third amendment.
Did the FHFA's structure violate the separation of powers?
The court held that the shareholders' statutory claim challenging an amendment to the conservatorship agreements between the Federal Housing Finance Agency (FHFA), the Department of Treasury, and the mortgage lenders was barred by 12 U.S.C.S. § 4617 where the Housing and Economic Recovery Act of 2008, 12 U.S.C.S. § 4501 et seq., authorized the FHFA to replace a fixed-rate dividend formula with a variable one, the FHFA had not exceeded its authority in choosing that option, and 12 U.S.C.S. § 4617(f) prohibited courts from restraining the exercise of the FHFA's conservator powers or functions. Although 12 U.S.C.S. § 4512(b)(2), did not extend to an Acting Director, it violated the separation of powers as nothing in the FHFA’s structure justified a restriction on the President's removal authority. A request for prospective relief was remanded for consideration in the lower courts.