Mel Watt

The leadership structure of the Federal Housing Finance Agency, the body that runs Fannie Mae and Freddie Mac, has been ruled unconstitutional by a federal appeals court in Texas.

According to the ruling by the U.S. Court of Appeals for the Fifth Circuit in Texas, the FHFA has been “unconstitutionally insulated from executive control” due to its single-director structure. Should the court’s decision be upheld by a higher court, the FHFA’s actions could be rendered void according to the law, American Banker reported.

“We hold that Congress insulated the FHFA to the point where the executive branch cannot control the FHFA or hold it accountable,” appeals court judges said.

The FHFA does not have a bipartisan commission, unlike other federal agencies, so there is nothing to insulate it from executive oversight, the judges explained.

At present the FHFA executive cannot be removed from his post except for good cause. However, the judges called for a change to be made in the law so that the president can remove the director at will.

The Washington Examiner says the issue is not an academic one, as Mel Watt (pictured), who is the incumbent acting FHFA director, was appointed by former president Barack Obama, and has been criticized by the Trump administration several times since it took over the White House.

The previous acting director Ed DeMarco was also criticized for his fiscally conservative management of Fannie and Freddie, leading to calls from some liberals for him to be fired.

The FHFA took control of Fannie and Freddie on a caretaker basis after the two mortgage backers were bailed out by the government in 2008. Since then the FHFA has directed their business and strongly shaped the housing market. Fannie and Freddie facilitate a national secondary mortgage market by buying home loans from banks and other lenders and packaging them into securities for sale to investors.

The lawsuit against the FHFA was brought about by shareholders of Fannie and Freddie. Those shareholders also raised concerns that the Treasury took 100 percent of profits from the mortgage giants rather than pay out a 10 percent dividend. However, the court rejected the latter argument, validating an agreement that requires both bodies to deliver almost all their profits to the Treasury Department.

The FHFA refused to comment on the case.

Courts across the country continue to focus on appropriate checks on independent regulators. Twice in less than a year, a federal court has ruled that the Consumer Financial Protection Bureau isn’t constitutionally structured, also citing its single-director format.

Source: realtybiznews.com