The White House replaced the regulator who oversees mortgage giants Fannie Mae and Freddie Mac, following a Supreme Court ruling that paved the path for President Biden to put his own regulator at the top of the Federal Housing Finance Agency.
The Biden administration moved Mark Calabria, a Trump appointee and libertarian economist, out of the job. On Wednesday night, the White House appointed Sandra L. Thompson as the agency’s acting director. Thompson previously served as deputy director of the Division of Housing Mission and Goals, overseeing FHFA’s housing and regulatory policy, fair lending and other regulatory matters.
Before joining FHFA, Thompson worked at the Federal Deposit Insurance Corp. During her time there, she oversaw the agency’s enforcement program for risk management and consumer protection during the Great Recession.
In replacing Calabria, the administration signaled it would install someone more aligned with the administration’s housing policies.
“There is a widespread lack of affordable housing and access to credit, especially in communities of color,” Thompson said in a statement. “It is FHFA’s duty through our regulated entities to ensure that all Americans have equal access to safe, decent, and affordable housing.”
Calabria took office in 2019 and sought to end government control over Fannie Mae and Freddie Mac, which guarantee roughly half of the $11 trillion U.S. mortgage market.
Calabria said in a statement that he respected the Supreme Court’s decision.
“Much work remains,” he wrote. “When the housing markets experience a significant downturn, Fannie Mae and Freddie Mac will fail at their current capital levels. I wish my successor all the best in fixing the remaining flaws of the housing finance system in order to preserve homeownership opportunities for all Americans.”
In a split decision Wednesday, the Supreme Court ruled that the leadership structure of the Federal Housing Finance Agency was unconstitutional because of a provision preventing the president’s ability to remove its director, except “for cause.” The president nominates the director of the FHFA, who is confirmed by the Senate for a five-year term.
The majority of the justices wrote that the housing regulator should be treated the same way the Supreme Court recently treated the Consumer Financial Protection Bureau. Federal law had restricted the president’s ability to remove the CFPB chief, but the Supreme Court last year struck that down, saying such restrictions violate the separation of powers in the Constitution.
“But as we explained last Term, the Constitution prohibits even ‘modest restrictions’ on the President’s power to remove the head of an agency with a single top officer,” wrote Justice Samuel A. Alito Jr.
As home prices soar in unlikely places, the most vulnerable residents pay the price
The FHFA was created in 2008 amid worries that Fannie Mae and Freddie Mac were not sufficiently regulated given the dangerous housing bubble. The companies nearly collapsed shortly after the agency was created, and they were put under a government conservatorship that still exists.
The Supreme Court ruling comes as the housing market has emerged as one of the most unequal features of the economic recovery during the pandemic. Wealthier Americans are scooping up increasingly expensive homes and engaging in bidding wars that push home values even higher. Meanwhile, many renters, including those who lost jobs, are struggling to get by and fearing a June 30 deadline, when the current eviction moratorium from the Centers for Disease Control and Prevention is scheduled to expire. The Biden administration, though, is expected to extend the moratorium for another 30 days.
Policymakers at the Federal Reserve say they are not concerned that the state of the housing market poses financial stability risks. But they are keeping a close eye on the situation, with some economists wary of a bubble that could form the longer prices continue to soar.
Fannie Mae and Freddie Mac are two of the largest financial institutions in the United States, effectively backstopping the mortgage industry. They purchase mortgages on the secondary market, ensuring there is enough liquidity for banks and other lenders to extend loans. They remain controversial, though, and have remained under government control since 2008. It’s unclear when that arrangement will end.
Government support for the housing market has remained popular with many banks and housing groups because they believe it provides easier access to mortgages, but policymakers have not successfully hashed out what the long-term vision for these entities should be. Taxpayers had to bail out both companies after the financial crisis when many of the mortgage products that they held lost value.
The authority Biden cited came from a Supreme Court decision Wednesday that largely went against Fannie Mae and Freddie Mac investors who were challenging more than $100 billion in profits gathered by the government. The money was compensation for the taxpayer bailout Fannie and Freddie received after the 2007 housing market crash.
The justices rejected claims that the FHFA exceeded its authority under the Recovery Act. “In the Recovery Act, Congress sharply circumscribed judicial review of any action that the FHFA takes as a conservator or receiver,” Alito wrote for the court.
But the majority agreed with the investors that the law had unconstitutionally shielded the head of the FHFA by saying he could not be fired by the president except for cause. That decision follows a similar one from last term regarding the head of the Consumer Financial Protection Bureau.
The court’s liberals, nominated by Democratic presidents, said the majority went too far.
Justice Elena Kagan said she was compelled to agree on the president’s removal powers because of the court’s opinion last term in Seila Law v. Consumer Financial Protection Bureau. “But the majority’s opinion rests on faulty theoretical premises and goes further than it needs to.”
The justices sent the case back to a lower court, where investors will have a chance to show they were harmed by the president’s lack of control over the FHFA directors.
