Fifth Circuit finds federal housing agency structure unconstitutional

On September 6, 2019, the Fifth Circuit Court of Appeals ruled 9-7 that the structure of the Federal Housing Finance Agency (FHFA) is unconstitutional. The Fifth Circuit sent the case back to the district court to decide how to resolve remaining questions about how the FHFA decided to handle the finances of Fannie Mae and Freddie Mac.
 
The FHFA was created by Congress in the aftermath of the 2008 recession as an independent agency to regulate the United States mortgage market. This case, _Collins v. Mnuchin_, involved whether the FHFA had the authority to require Fannie Mae and Freddie Mac to give nearly all of their money to the U.S. Treasury Department each quarter instead of to the companies’ shareholders. The companies argued that such an arrangement went beyond the FHFA’s legal authority and that the structure of the agency was unconstitutional.
 
The Fifth Circuit held that the FHFA for-cause removal structure “limits the President’s removal power and does not fit within the recognized exception for independent agencies.” The U.S Supreme Court established that exception for agencies led by multi-member boards in the 1935 case _Humphrey’s Executor v. United States_. The Fifth Circuit held that court precedent does not support removal protections for agencies led by single directors like the FHFA.
 
The court also held that “an independent agency with a single Director removable only ‘for cause,’ violates the separation of powers.” In this context, separation of powers refers to the three divided branches of the United States federal government: legislative, executive, and judicial. Under a strict reading of the U.S. Constitution, each branch has distinct powers and responsibilities and Congress is not allowed to create independent agencies that blend those powers.
 
The majority opinion cited the 2010 U.S. Supreme Court case _Free Enterprise Fund v. PCAOB_ to support severing the removal protections from the FHFA statute and leaving the rest of the law in place.
 



About the author

Jace Lington

Jace Lington is a staff writer at Ballotpedia and can be reached at jace.lington@ballotpedia.org

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