US Supreme Court weighs President’s power to fire head of housing agency

The Supreme Court heard arguments Wednesday in a dispute between shareholders of Fannie Mae and Freddie Mac, the government-sponsored mortgage finance giants, and the Treasury Department over $124 billion in payments the two lenders were required to make to the government.

The shareholders said the law creating the Federal Housing Finance Agency, which put the two lenders into conservatorship in 2008, violated the Constitution because it insulated the agency’s director from presidential oversight. A decision by the court in June concerning the director of the Consumer Financial Protection Bureau suggested that it may agree that the structure of the housing agency violated the separation of powers.

But several justices seemed wary of the sweep of a second aspect of the shareholders’ arguments, which said the lack of presidential supervision of the housing agency’s director meant that a 2012 agreement between the agency and the Treasury Department must be undone, requiring the repayment of vast sums.

The two sides agreed that the law creating the housing agency was unconstitutional because it barred the president from firing its director without cause. Because there was no dispute between the parties as to that, the court appointed Aaron L. Nielson, a law professor at Brigham Young University, to defend the law.

Nielsen said the new case, Collins v. Mnuchin, No. 19-422, differed from the one in June concerning the consumer bureau. The shareholders in the new case challenged a 2012 agreement between the housing agency and the Treasury Department, he said. But that agreement had been made by an acting director of the agency, who was subject to removal at will in any event, making academic the question of the status of the agency’s director.

The laws creating the two agencies were also different, Nielson said. Before the court’s decision in June in the case on the consumer bureau, its director could be fired only for “inefficiency, neglect of duty or malfeasance,” a demanding standard. By contrast, the director of the housing agency may be fired only for cause, which Nielson said “provides the weakest protection in removal law and can easily be read to allow removal based on policy disagreement with the president.”

Justice Sonia Sotomayor said she saw “vast differences” between the agencies. The housing agency’s “most notable power, and the reason we are here today, is that they can put certain government-affiliated companies under conservatorship.”

“This is not a wide-reaching power that affects many entities,” she said. “It’s one company at a time, essentially, unlike in the CFPB.”

But Justice Samuel Alito said that the housing agency wields great power. “The way in which the agency carries out its responsibility as conservator has a profound effect on the housing market and, therefore, a profound effect on ordinary people,” he said.

Nielson said the logic of the parties’ position would undermine much of the federal government.

“The Social Security Administration, the Office of Special Counsel, the Federal Reserve, the Civil Service, will all be subject to constitutional attack,” he said, “and that’s just the beginning.”

Justice Elena Kagan elaborated on that point in an exchange with David H. Thompson, a lawyer for the shareholders. The Social Security Administration, she said, “has been led by a single commissioner since 1994 and, ever since then, it’s rendered 650,000 decisions every year, so that’s about 17 million decisions.”

“Are we really going to void all of those decisions?” she asked.

Thompson replied that the agency’s actions, unless subject to the statute of limitations, “should be void.”

He said the actions of the housing agency had crossed a line. “The companies have been nationalized,” he said.

Chief Justice John Roberts questioned the assertion. Government aid during the housing crisis “was a lifeline thrown to your clients," he said, adding that he had done some recent financial research.

“I checked this morning,” the chief justice said, “and Fannie Mae was trading at $2.69 and Freddie Mac at $2.56,” he said, “and your shares are not worthless."

Hashim M. Mooppan, a lawyer for the federal government, said the housing agency, acting as a conservator, had been entitled to restructure their financial obligations. “That is what conservators do day in and day out,” he said.

Mooppan added that the parties to the 2012 agreement — the acting director and the Treasury secretary — could both be fired by the president for any reason or no reason.

“Courts cannot set aside a multibillion-dollar contract on the ground that it was unconstitutionally insulated from presidential supervision even though both of the officials who signed it were removable at will by the president,” he said.

But Thompson, the lawyer for the shareholders, said the law creating the housing agency, with its tenure protections for the agency’s director, “reduces the president to the cajoler in chief.”