The FHFA's problem: to persuade the Supreme Courtroom just isn’t a CFPB

WASHINGTON – An upcoming Supreme Court case dealing with the Federal Housing Finance Agency could finally answer the question of whether the relatively new agency is in the same constitutional limbo as the Consumer Financial Protection Bureau.

Many observers also saw the recent Supreme Court decision to downplay the CFPB's leadership structure as a single director as almost crucial for the FHFA, as their structure appears to be identical.

However, since the court decides to hear the FHFA case itself, the FHFA judges may wish to offer the opportunity to explain their case because the legal regime differs from that of the CFPB.

"What the Supreme Court is likely to do here is to give the litigants the opportunity to explain at a hearing why something unique (the Housing and Economic Recovery Act) requires them to make a different decision," said Richard Gottlieb, partner at Manatt, Phelps & Phillips.

Meanwhile, shareholders who challenge the FHFA hope that the Supreme Court cancels an agreement between the agency and the finance department that investors have long opposed.

The Supreme Court granted Collins "certiorari" against Mnuchin last week and instructed the Supreme Court to hear the case of Fannie Mae and Freddie Mac shareholders alleging that the structure of the FHFA violates the separation of powers doctrine.

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The Supreme Court granted Collins "certiorari" against Mnuchin last week, and instructed the Supreme Court to hear the case of Fannie Mae and Freddie Mac shareholders alleging that the structure of the FHFA violates the doctrine of separation of powers A Policy That The profits of government-sponsored companies to the US Treasury are also unconstitutional.

Just like the Dodd-Frank Act for the CFPB, the FHFA is headed by a single director – instead of a board or commission – who is nominated for a five-year term. Dodd-Frank's limitation on a president's ability to fire a CFPB director – which the Supreme Court dismissed on June 29 – is similar to HERA's requirement that a president find a reason before a FHFA boss is fired. (Mark Calabria is the agency's current director.)

In the 5-4 decision in Seila Law v CFPB, the court refused to make a substantial distinction between the CFPB and other similarly structured agencies, suggesting that the ruling could also apply to the FHFA.

However, a FHFA-specific decision could offer more clarity.

"There was not much clarity in the CFPB case regarding the FHFA, so I think the verdict (in Collins v Mnuchin) will provide some necessary details," said David Merkur, lawyer at Greenspoon Marder & # 39; s Financial Services Exercise group.

In the CFPB decision, the Supreme Court did not invalidate the entire agency or its previous actions. But Fannie and Freddie's investors are likely to want the FHFA court to go further by abandoning the contest policy. Investors have argued that Treasury's stake in Fannie and Freddie's earnings is invalid.

The court may seek additional information from the parties in the FHFA case before any oral argument that asks how the case differs from the decision the court made for the CFPB, Gottlieb said.

"I think the court's focus will be:" Why doesn't the CFPB analysis solve this for you? "Tell us why it is different," he said.

If ultimately neither side can answer this question, the judges could make a quick decision, added Gottlieb.

"If the plaintiffs cannot come up with anything convincing, the court will give a brief and likely curiam opinion," he said.

Per-curiam decisions are unsigned opinions from the court and not individual judges and are often concise and uncontroversial.

However, the decision of the Supreme Court in Seila eliminated the so-called "for good cause" rule in Dodd-Frank, which allowed the President to fire the CFPB director at will, but had no effect on the past nine Years of agency decisions, decisions and enforcement measures.

Bose George, a general manager of Keefe, Bruyette & Woods, believes that the Collins court will rule Mnuchin in the same way and will not affect the so-called wealthy sweep.

"The means they did at CFPB was to just change the structure, and the rest would be fine, and it looks like I'm getting the same result here," he said. "If they think this is unconstitutional but only change the structure, it doesn't seem to have any real impact on the overall picture for shareholders."

Still, the question of property could have been a driving force for the Supreme Court to decide whether to take Collins against Mnuchin or not, especially since the issue of constitutionality seems so similar to the CFPB case.

Gottlieb said whether GSE investors get relief is "the only unresolved problem".

"This could be the only justification for a full hearing in this case," he said.

Jaret Seiberg, an analyst at the Cowen Washington Research Group, described the extensive property litigation as the kind of case that "never seems to end" and is unlikely to end even with a Supreme Court decision.

For example, regardless of a court decision, officials could still consider possible alternatives to net worth, including GSEs paying a commitment fee to the Treasury or reimbursing the government for the outstanding costs of the 2008 bailout package.

"There are many unresolved issues, such as whether the government is entitled to a commitment fee and whether Fannie and Freddie are able to repay the amount owed," said Seiberg in a research report. "For this reason, a decision would be helpful for investors, but we don't think it would be dispositive."

After the CFPB's decision, Calabria did not believe that the Supreme Court's decision would affect the FHFA, and stated in a statement that while it respected the decision in the Seila Law case, "this decision did affect the constitutionality of the FHFA, including the Reason, not directly affects distance control. "

The FHFA said in a statement after the Collins Supreme Court issued a certificate against Mnuchin that the agency "looks forward to the US Supreme Court taking up the Collins case and clarifying these important issues."

Some observers note that Supreme Court approval to hear the Calabria FHFA case could provide an additional level of job security, if only temporarily.

If the judges had rejected the case and the CFPB's decision alone had influenced the FHFA, Calabria could be on an even more shaky ground. Just as Democratic presidential candidate Joe Biden would be able to fire CFPB director Kathy Kraninger, Calabria could face the same fate if he won the November election.

But now that the Supreme Court will review the legality of the FHFA itself, Biden would likely hold off Calabria's dismissal at least until the court offers more legal certainty, observers said. This could give Calabria more time to implement its agenda, including the liberation of Fannie and Freddie from the conservatory.

George said the court would likely hear oral statements in Collins against Mnuchin in October, while Seiberg assumed it would be October or November and the court would not make a decision until January or February.

"The adoption of Certiorari could actually benefit Calabria in the sense that its removability will be decided by the Supreme Court," said Gottlieb. "Given the political rather than the legal considerations, a future President Biden is likely to hold back the appointment of a new FHFA director until the Supreme Court decides."

However, if, as expected, the Supreme Court ruled on the FHFA case similar to the CFPB case, Calabria would have less job security, Merkur said.

"If the presidency changes and Biden tries to go the other way, the ability to replace an agency manager for no reason would obviously give him much more power or leverage to implement his policies," he said.

Although GSE reform may not be a high priority for Biden, installing his own FHFA director could allow his administration to focus on housing issues that Democrats are more focused on, such as affordability, said George.

"It is not clear that Biden has to do something right away, but it gives him more influence," he said. "Calabria cannot stand against the government because it would likely be removed."

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