In September 2019, theFifth Circuit Court of Appeals, in anen banc opinion, ruled that the structure of the FHFA violated constitutional separation of powers because its director could not be removed by the president.[7] The U.S. Supreme Courtaffirmed that part of the holding.[8]
The law establishing the FHFA is the Federal Housing Finance Regulatory Reform Act of 2008, which is Division A of the largerHousing and Economic Recovery Act of 2008, Public Law 110-289, signed on July 30, 2008 by PresidentGeorge W. Bush. One year after the law was signed, the OFHEO and the FHFB went out of existence. All existing regulations, orders and decisions of OFHEO and the Finance Board remain in effect until modified or superseded.[9]
On the day of the law's signing, former DirectorJames Lockhart stated:[10]
For more than two years as Director of OFHEO I have worked to help create FHFA so that this new GSE regulator has far greater authorities than its predecessors. As Director of FHFA, I commit that we will use these authorities to ensure that the housing GSEs provide stability and liquidity to the mortgage market, support affordable housing and operate safely and soundly.
FHFA director Lockhart transmitted a "notice of establishment," for publication in theFederal Register on September 4, 2008. The notice formally announced the agency's existence and authority to act.[11][12]
On September 7, 2008, FHFA director Lockhart announced he had putFannie Mae andFreddie Mac under the conservatorship of the FHFA.[13] The action was "one of the most sweeping government interventions in private financial markets in decades".[14]U.S. Treasury SecretaryHenry M. Paulson, appearing at the same press conference, stated that placing the two GSEs into conservatorship was a decision he fully supported, and said that he advised "that conservatorship was the only form in which I would commit taxpayer money to the GSEs." He further said that "I attribute the need for today's action primarily to the inherent conflict and flawed business model embedded in the GSE structure, and to the ongoing housing correction."[15]
In the announcement, Lockhart indicated the following items in the plan of action for the conservatorship:
On September 8, 2008, the first day of the conservatorship, business will be conducted normally, with stronger backing for the holders of Mortgage Backed Securities (MBS), senior debt and subordinated debt.
The Enterprises will be allowed to grow their guarantee MBS books without limits and continue to purchase replacement securities for their portfolios, about $20 billion per month, without capital constraints.
As the conservator, the FHFA will assume the power of the Board and management.
The present CEOs have been dismissed, but will stay on to help with the transition.
Appointed as CEOs areHerb Allison, for Fannie Mae andDavid M. Moffett for Freddie Mac. Allison is former Vice Chairman ofMerrill Lynch and for the last eight years chairman ofTIAA-CREF. Moffett is the former Vice Chairman and CFO ofUS Bancorp. Their compensation will be significantly lower than the outgoing CEOs. They will be joined by equally strong non-executive chairmen.
Other management action will be very limited. The new CEOs agreed it is important to work with the current management teams and employees to encourage them to stay and to continue to make important improvements to the Enterprises.
To conserve over $2 billion annually in capital the common stock and preferred stock dividends will be eliminated, but the common and all preferred stocks will continue to remain outstanding. Subordinated debt interest and principal payments will continue to be made.
All political activities, including all lobbying, will be halted immediately. Charitable activities will be reviewed.
There will be financing and investing relationship with the U.S. Treasury via three different financing facilities, to provide critically needed support to Freddie Mac and Fannie Mae and the liquidity of the mortgage market. One of the three facilities is a secured liquidity facility which will be not only for Fannie Mae and Freddie Mac, and also for the 12 Federal Home Loan Banks that FHFA also regulates.
The FHFA in 2011 filed suit first againstUBS[16] then against 17 other financial institutions[17][18] accusing them of misrepresenting about $200 billion in mortgage-backed securities sold to Fannie Mae and Freddie Mac. The suits, some of which name individual defendants,[19] allege a variety of violations of federal securities law and common law[18][20] and paint "a damning portrait of the excesses of the housing bubble."[18] The suits seek a variety of damages and civil penalties. UBS Agrees to Pay $1.435 Billion to Resolve Claims That It Made Misrepresentations in the Sale of Residential Mortgage-Backed Securities[21]
FHFA settlements for fraudulent sales by PLS to Fannie Mae and Freddie Mac
The Federal Housing Finance Agency initiated litigation against 18 financial institutions involving allegations of securities law violations and, in some instances, fraud in the sale of private-label securities (PLS) to Fannie Mae and Freddie Mac.
Below is a list of the cases, with amounts of any settlements reached in 2013 and 2014.[22][23][24]
On December 21, 2018, PresidentDonald Trump designated Comptroller of the currencyJoseph Otting to be Acting Director of FHFA upon completion of Director Watt's term, effective January 7, 2019.[35]
In April 2019,Mark A. Calabria was confirmed to a five year term as director.[36] At the time of his confirmation, the chair of the Senate Banking Committee said that Calabria had committed to working with the Senate toward ending the conservatorship over Fannie Mae and Freddie Mac.[36]
In the Supreme Court caseCollins v. Yellen, the Supreme Court ruled that, as they had inSeila Law LLC v. Consumer Financial Protection Bureau for theConsumer Financial Protection Bureau, that the inability for the President to terminate the FHFA director beyond "for cause" was unconstitutional, but otherwise left the agency's power as is.[37] President Biden replaced Calabria with Sandra L. Thompson as Acting Director, who is expected to end Calabria's policy of phasing out the conservatorship.[38][39]
Brian M. Tomney was nominated by President Joe Biden and confirmed by the U.S. Senate to serve as Inspector General for the Federal Housing Finance Agency. Sworn into office on March 14, 2022, Tomney is the third Senate confirmed Inspector General for FHFA.
Laura S. Wertheimer was nominated asInspector General of the Federal Housing Finance Agency by PresidentBarack Obama and confirmed by the U.S. Senate on September 17, 2015. On June 29, 2021, Wertheimer announced she would be leaving the position on July 30, 2021.[40] This followed calls fromRepublican SenatorsChuck Grassley andRon Johnson for her removal in the preceding weeks,[41] and a criticalCIGIE report released on April 29, 2021.[42]
^"10-Q, August 6, 2008". Freddie Mac. 2008-08-06. Archived fromthe original on January 16, 2013. RetrievedSeptember 7, 2008.The Regulatory Reform Act replaces the conservatorship provisions previously applicable to the enterprise with conservatorship and receivership provisions based generally on federal banking law. The Regulatory Reform Act expands the grounds for which an enterprise may be placed into conservatorship, establishes the grounds for which an enterprise may be placed into receivership, and provides for appointment of FHFA as conservator or receiver.
