In reversal, FHFA defends constitutionality of its leadership structure

WASHINGTON — The Federal Housing Finance Agency has reversed course and will now defend the constitutionality of its single-director structure.

Similar to claims about the Consumer Financial Protection Bureau's structure, investors in the mortgage giants Fannie Mae and Freddie Mac have argued the FHFA violates the separation of powers because its single-director structure means shareholder interests may not be considered. Currently, the director of FHFA can only be fired by a president “for cause.”

After a federal appeals court reversed a previous court’s decision last year and agreed with the shareholders, former acting FHFA Director Joseph Otting’s decision said in January that the agency would no longer keep fighting the case.

Andrew Harrer/Bloomberg

But that decision has been overturned by FHFA Director Mark Calabria, who was confirmed as head of the agency in April.

In a letter Tuesday to the U.S. Court of Appeals for the Fifth Circuit in Texas, a counsel for Calabria said that the FHFA’s position moving forward is that its structure under the Housing and Economic Recovery Act is constitutional. Calabria was a Senate staffer when HERA was being drafted.

“FHFA respectfully requests that, to the extent the Court finds it necessary to reach the constitutional issue, the Court uphold FHFA’s structure,” wrote Robert J. Katerberg, a partner at Arnold & Porter, who is representing Calabria and the FHFA.

The appeals court had ruled that the FHFA was “unconstitutionally insulated from executive control” since its single director — as opposed to a board or commission — cannot be fired by a sitting president without cause.