On June 23, the Supreme Court issued a decision in Collins v. Yellen, a case which concerned the Federal Housing Finance Agency (“FHFA”) and the two government sponsored enterprises (“GSEs”) which the FHFA regulates and currently holds in conservatorship—the Federal National Mortgage Association (“Fannie Mae” or “Fannie”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac” or “Freddie”).  The case presented a challenge by a group of Fannie and Freddie shareholders to a provision of the conservatorship which has effectively precluded the GSEs from paying dividends to shareholders.  Among other things, the plaintiffs targeted the constitutionality of the protection from removal enjoyed by the FHFA’s Director, which allowed the President to remove the Director only “for cause.”  This provision mirrored the removal protection provided to the Director of the Consumer Financial Protection Bureau (“CFPB”) and which the Court invalidated in Seila Law.

The Supreme Court declined to strike down the challenged provision of the conservatorship, but it did invalidate the FHFA Director’s “for cause” removal protection.  Not only does this decision have clear ramifications for the FHFA and GSEs, but it also may preview issues relating to the legal status of decisions rendered by CFPB Directors during the period in which they were unconstitutionally protected from removal from office.

Continue Reading Supreme Court Finds FHFA For-Cause Removal Structure Unconstitutional; Decision May Have Implications for CFPB

On September 5, 2019, the Treasury Department (“Treasury”) and the Department of Housing and Urban Development (“HUD”) released complementary proposals that, if implemented, would result in extensive changes to federal regulation of housing finance.  The plans respond to a Presidential Memorandum of March 27, 2019, directing Treasury and HUD to develop housing reform proposals consistent with the goals that the memorandum sets out.

Among other things, under the Treasury Plan, Fannie Mae and Freddie Mac (two government-sponsored enterprises or “GSEs”) would be recapitalized by the private sector, leave their conservatorships, and have more limited powers in the mortgage market.  The GSEs would be re-chartered with a charter issued by the Federal Housing Finance Agency (“FHFA”), the agency that now oversees and acts as conservator for the GSEs.  This charter would also be available to other guarantors of mortgage-backed securities (“MBS”).  The plan recommends that the implicit guarantees of the GSEs be replaced by an explicit paid-for guarantee from Ginnie Mae of the repayment of principal and interest on qualifying MBS collateralized by eligible conventional mortgage loans.  Ginnie Mae, a government corporation within HUD, already provides such a guarantee to MBS collateralized by affordable loans issued under various government programs.

The HUD Plan urges that the Federal Housing Administration (“FHA”) be restructured as an autonomous government corporation within HUD and that FHA’s various programs be revised in several respects.

The two plans include well over 100 recommendations for legislative and regulatory changes.  While several of the proposals would require Congressional action, many may be effected through rulemaking or other agency action.  Whatever the form in which the proposed changes are implemented, the recommendations are complex, and the impact of the changes will very much depend on the particulars of new legislation or regulation.

Details of the two plans follow after the jump.
Continue Reading Treasury and HUD Propose Housing Finance Reforms