GSE investors seek Supreme Court ruling on FHFA constitutionality

WASHINGTON — Fannie Mae and Freddie Mac shareholders want the Supreme Court to hear their claims that the single-director structure of the Federal Housing Finance Agency is unconstitutional.

Their petition, dated Wednesday, adds yet another wrinkle to growing legal questions over the power of independent regulatory agencies. The investors' claims against the FHFA — in which they also oppose a policy that sweeps profits of the government-sponsored enterprises into the U.S. Treasury — mirror arguments made in numerous cases challenging the constitutionality of the Consumer Financial Protection Bureau.

Critics of both agencies argue their underlying statutes run afoul of the separation-of-powers doctrine by restricting presidents from firing their respective principal leader, who in either case does not answer to a board or commission. Such firings are allowed only when there is "cause."

"Congress made no pretense that FHFA and the CFPB would consist of an independent multi-member body of experts dispassionately addressing technical issues bereft of policy judgment," the petition said. "Instead, each agency is helmed by a single director who alone wields the tremendous power of the office without fear of interference by the President."

Andrew Harrer/Bloomberg

A federal court in Texas last July sided with the shareholders that the structure of the FHFA was unconstitutional, but threw out the shareholders’ argument that the “net worth sweep” — a 2012 agreement that requires Fannie and Freddie to deliver nearly all of their profits to the Treasury Department — was unconstitutional as well.

An en banc review of the case decided earlier this month sided with the shareholders on both arguments, but the shareholders are looking for the nation’s highest court to overturn the court’s first decision that found that the net worth sweep was legal.

Meanwhile, legal observers have speculated that a Supreme Court review of the CFPB's leadership structure has become more likely after the Department of Justice and the agency's own director have agreed that that structure is unconstitutional. The high court could decide as early as next month whether to accept a California case dealing with the CFPB. (FHFA has defended its constitutionality under Director Mark Calabria.)

So far, the courts have supported the statutory provision that a CFPB head can only be fired "for cause," not simply at the president's discretion. But Republicans have claimed for years that that provision gives a CFPB leader, who does not answer to a board or commission, too much unchecked power.

In the petition for writ of certiorari, the Fannie and Freddie shareholders argued that the Supreme Court should consider their case regarding FHFA instead of the cases challenging the legality of the CFPB.

"This case is the best vehicle for ruling on the constitutionality of independent agencies headed by a single director," their petition said.