Biden removes FHFA director after Supreme Court ruling

The White House on Wednesday removed Mark Calabria as the regulator of U.S. mortgage giants Fannie Mae and Freddie Mac, hours after the Supreme Court gave President Joe Biden more power to fire him.

The White House late Wednesday appointed Sandra Thompson to succeed Calabria as acting director of the Federal Housing Finance Agency. Thompson has served as deputy director of the agency's Division of Housing Mission and Goals since 2013.

Earlier Wednesday, an administration official said Biden was "moving forward today to replace the current director with an appointee who reflects the administration's values."

The shuffle at the top of the FHFA will revive the debate over how to overhaul Fannie and Freddie, the behemoths behind about half of the $11 trillion U.S. residential mortgage market. Former President George W. Bush's administration took control of Fannie and Freddie in September 2008 to prevent their collapse during the housing crisis, and subsequent congressional attempts to overhaul their operations have floundered. Calabria, a libertarian economist appointed by former President Donald Trump, has sought to reduce the government's role in the housing market since he took office in 2019.

Calabria said Wednesday that his 26-month tenure was “the honor of a lifetime” while warning that the companies were not on sound economic footing and “much work remains” to revamp them.

The shakeup followed a split Supreme Court decision that found the leadership structure of the FHFA was unconstitutional because of a provision that the president could only remove its director for cause, not at will. The widely anticipated decision mirrored the court's ruling on the similarly structured Consumer Financial Protection Bureau last year.

The court also unanimously dismissed a claim by Fannie and Freddie shareholders who sued the government to invalidate the 2012 decision to send the companies' profits directly to Treasury, the so-called “third amendment.”

The high court remanded the case back to the 5th Circuit Court of Appeals for further proceedings to “determine what remedy, if any, the shareholders are entitled to receive on their constitutional claim.”

Shares of the companies fell nearly 50 percent in the hour after the decision was announced, before rebounding slightly.

“It is not necessary for us to decide—and we do not decide—whether the FHFA made the best, or even a particularly good, business decision" when it amended the government's contract with the companies to sweep their profits to Treasury in 2012, Justice Samuel Alito wrote in the opinion of the court. “We conclude only that under the terms of the Recovery Act, the FHFA did not exceed its authority as a conservator, and therefore the anti-injunction clause bars the shareholders' statutory claim.”

Fannie and Freddie buy mortgages from lenders and bundle them into securities for sale to investors. The companies have sent about $300 billion in profits to the government since their federal takeover.

The Trump administration, keen to release Fannie and Freddie from government control, allowed them to start building capital again under Calabria, who also served as chief economist to former Vice President Mike Pence.

Many Democrats are wary of releasing Fannie and Freddie as private companies, fearing that they would focus less on affordable housing. The companies have also played a crucial role in the government’s response to the economic crisis caused by the pandemic by giving distressed borrowers the option to pause mortgage payments for up to 18 months.

Senate Banking Chair Sherrod Brown (D-Ohio) cheered the court’s decision and urged Biden to replace Calabria with a director "who is committed to addressing the housing needs of renters and homeowners, and to making our housing system work for everyone."

In a statement Wednesday, Thompson said she was committed as acting director to ensuring that the housing finance system operated "in a safe and sound manner" but also that there was a "widespread lack of affordable housing and access to credit, especially in communities of color."

"It is FHFA’s duty through our regulated entities to ensure that all Americans have equal access to safe, decent and affordable housing," she said.

Sen. Pat Toomey (R-Pa.), the top Republican on the Senate Banking Committee, said he agreed with the court’s constitutional interpretation but said Biden was “making a tremendous mistake” by getting rid of Calabria.

“That mistake would be compounded if President Biden were to nominate a new director who does not share Director Calabria’s commitment to fixing the flaws in the structure of the housing finance system, ending the conservatorships and protecting taxpayers against future bailouts,” Toomey said.

In a parting statement, Calabria warned that whoever succeeded him would face a massive task in revamping the two mortgage giants.

“When the housing markets experience a significant downturn, Fannie Mae and Freddie Mac will fail at their current capital levels,” Calabria said. “I wish my successor all the best in fixing the remaining flaws of the housing finance system in order to preserve homeownership opportunities for all Americans.”

Isaac Boltansky, policy research director at the investment firm Compass Point, said a new interim director would likely negotiate with Treasury to unwind Trump-era changes to the legal contract governing Treasury’s stake in the companies, including a requirement that they reduce their market footprint.

Former Treasury Secretary Steven Mnuchin in January unveiled revisions to that contract in a final attempt to ease the path for Fannie and Freddie to be released from government control, with less than a week left in office.

“From a shareholder perspective, losing on the statutory claim is a clear disappointment, but this is not the absolute final word in the saga as their constitution claim will continue,” Boltansky said. “Shareholders will continue their battle on the remaining claims, but the most meaningful impact of this decision in the near-term is that we will almost certainly see a new FHFA Director who will focus intently on reversing some of Director Calabria’s less popular policies.”