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Court Ruling Curtails Government Power in Fannie/Freddie Case

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Competitive Enterprise Institute General Counsel Sam Kazman and Senior Fellow John Berlau praised a Friday, Sept. 6 ruling by the United States Court of Appeals for the Fifth Circuit related to the federal government’s ongoing seizure of profits rightfully belonging to shareholders of government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.

The court’s en banc ruling in Collins v. Mnuchin held the Federal Housing Finance Agency unconstitutional. A majority of the Circuit ruled that because the agency’s director could only be removed by the president “for cause,” this violated the President’s removal power under Article II of the U.S. Constitution.  

In issuing this ruling, the court relied heavily on a 2010 Supreme Court case in which CEI had acted as co-counsel, Free Enterprise Fund v. Public Company Accounting Oversight Board. In that earlier case, the Supreme Court found that the president’s power to remove agency heads at will, rather than for cause, was essential to restraining congressional power and the growth of the administrative state.  

“In the interest of protecting citizens and businesses from abuse of government power, we are glad to see the Free Enterprise case have this restraining impact on a new federal agency,” said Kazman. “We believe there are other agencies, chief among them the Consumer Financial Protection Bureau, that are ripe for similar challenges on this ground.”

“The court was correct in ruling both that the FHFA’s structure was unconstitutional and that the ‘Third Amendment’ crafted to seize nearly all of the profits from Fannie and Freddie in perpetuity – even after they repaid bailout money -- far exceeded the authority given to the government in the Housing and Economic Recovery Act,” added Berlau.

“Hopefully, this case will be a strong step in ending blanket judicial deference to the administrative state and in making regulators more accountable to the nation’s elected lawmakers,” said Berlau.

Related analysis:

Fannie Mae and Freddie Mac Still Endanger U.S. Economy

GSE Reform Proposal a Positive Step Towards Reducing Government Role in Housing Finance

Mnuchin Must Bring Transparency to Fannie Mae and Freddie Mac