Page 34 - July-August 2018 GSE Report Flip Book

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plans would decrease taxpayers’ exposure to credit risk, according to the report. However, the alternative scenarios for housing finance could also spur slightly higher mortgage rates and lower home prices, according to CBO. This new assessment updates a 2014 study conducted by CBO. (Transitioning to Alternative Structures for Housing Finance, An Update, Congressional Budget Office, August 2018)
The Fifth Circuit Court of Appeals declares FHFA’s structure violates the separation of powers, ruling it unconstitutional
In a ruling on a lawsuit filed by Fannie Mae and Freddie Mac shareholders, the Fifth Circuit Court of Appeals held that FHFA was not constitutionally structured, but ruled that the agency was within its statutory authority when it enacted the net worth sweep. The court wrote:
Congress encased the FHFA in so many layers of insulation—by limiting the President’s power to remove and replace the FHFA’s leadership, exempting the Agency’s funding from the normal appropriations process, and establishing no formal mechanism for the Executive Branch to control the Agency’s activities—that the end “result is a[n] [Agency] that is not accountable to the President.” The President has been “stripped of the power [the Supreme Court’s] precedents have preserved, and his ability to execute the laws—by holding his subordinates accountable for their conduct—[has been] impaired.” In sum, while Congress may create an independent agency as a necessary and proper means to implement
its enumerated powers, Congress may not insulate that agency from meaningful Executive Branch oversight.
To read the court’s decision in full, click here.
“...A thunderbolt struck the GSE reform debate yesterday when the Fifth Circuit Court found the FHFA to be unconstitutionally structured,” wrote Douglas Holtz-Eakin.. “...Imagine for a second that this ruling is the end of the legal process (obviously not true. Congress would have to pass legislation to make the GSE’s regulator a constitutional entity. But that means that it would have to decide what (if anything) it wanted the GSEs to do. In short, congressional action to make the FHFA legal would jumpstart the process of legislative reform. At American Action Forum’s recent event on the future of housing reform, there was little optimism that Congress and the administration would take up this challenge. The court may have left them no choice.” (HousingWire, Ben Lane, 07/17/18; The Daily Dish, Douglas Holtz-Eakin, 07/17/18) `
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