High court takes on presidential power case about Fannie, Freddie

WASHINGTON — The Supreme Court wrestled Wednesday with a case that could make it easier for the president to fire the head of the agency that oversees government-controlled mortgage giants Fannie Mae and Freddie Mac.

But the justices seemed skeptical about doing what shareholders of the companies have asked: setting aside an agreement under which the companies have paid the government more than $ 245 billion. That money was compensation for the taxpayer bailout Fannie and Freddie received after the 2007 housing market crash.

Justice Neil Gorsuch called the shareholders’ ask “a big one” and “hard for us to swallow.”

The case before the justices involves the Federal Housing Finance Agency, which oversees Fannie and Freddie and was created following the housing market crash. One of the questions for the court, which has been hearing arguments by phone because of the coronavirus pandemic, is whether the agency’s structure violates the Constitution.

The case is in many ways similar to one the justices decided earlier this year involving the FHFA’s companion agency, the Consumer Financial Protection Bureau. The CFPB, the government’s consumer watchdog agency, was created by Congress in response to the same financial crisis.

In the case involving the CFPB, the court struck down restrictions Congress imposed that said the president could only fire the agency’s director for “inefficiency, neglect of duty, or malfeasance in office.” Just as the head of the CFPB was, the head of the FHFA is nominated by the president and confirmed by the Senate to a five-year term. The director is then only removable by the president “for cause.”

That structure can leave a new president with a director chosen by the previous president for some or all of the new president’s time in office.

Several justices, however, seemed to think there was at least one wrinkle that makes this case different from the one it decided earlier this year. That’s because the agreement Fannie and Freddie shareholders are complaining about was entered into when the FHFA was headed by an acting director who could have been removed by the president for any reason.