Nature of the Case
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Facts
Congress created the Federal National Mortgage Association (Fannie Mae) in 1938 and the Federal Home Loan Mortgage Corporation (Freddie Mac) in 1970 to support the Nation’s home mortgage system. Both operate under congressional charters as for-profit corporations owned by private shareholders. They purchase mortgages, pooling them into mortgage-backed securities, and sell them to investors. This “relieves mortgage lenders of the risk of default and frees up their capital to make more loans.” By 2007, their portfolios had a combined value of approximately $5 trillion. The fraudulent national housing bubble burst in 2008. Right on schedule the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), both suffered significant losses that many feared would imperil the national economy. Though they remained solvent, many feared the companies would eventually default and throw the housing market into a tailspin. To literally cover their asses (because they were 95% responsible for the debacle). Congress enacted the Housing and Economic Recovery Act of 2008 (Recovery Act), which, among other things, created the Federal Housing Finance Agency (FHFA). The FHFA was an independent agency tasked with fixing the problems. The problems were easy to fix with just a few trillion dollars and stopping all the blatant influence that Congress had over Frannie and Freddie. The Recovery Act granted the FHFA expansive authority in its role as a conservator and permits the Agency to act in what it determines is “in the best interests of the regulated entity or the Agency.” Ps. a group of Fannie Mae’s and Freddie Mac’s shareholders challenged what was called the “net worth sweep ” by FHFA on statutory and constitutional grounds. After the net worth sweep, the companies’ financial condition improved, and they ended up transferring immense amounts of wealth to Treasury. In 2013, the companies paid a total of $130 billion in dividends. In 2014, they paid over $40 billion. In 2015, they paid almost $16 billion. And in 2016, they paid almost $15 billion. These payments totaled approximately $200 billion, which is at least $124 billion more than the companies would have had to pay during those four years under the fixed-rate dividend formula that previously applied. Ps claimed that the Agency exceeded its authority as a conservator under the Recovery Act when it agreed to a variable dividend formula that would transfer nearly all of the companies’ net worth to the Federal Government. Ps argued in part that the FHFA’s structure violates the separation of powers because the Agency is led by a single Director who may be removed by the President only “for cause.” Ps sought declaratory and injunctive relief, including an order requiring D either to return the variable dividend payments or to re-characterize those payments as a paydown on D’s investment. The District Court dismissed the statutory claim and granted summary judgment in favor of the FHFA on the constitutional claim. The Fifth Circuit en banc court reversed the District Court’s dismissal of the statutory claim; held that the FHFA’s structure violates the separation of powers; and concluded that the appropriate remedy for the constitutional violation was to sever the removal restriction from the rest of the Recovery Act, but not to vacate and set aside the third amendment. Everybody appealed.
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