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Is the Net-worth Sweep at the GSEs Constitutional?

Two aspects of the Federal Housing Finance Agency (FHFA) are under debate [1] and have been for some time. Now, the agency itself and the Trump administration are asking the Supreme Court to weigh in. 

GSE shareholders have been petitioning courts for years in regards to lost financial gains as a result of actions by the FHFA. 

Investors have been challenging the “net-worth sweep” that transfers all of Fannie Mae and Freddie Mac’s profits, beyond their required reserves, to the Treasury Department. 

The GSEs went under government conservatorship in 2008 during the height of the financial crisis. The FHFA has served as their conservator since. The net-worth sweep began in 2012 under the Obama administration and GSE shareholders have argued against it since. 

The GSEs received $191 billion in federal funding in 2008 and have since paid about $306 billion to the Treasury, according to Pro Publica [2]

This fall, an appellate court decided that the FHFA did in fact “exceeded its statutory powers” in directing the GSEs to deliver their profits to the Treasury on an ongoing basis, according to JD Supra [1]

The Trump administration is challenging that decision and is requesting the highest court to review the case in hopes of a reverse decision. 

The second FHFA debate is in regards to the constitutionality of the federal agency’s structure. The same shareholders who argue that the net-worth sweep is unconstitutional have challenged the FHFA’s structure. 

The FHFA is headed by a single director who can only be removed by the President of the United States or “for cause.” Some have argued this structure unconstitutional. 

The Fifth Circuit en banc ruled in September 2019 that this structure is in fact unconstitutional and removed the “for cause” clause of the leadership structure. 

The Trump administration and the FHFA itself have not challenged this decision. 

The Supreme Court has not yet decided whether it will hear the case in regards to the net-worth sweep.