H OUSING N EWS R EPORT
April 2016
LEGAL BRIEFS
CFPB Constitutionality Questioned A three-judge federal appeals court in Washington D.C., heard
2012, but they were quite confident in future profitability, well before they changed the bailout terms. “Instead of harm to the Nation resulting from disclosure, the only ‘harm’ presented is the potential for criticism of an agency, institution, and the decision-makers of those entities,” wrote Sweeney. “The court will not condone the misuse of a protective order as a shield to insulate public officials from criticism in the way they execute their public duties.” At the heart of the case is whether the Federal Housing Finance Agency (FAFA), the regulator of Fannie and Freddie, has the right to amend the original conservatorship agreement with a “net worth sweep,” where, instead of a fixed 10 percent cash dividend, Fannie and Freddie would pay all of their respective profits, in perpetuity, to the Treasury Department, without any credit for amounts such as pay-down of principal. For years now, the Obama administration has invoked executive privilege, keeping a lid on thousands of government communications relating to the takeover of Fannie and Freddie. From the litigation’s beginning, the government battled unusually hard to withhold evidence. It permitted only the plaintiffs’ attorneys, not the plaintiffs themselves, to look at documentary evidence. The government cited “national security,” arguing that releasing a trove of 11,000 documents would negatively impact global financial markets. In a July 15, 2015, deposition, Susan McFarland, former chief financial officer at Fannie Mae, said she told high-ranking Treasury officials on August 9, 2012, eight days before the net worth sweep, that Fannie would be profitable for the foreseeable future. “I had expressed a view that I believed we were now in a sustainable profitability, that we would be able to deliver sustainable profits over time,” said McFarland, referring to a meeting with Treasury official on August 9, 2012. McFarland’s statements cast doubt on the government’s contention that it considered Fannie and Freddie to be in a dire financial condition in 2012, when it changed the terms of the bailout. Appellants in Fairholme Funds v. United States and Perry Capital v. Lew had moved for certain documents to be made public.
arguments about the constitutionality of the structure of the Consumer Financial Protection Bureau (CFPB), the watchdog agency created by the Dodd-Frank Act in 2011 to safeguard consumers against corporate wrongdoing. At a hearing on April 12 in a case involving a New Jersey mortgage company, one of
Brett Kavanaugh
judges, Brett M. Kavanaugh, questioned the CFPB’s single- director structure, calling it “very problematic” that such a powerful official was able to make a decision and arguing that independent agencieshave “alwaysbeen [ledby] commissions, and the reason is … it’s very dangerous to [vest] such power in an individual.” The case before the court, PHH Corp. v. CFPB , was filed on June 19, 2015, by PHH Corp., a New Jersey mortgage lender accused by the CFPB of violating a law designed to protect home buyers. After CFPB’s director Richard Cordray ordered last year that the company pay $109 million in allegedly ill-gotten gains, PHH appealed the case to the U.S. Court of Appeals for the District of Columbia Circuit. The three-judge panel is expected to issue a decision in several weeks. Any decision against the CFPB is expected to be appealed, either to the full appeals court or directly to the Supreme Court. Court Releases Key Documents A little discovery is a dangerous thing in the legal world. On April 13, 2016, a federal judge released seven documents related to the U.S. Treasury’s sweep of GSE profits, revealing what shareholders have been arguing for years: that Fannie Mae and Freddie Mac were in a position to post profits on a sustainable basis. Judge Margaret M. Sweeney of the U.S. Court of Federal Claims unsealed documents demonstrating that not only did the government know that the GSEs weren’t in a “death spiral” in SOURCE: PHH Corp. v. CFPB
SOURCE: U.S. Court of Federal Claims, Investors Unite
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