(Bloomberg) – Fannie Mae and Freddie Mac investors just had another reason to expect President Donald Trump to change his dipped poll numbers and finally prevail in November.
This is because a ruling by the United States Supreme Court on Monday indicates that it will be much easier for presidents to expel the heads of some federal agencies. Fannie and Freddie’s regulator, the Federal Housing Finance Agency, is now led by Mark Calabria, a libertarian economist committed to something shareholders desperately want: the release of the mortgage giants from government control. Calabria likely won’t have a chance to finish that job if Joe Biden wins the White House and fires him.
In its decision Monday, the Supreme Court said the president has broad authority to remove the director of the Office of Consumer Financial Protection because Congress went too far to isolate the financial industry regulator from political pressure. In the 2010 Dodd-Frank Act, lawmakers stipulated that the president could only fire the CFPB chief for “inefficiency, negligence in carrying out the charge, or misappropriation of the charge.”
The CFPB and the FHFA have identical structures: they are independent agencies headed by a single director. Last September, a panel of judges at the federal appeals court in New Orleans concluded that the structure of the FHFA was unconstitutional. The Supreme Court has deferred action in that case until it resolved the CFPB fight. The higher court could now deal with the FHFA matter as early as July 2.
“This decision should ensure that the president can now remove the FHFA director at will,” Cowen analyst Jaret Seiberg wrote in a note to clients. “This means that the electoral risk is significant for efforts to end the guardianship, since Joe Biden could fire Calabria as director of the FHFA on January 20 if the Democrat wins the election.”
Fannie rose 6% to $ 2.15 on the New York trade on Monday, while Freddie gained 4.4% to $ 2.16.
In a statement, Calabria said it respects the Supreme Court’s CFPB decision, adding that it does not “directly affect the constitutionality of the FHFA, including the removal provision for cause.”
Read more: The New Twist in Endless Fight Over Fannie and Freddie.
Hedge funds and other shareholders have long wanted the Trump administration to help them make a windfall by stopping the practice of channeling Fannie and Freddies’ profits to the Treasury and releasing companies from guardianship. Many of the policies implemented by Calabria since it took over in April 2019 have focused on ending government control.
Compass Point analyst Isaac Boltansky said Monday’s Supreme Court ruling could prompt Calabria to take on a “sense of urgency” because it may not have many months left at the helm of the FHFA.
(Updates with closing share prices in the sixth paragraph).
For more items like this, visit us at bloomberg.com
Subscribe now to stay ahead with the most trusted source of business news.
© 2020 Bloomberg LP
