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TH E M R EP O RT | 55 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST GOVERNMENT Judgement Call Supreme Court set to determine constitutionality of FHFA structure. T he U.S. Supreme Court has taken up the case of Collins v. Mnuchin, which will determine whether the leadership structure of the Federal Housing Finance Agency (FHFA) violates the federal separation of powers and whether the courts will be able to void agency actions taken by the FHFA if it is determined that it acted unconstitutionally. The case is based on a lawsuit brought by shareholders of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, which were placed into fed- eral conservatorship in September 2008 after losing roughly $108 billion in the run-up to the Great Recession. The FHFA was created in 2008 to serve as the regulator for the GSEs. Under the terms of the conser- vatorship, the Treasury Depart- ment provided the GSEs with up to $100 billion in funding in exchange for a compensation agreement that encompassed the GSEs' stock, all dividends tied to the amount of money invested in the GSEs prior to the conservator- ship period, and a priority over individual and institutional share- holders trying to recover their pre-conservatorship investments in Fannie Mae and Freddie Mac. In August 2012, the FHFA and Treasury updated the agreement with Fannie Mae and Freddie Mac paying quarterly dividends tied to their net worth instead of the size of the Treasury Depart- ment's 2008 investment. In pursuing their lawsuit, the plaintiffs originally argued the FHFA and the Treasury Depart- ment did not have the authority to transact the 2012 update on the initial agreement, adding that the FHFA should not have been al- lowed to negotiate the agreement because its leadership structure of a single director who can only be fired by the president "for cause" was unconstitutional. The case before the Supreme Court does not focus on the 2012 amendment—a ruling by the U.S. Court of Appeals for the 5th Cir- cuit stated that the issue needed to be addressed legislatively through an update to the Hous- ing and Economic Recovery Act of 2008 that created the FHFA. Instead, the Supreme Court will decide whether the FHFA's struc- ture is unconstitutional because the president is limited in the ability to remove its director, who is appointed for a five-year term. The Supreme Court heard oral arguments in the case in Decem- ber, and is expected to rule upon by late spring 2021.