Appeals Court Finds FHFA Structure Unconstitutional, Rules Net Worth Sweeps Illegal

Sitting en banc, the 5th U.S. Circuit Court of Appeals ruled Friday that the single-director structure of the Federal Housing Finance Agency (FHFA) is unconstitutional under the separation of powers doctrine because the agency’s lone director is insufficiently accountable to the president. The court issued a similar ruling in another case last year.

The rulings create a split in the federal circuits over the constitutionality of independent agencies such as the FHFA and CFPB headed by a single-director who can’t be removed without good cause.

The court also found that the net worth sweep is illegal, ruling that the government-sponsored enterprises (GSEs) should no longer be sending their profits in excess of the $3 billion capital buffer to the Treasury and that shareholders should be repaid money owed to them from the financial crisis.