In Collins v. Yellen, decided June 23, 2021, the Supreme Court delivered a split result: the Federal Housing Finance Agency did not exceed its statutory authority when it swept nearly all of Fannie Mae’s and Freddie Mac’s profits to the Treasury, but the agency’s leadership structure, in which a single Director could only be removed by the President for cause, violated the Constitution’s separation of powers. Justice Alito wrote the opinion. The statutory ruling was unanimous; the constitutional ruling was 7–2. The shareholders who brought the case won the constitutional argument and lost almost everything that mattered practically, because the Court set a high bar for undoing agency actions taken under an unconstitutional structure.
What the Case Was About
After the 2008 housing crisis, Congress created the FHFA and gave it authority to place Fannie Mae and Freddie Mac into conservatorship. The Treasury committed billions to keep the companies solvent and, in return, took senior preferred stock paying a fixed 10% dividend. The dividend was so large that the companies often had to borrow from Treasury to pay Treasury, a circular problem that led to the August 2012 Third Amendment to the stock purchase agreements.1Federal Housing Finance Agency. Senior Preferred Stock Purchase Agreements – Section: Third Amendment
The Third Amendment replaced the fixed dividend with a variable one equal to each company’s entire net worth above a small buffer. This became known as the net worth sweep. It solved the circular-borrowing problem and captured the financial upside for taxpayers.2U.S. Department of the Treasury. Treasury Department and FHFA Amend Terms of Preferred Stock Purchase Agreements for Fannie Mae and Freddie Mac For common and junior preferred shareholders, it wiped out any realistic chance of ever seeing dividends or recovering value. They sued, arguing the FHFA had exceeded its powers as conservator and that its leadership structure was unconstitutional.
The Statutory Holding: The Sweep Was Authorized
The shareholders argued that a conservator is supposed to preserve and protect a company’s assets, not transfer them to the government, and that the sweep contradicted the FHFA’s duties under 12 U.S.C. § 4617.3Office of the Law Revision Counsel. 12 US Code 4617 – Authority Over Critically Undercapitalized Regulated Entities
The Court rejected this unanimously. The Recovery Act allows the FHFA to act in whatever it determines to be “the best interests of the regulated entity or the Agency.” Those last two words did the work. They let the FHFA weigh broader public interests, including repaying taxpayers, against the financial interests of private shareholders.4Legal Information Institute. Collins v Yellen
The Recovery Act also contains an anti-injunction clause barring courts from restraining or affecting the FHFA’s exercise of its conservator powers. The shareholders tried to argue the sweep fell outside those powers, which would have made the clause irrelevant. The Court held the opposite: the sweep fell within the FHFA’s broad statutory authority, so the anti-injunction clause barred the statutory challenge. The Court explicitly declined to say whether the sweep was a wise business decision, only that it was a legally authorized one.
The Constitutional Holding: The Removal Restriction Failed
Under 12 U.S.C. § 4512, the FHFA was led by a single Director appointed to a five-year term and removable by the President only for cause.5Office of the Law Revision Counsel. 12 US Code 4512 – Director The shareholders argued that this insulation from presidential control violated the separation of powers.
Seven justices agreed. The Court applied the framework from Seila Law LLC v. Consumer Financial Protection Bureau, decided one year earlier, which struck down a nearly identical CFPB structure and held that “leadership by a single Director removable only for inefficiency, neglect, or malfeasance violates the separation of powers.”6Supreme Court of the United States. Seila Law LLC v Consumer Financial Protection Bureau The FHFA had the same defect: one person wielding significant executive power without meaningful presidential oversight. Justices Sotomayor and Breyer dissented, arguing the Court should not have extended Seila Law to the FHFA.7Supreme Court of the United States. Collins v Yellen
Why Winning the Constitutional Argument Didn’t Help the Shareholders
The harder question was the remedy. The shareholders wanted the net worth sweep declared void because an unconstitutionally insulated Director had approved it. The Court refused.
The FHFA Directors who oversaw the sweep were properly appointed and Senate-confirmed. They held office legally. The only defect was that the President could not remove them at will. That structural flaw, the Court held, does not automatically void the agency’s actions. Instead, shareholders had to prove that the removal restriction actually caused the specific harm they suffered: that the President would have fired the Director, or that the Director would have acted differently, if the for-cause protection had not existed.
That is an extraordinarily difficult burden. It asks a court to reconstruct a hypothetical history. The government also pointed out that the President already had indirect leverage over the sweep because Treasury, headed by a Secretary who serves at the President’s pleasure, was the other party to the agreement. The Court sent that factual dispute back to the lower courts.
The Immediate Effect
On the day the opinion came down, President Biden removed FHFA Director Mark Calabria and replaced him with Acting Director Sandra L. Thompson. Under the old for-cause standard, that removal would not have been legally possible without evidence of misconduct or neglect. The speed of the action showed exactly what the removal power gives a President: direct control over agency leadership and policy direction.
The Case on Remand
The Fifth Circuit sent the case back to the district court in early 2022 to resolve the factual question the Supreme Court had identified: did the unconstitutional removal restriction actually cause the shareholders’ losses?8Justia Law. Collins v Yellen, No 17-20364 (5th Cir 2022) The shareholders have been litigating since 2013. Proving the counterfactual is steep. They need to show that a President with free removal power would have fired the FHFA Director and that a replacement would not have approved the sweep. Courts confronting this kind of retrospective analysis in removal-power cases have generally set the bar high for finding compensable harm.
Why the Ruling Matters Beyond Fannie and Freddie
On the structural question, Collins cemented the principle from Seila Law that single-director agencies with for-cause removal protections are constitutionally suspect. Any federal agency led by one person who cannot be fired at will now operates under a constitutional cloud. Together, the two decisions represent the most aggressive expansion of presidential removal power since the New Deal era.
On the remedy question, Collins set a template that makes it very hard for private parties to undo agency actions after winning a separation-of-powers challenge. Proving that a structural flaw changed a specific policy outcome requires evidence that rarely exists. Agencies can be unconstitutionally designed, and their decisions can still stand, unless a litigant can show the flawed structure made a concrete difference. That is a high wall to climb, and it is the wall the Collins shareholders are still trying to get over.