Controversial CFPB layoffs get greenlight from appeals court
A block on mass CFPB staff cuts is overturned. Meanwhile, Fannie Mae faces a defamation lawsuit, and a top Fed official pushes for three rate cuts this year.
Key points:
- An appeals court panel has overturned a lower-court ruling that blocked layoffs of at least 80% of employees at the Consumer Financial Protection Bureau.
- Over 40 former Fannie Mae employees are accusing the GSE of defamation. The new lawsuit follows a discrimination case filed by ex-employees last month.
- A top Federal Reserve official is making the case for three short-term interest rate cuts before the end of the year in what would be a 180-degree monetary policy shift for the central bank.
This week in Washington, D.C., an appeals court ruled that the Consumer Financial Protection Bureau (CFPB) can move forward with plans to cut most of its workforce in a win for President Donald Trump's administration. Meanwhile, over 40 ex-Fannie Mae employees have filed a defamation lawsuit against their former employer, which separately has released new servicing guidance for temporary buydown plans.
Pause on mass CFPB layoffs lifts
In a 2-1 decision announced on Aug. 15, the U.S. Court of Appeals for the D.C. Circuit ruled that the Trump administration's efforts to downsize government agencies can proceed at the CFPB. Rounds of layoffs first initiated in mid-February and expanded in April are estimated to impact at least 80% of the agency's workforce.
The D.C. Circuit Court of Appeals' full bench or the U.S. Supreme Court could consider the ruling next if it is appealed.
The majority opinion penned by Judge Gregory Katsas explained that employees impacted by the layoffs could challenge their termination in court, but not in the way that the case — which he noted alleged "a coordinated effort 'to eliminate the CFPB'" — has been presented.
The decision overturns a lower court's preliminary injunction, with Katsas writing that the appeals panel found "the district court lacked jurisdiction to consider the claims predicated on loss of employment, which must proceed through the specialized-review scheme established in the Civil Service Reform Act."
But Judge Cornelia Pillard disagreed, writing in a dissenting opinion that "it is emphatically not within the discretion of the President or his appointees to decide that the country would benefit most if there were no Bureau at all."
Pillard later added, "The notion that courts are powerless to prevent the President from abolishing the agencies of the federal government that he was elected to lead cannot be reconciled with either the constitutional separation of powers or our nation's commitment to a government of laws."
Fannie Mae sued again by former employees
Over 40 ex-Fannie Mae employees who were terminated in April have filed a lawsuit accusing the government-sponsored enterprise of defamation. The case follows earlier claims accusing Fannie Mae of discrimination in connection with the April firings.
Federal Housing Finance Agency Director (FHFA) Bill Pulte and Fannie Mae President and CEO Priscilla Almodovar are named as co-defendants in the new suit, according to Executive Law Partners, PLLC, the firm representing the former employees.
The FHFA on April 8 announced the firing of over 100 Fannie Mae employees for "unethical conduct." The employees now accusing Fannie Mae of defamation allege they were fired "without notice, warning or due process for allegedly violating the Company's Charitable Giving program" despite being "in good standing" and seeing no evidence "to validate the claims of fraud," according to a press release from attorney Milton C. Johns.
They were later defamed through press releases and TV interviews, Johns alleged.
Real Estate News has reached out to Fannie Mae for comment.
New guidance for temporary buydowns
Also this week, Fannie Mae released new guidance for mortgages subject to a temporary interest rate buydown.
Under the new rules, loan servicers are instructed on how to apply buydown funds for various workout options, changes that the GSE urged loan servicers to adopt immediately and which must be implemented by Nov. 1.
New guidance was also issued on the borrower notification process, in which first-lien mortgage loan servicers must "send a payment reminder notice to the borrower no later than the 20th day of the month if the payment has not been received," barring some exceptions. This change must be implemented by Dec. 1.
Three rate cuts this year?
The Federal Reserve has kept short-term interest rates frozen since December 2024 and only has three meetings left in 2025 during which it could change course. But Michelle Bowman, the Fed's vice chair for supervision, has advocated for a rate cut for months and recently suggested a case could still be made for three cuts this year.
In an Aug. 9 speech at a conference in Colorado, Bowman indicated the weak July jobs report supports the push for lower rates. Bowman noted that her economic projections for 2025 included three cuts, "and the latest labor market data reinforce my view."
The Fed has appeared divided over its monetary policy decisions amid uncertainty about how tariffs will impact inflation. Trump and Pulte have both called for Fed Chair Jerome Powell to either lower rates or resign, pressure that he has thus far resisted.
Powell is slated to retain his role as Fed chair until May 2026, but discussions about who Trump will pick to replace him have already begun. Potential candidates include current central bank officials like Bowman and Fed Governor Christopher Waller, as well as economists Marc Sumerlin and David Zervos, according to CNBC.