The Federal Housing Finance Agency is optimistic that officials will put out a road map for recapitalizing Fannie Mae and Freddie Mac "very soon," FHFA Director Mark Calabria said Sept. 11.
Calabria, speaking a day after his testimony on Capitol Hill, said he is working with Treasury Secretary Steven Mnuchin to develop a plan by year-end that "puts us on a path to building capital" at the two mortgage giants.
The two firms, which the federal government took into conservatorship during the financial crisis, have been the subject of discussion in recent days after the Treasury Department released its plan for the future of the government-sponsored enterprises, or GSEs.
The Treasury report recommends releasing the two GSEs from conservatorship under certain "preconditions," including having Fannie and Freddie build up enough capital and subjecting them to new capital rules from the FHFA.
The GSEs, though, have been unable to retain much of their capital in recent years due to the so-called net worth sweep, which requires Fannie and Freddie to send any money they make above $3 billion per quarter to Treasury coffers.
Calabria said he is "extremely hopeful" that by the end of the year the FHFA and Treasury will finalize discussions to end the net worth sweep and make other changes adjusting the GSEs' current agreements with Treasury. Fannie and Freddie will likely need to build retained earnings for about a year before they are ready to raise outside money, Calabria said at a National Association of Federally-Insured Credit Unions conference in Washington, D.C.
The FHFA director emphasized that conservatorship will continue to be a multi-year process of ensuring the two GSEs have enough capital and a "clean bill of health." The goal is not to "put them out there just so that they can come back" the next time they face a financial crunch, Calabria said.
"It's going to be a long process ... and it's going to take us a while to get there, but we're going to do it the right way," he said.
Calabria, Mnuchin, and Housing and Urban Development Secretary Ben Carson appeared before the Senate Banking Committee a day earlier to speak about two reports that the administration commissioned on housing reform. The reports outline several recommendations for Congress, where a long-term legislative fix has proved elusive, along with several fixes that the Trump administration can make without a change to current laws.
The FHFA director said the conservatorship laws give regulators the responsibility to fix issues at the GSEs.
"For me, it's not moving ahead without Congress telling me to do something," Calabria said. "It's me doing what Congress has already told me to do."
Still, Calabria highlighted one change he asked senators to take up at the hearing. NAFCU and the Independent Community Bankers of America have both called on policymakers to ensure that any and all GSE reforms maintain competitive access to the secondary mortgage market for small firms, rather than letting GSEs offer better deals to bigger institutions.
Under conservatorship, the FHFA has been able to ensure that the GSEs can offer uniform pricing to institutions of all sizes, Calabria said. While Calabria asked Congress for additional tools to make sure that some of those safeguards stay in place, he said the FHFA's legal team is "doing a deep dive" on the pricing restrictions the agency could hardwire into new rules for the GSEs.
Calabria also provided an update on the FHFA's 2018 proposal laying out new regulatory capital rules for Fannie Mae and Freddie Mac should they be released from federal conservatorship. The FHFA is still weighing whether changes to its proposal are substantial enough to require a re-proposal of the rule, which would subject the plan to another round of public comments and likely add some months to the process, Calabria said.
The rule may be finalized sometime between December and May 2020, depending on whether the agency needs to re-propose it, he added.
"This is something where I intend this to be the capital rule for, you know, a decade-plus, so a couple of months here and there is a price worth paying" if the rule needs to be re-proposed, Calabria told reporters after his appearance.
