GSE overhaul needs FHFA and Congress to succeed: Calabria

WASHINGTON — Federal Housing Finance Agency Director Mark Calabria on Thursday reiterated his view that an optimal reform framework for Fannie Mae and Freddie Mac would include both congressional action and administrative steps by the agency.

“There are two major avenues for reform — administrative action and congressional action. To truly fix what is broken in our housing finance system, we need both,” he said during remarks at a Ginnie Mae summit. “It is not the case that either Congress acts or else I will.”

The Federal Housing Finance Agency has appeared willing to move on its own to reform the government-sponsored enterprises. But legislation would be necessary, for example, to make explicit what is now an implicit government guarantee of the mortgage system.

Brendan Hoffman/Bloomberg

Calabria sounded open to such a reform, but said explicit government backing should have restrictions.

“If Congress does create an explicit guarantee, it should be limited, clearly defined and paid for,” he said.

His latest comment came just days after a June 8 interview Treasury Secretary Steven Mnuchin gave to Bloomberg, in which Mnuchin said he would prefer an explicit government guarantee in a future housing finance system.

Calabria also echoed findings in the agency's most recent Report to Congress, issued earlier this week, that lawmakers should give the FHFA the same powers as other banking regulators, such as the ability to grant charters. Such authority would increase competition in the market.

“Competition lowers prices, improves quality and drives innovation. Competition would also increase the stability of our housing system and ensure no institution is too big to fail,” he said Thursday.

Calabria has consulted with the Treasury Department as the administration prepares a presidentially directed report on administrative and legislative solutions to ending the conservatorship of Fannie and Freddie.

The report will be released hopefully “by the end of the month,” he said.

After the release of the report, the FHFA could begin discussing changes to the preferred stock purchase agreements in the fall, Calabria told American Banker in April. Those agreements could be modified to allow the GSEs to retain earnings and raise capital beyond the $3 billion limit they each are now permitted to hold.

At the Ginnie summit, Calabria emphasized that his primary concern is that Fannie and Freddie maintain capital that matches their risk, but he acknowledged that it would be challenging to build this amount of capital solely through retained earnings.

“Therefore, we will be exploring other avenues to raise capital, such as a public offering of some kind, or a private offering,” he said. “We are still very much in the early stages of this process. There is much work and analysis to do in this arena to fully explore all the options.”