The Federal Housing Finance Agency is preparing the government-sponsored enterprises for life after conservatorship, acting director Sandra Thompson said Thursday.
During an interview with Dennis Shea, head of the Bipartisan Policy Center’s Terwilliger Center for Housing Policy, Thompson said the agency is conducting the first pricing review for Fannie Mae and Freddie Mac products since 2015 to make sure they are generating viable returns while still supporting affordability in the mortgage market. The pricing review is part of a multi-step process to unwind the GSEs from government control, she explained.
“We're preparing the enterprises to adjust to supervision in a way that they would be regulated outside of conservatorship,” Thompson said. “The safety and soundness of the enterprises, making sure their operations are really in tip-top condition — which they are — making sure their financial condition is as expected and that they never have to rely on the federal government again, [are] really important.”
Thompson, who has overseen the GSEs since 2013 as deputy director of the FHFA’s Division of Housing Mission and Goals, did not provide a timeline for ending their conservatorship. She noted that she did not anticipate the conservatorship lasting as long as it has.
“I don't think anybody ever expected the enterprises to be in conservatorship as teenagers, 14 years,” she said. “When I started, I think they were in the third grade now they've moved on to high school.”
The comments provided the first insight into how Thompson, who is awaiting a Senate confirmation vote to lead the FHFA on a permanent basis, would approach the GSEs. Her predecessor, Mark Calabria, made ending the conservatorship of Fannie and Freddie a top priority during his tenure, at one point
Thompson said Calabria’s effort to enable the enterprises to retain earnings and build capital has put them on a path toward independent viability, but added there remains a “huge gap” between what they have and what they need.
In addition to bolstering capital reserves, Thompson said the FHFA must engage with the Treasury Department, which has supported Fannie and Freddie through senior preferred stock purchases to the tune of $190 billion, to what, if any, role the government will play in the enterprises after their initial public offerings.
“Anytime you involve two government agencies … those conversations can be quite challenging,” she said.
Thompson said the FHFA will seek to clarify the relationship between the government and Fannie and Freddie moving forward before opening them up to private investors. This includes whether there will be a consent agreement in place, how much autonomy the enterprises will have in setting rates and how they will be regulated.
“There are just questions that investors will want answers to before they put a dollar in and those are some of those questions I cannot answer,” she said.
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She also mentioned policy changes that have been enacted to enable the enterprises to boost the supply of affordable housing. They include an increase in the amount of low-income housing tax credit multifamily loans each group can buy from $500 million to $850 million, expanded participation in the manufactured home market and allowing them to factor in the cash flow of accessory dwelling units into single-family mortgages.
The FHFA is even looking into financing the conversion of some commercial properties into housing, Thompson added, a response to falling office demand amid the rising preference for remote work.
“We're trying to think about what we can do to be helpful to address this national supply issue,” she said. “Because it's real and it really needs all of our focus.”
